This collection of quotes reflects the way I see the world. They articulate ideas I hold deeply — some hopeful, others critical, even cynical. What draws me to them is their ability to convey complex truths with striking simplicity. Yet, their full meaning often unfolds only for those already attuned to the ideas they invoke. Their truth reveals itself, sometimes suddenly, to those whose experiences, insights, or intuitions resonate with the meanings embedded between the words and the lines.
“I am Ra. The Law of One, though beyond the limitations of name, as you call vibratory sound complexes, may be approximated by stating that all things are one, that there is no polarity, no right or wrong, no disharmony, but only identity. All is one, and that one is love/light, light/love, the Infinite Creator.”
– The Law of One by Ra. Ra is a 6th-Density social memory complex (collective mind) that had their origins on Venus. They are the same Ra that walked amongst the Egyptians to share the Law of One and built some of their pyramids. They were channeled by Don, Carla, and Jim in the early 80s which is where we get The Ra Contact.
It may well be that the chemist or physiologist is right when he decides that he will become a better chemist or physiologist if he concentrates on his subject at the expense of his general education. But in the study of society exclusive concentration on a speciality has a peculiarly baneful effect: it will not merely prevent us from being attractive company or good citizens but may impair our competence in our proper field—or at least for some of the most important tasks we have to perform. The physicist who is only a physicist can still be a first class physicist and a most valuable member of society. But nobody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.
– Frederick A. von Hayek Studies in Philosophy, Politics and Economics
We all have our philosophies, whether or not we are aware of this fact, and our philosophies are not worth very much. But the impact of our philosophies upon our actions and our lives is often devastating. This makes it necessary to try to improve our philosophies by criticism.
“Some things are believed because they are demonstrably true. But many other things are believed because they are consistent with a widely held vision of the world— and this vision is accepted as a substitute for facts. Subjecting beliefs to the test of hard facts is especially important when it comes to economic beliefs because economic realities are inescapable limitations on millions of people’s lives, so that policies based on fallacies can be devastating in their impacts. Conversely, seeing through those fallacies can open up many unsuspected opportunities for a better life for millions of people.”
“Macroeconomists have done much research for years on policy rules versus discretionary policy. Discretionary policy with continuous replanning has been shown sometimes to be time inconsistent. The same issues arise in career planning. At one time, most people committed to a career trajectory at an early age, and stuck to it until retirement. Despite the risk of time inconsistency, resulting in a nonoptimal solution path, discretionary policies, with possible frequent replanning, are becoming increasingly relevant to career choices, as the world becomes a smaller place and change becomes more rapid.”
– William Barnett; An Interview with William A. Barnett, By Apostolos Serletis, page 35
“Development consists of the removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency. The removal of substantial unfreedoms, it is argued here, is constitutive of development.”
– Amartya Sen, Development as Freedom
“In times of change, the learners will inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”
– Eric Hoffer
“Errors and exaggerations matter not. The courage to voice one’s thoughts, to express things as they are felt at the time they are said —that is what counts. To make so bold as to proclaim what one considers to be the truth… If one waited until one possessed the absolute truth, one would either be a fool or remain silent forever.”
– José Clemente Orozco
“Knowledge that is acquired under compulsion obtains no hold on the mind.”
– Plato
“Theories are commonly outpourings of an impatient mind that would like to get rid of the phenomena and therefore replaces them by images, notions and often merely words. One senses and even sees that this is only a poor substitute; but does not passion and faction spirit always love substitutes? And rightly so, because they are so much in need of them.”
“When a man sets out upon any course of inquiry, the object of his search may be either light or fruit – either knowledge for its own sake or knowledge for the sake of the good things to which it leads. … In the sciences of human society, be their appeal as bearers of light ever so high, it is the promise of fruit and not of light that chiefly merits our regard.”
“Political Economy you think is an enquiry into the nature and causes of wealth – I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation.”
“The problem with it, I think, is rather that it’s too late for economists to ask themselves seriously, “Will the data bear the conclusions that I want to push upon them? Am I asking questions so subtle that the statistical methods will give answers which depend on the trivial characteristics of the data?” They don’t ask, “Is the period of time from which I have taken the data really homogeneous? Might the relationship I am estimating have changed its form somewhere during this period?” They don’t ask whether the assumption that this function is linear so I may do standard statistical estimation on it is a reasonable estimate. They don’t ask themselves – and I think this is the worst sin of them all – whether there doesn’t exist a different model that would fit the data equally well, and what does that tell me? So I think that the problem with economists is that they do too much uncritical empirical work, and that they deceive themselves with the refinements of their methods [Swedberg, 1990, p. 273].”
“Macroeconomics is not an exact science but an applied one where ideas, theories, and models are constantly evaluated against the facts, and often modified or rejected … Macroeconomics is thus the result of a sustained process of construction, of an interaction between ideas and events. What macroeconomists believe today is the result of an evolutionary process in which they have eliminated those ideas that failed and kept those that appear to explain reality well.”
– Blanchard (1997)
‘‘In theory, there is no difference between theory and practice. But, in practice, there is.’’
– Benjamin Brewster (1882)
“In the choice of subject to-day [scope and method of economics], I fear that I have exposed myself to two serious charges: that of tedium and that of presumption. Speculations upon methodology are famous for platitude and prolixity. They offer the greatest opportunity for internecine strife; the claims of the contending factions are subject to no agreed check, and a victory, even if it could be established, is thought to yield no manifest benefit to the science itself. The barrenness of methodological conclusions is often a fitting complement to the weariness entailed by the process of reaching them.
Exposed as a bore, the methodologist cannot take refuge behind a cloak of modesty. On the contrary, he stands forward ready by his own claim to give advice to all and sundry, to criticise the works of others, which, whether valuable or not, at least attempts to be constructive; he sets himself up as the final interpreter of the past and dictator of future efforts.”
– Roy F Harrod, Economic Journal, 1938
“Continued preoccupation with imaginary, hypothetic, rather than with observable reality has gradually led to a distortion of the informal valuation scale used in our academic community to assess and to rank the scientific performance of its members. Empirical analysis, according to this scale, gets a lower rating than formal mathematical reasoning”
– Wassily Leontief (1971, p. 3)
“[S]ociety performs for itself almost everything which is ascribed to government… So far is it from being true, as has been pretended, that the abolition of any formal government is the dissolution of society, that it acts by a contrary impulse, and brings the latter the closer together.
All that part of its organisation which it had committed to its government, devolves again upon itself, and acts through its medium. When men, as well from natural instinct as from reciprocal benefits, have habituated themselves to social and civilised life, there is always enough of its principles in practice to carry them through any changes they may find necessary or convenient to make in their government.
In short, man is so naturally a creature of society that it is almost impossible to put him out of it… The more perfect civilization is, the less occasion has it for government, because the more does it regulate its own affairs, and govern itself; but so contrary is the practice of old governments to the reason of the case, that the expenses of them increase in the proportion they ought to diminish.
It is but few general laws that civilized life requires, and those of such common usefulness, that whether they are enforced by the forms of government or not, the effect will be nearly the same.
If we consider what the principles are that first condense men into society, and what are the motives that regulate their mutual intercourse afterwards, we shall find, by the time we arrive at what is called government, that nearly the whole of the business is performed by the natural operation of the parts upon each other.”
– Thomas Paine, The Rights of Man (1984, 193-195)
Economics is a scientific discipline that offers analytical explanations about how the world works, whereas moral theory offers normative suggestions about how the world ought to be.
Postmodern science – by concerning itself with such things as undecidables, the limits of precise control, conflicts characterized by incomplete information, “fracta,” catastrophes, and pragmatic paradoxes – is theorizing its own evolution as discontinuous, catastrophic, nonrectifiable, and paradoxical. It is changing the meaning of the word knowledge, while expressing how such a change can take place. It is producing not the known, but the unknown.
– Jean-Frangois Lyotard (1984, p. 60)
“Keynesian economics, in spite of all that it has done for our understanding of business fluctuations, has beyond all doubt left at least one major thing quite unexplained; and that thing is nothing less than the business cycle itself….For Keynes did not show us, and did not attempt to show us, save by a few hints, why it is that in the past the level of activity has fluctuated according to so definite a pattern.”
– John Hicks, Contribution to the Theory of the Trade Cycle, 1950: p.1
“Go study what’s not said, find the silences because that will reveal the contours of misaligned incentives and where power is that is deterring expression.”
The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following an investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of economists such as Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression.
– Douglas A Irwin, Irwin, D. A. (2011). Anticipating the Great Depression? Gustav Cassel’s Analysis of the Interwar Gold Standard (No. w17597). National Bureau of Economic Research. The link to the paper is here.
Irwin, D. A. (2014). Who anticipated the great depression? Gustav Cassel versus Keynes and Hayek on the interwar gold standard. Journal of Money, Credit and Banking, 46(1), 199-227.
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”
“The most serious challenge that the existence of money poses to the theorist is this: the best developed model of the economy cannot find room for it.”
– Frank Hahn (1981)
“The simple arithmetic average produces one of the very worst of index numbers, and if this book has no other effect than to lead to the total abandonment of the simple arithmetic type of index number, it will have served a useful purpose.”
– Irving Fisher (1922, p. 361), The Making of Index Numbers: A Study of their Varieties, Tests, and Reliability, Boston: Houghton Mifflin
“I share the widely held opinion that M1 is too narrow an aggregate for this period [the 1990s], and I think that the Divisia approach offers much the best prospects for resolving this difficulty.”
– Robert E. Lucas (2000), “Inflation and Welfare,” Econometrica, vol 68, no. 62, March, p. 270
“The farther backward you can look, the farther forward you are likely to see.”
– Winston S. Churchill
“History never repeats itself, but it often rhymes.”
– Mark Twain
“In economics there’s a trend now to come up with cute papers in an effort to be cited as many times as possible. All the incentives point that way, especially for young professors who seem risk-averse rather than risk-taking after they get tenure. In some quarters of our profession, the level of discussion has sunk to the level of a New Yorker article: coffee-table articles about “cute” topics, papers using “clever” instruments. The authors of these papers are usually unclear about the economic questions they address, the data used to support their conclusions and the econometrics used to justify their estimates. This is a sad development that I hope is a passing fad. Most of this work is without substance, but it makes a short-lived splash and it’s easy to do. Many young economists are going for the cute and the clever at the expense of working on hard and important foundational problems.”
– James Heckman
“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas … Sooner or later, it is ideas, not vested interests, which are dangerous for good or evil.”
“As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate, action: you liberate a city by destroying it. Words are to confuse, so that at election time people will solemnly vote against their own interests.”
– Gore Vidal, The Decline and Fall of the American Empire, 1992
“Data, essentially, allow us to discriminate among alternative explanations. We might observe some fact, then we want to know well is this fact an anomaly? Is this just one instance? And then the second question would be, even if it’s a repeated finding, what are the mechanisms that give rise to that repeated finding? As you try to collect data and you try to use every source of information available to you, and also using economic theory to help organize your thinking. But then also recognizing parts of the story may not yet be fully understood and that’s the challenge.”
– James Heckman, James Heckman: The economics of inequality and childhood education
“Re-visiting the past can lead to new discoveries.”
– Confucius
“Straightway one of those numberless unfortunates who are cursed with the mania for talking about things they do not understand comes forward with the discovery-lo the wonders of genius!-that pure economics is not applied economics, and concludes . . . that pure economics must be replaced by his gabble. Alas, good soul, mathematical economics helps at least to a rough understanding of the effects of the interdependence of economic phenomena, while your gabble shows absolutely nothing!”
– V. Pareto (The Mind and Society) Translated by A. Livingston and A. Bongiorno)
“Tell me, and I will forget. Show me, and I may remember. Involve me, and I will understand.”
– Confucius, 450 B.C.
“One lesson of the last several years is that human capital is virtually the only reasonably reliable store of value in periods like the present. Is it just coincidence that active academics (not the emeriti), media commentators and “intellectuals” in general think the rest of society makes too much fuss over inflation as a social problem?”
– Axel Leijonhufvud, Costs and Consequences of Inflation
“All theory depends on assumptions that are not quite true. That is what makes it theory. The art of successful theorizing is to make the inevitable assumptions in such a way that the final results are not very sensitive. A “crucial” assumption is one on which the conclusions do depend sensitively, and it is important that crucial assumptions be reasonably realistic. When the results of a theory seem to flow specifically from a special crucial assumption, then if the assumption is dubious, the results are suspect.”
– Robert M. Solow [1956, p. 65]
“If our political institutions allow unemployment to grow, the feedback will be in unmistakable clear text: You’d better do something about unemployment or else…! If they err on the side of inflation, there will be widespread and general complaining about rising prices to be sure, but that diffuse message is quite drowned in the rising babble of specific demands and concrete proposals from identifiable interest groups – to compensate me, to regulate him, to control X’s prices, and to tax Y’s “excess profits,” etc., etc. The political demands triggered by unemployment are to reduce unemployment; those triggered by inflation are for the most part not obviously identifiable as “instructions” to stop inflating. There is an informational bias to the process.”
– Axel Leijonhufvud
“I can sum up by stating that, if you mean by a business cycle a periodic oscillation like the swing of a pendulum or the orbit of a planet, then in economics no business cycle ever did exist. But a common pulse in various time series, within time and also cross-sectionally, was just perceptible in the data. Procrustes stretched his short victims to fit an inflexible bed and also compressed his tall ones to force a fit. Similarly, Mitchell at his wits’ end and with the help of Arthur Burns defined reference cycles, which had average characteristics in their beginning, middle, and end, and much ingenuity was spent in relating specific cycles to them.”
– Paul A. Samuelson, SUMMING UP ON BUSINESS CYCLES: OPENING ADDRESS
“The debate over what should be counted as money is between people who do not know and people who do not know that they do not know.”
– John Kenneth Galbraith (1979. p. 90)
“As Josh Billings wrote many years ago, “The trouble with most folks isn’t so much their ignorance, as knowing so many things that ain’t so. Pertinent as this remark is to economics in general, it is especially so in monetary economics.”
– Milton Friedman (1965); From the forward to Phillip Cagan’s Determinants and Effects of Changes in the Stock of Money, 1875–1960, Columbia University Press, New York and London, 1965. p. xxiii.
“Ours may become the first civilization destroyed, not by the power of our enemies, but by the ignorance of our teachers and the dangerous nonsense they are teaching our children. In an age of artificial intelligence, they are creating artificial stupidity.”
– Thomas Sowell
“One way to reduce taxes is to hold elections every year, because there never seem to be tax increases in an election year.”
– Anonymous, taken from The political business cycle of tax reforms
“The researcher should not be a wordsmith, but an investigator on things.”
– (Cicero)
“We cannot make a science more certain by our wishes or opinions; but we may obviously make it much more uncertain in its application by believing it to be what it is not.”
“To teach how to live without certainty, and yet without being paralyzed by hesitation, is perhaps the chief thing that philosophy, in our age, can still do for those who study it.”
– (Bertrand Russell, 1946, p. 14). History of Western Philosophy (London: George Allen and Unwin).
The irreversibility of time is the mechanism that brings order out of chaos.
– Ilya Prigogine, Order Out of Chaos: Man’s New Dialogue with Nature
In order to understand the quote, read chapter 3 of the book titled “Why Information Grows: The Evolution of Order, from Atoms to Economies.“
The chapter 3 is titled “The Eternal Anomaly”. The author of the book is Cesar Hidalgo.
“The incompatibility between the ascetic beauty sought after by science, on the one hand, and the petty swirl of worldly experience so keenly felt by Einstein, on the other, is likely to be reinforced by another incompatibility, this one openly Manichean, between science and society, or, more precisely, between free human creativity and political power. In this case, it is not in an isolated community or in a temple that research would have to be carried out, but in a fortress, or else in a madhouse.”
– Ilya Prigogine, Order Out of Chaos: Man’s New Dialogue with Nature
“Modern democratic societies have created an institutional separation between policy analysis and decisions, with professional analysts reporting findings to representative governments. Separation of the tasks of analysis and decision making, the former aiming to inform the latter, appears advantageous from the perspective of division of labor. No one can be expert at everything. In principle, having researchers provide outcome predictions to lawmakers and civil servants enables these decision makers to focus on the challenging task of policy choice in an uncertain world, without having to perform their own research. However, the current practice of policy analysis does not serve decision makers well. The problem is that the consumers of policy analysis cannot trust the producers.”
– Charles F. Manski, p. 173, Public Policy in an Uncertain World: Analysis and Decisions (2013)
“Thinking about uncertainty in broader terms opens the door to a more sensible approach to thinking about economic policy design, and it allows the public to accept the fact that a discipline like economics doesn’t have answers to everything.”
“The essential truth missing from economic education today is that energy is the stuff of the universe, that all matter is also a form of energy, and that the economic system is essentially a system for extracting, processing and transforming energy as resources into energy embodied in products and services. This is a thermodynamic process, as the Rumanian economist Georgescu-Roegen said half a century ago. The economic process is subject to both the first law of thermodynamics (conservation of mass/energy; nothing can be created or destroyed) and the second law of thermodynamics (increasing entropy; all transformation processes are irreversible). The “first law” implies that the notion of “consumption” as applied to products is misleading: material transformation processes unavoidably generate large quantities of material wastes or residuals. Some of those wastes are merely inconvenient but others are harmful or toxic. The second law says that energy becomes less useful (exergy is destroyed) by every action.”
“A monetarist is an economist convinced by the evidence that the quantity of money and changes in it dominate the total flow of spending in an economy. The government budget and so-called real factors in the economy, including investment incentives, are distinctly subordinate influences when not paralleled by behavior of the money supply. The budget and the real factors are very important, to be sure, in affecting how resources are allocated to the production of various kinds of public and private goods and services; but they are unimportant, in comparison with money, in determining total spending. The monetarist position does recognize that things besides money can have some influence on spending. The view attributed to monetarists that “only money matters” is a straw man invented by critics. The monetarist view of what determines total spending is, rather, that “money matters most.””
– Leland B. Yeager (1997). The Fluttering Veil: Essays On Monetary Disequilibrium
“In order to test a theory against facts, or to use for predictions, either the statistical observations available have to be corrected, or the theory itself has to be adjusted, so as to make the facts we consider the true variables relevant to the theory.”
– Trygve Haavelmo, Econometrica
“The existing economic theories are insufficient. We depart from the study of individual behaviour in different choice situations. We then try to construct a model of economic society in its totality through a so-called aggregation process. I now think that this is in fact starting at the wrong point. If we depart from a society that really exists, we can think of it as a structure of rules and regulations by which the members of the society have to operate. Their responses to those rules, as the individual who obey them, produce the economic results that characterise that society.”
– Trygve Haavelmo, Econometrica
“A view of Economic Growth that depends so heavily on an exogenous variable, let alone one so difficult to measure as the quantity of knowledge, is hardly intellectually satisfactory. From a quantitative, empirical point of view, we are left with time as an explanatory variable. Now trend projections, however necessary they may be in practice, are basically a confession of ignorance, and, what is worse from a practical viewpoint, are not policy variables.”
– Kenneth J. Arrow (1962), p.155), “The Economic Implications of Learning by Doing”, Review of Economic Studies,
In thus emphasizing the fact that Trade Cycle theory, while it may serve as a basis for statistical research, can never itself be established by the latter, it is by no means desired to deprecate the value of the empirical method. On the contrary, there can be no doubt that Trade Cycle theory can only gain full practical importance through exact measurement of the actual course of the phenomena which it describes. But before we can examine the question of the true importance of statistics to theory, it must be clearly recognized that the use of statistics can never consist in a deepening of our theoretical insight.
Whether an investigator needs to condense his concept of business cycles into a definition, and what kind of definition he needs, depends upon the researches he has in view. Many theorists feel justified in assuming that readers know what business cycles are; the use of that term or one of its equivalents suffices to designate the range of experience they plan to explain. Others pave the way by defining business cycles as recurrent departures from and returns toward ‘a normal state of trade’, or ‘a position of economic equilibrium’. Still others, intent from the start upon some line of explanation, begin by confining the discussion to movements arising from the factors they have in mind; they may say, for example, that business cycles are recurrent alternations of prosperity and depression generated by ‘factors originating within the economic system itself’, or that business cycles are departures from equilibrium arising from discrepancies between ‘the’ market rate of interest and ‘the natural rate’Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles, Chapter 1
Monetary theories of the Trade Cycle succeeded in giving prominence to the right questions and, in many cases, made important contributions towards their solution; but the reason why an unassailable solution has not yet been put forward seems to reside in the fact that all the adherents of the monetary theory of the Trade Cycle have sought an explanation either exclusively or predominantly in the superficial phenomena of changes in the value of money, while failing to pursue the far more profound and fundamental effects of the process by which money is introduced into the economic system, as distinct from its effect on prices in general.
F.A. Hayek
“No finer intellect and no higher character have ever graced our field. If the depth and originality of his thought do not stand out more clearly than they do, this is only owing to his lovable modesty,”.
Schumpeter (1954, p. 862) on Wicksell.
And so it is with liquidity. The word is widely – almost obsessively – used in financial markets, but often without any precise or particular meaning. A casual search of investment dictionaries and encyclopaedias for definitions of liquidity will reveal as many definitions as sources. The concept of liquidity I will use draws on the homely analogy of the Christmas milk. Liquidity is the capacity of a supply chain to meet a sudden or exceptional demand without disruption. This capability is achieved, as it was by the milkman, in one or both of two ways: by maintaining stocks, and by the temporary diversion of supplies from other uses. When the supply chain lacks liquidity, consumers need to maintain stocks for themselves – they keep a spare pint of milk in the fridge. The financial analogue of the spare pint is the necessity for businesses and households to maintain monetary balances. In extreme cases of illiquidity, households end up hoarding cash under the bed. These supply chain inefficiencies may be costly, in both the milk supply chain and the money market.
OTHER PEOPLE’S MONEY by John Kay
Institutions keep society from falling apart, provided there is something to keep institutions from falling apart
– Jon Elster (1989)
Most humans desire prosperity and freedom. But freedom requires
democracy, and democracy, if only guided by rational self-interest, tends to undermine the high-trust society and therefore many of the institutions upon which free market economies and democratic governments depend. That democracy can be both a necessary condition for mass flourishing and possibly a sufficient condition for its ultimate failure constitutes quite a dilemma. This dilemma can be ameliorated by constraining the democratic process so the Olson story can’t get off the ground. Such constraints are evident in constitutions, laws, institutions, and policies. But in a genuine democracy such constraints can be modified or removed. If a society has a genuine democracy and it hopes to avoid undermining trust in the system, it must do so in some other way than mechanisms that can be altered by the democratic process. Culture is uniquely suited for solving this problem. Like nothing else, culture can address the crux of the problem, which is the rationality of using the democratic process to promote special interests. Consider a society with prevailing moral beliefs that view opportunism as completely unacceptable and with a prevailing understanding of how democracy is intended to work to best promote the common good. In such a society people will view using the democratic process to engage in redistributive or regulatory favoritism as an immoral violation of the social contract, no matter how noble the intentions. Conveying such moral beliefs in a cultural way so they exert their influence as tastes preempts the inexorable logic behind special interest groups promoting their welfare at the expense of the common good by constraining democratic voting at a prerational stage of decision-making. This forecloses the means by which politicians enrich themselves through vote buying that ultimately destroys trust in the system and undermines the common good.
Capitalism produces almost everything, but not the human feeling that could guarantee its survival
–
Because we are economic historians, and because we believe that intellectual diversity and dissent must always be encouraged—and that lonely, but correct voices should be honored when they can be—we now take this opportunity to mention the superb economist Harry Johnson, of the University of Chicago. A prolific writer, Johnson died prematurely at age 53 in 1977. This is what he said in the first De Vries Lectures – “The Problem of Inflation” – delivered in 1971 in The Netherlands (Johnson (1971)):
…while monetary analysis assumes as a matter of empirical fact that the economic system tends toward a rational full-employment allocation of resources so long as management of money is well-behaved, and can only be thrown off course by severe monetary mismanagement…And though I do not wish at this particular point to go into the empirical evidence in detail, I should remark that I have arrived at this judgment, not by dogmatic conviction, but out of the growing dissatisfaction with the explanatory power of the theories and the empirical results of the policies of Keynesian economics in which I was instructed during my youth at the two major centers of the revolution.”
The lesson of the Great Inflation is that monetary mismanagement, if persistent, can lead to the poor results expected by Harry Johnson.
Marcus
It is not what we think, rather, it is what we have not thought of.
– Jerome Wiesner
An evolving discipline –whether it be history or economics or astrophysics or immunology – is ever dynamically changing. Two steps forward and X steps back, so to speak. Periodically, the scholarly group registers more or less self-confidence, self-esteem, and complacency. We careerists are happiest when recent past achievements have seemed to be successful, but when still there are completable tasks dimly visible ahead. Human nature is much the same in every generation. We each want to leave our distinctive initials on the subject – fulfill our fond teachers’ hopes for us but (if possible) do it by bettering their obsolescent achievements. Paradoxically then, it can be just when a science is at a high point
in its Kondratieff wave that discontent begins to ferment. It has been said, “Newton did everything, and that set back English mathematics for almost a century while the action moved toward continental writers such as Euler, the Bernoullis, Lagrange, and Laplace.” The bright shine of Keynes in the first half of the last century subsequently shadowed economics at Oxbridge. And because Nature abhors a vacuum, that gave my generation of American economists – American-cum-Hitlerian refugees – the opportunity to peddle at the vanguard of the bicycle race. Today’s textbooks at every stage – beginning, intermediate, and advanced – are notably similar. Once upon a time, you could have learned a different
economics at Madison and Austin and Berkeley than at Cambridge or Chicago. Now there is no hole to hide in. Such conditions generate discontented minorities who seek to bypass peer-reviewed journals and huddle together in volumes of proposed alternative economics. The basement of Harvard’s Widener Library is a cemetery for past similar efforts. Thus during the 1920s Rexford Tugwell edited such a collection that tempted some of that era’s brightest and best. When I am gone, maybe nobody will be left to remember that particular effort. Here is my advice. When in doubt, give my new efforts a hearing. Many feel a calling to break new ground; in the end, few will end up finding their efforts chosen. But the yea-sayer does do less harm than the naysayer, in that the Darwinian process of adverse testing will in time (most likely?) separate the useful from the useless, the trivial from the profound. I have reported more than once what the late New School scholar Hans Neisser told me toward the end of his life. In paraphrase he said, “My friend, fellow immigrant Jacob Marschak, was right and I was wrong. When each new innovation came along – game theory, Keynes’ notions of effective demand, econometric identifications – he embraced them all with enthusiasm, even overenthusiasm. I held back, worrying about the holes in those doughnuts. In the end things did more or less get sorted out. Those open-minded individuals experienced more fun and maybe did accelerate that sorting out process.” Perhaps I should warn against a common trap. Often you may hear
yourself saying, “But this is not new, and neither is that.” Alfred North Whitehead once opined, “Nothing new was ever said for the first time by the person who was saying it.” Each generation has a need to put into its own goatskins the wine it drinks. Few of my MIT students will call themselves “Keynesians” as Solow, Modigliani, and I might. They are “neo-Keynesians,” “neo-neo-Keynesians,” and even “anti-Keynes Keynesians.” But make no mistake about it. Their writings and views are light-years away from the macro I learned at the University of Chicago. And the common core of their beliefs is scarcely country miles away from the vulgar IS-LM diagrammatics that Harrod, Hicks, and Hansen distilled out of Maynard’s intuitive explorations. I echo what my mother would have said: to potential readers of this book: “Try the new stuff. It might even turn out to be good for you.”– Paul Samuelson
Scientific work in macroeconomics is valuable to the extent that it fulfills one or more of three purposes. First, it can resolve a paradox stemming from a conflict between theory and observations and do so in a way that respects the discipline both of economic theory and of statistics. Second, it can clarify aspects of monetary and fiscal policy either for the purpose of helping governments design and administer institutions and mechanisms or for the purpose of helping outside observers understand those institutions and their decisionmaking processes. Third, the work can have a creative legacy, in the sense that it identifies and structures a class of problems and a way of studying them that subsequent researchers can build on.
– Thomas Sargent, Some of Milton Friedman’s Scientific Contributions to Macroeconomics
When you can measure what you are speaking about, and express it in numbers, you know something about it, but when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts advanced to the stage of science.
“No one can tell another person in any definite way how he should think, any more than how he ought to breathe or to have his blood circulate. But the various ways in which men do think can be told and can be described in their general features. Some of these ways are better than others; the reasons why they are better can be set forth. The person who understands what the better ways of thinking are and why they are better can, if he will, change his own personal ways until they become more effective; until, that is to say, they do better the work that thinking can do and that other mental operations cannot do so well. The better way of thinking that is to be considered in this book is called reflective thinking: the kind of thinking that consists in turning a subject over in the mind and giving it serious and consecutive consideration.”
– John Dewey, How we Think; A Restatement of the RELATION OF REFLECTIVE THINKING TO THE EDUCATIVE PROCESS
“…the essential condition of any science is the existence of regularities which can be analysed and forecast. This is the case of celestial mechanics but it is true for many economic phenomena whose analysis displays the existence of regularities which are similar to those found in the physical sciences. This consideration is the basis of why economics is a science, and why this science can rest on the same general principles and methods of classical thermodynamics and in general as Physics”
Conventional thinking passes on the notion of ideal states, static equilibrium systems, and linear dynamics and continuous functions as if everything worth knowing about science had been discovered. The implication is that if students learn this catechism, then real cases can be addressed by approximation to the ideal. The fact is, of course, that physical systems are real, not ideal, and many of the most interesting systems are discontinuous rather than continuous, nonlinear, rather than linear, and dynamic as well as static. In addition, the maxim that reality is only a mild departure from the ideal isn’t the case. As best-selling author James Gleick said, Relativity eliminated the Newtonian illusion of absolute space and time; quantum theory eliminated the Newtonian dream of a controllable measurement process; and chaos eliminates the Laplacian fantasy of deterministic predictability.’ The great discoveries of the past should be accorded their well-earned due, but it is time to move on to what has been characterized as the science of the 21st century.
–
The world must actually be such as to generate ignorance and inquiry; doubt and hypothesis, trial and temporal conclusions …. The ultimate evidence of genuine hazard, contingency, irregularity and indeterminateness in nature is thus found in the occurrence of thinking.
– John Dewey (1958)
Scientific or scholarly or academic life has at least two strands. First is trying to find and communicate truth or knowledge. Second is the academic game itself—the pursuit of prestige, admiration, and money. Self-promotion and gamesmanship enter in. Of course, the two aspects of academic life overlap. Even someone overridingly concerned with truth desires admiration, wants to deserve it, and cares about its sources and reasons. Furthermore, hope for fame and fortune can indeed be a strong and respectable incentive to the pursuit of scientific truth (as well as a temptation to politicking and the like). Still, how closely the two aspects of scientific activity correspond is affected by the tone and policies prevailing in the academic world. The preachings of Laband and Tollison, if heeded, would impair the correspondence and increase tension between the two aspects. “The truth is not relevant if it is not a shared truth,” they write (Laband and Tollison 2000, p. 43). I am not sure just what they mean by “relevant” or in how broad or how narrow a context they apply their remark. Perhaps they mean relevance to scoring well in the academic game. Their remark does sound like relativism. Yet reality is what it is, regardless of how many or how few people share a correct perception of it. Being influential or enjoying prestige may sometimes carry a presumption that one’s ideas are right, but it is not the same as their actually being right. Sharing truth—communicating ideas—is important, of course. Curiously, Laband and Tollison seem to value communication only in a narrow “market” associated with a notion of prestigious journals. But how narrow or how broad a market properly “counts”—how small or large a set of persons addressed? No market answers that question by itself. Does the appropriate market include all employers and potential employers of economists or all actual and potential consumers of economic information? Or is it a much narrower set of appraisers, people inclined to receive and transmit bandwagon effects relating to the supposed frontiers of the discipline? More comes later about questions like these.
– Leland B. Yeager (1958). This quote is from chapter 7 of the book titled “Is the Market a Test of Truth and Beauty?” Incidentally, the chapter 7 is also titled as “Is the Market a Test of Truth and Beauty?”
Economists should be ‘market economists’” — that is, “they should concentrate on market or exchange institutions . . . in the widest possible sense
– James Buchanan ([1964]1970, 36)
the importance, for a functioning society, of people’s having some basis for predicting each other’s actions; the inevitable imperfection, incompleteness, dispersion, and costliness of knowledge; the costs of making transactions and of negotiating, monitoring, and enforcing agreements, and the consequent usefulness of tacit agreements and informally enforced rules; applications of methodological individualism and of property-rights theory to analysis of nonmarket institutions and activities; concepts of externalities and collective goods and the supposed free-rider problem; and the principle of interdependence.
– Leland B. Yeager (1976a: 565)
The truth is that some phenomena are regular and some are not. Western Science selects as its subject matter those that are regular and then finds that it can predict their behavior. But this is no basis for concluding that irregular and irrational phenomena are not important or are trivial.
– Nwankwo Ezeabasili (1977)
It is difficult to state accurately or to quantify the reason a few economic narratives go viral while most fail to do so. The answer lies in a human element that interacts with economic circumstances. Beyond some simple and predictable regularities, a network of human minds sometimes acts almost like a random number generator in selecting which narratives go viral. The apparent randomness in outcomes has to do with randomness in the mutation of stories to more contagious forms, and with moments of our individual lives and attentions, that can lead to a sudden climax of public attention to specific narratives. We routinely find ourselves puzzling years later over the reasons for the success of popular narratives in history and for their economic consequences.
– Robert J. Shiller (2019); This is from his book titled “Narrative Economics: How Stories Go Viral & Drive Major Economic Events.” This quote is from chapter 4 titled “Why Do Some Narratives Go Viral?”
Narratives can be based on varying degrees of truth. Wishful thinking may enhance contagion (Benabou 2013). The impact of non-factual narratives might be somewhat greater in today’s world than in decades past, since established news media are in upheaval after the relatively recent advent of modern information technology and social media. But in past decades we can also observe that narratives with no factual basis were widely disseminated and believed. For instance, until modern times, it was asserted that women were not capable of learning men’s occupations (Goldin 2014). Similarly, it was argued that some racial or ethnic groups were not really capable of integrating into civilized society (Myrdal, 1974). How people could believe these views in the past seems hard to imagine today because we are no longer immersed in their narratives.
– Robert J. Shiller. (2017). Narrative economics. American economic review, 107(4), 967-1004. The link to the paper is here.
Economics is not about things and tangible material objects; it is about men, their meanings and actions.
– Ludwig von Mises
Ignorance of availability of goods and of their terms of trade and attributes will provoke efforts to reduce that ignorance in order to achieve more trade. Several institutions have evolved to reduce costs of reducing that ignorance: money; specialist middlemen who are experts in assessing attributes of goods, who carry inventories, and whose reliability of assurance is high; specialized rnarketplaces; and even unemployment. This paper concentrates on the way in which that ignorance leads to the use of money and how money requires concurrent exchange with specialist, expert, highly reputable middlemen. It will be seen that the use of money does not rest on a bookkeeping, debt-recording function. The recording function could be done by any good without specialized markets if goods were perfectly and costlessly identifiable in all relevant, present and future attributes, including future terms of trade. We mean by money a commodity used in all, or a dominant number of, exchange.
– Armen A. Alchian. This is from the paper published in JMCB.
Observable patterns of behavior and organization are predictable in terms of their relative probabilities of success or viability if they are tried. The observed prevalence of a type of behavior depends upon both this probability of viability and the probability of the different types being submitted to the economic system for testing and selecting. One is the probability of appearance of a certain type of organization (mutation), and the other is the probability of its survival or viability, once it appears (natural selection). There is much evidence for believing that these two probabilities are interrelated. But is there reason to suppose that a high probability of viability implies a high probability of an action’s being taken, as would be implied in a system of analysis involving some “inner directed urge toward perfection”? If these two probabilities are not highly correlated, what predictions of types of action can the economist make? An answer has been suggested in this paper.
– Armen A. Alchian. This is from the paper published in JPE.
Alchian, A. A. (1950). Uncertainty, evolution, and economic theory. Journal of political economy, 58(3), 211-221.
Cooperation, with a few obvious exceptions, occurs only in the shadow of conflict. Only if we understand threats and struggles can we properly appreciate how, why, and when mutually advantageous exchange – between husband and wife, between capital and labor, between nation and nation – can take place.
– Jack Hirshleifer
Most human activity on this planet is concentrated on a very small amount of land. Less than 5 percent of the land area of the United States is developed. The largest twenty-five cities are home to 12 percent of the population, but those cities take up only 0.2 percent of the land. Mexico City covers less than 0.1 percent of Mexico’s land area but accounts for almost 10 percent of that country’s population. The entire population of the United States could fit into Maryland if it were packed as tightly as the population of New York City. About 18,000 students attend Hunter College in Manhattan, all of which is housed in buildings located within a couple hundred feet of the corner of Lexington Avenue and East 68th Street; only 30,000 attend college in all of Wyoming.
– Brendan O’Flaherty. This has been taken from chapter 2 of the book titled “City Economics.” The chapter 2 is titled “Why Proximity Is Good.”
As we’ve mentioned earlier, most nonlinear systems are impossible to solve analytically. Why are nonlinear systems so much harder to analyze than linear ones? The essential difference is that linear systems can be broken down into parts. Then each part can be solved separately and finally recombined to get the answer. This idea allows a fantastic simplification of complex problems, and underlies such methods as normal modes, Laplace transforms, superposition arguments, and Fourier analysis.
In this sense, a linear system is precisely equal to the sum of its parts. But many things in nature don’t act this way. Whenever parts of a system interfere, or cooperate, or compete, there are nonlinear interactions going on. Most of everyday life is nonlinear, and the principle of superposition fails spectacularly. If you listen to your two favorite songs at the same time, you won’t get double the pleasure! Within the realm of physics, nonlinearity is vital to the operation of a laser, the formation of turbulence in a fluid, and the superconductivity of Josephson junctions.
– Steven H. Strogatz, Nonlinear Dynamics and Chaos With Applications to Physics, Biology, Chemistry, and Engineering
Great artists whose lives are dominated by the desire to make the most important contributions they possibly can are inevitably drawn to thinking about the relationship between their stage of life and the quality of their work. Sometimes, as with Gauguin, the results are painful to read. In other cases they are amusing. So, for example, Gertrude Stein poked fun at the ambitious young Robert Delaunay. In The Autobiography of Alice B. Toklas, Stein wrote of Delaunay’s frequent visits to her apartment in the rue de Fleurus, and his inspection of her remarkable art collection. She recalled, “He was always asking how old Picasso had been when he had painted a certain picture. When he was told he always said, oh I am not as old as that yet. I will do as much when I am that age.”
Whether their insights were poignant or comical, most artists have considered the relationship between age and the quality of work not in general, but within the specific context of their own careers, in anticipating their future greatness, looking back on the improvement over time in their skills, or worrying about the deterioration of their abilities. Although their awareness of the relationship underscores its importance, their assessments of it obviously cannot be taken to have any degree of generality. Leaving artists’ judgments aside, we can pose very simply the question that I wish to consider: How, and why, does the quality of artists’ work vary with age? The purpose of this book is to present my theory of creative artists’ life cycles, demonstrate how this theory can be implemented empirically, and examine some of the consequences of this analysis.
– David W. Galenson, This is from the book titled “Old Masters and young geniuses: The Two Life Cycles of Artistic Creativity“
Some of the most rewarding scientific pursuits begin with the discovery of a paradox. Nature does not go out of its way to befuddle us, and if some phenomenon seems to make no sense no matter how we look at it, we are probably in ignorance of deep and far-ranging principles. For anyone interested in the human mind, language offers many such opportunities for discovery. Language is created anew each generation, so details of grammar, even subtle and intricate ones, are products of the minds of children and bear the stamp of their learning abilities.
– Steven Pinker, Learnability and Cognition: The Acquisition of Argument Structure
“In 1947, Friedrich A. von Hayek convened a meeting of fellow economists and academics in Montreux, Switzerland to discuss what they feared most in postwar Europe and America. It was not hunger, or unemployment, or even communism. It was government. They all took great pride in their individual points of view but they collectively agreed that the increasing role of government posed the greatest threat and that “The central values of civilization are in danger.” They complained that “Over large stretches of the earth’s surface the essential conditions of human dignity and freedom have already disappeared….” The reason for their pessimism was “a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved.” With these words, the Mont Pelerin Society was born and promptly elected its first president, Hayek. The society insisted on personal liberty and saw “danger in the expansion of government, not least in state welfare, in the power of trade unions and business monopoly, and in the continuing threat and reality of inflation.” The philosophy that united Pelerinists was classical liberalism (almost the opposite of modern liberalism), a philosophy more commonly referred to today as libertarianism. Named after the mountain near its first meeting, the society continues to meet in various locations around the world to share stories and research about individual freedom. In total, eight Nobel winners in economics have been presidents or members of the Mont Pelerin Society, which never counted more than 500 members worldwide. Hayek was its first president, Milton Friedman was the seventh, and James M. Buchanan Jr. was the fourteenth, all Nobel Prize winners in economics. The defining feature of libertarians is their willingness to resolve com plex political and economic issues based on the answer to a single defining question: Does the policy encroach on any individual’s freedom of choice? If it does, then they will, in all likelihood, oppose it. Using this litmus test, libertarians can arrive at policy positions that range from ultraconservative on economic issues to extremely liberal on social issues. For example, it would be considered unusual for a person to oppose the military draft and favor legalization of marijuana on the one hand and oppose the mini mum wage and public education on the other, but not if the person was a libertarian. These were all positions endorsed by Milton Friedman at some time during his career. The common denominator in these positions is that they are all consistent with the theme of removing the influence of government from individual choice. According to libertarians, whether one fights in a war, smokes marijuana, or pays low wages, should be the choice of an individual, not the government. Libertarians start with a principle that places individual freedom above all else. Positions are not determined by popularity, compassion, the greater good, altruism, equal opportunity, or even strategic advantage. They are all decided by a single factor: individual liberty. In reality, many individual freedoms can cut both ways; for example, the freedom to smoke cigarettes for one person will violate the freedom to breathe smoke-free air for another. But these are generally not the issues that preoccupy libertarians. They are usually more interested in eliminating public education, low-income housing, food stamps, and public health care, even for low-income children. They reject the concept of providing services for some at the expense of others no matter how great the need. Their quest to preserve individual freedom places them in a holy war against almost all public programs.”
– Thomas Karier. This has been taken from chapter 2 titled “Free Market Economics” from the book titled “Intellectual Capital: Forty Years of the Nobel Prize in Economics.“
Money is one of those concepts which, like a teaspoon or umbrella, but unlike an earthquake or a buttercup, are definable primarily by the use or purpose which they serve. The use of purpose of money is two-fold: it provides a medium of exchange and a measure of value.
– Ralph Hawtrey
“Why study nonlinear dynamics, a rather mathematical subject, when one is interested in applied sciences? The main reason is that almost everything around us is non-linear. The mathematician and physicist Stanislaw Ulam is supposed to have said “Using a term like nonlinear science is like referring to the bulk of zoology as the study of non elephant animals”. Yet, a very large part of what we have been taught was about linear phenomena. Indeed, these systems are easy to manipulate and can be solved analytically. However, in reality, they are often simplifications of the real problem and only valid in a limited parameter range.
Nonlinear problems are difficult: they generally have no analytical solution, their behavior is rarely intuitive, and they can give rise to very complex behavior that does not arise from stochastic processes. Even though they obey strict physical laws, they can appear erratic and uncontrollable. An interesting example is smoke rising above a candle: just above the flame, the smoke rises steadily in a laminar flow but quickly turns into complex vortices. In both regimes, the laws of fluid mechanics, thermodynamics, and chemistry govern the dynamics, but the two behaviors are completely different.
Does this mean that we are clueless in the face of such problems and that any pre diction is out of reach? No, and it is the purpose of this book to give mathematical tools to tackle this kind of problem. Of course, if we know the laws governing the system, then an approach could be using numerical simulations to compute the time courses of the state variables. However, this is a black box giving us little insight about the key ingredients generating the behavior observed.
As we will see, a qualitative theory of dynamical systems can be elaborated, which casts light on the universal mechanisms of dynamical behavior. As often in science, the point is to delineate precisely what we want to know and what we do not need to know: do we want to determine every aspect of the system evolution with time, or do we re strict ourselves to the asymptotic behavior? Do we want to determine what happens for every possible set of control parameters, or do we restrict ourselves to mapping the parameter space into regions where the behavior is qualitatively similar? We will see that the proper way to address this type of problem is to have a geometrical approach and that by looking for the right structures we can understand how the dynamics of these systems are organized.”
– Axelle Amon, Marc Lefranc. This has been taken from the foreword of the book Nonlinear Dynamics.
“The benefits of a college education have greatly increased since 1980, as reflected in a much larger earnings premium to college graduates compared to persons who did not go to college. This is basically a good development because it means higher returns on capital in the form of a college education. At the same time, however, the increased college earnings premium has been a major contributor to the rise in income inequality during the past 25 years. Greater attention needs to be paid to improving the preparation of young students, so that they can finish
high school and go on to college.”– Gary Becker
“For, just as a lake is, at times, stirred to its very depths by a storm, so also the market is sometimes thrown into violent confusion by crises, which are sudden and general disturbances of equilibrium.”
– L. Walras, Elements of Pure Economics 1874: p.381
The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in those goods, and not in the wheel which circulates them. In computing either the gross or the net revenue of any society, we must always, from their whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever make any part of either.
– (Smith [1776] 1978: 385)
“What atoms are to physics, individuals are to Austrian economics. Unlike atoms governed by natural law, individuals use their will and powers of reason to guide their brute physical behavior toward their own ends and goals. The Keynesian-neoclassical orthodoxy is ‘economics betrayed,’ or indeed ‘human action betrayed,’ in that Keynesians focus, not on individual will and reason, but on forces beyond the individual’s control….Keynesians ignore individual choice.
Like the Keynesians, the neoclassicals have displaced the real agent of economic (and all other) activity–the individual will. Where there is will, according to the neo-Austrians, there are ways; where will does not exist, there is only sterile neoclassical equilibrium.”– Canterbery, 261
The question is not what you look at, but what you see.
– Henry Thoreau
Thinking is more interesting than knowing, but not than looking.
To repeat: don’t think, but look!
Perception is a judgment, but one that is unaware of its reasons,
which is as much as to say that the object perceived gives itself
as a whole and as a unity before we have grasped its intelligible
principle.– Maurice Merleau-Ponty
As a human being one has been endowed with just enough intelligence to be able to see clearly how utterly inadequate that intelligence is when confronted with what exists. If such humility could be conveyed to everybody, the world of human activities would be more appealing.
– Albert Einstein
A book is never finished. It is only abandoned.
– Honoré De Balzac
Since the fundamental character of the living thing is its organization, the ccstcinary investigation of ihe single parts and processes cannot provide a complete explanation of the vital phenomena. This investigation gives us no information about the coordination of parts and processes. Thus the chief task of biology niust be to discover the laws of biological systems (at all levels of organizsiionj. We beiieve that the attempts to find a foundation for theoretical biology point at a fundamental change in the world picture, This view, considered as a method of investigation, we shall call “organismic biology” and, as an attempt at an explanation, “the system theory of the organism”
“….the best models of the day will be viewed as a hopeless joke in the not too distant future. Every author will obviously try as hard as he can to give the reader the impression that his conceptual apparatus and analysis is the best possible, which applies also to the present author …However, these remarks are not the author’s attempt to show appropriate modesty but an urgent appeal to students to quickly contribute to making existing models obsolete.”
– Trygve Haavelmo
I have taken this from this paper “The Relevance of Haavelmo’s Macroeconomic Theorizing for Contemporary Macro Policy Making.”
The link is here.
Robert Solow advanced the prototypical model of economic growth in the 1950s—a timely development, as the data needed to evaluate such models were just becoming available. Simon Kuznets, the Russian-born economist who fathered GDP, had finished creating the system of national accounts a couple of decades earlier, helping generate the economic metric that dominated the twentieth century.4 Solow’s model, however, did not measure up well when it was compared with empirical data. As Kuznets famously remarked in his Nobel Prize acceptance speech, “The earlier theory that underlies these measures defined the productive factors in a relatively narrow way, and left the rise in productivity as an unexplained gap, as a measure of our ignorance.”5 Kuznets’ “measure of our ignorance” is what we know technically as total factor productivity (TFP). TFP is how economists refer to the gaps between the economic output predicted by a model and the one observed in the empirical data. (This gap is interpreted as the amount of output that an economy can produce with a given endowment of inputs).6 This gap motivated economists to build on Solow’s work, and during the second half of the twentieth century economists advanced a plethora of new economic growth models that improved the model of Solow.7 The new models included new factors and new mathematical tools to address the process of factor production and accumulation. Yet not all economists agreed that the use of aggregation was the best or only path to explain economic growth and development. Wassily Leontief —Solow’s PhD advisor and also a Nobel Prize winner—argued that the main problem lay in the reliance on aggregates that disregarded information about specific industries.
– Cesar Hidalgo. I have taken this from chapter 10 of the book titled “Why Information Grows; The Evolution of Orders from Atoms to Economics”
The chapter 10 is titled “The Sixth Substance”
An often-used argument about the value of science and its impact upon society and the welfare of mankind runs something like this. Our knowledge of the laws of physics is excellent, and consequently our technological control of inanimate nature almost unlimited. Our knowledge of biological laws is not so far advanced, but sufficient to allow for a good amount of biological technology in modern medicine and applied biology. It has extended the life expectancy far beyond the limits allotted to human beings in earlier centuries or even decades. The application of the modern methods of scientific agriculture, husbandry, etc., would well suffice to sustain a human population far surpassing the present one of our planet. What is lacking, however, is knowledge of the laws of human society, and consequently a sociological technology. So the achievements of physics are put to use for ever more efficient destruction; we have famines in vast parts of the world while harvests rot or are destroyed in other parts; war and indiscriminate annihilation of human life, culture, and means of sustenance are the only way out of uncontrolled fertility and consequent overpopulation. They are the
outcome of the fact that we know and control physical forces only too well, biological forces tolerably well, and social forces not at all. If, therefore, we would have a well-developed science of human society and a corresponding technology, it would be the way out of the chaos and impending destruction of our present world.– Ludwig Von Bertalanffy, This quote has been taken from chapter 2 of the book titled “General System Theory; Foundations, Development, Applications“
The chapter 2 is titled “The Meaning of General System Theory” and this quote has been taken from the section on science and society.
The . . . goal of all theory is to make the . . . basic elements as simple
and as few as possible without having to surrender the adequate
representation of . . . experience.– Albert Einstein
The external theories find the root of the business cycle in the fluctuations of something outside the economic system – in sunspots or astrology, in wars, revolutions, and political events, in gold discoveries, rates of growth of population and migrations, discoveries of new lands and resources, in scientific discoveries and technological innovations.
The internal theories look for mechanisms within the economic system itself which will give rise to self-generating business cycles, so that every expansion will breed recession and contraction, and every contraction will in turn breed revival and expansion in a quasi-regular, repeating, never-ending chain.
– Paul A. Samuelson (1973, p. 257).
I have taken this from the book “Business Dynamics; Systems Thinking and Modeling for a Complex World.“
The author is John D. Sterman.
The chapter 19 is titled “The Labor Supply Chain and the Origin of Business Cycles.”
History makes men, much more than men make history.
– Frank Knight, chapter 2 of the book titled “INTELLIGENCE AND
DEMOCRATIC ACTION”
The worst trouble again is not so much ignorance, but that people do not know they are ignorant; they know so much that is not true.
– Frank Knight, chapter 2 of the book titled “Intelligence and
Democratic Action”
Once men have been made to realise the crippling mutilations imposed by an objectivist framework—once the veil of ambiguities covering up these mutilations has been definitely dissolved—many fresh minds will turn to the task of reinterpreting the world.
– Michael Polanyi (1973), Personal Knowledge: Towards a Post-Critical Philosophy, 381. The essays and lectures by Karl Polanyi is maintained here.
The objective and the subjective. The former to be embraced, the latter to be suppressed and eliminated. It is strange that Science, that vast work of original thought, should be so contemptuous of its origins.
– G.L.S. Shackle (1972), Epistemics and Economics: A Critique of Economic Doctrines, 354.
The notion that there is a permanent neutral framework whose
‘structure’ philosophy can display is the notion that the objects to be
confronted by the mind, or the rules which constrain inquiry, are
common to all discourse, or at least to every discourse on a given topic. Thus epistemology proceeds on the assumption that all contributions to a given discourse are commensurable. Hermeneutics is largely a struggle against this assumption.– Rorty (980:315–16)
The eye sees only what the mind is prepared to comprehend.
If you are about to criticize someone who might become defensive and you want him to see the point without undue resistance, do not state the criticism openly; instead, ask questions such that if he answers them correctly, he will figure out what you are not saying.
– (Argyris, Putnam, and Smith 1985, p. 83)
One of the most highly developed skills in contemporary Western civilization is dissection: the split-up of problems into their smallest possible components. We are good at it. So good, we often forget to put the pieces back together again. This skill is perhaps most finely honed in science. There we not only routinely break problems down into bite-sized chunks and mini-chunks, we then very often isolate each one from its environment by means of a useful trick. We say ceteris paribus-all other things being equal. In this way we can ignore the complex interactions between our problem and the rest of the universe.
– Ilya Prigogine and Isabelle Stengers; Order Out of Chaos: Man’s New Dialogue with Nature (Radical Thinkers)
“We live in an age of great events and little men, and if we are not to become slaves of our own systems or sink oppressed among the mechanisms we ourselves created, it will only be by the bold efforts of originality, by repeated experiment, and by the dispassionate consideration of the results sustained, and on unflinching thought.”
– Winston Churchill
Philosophy is written in this vast book, which continuously lies open before our eyes (I mean the universe). But it cannot be understood unless you have first learned to understand the language and recognize the characters in which it is written. It is written in the language of mathematics, and the characters are triangles, circles, and other geometrical figures.
– Galileo Galilei Il Saggiatore. Drake S, O’Malley CD, trans. The Controversy on the Comets of 1618. Philadelphia, Pa: University of Pennsylvania Press; 1960.
When we think in terms of systems, we see that a fundamental misconception is embedded in the popular term “side-effects.”. . . This phrase means roughly “effects which I hadn’t foreseen or don’t want to think about.”. . . Side-effects no more deserve the adjective “side” than does the “principal” effect. It is hard to think in terms of systems, and we eagerly warp our language to protect ourselves from the necessity of doing so.
– Garrett Hardin
Linear relationships are easy to think about: the more the merrier. Linear equations are solvable, which makes them suitable for textbooks. Linear systems have an important modular virtue: you can take them apart and put them together again— the pieces add up. Nonlinear systems generally cannot be solved and cannot be added together. . . . Nonlinearity means that the act of playing the game has a way of changing the rules. . . . That twisted change ability makes nonlinearity hard to calculate, but it also creates rich kinds of behavior that never occur in linear systems.
– James Gleick, author of Chaos: Making a New Science
[Language] can serve as a medium through which we create new understandings and new realities as we begin to talk about them. In fact, we don’t talk about what we see; we see only what we can talk about. Our perspectives on the world depend on the interaction of our nervous system and our language—both act as filters through which we perceive our world. . . . The language and information systems of an organization are not an objective means of describing an outside reality—they fundamentally structure the perceptions and actions of its members. To reshape the measurement and communication systems of a [society] is to reshape all potential interactions at the most fundamental level. Language . . . as articulation of reality is more primordial than strategy, structure, or . . . culture.
– Fred Kofman
Intelligence is quickness to apprehend as distinct from ability, which is capacity to act wisely on the thing apprehended.
– Alfred North Whitehead, “December 15, 1939,” Dialogues of Alfred
North Whitehead as Recorded by Lucien Price (Boston: Little, Brown and
Company, 1954), p. 135.
The conception of chance enters into the very first steps of scientific activity, in virtue of the fact that no observation is absolutely correct. I think chance is a more fundamental conception than causality; for whether in a concrete case a cause-effect relation holds or not can only be judged by applying the laws of chance to the observations.
– Max Born; Natural Philosophy of Cause and Chance
When a situation requires a new way of looking at things, the acquisition of new techniques, or even new vocabularies, the old seem stereotyped and rigid. . . . But when a situation requires a store of past knowledge then the old find their advantage over the young.
– Alfred North
The modern professional humanist is an academic person who pretends to despise measurement because of its “scientific” nature. He regards his mandate as the explanation of human expressions in the language of normal discourse. Yet to explain something and to measure it are similar operations. Both are translations.
– George Kubler, 1962
I have taken this from chapter 2 of the book titled “Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity.“
The author is David Galenson.
Any attempt either to forecast the trend of economic development, or to influence it by measures based on an examination of existing conditions, must presuppose certain quite definite conceptions as to the necessary course of economic phenomena. Empirical studies, whether they are undertaken with such practical aims in view, or whether they are confined merely to the amplification, with the aid of special statistical devices, of our knowledge of the course of particular phases of trade fluctuations, can, at best, afford merely a verification of existing theories; they cannot, in themselves, provide new insight into the causes or the necessity of the Trade Cycle.
This view has been stated very forcibly by Professor A. Lowe. ‘Our insight into the theoretical interconnections of economic cycles, and into the structural laws of circulation’, he says, ‘has not been enriched at all by descriptive work or calculations of correlations.’ We can entirely agree with him, moreover, when he goes on to say that ‘to expect an immediate furtherance of theory from an increase in empirical insight is to misunderstand the logical relationship between theory and empirical research’.
The reason for this is clear. The means of perception employed in statistics are not the same as those employed in economic theory; and it is therefore impossible to fit regularities established by the former into the structure of economic laws prescribed by the latter. We cannot superimpose upon the system of fundamental propositions comprised in the theory of equilibrium, a Trade Cycle theory resting on unrelated logical foundations. All the phenomena observed in cyclical fluctuations, particularly price formation and its influence on the direction and the volume of production, have already been explained by the theory of equilibrium; they can only be integrated as an explanation of the totality of economic events by means of fundamentally similar constructions.
– I have taken this from Monetary Theory and Trade Cycle by Friedrich Hayek written in the year 1933.
Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm—but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.
– T. S. Eliot
The truth is that some phenomena are regular and some are not. Western Science selects as its subject matter those that are regular and then finds that it can predict their behavior. But this is no basis for concluding that irregular and irrational phenomena are not important or are trivial.
– Nwankwo Ezeabasili (1977)
I have taken this from the book titled “In the wake of chaos: Unpredictable Order in Dynamical Systems.”
This particular quote has been taken from chapter 5 titled “Beyond the Clockwork Hegemony.”
There has always been a strand of thought [ …] that holds that we cannot hope to understand the major events in the life of an economy, and perhaps also its everyday behavior, without entertaining principles of disequilibrium.
– Phelps, Edmund S. (2018). ‘Equilibrium: An Expectational Concept.’ The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189- 5_334
[A]ccounts for ideology, based upon subjective perceptions of reality, play ing a major part in human beings’ choices. It brings into play the complexity and incompleteness of our information and the fumbling efforts we make to decipher it. It focuses on the need to develop regularized patterns of human interactions in the face of such complexities, and it suggests that these regularized interactions we call institutions may be very inadequate or very far from optimal in any sense of the term. (1990: 23)
– T. S. Eliot
“It is inconceivable that policymakers today, aided by their theoretical understanding of the mechanisms and by the statistical information at their disposal, would begin to make the serious errors committed by the governments in 1929-32.”
– J. Tobin
Methodology is neither able nor does it aim to prescribe to any one what he should put into a literary work. It claims for itself only the right to state that certain problems are logically different from certain other problems and that their confusion in a discussion results in the mutual misunderstanding of the discussants. It claims furthermore that the treatment of one of these types of problems with the means afforded by empirical science or by logic is meaningful [pp. 32-33].
– Max Weber
Rules of measurement are in a certain sense rules of conduct, if it is a duty to discover the truth. But they are none the less peculiar, since it is not the duty of everybody to discover the truth on all subjects, nor by all possible methods. Some economists disclaim all desire to influence public policy, except by revealing certain obscure connections of cause and effect in the field of exchange and production, which politicians and others may take note of if they wish. Economic theory is on this view simply an analytical study of the movement of prices, as Cassel, for example, conceives it. Such a study may be of use both to the business man and the politician; they may find this knowledge useful, just as the engineer finds some parts of theoretical physics useful. But economic theory conceived in this way can evidently offer no criteria whereby we might judge one type of organisation to be better than another-competition to be preferable to monopoly, or public ownership to be preferable to private ownership.
– Sutton, C. (1937). The relation between economic theory and economic policy. The Economic Journal, 47(185), 44-52. https://www.jstor.org/stable/pdf/2225277.pdf?casa_token=SiWa5tePIMwAAAAA:DBk7Bj1EiRTfInOfvKFhOnUHPW9PvrgIEPyqUjYf6pCwILLuZvLFJ6r0jhHCXO7ABn_g3FLNrFu1gZ_DpqxgyroCHLLy1UGp9THVF9sr4aT9J6arvS9Fzw
Critical Thinking Skills
Poetry
All who labour in the vineyard of science.. .have cause to ponder the nature of acts of insight. Much of day-to-day research, to be sure, may be technical plodding incapable of producing, at least directly, anything deserving the appellation of ‘insight’. Yet we all have experienced those moments of inspiration – often when we are far from our desks in both body and mind – when we felt that we had put together pieces of the puzzle that represents our understanding of reality in some novel way … The way in which these moments of inspiration arise indicates that they are not the result of conscious rational thought, but rather reflect the workings of our intuitive subconscious selves
– Rick Szostak. Econ-Art. London: Pluto Press, p. 16.
No idea is so generally recognized as indefinite, ambiguous, and open to the greatest misconceptions (to which therefore it actually falls a victim) as the idea of freedom: none in common currency with so little appreciation of its meaning.
– Hegel, Hegel, Nietzsche, and Philosophy: Thinking Freedom (Modern European Philosophy), page 1.
The study of money, above all over fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.
The economics profession is a lot more competitive than it was when Bill and I were graduate students, but even though it’s much tougher for a young scholar to get noticed these days, the intellectual possibilities in economics–both practical and conceptual–have never been greater. It is good that we have escaped from the Malthusian intellectual monopoly, but there is far more to do. Economic theory sells people short by emphasizing the selfish pursuit of material goods. Sometimes people rise above our low professional expectations. I’m convinced that our discipline is, finally, ready to take the other parts of human motivation more seriously, both the ugly side revealed by “us versus them” and the better side too. To be relevant, to offer practical policy advice, economists must embrace the full range of motivation that William Faulkner alluded to in his Nobel banquet speech: “love and honor, pity and pride, and compassion and sacrifice.”
– Paul M. Romer, Nobel Lecture: On the possibility of progress
“Some things are believed because they are demonstrably true. But many other things are believed because they are consistent with a widely held vision of the world— and this vision is accepted as a substitute for facts. Subjecting beliefs to the test of hard facts is especially important when it comes to economic beliefs because economic realities are inescapable limitations on millions of people’s lives, so that policies based on fallacies can be devastating in their impacts. Conversely, seeing through those fallacies can open up many unsuspected opportunities for a better life for millions of people.”
– Thomas Sowell, Economic Facts and Fallacies
“It is a general principle of human nature, that a man will be interested in whatever he possesses, in proportion to the firmness or precariousness of the tenure by which he holds it; will be less attached to what he holds by a momentary or uncertain title, than to what he enjoys by a durable or certain title; and, of course, will be willing to risk more for the sake of the one, than for the sake of the other.”
– Hamilton (1788), Federalist Paper 71: The Duration in Office of the Executive
“Many governments wisely try to depoliticize monetary policy by, for example, putting it in the hands of unelected technocrats with long terms of office and insulation from the hurly-burly of politics” (emphasis added)
– Blinder (1998), Central Banking in Theory and Practice, pp. 56-57.
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.
– John Maynard Keynes
All I have is a voice
To unfold the folded lie,
The romantic lie in the brain
Of the sensual man-in-the-street
And the lie of Authority
Whose buildings grope the sky:
There is no such thing as the State. . . .– W.H. Auden, “September 1,1939”. I came across this quote in the book “The State, Conceptual Chaos, and the Future of International Relations Theory“
The simplest things are often the most complicated to understand fully. It is better to have a model with inexact foundations that gives you a good grip to handle reality than to wait for better foundations or to continue to use a model with good foundations that is not usefully relevant to explain the phenomena that we have to explain.
– Paul A. Samuelson. I have taken this quote from the book titled “Samuelsonian Economics and the Twenty-First Century“. The authors of this book are Michael Szenberg, Lall Ramrattan
Aron A. Gottesman
A really efficient totalitarian state would be one in which the all-powerful executive of political bosses and their army of managers control a population of slaves who do not have to be coerced, because they love their servitude.
– Aldous Huxley, Brave New World
I am not an advocate for frequent changes in laws and Constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.
– Thomas Jefferson
To usurp supreme and absolute authority in a free State and subject it to tyranny, the people must have already become corrupt by gradual steps from generation to generation. And therefore all such as desire to make a change in the government of a republic, whether in favor of liberty or in favor of tyranny, must well examine the condition of things, and from that judge of the difficulties of their undertaking. For it is as difficult to make a people free that is resolved to live in servitude, as it is to subject a people to servitude that is determined to be free. In any such attempts men should well consider the state of the times and govern themselves accordingly.
– From “Discourses” by Machiavelli “On the Books of Titus Livius.”
Intelligent individuals learn from every thing and every one; average people, from their experiences. The stupid already have all the answers.
– Socrates
You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.
It is not when truth is dirty, but when it is shallow, that the lover of knowledge is reluctant to step into its waters.
– Friedrich Nietzsche
From whence shall we expect the approach of danger? Shall some trans-Atlantic military giant step the earth and crush us at a blow? Never. All the armies of Europe and Asia…could not by force take a drink from the Ohio River or make a track on the Blue Ridge in the trial of a thousand years. No, if destruction be our lot we must ourselves be its author and finisher. As a nation of free men we will live forever or die by suicide.
– Abraham Lincoln 1837
If men should cease and desist from their talk about and their search for evil men and commence to look instead at the institutions manned by ordinary people, wide avenues for genuine social reform might appear.
– James Buchanan, The Limits of Liberty
Ignorance more frequently begets confidence than does knowledge: it is those who know little, and not those who know much, who so positively assert that this or that problem will never be solved by science.
– Charles Darwin
I have a passionate love for liberty, law, and respect for rights. Liberty is my foremost passion. But one also finds in the human heart a depraved taste for equality, which impels the weak to want to bring the strong down to their level, and which reduces men to preferring equality in servitude to inequality in freedom.
– Alexis de Tocqueville, Alexis de Tocqueville, foreign observer of liberty in practice
It is difficult to get a man to understand something, when his salary depends on his not understanding it.
– Upton Sinclair
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.
– Marcus Aurelius, Meditations
A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom.
– Friedrich Hayek
Civilization is not inherited; it has to be learned and earned by each generation anew; if the transmission should be interrupted for one century, civilization would die, and we should be savages again.
– Will and Ariel Durant
The Insignificance of Man is a congenial theme; my own insignificance is a sore point. Every seeming equality conceals a hierarchy.
– Mason Cooley
That men do not learn very much from the lessons of history is the most important of all the lessons of history.
– Aldous Huxley
To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity of reflection.
– Henri Poincaré, La Science et la Hypothèse
The great obstacle to discover[y]… was not ignorance but the illusion of knowledge.
– Daniel Boorstin The Discoverers: A History of Man’s Search to Know His World and Himself
Political tags — such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth — are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire.
– Robert A. Heinlein
The first person to throw an insult instead of a stone was the founder of civilization.
– Sigmund Freud
Be less curious about people and more curious about ideas.
– Marie Curie to reporters
A multitude of laws in a country is like a great number of physicians, a sign of weakness and malady.
– Voltaire
Politics—the art of living in a polis—is not an activity that can be dispensed with by those who prefer private life: it is not like seafaring or sculpture which those who do not wish to do so need not undertake. Political conduct is intrinsic to being a human being at a certain stage of civilization, and what it demands is intrinsic to living a successful human life.
– Isaiah Berlin
It is possible, with the help of prudently balanced institutions, to provide everyone with effective safeguards against Power. But there are no institutions on earth which enable each separate person to have a hand in the exercise of Power, for Power is command, and everyone cannot command. Sovereignty of the people is, therefore, nothing but a fiction, and one which must in the long run prove destructive of individual liberties.
The more one considers the matter, the clearer it becomes that redistribution is in effect far less a redistribution of free income from the richer to the poorer, as we imagined, than a redistribution of power from the individual to the State.
– Bertrand de Jouvenel
When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe.
– Frédéric Bastiat http://bastiat.org/
Civilizations die from suicide, not by murder.
Apathy can be overcome by enthusiasm, and enthusiasm can only be aroused by two things: first, an ideal, with takes the imagination by storm, and second, a definite intelligible plan for carrying that ideal into practice.
It is a paradoxical but profoundly true and important principle of life that the most likely way to reach a goal is to be aiming not at that goal itself but at some more ambitious goal beyond it.
– Arnold J. Toynbee
Competition represents a kind of impersonal coercion that will cause many individuals to change their behavior in a way that could not be brought about by any kind of instructions or commands.
– Hayek
The most dangerous man, to any government, is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost invariably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And if he is not romantic personally, he is apt to spread discontent among those who are.
– H.L. Mencken.
“The trouble with fighting for human freedom is that one spends most of one’s time defending scoundrels. For it is against scoundrels that oppressive laws are first aimed, and oppression must be stopped at the beginning if it is to be stopped at all.”
“Democracy is a pathetic belief in the collective wisdom of individual ignorance. No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”
“Democracy is also a form of worship. It is the worship of Jackals by Jackasses. It is the theory that the common people know what they want, and deserve to get it good and hard.”
– H. L. Mencken
There was a great Marxist named Lenin
Who did two or three million men in.
That’s a lot to have done in,
But where he did one in
That grand Marxist Stalin did ten in.– Robert Conquest (1917 – 2015)
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
– Friedrich A Hayek. (1899 – 1991) — The Fatal Conceit
If I could think that I had sent a spark to those who come after I should be ready to say Goodbye.
– Justice Oliver Wendell Holmes.
Oliver Wendell Holmes, The Mind and Faith of Justice Holmes, edited by Max Lerner (New York: Modern Library), p. 451. Source: https://www.tsowell2.com/favoritequotations
“People follow rules without being able to articulate them, but they can be discovered. … Rules emerge as a spontaneous order–they are found–not deliberately designed by one calculating mind. Initially constructivist institutions undergo evolutionary change adapting beyond the circumstances that gave them birth. What emerges is a form of ‘social mind’ that solves complex organization problems without conscious cognition.”
– Vernon Smith, Constructivist and Ecological Rationality in Economics, 2002
The grand aim of science is to cover the greatest number of experimental facts by logical deduction from the smallest number of hypotheses or axioms.
– Albert Einstein
Civilization advances by extending the number of important operations we can perform without thinking about them.
– Alfred North Whitehead
“Whether economists will often be in a position to give highly practical advice on design depends in part on whether we report what we learn, and what we do, in sufficient detail to allow scientific knowledge about design to accumulate.”
– Roth (2002)
“Maybe there is in human nature a deep seated perverse pleasure in adopting and defending a wholly counterintuitive doctrine that leaves the uninitiated peasant wondering what planet he or she is on.”
– Robert Solow. I took this quote from the paper titled “Beyond DSGE Models: Toward an Empirically Based Macroeconomics“
“The failure of the social sciences to think through and to integrate their several responsibilities for the common problem of relating the analysis of parts to the analysis of the whole constitutes one of the major lags crippling their utility as human tools of knowledge.”
– R. S. LVND.
I took this quote from the book titled “Toward a Science of Man in Society: A Positive Approach to the Integration of Social Knowledge“. This quote is from chapter 1 titled ” Specialization and Compartmentalization: Symptoms and Effects”
“The paper argues that there is a fundamental difference between the indeterminism of chaos theory and the indeterminism of quantum mechanics. The difference somewhat resembles Knight’s distinction between risk and uncertainty. Theorists interested in going beyond equilibrium economics have failed to notice the difference. Therefore, they confuse between two kinds of economic change which involve indeterminism, viz., nonlinear dynamics and technological/institutional development. They also regard the evolutionary paradigm as an alternative of the equilibrium one—whereas each deals with a different phenomenon.”
– Elias L Khalil. This is the abstrat of the paper titled “Chaos Theory versus Heisenberg’s Uncertainty: Risk, Uncertainty and Economic Theory.” This paper was published by the American Economist in the year 1997.
Why the awe for the Second Law? The Second Law defines the ultimate purpose of life, mind, and human striving: to deploy energy and information to fight back the tide of entropy and carve out refuges of beneficial order. An underappreciation of the inherent tendency toward disorder, and a failure to appreciate the precious niches of order we carve out, are a major source of human folly. Harvard psychologist, Steven Pinker [1, p. 19]
– Harvard psychologist, Steven Pinker [1, p. 19]
‘We should never cease to be readers; pure readers, reading not to learn, or for an ulterior motive, but for the joy of reading itself. We should know how to read and ardently desire to read and to receive, to nourish ourselves, as by delicious food, to grow in wisdom, organically, not to make use of what one reads socially, in polite society: to become human beings who understand the art of reading, that is to become capable of empathy.’
– Charles Péguy. I have taken this quote from the book titled A lifetime’s reading : the world’s 500 greatest books.
Host: How do you compare doing theorizing in economics versus doing it in political philosophy? At one time, that universe was combined in the world of ideas, at least in the United States. In the West there is a more marked division, although some people cross over. Are there differences in the way you think as you do these two disciplines? – I think probably there is.
Amartya Sen: I would say a couple of things. First of all, there is a much greater, depending on whether you’re friendly or unfriendly, you would describe it as a commitment to or an obsession with, depending on where you like it or not, with quantification and with making a very precise statement in economics than you have in political philosophy. I think most political philosophers would tend to say that the great ideas in the world are not ones where precision is the most important thing. I think liberty, equality, and fraternity are not bursting with precision, but they’re certainly bursting with relevance in the way they impact our lives. So, I think there is a certain amount of division about what makes something rigorous. I think political philosophers would tend to think that their type of rigor is very different in the subject. It’s a point that Aristotle makes very early, that every subject has its own level of precision. And I think there there is a difference between the standard way the economists tend to think and the standard way the philosophers tend to think. I think the other thing is that possibly it’s right to say that economists have been rather dominated by schools of thought, so that if there is a line of reasoning that becomes well-established, whether it be general equilibrium theory as it’s called, a kind of market-based thing, thinking of everything in terms of analogy with market, or anything else, and you know, people quite often are making the assumption that people are self-interested and trying to fit everything in the world into it, I think there’s a presumptive difference in the sense that economists often incline to assume that, if there is a departure, their first thought is can I somehow accommodate it by making the model a bit more complicated? And I think often political philosophers won’t go in that direction. There I’m not sure that I entirely agree with the mainstream economics approach, because I think trying to fit things in and taking, as it were, your established understanding as the default program to which you return if you cannot resolve, not always the best way of understanding not only political problems but even economic ones. Now since I have sort of run around between these disciplines a certain amount, I think I owe a considerable gratitude to the concern that economics has with analytical and rigorous reasoning. And yet, I think there is something that political philosophers teach us which may be of relevance to economics too. Mainly not to be too hung up on precise statement. After all, there’s a whole maths of incomplete orderings, partial orders, precisely defined ambiguities of measurement, in which I think economics perhaps ought to take more interest. Political philosophers, of course, typically don’t go in the direction of mathematizing it, but insofar as the economists are concerned with mathematizing it, there’s a whole area of mathematics which can find bigger use in economics than in fact it tends to get. So I think in many ways my own work and focus has ended up being a little off center from economics. And yet I think it’s, I hope it’s strongly influenced by the economic modes of thinking as well as insight that has come from political philosophy.
Interdisciplinary work
Host: I hope so anyway. For a layman, myself, a reader of your work, there seems to be a very nice synergy, in the sense that one has the sense that, in what I’ve read, that you’ve used political philosophy to broaden the perspective of economics when dealing with a particular problem. That’s a gross simplification, but one definitely sees the synergy that comes from the interaction between the two in your work.
Amartya Sen: I don’t now if it’s a gross simplification, but it may be a little simplified. But you know, as you mentioned a few minutes ago, that, at one stage, economics and political philosophy was once closer. After all, the founder, or the person who had the greatest claim to be regarded as the founder of modern economics, Adam Smith, was professor of moral philosophy rather than professor of economics. And I think that connection is still quite strong. So I don’t, I have not had a sense of really going outside the boundaries of my subject, as it were. I mean, I’m very keen on interdisciplinary research, but what is sometimes described as interdisciplinary is in fact just a broader view of the discipline rather than seriously getting out of your, you know, field. I mean, when you’re doing, I don’t know, using evolutionary biology in order to understand economic problems, I think that is clearly interdisciplinary. But when you’re bringing in a broader conception of human being who is concerned not only with his or her own life but also with the lives of others, commitment to them, concern about them, and so on, that doesn’t strike me as quintessentially outside of economics, that’s what economics is also about, even if some models of economics may not recognize that. And classically, if you think about the subjects, the traditions, Adam Smith, John Stuart Mill, Karl Marx, Francis Edgeworth, I think they have all had very considerable interest in these broader ways of characterizing human behavior, human understanding, and human commitment.
– Amartya Sen – Conversations with History [YouTube]
The chief thing is to understand that there is a fundamental difference (in the field of economics) between mere data and observations. The latter are naturally also data, but they are more than that. They are selected. They are supposed to arise from planned observation, guided by theory, which however need not necessarily be tied to controlled experiments. Observations are deliberately designed; other data are merely obtained. Together they constitute economic information which is related to the entire body of information, partly deriving from it, partly illuminating that section of problems that is not yet understood. Theory itself is never based solely on ordinary data in the above sense, i.e., merely obtained information with largely unknown but probably exceedingly wide error margins. Theory, moreover, is constructed and invented; data are merely gathered and collected even though this involves always administrative planning. But economic theory is nevertheless to a very high extent in addition related to non-constructively obtained material, such as personal experience. This is quite different from astronomical observations and the making of a theory in the sciences. The small body of economic theory that is placed deliberately upon an empirical basis is thus not necessarily resting upon a very substantial basis.
It is desirable to set forth systematically the relationship of such terms as “observation,” “data,” “statistics,” “evidence,” etc. Our use may not find general acceptance, but, in order to achieve precision, clarity of the terminology is essential. The ordering of the concepts is illustrated in Fig. 3. A is the body of data consisting of gathered (numerical) statistics; B represents other data, such as historical events or (now) non-measurable data, e.g., “expectations”; C is the theory based partly on A and B, as well as on deductively obtained facts (perhaps not accessible to direct observations; this class may, as yet, be empty in economics). The intersection of A and C, and B and C, and, if it exists, of A and B and C, is called scientific information which is thus made up of quantitative observation (i.e., the intersection of A and C) and description (i.e., the intersection of B and C).2 Data are thus something much wider than scientific information; the latter alone is related to theory. Data become scientific information only through this connection. Otherwise they are nothing more than possible building stones for theory. Should they ever be used, they assume a state characterized by the relation into which they enter with other data and their explanation by the theory. Most economic quantitative (statistical) data are of the class A minus C type; i.e., they are represented by the non-shaded area of A in Fig. 3. While they may illuminate something they do not do this automatically. These data as such tell no story, or they tell many different and conflicting stories simultaneously; either condition is equivalent to the lack of a theory.
Observation and description are planned processes, in which the initial stimulus comes from some existing theory, however rudimentary it may be. This is true even when it is intended to produce observations (quantitative or not) aimed at overthrowing the initial theory in order to replace it with a better structure. This is the normal process of scientific progress.
In economic life, continuous processes automatically produce currently great masses of statistical data which often become useful for the above purpose. These are the statistics of foreign trade, of stock prices, etc. Sometimes even unique phenomena produce their own quantitative record as a byproduct. Therefore, there exist great masses of economic statistics which as such do not constitute scientific information; they may be raised to that level by being connected with this field. These statistics as well as their counterpart in the field of non-quantitative (historical) description are potential scientific information.
In the natural sciences there are only few, but perhaps important, automatically accruing data. Almost all are the product of planned conduct, strictly guided by theory. Many measurements, it is true, are initiated without much help from a formal theory, especially when a field is very new. It is, in general, difficult to decide in advance what new measurements the desired future theory will demand. But a theory is always the ultimate aim; and even when the data are not yet strictly connected with theory, they are systematically produced by experimental scientists.3
In a new field, or when a fundamentally new research tool is invented, almost anything “goes.” Thus, when the telescope and the microscope became available, looking at any planet or star, or at any drop of water made sense because it would immediately disclose new worlds. Now, several hundred years later, the precise spot at which to look has to be carefully computed to justify the observation. Electronic high-speed computers are for the social scientist comparable to those two instruments of physics and we are still in that early phase where almost any computation that has been entirely out of reach thus far might make sense and bring a startling discovery. But this will not be true for long.
The immensity of the present revolution is only gradually becoming apparent. The development of computers has progressed at a speed which was only possible because the early computers themselves contributed to the solution of the design problems the newer ones posed. This is not the place to discuss the probable influence of computers upon economics, but one illustration will take the place of many: In 1934, Ragnar Frisch described for his work on confluence analysis³ how by careful programming and the use of the best desk computers of that time it was possible to make about 100 multiplications of six decimal digits per hour, checks, corrections, and occasional rests included. This was an accomplishment indeed and a fair number of computations could eventually be handled. Compare this now with the large, fastest computers, in existence since about 1960. An IBM 7090 can easily handle 104 or 10,000 multiplications per second, or 36,000,000 per hour, if well programmed. A computer will run faultlessly for such periods. An even faster computer, the “Stretch” can extend this again by a factor of 10 and deal with more than 9 digits in the decimal system. All computer work requires careful programming and, in terms of the actual computing time, the time spent on programming new computations is very long. But whatever it be, that time is immaterial compared with the previous inability to compute at all or to reduce the needed time by a factor of a million or more. Clearly a revolution of such dimensions cannot fail but to transform the social sciences fundamentally.
– Chapter 5 – Economic Data and Economic Theory, Oskar Morgenstern’s (1963a) On the Accuracy of Economic Observations
From one important point of view, indeed, the avoidance of inflation and the maintenance of full employment can be most usefully regarded as conflicting class interests of the bourgeoisie and proletariat, respectively, the conflict being resolvable only by the test of relative political power in society and its resolution involving no reference to an overriding concept of the social welfare.
– Harry G. Johnson
“One cannot play chess if one becomes aware of the pieces as living souls and of the fact that the Whites and the Blacks have more in common with each other than with the players. Suddenly one loses all interest in who will be champion”
– (Rapoport, 1964, 195)
An economy which uses money but uses it merely as a neutral link between transactions in real things and real assets and does not allow it to enter motives or decisions might be called – for want of a better name – a real exchange economy. The theory which I desiderate would deal, in contradistinction to this, with an economy in which money plays a part of its own and affects motives and decisions and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted, either in the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.
– (Keynes 1933: 408-9)
If society devotes considerable amounts of its resources to any particular activity, economists will want to look into this allocation and get an idea of the magnitude of the activity, its major breakdown, and its relation to other activities
– (F. Machlup (1962), *The Production and Distribution of Knowledge in the United States*, p. 7).
Once an organism is born or a phenomenon uncovered, there is an almost irresistible urge to measure its growth
– (M. U. Porat (1977), *The Information Economy*, p. 63).
Material production is essentially social. Humans are not genetically endowed with the physiology or mentality to enable them to survive, much less prosper, on their own. Group interaction in the form of a division of labour is thus required, with the character and complexity of the rules differing with specific cultures and types of production.
– Len Doyal and Ian Gough. (1986) “Human Needs and Strategies
for Social Change,” In Paul Ekins eds. The Living Economy:
A New Economics in the Making, London and New York:
Routledge & Kegan Paul.
From the standpoint of evolution, it seems plausible to say that ideology is a substitute for instinct. The animals seem to know what to do; we have to be taught.
– oan Robinson. (1962) Economic Philosophy.
London: C.A. Watts & Co. Ltd., p. 4.
Monetary theory is less abstract than most economic theory; it cannot avoid a relation to reality, which in other economic theory is sometimes missing.
– Sir John Hicks, Critical Essays in Monetary Theory.
The first urgent issue in the philosophy of economics is the question of the intelligibility of a separate discipline devoted exclusively to the explication of an abstract concept called “the economy,” separate from other categories of social phenomena, and separate from the relationships we attribute to the physical or non-human world. These are the fundamental issues that any coherent discipline of economic theory must address: it must carve up reality, and must have some claim to have carved artfully “at the joints”;
it must have some resources to adjudicate boundary disputes with other disciplines, which requires a clear conception of its own theoretical object; it must nurture some epistemological conception of the economic actor and the economist and presumably reconcile them one with the other; and it must build bridges to the conceptions of power and efficacy within thecontext of the culture in which it is to subsist.– Mirowski, 1987, p. 1003
Physicists ask what kind of place this universe is and seek to characterize its behavior systematically. Biologists ask what it means for a physical system to be living. We in AI wonder what kind of information-processing system can ask such questions.
– Avron Barr and Edward Feigenbaum
AI is the study of techniques for solving exponentially hard problems in polynomial time by exploiting knowledge about the problem domain.
– Elaine Rich
Throughout the world today, politics lags behind economics, like a horse and buggy haplessly trailing a sports car. While politicians go through the motions of national elections — offering chimerical programs and slogans — world markets, the Internet and the furious pace of trade involve people in a global game in which elected representatives figure as little more than bit players. Hence the prevailing sense, in America and Europe, that politicians and ideologies are either uninteresting or irrelevant.
– Roger Cohen, “Global Forces Batter Politics,” The New York Times Week in Review, November 17, 1996, page 1.
The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer.
– Ludwig Von Mises (1940, 270)
In established businesses, innovation is mostly shaped through small, incremental steps of additional features to augment basic functionalities. With short product lifecycles, time to recoup R&D investments is limited. . . . Success is relatively predictable through the execution of well-defined innovation processes and in-depth knowledge of their markets in the respective business
units.– Dr. Ad Huijser, executive vice president and chief technology officer, Royal Phillips Electronics (Tilburg, the Netherlands, September 2003)
Casual observation suggests that price discrimination is common in many industries that appear to be extremely competitive. . . . [F]irms in the airline, car rental, moving, hotel and restaurant businesses practice common types of price discrimination, and much evidence suggests that high-valuation consumers pay higher average prices than low-valuation consumers. Yet these markets are not characterized by unusually high entry costs, economies of scale, product differentiation, or market concentration.
– James D. Dana, Jr. (1998, 395)
A beginning is the time for taking the most delicate care that the balances are correct.
– Frank Herbert
Manhar Singh 