[lbo-talk] the "rationality" postulate (was Re: policymaking by thesaurus)

Ted Winslow egwinslow at rogers.com
Fri Sep 17 08:04:37 PDT 2004


What I should have said was that the results of the study reported on in the WSJ Rebello article forwarded by Doug were consistent with Keynes's liquidity preference theory. The study doesn't, to say the least, interpret its results in terms of this theory, so it's not a "return to Keynes" in this sense.

The rationality postulate underpinning the view of financial markets that does actually dominate conventional economic analysis - the assumption of omniscient fully rational expectations - is very widespread.

Much Marxist analysis, for instance, seems to take it as the self-evidently true starting point for the analysis of capitalist behaviour. Capitalists are assumed to control policy and and to base their exercise of this control on omniscient fully rational expectations of the consequences of policy. Everything from the deregulation of financial markets to the invasion of Iraq to "accumulation by dispossession" is interpreted in this way.

The policies in question are often closely connected by those responsible for them to the same postulate. Deregulation of financial markets for instance was rationalized in terms of the rational expectations view of behaviour in those markets (though it's not clear, on this hypothesis, why financial markets were regulated to begin with). The invasion of Iraq was significantly influenced by the game theoretic phantasies associated with the neoconservatives. Etc.

As is shown by Whitehead (Adventures of Ideas, Chap. VI: "Foresight"), the assumed omniscience is impossible on Marx's ontological premise of internal relations. This premise is also inconsistent with the conception of "rationality" underpinning the analysis. Marx's ontological premise is the basis of Keynes's concept of "uncertainty."

Ted



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