> In this case I think you changed the subject. My point was that
> certain post-Keynesians have criticised Keynes for neglecting the
> stock of financial wealth: "A number of the above work from a
> criticism of Keynes, that he did not pay enough attention to the stock
> of financial wealth." You came back with this:
>
>> If you mean that they read Keynes as making the psychological
>> premises to
>> which I pointed and as basing his analysis of booms and busts on
>> them, this
>> isn't true.
>
> And then a bunch of quotes about attitudes to uncertainty! Which is
> obviously not what I was talking about.
>
> Despite the change of subject, though, I can't help responding that it
> seems to me that in those quotations, Davidson's and Minsky's
> approaches (which are in fact quite different) are more fruitful than
> Keynes's conjecture that people act as if "we hide from ourselves how
> little we foresee". It would be hard to understand today's financial
> system if we did not take account the devices and institutions
> deliberately used to hedge for uncertainty, and hard to understand the
> crises in which these devices occasionally seize up.
I had claimed that Post Keynesians ignore and/or deny that Keynes's analysis of capitalism, including his analysis of financial markets, assumes that "the essential characteristic of capitalism" is "the dependence upon an intense appeal to the money-making and money-loving instincts of individuals as the main motive force of the economic machine", this being, as I also pointed out, an application of his more general "belief", stated and elaborated in two "memoirs" he had taken the trouble to arrange in his will should be published after his death, that "the view that human nature is reasonable" is "disastrously mistaken" and that, in fact, there are "insane and irrational springs of wickedness in most men".
As implemented in his analysis of financial markets it's a psychological elaboration, in terms of the psychoanalysis of irrationality, of the following claims:
""The vast majority of those who are concerned with the buying and selling of securities know almost nothing whatever about what they are doing. They do not possess even the rudiments of what is required for a valid judgment, and are the prey of hopes and fears easily aroused by transient events and as easily dispelled. This is one of the odd characteristics of the capitalist system under which we live, which, when we are dealing with the real world, is not to be overlooked."
As an explanation of the irrationality involved in "the state of long- term expectation", it's the claims that "peace and comfort of mind require that we should hide from ourselves how little we foresee" and that, to do this, we "assume, contrary to all likelihood, that the future will resemble the past"; we "assume the future to be much more like the past than is reasonable."
To this argument you responded by claiming that
> Actually, they know what Keynes wrote as well as you do. They just
> argue that he left something important out, and (implicitly or
> explicitly) disagree that financial booms and busts are all about
> psychology.
Now, when I've responded to this claim with quotations demonstrating that Davidson and Minsky do in fact ignore this essential aspect of Keynes (i.e. do what I claimed they do, assume that agents consciously recognize the fact of "uncertainty" and deal with it rationally, Davidson explicitly attributing this assumption to Keynes in the passage I quoted), you respond by mistakenly claiming I'm "changing the subject" and using a "bunch of quotes" "obviously" unrelated to it.
This you do having earlier mistakenly claimed (and are now suggesting again) that I'm making arguments from authority.
You do now acknowledge that Keynes assumes that "the vast majority of those who are concerned with the buying and selling of securities" respond to "uncertainty" by irrationally hiding it from themselves while Davidson and Minsky, as Davidson puts it , assume that they 'know' that they do not, and can not , know the future outcome of certain crucial economic decisions made today’" and that they respond to this fact rationally. You claim, however, that the Davidson and Minsky assumption is "more fruitful".
This you do in spite of the fact that Davidson himself, in the second passage I quoted from the same paper, explicitly points to evidence disconfirming his own and Minsky's assumption while confirming Keynes's. Moreover, it's evidence that the hiding from "uncertainty" was accomplished by means of the inappropriate "quant" methods Keynes had identified with "Bedlamite" obsessional psychopathology.
"The highly complex computer models used by investment bankers in Wall Street in recent years to evaluate and manage the risks of dealings with financial assets is based on statistical probability analysis of historical data to predict the future. Given the necessity of the government, in 2008, to bail out all these Wall Street investment bankers when their risk management tools failed, it should be obvious that their risk management computer models presumed the ergodic axiom while the real world environment was nonergodic. That is why all these risk management models failed to predict the 2008 future." (http://econ.bus.utk.edu/Davidson.html , p. 6)
To this I have myself just been adding in this thread a great deal of evidence demonstrating the Bedlamite character of the EMH and its exponents and the key role it and they played in the development, functioning and explosive growth of financial derivative markets.
Finally, I did implicitly respond to the "subject" you mistakenly claim I was changing, namely, to your "point ... that certain post- Keynesians have criticised Keynes for neglecting the stock of financial wealth". This I did by pointing to the mistake involved in many "Post Keynesian" treatments of the "stock of financial wealth" (e.g. those of French "circuitists" and Basil Moore), i.e. to their mistakenly "associating idle balances ... with some aspect of current saving." It's also the mistake found in your connecting (following Toporowski) of "savings" , "too much saving/profits", to financial asset price inflation.
> People store value in
> financial assets that are not money - bonds, shares, etc.. So Fitch's
> concept of 'surplus capital hoards' is not meaningless. It is
> possible for
> savings to flow into financial assets (with only temporary stops as
> 'money')
> and inflate their value without necessarily having an equal impact
> on the
> market for real investment goods.
> This [financial asset price inflation] is not necessarily due only
> to manias and
> irrational exuberance, but can in fact grow out of 'too much
> saving/profits'.
I could of course be mistaken so that it's possible, for example, for part of current saving to be assumed to fuel financial asset price inflation without the assumption violating the national income accounting identity (e.g. in a simple model where this identity is Y necessarily equal to C plus realized I, to have some part of current saving (Y minus C) fuel financial asset price inflation without it necessarily meaning that Y minus C would have to be less than realized I).
Ted