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About this book

Most economists who read the General Theory candidly admitted that they could not understand the theoretical apparatus and found it easy to recast it in traditional terms. This book provides a masterful guide to the generally unrecognized methodological revolution that supported the new theoretical concepts -- a veritable lodestone that complements and expands understanding on the treatment of the economic magnitudes appropriate to the ideal of generality in the social sciences, to the applicability of probability, to the formulation of decision-making under uncertainty, and the foundations of economic policy in interdependent economic systems. _Jan Kregel, Levy Economics Institute

Anna Carabelli sets out Keynes’s understanding of economics as a way of thinking, encompassing method and morals, rather than as a doctrine. She does so with her customary admirable scholarship and also her willingness to take controversial positions. I commend the volume most highly to Keynes scholars as a drawing-together and development of the themes that Carabelli has pursued since the publication of her 1988 classic, On Keynes’s Method. Further Keynes’s approach was designed to be applied to different contexts, so I enthusiastically recommend the volume also as a foundation and guide for anyone open to such a ‘new way of reasoning in economics’ for the modern era. _Sheila Dow, University of Stirling

This book examines the philosophy and methodology of Keynes, highlighting its novelty and how it presented a new form of economic reasoning. Exploring Keynes’s use of non-demonstrative logic, based on probability, commonalities are found in his economics, ethics, aesthetics, and international relations. Insights are provided into his reasoning and his approach to uncertainty, rationality, measurability of complex magnitudes, moral and rational dilemmas, and irreducible conflicts.

This book investigates methodological continuity within Keynes’s work, in particular in relation to uncertainty, complexity, incommensurability, happiness and openness. It will be relevant to students and researchers interested in Keynes, probability, ambiguity, ethics and the history of economic thought.

Table of Contents

Frontmatter

Chapter 1. Introduction

Abstract
The introduction anticipates the main arguments advanced in the book, which are: (a) The relevance of A Treatise on probability to understand Keynes’s methodological way of reasoning and his idea of rationality as reasonableness; A Treatise on Probability is relevant to Keynes’s economics. There is a continuity in Keynes’s way of reasoning, from A Treatise on Probability to Indian Currency and Finance, the General Theory and on to Keynes’s Plan for Bretton Woods; (b) Keynes advances a philosophy of measure in his approach to probability and transfers this philosophy from probability to economics; (c) Keynes investigates some complex or manifold magnitudes and the impossibility to measure them by a single unit of measure. These complex magnitudes are probability, goodness, beauty, utility, the general price level, aggregate capital and output as a whole. So, the theme of incommensurability (intrinsic non-measurability) of magnitudes is central in his thought (Chapter 3); (d) To understand Keynes’s way of reasoning, it is fundamental to analyse his way of criticising the classical economic theory and to compare it with his own way of reasoning both in A Treatise on Money and in the General Theory. He always searches for logical fallacies in economic reasoning; he is like a detective in search for tacit premises, tracking down logical fallacies in economic reasoning (Chapter 4); (e) Greek tragedy and irreducible conflicts and dilemmas are central in Keynes’s thought and are at the root of his idea of uncertainty. Keynes’s way of reasoning and his idea of tragic irreducible conflicts and dilemmas are a constant, not only in his macroeconomics but also in his approach to international relations, from his early book on Indian Currency and Finance (1913) to his Plan for Bretton Woods and the Clearing Union and his 1945 Memorandum (Chapter 5 and Chapter 8); (f) His anti-utilitarian ethics is rooted in the Greek ethics of virtue (a life worth to be lived) and in the Aristotelian happiness as eudaimonia. Tragic beauty and the sublime are also relevant to his view on aesthetics. Happiness is, for Keynes, the ultimate end of life in contrast to the capitalist love of money. The introduction also briefly lists some of the widespread misinterpretations of Keynes’s way of reasoning against which I argue in the book. I argue against the so-called discontinuity thesis, defended by Bateman, O’Donnell and Winslow; against the interpretation of Keynes’s concept of ‘radical uncertainty’ based on non-ergodic statistical processes of the material-empirical universe, advanced by Davidson and his followers; against the interpretation of Keynes as a follower of the critical realism ontology à la Bashar, advanced by Lawson; against the widespread behaviourist view on the stabilising role of conventions in Keynes’s view on expectations; against the interpretation, according to which, Keynes finally embraces Hume’s philosophy after having fully criticised it in his A Treatise on Probability (Andrews, Dow). I also argue that Keynes is not a Keynesian (a bastard Keynesian), a neo-Keynesian nor a post-Keynesian.
Anna M. Carabelli

Chapter 2. Rationality as Reasonableness: Probability

Abstract
This chapter deals with Keynes’s concept of rationality as reasonableness, with his idea of speculation and the instability of financial markets. It deals with Keynes’s distinction between reasonableness and conventions in chapter 12 of the GT and in his 1937 Quarterly Journal of Economics article. It also deals with Keynes’s view on economic policy and the way institutions (a concept of institutions that is different from Hayek’s own view) should face uncertainty. It explains how Keynes’s view on the knowledge of institutions is opposite to Hayek’s view on economic policy of laissez-faire and non-intervention.
Anna M. Carabelli

Chapter 3. Complexity and Incommensurability: Multidimensional, Heterogeneous and Interdependent Magnitudes. Probability and Economic Magnitudes

Abstract
This chapter focuses on how Keynes transfers his philosophy of measure of probability to economic magnitudes, stressing on complexity, heterogeneity, qualitative variety and logical organic interdependence.
Anna M. Carabelli

Chapter 4. Keynes’s Methodology of Criticism: Probability and Classical Economic Theory. Logical Fallacies: The Introduction of the Tacit Assumptions of Homogeneity and Independence

Abstract
This chapter deals with Keynes’s actual way of criticising the classical economic theory compared with his own way of reasoning in A Treatise on Money and the General Theory. This chapter shows the persistence, continuity and coherence of Keynes’s methodological approach in the search for logical fallacies and tacit assumptions. He constantly detects logical fallacies and paradoxes both in probability and in economic reasoning (the additive fallacy, the fallacy of composition).
Anna M. Carabelli

Chapter 5. Uncertainty as the Legacy of Greek Tragedy: Uncertainty as Tragic Choice

Abstract
This chapter deals with the centrality of Greek tragedy in Keynes’s thought and in shaping his way of reasoning. It shows how the tragic idea of moral and rational irreducible conflicts and dilemmas and the Aristotelian idea of pluralism, heterogeneity and variety of values, claims and reasons are at the root of Keynes’s idea of uncertainty. This is also connected with his philosophy of measure and his idea of complexity as organic interdependence.
Anna M. Carabelli

Chapter 6. Happiness as Tragic Aristotelian Eudaimonia

Abstract
This chapter shows how Keynes’s anti-utilitarian ethics is again rooted in the Greek ethics of virtue (a life worth living). Keynes’s idea of happiness comes directly from the Aristotelian eudaimonia (happiness as the ultimate end of life in contrast with the capitalist love of money).
Anna M. Carabelli

Chapter 7. Moral and Rational Conflicts and Dilemmas

Abstract
This chapter investigates how moral and rational tragic dilemmas are at root of Keynes’s notion of uncertainty.
Anna M. Carabelli

Chapter 8. International Relations: Complexity, Interdependence and Multilateralism—A Tragic Dilemma

Abstract
This chapter retraces Keynes’s way of reasoning on measure and on the role of tragic irreducible conflicts and dilemmas in his approach to international relations. The chapter shows how Keynes’s approach is a constant from his early Indian Currency and Finance (1913) to the General Theory and on to his Plan for Bretton Woods, the Clearing Union and his 1945 Memorandum. It also devotes great attention to the concept of the ‘fear of goods’ (a concept which stands for the love of money); a concept that Keynes borrows from mercantilism and he uses against mercantilist practices. This chapter again shows Keynes’s anti-utilitarian attitude and his dislike for the hoarding of money. Keynes is a moral scientist, a promoter of happiness scathingly critical of the love of money. The final part of the chapter is devoted to the current discussion on global imbalances and the euro-zone and to what Keynes would have proposed to overcome these global imbalances and the conditions for their reduction, had he been alive today.
Anna M. Carabelli

Chapter 9. Conclusions

Abstract
The final chapter brings together the different arguments of the book in the Conclusions. Keynes holds a philosophy of measure, which contrasts with the scientist view of economics. He holds a view on economics as a moral science where ethics, in particular his speculative ethics concerning the ultimate ends of life, is fundamental to understand the role of economics just as a means. Keynes attributes uncertainty to ignorance, incommensurability of probability and tragic choices. Greek tragedy pervades all his thought. His anti-utilitarian ethics is a Greek ethics of virtue (a life worth living) and his happiness is Aristotelian eudaimonia (happiness is the ultimate end of life rather than the love of money). Economics and money are only means and material preconditions to reach goodness and happiness in life. Irreducible conflicts, tragic rational dilemmas and logical paradoxes and fallacies characterise his way of reasoning from his macroeconomics to his approach to international relations, as in the case of Bretton Woods.
Anna M. Carabelli

Backmatter

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