What Happened to Knightian (and Keynesian) Uncertainty Post WWII?: A Philosophic History

13 Pages Posted: 2 Apr 2012

Date Written: April 2, 2012

Abstract

In this paper I argue that in the period after 1945 in the main currents of academic (technical) economics a commitment to-so-called Knightian uncertainty got displaced by two strategies: i) a simple displacement strategy (heavily promoted by Arrow and Samuelson), in which un-measurable uncertainty simply got treated as quantifiable risk; ii) a sophisticated displacement strategy (due to Alchian), which turned uncertainty into randomness understood as a stochastic process. The point of my narrative is to illustrate what a so-called “Kuhn-loss” looks like in practice.

In the philosophy of science literature, insights of discarded theories that cannot be articulated or recognized by the new theory are instances of Kuhn-losses. A Kuhn-loss is often accompanied by the suppression of long-standing objections or even reliable alternative approaches. This is not merely of philosophic interest; Kuhn helped popularize a view of paradigms that allowed social-scientific practitioners to claim that they need not answer all objections.

This paper proceeds as follows in three main sections: first, I briefly use a remarkable, recent self-study by the Netherlands Bureau for Economic Policy Analysis (CPB) as an exemplar of the re-discovery of uncertainty in the wake of the financial crisis of 2008 and, in particular, to illustrate how difficult it is for these policy economists to find a way to describe it with their conceptual apparatus. Second, I briefly sketch the pre-1945 approach to uncertainty. In doing so I make two main points: A) uncertainty was accepted by thinkers as politically and intellectually diverse as Frank Knight and John Maynard Keynes. B) I distinguish between epistemic and metaphysical versions of uncertainty. Third, I describe what happened with uncertainty in the context of the formal revolution in economics. I describe the simple displacement strategy in general outline. I then analyze the sophisticated displacement in some more detail. I argue that uncertainty got displaced by successor concepts that are neither identical to it nor to each other.

Suggested Citation

Schliesser, Eric S., What Happened to Knightian (and Keynesian) Uncertainty Post WWII?: A Philosophic History (April 2, 2012). Available at SSRN: https://ssrn.com/abstract=2033117 or http://dx.doi.org/10.2139/ssrn.2033117

Eric S. Schliesser (Contact Author)

Ghent University ( email )

Philosophy and Moral Sciences
Blandijnberg 2
Ghent, 9000
Belgium

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