The Three Basic Axioms of the Adam Smith-John Maynard Keynes Approach to Decision Making Versus the Three Basic Axioms of Jeremy Bentham and His students (Ricardo, Say, James Mills, J S Mills, Senior, Walras, and Marshall) Approach to Decision Making
25 Pages Posted: 19 Jan 2019
Date Written: January 8, 2019
Adam Smith and J M Keynes were both practitioners of virtue ethics who rejected Benthamite Utilitarianism. Their axiomatic foundations consist of the following three axioms only. The first is that probabilities are nonadditive, in general. Additivity is a special case. The second is that probability preferences are generally nonlinear. Linearity is a special case. The third axiom, which follows from the first two, is that the relevant information, data, evidence or the knowledge base required in order to make decisions is generally incomplete. A State of completeness of the relevant information, data, evidence or knowledge base is a special case. The axiomatic structure of Benthamite Utilitarianism is practically identical to that which underlies the Rational Expectations-Real Business Cycle – Dynamic Stochastic General Equilibrium approaches. Bentham’s first axiom was that all probabilities (“uncertainties”) were numerical and additive. Bentham’s second axiom was that all probability preferences were linear. The whole is nothing more than the individual sum of each part. The third axiom was that all the relevant information, data, evidence or knowledge base is complete, so that individual decision makers can make rational (optimal) decisions in both the short run and long run. Based on these three axioms, Bentham asserted that all rational decision makers would be able to actually maximize utility and returns as long as government would “be quit” and “stay out of the sunlight” of businessmen .The normal result would be that an economy would always be operating on the boundary of the Production Possibilities Frontier unless an external shock (war, revolution, plague, etc.) occurred. Smith and Keynes’s axioms are more general than those of Jeremy Bentham and his students. It is impossible to maximize utility or profits, in general, for Smith and Keynes, except as a very special case.
The only conclusion possible is that the Rational Expectations-Real Business Cycle – Dynamic Stochastic General Equilibrium approaches are all very special cases of the more generalized Smith – Keynes axiom set.
Keynes did exactly what he said he would do in the General Theory on page 3. He generalized classical and Neoclassical theory by providing a more general axiomatic structure .Modern economists are still working with the special theory of Bentham.
Keywords: Smith, Virtue Ethics, Benthamite Utilitarianism, Axiomatic Structure, General Theory, Treatise on Probability, Keynes, Smith
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation