Lars Syll recently provided an interesting quote from John Hicks’ 1979 book Causality in Economics. I thought that what Hicks said made an awful lot of sense, so I got my hands on a copy of the book. I have only so far scanned the book but I think that it is something of a masterpiece and I hope that someone suggests reissuing it; it could easily be a standard textbook for Post-Keynesian methodology.
Take this quote from the preface to see just what Hicks wants to explain about economics,
I find that all experimental sciences are, in the economic sense, ‘static’. They have to be static, since they have to assume that it does not matter at what date an experiment is performed. There do exist some economic problems that can be discussed in those terms; but there are not many of them. The prestige of scientific method has led economists to attach importance to them, for this is the field where economics appears to be most ‘scientific’. The more characteristic economic problems are problems of change, of growth and retrogression, and of fluctuation. The extent to which these can be reduced to scientific terms is rather limited; for at every stage in an economic process new things are happening, things which have not happened before — at the most they are rather like what has happened before. We need a theory that helps us with these problems; but it is impossible to believe that it can ever be a complete theory. It is bound, by nature, to be fragmentary… As economics pushes beyond ‘statics’, it becomes less like science, and more like history. (p6)
It looks like what the Post-Keynesians like Joan Robinson and Paul Davidson rubbed off on Hicks somewhat. From the above quote we can see that he truly absorbed this perspective — and that account, in part, for his later rejection of the ISLM model.
Hicks goes on to pursue a theme that Robinson also took up in her book Freedom and Necessity — a book that I think, from reading the present work, Hicks had read. He writes that while we can apply deterministic thought to the past in both history and economics we cannot really apply it to the future.
There is no reason, when looking forward, to doubt that we are free, as we feel ourselves to be, to choose one course of action over another. But no decision made now can affect what has happened in the past… So, with respect to the past, one can be fully determinist… Determinism, applied to the future (in theological terms, pre-destination) is cramping; but determinism applied to the past is not cramping. It is liberating. (p17)
This is slightly contentious given the severe limitations of our knowledge about the past, but I think that the spirit of what Hicks is saying is correct. The past is, in a sense, frozen. It is not affected by our interpretations of it. Yes, we may colour the past through our interpretations — many historians are well aware of this — but that does not affect the actual content of the past. Determinism, however, cannot be applied to the future because the decisions we make today — which have an element of free will (Soros would call this ‘reflexivity) — can make the future take any number of given trajectories.
This gives rise, for Hicks, to historical time — which is what economists deal with — as being in a state of flux. He writes,
One aspect of the difference between the sciences and economics [is that] the sciences are full of measurements which, over a wide field of application, can be regarded as constants… but there are no such constants in economics. There are indeed some price-ratios which for long periods have been some apparent constants or near-constants, such as the nine or ten-year length of the Trade Cycle, which for roundabout half a century, between 1820 and 1870, appeared to have become established (so established, indeed, that Jevons dared to associate it with the sunspot cycle, thus reducing it to purely physical terms); but regular fluctuation, on this pattern, has not persisted. The economic world, it has in our day become increasingly obvious, is inherently in a state of flux. (p40)
Writing in 1979, when the rational expectations theorists sought out timeless explanations for human behavior, it is by no means clear that this was becoming “increasingly obvious”. But nevertheless Hicks’ actual point stands: economics does not deal with timeless laws; rather it deals with an economy moving through historical time in a state of flux.
The eighth chapter of the book is probably the most interesting. It is entitled ‘Probability and Judgement’ and is an extended discussion on the use of probability theory and econometrics. Hicks’ views on probability are, by his own admission, closely aligned with Keynes’. I do not think that this is widely known — at least, I did not know it.
Hicks’ discussion is long and rather in depth. I would suggest that people read it themselves — I intend on rereading it because it is quite dense. The ultimate conclusion he comes to, however, is rather simple.
When we cannot accept that the observations, along the time-series available to us, are independent, or cannot by some device be divided into groups that can be treated as independent, we get into much deeper water. For we have then, in strict logic, no more than one observation, all of the separate items having been taken together. For the analysis of that the probability calculus is useless; it does not apply. We are left to use our judgement, making sense of what has happened as best we can, in the manner of the historian. Applied economics does then back to history after all. (p102)
This means that although statistical information may be interesting it does not generally explain anything, as the econometricians are wont to think it does. Rather, it is information itself that must be explained. Hicks writes,
I am bold enough to conclude, from these considerations that the usefulness of ‘statistical’ or ‘stochastic’ methods in economics is a good deal less than is now conventionally supposed. We have no business to turn to them automatically; we should always ask ourselves, before we apply them, whether they are appropriate to the problem at hand. Very often they are not. Thus it is not at all sensible to take a small number of observations (sometimes no more than a dozen observations) and to use the rules of probability to deduce from them a ‘significant’ general law. (p102)
Hicks then goes on to note something extremely important — something that I have noted many times before: namely, the tendency for economists to suppress relevant information (for example, non-quantitative information) just because it does not fit in with their tidy regression model.
For we are often assuming, if we do so, that the variations from one to another of the observations are random, so that if we had a larger sample (as we do not) they would by some averaging tend to disappear. But what nonsense this is when the observations are derived, as not infrequently happens, from different countries, or localities, or industries — entities about which we may well have relevant information, but which we have deliberately decided, by our procedure, to ignore. By all means let us plot the points on a chart, and try to explain them; but it does not help in explaining them to suppress their names. The probability calculus is no excuse for forgetfulness. (p102)
All in all, John Hicks’ book is an excellent one and I cannot recommend it enough. It is absolutely written in the Post-Keynesian tradition and after reading it I cannot but say that John Hicks died a Post-Keynesian economist. Even though I find myself somewhat surprised that I am saying this: I think that John Hicks has genuinely written one of the most comprehensive works on the theory of non-ergodicity available in Post-Keynesian economics. And I think that his contribution — and his rejection of his own ISLM framework — is actually more Post-Keynesian than the work of some people who go by that label today. But given how unproductive those debates tend to be I will not try to elaborate on that here.
A Note on the Consumption Function: Although the above post was mainly a brief overview of Hicks’ argument I came across one part of the book which I thought it interesting to highlight on its own — for posterity, as it were. That is where Hicks discusses the consumption function — which many assume that Keynes considered to be some sort of Universal Constant. Hicks writes of this,
Just how far Keynes himself regarded the saving function (or consumption function) as dependable is, however, a question worth considering. We know that he was a sceptic about econometrics; so he hardly have fancied that it would be possible to calculate his function — the function to applied to the analysis of some particular year (‘1975’) — by induction from the behavior income and saving in the previous years (back to 1965, or 1955). So he would have not expected it to be usable, in the manner which later became fashionable, for projections, even or ‘fine tuning’. I know myself, from my recollections, that it was nearly a decade after my first acquaintance with the General Theory, before I realised that people were taking the function in this way. It was not natural to take it in this way when one first read the book.
It was natural to take the function as being theoretical; that is to say, as being based on reasoning, from rather obvious aspects of observed behavior, as is commonly done in other parts of economics. (p67-68)
I entirely agree with Hicks here. It has always surprised me that interpreters assumed that Keynes was saying that the consumption function might be stable. But then I suppose that those who are inclined to look for timeless laws will find them anywhere and everywhere.