The popularity of Will Hutton's (1995) book, The State We're In in the UK pointed to a growing interest among a wide audience for a comprehensive alternative to the neoclassical economics which dominated economic thinking in the UK, by integrating micro, meso and macro levels of analysis. This is perhaps an indication that more academic economists have been unable to fill the void, at least, in an accessible language. Keynes himself suggested that, while at first it appeared that (contemporary) economists tend to exert very little political influence on government decisions, it was nevertheless heartening to discover that the latter often owed much to "some defunct economist" (Keynes 1936: 393). This note is intended to bring out some insights into our own contemporary economics from "some academic scribbler of a few years back" (1936: 393), Keynes himself.
In the 1920s, Keynes expressed concerns about firm and industry level decision-making, the micro and meso-economic roles of financial institutions, and behaviour under uncertainty.(1) This note is an attempt to show that, in his more practical writing in the 1920s, as well as less discussed parts of the General Theory in the 1930s, Keynes was consistently concerned in both practice and theory with all three of these issues. We also contend that Keynes's General Theory was constructed from foundations in British institutional conditions, suggesting that his analysis can arguably be better understood within context-specific, institutionalist approaches to economics - such as Hutton's which contends that the United Kingdom has specific problems - rather than the more conventional approaches which seek abstract, universal theorems in Keynes's work (for unresolved discussions of general cost curves and supply functions which purport to be compatible with Keynes's writings, see Asimakopulos 1991; Davidson 1978: 33-57; 65-66; 74-90; Eichner 1978: 19, 29-37, 40-49, 256-60; Kahn 1989: 37-63; Marris 1992: 1238-1242; O'Shaughnessy 1994; Sardoni 1994: 62-82; Torr 1992: 10-15).(2)
Keynes's concern with uncertainty is well documented (Bateman 1996). Earlier in the 1950s, Shackle, claiming to follow in the footsteps of Keynes's General Theory, had even gone as far as arguing that "its central concern is with uncertainty" (Shackle 1955: 22). In this regard, those ideas in economics whose basis was decision-making on probability calculations had to be rejected. Shackle insisted that individual or infrequent decisions could not be understood through probability distributions - even if the probability distribution was objectively known. In this sense, all infrequent decisions could be regarded as having an element of uncertainty, and not reducible to risk.
With notable exceptions (Ford 1987), Keynes's and Shackle's concern with non-probabilistic uncertainty, rather than risk, appears to have been largely lost. Instead, the mathematical tractability of probability concepts in individual agents' optimization choice functions has proved immensely attractive, even among post-Keynesians, though in the forms of rational degrees of belief. Mainstream economics has generally followed Arrow's analysis, which incorporates probability-defined fisk in general equilibrium theory, with a variety of futures markets. Such an approach often aims to show the conditions under which risk is unlikely to have an unsettling effect on the positive efficiency conclusions of the Arrow-Debreu models (Arrow and Debreu 1954; Debreu 1959; Heller et al. 1986).
Some recent writings have been closer to the inheritance from Keynes. Magill and Quinzii (1996) do not only give Keynes explicit credit for inspiration, but also deal with genuine uncertainty. But their research is still couched in general equilibrium terms, and this inevitably involves restrictive assumptions. They impose a psychology of decision making which is rather conservative, marginal and sequential; and, not surprisingly, this leaves general equilibrium theory largely undisturbed. …