Uncertainty

Keynes was a Cambridge economist and Treasury official who resigned from the British delegation at the Paris peace conference in 1919 in protest at the reparations imposed on Germany. He belonged to the Bloomsbury group, speculated on markets, and spent the interwar years arguing against the orthodoxy that a slump would cure itself. The General Theory appeared in 1936, in the depths of the Depression. He led Britain’s negotiators at Bretton Woods in 1944 and died two years later.

• 1919 · The Economic Consequences of the Peace

  The consequences of a settlement

  The reparations demanded of Germany could not be paid, and trying to extract them would ruin Europe’s economy and its politics.

• 1921 · A Treatise on Probability

  Probability without numbers

  Many probabilities cannot be measured, or even ranked against one another. How much evidence supports a judgement, its weight, is a different thing from the probability itself.

• 1936 · The General Theory of Employment, Interest and Money

  Effective demand

  Output and employment depend on total demand, and an economy can settle at high unemployment with no force pushing it back. What is prudent for one household, such as saving more, can be self-defeating for all.

• 1937 · The General Theory of Employment

  Radical uncertainty and convention

  For many long-term outcomes there is no basis for calculating a probability at all. Investors fall back on convention and on spontaneous optimism, both of which can collapse suddenly.

1. Which future possibilities cannot honestly be reduced to known probabilities?
2. Which of these numbers is a measured probability, and which is a guess presented as one?
3. What convention is everyone relying on, and what happens when confidence in it breaks?
4. Is what is sensible for one firm or household self-defeating when everyone does it?

Aggregate analysis can hide differences between particular households and firms, and radical uncertainty, pushed too far, can become a reason not to estimate at all.