Structure diagram of Keynes argument

 

(Dr. J G T Meeks)

 

 

Dictionary

 

  1. it is impossible for us to deduce from our data what the future course of events will be; for instance, we cannot acquire (certain) knowledge, ex ante, of the future stream of returns from an investment.
  2. It is impossible for us to establish quantitative probability for every possible future state of the world; in particular, we cannot measure the probabilities of the various possible future returns from a capital-asset.
  3. Since actions have consequence in the future, we can deduce from our data neither which actions are best (give our goals) nor, in general, even which promise to be best; for example, if we are seeking to maximise profit, we face the difficulty that we cannot prove mathematically just from known facts or likelihoods which investment projects to favour.
  4. We have to act and to choose between possible courses of action; similarly, investing is imperative for society and decisions where to invest have to be made.
  5. In general, we must select a course of action by some means other than pure deduction from our data; for instance, we have to decide which investments to favour, by some means other than just determining mathematically from our data what the profitability of various projects is or promises to be.
  6. In practice our method of choosing actions is routine, in the sense that in the last analysis we rely on a set of habits and conventions (following the crowd) and especially on the custom of assuming that the future will be like the past; for example, the entrepreneur of an unquoted company assumes for practical purposes that the yield he expects from an investment project on the basis of the present state of affairs will in fact accrue, whilst those investing in the financial sense, on the stock market, assume in practice that the market’s existing valuations give a correct guide to future prospects.
  7. Since the basis for decision is of this merely conventional kind, subjective factors – including temperament, fashion, and maybe even panic and hysteria – can readily exert an influence, and in markets speculation is likely to arise; thus, the extent to which the entrepreneur of an unquoted company will invest may depend partly on his mood, and the stock market is subject to waves of optimism and pessimism.
  8. But even so, our method of judging how to act isn’t unreasonable, give the circumstances of unavoidable uncertainty; in particular, in these circumstances and so long as the bulk of investment activity remains dependent on private initiative, the way in which that activity is pursued is as good as could reasonably be expected.