Wednesday, December 26, 2012

Now this is ironic...

Elsewhere in the book, Steve Horwitz writes this: "The same dark forces of time and ignorance that plague market processes and, for Keynes, implied the need for discretionary economic policy, also haunt the policy-implementation process." (p. 208).

This is an unusual way of putting it! When Keynes cited the "dark forces of time and ignorance", he was actually talking about the social object of skilled investment. This was something that entrepreneurs did - the most important thing they did for the society at large - and not something that required discretionary economic policy. Keynes notes that some investors contribute more to this end than others, and that the tendency toward liquidity preference is one example of satisfying private ends to the detriment of social ends (that's the old fallacy of composition point that economists have been pressing since at least Adam Smith and Mandeville). So there are tensions in the behavior of entrerpreneurs, but this was not an area where public policy was invoked at all!


  1. The whole argument in chapter 12 is one for the social importance of long-term investment, which is at odds with the profit-driven short-term horizon of most investors, hence the beauty contest and all of those analogies.

    And that point becomes part, though not all, of the reason he wants to *socialize* investment. Keynes, true to his worldview, thinks that the right people with the power to make socialized investment decisions (free from the poor incentives of the profit motive) will get the volume and type of investment more "right" than will private entrepreneurs trapped by the short-run calling of the profit system.

    We can quibble over whether that's "discretionary economic policy" but it sure as hell is "public policy" is it not?

    1. Of course everything written in the whole book about investment feeds in in some way to the discussion of the socialization of investment twelve chapters later, but this discussion in this chapter is about the entrepreneurs (not policymakers) whose role it is to defeat the dark forces of time and ignorance.

      I don't see how that is public policy.

      Socialization of investment (twelve chapters later) of course involves a lot of different things, both public and private. Recognizing the social object of the entrepreneur doesn't rule out that policymakers have good things to do too. But the subject of this chapter is not policymakers, and it reviews both the social and private benefits pursued by entrepreneurs (and the tension between the two, in some cases).


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