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Distinguishing between uncertainty and probabilistic risk:

12 Jun

Keynes explicitly developed a ‘general theory’ as an alternative to classical theory. Keynes argued that the difference between probabilistic risk and uncertainty had important implications for understanding (a) the operations of a market-oriented entrepreneurial economy and (b) the positive, active role of government in influencing market outcomes through deliberate legislative policies.
Keynes’s concept of uncertainty, therefore, reflects the fact that the future is transmutable or creative in the sense that future economic outcomes may be permanently changed in nature and substance by the actions today of individuals, groups or governments, often in ways not even perceived by the creators of change.
To summarize, following Samuelson, mainstream economic theory imposes the ergodic axiom for its ‘scientific’approach. Requiring this ergodic axiom as a basis for scientific analysis dictates a laissez-faire policy philosophy by assumption. On the other hand, if one invokes Keynes’s concept of uncertainty as involving a non-ergodic environment, then, logically, there can be a positive role for government in deliberately using monetary policy, and if that fails, fiscal policy, to encourage the full employment of resources and promote economic growth. Proposition evidence treatise

Source: The Philosophy of Keynes’s Economics—Probability, uncertainty and convention

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Posted by on June 12, 2012 in Economics

 

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