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Customer Review
Reviewed in the United States on July 11, 2004
There is only one essay in this collection of essays that is without severe error and hence worth reading.It is the essay titled"Keynes on Econometrics"by H.Pesaran and R.Smith(PS).They do a first rate job in discussing Keynes's correct objections to Tinbergen's methodological foundations for econometrics.The reader should note that the PS essay has been replaced as the authoritative final word by H.Keuzenkamp's (2001)book titled"Probability,Econometrics and Truth".There are several errors made by PS. They are,first,that "Keynes rejected the frequency as well as the subjective interpretations of probability in favour of a ...logical theory...This 'logical' theory of probability,together with his insistence that most probability relations are not measurable...".Keynes never rejected either theory.Keynes held that they were both special theories that were sound and valid in a limited number of cases.The logical theory of probability was a general theory that included these other theories within it.Keynes did not object at all to Ramsey's suggested use of betting quotients in order to estimate probability bounds.Likewise ,all Keynesian probabilities can be measured by either one number or TWO NUMBERS.PS have,like Ramsey misinterpreted the meaning Keynes gave to the terms"nonnumerical"and/or"nonmeasurable"(PS,p.144).This same error is committed in essays written by T.Lawson,A.and S.Dow,G. Hodgson and A.Carabelli.Secondly,the claim that"...the lesson of The General Theory is that there are no stable economic relations."(p.147),ignores the fact that the consumption function is stable.It is the investment function that is highly unstable and volatile over time ,due to the fact that such irreversible spending on plant and equipment is highly susceptible to becoming obsolete,due to constant innovation and technological change,before the owner of the physical capital good has been able to recover any substantial portion of his huge ,initial, fixed cost.In conclusion,PS also correct the many errors about the Keynes-Tinbergen debate which are incorporated into a number of essays in the same book in which the PS essay appears.The PS essay thus refutes the essays by J.Klant,J.Pheby and T.Lawson.
