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Book Reviews : Epistemics and Economics: A critique of economic doctrines. By G. L. S. SHACKLE.

Cambridge: Cambridge University Press, I973. Pp. 482. $25.25
Geoffrey Newman
Philosophy of the Social Sciences 1974 4: 409
DOI: 10.1177/004839317400400306

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 409

BOOK REVIEWS

Epistemics and Economics: A critique of economic doctrines. By G. L. S. SHACKLE.

Cambridge: Cambridge University Press, I973. Pp. 482. $25.25.
Shackle’s book represents yet another addition to the growing list of contemporary
books, all of which are highly critical of the theoretical and methodological basis
of modern economic theory. As with much recent Marxist-Radical writing, and
Kornai’s Anti-Equilibrium in particular, Shackle’s principal attack is on the long-
standing tradition within economics of viewing all economic behaviour as explain-
able in terms of a ’timeless equilibrium system’. Shackle’s attack is distinguished,
nonetheless, from many other comparable treatments, mainly because it is not
just simply another catalogue of criticisms, so to speak, in search of a (new)
world-view. In fact, within Epistemics and Economics, the situation is quite the
opposite. Here we have a world-view which has been matured and developed by
the author for a good quarter-century, and which is now applied critically to
fundamental issues in prevailing economic doctrine. The net result is a book with
unusual perspective and depth. Moreover, combined with Shackle’s propensity
to substitute a literary and philosophical flourish where one usually only finds
mathematical technique or analytical detail, we have a book of somewhat rare
character in today’s social sciences.
Shackle’s work comprises thirty-eight essays, which are more or less equally
apportioned over six so-called ’books’. These essays cover a wealth of historical
and analytical material on ’equilibrium economics’; yet no matter how diverse
their subject-matter, they are all unified by the same fundamental critical theme.
This is that modern-day ’equilibrium economics’ (whether it be in its modern
Neoclassical form or its modem Keynesian form) cannot explain the dynamic or
time-based aspects of an economic system. Behind this, we find a host of subsidiary
themes: that equilibrium economics has neglected the always-present elements of
surprise and novelty in economic activity, that it has neglected the moment-to-
moment changes in thoughts and future expectations of economic agents (’epis-
temics’), and more generally, that it has trivialized the question of how men come
to know the circumstances in which they are acting. All of these concerns are
dynamic in nature, and point up the specific areas to which Shackle’s proposed
reform scheme ultimately addresses itself.
Shackle develops his central critical argument against equilibrium economics
primarily in Books Two and Four of the present work, entitled respectively ’The
Rise of the Rational Ideal’ and ’Statics: The Rejection of Time’. His argument is
direct and uncompromising: that the conditions necessary to guarantee that a
system of equilibrium economics can be ’viable’ (i.e. that there exists a determinate
outcome within the system which will simultaneously fulfil the aims of all
economic agents) are, in fact, so stringent that the consideration of all dynamic
features of an economic system must be precluded. The most important of these
conditions concern the rationality of economic agents, and their knowledge of
their environment. Their strategic position in Shackle’s argument may be under-
stood in terms of the following set of propositions:
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(i) Equilibrium economics can only be ’viable’ if it is assumed that all
economic agents are ’rational’ in their decision-making,
(2) ’Rationality’ is only possible if it assumed that economic agents are
endowed with ’perfect knowledge’ of their decision-making environment,
(3) ’Perfect knowledge’ is only possible at a given point in time, not over time
(since inductivism is false),
which then implies Shackle’s central thesis:
(4) Equilibrium economics can only be ’viable’ at a given point in time, not
over time.
Thus, it follows directly that since economic dynamics must concern itself exclus-
ively with the behaviour of an economy over time, a (viable) equilibrium economics
can only be inconsistent with economic dynamics.
Shackle’s argument is simple, but in many respects, most penetrating. Not only
does it point up the few, if any, circumstances where the conditions of equilibrium
economics can actually be fulfilled in the real-world, but also, it suggests that
modern attempts to ’dynamize’ equilibrium economics must, strictly speaking, be
inconsistent with the requirements of the theoretical programme, and thus doomed
to failure. Moreover, the argument carries with it (especially within Books Three
and Five) the topical historiographical viewpoint that the timeless equilibrium
economics which ultimately evolved from the pioneering work of John Maynard
Keynes and Alfred Marshall was, in fact, formalized contrary to both authors’
essentially dynamic views of the economic process.
What, however, of Shackle’s own plan of reform ? As suggested above, Shackle’s
views have had a long history, and their essential ingredients may be found in the
author’s earlier Time, Decision, and Order (ig6i), and his Scheme of Economic
Theory (196S). Of recurring concern throughout his work has been the topic of
individual decision-making under uncertain conditions and over time, and the
nature of the ’expectations’ which inevitably form in such circumstances. ’Expect-
ations’ play a most important role in Shackle’s scheme since, for the decision-maker,
they are (second-best) substitutes for perfect knowledge. But whereas perfect
knowledge is inherently objective and stable in nature, expectations, according to
Shackle, are quite subjective and ephemeral in character. They are founded not
on objective (verified) facts, but on (unverified) conjectures about the future. What
is more, these conjectures are always subject to moment-to-moment instability,
being determined not only by the peculiarities of an agent’s state of mind and
imagination from instant to instant, but also, by his never-ending catalogue of
(potentially-unpredictable) reactions to new or re-interpreted information. It is
then this inherent restlessness and instability which Shackle sees in states of mind,
in conjectures about the future, in expectations, which constitutes the very essence
of Shackle’s dynamic view, and provides the foundation for his overall conception
of the economic process, as one typified by novelty, surprise, and sudden change.
Shackle’s conception of the economic process can be seen to conflict almost
totally with the traditional programme of equilibrium economics. Whereas equi-
librium economics focuses only on the consequences of presumedly rational,
fully-informed decision-making, Shackle focuses primarily on the (hitherto-
neglected) problem ’of what to suppose men will do when time’s sudden mockery
reveals their supposed knowledge to be hollow’ (p. ¢¢7). Whereas equilibrium

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economics sees all behaviour as tending to a timeless social state of order and
stability, Shackle (with indebtitude to Keynes) sees society as ’kaleidic’-’inter-
spersing its moments or intervals of order, assurance and beauty with sudden
disintegration and cascade into a new pattern’ (p. 76). It is then easily seen why
Shackle states that ’time is the denial of the omnipotence of reason’ (p. 26), and
why he sets up the fundamental dilemma for the theoretician as a problem in
choosing between rationality and time (dynamics).
Shackle’s solution to this choice problem is, understandably, to reject rationality
and keep time, and his major task then becomes to reconstruct economic theory
in a way which reflects this methodological decision. Clearly, with the rejection of
rationality, the viability (and in particular, the stability) of equilibrium economics
is sacrificed, and imperfections in knowledge and information become of paramount
importance to individual decision-making. More important, however, the intro-
duction of time, according to Shackle, separates the decision-making process into
two distinct parts: a part in which reason is employable, and a part in which it is
not. This distinction between the rational (known) and non-rational (unknown)
aspects of a dynamic economic process, expectational and epistemic considerations
being the sole property of the latter, then becomes the central pillar of Shackle’s
new programme.
One may admire many aspects of Shackle’s proposed scheme-his ability to see
’epistemic’ (or expectational) cycles where economists only see business cycles;
his ability to define ’elasticities of surprise’ where economists only define elast-
icities of demand and supply; and, most important, his ability to give long-neglected
fundamental problems in economic theory an appropriate hearing. However, after
all this is said, economists and social scientists alike are bound to be uncomfortable
about a great many aspects of Shackle’s view. First of all, Shackle’s central dis-
tinction between the rational and non-rational aspects of an economic process is
bound to appear problematic, precisely because Shackle does not consider the
possibility that permitting a non-rational element into the framework might
undermine his concept of rationality altogether. Granted, Shackle does not discuss
the precise nature of the interaction between the rational (known) and non-rational
(unknown) spheres; however, it seems evident that if so-called ’objective facts’
(apprehended at a ,point in time) are interpreted in the light of existing (non-
rational) expectations, rather than independently of them, Shackle’s universe of
rationality simply disappears. As it stands, moreover, rationality only appears in
Shackle’s programme because of his view that present facts can be known with
certainty, whereas future facts (as part of universal theories) cannot be. But this
is only one option, ’naive sensationalism’, and its adoption here seems really quite
arbitrary. Thus, Shackle’s central distinction is not free of problems.
An ever greater cause for concern, however, is Shackle’s consistent fusion of
rationality and perfect knowledge (proposition two above), which provides the
principal basis for both his critical thesis (proposition four), and his very dis-
tinction between the rational and non-rational aspects of an economic process.
As students of Karl Popper have consistently pointed out, this fusion of rationality
and true knowledge is nothing more than a remnant of the (unsuccessful) classical
programme to equate true knowledge with rational proof of it-in short, ’just-
ificationist rationalism’. The net effect of Shackle’s adoption of this programme is
unfortunately that Shackle ends up adding very little to our appreciation of the
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economic process, save a comprehensive scepticism over our ability to view the
process as an outcome of rational decision-making, and a (potential) commitment
to view it primarily as a matter of subjective whim or caprice. This is not surprising,
since ’justificationist rationalism’ is a precarious position to argue from, especially
when an inductive principle is denied (see proposition three).
It is no surprise either that Shackle’s difficulties with this position leads him
to equivocate on his view of rationality throughout the book. In his Preface, he
tells us directly that ’expectation is not rational’. On page 125, however, when
discussing his ’kaleidic’ view of economic society, he tells us that ’all endeavours
can still be supposed to be directed by reason..., but by reason basing itself on a
flow of suggestions rather than well-jointed information’. Later in the same
paragraph, he gives us yet another view of rationality: that individual agents need
not be rational in any sense, but that the onus is only on ’the analyst ... to see
them as employing reason’.
While confusions like the above unfortunately plague many portions of the book,
there is little doubt, nonetheless, that Shackle’s work does represent the culmination
of many hard years of research within economics. Many potentially-interesting
and highly-imaginative ideas are put forth within this present volume, and
Shackle’s critical concern over equilibrium economics must doubtlessly be shared
by all serious economists. The work, however, will not stand as an enduring
intellectual achievement. In many respects, Shackle’s treatment of the relationship
between knowledge and social dynamics is considerably less distinguished than,
for example, Ernest Gellner’s in his Thought and Change. Moreover, it is difficult
at this point in time to visualize much headway being made on this important
topic within the framework of ’justificationist rationalism’. In short, the central
problem is not, as Shackle suggests, the incompatibility of rationality and time,
given the fusion of rationality and true knowledge, but the conjunction of ration-
ality and true knowledge itself. Once rationality is divorced from true knowledge,
the traditional methodological prejudice of equilibrium economics is removed, and
the foundation for an economic dynamics consistent with rational action is pre-
pared.
Shackle’s inability to deal with the many subtleties surrounding these issues is
most unfortunate, yet it is perhaps not surprising. The more one becomes ac-
quainted with this work; in fact, the more it becomes evident that the chief driving
force of the book is ’romantic’-being a plea for a fuller consideration of the
subjective and imaginative aspects of economic decision-making, and a view of
man as ’always exploring, experimenting, guessing and gambling’ (p. 125). Behind
this lies the plea to view all this in a dynamic setting, since akin to thinkers like
Bergson, rational, de-humanizing science must statify phenomena which, by
nature, are always in process and transformation. A view of this order clearly
constitutes a good antidote to much of the research which goes on in the social
sciences today. However, it remains an unfortunate point that romantic inspiration
alone will not improve our understanding of the many complexities of a dynamic
economic society.
Simon Fraser University GEOFFREY NEWMAN

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