Keynes 4: mathematics and

method
 Method: anti-mathematics?

• ‘Too large a proportion of recent 'mathematical' economics are merely

concoctions, as imprecise as the initial assumptions they rest on, which
allow the author to lose sight of the complexities and
interdependencies of the real world in a maze of pretentious and
unhelpful symbols.’ GT p.297

• ‘It is better to be roughly right than precisely wrong’ (attributed quote)

• Review of Tinbergen (EJ) and worry about omitted variable and

simultaneous equation bias in econometrics
 A counterpoint: Rodrik’s traditional defence
of mathematical modeling
• ‘Math essentially plays two roles: clarity and
consistency…’ p.31
• ‘(a model) is a simplification designed to show
how specific mechanisms work by isolating
them from other, confounding effects…
connections that might be hard to discern if you
were looking at the real world in its welter of
complexity’ p.12
• Rigour versus relevance?? No model selection
 Keynes on models and model selection:
the issue is mathematical modeling
‘Economics is a science of thinking in terms of models joined to the art of
choosing models which are relevant to the contemporary world. It is
compelled to be this, because, unlike the typical natural science, the material
to which it is applied is, in too many respects, not homogeneous through
time. The object of a model is to segregate the semi-permanent or relatively
constant factors from those which are transitory or fluctuating so as to
develop a logical way of thinking about the latter, and of understanding the
time sequences to which they give rise in particular cases.
Good economists are scarce because the gift for using "vigilant observation"
to choose good models, although it does not require a highly specialised
intellectual technique, appears to be a very rare one.’
Letter to Roy Harrod (4 July 1938), in The Collected Writings of John Maynard
Keynes, Vol. XIV (1971), p. 297
 Summary
• Keynes on Unemployment (Topic)
and fallacy of composition =unintended
consequence (Insight)
• Keynes on conventions and animal spirits in
decision making (Assumption)
• Keynes on Beware of mathematics, economics
is also the art of choosing models (Method)
Suppose there is a change in propensity to
save C->C’
AD
AD=Y

C+I
C’+I

C
C’

Y’ Y0 YF Y