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\noindent{\bf John Maynard KEYNES}\\
b. 5 June 1883 - d. 21 April 1946
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\noindent{\bf Summary.} Keynes was a philosopher-economist whose abiding
interest in logical argument, probability and statistics, and his fertility
and originality in economic theory and policy, made him one of the most
influential figures of the 20th century.
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Born in Cambridge, England, to a middle class family, Keynes was
educated at Eton
and King's College, Cambridge. He later achieved greatest fame as
an economist, but
he never took an economics degree. Although his undergraduate studies
were in mathematics, his intellectual passion at that time was
philosophy, the primary influence here being G.E. Moore, the noted
ethical
philosopher. Grappling with Moore's arguments about morality, in fact,
led Keynes to formulate
the germ of his ideas on probability in 1904. It was only after completing
his mathematics degree that he began the concentrated study of economics, his
main mentor
being Alfred Marshall. During his first period of employment in the British
Civil
Service at the India Office where he worked on economics and statistics, he
submitted
a fellowship dissertation on `The Principles of Probability'. A revised
version in 1908
won him a fellowship at King's College in 1909. Eventually published in 1921
as a {\it Treatise
on Probability}, it had a significant impact on the philosophy of probability
at the time, but its influence has since waned considerably. Nevertheless it
remains central to understanding
his thinking on logic, probability, rationality, and statistical inference.
In 1908,
while re-working his dissertation, he even envisaged his future field of
academic expertise
to be Logic and Statistical Theory. Marshall had other ideas, however, and
offered an
Economics lectureship which Keynes accepted because it provided a means of
returning to Cambridge from London. During World War I, he worked in
the British Treasury and was a delegate to
the Versailles Conference in 1919. Finding the reparations conditions
imposed on Germany
economically and morally outrageous, he resigned and wrote {\it The Economic
Consequences of
the Peace}, the first book that made him world-famous.
For the rest of his life Keynes was mainly engaged with economics,
though other
interests also absorbed his attention such as politics and the arts. In
economics,
where his output was enormous and influential, he focused on theoretical
and practical
issues as well as individual countries and the world economy. Inflation
and exchange
rate instability were early concerns in the 1920s, followed by unemployment
during the
1930s Great Depression, and inflation again during the 1940s war years.
His magnum
opus in economics was {\it The General Theory of Employment, Interest
and Money} of 1936,
a pioneering work that established modern macroeconomics, created Keynesian
economics
as a serious alternative to Neoclassical economics, and stimulated the
development of
National Accounting statistics. During World War II, he again assisted the
British
war effort in the Treasury. In his final years, he played a key role in
the negotiations
that shaped the institutions which dominated the post-war international
economy - the
Bretton Woods system, the IMF, and the International Bank for Reconstruction
and Development. In 1925 he married the Russian ballerina, Lydia Lopokova,
but there were
no children. He died of a heart attack in 1946, brought on by over-work.
It was as a young man that Keynes did the bulk of his work on
probability and statistics.
The years 1908-12 saw nine contributions to the {\it Journal of the Royal
Statistical
Society (JRSS)} and several on statistical subjects to the {\it Economic
Journal (EJ)}.
These were concerned with index numbers, a critique of Elderton and Pearson
(q.v.) (see below), reviews of seven European works on probability and statistics
(by Borel (q.v.), Czuber, Poincar\'{e}, Bachelier (q.v.), Carvello,
Markov (q.v.) and Horrowicz),
and the
theory of averages where Keynes argued that popular preference for the
arithmetic
mean was misplaced since it did not always provide the most probable value.
In 1909
he wrote a long, prize-winning essay on Index Numbers.
In the philosophy of probability, Keynes is best known as a founder
of the
logical theory of probability, a rival to the relative frequency and subjective
theories. His ideas are set out in his philosophical magnum opus, the
{\it Treatise on
Probability}. This is not a mathematical work on the probability calculus,
but a
philosophical work concerned with logic and rationality. Keynes argued that
probability is {\it the general logic of rational but non-conclusive
argument}, within
which deductive logic is the special case of complete certainty or unit
probabilities.
This view conceives of probability as a logical relation between a
conclusion, $a$,
and premisses or data, $h$, which give partial support to $a$. Keynes's symbol
for
probability is $a/h$, which emphasises the data-dependence of probabilities.
Probabilities
express degrees of partial inference (the degree to which $a$ may be inferred
from $h$), and
degrees of rational belief (the degree to which it is rational to believe $a$,
given $h$).
Such probabilities may be numerical (the smaller class) or non-numerical
(the larger class),
and may be known or unknown. The means by which we obtain knowledge of
probabilities is
logical insight or intuition into the realm of (objective) logical
relations between
pairs of propositions. On these foundations, Keynes derived the probability
calculus,
developed a theory of induction, explored objective chance and randomness,
and outlined
a theory of rational conduct. He also investigated statistical inference, his
object being
to analyse `the logical basis of statistical modes of argument', and to
engage in the {\it dual task} of discrediting invalid inferences and
analysing valid ones. He traversed
the law of large numbers, the theorems of Bernoulli (q.v.), Poisson (q.v.)
and Chebychev (q.v.),
Laplace's (q.v.)
rule of succession and the methods of Lexis (q.v.), and sketched the outline of a
constructive
theory. The following passages illustrate his dual task and his preference
for logic over algebra:
\begin{quote}
Such is the famous theorem of Bernoulli which some have
believed to have
a universal validity and to be applicable to {\it all} 'properly calculated'
probabilities.
Yet the theorem exhibits algebraical rather than logical insight. And ...
it is only
true of a special class of cases and requires conditions, before it can be
legitimately
applied, of which the fulfilment is rather the exception than the rule.
I conclude ... that the application of the mathematical
methods, discussed in the preceding chapter
[the inversion of Bernoulli's theorem and Laplace's rule of succession],
to the general problem of statistical inference
is invalid.
... To apply these methods to material, unanalysed in respect of the
circumstances of its
origin, and without reference to our general body of knowledge, merely on
the basis of
arithmetic and of those of the characteristics of our material with which
the methods of
descriptive statistics are competent to deal, can only lead to error and
to delusion.
But I go further than this in my opposition to them. Not
only are they
the children of loose thinking, and the parents of charlatanry. Even when
they are
employed by wise and competent hands, I doubt whether they represent the
most fruitful
form in which to apply technical and mathematical methods to statistical
problems,
except in a limited class of special cases. The methods associated with
the names of
Lexis, Von Bortkiewicz, and Tschuprow ... seem to me to be much more
clearly consonant
with the principles of sound induction.
\end{quote}
Studying the history of thought, to Keynes, was a `necessary
preliminary to
the emancipation of the mind'. He was extremely well read in the history
of probability
and statistics, and made his own contributions through biographical essays.
In 1936,
he delivered an invited paper to the Royal Statistical Society celebrating
the centenary
of the birth of W.S. Jevons (q.v.). Published in the {\it JRSS}, the paper explored
Jevons's contributions
to economics and statistics, noting his `fertility and originality of mind'
in relation to
index numbers and the importance of his inductive studies. Other thinkers
were commemorated
through obituaries, mainly in the {\it EJ}- W. Lexis (1914), who developed new
statistical concepts
of `the utmost importance'; F.Y. Edgeworth (q.v.) (1926), who ranged over
economics, psychology,
probability, statistics and index numbers; A. Chuprov (q.v.) (1926), `one of
the most important
writers' on the boundary between statistical theory and probability;
C.P. Sanger (1930),
`at one time a leading authority on mathematical and statistical
economics'; F.P. Ramsey
(1930), a critic of Keynes in probability, a founder of the modern
subjective theory and
`one of the brightest minds of our generation'; and G. Broomhall (1938),
who was `perhaps
the greatest practical statistician of our age'.
All his life Keynes strongly advocated the collection and analysis
of statistical
information by government agencies. Such information was crucial to rational
decision
making in both the public and private sectors. Government had a `natural
duty' in this
area, where its activities were to be guided by the general principles of
completeness,
openness and timeliness. `There ought', he stated in 1943, `to be very
little indeed
within the knowledge of Government departments which should not also be
made more widely
available'. In the absence of such official statistics, he was
instrumental, with A.L.
Bowley (q.v.), W. Beveridge and others, in establishing the London and Cambridge
Economic Service
in 1923, the purpose of which was to publish monthly bulletins of economic
statistics to
inform business about current facts and trends, and to provide them with
various indices,
charts and memoranda. In the 1930s he supported the establishment of the
National Institute
for Economic and Social Research, an independent research organisation
with a strong interest
in statistical information, and served on its Council. Charles Madge and
Mass Observation
received his encouragement in the 1940s, Keynes praising one of Madge's
projects as
`an enquiry of first class importance'. Also receiving his firm backing
in the 1930s and
40s was the founding and development of the Department of Applied
Economics at Cambridge University.
Keynes was involved in two statistical controversies in his
life-time. The first,
in 1910-11, concerned a study by Ethel Elderton and Karl Pearson of the
influence of parental
alcoholism on children; this concluded that parental drinking had no
harmful effects on
offspring. Keynes attacked the study on methodological grounds in the
{\it JRSS}: `It is a
question, not of facts, but of the nature of valid argument which is in
dispute'. In his
view, the study was `misleading', `almost valueless', and an example of
the application
of `a needlessly complex mathematical apparatus' to data which were
`unsuited to the problem
in hand'. The controversy, which embraced the press,
other Cambridge economists and the medical profession, had a significant
impact on Keynes, for it motivated
him to expand his
initially modest discussion of statistics in his dissertations into a
section on `The
Foundations of Statistical Inference' in the {\it Treatise on Probability}.
The second controversy occurred in 1938-40 when Keynes wrote a
critical review of
Jan Tinbergen's statistical study of the determinants of investment which
had been commissioned
by the League of Nations. His wide-ranging critique again centred on
methodology - the logic
of applying multiple correlation analysis to material which varied over
time, and the
difficulties of drawing inductive conclusions. The strength of Keynes's
remarks, including
the use of terms such as `statistical alchemy', `black magic' and
`charlatanism', led many
to the view that he was hostile to the whole econometrics enterprise, but
this view is mistaken.
As he made quite clear in two final letters to Pigou and Lange, he
was {\it not } disputing `the validity
of any conceivable statistical method' but only `Tinbergen's very special
method of analysis'.
Keynes also made notable contributions to professional societies.
Apart from his
unparalleled service to the Royal Economic Society and the {\it EJ}, he was a
long-term member of
the Royal Statistical Society, and served on its Council for three periods
(1915-19, 1933-37, 1941-45).
In the Econometric
Society, he played an equally constructive role. One of its
founding fellows, he served on its Council from 1934 to 1946
and was elected president in 1944 and 1945. In 1945,
he supported
Tinbergen as a candidate for Vice-President, there being no-one `for
whose work one could
be more anxious to give every possible scope and opportunity'.
Keynes's deep interest in statistics grew out of his trin loves of
philosophy and economics. He held statistical information in high regard
as a necessary input of rational thought and policy-making, and he
also supported statistical inference, albeit more circumspectly. His prime
concern here, as with formalism generally, was methodological - the
appropriateness of the application of statistical techniques to the material
under investigation. This made him a severe and hostile critic of
{\it inappropriate} applications of formal methods, whether in
mathematics, statistics or econometrics, and it was his attacks on such
`pseudo-science' which gave rise to the superficial and mistaken view
that he was generally antipathetic to the use of formal methods in the
social sciences.
The dominant characteristic of Keynes's approach to statistics,
as with formal
methods generally, was an insistance on philosophical and logical integrity
in their
application. It was always his view that logical and conceptual reasoning
took precedence
over mathematical virtuosity and technical sophistication. His motto, if
he had had one
in this area, would have been something like {\it ratio ante computationem }
(reason before calculation).
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\begin{thebibliography}{3}
\bibitem{1} Keynes, J.M. (1971-89). {\it The Collected Writings of John Maynard
Keynes}, 30 Vols, Macmillan.
Of particular interest in the present context are the following:
(i) Vol. VIII: {\it Treatise on Probability}.
(ii) Vol. XI: the Index Number essay, his early statistical
contributions to the {\it JRSS} and {\it EJ}, and book
reviews.
(iii) Vol. X: the {\it JRSS} paper on W.S. Jevons, and obituaries of
Edgeworth, Lexis, Tschuprow (Chuprov), Sanger,
Broomhall and Ramsey.
(iv) Vol. XIV: the Tinbergen episode (excluding Keynes's
final letters, on which see O'Donnell 1997).
\bibitem{2} Moggridge, D.E. (1992). {\it Maynard Keynes, An Economist's
Biography}, Routledge.
\bibitem{3} O'Donnell, R.M. (1989). {\it Keynes: Philosophy, Economics and
Politics}, Macmillan.
\bibitem{4} O'Donnell, R.M. (1997). Keynes on Formalism. In G.C. Harcourt
and P.A. Riach (eds) {\it A `Second Edition' of the General Theory},
Routledge.
\bibitem{5} Skidelsky, R. (1983). {\it John Maynard Keynes}, Vol. 1, {\it Hopes
Betrayed 1883-1920}, Macmillan.
\bibitem{6} Skidelsky, R. (1992). {\it John Maynard Keynes}, Vol. 2: {\it The
Economist as Saviour 1920-1937}, Macmillan.
\bibitem{7} Stigler, S.M. (1999). {\it Statistics on the Table}, Harvard
University Press.
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\hfill{Rod O'Donnell}
\end{thebibliography}
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