Of Aristotle and Keynes
In recent issues we have focused on schools of thought and the manner of thinking best suited to understanding modern economic life, whether this is imaginative or mathematical. This discussion has been made necessary by the global financial crisis insofar as its cause, should there be but one, was a dependency on modelling and abstract theory, namely the ‘efficient market hypothesis’. Another hypothesis is needed, one that is truly able to grasp the nature of modern finance and economics and able also to manage day-to-day affairs. This will be a considerable challenge because so much of modern economic thinking has its roots in the distant ancient past of Greece, namely Aristotle, whose contribution to economics is contradictory. On the one hand, he laid the foundations for our overall thinking; on the other, he was given to certain myopia. Going back to Aristotle is not an easy thing to do therefore; nor is it easy to jump back again into the present with one’s mind corrected, one’s policies adjusted and one’s behaviour amended.
We are however helped in this challenge by one of the less expected consequences of the global financial crisis, a re-recognition of the role of Aristotle as the true father of economics, not Adam Smith, who is really the father of today’s comparatively narrow understanding economics. It is also interesting to note that much of Keynes’s work derives from his Aristotelian underpinnings. Insofar as he is a key figure for our times, Keynes the monetary economist, that is, rather than Keynes (strictly speaking Keynesianism) the inspirer of state-run economics.
In this issue we look at this development, beginning with the stage-setting piece under Sign of our Time, The Economic Problem, taken from Robert Skidelsky’s recent book, Keynes, Return of the Master. Published in 2009 as his contribution to solving the predicament we find ourselves in, Skidelsky (one of Keynes’s most renowned biographers) is of the view that we need to reground our understanding of practical affairs on Keynes more ideal considerations, in particular the thought that the economic problem is to satifsy human beings’ material needs so that they can carry out ‘fine actions’.
In the first Feature, An Aristotelian Approach to Business, the supreme place of Aristotle in the pantheon of economists is well described by the late Robert Solomon in a paper published in 2005, from which key salient extracts are here reproduced.
The second Feature, The Challenge of Getting Traction, has two parts. The first, Accounting’s Covenant with Society, makes the link from Aristotle to modern accounting. Insofar as associative economics places reliance on accounting as a medium for observing and managing economic life, whether at the micro or macro level, this is a crucial connection. It is also important because this – the need to reconnect to accounting and for accounting to become re-ethicalised – is also the way out of our hypothetical, abstract way of understanding economic affairs. We need to move forward by way of an abstraction that is at the same time concrete, a conception that is able at the same time to be a tool for guidance and management of day-to-day affairs. This is the role of accounting properly understood. The second part, Keynes and Methodology, concerns Keynes’s methodology in connection with that on which associative economics is supposed to be predicated.
With this issue and these themes we close out the year. On the face of things, a relatively uneventful or at least undramatic one as regards economic affairs. But one can also feel a subtle shift taking place, a chance for a new approach quietly to take hold. This will be without fanfare and will not be headline making, but it has the potential to effect real change nonetheless. Everything that happens in economic life begins as a thought, whether correct or erroneous. Thoughts become rivers and eventually estuaries. Now is the time to quietly recalibrate our instrument, to reset our compasses, economic if not moral, and change the setting by the amount, however tiny, that will result in us making landfall beyond the current storms, rather than missing the port. Conversely, by the few degrees – for not many are needed – that will ensure we pass by the waiting rocks rather than crash right into them.
The AEX Page features responses to recent topics, including Alan Greenspan’s recent mea culpa.
Finally, the Rare Albion piece considers the role of Keynes and Aristotle as masters in their fields.