Keynes Rejected Kalecki’s Theory of Investment Because There Is No Major Difference Between Kalecki’s and Tinbergen’s Theories of Investment: Both Kalecki and Tinbergen Accepted Precise Theories of Probability Because They Were Frequentists

Abstract

It is quite impossible for Kalecki’s Theory of Effective Demand to have anything to do with Keynes’s Theory of Effective Demand because Kalecki, like Tinbergen, was a frequentist who accepted only precise, exact, additive numerical probability as the general case. For Keynes, probability was generally imprecise, inexact, non additive and non numerical (interval).

The belief that there is some kind of connection between Kalecki’s frequentist theory of investment and Keynes’s non frequentist theory is due to the false claims made by Joan Robinson, a mathematically and statistically illiterate economist, who did not realize that Kalecki’s theory of investment is in all major respects, just another version of Tinbergen’s theory based on frequentist, precise probability.

Lopez and Mott (1999) and Mott (2009) do not seem to have any knowledge of the fact that Kalecki’s theory of investment and Tinbergen’s theory of investment are, in all major respects, identical:

“Investment, and the level of employment in capitalism, are highly volatile. In part, investment volatility stemmed from psychological factors, such as 'animal spirits,’ expectations and conventions. But it was due also to an assumption that the 'decision period’ for capitalists (i.e. a period long enough for capitalists to take new decisions) was a very short one. Capitalists were viewed as taking decisions almost on a day-to-day basis.

Kalecki never denied that psychological factors do influence investment decisions or that investment might be volatile. In fact, in several works he actually made reference to a 'crisis of confidence’. But in his theory the weight is given entirely to 'objective’ factors. He insisted that capitalists did not react solely, or mainly, to their expectations, but rather to the 'hard fact’ of realized profits; and he assumed the investment function to be relatively stable in the sense that investment will not fall or rise due to events with a very short life.” (Lopez and Mott, 1999, pp.293-294; boldface and underline added).

The boldfaced and underlined sentences above are identical to the position that Tinbergen defended against Keynes in the Economic Journal in the period 1938-1940.

Lopez and Mott (1999),as well as Mott (2009), appear to be completely unaware that their second paragraph would be an excellent summary of Tinbergen’s critique of Keynes that he made in 1940. It should not be as surprising, then, that Tinbergen and Kalecki, who are both Frequentists and both advocates of precise probability, have theories of investment completely different from Keynes’s theory, which is built on imprecise probability, inexact measurement, and approximation, which allows for evidence to be incorporated in probability assessments in the form of propositions that allows a decision maker to consider evidence which is infrequent and nonfrequent, as well as frequent, evidence as opposed to Kalecki and Tinbergen, where the only evidence allowed is relative (statistical) frequencies.

Lopez and Mott (1999),as well as Mott (2009), are thus completely unaware that the basic, fundamental conflict between Tinbergen and Kalecki on the one hand, and Keynes on the other hand, is over the application of probability to conduct (decision making). Kalecki and Tinbergen are both frequentists, who believe in precise and exact, additive probability. Keynes is a logicist who, with George Boole, is the founder of the logical approach to logical theories of probability that are inexact, non additive and imprecise. Keynes’s explicit discussion of approximation and inexact measurement on pp.39-40 and pp.43-44 of the General Theory in chapter Four are taken directly from Part II of the A Treatise on Probability, 1921.