An Assessment of Nobel Laureate Robert Shiller’s Assessment of J M Keynes’s a Treatise on Probability and Its Connection to the General Theory: Correct in General, but Incorrect on Specifics

Abstract

Probability (1921), as well as its connections to the later General Theory (1936), that is correct. However, practically all of the specifics listed by Shiller, used to support his generally correct conclusions, involve either errors of omission or commission. Shiller’s assessment is based on either a sound reading of Part I of the A Treatise on Probability (1921) alone or the literature on the A Treatise on Probability that has been written by economists since the late 1970’s dealing with Part I of the A Treatise on Probability (1921), but which overlooks the remaining four Parts of the A Treatise on Probability, especially Parts II and V. An additional source that is generally overlooked by economists is the 1936-37-1938 correspondence between Hugh Townshend and J M Keynes. Only Townshend grasped the fundamental importance of chapter 20 of the General Theory, as well as the importance of Keynes’s “non-numerical” (interval valued) probabilities and Keynes’s concept of the weight of the evidence as being the main foundation upon which Keynes had erected his Liquidity Preference Theory of the rate of interest.