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• Acknowledgements
• Part One: Introduction
• Walter E. Grinder, In Pursuit of the Subjective Paradigm: Walter E. Grinder
• Austrian Economics In the Present Crisis of Economic Thought
• Part Two: Setting the Stage
• The Significance of the Austrian School of Economics In the History of Ideas
• The Role of Expectations In Economics As a Social Science
• Professor Shackle On the Economic Significance of Time
• The Science of Human Action
• Model Constructions and the Market Economy
• Part Three: the Market Process
• Some Notes On Economic Thought, 1933–1953
• Methodological Individualism and the Market Economy
• Economics As a Social Science1
• Ludwing Von Mises and the Market Process
• Part Four: Problems In Macroeconomic and Capital Theory
• Complementarity and Substitution In the Theory of Capital
• Mrs. Robinson On the Accumulation of Capital
• Sir John Hicks On Capital and Growth: (review Article)
• Sir John Hicks As a Neo-austrian: (review Article)
• A Reconsideration of the Austrian Theory of Industrial Fluctuations
• Part Five: On Economic Policy
• Causes and Consequences of the Inflation of Our Time
• The Market Economy and the Distribution of Wealth
• Cultivated Growth and the Market Economy
• Appendix: Economic Writings of Ludwig M. Lachmann

Professor Shackle on the Economic Significance of Time

1.

In the first of the De Vries Lectures, delivered in Amsterdam in 1957,1 Professor Shackle has further developed those ideas on the rôle of time in economic theory which students of his work know from his article on “The complex nature of Time as a concept in Economics.”2 These ideas are important for at least three reasons,

• 1) As Professor Shackle explains at the end of his first lecture, they embody the presuppositions on which his whole work on expectations rests. In order to discuss Decision and Uncertainty (the subjects of his second lecture) we must assume he tells us, a world in which meaningful decisions, which are not merely mechanical responses to a given situation, or as he puts it, “decisions having content and interest” are possible. In his first lecture, Professor Shackle argues the case for our belief in such a world and against determinism in human action.
• 2) These ideas have an obvious bearing on the possibility of dynamic theory in Economics, in particular of models of micro- and macro-economic type. In fact Professor Shackle goes even farther and appears to deny the possibility, in a dynamic setting, of anything more than an equilibrium theory of the isolated decision-making individual, such as he gave us in Expectations in Economics.
• 3) The approach has very far-reaching implications for the methodology of Economics and the social sciences in general. For Professor Shackle argues in fact that the notion of Time as a “space,” a homogeneous continuum, as the natural sciences use it, cannot be applied to the phenomena of human action because to the individual acting at a given moment, time is not homogeneous. This therefore is an issue which concerns all the social sciences.

Reprinted from Metroeconomica 11 (April/August 1959).

In this paper we shall confine ourselves to a discussion of the problems listed under 2) and 3). No significance attaches to our neglect of issue 1). We shall simply take it for granted, that what Professor Shackle says about the logical structure and presuppositions of his own work is correct.

But all important work, such as the present, points beyond itself. It is in the implications of Professor Shackle's views for the progress of economic science that we are mainly interested.

This paper therefore falls into two parts. In the first, we shall examine Professor Shackle's views on the economic character of Time. In the second we shall consider some wider implications, for the methodology of Economics and the social sciences, of the inapplicability of certain concepts which the natural sciences can and do take for granted.

The natural starting point for both is our author's critique of the naturalistic time concept as applied to the phenomena of human action.

“In the classical dynamics of the physicist, time is merely and purely a mathematical variable. The essence of his scheme of thought is the fully abstract idea of function, the idea of some working rule or coded procedure which, applied to any particular and specified value or set of values of one or more independent variables, generates a value of a dependent variable. For the independent variable in a mental construction of this kind, time is a misnomer. Time as we seem to experience it has a character profoundly and radically different from that of a mere algebraic abstraction capable of being adequately represented by the symbol of a scalar quantity” (p. 23). How, then, do we experience time?

“In the experience of human individuals each of these moments is in a certain sense solitary. There is for us a moment-in-being, which is the locus of every actual sense-experience, every thought, feeling, decision and action” (p. 13).

“The moment-in-being rolls, as it were, along the calendar-axis, and thus ever transports us willy-nilly to fresh temporal viewpoints. This I shall call dynamic movement in time” (p. 15).

The human mind can, it is true, transcend the present moment in imagination and memory, but the moment-in-being remains nevertheless always self-contained and solitary.

“Any point of the calendar-axis within most of the supposed lifespan of the individual can by expectation or by memory be brought into relation with each successive station of the moment-in-being. But each such relation, in another sense, subsists wholly inside the moment-in-being. Expectation and memory do not provide a means of comparing the actuality of the moment-in-being at one of its stations with that a another, they do not enable two moments, distinct in location on the calendar-axis, to be in being together, for the nature of ‘the present,’ the essence of the moment-in-being, is an impregnable self-contained isolation” (p. 16).

It follows that it is impossible to compare human actions undertaken at different moments in time. For no two moments can be “in being” together, “the actuality of one denies and excludes the actuality of the other, there is no ‘common ground’ on which they can be brought face to face. The attempt to compare the individual's actual feelings at t₀ with his actual feelings at t₂ is for him impossible and does not make sense” (pp. 18–19).

In other words, in describing the phenomena of human action, time cannot be used as a co-ordinate because we lack an identifiable object which “passes through time.” Man with his “feelings,” preferences, and the content of his consciousness changes in unpredictable fashion. Our author holds that this implies the impossibility of any intertemporal or interpersonal dynamics. His dynamics “seeks to show the internal structure of a single moment,” it is “private and subjective.” It is valid for an individual at a point of time. Is he right in thus confining the scope of dynamic theory?

2.

He is certainly right in questioning the usefulness of the naturalistic notion of time (as a continuum) for economic analysis. The natural sciences deal with changes in the properties of objects which are predictable because they are uniformly linked to changes in other variables, e.g. to motion in space, the passing of time, or forces emanating from other objects. But there is no way of telling in what way the preferences of a given individual will change over time, even when it is exposed to certain given conditions.

But if we were to take Professor Shackle's thesis literally, there could be no testing the success of plans, no plan revision, no comparison between ex ante and ex post. In fact planned action would make no sense whatever. Nor could there be a market in which the “private and subjective dynamics” of the individuals trading become socially objectified in the form of market prices and quantities of goods exchanged. Common experience tells us that these phenomena do exist. What, then, has gone wrong with our author's thesis?

It seems to us that while his thesis applies to human ends, of which we are unable to postulate any continuous existence in time, it does not apply to our knowledge of the adequacy of means to ends. But economic action is concerned with both, means and ends. The discontinuity of human ends, stressed by Professor Shackle, does not entail that there are no continuities at all in human action.

If no intertemporal comparison of the states of a man's knowledge were possible, most examinations would be pointless. Certainly in medicine and applied science all examinations involve intertemporal comparisons concerning knowledge of the adequacy of means to ends. We can, and occasionally do, learn from experience. Whatever may be discontinuous in us, the human mind is continuous. The acts of the mind of which our conscious life consists, follow each other ceaselessly. Bergson and Husserl have shown that the content of our consciousness is best regarded as a continuous stream of thought and experience.

No doubt Professor Shackle would not wish to deny all this. It would be ironic indeed if he, who set out to defend free will and the autonomy of the human mind, should in the end have to deny the continuity of mind. But on occasion he comes perilously close to holding such a position.

In our view he is going too far in one direction and not far enough in another. He is going too far when for discontinuity, which is a property merely of our ends, he wrongly claims the status of a universal category of human action.

But we can at least imagine a world in which the preferences of the individuals do not change for a time, and over longer periods change with almost imperceptible slowness. For such a world a dynamic theory would, even on Professor Shackle's showing, be possible. The continuity of ends would warrant it. But even in such a world Professor Shackle's general thesis about the creative power of the mind and our inability to predict its acts would still hold, because men would still be interpreting experiences, acquiring knowledge, planning and revising plans. We are able to imagine a world in which tastes do not change but unable to imagine one in which knowledge does not spread from some minds to others. Even continuity of ends does not entail an invariant means-end pattern; men would still be eager to make better use of the means at their disposal. Time and Knowledge belong together. The creative acts of the mind need not be reflected in changing preferences, but they cannot but be reflected in acts grasping experience and constituting objects of knowledge and plans of action. All such acts bear the stamp of the individuality of the actor.

Professor Shackle's strong emphasis on the subjective nature of economic action thus deserves every support, but our preferences and our interpretation of the world around us belong to different layers of experience. Our author fails to distinguish adequately between the subjectivism of utility and the subjectivism of interpretation.3

Intertemporal comparisons are thus possible except in cases where fundamental changes take place in an individual's system of preferences. But even the possibility of such intertemporal comparison does not of course mean that we can predict the future. While we may be able to say that a certain plan has so far succeeded we never can tell whether it will be further pursued. New ways of using the resources employed, or new and better ways of gaining the objective of the plan may in the meantime have been discovered, and may make it inadvisable to go on with the original plan, successful though it has been.

3.

The model Professor Shackle set forth in Expectations in Economics, and for which he has now provided a methodological basis, is a Robinson Crusoe model. It is concerned with the equilibrium of the isolated individual and with the mental acts by which it is reached. It tells us nothing about market processes, nothing about the exchange and transmission of knowledge. But must we stop there? Is there no bridge from the solitary dynamics of Robinson Crusoe to a dynamic market theory?

The central problem of such a theory can be stated briefly. It concerns the distribution and transmission of knowledge in a market economy. Men make use of one another's resources and satisfy one another's wants. How, in a changing world, do they acquire the requisite knowledge about these changing wants and resources? There is no simple answer since today's knowledge may or may not have become obsolete by to-morrow. But common experience suggests that “keeping track” of these changes is possible and requires a continuous sequence of such acts of interpretation as we mentioned above. Different men will not be equally good at it.

Professor Shackle admits that besides his kind of dynamics, the private and subjective dynamics of the isolated individual, there may be others, e.g. the public and objective dynamics of the econometric model builders. “Between these two kinds of dynamics we can perhaps imagine a third kind, in which we should suppose an outside observer to be simultaneously informed by everyone of the individuals composing the whole economic system about the knowledge, thoughts, desires, expectations and decisions making up the content of each individual's mind in some one moment, a moment located at the same point of the calendar-axis for every individual” (pp. 25–26).

In the market, however, we have such an outside agency which, moreover, not merely registers decisions but also informs the individuals participating in it about them. How far a concrete market serves this function depends of course on a number of factors, such as its extent and degree of perfection. The markets for the services of the factors of production provide as a rule fairly good information about production plans.

Markets for products, on the other hand, provide it only where forward sales are possible. A perfect intertemporal market on which all producers sold their products before they were produced would provide complete information about all production plans. But of course, while a perfect forward market can provide information and bring production plans into consistency with each other and with the plans of consumers, it cannot predict the future. Here Professor Shackle is quite right in saying of his “outside observer,” “But even if he could do this, he would not be able, on our assumption that each individual is a decision-maker in the real sense, to go beyond this very first and immediate interplay of decisions and foresee the further evolution of the system. For he could not predict what would be the next decisions” (p. 26).

Thus, a dynamic market theory which shows how the expectations and plans of various individuals are brought into consistency with each other, is possible. It is possible to transcend the “private and subjective” dynamics of the individual and to reach the “socially objective” dynamics of the market, provided that our market is a forward market. Interpersonal and intertemporal dynamics belong together. The theory of equilibrium of the isolated individual is not necessarily the last word in dynamics.

4.

We must now turn to the wider implications of Professor Shackle's ideas for the methodology of Economics and the social sciences in general. Our starting point is, again, his demonstration that the naturalistic concept of Time as a homogeneous continuum cannot be applied to an individual making his plans. We also have to consider the implications of his thesis that in economics prediction is impossible.

There can, of course, be no question of doubting the status of Economics as a science. Like other scientists, economists attempt to formulate systematic generalisations about observable phenomena. Like other scientists they frame hypotheses which are meant to reflect certain features of reality, and which stand or fall by this test.

If by “scientific method” we mean nothing more than this, no methodological problem arises. But it now appears that we must be on our guard against the uncritical adoption of certain auxiliary axioms and notions which may be useful to natural scientists but less so to us, like “time” as a continuum or “the closed system” within which alone determinism and prediction are possible.4

This means that economics needs a methodology sui generis, at least insofar as it has to deal with creative acts of the mind, with the setting of objectives and the interpretation of experience, which have no counterpart in nature. There can of course be no question of our setting forth here even an outline of such a methodology. But a few hints may be dropped and a few points made.

On the subject of prediction Professor Shackle's conclusions are quite definite and, in our view, cogent. “Complete prediction would require the predictor to know in complete detail at the moment of making his prediction, first, all ‘future’ advances of knowledge and inventions, and secondly, all ‘future’ decisions. To know in advance what an invention will consist of is evidently to make that invention in advance” (pp. 103–104).

“Predictability of the world's future history implies predictability of decisions, and this is either a contradiction in terms or an abolition of the concept of decision except in a perfectly empty sense” (p. 104). And “Predicted man is less than human, predicting man is more than human.”

But of what use, it may be asked, is economics if economists are unable to predict? The answer, we think, is that the systematic generalizations of the economists enable us to understand better certain predicaments of the past and present. The main social function of the economist is to provide the historian and the student of contemporary events with an arsenal of schemes of interpretation. Moreover, there is such a thing as “negative prediction.” It is often possible for the economist to predict that a certain policy will fail because of its inherent contradictions, e.g. a policy designed to increase deficit-financed investment and at the same time to stop an inflation. But in this case his prediction is based on a purely logical argument, not on any knowledge of specific circumstances, present or future. This possibility of making negative predictions is therefore quite consistent with Professor Shackle's conclusions.

Economists should, in our view, openly admit that they are unable to make positive predictions about the world. In this respect they are inferior to the natural scientists. But, on the other hand, in certain other respects the social sciences are actually superior, since they can, as the natural sciences cannot, give an intelligible account of the world with which they are dealing. We have to remember that the natural sciences, in the centuries of their evolution, have discarded a number of questions to which their methods can provide no answers, e.g. questions concerned with purpose and cause.

Why men have two legs and dogs have four, why the velocities of light and sound are what they are, why a certain flower emanates a certain smell, are questions with which modern natural sciences do not concern themselves. But why modern economies have evolved a certain type of money and credit system, or the institutions of the “Welfare State,” are relevant and meaningful questions to which answers can be provided.

The essence of the matter is that human action is planned, though of course few plans may ever succeed. It is always possible to compare the outcome with the plan, the ex post with the ex ante, the observable result with the, originally purely mental, cause. In fact it is impossible to give an intelligible account of human action in any other way. The natural sciences may have had good reasons to discard the concept of “cause” and to confine themselves to observable “uniformities of sequence.” There is no reason why the social sciences should follow them in this. Social causes have to be found in the creative acts of human minds. Economics explains that the reasons why certain prices are paid and quantities of goods produced, have to be sought in the choices made by consumers and decisions made by producers. Such causal genesis is a legitimate concern of the social sciences which has no counterpart in nature. It warrants the employment of genetic-causal schemes of interpretation which give rise to methodological problems sui generis.

A few words have now to be said about the relationship between knowledge and expectations. The impossibility of prediction in economics follows from the facts that economiç change is linked to change in knowledge, and future knowledge cannot be gained before its time. Knowledge is generated by spontaneous acts of the mind. We may ask what bearing this has on the theory of expectations. How are expectations formed? How is prognosis related to diagnosis? In answering these questions we shall permit ourselves to restate briefly what we said on another occasion.5

All prognosis which is more than mere guesswork must be linked to the diagnosis of an existing situation. The business man who forms an expectation is doing precisely what a scientist does when he formulates a working hypothesis. Both, business expectation and scientific hypothesis serve the same purpose; both reflect an attempt at cognition and orientation in an imperfectly known world, both embody imperfect knowledge to be tested and improved by later experience. The difference between them consists in that, unlike many scientists, the business man cannot repeat experiments in conditions he can control. Tests have to be made in a world which not merely changes, but whose change is not governed by any known law.

While this does not deprive these tests of all value, it does mean that in business even more than in science a good deal will depend on interpretation of experience, i.e. on creative acts of the mind, and that the knowledge yielded will be imperfect.

On the other hand, each expectation does not stand by itself but is the cumulative result of a series of former expectations which have been revised in the light of later experience, and these past revisions are the main source of whatever present knowledge we have. Our present expectation, to be revised later on as experience accrues, is not only the basis of any plan of action we may contemplate but also a source of more perfect future knowledge. The formation of expectations is thus a continuous process, an element of the larger process of the transmission of knowledge, the process by which men acquire knowledge about each other's needs and resources.

It follows that any experience made conveys knowledge to us only insofar as it fits, or fails to fit, into a pre-existent frame of knowledge. But the frame of knowledge in terms of which we interpret a new experience is always “private and subjective.” Knowledge always belongs to an individual mind. When we speak of the transmission of knowledge, we use this as a metaphorical expression for a process of interaction of minds. Knowledge spreads from mind to mind, it does not float from one individual to another as a piece of wood in a stream floats from one place to another. Its acquisition requires active participation in a social process. Following a different path, we have thus arrived at the same conclusion as Professor Shackle, viz., that expectations and the knowledge they reflect are always subjective. But this does not mean that the equilibrium of the isolated individual is necessarily the last word in dynamics.

Finally, we may view Professor Shackle's subjectivist dynamics in the perspective of the history of economic thought. In the history of our discipline objectivist and subjectivist tendencies have predominated at various periods, but the most remarkable progress of economics has been linked to the ascendancy of subjectivism.

The classical school, true to its 18th century origin, sought the ultimate determinants of economic life in certain “natural forces” like those reflected in the Malthusian law and the diminishing fertility of the soil, forces which were thought to shape the distribution of incomes and to set limits to economic progress. An “objective” theory of value with hours of (unskilled) labour as its measure crowned the classical edifice.

But about the middle of the last century subjectivism came into its own. As it was gradually realised that human ingenuity can overcome the obstacles presented by the classical forces, the human mind and its manifestations, choice and decision, came to occupy the centre of the economic stage. The “subjective revolution” of the 1870's presents only one aspect of this change, but it epitomises it well. It came to be realized that the value of a good does not reside in any measurable properties it might have, but constitutes a relationship between an appraising mind and the good.

The introduction of expectations into economics in this century, the realisation that what men will do in a given situation depends largely on their interpretation of it and on the direction of their imagination, was merely a further step along the same route. The problem of expectations, implicit in the work of Knight and Schumpeter, found explicit recognition by Keynes and the pupils of Wicksell in Sweden. Professor Shackle's Expectations in Economics readily finds its place within this tradition. Time in Economics, as we see it, is a more explicit statement of the methodological presuppositions of this approach.

One problem remains open. Can expectations be introduced into a general dynamic theory? The static equilibrium systems of Walras and Pareto, the greatest achievement of neo-classical economics, contain both, subjective and objective elements, tastes and quantities of resources. This is possible because of the timeless character of these systems. Once individuals have revealed their preferences, these become “data” like all others.

Individuals are free to choose, but having once chosen they are not free to change their minds: there literally is “no time” for that.

But expectations cannot be treated in this way if we want to make them elements of a dynamic system. As soon as we permit time to elapse we must permit knowledge to change, and knowledge cannot be regarded as a function of anything else. It is not the subjective nature of expectations, any more than that of individual preferences, which makes them such unsuitable elements of dynamic theories, it is the fact that time cannot pass without modifying knowledge which appears to destroy the possibility of treating expectations as data of a dynamic equilibrium system.

This conclusion does not affect the possibility of a theory of the forward market on which individuals reveal their expectations by engaging in forward transactions in the same way as individuals reveal their preferences by purchases and sales on an ordinary market.

NOTES

[[1]]G. L. S. Shackle, Time in Economics (Amsterdam: North Holland Publishing Co., 1958).

[[2]]In Economia Internazionale, vol. VII, no. 4.

[[3]]See L. M. Lachmann, “The Role of Expectations in Economics as a Social Science,” Economica 10 (February 1943): 15.

[[4]]Of course, what is a useful concept always depends on what concrete problem we have to deal with. Whenever we have to describe a succession of events in chronological order, whether in society or nature, time as a continuum is an indispensable notion. We cannot but admire the Walrasian system, though we may recall the difficulties Walras had in trying to show how equilibrium is reached in actual market processes.

[[5]]Cf. L. M. Lachmann, Capital and Its Structure (London: London School of Economics, 1956), pp. 23–34.