# Can Shiozawa’s, Morioka’s and Taniuchi’s Microfoundations for Evolutionary Economics (2019) Serve As the Microfoundations for “… Post-Keynesian Economics “ (2019, p.vii)? The Answer Is Definitely Yes if Post –Keynesians Can Break Away From Joan Robinson’s Anti-Mathematical, Anti-Formalist Views

33 Pages Posted: 14 Apr 2020

Date Written: March 20, 2020

### Abstract

Although Herbert Simon never read J M Keynes’s A Treatise on Probability (1921) or understood the necessary connections between the General Theory (1936) and the A Treatise on Probability, he independently discovered an alternate formulation that was equivalent to Keynes’s approach, but nowhere as technically advanced. Simon’s approach thus leads to the same kind of conclusions and results that Keynes provided in the A Treatise on Probability in 1921.

On p.xii, Shiozawa correctly states that “Bounded rationality is the basis of all evolutions of economic entities…” and “Because of bounded rationality, any existing entities are not optimal at any time.”, it will be necessary to connect Keynes’s degree of logical probability, P(a/h) =α, where α is a degree of rational belief, which is defined on the unit interval between 0 and 1, to Simon’s work. Keynes’s interval valued probability is always bounded below and above by lower and upper probabilities. This is what Keynes meant by uncertainty, which requires the evidential weight of the argument, V (a/h)=w, also defined on the unit interval between 0 and 1, to almost always be less than 1, so that risk assessments can’t, in general, be made about future outcomes unless one is dealing with the short run or immediate or near future. As noted by Keynes in chapter 5 of the General Theory, these short run expectations are usually fulfilled most of the time, so that w is close to, near, or approximately 1, unless negatively impacted by changes in long run expectations regarding fixed investment/technical Innovation,which have low to very low w values. Therefore, simple three to six day moving average models can be reliably used to forecast short run production, inventory, stockout, buffer stock, and consumption activities (see chapters 4 and 5 by Morioka and his construction of “ … a dynamic and multisector model of the multiplier theory…” first theoretically developed by Keynes in the A Treatise on Probability in 1921 in chapter 26 on page 315 in footnote 1, which was then applied by Kahn and Kalecki later in the 1930’s. Taniguchi provides valuable mathematical and applied analysis of Operations Management, Production Management, and Supply Chain subjects and issues, that are used in the quantity adjustment process of the firm. This point was originally introduced by Shiozawa in an earlier chapter in the book.

However, in the case of total ignorance (Shackle’s complete and total uncertainty or fundamental uncertainty, w=0, which he developed based on the ideas of Joan Robinson), Post Keynesians argue that such mathematical models ,as used by Shiozawa, Morioka, and Taniuchi, would not be applicable. This is precisely Joan Robinson’s claim, that mathematics can not be used in economics because no one ever knows anything about the future, be it near or far; hence, the mathematical equations and functions do not, and can’t, exist. However, for Keynes, this type of argument, about the impact of total ignorance on analyzing outcomes, deals only with the distant or far future and not with the near or immediate future.

The Post Keynesian school, following Joan Robinson, G L S Shackle and Paul Davidson, has completely confused the definition of uncertainty made by Keynes in chapter 12 of the General Theory on page 148 in footnote 1, where Keynes defined uncertainty to be an inverse function of the weight of the argument, V, which must come in degrees, with a notion that there is always complete and total uncertainty about any event in the future, so that it does not matter in distinguishing the short run (near or immediate future) from the long run (distant or far future). All events can only be either certain or they must be uncertain for the Post Keynesian school, since uncertainty is the negation of certainty. It is impossible to have degrees of uncertainty or liquidity or disquietude for the Post Keynesian school, just as it is impossible to have degrees of ergodicity or non ergodicity. Post Keynesians, who argue that there are degrees of uncertainty and that uncertainty requires non ergodicity, are involved in an immense logical contradiction.

It is very likely, then, that Post –Keynesians, who are unanimously loyal to the agenda established by Joan Robinson, while implicitly completely rejecting Keynes’s A Treatise on Probability and General Theory approach to uncertainty ,will also reject Shiozawa’s, Morioka’s and Taniuchi’s Microfoundations for Evolutionary Economics (2019), due to the necessary mathematical formulations contained in their book that are absolutely needed in order to develop important analysis required from operations management, production management, and supply chain management applications, which can be viewed as major advances on Keynes’s early 1930’s emphasis on the importance of maintaining sufficient buffer (safety) stocks. Buffer stocks must be maintained to avoid supply side shocks ,such as those that hit the world economy in the mid-1970’s to mid-1980’s at both the macro and micro levels.

The second important point made by Shiozawa is that optimal results can’t ever be calculated, but, following Simon, satisfactory results can be expected to result from a process involving study, memory, intuition, experience and expertise. The conclusion that optimization can’t be accomplished under bounded rationality was also arrived at by Keynes with respect to his definition of degree of rational probability, α. Keynes’s worked out examples of his conventional coefficient of weight and risk, c, in footnote 2 on page 315, which was offered by Keynes as an alternative formulation to the much more difficult interval valued approach of using upper and lower bounds, that Keynes had worked out in Parts II and III of the A Treatise on Probability, which he called approximation and inexact measurement, leads to the same conclusion. Optimal results require exact,precise probabilities, but Keynes’s imprecise probabilities can allow a decision maker in a firm-industry to obtain a satisfactory result. Simon is implicitly relying on imprecise probability assessments by decision makers.

Everything developed in this book is based on, and follows from, the foundation supplied by H. Simon to Shiozawa, Morioka, and Taniuchi. Unfortunately, H. Simon’s approach has been rejected by Post Keynesians, who, instead of using Keynes’s very similar approach, are using a diametrically conflicting approach to uncertainty and risk that was authored by Joan Robinson, G L S Shackle, and P Davidson.

This book effectively develops a microeconomics consistent with quantity (output) adjustment that follows directly from Keynes's Principle of Effective Demand. I believe that the authors can extend this to Keynes's macroeconomic structure in the General Theory in the future.

**Keywords:** Herbert Simon, bounded rationality, satisficing, degree of rational belief, Keynes, microeconomics, foundations

**JEL Classification:** B10, B12, B14, B16, B18, B20

**Suggested Citation:**
Suggested Citation