Tuesday 21 February 2012

If leviathan could speak, could we understand it?

Wittgenstein's famous 'if a lion could speak we couldn't understand it' provides a nice summarising metaphor when considering the pitfalls of generalising from the micro-economic to the macro-economic.  This is what Keynes was getting at with his paradox of thrift and fallacy of composition in the General theory.  The system of logic which works at a household level may not scale to the macroeconomic level.  Folksy home truths which work for a household could be catastrophic for the economy in general.

Keynes didn't invent macro, by any means,   Check out William Petty, John Law, Richard Cantillon, Thomas Mun, Dudley North, Henry Thornton, to name but a few.  They pre-date classical micro-economics.  And they truly invented a different language.  It is a language which essentially assumes that the actors are states.  

Understand the historical context of this language, this logic, and you get closer to understanding macro-economic events, perhaps even of exploiting them in financial markets.  Petty was Hobbes's personal secretary, so probably got the leviathan mindset directly from his master.  These thoughts, these times were truly great.  They set in motion  - for the Western world, at least - a kind of alien logic which I don't think anyone has gotten anywhere near to the bottom of yet.

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