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George Lennox Sharman Shackle (14 July 1903 – 3 March 1992) was an English
economist An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
. He made a practical attempt to challenge classical
rational choice theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
and has been characterised as a " post-Keynesian", though he is influenced as well by
Austrian economics The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian schoo ...
. Much of his work is associated with the Dempster–Shafer theory of evidence.


Life

He was born in
Cambridge Cambridge ( ) is a university city and the county town in Cambridgeshire, England. It is located on the River Cam approximately north of London. As of the 2021 United Kingdom census, the population of Cambridge was 145,700. Cambridge becam ...
, son of a mathematics-teacher father who had coached
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
to an Eton scholarship. Shackle attended The Perse School but his parents could not afford to support him through university so he started work as a bank clerk. Later becoming a teacher, he studied in his own time for a University of London BA degree which he took in 1931. He started work on a PhD under the supervision of
Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
at the
LSE LSE may refer to: Computing * LSE (programming language), a computer programming language * LSE, Latent sector error, a media assessment measure related to the hard disk drive storage technology * Language-Sensitive Editor, a text editor used ...
but switched to an interpretation of Keynes's ''
General Theory of Employment, Interest and Money ''The General Theory of Employment, Interest and Money'' is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, giving macroeconomics a central place in economic theory and ...
''. He obtained his doctorate in 1937. At LSE he became good friends with German born economist
Ludwig Lachmann Ludwig Maurits Lachmann (; ; 1 February 1906 – 17 December 1990) was a German economist who was a theorist and important contributor to the Austrian School of Economics. Lachmann himself, Israel Kirzner, and Murray Rothbard were the three primar ...
, who was inspired by Shackle's own work on uncertainty; and developed his own theory of divergent expectations based on Shackle's writing. Following a number of academic posts, at the outbreak of World War II in 1939, Shackle was appointed to S-Branch, Sir Winston Churchill's inner office of economists. There he served along with Donald MacDougall and Helen Makower under the leadership of
Frederick Lindemann Frederick Alexander Lindemann, 1st Viscount Cherwell, ( ; 5 April 18863 July 1957) was a British physicist who was prime scientific adviser to Winston Churchill in World War II. Lindemann was a brilliant intellectual, who cut through bureau ...
. Following the war, a short spell at the
Cabinet Office The Cabinet Office is a department of His Majesty's Government responsible for supporting the prime minister and Cabinet. It is composed of various units that support Cabinet committees and which co-ordinate the delivery of government objecti ...
under James Meade and at the University of Leeds led to appointment as
Brunner Professor of Economics Three chairs at the University of Liverpool were endowed by local industrialist Sir John Brunner, 1st Baronet: the Brunner Professorship of Economic Science, the Brunner Professorship of Egyptology, and the Brunner Professorship of Physical Chemis ...
at the
University of Liverpool , mottoeng = These days of peace foster learning , established = 1881 – University College Liverpool1884 – affiliated to the federal Victoria Universityhttp://www.legislation.gov.uk/ukla/2004/4 University of Manchester Act 200 ...
, a post he held until his retirement in 1969.


Overview

Shackle was influenced by Keynes and
Gunnar Myrdal Karl Gunnar Myrdal ( ; ; 6 December 1898 – 17 May 1987) was a Swedish economist and sociologist. In 1974, he received the Nobel Memorial Prize in Economic Sciences along with Friedrich Hayek for "their pioneering work in the theory of money a ...
and challenged the conventional role of probability in economics, contending that it failed adequately to deal with "surprising" events. The grounds of his thinking can be seen in Keynes's remark: Though technical in nature, Shackle's work took economics into novel territory such as the importance of imagination in economic decisions to assess the plausibility of alternative outcomes. Though Shackle's work has had a limited impact on mainstream thought within economics, it continues (perhaps increasingly) to attract interest. Among Shackle's contributions to decision making theory, his potential surprise theory of economic decisions was the most formidable. Abandoning the
probability theory Probability theory is the branch of mathematics concerned with probability. Although there are several different probability interpretations, probability theory treats the concept in a rigorous mathematical manner by expressing it through a set ...
foundations of most of modern economics, Shackle proceeded to focus on plausibility or a possibility analysis of economic decisions. To Shackle, economic agents did not make decisions based on probability distributions and consequently derive rational expectations from the "hard data" as New Classical economists such as Leonard Savage support, to Shackle, the crucial element in economic decision making was imagination, which consequently factors into decision making. Shackle's considerations of imperfect knowledge's role in economics foresaw many of the advances in psychological economics, particularly from Herbert Simon's bounded rationality theory. When realizing that economic decision makers lack the knowledge necessary for probabilistic analysis, the ability to consequently make rational expectations off of said data is almost impossible. To make matters even more complicated for the New-Classical economists, Shackle proceeded with his analysis, already attacking one of the core foundations of modern Mainstream economics, perfect knowledge. To Shackle, economic decision making was not derived from probability and frequency, it was based on the imagination's role in comprehending the possibility of economic decisions. If probability analysis held true for most economic decisions, most of modern economies would not exist. In this idealized state in which rational expectations could be generated, entrepreneurs simply would not exist. Entrepreneurship is probabilistically irrational, it makes little sense to embark upon an economic decision in which its fate is determined by millions of other contingent human beings and their subjective needs and preferences. The probabilistic analysis of such a situation would be strongly biased in favor of refraining from engaging in entrepreneurship; it simply makes little sense to engage in such a process for the economic statistician when the odds of such a situation being a success are immensely minute. It would then follow that in a world in which individuals interpreted probability before making economic decisions, individuals would refrain from entrepreneurship, for such a risky endeavor to be successful is such a situation in which the outcome depends on subjective preferences of unknown individuals. Entrepreneurs, then, are truly irrational in a probabilistic evaluation of economic decisions. Understanding such a peculiar situation to the statistician, Shackle proceeded to develop his potential surprise theory of economic decision making. Rather than weighing entire frequencies of outcomes for a certain situation, economic decision makers would weigh only a few outcomes and possibilities before making a real economic action; Shackle proposed only two possible outcomes for economic decision makers to weigh, rather than the frequency of an entire probability distribution. Shackle's potential surprise theory was fundamentally based on the role of imagination in economics, bridging the great asymmetry of knowledge of entrepreneurs to make actions which consequently determine the future: "At the heart of Shackle’s theory of choice is the idea that, when people consider the possible consequences of taking a decision, they give their attention only to those outcomes that they (a) imagine and (b) deem, to some degree, to be possible. This set of outcomes is not guaranteed to include what actually happens, which may be an event they had not even imagined and which comes as a complete surprise to them" Shackle's theory of choice is a theory that is incredibly odd to most mainstream economists dealing with choice theory, primarily due to the fact potential surprise theory is not a theory of probability and knowledge, it's a theory of imagination and possibility. Potential surprise theory is based on the entrepreneur, or economic decision maker, who weighs two different possible choices based on tolerable levels of potential surprise. The economic decision maker first distinguishes between the possible and the impossible outcomes and proceeds to eliminate this from their considerations. An outcome that happens to be subjectively terrible and implausible by the economic decision maker can be represented by a variable ''R ,'' and an outcome that is subjectively amazing but also implausible by the economic actor will be assigned the variable ''U''. Anything better than ''U'' and worse than ''R'' are eliminated from the view of the economic decision maker and the focus of the two values to be chosen by the economic decision maker is to be in-between these two maximum points. The focus two points for the economic actor that are in between these two values are then weighed by their level of potential surprise, whether or not they are subjectively tolerable to the economic actor. A recurring theme throughout Shackle's work is the subjective use of the imagination to guide economic decisions. Rather than weighing every possible function, or at least a majority of the functions in a probability distribution, a Shackleian economic actor proceeds to make their economic decisions based on subjective dual decisions and simply weighs the two against one another before proceeding with a course of action. The economic actor is in a way keeping his options open, a possibility that does not occur for the Savage expected utility hypothesis economic actor who takes the "Look before you jump expression" to its logical extremities; a notion untenable for the real economic world. At the centre of Shackle's kaleidic vision was the ability for economic actors to keep their options open and due to imperfect knowledge and the nature of imagination, proceed with the dual analysis of possibilities rather than entire probability distributions. Shackle had, for a period of time had captured the attention of economists, however this slowly waned as economics moved away from Shackle's theory and towards the foundations of the rational expectations hypothesis, consequently leading to the rational expectations revolution, even capturing the attention of
Kenneth Arrow Kenneth Joseph Arrow (23 August 1921 – 21 February 2017) was an American economist, mathematician, writer, and political theorist. He was the joint winner of the Nobel Memorial Prize in Economic Sciences with John Hicks in 1972. In economi ...
, a renowned Mainstream economist: "The reason for the current lack of interest is probably not any denial that Shackle’s position is fundamentally correct; it is the absence of the analytic tools needed to make the exceptional approach capable of generating operationally meaningful conclusions." Despite the latter iterations of Shackle's economic theory of decision making, there still has been little change to the economic consensus on probability theory, although Shackle's potential surprise theory bears a remarkable similarity with scenario planning of the Royal Dutch Shell, a peculiarity even Shackle noticed. On further contributions outside of decision making theory, he also claimed the importance of
Gunnar Myrdal Karl Gunnar Myrdal ( ; ; 6 December 1898 – 17 May 1987) was a Swedish economist and sociologist. In 1974, he received the Nobel Memorial Prize in Economic Sciences along with Friedrich Hayek for "their pioneering work in the theory of money a ...
's analysis by which saving and investment are allowed to adjust ex ante to each other. However, the reference to ex ante and ex post analysis has become so usual in modern macroeconomics that the position of Keynes to not include it in his work, is currently considered as an oddity, if not a mistake. As Shackle put it: Shackle has also made important contributions to the history of economic thought, especially with regard to twentieth century economic schools of thought.


Expansion on Keynes' economics

While Shackle thought that Keynes' work provided the best basis on which to construct a new type of economics he thought that Keynes had not fully understood the importance of the revolution that he had undertaken when he had written his key works. Shackle said that Keynes' work must be understood as having taken three steps until it finally arrived at a new revolutionary method of economic analysis. The first of these three steps was to be found in Keynes' ''Treatise on Money''. "Before the ''Treatise''", Shackle wrote, "the interest rate was determined by tastes and objective circumstances, by the persuadibility of income-earners to transfer consumption from the present into the future, and the desire of business men to transfer the means of free enterprise from the future to the present, thus altering the productive possibilities and enlarging the prospective income of the society including themselves". Shackle wrote that already in his ''Treatise on Money'' Keynes was attacking this conception of the interest rate. Shackle maintained that Keynes had not yet in the ''Treatise'' understood "the meaning of the great undermining which had thus happened to the theory of value". But on Shackle's reading Keynes abandoned this "great undermining" of the "theory of value"—by which he meant any economics based on market equilibrium—in his ''General Theory'' instead falling back on a "curious methodology... where what is displayed to the reader is a range of 'equilibria' of the most precarious and ephemeral kind". Shackle writes that Keynes only really arrived at the true meaning of the revolution he had undertaken in Chapter 12 of the ''General Theory'' and then, more forcefully, in his 1937 article in the ''Quarterly Journal of Economics'' entitled ''The Theory of Employment''.G.L.S Shackle, "Epistemics & Economics: A Critique of Economic Doctrines" Cambridge University Press, p. 163-164. United Kingdom, 1972. In these writing Keynes formulated a theory of uncertainty about the future that exploded the entire edifice of traditional economics which rested, implicitly, on the notion of timeless equilibrium conceptions which implied full access to knowledge on the part of all actors. In outlining this Shackle sought to marry what he considered Keynes' best insights in the ''Treatise on Money'' with his later notion of
liquidity preference __NOTOC__ In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book ''The General Theory of Employment, Interest and Money'' (1936) to expl ...
in the ''General Theory''. In doing so Shackle formed a coherent, speculative theory of interest rates in which interest rates are set in line with financial speculators' expectations in the face of an uncertain future. Shackle wrote: This complemented Keynes' own idea in the ''General Theory'' that investment is ultimately set in line with the animal spirits of those investment and was thus not subject to rational calculation, as that term is understood by most economists. These two points render Shackle's expansion of Keynes' economics inherently indeterminate. For Keynes and Shackle a market economy need not arrive at any particular destination. It is to be seen as an entity in continuous flux that will only generate sufficient investment to ensure full employment by an unlikely fluke.


Equilibrium versus time

The essence of Shackle's radical reevaluation of economic theory was primarily epistemic. He thought that
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
and other forms of economics that use equilibrium methods ignored the dimension of time.
Neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
relies on the idea that agents will act rationally; but this rationality is effectively synonymous with saying that agents know the future. Shackle pointed out that in order for agents to act "rationally"—in the sense that neoclassical economists understood that word—they would have to logically know what actions all other agents were going to undertake. This, Shackle claimed, was effectively the same as assuming that they knew the future. Shackle maintained that the way that
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
had smuggled in this strong assumption was in its use of simultaneous equations. When they tried to justify this method neoclassical economists, beginning with
Léon Walras Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economist and Georgist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the developme ...
and Francis Ysidro Edgeworth invoked the principle of ''tâtonnement'' or "groping". They assumed that agents would continuously test out different bids and prices until the series of bids and prices that produced equilibrium was reached. This implied that the system of simultaneous equations was being used as a sort of shorthand for a result that was actually reached dynamically through a series of trials and errors. But Shackle claimed that this type of reasoning based on an analogy between a static system of simultaneous equations and a dynamic process of ''tâtonnement'' was extremely misleading. Shackle claimed that the entire market equilibrium construct could not deal with time and could thus not deal with the actual material which the economist must study, which was inherently historical by nature. What is more Shackle was extremely dismissive of attempts to relax the strong assumptions of market equilibrium theory to render it more realistic. He thought that the foundations were too at odds with the nature of the material being dealt with to salvage it by relaxing some of the stronger assumptions as, for example,
Neo-Keynesian The neoclassical synthesis (NCS), neoclassical–Keynesian synthesis, or just neo-Keynesianism was a neoclassical economics academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Ke ...
and
New Keynesian New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroec ...
economists try to do. He wrote: Shackle went on to write that what the market equilibrium conception showed was a world of perfect knowledge frozen in time. It thereby negated itself as being of any use in a world where knowledge of the future is impossible and time moves in one direction. In such a world the action of human beings must be in part based on reason and in part on imagination—specifically, imagination with respect to what various individuals imagine the future might be or even should be. Shackle wrote that
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
rested on a teleological or pre-determined future and thus left no space for human choice which was inherently tied up with a human being's capacity to freely imagine what might be in store in the future. Shackle wrote: For Shackle this was the correct path for a serious economics that purported to deal with the real world should take. It should move away from abstractions that could not account for time or proper, free choice and instead should try to make sense of a world where both imagination and reason played a role in determining economic outcomes. Shackle called this type of reasoning
kaleidics The term kaleidics ( ''kalos'': "good", "beautiful"; εἶδος ''eidos'': "form", "shape") denotes the ever-changing shape and status of an economy. Uncertainty is the primary kaleidic factor. It is strongly associated with the work of George Sh ...
.


Others commenting on Shackle

In ' The Black Swan', Nassim Nicholas Taleb writes about Shackle (emphasis added):
Hayek is one of the rare celebrated members of his "profession" (along with J. M. Keynes and G.L.S. Shackle) to focus on true uncertainty, on the limitations of knowledge, on the unread books in Eco's library.
..Tragically, before the proliferation of empirically blind idiot savants, interesting work had been begun by true thinkers, the likes of J. M. Keynes, Friedrich Hayek, and the great Benoit Mandelbrot, all of whom were displaced because they moved economics away from the precision of second-rate physics. Very sad. 'One great underestimated thinker is G.L.S. Shackle, now almost completely obscure, who introduced the notion of "unknowledge"', that is, the unread books in Umberto Eco's library. It is unusual to see Shackle's work mentioned at all, and I had to buy his books from secondhand dealers in London.


Bibliography

* * Shackle, G.L.S (1938) ''Expectations, Investment and Income'' * * * * * * * * – (1983). "The Bounds of Unknowledge". In J. Wiseman (ed), ''Beyond positive economics''. New York: St. Martin's Press.


References


Further reading

* * Arrow, Kenneth J., and Hurwicz, L. et al. (1972) in
Charles Frederick Carter Sir Charles Frederick Carter (15 August 1919 – 27 June 2002) was an English academic known primarily for his role as the founding Vice-Chancellor of Lancaster University. Early life Carter was born in Rugby to a father who was an electric ...
and J.L. Ford (eds.)
''Uncertainty and Expectations in Economics. Essays in Honour of G.L.S. Shackle''
Oxford:
Basil Blackwell Sir Basil Henry Blackwell (29 May 18899 April 1984) was born in Oxford, England. He was the son of Benjamin Henry Blackwell (18491924), founder of Blackwell's bookshop in Oxford, which went on to become the Blackwell family's publishing and book ...
, New York:
Augustus M. Kelley Augustus M. Kelley, Publishing was a New York based publishing house named after its founder, Augustus M. Kelley (1913-1999). The exact dates of operation of the firm are not known. The concern primarily published non-fiction works and was noted fo ...
. * Frowen,S.F. (2004) "Shackle, George Lennox Sharman (1903–1992)", ''
Oxford Dictionary of National Biography The ''Dictionary of National Biography'' (''DNB'') is a standard work of reference on notable figures from British history, published since 1885. The updated ''Oxford Dictionary of National Biography'' (''ODNB'') was published on 23 September ...
'', Oxford University Press

accessed 3 April 2006 * Earl, Peter E. and Littleboy, Bruce (2014) ''G.L.S. Shackle (Great Thinkers in Economics)'', Palgrave Macmillan.


External links


An interview with GLS Shackle
by Richard Ebeling, 1981, Ludwig von Mises Institute
Bibliography
from the New School for Social Research website
"Reflections on George Shackle – Three Excerpts from the Shackle Collection"
by Stephen C. Littlechild, '' Review of Austrian Economics'', 16:1, 113–117, 2003
Great Thinkers: John Kay FBA on G. L. S. Shackle FBA
podcast, The British Academy {{DEFAULTSORT:Shackle, George L.S. 1903 births 1992 deaths 20th-century English historians Academics of the London School of Economics English economists Fellows of the Econometric Society Historians of economic thought People educated at The Perse School Post-Keynesian economists