Doctor of the Hungarian Academy of Sciences,
Corvinus University of Budapest
Published in: Public Finance Quarterly 2017/3 (p. 275-293.)
SUMMARY: The science of economics should focus on the benefits to mankind, and on increasing its welfare. The role of the market and the government was debated between mercantilists and physiocrats in the 17–18th centuries already, and remains questionable to this day. Classical economists relied on a fatalistic intuition in explaining the role of the market, arguing that the mechanism of the market would automatically create an equilibrium in the long term, regardless of the initial conditions. In the 19th century, Ludwig Boltzmann put forward a similar principle in thermodynamics: the ergodic hypothesis. An ergodic system is homogeneous, without the past and future making any difference to its state; time is analytical. The absence of ergodicity breaks the symmetry between past and future; time is historical. We will show that Paul A. Samuelson followed the fatalistic intuition of classical economists, which he ambiguously referred to as the ergodic hypothesis. The objections raised by Paul Davidson are based on that ambiguity. By contrast, John M. Keynes did not consider financial processes to be ergodic, arguing that the future was uncertain and the government was significant. Based on the criticism voiced by Frank P. Ramsey, we assess Keynes’ logic of probability, which, for the purposes of risk analysis, is seen as the scientific method of the uncertainty shrouding the General Theory and of the theory of long-term expectations.
KEYWORDS: ergodic hypothesis, fatalistic intuition, logic of probability, uncertainty, risk analysis
JEL CODES: A1, C1, E6, G1