Quote of the Week: John Maynard Keynes on Pragmatism

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Pragmatism is a very attractive philosophy, but it is important to realise its limitations. It is quite simply impossible to do economics, political philosophy (or anything else) without some theoretical background. As Keynes aptly points out, those who think they can do away with theory are still implicitly using some theory. Since they have never stopped to critically reflect their implicit theory and are not conscious of its shortcomings, they end up the slaves of some defunct theorist. In other words, it pays to be pragmatic even in your application of pragmatism.

When people expostulate on economics without bothering with economic theory, they frequently resort to mercantilist ideas, which where thoroughly refuted two centuries ago. Take for example a recent video by Youtuber Lauren Southern, in which she criticised a number of developments in the libertarian movement. Most of her criticism is quite reasonable and I agree with much of what she has to say in the video, but then she gets to the issue of trade policy (timestamp). Her argument for protectionism is that free trade is only beneficial from a particular country’s point of view if other countries are also engaging in free trade, but since most countries have protectionist policies and some engage in “currency manipulation,” unilateral free trade is not beneficial to your country. What she does here is to cast libertarians as blind ideologues who are too caught up in the beauty of their theoretical constructs to properly deal with the real world.

Of course this criticism completely ignores the actual arguments libertarians (and really anyone who’s economically literate) are making in favour of free trade. The argument does not rely on other countries having free trade. See for example this overview of the case for free trade by Alan S. Blinder. Although it would be great if other countries enacted free trade, it is still generally in any country’s best interest to unilaterally enact free trade, no matter what the other countries do. There may be some exceptional circumstances where some protectionist policies are beneficial (see for example the optimum tariff) from the point of view of the country enacting them, but in general free trade is the optimum position. And this is not just some fringe libertarian view, but has been the overwhelming consensus view among economists of all stripes for many decades.

Theory matters. The only way we can make sense of the world is by viewing it through the appropriate theoretical lenses and using the right models. By being supposedly pragmatic and ignoring theory, you don’t get practical solutions for real problems. All you get is bad solutions based on bad theory.

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