On what basis does Keynes (General theory) discount the list of other feasible variables? In particular, does he dismiss subjective variables because he cannot measure them?

Résumé du document

Keynes, in his book, ?The General Theory of Employment, Interest and Money' argues that objective variables are the most useful tools that fiscal policy-makers can adopt. In this book, Keynes' primary objective is to discover the prime determinants of the volume of employment. He asserts that proceeds from employment are used in two ways: for consumption and investment. He focuses specifically on consumption and sets out a function that relates the consumption in terms of wage units to the income in terms of wage units in order to determine what factors determine the sum spent on it.

Extraits

[...] All other variables, including the other objective variables are relegated to the backseat. In part this may have been due to Keynes's motivation to simplify as his methodology emphasises the importance of comparative simplicity. There is obviously a clear and deliberate distinction between matters of first and of second and third order of significance as is exemplified by the 3 key variables which determined consumption. As Keynes was inspired, for lack of a better word, to write this book due to the high levels of unemployment in his time, he obviously chose to find the simplest formulation in order to yield insights into the essential structure of the problem at hand. [...]

[...] In particular, does he dismiss subjective variables because he cannot measure them? Keynes, in his book, The General Theory of Employment, Interest and Money, argues that objective variables are the most useful tools for fiscal policy- makers to use. In his General Theory, Keynes's primary objective is to discover what determines the volume of employment. He asserts that proceeds from employment are used in two ways: for consumption and investment. He focuses specifically on consumption and in order to determine what factors determine the sum spent on it, he sets out a function that relates the consumption in terms of wage units to the income in terms of wage units. [...]

[...] Surely other factors determine consumption and the effect of variations in consumer's tastes and preferences are of equal importance to income. Perhaps Keynes simplified in order to attain the best and most accurate theory possible to alleviate crippling unemployment. Keynes was very critical of econometrics and the possibility that it could contribute anything of value to economics. He accused econometrics of being no more than statistical alchemy. An extreme interpretation based on some of his writings is that no economic theory is ever testable, in which case, of course, economics itself ceases to be scientific. [...]

[...] He chooses to give prominence in his theory to objective variables because he believes that the propensity to consume depends only on changes in these factors. Furthermore, subjective factors are hard to measure and although he does acknowledge that objective factors can be influenced by subjective ones, he takes them as given due to the fact that they do not affect outcomes in a short period of time. Not only is measurement a motive for discarding subjective factors from his analysis, he also states that they are too complex and unpredictable to be of much use; the strength of subjective factors will vary enormously according to the institutions and organisation of economic society which we presume are shaped by habits formed by race, education, convention, religion and current morals. [...]

[...] One of his main criticisms was based on econometrics' use of models built with unobservable variables, such as the ones he identifies as subjective. However, an econometric assessment of Keynes's theory could assess the level to which the ignored variables affect consumption decisions, thus helping policy-makers make better predictions. Furthermore, an econometric assessment of his theory could provide for possible errors in data and outcomes, something which Keynes's own model does not as it puts any discrepancies down to untestable, subjective factors. [...]