In my first post I cited the English economist G.L.S. Shackle (1903-1992) as
a formative influence. I’m in good company for in a footnote on p185 of The
Black Swan Nassim Taleb lauds Shackle as a “great underestimated thinker…now
almost completely obscure”. So who was Shackle and why should an investor be
interested in his work? In a word, “uncertainty”.
Shackle’s career as an academic economist was a life-long
attempt to radicalise the insights of John Maynard Keynes and encourage a
reluctant profession to reckon with the fundamental human dilemma: we live and
act in the present towards a future we cannot know in advance. If we had that
knowledge we would not be exercising choice, or by implication living a
recognisably human life. As Shackle puts it in a wonderful essay “What Makes an
Economist?”:
“A world without
uncertainty would be an utterly inhuman world”.
Why does this matter for investment?
Shackle, like Keynes,
places the fragility and volatility of the “state of expectation” regarding
future returns at the heart of economic analysis. Like Keynes, but taking
his arguments much further, Shackle questions the core assumptions of
neoclassical economics, and by implication the foundations of “efficient market”
theory.
Shackle’s signal contribution is laid out in his 1979 text
Imagination and the Nature of Choice. There he describes choice not as the
logical reckoning of costs and benefits but as a beginning, a creative act, an
origination. To choose is to enter the terrain of what he calls “the imagined, deemed
possible”. Shackle’s fundamental point is that “choice is not in first place
mere calculation, but the work of imagination”. To choose a course of action is
to make a commitment, to move towards a “time-to-come” in which the outcomes of
that choice will be shaped by circumstances we cannot foretell.
What can an uncertain investor take from this?
Reading Shackle will not provide us with a guide to which
particular investment to make or an assessment of macroeconomic policy. Instead
like the best thinkers he provides what all investors need: an intellectual
disposition of humility faced with the unpredictable events influencing the
present and future values of financial assets.
In short reading Shackle encourages the cultivation of what
I call the investing imagination: an ability to conceive of possible ‘times to
come’ when choosing between possible investments whilst acknowledging that the
results of our choices will be partly shaped by the unpredictable choices of
others (other investors, policy-makers, company management) and their
unforeseen consequences.
The world does not remain constant while we pause over a
potential allocation of our capital, and we cannot be certain what the consequences
of our choice will be, we have to imagine possible outcomes.
As Shackle puts it:
“Choice is an exploitation of unknowledge (…) Unknowledge
confronts the action-chooser in the form of a plurality of rival imagined
things deemed possible. Some of these are thoughts which lift his heart and
some are ones which sink it (…) Choice throws open the gates of anticipation to
the good and to the bad”. (Shackle, 1979, Imagination and the Nature of
Choice).
“What the decision-maker wants is access to hope. The
greater the possible loss or misfortune, the more exhilarating may be the
success which is then brought within imaginative reach. Decision is not, in its
ultimate nature, calculation, but origination”. (Shackle, 1974, "Decision: The
Human Predicament", Annals of the American Academy of Political and Social
Science, 412)
How to find out more about G.L.S. Shackle
Without access to a university library it may be difficult
to locate Shackle’s work as he died before the age of electronic journals.
The best sources are (expensive) academic commentaries:
Peter Earl and Bruce Littleboy (2014) G.L.S. Shackle,
Palgrave Macmillan
J.L. Ford (1994) G.L.S. Shackle: The dissenting economist’s
economist, Edward Elgar
Some of Shackle’s work and comments on it are available
online e.g.
G. Shackle (1979) “Imagination, Formalism and Choice”,
Chapter 2 in
An interview with G.L.S. Shackle Austrian Economics Newsletter, Vol. 4, No. 1, Spring 1983
