John Maynard Keynes
We simply do not know
Some things have no odds to calculate; don't pretend
"The General Theory of Employment", Quarterly Journal of Economics, 1937
Nobody can say how this plays out, so what am I betting on? This page is about sorting what you can calculate from what you cannot.
What actually happened?
In 1937 Keynes wrote a paper for the Quarterly Journal of Economics to restore a layer of his book that readers had skipped. He split the world in two. Roulette and lotteries have odds you can work out. But the price of copper in twenty years, the rate of interest, even whether Europe will go to war again: of these he wrote "We simply do not know." Yet people still have to buy, sell and invest. What carries them?
Risk and not knowing are different things
He separated events whose odds can be worked out from events where, as he put it, there is "no scientific basis" for a calculable probability. Treat the second kind like the first and the number you get only looks respectable. It adds no certainty.
Writing next year's industry growth as 8.3 per cent pretends you are facing a roulette wheel.
Three habits carry us through
People cannot simply wait, so they assume three things: that the present will continue, that today's prices already sum up what is known, and that, since their own judgment is worth little, they should follow the majority. He called these makeshifts, and warned they can give way suddenly.
Prices rise for five years, so year six is assumed too, until the year it isn't and every assumption fails at once.
Holding cash is a stance
He argued that possessing actual money "lulls our disquietude", and that what we demand to part with it measures how disquieted we are. The greater the unease, the higher the price. Sitting in cash is not always cowardice.
Someone keeps six months of spending in a current account. They can manage money; they simply cannot see the next six months.
How do I use it today?
Where you are: You must bet on something nobody can call: a new industry, a rally, a choice that takes twenty years to show.
Ask first: Which part can I calculate, such as the cost, the term and the most I can lose? Which part do I simply not know? Size the bet so that being wrong on the second part is survivable.
Where it goes wrong: Reading it as "if you can't know, do nothing." He invested and advised for a living. His point was not to dress a guess up as a sum.
Lines to keep
Nobody can put odds on copper in twenty years.
If you don't know, don't write a guess like a calculation.
Sometimes cash is just admitting you can't see.
Same situation, other people are asking
Do I go all in now or wait it out?Everyone's piling in. Is being late actually fatal?The money pouring in looks insane. Do I stay out?Everyone is adopting this. Do I have to as well?Do I jump in now · all 6 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.