384 SECTIONAL TRANSACTIONS.— F. 



General Discussion on Labour transference (12.0). 



Afternoon. 

 Visit to Messrs. Boots' works, Beeston. 



Friday, September 3. 



Presidential Address by Prof. P. Sargant Florence on Economic 

 research and industrial policy. 



Mr. R. F. Harrod. — Business experience and economists^ assumptions {11. 2,0). 



When rival and inconsistent theories compete for holding a given field, 

 settlement should in principle be reached by an appeal to the facts. If the 

 theories are logically coherent but lead to different results, there must be 

 present in the premises one or more assumptions requiring empirical 

 verification or disproof. Available statistical records, however, containing 

 aggregate or average figures are often incapable of providing the required 

 test, since it is usually possible to explain these in turn by suitable 

 assumptions. What is the nature of these assumptions ? In the last 

 analysis it often appears that they are concerned with the way the individuals 

 who go to make up the economic system, and particularly the entrepreneurs, 

 behave in various circumstances. It is assumed, for instance, that when 

 the market falls off entrepreneurs meet the situation by reducing prices 

 and /or by reducing output in accordance with certain principles. But what 

 principles ? 



The sheet-anchor of the economist is the principle that each entrepreneur 

 endeavours in all circumstances to do the best for himself. By drawing certain 

 curves supposed to represent demand, cost, etc., he can demonstrate what is 

 the optimum position, that is, the position representing the procedure which 

 will bring in the greatest possible profit currently and in the future, or, in 

 other words, which will maximise the present value of the business. So 

 far, no appeal to the facts seems necessary. It is needless to ask the entre- 

 preneur what he will do in certain circumstances, since, if those circum- 

 stances are known, the economist already knows by reference to his guiding 

 principle what the entrepreneur ought to do, and it is reasonable to suppose 

 that he does that. 



Unfortunately, the entrepreneur is often in a position when he is ignorant 

 of many of the facts relevant to the decision to be determined, e.g. the 

 future state of the market, or even the precise elasticity of demand as it 

 is at present. An analysis will be made of various kinds and degrees of 

 ignorance. Complete knowledge of all the relevant facts is hardly ever 

 present. It may be necessary to exert judgment. Can this judgment be 

 reduced to quantitative terms ? e.g. can the entrepreneur, while ignorant 

 of the precise value of a certain demand in future, none the less feel sure 

 that it lies within such and such a range ? 



When placed in a situation of partial ignorance, how does the entrepreneur 

 in fact behave ? He has to decide something, even though full grounds for 

 a perfectly rational decision are lacking. Furthermore, in the ordinary 

 course of business it would be impossible to come to a separate decision, 

 resulting from a separate act of judgment in every particular case, e.g. what 

 price to charge for every particular consignment however small. Some 

 rules of thumb are necessary. Is it possible to formulate these and to 

 analyse them from the point of view of their economic soundness ? 



