The Nature of Policy-Making:

It follows that recommending policy must itself be a subjective exercise. The effects of particular-policies at a particular historical juncture will depend not only on the values of current measurable variables, but also on knowledge of the current psychology of economic agents. Moreover, it will depend on how we organise and interpret the historical evidence of different instances in the past in terms of the light they throw on present circumstances.

According to Keynes, the role of economic theory was not to provide quantitative predictions about the future. Rather, it provided a framework for thinking logically and in an organized manner about the problem under consideration. Past data on relevant variables could then be studied to obtain an idea about the nature of quantitative relationships that had prevailed in the past. However, in using such data for predictions about the future, it was necessary to make subjective judgments about the extent of similarity or dissimilarity between the present time period and different time periods in the past, not captured by objective measurable variables.

The above approach has two implications. First, choice between alternative models of the economy for present purposes cannot be made on the basis of historical data on measurable variables alone. That is, such choice cannot be made on purely quantitative grounds. Second, if there are few close parallels in history to present circumstances, then there exists little basis for objective predictions about the future.