As a layperson who has a pretty good handle on the financial economics literature. I find you are conflating that with EMH and Fama. Anyone how knows the history here will be perplexed with where you put in in a timeline and the role you assign it. You probably know the origins are Bachelier and what is now called the random walk. The key building blocks were MPT and CAPM, in the 1950s. EMH was so well advanced that Benoit Mandelbrot chose to investigate it in 1963-4 and essentially disproved it, but his disconcerting analysis (replicated in other markets besides cotton, which had the best data) was at first considered very seriously, then ignored. The first index fund was created in 1971. Black Scholes was 1973 and that was considered to be the crowning achievement of financial economics. Pretty much everything after that was a mopping up operation.

In other words, this reads as if you are casting economics though a macro lens and fitting the history of other disciplines into that story, and the “fit” is off. I think the success of micro was actually unwittingly cemented by Samuelson in 1947. The methodological binders he put on economics (ergodicity in particular) would relegate any lines of thinking that involved difficult-to-model or non-linear assumptions like instability to the sidelines. The neoclassicals spent 30 years building their edifice and taking ground in the journals. They just needed the Keynesian orthodoxy to stumble to have a chance to move their paradigm to the fore.

If you want to make macro the centerpiece, then talk about policy frameworks. That would legitimate that focus.

Hmm, two speculations about my psychology. This resort to ad hominem slightly increases my Bayesian estimate of the probability that I’m right. (For the record, I don’t see how the answers to the questions of where Fama’s EMH was derived from, and whether it is or isn’t logically-equivalent to Quiggin’s EMH, are affected by my potential levels of surprise, or whatever I place or don’t place totemic significance on, I just don’t think my inner states are that important to reality.)

John is completely right in how EMH is interpreted within the field. We teach MBAs that because of the efficient market hypothesis you should use the market’s implied discount rate in capital budgeting, which fits John’s point exactly.

John Quiggin’s claim was that the EMH had been “developed to the point where it was suggested … that the best way to predict terrorist attacks would be to open a futures market”.
I don’t see how the truth or falsity of any version of the EMH implies a particular view on discount rates – surely, even if the weak-form of the EMH is false, if you are going to be funding a project by borrowing on the capital markets, it makes sense to consider the capital markets’ implied discount rate in doing your budget? After all, that’s the one that potential lenders are going to be deciding whether or not to invest against. Calculating it might be a bit more difficult of course depending on the alternative theory you adopt. Or alternatively, you could believe in even the strong-form of the EMH and also argue on philosophical grounds that the discount rate should be something else entirely (eg environmentalist arguments for using a discount rate of zero for certain situations where a massive loss is possible at some point in the distant future).

Theoretically, the efficient market hypothesis is derived from rational utility-maximizing agents in general equilibrium

Two points:
1. As I quoted before, Fama said in his 1970s paper that the EMH came as an explanation of empirical results. According to him, the theory followed the empirical work, not the other way around.

2. I would like to see this derivation, assuming that it exists. My financial economics professor never mentioned it at all, and I notice that neither you nor John have provided a citation for this supposed derivation.

The market microstructure literature talks about the importance of thick markets to get anything like an efficient market.

Remarkably, the behavioural economics literature shows that a rather efficient market outcome can be achieved with very few participants. See for example Markets, Institutions and Experiments, by Vernon L.Smith, http://www.ices-gmu.net/pdf/materials/393.pdf, page 15 of the pdf, where six buyers and six sellers are enough to reach the “optimal equilibrium outcome”, or “Experimental Methods in Economics”, http://www.ices-gmu.net/pdf/materials/370.pdf, from page 5 of that pdf:

Since 1956, several hundred epxeriemnts using different supply and demand conditions, experienced as well as inexperienced subjects, buyers and sellers with multiple unit trading capacity, a great variation in the numbers of buyers and sellers, and different trading institutions, have established the replicability and robustness of these results. … These experiments establish that the 1956 results are robust with respect to substantial reductions in the number of buyers and sellers. Most such experiments use only four buyers and four sellers, each capable of trading several units. Some have used only two sellers, yet the competitive equilibrium model performs very well under double auction rules.

Robert: I was not suggesting that Robinson never said she was mistaken, I was merely saying that it was surprising that anyone would be a purist Keynesian, given Keynes’ own apparent openness to the possibility that he might make mistakes, which implies that being a purist Keyneisan would require ignoring some of Keynes’ own writings, a bit contradictory. But what do I know? Perhaps Robinson wasn’t a purist Keynesian anyway.

What “economic liberalism” is, is a projection of an ‘Other’
or alternatively a description of a main strand in political theorising – you see, “Liberalism’ in the personal sphere is (in old fashioned terms) left wing – in the economic sphere, right (thanks largely to legal personality combined with limited liability). Monetarism properly so-called is a very specific doctrine, which doesn’t go anywhere near covering the Tory-sans-concern-for-the-unwashed ideas that Econ. Liberalism aptly enough describes, and certainly names.

Starting? Aravya.

If you have to direct me to an obscure website

Dated yesterday. Here’s a little job for you. Bring me some journals and Prof Titles from over the oast 30 years, not past 30 minutes.

“And if economics as a broad discipline deserves a robust defense, so does the free market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism.” The Economist, July 18-24, 2009, p. 11, emphasis added.

Meanwhile various “hapless Wiki-workers” (Mirowski 2009) on the “neoliberalism” entry cannot get it through their heads that the label was used by various neoliberals (e.g., Milton Friedman 1951) to describe themselves. Instead they pretend it is a pejorative invented by leftists and social democrats.

If you have to direct me to an obscure website to justify its existence, then clearly the non-concept has problems. What “economic liberalism” is, is a projection of an ‘Other’. Would you be directing me to marginal websites to validate the existence of Keynesianism, neoclassical, monetarist or marxian economics? Of course not. And yet here, JQ is arguing this “economic liberalism” has been a “paradigm” for over 30 years!!

No it isn’t. There are no journals called “The Journal of Economic Liberalism” which most economics read and cite, which are devoted to solving economic problems using models from the “economic liberalism” as opposed to Keynesian, monetraist, or Marxist schools. There are no scholars who are Professors of “Economic Liberalism”. It is a tautological phrase, which JQ has only recently substituted for “neoliberalism” which he has used for the past five years. Why the sudden change?

There are already too many things wrong with this book – particularly historiography and epistemology – without adding this weird nomenclature.

In 36, Tracy W. writes, “It’s interesting that a guy like Keynes, who made a couple of vivid statements about the okayness of being wrong, for example ‘There is no harm in being sometimes wrong — especially if one is promptly found out.’ would wind up with ‘purist’ followers.”

If Tracy is suggesting that Robinson never said she was mistaken, she is just ignorant.