Cambridge Journal of Economics 2011, 35, 771783

doi:10.1093/cje/beq048
Advance Access publication 30 December 2010

Uncertainty and imagination, illusion and

order: Shackleian connections
Brian J. Loasby*

Key words: Uncertainty, Imagination, Organisation, Knowledge

JEL classifications: A10, D01, L20, M10

Shackle . . . is thoroughly modern, in fact he first made a name for himself as a guide to the
Keynesians and post-Keynesians. He attracts the young precisely because he starts offas did
the classical economists a century agowith the behaviour of the individual in the economy and
indeed with the axiom of man, the individual, as the moving part of the economy. His most
original contribution is an attempt to base a comprehensive theory of economics on the
expectations of businessmen and entrepreneurs. Here he starts with the goal, the future and our
ideas thereof, and works back therefrom to present actions. His is the first true economics of
a moving goal, the first economics based on teleological dynamics. (Drucker, 1969, p. 210)

Peter Drucker, an Austrian-trained economist who worked primarily in America and

died quite recently, was, in my opinion (and not mine alone), the most consistently
insightful writer on management of his time. However, he was not always right: his
judgement that Shackles work was attracting increasing attention has not been confirmed.
Yet the passage just quoted is as good a summary assessment of Shackles significance as I
have ever read or heard. In this paper I shall try to indicate both the practical relevance of
Shackles ideas and their connections to the work of others, not all of them economists.
I agree with Drucker that Shackle was seeking a comprehensive theory. The subject of
that theory is uncertainty and its consequencesin particular the crucial role of
Manuscript received 19 March 2010; final version received 28 October 2010.
Address for correspondence: email: b.j.loasby@stir.ac.uk
* This paper is the slightly amended text of the 2010 G.L.S. Shackle Biennial Memorial Lecture, given in
Cambridge on 4 March 2010
The Author 2010. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved.

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Shackles work has many connections, to economic, scientific and philosophical

ideas and also to the practicalities of economic organization and business
management. Uncertainty is not only a pervasive problem, but a necessary condition
for human intelligence, initiative and imagination; unpredictability is essential to
both scientific progress and entrepreneurship. We create knowledge by making
patterns that enable us to impose order and envisage new combinations in an
evolutionary process, driven by human purpose, of competing and complementary
conjectures, many of which turn out to be false representations. Though academia
was Shackles natural environment, he was always concerned with applicability, and
testament to the practical relevance of his ideas is provided by two former senior
managers, with particular emphasis on the fundamental and domain-specific issues
of what to think about and how to think about it.

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imagination in imposing order on our thoughts and actions, even though the order that we
impose may be in part or wholly an illusion. Paradoxically, a fundamental implication of
uncertainty is the necessary inadequacy of any theory that claims to be comprehensive; so
a comprehensive study of uncertainty must include the problems caused by this
inadequacy, not only for theory-builders and academic disciplines but also for decisionmakers and the organisation of economic systems. Drucker devoted much attention to the
second category; Shackle thought and wrote about both. The questions he explored are
both pervasive and profound so I can only suggest directions of enquiry and must be very
selective. In particular I shall make only passing references to macroeconomics and
monetary theory. My primary focus is on what Drucker recognised: the relevance of
Shackles work to economic organisation and the tasks of management.
This was the basis of my own relationship with him. What I hoped to understand by
studying economics at Cambridge was how economic systems worked; but I discovered
that, as Ronald Coase later observed, microeconomic theory failed to explain how the
activities undertaken within the economic system are divided up among firms (Coase,
1988[1972], p. 58), and ignored the main activity of a firm, running a business (Coase
1991, p. 65). (Macroeconomic theory apparently demonstrated that economic systems
worked very badly at the aggregate level.) This remains my assessment of most
microeconomics; and I believe it results from a false definition of the problem situation
coupled with false assumptions about human nature and human capabilities, in
a combination that is almost self-sealing. Such combinations are not uncommon; indeed
this is a natural pathology of human characteristics, which are, in important respects, well
adapted to actual problems that require us to impose order on uncertainty. Such problems
provided the theme for George Shackles work.
I was introduced to Shackles distinctive theory of decision-making under uncertainty by
my supervisor at Emmanuel, Charles Carter. Though without immediate effect, this
supplied the absorptive capacity to appreciate his way of thinking when I encountered
it later. (That we can acquire new knowledge only by connecting it to our existing
knowledgeand that the consequences of such connections are in general not
predictableis a principle that underlies this paper). Charles Carter remained a friend
and supporter and, as General Editor for a series of economics textbooks, he chose Shackle
to write the first volume, on the theory of the firm.
Shackles (1970) title was Expectation, Enterprise and Profit. The book was not widely
adopted, and if you read it you will quickly understand why. The short-run situation of an
individual firm is modelled as a constrained equilibrium, with the rather uncommon virtue
of explaining not only why the constraints are essential to the analysis but also that they
result from the nature of production, which is examined in the two preceding chapters.
But the nature of production is not to be found in production functions, but in the complex
relationships between time and knowledge. For me this suggests connections to Marshall
and Hayek, and direct influences seem quite plausible. Shackle offers no model of a longrun equilibrium of the firmwhich is also not to be found in Marshalls Principles; instead
he explores the problems of making durable investments for use in circumstances that are
unobservable and unknown. His presentation recalls Keyness (1937, pp. 2134) emphasis
on the impossibility of assigning any credible probability to returns or asset values many
years ahead, and follows Keyness principle that decisions concerning investments have to
be kept separate from those concerning production levels (Roncaglia, 2009, p. 507).
However, Shackle took a much closer interest than Keynes in business decisions.

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The obvious connection is to Drucker. The publishers summary tells us that Professor
Shackles book is concerned with the nature and mode of life of the firm as a means of
policy formation in face of uncertainty, and that, says Drucker (1969, p. 204), is precisely
what firms are for. They are not atoms reacting to stimuli but organisms with some
capability of determining their own behaviour and action. (Though Marshall would never
have been so concise or so blunt, this also seems to be what he thought firms are for.) A
direct influence from Drucker is very unlikely; but there may be an indirect influence.
Shackle dedicated this book to H. M. Boettinger, whose citation of Shackle in an article in
the Harvard Business Review criticising the failure of economists to incorporate the causes,
processes and effects of technological change into their basic theory (Boettinger, 1967) led
to an important and enduring friendship between them; and Henry Boettinger knew and
admired Peter Drucker. (He has told me that Ronald Coase referred him to Shackles work,
though Coase could not recall doing so.) We shall return to Boettinger later.
The significance of uncertainty was summarised by Frank Knight, who defined it as the
absence of any demonstrably correct method for distributing probabilities over a range of
possibilitiesor, in the stronger case, for defining a closed set of possibilities. (Shackle
argued that the usual obstacle to a correct assignment of probabilities is the impossibility of
identifying all relevant future events.) David Hume (1875, p. 33) had pointed out that any
inference from the past to the future must assume a uniformity that can never be proved;
and Knights (1921, p. 313) observation that the existence of a problem of knowledge
depends on the future being different from the past, while the possibility of the solution of
the problem depends on the future being like the past reinforces Humes objection.
Knight posed the counterfactual question: what are the implications of a world without
uncertainty? His immediate answer was that it would exclude entrepreneurship, which
requires different views of likely futures, and profit, because everyone would have equal
knowledge of all revenues and outlays, including the correct allowance for risk. As a simple
corollary, contracts for specific services would pre-empt contracts of employment: there
would be no firms. This became the logicalthough not the empiricalbasis for Coases
(1937) explanation of the firm. Knights propositions are exemplified in the extended
Walrasian general equilibrium model, which relies on universal contracting by individual
agents. If all uncertainty has been converted to risk, each risk can be covered by a set of
specific contracts for each contingency at each date; the financial sector is redundantand
so is much with which we are familiar. As Hicks had recognised by 1933, [o]ne must
introduce uncertainty, before one can introduce money (Hicks, 1982, p. 7), which (like the
firm) is a device for postponing decisions about future actions. Such refusals to commit
must be matched by the committed conjectures of others to specific productive capacity if
the economy is to remain in balance both now and when the deferred decisions are
eventually made (Shackle, 1974, pp. 45). This is the microfoundation of macroeconomics.
Knight (1921, p. 241) realised that uncertainty allows scope for differences in capabilities
and attitudes. In his first published article, George Richardson (1953) argued that the neglect
of such differences in contemporary theorising about ideal economic organisation had misled
economists into treating the principles of welfare economics as directly applicable to practical
decision making. Richardson cited both Hayeks (1937) article on Economics and
Knowledge and Gilbert Ryles (1949) distinction between knowing that and knowing
how; and he subsequently used the relationships of complementarity and differentiation
between capabilities to explain the organisation of industry (Richardson, 1972).
Knight recognises an even deeper issue. He suggests that a life with uncertainty
eliminated . . . would not appeal to us (Knight, 1921, p. 348); Shackle (1966, p. 133)

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to live intelligently in our world . . . we must use the principle that things similar in some respects
will behave similarly in certain other respects even when they are very different in still other
respects. (Knight, 1921, p. 206)

He notes the corollary that which similarities matter and which differences do not depends
on the purpose or problem in view. Some obvious questions follow. What principles of
similarity are appropriate for what purposes? Who is to decide, and how? How are existing
classifications to be amended, and new classifications created? How are formally incommensurable categories to be incorporated within a comprehensive systemsuch as an
economy or the corpus of human knowledge? What categories should be linked, and what
kept apart? (The last is not a question that can even be posed in a general equilibrium

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equated such a life to the reverse of hope, the opposite of freedom. Knight (1921, p. 268)
argues that under such conditions all organic readjustments would become mechanical, all
organisms automata, concluding that it is unlikely that intelligence itself would exist in
such a situation. A perfectly competitive economy functions automatically: therefore its
duality with a perfectly planned economy is not accidental. In both systems human
initiative can only be disruptive.
This appears to be an inevitable conclusion for an economic theory that is modelled on
classical physics, the implications of which for human agency have long worried the
philosophically minded. If everything in our universe is governed by laws that are
deterministic and time-reversible then these laws must govern all human actionsand so
though there is a place for everything, there is no place for man (Koyre, 1968, p. 128,
quoted by Prigogine, 2005). Perfect predictability implies perfect impotence. The physicist
Ilya Prigogine (2005), having summarised this problem, argued that modern physics and
mathematics, by recognising unstable dynamic systems, which evolve through processes of
self-organisation that are not predictable, has created a distinctive role for humans to
contrive new forms of order by the formation of new combinations. The absence of
knowledge gives freedom for imagination and conjecture (Shackle, 1972, p. 18). Most of
these conjectures are refuted; but rationality, in the restricted sense peculiar to economics,
is not an alternative. Human beings are originative, ambitious, restless and insecure, . . .
they do not know what they are next going to attempt (Shackle, 1974, p. 67); and so (as
Schumpeter argued) the emergence of order is accompanied and punctuated by disorder,
on both small and large scales.
Sir John Meurig Thomas, former Master of Peterhouse, in a fascinating lecture to the
Royal Society of Edinburgh argued that unpredictability is an inherent feature of science that
has major implications for its organisation and use: creativity requires unpredictability
(Thomas, 2007). A simple corollary is that nearly all scientific research leads nowhere or,
if it does lead somewhere, then not in the direction it started off with (Medawar, 1982, p. 91).
The desire for control can therefore be dangerous, as two successful innovators have warned.
Charles Suckling, whose connection with Shackle will be noted later, wrote to me that
Serious and potentially disastrous constraints on innovation are being imposed at all levels of
education in the interests of quantitative assessment and Sir James Black, Nobel Prize
winner for Medicine, complained (in conversation) that the Research Councils were killing
innovation by requiring applicants for grants to specify what they will discover. Compare the
attitude of a research director who told his scientists that our objective is to change the
corporate strategy, by which he meant dont reject a discovery because it doesnt match our
target; think whether it can be turned into something better than what we were looking for.
What, then, is intelligence? Here is Knights definition:

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framework.) Human understanding and human society both require forms of order that
provide frameworks for activityincluding creativitywhile themselves being capable of
modification and at times supersession. So we need some understanding of the growth of
knowledge, the organisation of knowledge, and the organisation of the growth of knowledge.
What I wish to argueand this is not a novel propositionis that these three topics are
fundamental to explaining the structure and working of economic systems, and to economic
policy. They are the questions explored by Shackle (1972) in Epistemics and Economics.
Shackle had offered a summary account of the evolution of theories to explain the
remarkable developments in economics between 1926 and 1939 (Shackle, 1967). Let me
give the essence in a few abbreviated quotations.

Consequently [t]heories are altered or discarded only when they fail us; but if a theory which
seems essential to our comfort does fail, then the creation of a new theory becomes a prime
requirement. In order to make practical life possible we need to discern recurrent
configurations of particular circumstances, configurations involving both simultaneous association and temporal sequence, and . . . to ascribe to this recurrence a permanence, a power of
survival, a claim to belong to the nature of things, a guarantee of future as well as past validity.
(Shackle, 1967, p. 286)
Human knowledge is a human creation, and it is powered by human psychology.

Notice how closely this corresponds to Knights prescription for acting intelligently. But
instead of developing this correspondence I will turn to Adam Smiths theory of the growth
of knowledge. Smith (1980[1795], p. 41) begins with the powerful human desire for the
comfort of observing objects and events in a chain of things [which] seem . . . to float
through the mind . . . without obliging it to exert itself. If this comfort is violated by
repeated encounters with the unexpected and unaccountable, the resultant psychological
disturbance stimulates efforts to introduce order into this chaos of jarring and discordant
appearances, . . . and to restore . . . tranquillity and composure (Smith, 1980[1795], pp.
456). The discomfort of perceived uncertainty prompts the imagination to forge new
connections that will impose orderuntil the next disturbance. This is a fundamental
human process applicable to any situation. When Andrew Skinner, the leading Smith
scholar, and also an admirer of Shackle, told him about the close resemblances between the
two accounts Shackle was characteristically delighted.
For Smith and Shackle, both the disturbances and their resolution are domain-specific
(as with Knights contexts of similarity). Smith explains how the science of the connecting
principles of nature (Smith, 1980[1795], p. 45) emerges as a particular manifestation of
this process, and how further gradual differentiation of scientific domains encourages
distinctive challenges to the imagination and the acceptance of particular solutions, each
dependent on its own context of similarity and particular chain of connections. This line of
reasoning subsequently led Smith to identify the division of labour as the prime organising
principle for the development of economically-useful knowledge (Smith, 1976B[1776]).
The role of imagination in science, appropriately linked with analogy and metaphor,
together with the need for an organisation and ethos that provides adequate criticism of the

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Insight into the thing in being of which we form a part . . . cannot consist of a knowledge of its
nature or meaning in an ultimate, absolute sense. All we can seek is consistency, coherence,
order. . . . The chief purpose rendered by a theory is the setting of minds at rest. . . . Theory serves
deep needs of the human spirit: it . . . imposes a beautiful simplicity on the unbearable
multiplicity of fact, gives comfort in face of the unknown and unexperienced, stops the teasing of
mystery and doubt . . . so that we seek by theory to sort out the justified from the unjustified fear.
(Shackle, 1967, pp. 286, 288, 289)

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The transmission of impulses from neuron to neuron within the central nervous system . . . is thus
conceived as the apparatus of classification
the qualities which we attribute to experienced objects are strictly speaking not properties of that
object at all, but a set of relations by which our brain classifies them (Hayek, 1952, pp. 53, 143)

Underlying this answer is a fundamental proposition about resource allocation:

any apparatus of classification must possess a structure of a higher degree of complexity than is
possessed by the objects which it classifies; . . . therefore the capacity of any explaining agent must
be limited to objects with a structure possessing a degree of complexity lower than its own. . . . the
human brain can never fully explain its own operations. (Hayek, 1952, p. 185)

How modest, therefore must be its capacity in relation to the complexity of the universe,
and how valuable must be the capacity to develop locally-appropriate patternswhich, as

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products of imagination, receives due emphasis in John Zimans (1978, 2000) account of
how science works; and organisation and ethos are no less important if imagination is to
produce improvement in economic systems. In his Presidential Address to the Royal Society
of Edinburgh, Sir Michael Atiyah (2008), former Master of Trinity and a mathematician of
great distinction, also emphasised the role of imagination. Though logic, proof and
computation are essential tools, the way a mathematician thinks, creates and understands
relies on analogies, pictures and patterns. Compare John Zimans (2000, p. 120) insistence
that pattern-recognition is deeply embedded in scientific practice. Atiyah advised young
mathematicians to use their computers less and their imaginations more.
The restoration of tranquillity is the minimum requirement, but elegance and economy
may be decisive: both Smith and Atiyah emphasise the human search for simplicity and
beauty. Science is a form of art; so we should not be surprised that art seems to have
emerged alongside technological knowledge. What it is not, for Smith, Shackle and Atiyah,
is a direct imprint of the truthwhich is not to claim that it is mere fancy. Smith states
clearly that Newtons system, though accepted as the greatest discovery that ever was
made by man and difficult to present without implying that its connecting principles are
the real chains which Nature makes use of to bind together her several operations, is
actually the product of Newtons imagination (Smith, 1980[1795], p. 105). The natural
implication is that, like the systems which preceded it, Newtons system might eventually
fail to satisfy the imagination of those who seek to apply it to new phenomena, and
therefore stimulate the creation of new forms of order. Shackles (1967) account of
economics between 1926 and 1939 is cast in precisely these terms. More generally, this
view of knowledge, including knowledge within the natural sciences, is compatible with
Karl Poppers (1963, p. 46) summary view that we actively try to impose regularities on
the world . . . and to interpret it in terms of laws invented by us. . . . These may have to be
discarded later, should observations show that they are wrong. That applies also to any
successful business strategy or organisational design.
To explain how imagination works, we must turn to human psychology and physiology. The
ideal Shackleian connection is to Shackles original research supervisor at the LSE, Friedrich
Hayek, and specifically to the product of his early studies in psychology, which eventually
developed into The Sensory Order (Hayek, 1952). The problem that attracted Hayeks
attention was the lack of congruence between the classifications of phenomena provided by
the sensory qualities that had been produced by human evolution and the classifications
developed in what began as an attempt to give a physical account of these qualities. Hayeks
answer is that the two classifications are embodied in separate neural networks.

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in the manner of Sir Isaac Newton we may lay down certain principles known or proved from the
beginning, from which we account for the several phenomena, connecting all together by the
same chain. The latter . . . ... is vastly more ingenious and for that reason more engaging than the
other. (Smith, 1983, p. 1456)

He immediately observes that this Newtonian method was first used by Descartes, who
demonstrated its effectiveness by gaining wide acceptance by the learned in Europe for
a system which perhaps does not contain a word of truth. To be ingenious and engaging
is no guarantee of truthbut it can have a powerful appeal to the imagination, because, in
Shackles (1967, p. 288) words, it relieves us of the tiresome labour of thought, and the
uneasy consciousness of mystery and a threatening unknown. (Major examples within
economics include the powerful appeal of rational expectations and game theory.) If all our
knowledge is of representations that we consciously or unconsciously construct, some of
these may be misrepresentations. This is not just a problem for the individual; because we
rely so much on supplementing our own knowledge by adopting knowledge from others (or
perhaps more dangerously, practices based on knowledge that we do not investigate), there
is always the possibility of illusions that may be widely shared and, indeed, self-reinforcing;
the historical record shows that this possibility has often been realised.

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Smith and Shackle insisted, must be the products of individual imaginations, and therefore
fallible. Atiyah (2008) observed that, despite the substantial proportion of the human brain
devoted to the sense of sight, what we see is not an imprint of light waves but a constructed
image; hence the possibility of optical illusions. (The deliberate creation of illusions by the
use of perspective has produced some of the greatest paintings.) Atiyah notes that seeing
has become a metaphor for understanding, with the implication that all understanding is an
imposed orderwhich may be illusory. We may now add to this conception Alfred
Marshalls (1994) insight, in his early speculation on the working of the brain, that new
ideas and skills must be converted into automatic operations in order to free resources to
develop additional ideas and skills, especially if such a development is not to be simple trial
and error but to include some examination before real-world exposure. Penroses (1959)
explanation of the growth of firms relies on the same sequence. It is possible only to draw
attention here to Herbert Simons persistent emphasis on the scarce resource of cognition
and his eventual perception of a shared interest with Hayek in arrangements for the
development and use of local knowledge within an economy (Simon, 1992, pp. 267, 169).
Adam Smith recognised that the value of specialisation as a means of accelerating the
growth of knowledge is enormously enhanced by two factors which depend on social
relationships and therefore on two crucial human characteristics: the propensity to look for
guidance in the behaviour of others, which promotes the transmission of new knowledge,
especially knowledge how, by imitation, and the distinctively human propensity to barter,
truck and exchange (Smith, 1976B[1776], p. 25), which facilitates the coordination of
specialised activities without requiring central direction. This second propensity Smith
explains by a delight in persuasion, which he associates with the development of language.
Both propensities require the recognition of distinct individual identities. (Differences in
the relative size of brains between primate species seem to be correlated with the extent of
social activity.) Smiths (1976A[1759]) Theory of Moral Sentiments is a logical as well as
historical precursor to the Wealth of Nations.
Smiths (1983) Lectures on Rhetoric examine the methods of communication appropriate
for different purposes. He compares two ways of presenting scientific knowledge: we may
offer specific explanations for specific elements, or

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Smith gives no explicit warning of the dangers accompanying the appeal of grand
systems, and there is an apparent ambivalence in his attitude. His well-known story of the
poor mans son . . . cursed with ambition whose happiness is ruined by his false vision of
grandeur is immediately followed by the observation that it is this deception which rouses
and keeps in continual motion the industry of mankind (Smith, 1976A[1759], pp. 1813),
and he argues that the beauty of order, of art and contrivance may be more effective in
promoting schemes for the happiness of others than any immediate sense of their needs. Of
course we have plenty of evidence that the benefits of such schemes may be illusory.
In the final section of this paper we shall note some of the implications of human
characteristics for management. We recall that Shackles (1970) theory of the firm began
with the nature of production. In the second paragraph of Marshalls discussion of the
agents of production, which extends over 185 pages, the prime emphasis is on knowledge,
and the role of organisation in aiding knowledge is important enough to be treated as
a distinct factor (Marshall, 1920, pp. 1389), which is explored in five chapters. There is
a chapter specifically on business management, with much more to come in Industry and
Trade (Marshall, 1919); but most attention is paid to the relationships between firms within
an industry, conceiving different possibilities and adapting ideas from each other, and
relationships between different industries with their distinctive ways of thinking. It is
characteristic of Marshalls diffuse presentation that his core proposition that [t]he
tendency to variation is a chief cause of progress (Marshall, 1920, p. 355) is slipped into
a section on The principle of substitution in Book V: compare Richardsons (1975, p.
359) assertion that it is of the essence of competition that the participants hold uncertain
and divergent beliefs about their chances of success, and his claim that universal perfect
competition would be a major threat to economic welfare (Richardson, 1975, p. 353).
Marshalls distinction between internal and external organisation may seem to foreshadow Simons view of the economy as a quasi-decomposable system, and this is reflected
by his preference in the analytical chapters for partial equilibrium and the separation
between short-run and long-run. As Raffaelli (2009, p. 526) has observed, partial analysis
is the only method of study capable of dealing with a world in continuous evolution, which
was the context chosen by Marshall both for its realism and to match his interest in
improving the condition of the people.
Let us look a little closer at the individual firm. In a lecture appended to The Functions of
the Executive, Chester Barnard (1938, p. 312) observes that in everyday affairs, notably in
business, decision making must depend upon the effectiveness of the mental processes of
the type that can handle contingencies, uncertainties and unknowables: reason is
insufficient. These mental processes rely on the organisational character of knowledge,
which consists of categories and selective connections between them which appear to be
appropriate to a particular, if ill-defined, domain. Economic activities are predominantly
undertaken by formal organisations with an internal structure, which, likewise, consists of
categories and selective connections between them, and since [f]ormal organization is that
kind of co-operation . . . that is conscious, deliberate, purposeful (Barnard, 1938, p. 4)
a fundamental requirement for effectiveness is that organisation structures should be
matched with knowledge structures. Maintaining such a system and modifying it when
appropriate, which is the theme of Chandlers (1962) structural histories of American
businesses, and developing institutions to frame patterns of behaviour within each
organisation that foster the regularities which deliver efficient performance and also identify
and respond to problems and opportunities, are the prime functions of the executive,
according to Barnard. Barnards exposition clearly reflects his own experience in AT&T, an

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organisation cited by Drucker (1955, p. 46) for its very clear conception of the nature of its
businessto create customer satisfaction through the quality of its service. Purpose has
the longest entry in Barnards index; and Drucker had a close relationship with the
company (Boettinger, personal communication).
The boundedness of uncertainty is essential to the possibility of decision (Shackle,
1969, p. 224); and every organisation must work within such bounds. As we have seen,
every way of organising knowledge is appropriate within a limited domain; and these limits
may not coincide with the organisations field of activityor may cease to coincide as
outside circumstances or the organisations own activities change. Such limitations on ways
of thinking are the opportunity cost of specialisation. I recall visiting a division of ICI just
after BASF had announced a new chemical process that would displace the currently
dominant process developed within this division, and being told we would never have
thought of that. It was accepted that differences in ways of thinking across the industry
worked to the benefit of allthough not to everyone on each particular occasion. Firms
need their rivals. There is an important warning here against the apparent benefits of
concentrating resources within a single entity, which is inherently capable of only limited
variety. Indeed we should remember, as Barnard noted, that most organisations sooner or
later cease to exist: this is a feature of evolutionary processes. Drucker (1969, p. 293) noted
that (w)e want privately owned business precisely because we want institutions that . . . can
disappear. They should not be too big to fail. Therefore, economic systems should be
decomposable. Simon (1969) argued that this was an essential property of all complex
systems in an environment subject to unpredictable change.
It is worth noting how a project to develop long-range forecasts within Royal DutchShell led to a programme to redefine internal modes of thought. The interacting
uncertainties in formulating possible futures eventually prompted the development of
a non-exclusive range of scenarios, and a corresponding change of purpose. The objective
was no longer to provide data for computation but to change behaviour, and the planners
realised that this required a refusal to assign probabilities to possible futures (Jefferson,
1983, p. 133); Bart Nooteboom has recalled for me his participation in this critical
recognition. Managers were encouraged both to take individual responsibility and to seek
wider views, both through personal contacts with members of the planning department
and through management seminars with outside speakers. (It was at one of these seminars
that I met Ilya Prigogine.) Though these developments were not inspired by Shackles
work, its relevance was soon recognised; Michael Jefferson (1983) presented an insiders
view to the British Association meeting in 1981, noting a shared perspective on the role of
imagination in forming good choices (Shackle, 1979).
Let me conclude by saying a little about two senior managers, already cited, who
admired George Shackle, and had similar views about the problems and attractions of
uncertainty and how to deal with them. Charles Suckling made his career in ICI, and
subsequently served for eight years on the Royal Commission on Environmental Pollution.
I met him, by an improbable sequence of events, soon after reading a draft paper by Bill
Pounds (1969), Dean of the Sloan School at MIT (who subsequently left for a business
career) on the ways in which issues are identified as problems worth attention. (I had
discovered when investigating how firms in Birmingham made location decisions that what
is defined as a problem is crucial). Charles expressed an immediate interest; he would
welcome any help in problem definition. (This initiated the process that took me to the new
University of Stirling). Henry Boettinger, whose career was spent in AT&T, and who
shared Druckers and Barnards views of the company, considered his prime responsibility

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When the compass of potential knowledge as a whole has been split up into superficially
convenient sectors, there will be no knowing whether each sector has a natural self-sufficiency. . . .
Whatever theory is then devised will exist by sufferance of the things which it has excluded. Such
is the position of economic theories. (Shackle, 1972, pp. 3534)

As he pointed out in a letter to me, Shackles warning applies to all types of modelling,
in science and in design, in effect in all prediction. The tightly controlled experiment is
essential for scientists in identifyingor rejectingspecific relationships and effects; but if
the experimental observations seem to offer a promising basis for a new product or process,
it is necessary to investigate a great many things that had necessarily been excluded from
that experiment. Some of these investigations are prompted by the relevant science itself,
and others by wider considerations, which may depend on quite different ways of thinking.

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as Director of Corporate Planning to tell the Board what they should be thinking about.
Both also realised that the follow-up question was how to think about it. Herbert Simon
emphasised the significance of selective attention, as a natural consequence of uncertainty
and the limits of human cognition. Failure to think about what turns out to be important is
a principal cause of failureand not only in business. How much attention does it receive
in economic theory or applied economicsor in teaching students?
Suckling and Boettinger chose similar strategies for developing the capabilities for
identifying and framing problems: acquiring some familiarity with different modes of
thought, either personally or by contact with others. For Suckling one means was the study of
design, as a consequence of which he became one of only four Fellows of the Royal Society to
become a Senior Fellow of the Royal College of Art. (The other three were engineers.)
Another was through the work of the psychologist George Kelly (1963), which was
particularly useful because Kelly was explicitly concerned with the necessity and limitations
of interpretative frameworks, each with a particular range of convenience and with
a particular (but typically unknown) time spanwhat had worked very well for 10 years
might fail in the eleventh: hence the desirability of accessible alternatives. Suckling was also
particularly appreciative of Herbert Simons analysis and responded enthusiastically to
George Shackle, coupling Simons (1969) The Sciences of the Artificial with Shackles (1972)
Epistemics and Economics as valuable and complementary guides for management.
Henry Boettinger, who was trained as an engineer, subsequently studied economics,
persuaded Ludwig von Mises to accept him into his New York seminar for two years, and
listed Mises, Hayek, Schumpeter and Shackle among his major resources. He also
considered more widely the diversity of cognitive styles across disciplines and, in a lecture
delivered in Oxford, compared some of them with architectural forms. On another
occasion he combined a sequence of disciplines with a list of business problems to produce
a map of intersections that looked something like the periodic table with which chemists
imposed their own form of order. In the article that led to his friendship with Shackle he
had noted that Cournot, Walras and Pareto were all initially trained in forms of engineering
intended to produce stable structures, and thus naturally emphasised equilibrium
(Boettinger, 1967, p. 53). He argued that a cluster of perspectives could be deployed on
a complex problem so that each could relax the constraints within which the others
workedimagination imposing order on uncertainty.
Probably because of his specific concern with the management of innovation, from
initial laboratory observation to general useor, much more often, to rejectionSuckling
was especially interested in the need to change focus during the course of development. He
was particularly impressed by this observation from Shackle:

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781

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For Charles Suckling this is not merely a professional and intellectual issue. Empirical
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