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[Posted on behalf of Tony Brewer. -- RBE] 
 
From: Tony Brewer <[log in to unmask]> Subject: Re: HES: QUERY -- neoclassical knowledge 
 
What is this 'perfect knowledge' assumption that is under  
discussion? That is intended as a serious question. Perhaps  
someone could try to answer it. But here are a few sceptical  
thoughts.   
 
I do not believe that a clearly defined perfect knowledge  
assumption popped into existence in the early twentieth century  
and remained unchanged thereafter, nor do I believe that this  
mythical assumption is the property of a single school of  
economists.   
 
I asked in my previous post - perfect knowledge of what? Surely we  
should distinguish (at least) between full information about  
contemporaneous conditions and perfect foresight about the future.  
People have constructed perfect foresight models, but I don't  
believe anyone has ever thought they captured everything  
important, still less that they were descriptively true. For example,  
Marshall's short-run/long-run apparatus implicitly deals with the  
effects of unanticipated changes, and is thus inconsistent with  
perfect foresight. The rational expectations revolution of the late  
twentieth century did much to clarify what was involved in  
assumptions about expectations of future events - we cannot  
unlearn what was learned from that episode. Until then, I suspect,  
mainstream economists mostly worked with only two assumtions  
about foresight - either perfect foresight or complete myopia (as, for  
example, in cobweb models). They shifted back and forward  
between them according to the problem under discussion, which  
may have been a perfectly sensible thing to do with the methods  
available to them.   
 
What happened in the early twentieth century, I think, is that an  
implicit assumption was made much more explicit as a result of  
formalization. Marshall (as we have heard), criticised the  
assumption of perfect knowledge, but full information about  
contemporaneous events seems to me to be implicit in the whole  
of his framework. If demand and supply depend on price, then  
agents have to be assumed to know what the price is, else how  
could they react to it? And so on. Marshall's style involved hidden  
mathematics with strong simplifying assumptions, wrapped up in a  
cocoon of reassuring words designed to avoid frightening his  
readers. As I argued before, classical profit rate equalization  
requires strong assumptions about perfect knowledge of future  
profit opportunities.   
 
Tony Brewer ([log in to unmask]) 
University of Bristol 
 
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