chapter  III
PROBABILITY AS A FUNDAMENTAL CONCEPT IN ECONOMICS
Pages 17

The acceptance in classical economic literature of ‘risk’ as an economic factor to which measures could be applied led to efforts at definition, classification, and characterization. To the classical economists risk was held to be an objective factor. From Smith to Marshall the general opinion held that systemic uncertainty, although for the most part incommensurable, could, under certain circumstances, be reduced to a measure of risk should the units employed be properly defined. However, this equation of risk with uncertainty was by no means accepted completely and unquestioningly. For example, despite the fact that at times Smith equated uncertainty with risk (1789, esp. Bk.I, Ch.X, Pt.I), it is not at all clear that this risk was believed measurable quantitatively; the existence of risk for Smith implied nothing more than the existence of a nondeterministic environment. The vagaries of the environment within which economic activity takes place places prohibitive barriers in the way of accurate economic calculation. Seasonal, cyclical, accidental, and coincidental variation combine with errors of omission and commission to drive the economic (crosssectional) series to randomness.