Chapter eight, ‘Imagination and creativity in markets’, begins by analysing the nature of imagination and its relationship to reason. Imagination receives strangely little attention in most of modern academia in spite of its central role in perception, emotional colouring, the visualisation of what is absent, the anticipation of possible futures, sympathetic identification, mental receptiveness, lateral thinking and the unconscious and conscious building of new ideas ‘from least suggestions’ (to use Wordsworth’s phrase). Imagination remains the ghost at the banquet of philosophy, psychology and neurophysiology, and it is almost totally ignored by economists. By using the general insights of the Romantics about imagination, this chapter shows how markets operate as creative and dynamic processes and elucidates the type of micro-level assumptions required if economists are to make sense of the behaviour of individuals operating in the conditions of uncertainty necessarily engendered by this creativity.The most topical aspect of the book may be its focus on the extent to which imagination and creativity both cause uncertainty and are also our best tools for coping with that uncertainty. The 2007-9 financial crisis occurred partly because of an intellectual failure to understand the extent to which uncertainty is an inevitable by-product of innovation and the human capacity to imagine new options. New options or novel ideas inject some entirely new elements into the equations of life. There is often no way that you can define all the possible outcomes in advance of innovation or the creation of new products; and innovation implies an important break in previously stable regularities of behaviour.Why this is so important now is that the assumption implicit in many models used by banks before the credit crunch was that uncertainty about the future could be turned into measurable risk on the basis of data (including correlations) trawled from data on the past. And yet this notion that regularities in past behaviour were a safe predictor of future risks was being made at the very moment when the banking industry was innovating furiously. This innovation in financial products made it very unlikely that the future would resemble the past.The Romantic Economist was written largely before the credit crunch and does not discuss it directly. Instead, it outlines in general terms how economic actors actually form expectations, make choices and create strategies in conditions where they are unable to rely on probabilistic forecasts and rational expectations. It shows how, in our uncertain age, we must learn to use (and understand the importance of) imaginative and intuitive responses as well as the narrowly rational.The current credit crunch is as much a crisis for economics as for economies. To the extent that economics was ever justified in seeing itself as another predictive science, the failure of most economists to predict what has happened is shocking and demands answers. In the area of macroeconomics, however, it was perhaps the very belief that the future – yet to be created by the choices of imaginative and emotional citizens – could ever be predicted that was the biggest error.In this seemingly arcane area of debate about economic methodology, what answers economists and philosophers come up with matters to us all. For, the dominant models, metaphors and philosophical assumptions that economists use have an enormous influence (for good or ill) on government policy and economic behaviour and hence on the structure of social realty itself. As John Stuart Mill pointed out, ‘speculative philosophy, which … appears a thing so remote from the business of life and the outward interests of men, is in reality the thing on earth which most influences them’.For this reason, all good citizens of intellectual persuasion should be interested in the philosophical basis of economic thinking. And economists ought willingly to submit their trade to audit by informed commentary from outside their discipline. They can facilitate this process by translating their findings and assumptions into what Wordsworth called the ‘language really used by men’, instead of routinely hiding behind impenetrable thickets of mathematical notation and jargon.As the market swallows up more and more of our lives, and as economists influence more of the actions of government, the very structure of economic thinking – the shape of the economists’ lens – is central to humanity’s self-conception and to the future direction of our societies. That is why I hope ‘The Romantic Economist’ has an important role to play.