Paul Davidson, Post Keynesian Theory and Policy: A Realistic Analysis of the Market Oriented Capitalist Economy

Abstract

Abstract. In this book Davidson develops Post Keynesian strategies for full employment policies, targeting inflation and offers solutions for the problems of globalization. Davidson´s message is clear: Markets cannot regulate by itself. Mainstream theories are all based on wrong assumptions like the neutrality of money, the predictability of the future (ergodic-axiom), the efficiency of markets, rational expectations, Say´s Law and Walrasian Theory of equilibriums. In this book Davidson rejects all these assumptions and therefore offers Post-Keynesian solutions. From the viewpoint of Davidson these misleading assumptions of mainstream theories lead to a wrong economic policy resulting in high unemployment rates. He also criticizes Samuelson´s neoclassical synthesis embedded in a Neo-Walrasian model, which Keynes clearly rejected. In an article (Neglected Prophets) written by Holt, Rosser, Wray (1998), Davidson is described as an economist who would have lost the discussion in the short run, but will win it in the long run (Holt et al., 1998:505). That sounds promising, but Davidson would not agree to this conclusion in the sense he would be a prophet. For a prophet the future is already pre-determined by the past, but in a non-ergodic world the future is open and not pre-determined. The future remains to be as not predictable.

Keywords. Post Keynesian Theory, Unemployment, Economic policy.

JEL. B50, B61, F62, H63.