Paul Davidson

University of Tennessee | UTK · Department of Economics

In the presidential election of 2016, Donald Trump won the Presidency by recognizing the frustration of middle class workers in losing jobs and industries to “outsourcing” production to foreign nations. Unfortunately his specified policies to replace the free trade agreements are not aimed at the correct cause of the outsourcing problem and so will...

Free trade agreements such as NAFTA are based on a 19th century conclusion of classical theory entitled the law of comparative advantage. If free trade is permitted classical theory states each nation should specialize in particular industry in which it had a comparative cost advantage and the result will be global full employment and more goods an...

Government must develop policies that assures market demand spending is increasing sufficient to induce managers of enterprises to hire the currently unemployed. This chapter explains specific government fiscal and monetary policies to create enough market demand to produce a fully employed economy. The implications for deficit spending and the gro...

The global financial crisis involved the collapse of certain financial markets. A well organized and orderly financial market is a necessary condition to assure relatively stable financial markets. Orderliness in a financial market requires a “market maker” to maintain orderliness in market price movements. This chapter explains how a market maker...

To deal with the uncertain future, all market transactions are organized using money denominated contracts. By entering into spot money contracts to buy and sell things immediately and forward money contracts to buy and sell things at future dates, decision makers know they can control with a legal certainty their net cash inflows and outflows. The...

Reviews the polcies necessary to provide a prosperous economy. Provides historic episodes, such as the Roosevelt “new deal”, the Eienhower large public works policy of prodcing the interstat highway program, etc. to show the success of Keynes’ policies when they are enacted. Then uses Keynes theory to provides policy guidelines for a policy of univ...

Since every price in the marketplace is s reflection of someone’s income, any anti-inflation policy must be designed to constrain increases costs and therefore people’s money income. Controlling the money supply to prevent inflation is the classical solution. An incomes policy tht constrains inflationary demand of workers for higher money wages wit...

In Congressional testimony, Alan Greenspan, the former Chairman of the Federal Reserve System, admitted that his classical theory assured him that the financial crisis should not have occurred. This chapter explains in detail why Greenspan’s theory misled him. There are two different economic theories that attempt to explain the operation of our ma...

The effect of globalization and free trade on the level of unemployment in developed nations vs. employment growth in underdeveloped nations. Why attempting to stimulate employment by pursing a policy to increase exports relative to imports can lead to international competition that harms all nations engaged in international trade. Classical theory...

Regarding the global financial crisis of 2007–2008, The Queen of Great Britain asked economists “Why did nobody notice it developing?” The answer provided to the Queen by mainstream economists was wrong. The Queen should read this book to find the correct answer to her question and to help her understand the policies government should develop not o...

Every penny spent on buying a thing in the market is a penny someone earns by selling the thing. But a penny saved is a penny not spent in the market and therefore it is a penny someone else cannot earn. Enterprises will hire more workers if they expect market demand for their output is increasing. Unemployment occurs when market demand is insuffic...

This book presents a clear and concise solution to understanding and alleviating today’s global economic challenges in the context of Keynes’ school of thought. Davidson explains the importance of the market economy, and unveils how and why global financial crises occur when the liquidity of financial assets traded in the market, suddenly collapse....

This article provides my responses to recent criticisms of my argument associating Keynes’s concept of uncertainty with Keynes’s explicit statement that in our world of experience applying the “probability calculus” to historic data does not produce actuarial certain knowledge of future economic outcomes. Furthermore I have tried to explain, using...

provides principles of the GENERAL THEORY for an open economy

ODonnells attack on the ergodic/nonergodic approach to Keyness uncertainty concept is erroneous. Keyness produced a general theory by imposing fewer restrictive axioms than classical theory. Keyness explicitly attacked the classical theorys axiom that an actuarially certain knowledge regarding the future is available to decision makers; thus Keynes...

Paul Samuelson’s own words are used to demonstrate that he and his “Keynesian” followers never comprehended Keynes’s general theory or the Post Keynesian development of Keynes’s analysis. Samuelson claimed that Keynes’s theory is a slow adjusting Walrasian system and any theory which rejected the Walrasian foundations is not a valid economic theory...

This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keyn...

This article has no abstract.

As the financial crisis of 2008 clearly demonstrated, those who possess the Panglossian belief that free markets with flexible prices produce socially optimum solutions are wrong. The fear of the loss of liquidity of derivatives of mortgage-backed debt obligations on financial markets led to a severe global economic crisis that threatened banking s...

This paper discusses the hollowing out of the middle class in the United States since the late 1970s, and suggests that the latest threat to the remaining middle class is automation.

Hg. innen), Handelt jetzt! Das globale Manifest zur Rettung der Wirtschaft (Frankfurt/M. 2013). Rainer Bartel In den Augen meiner Studierenden sind alle möglichen Personengruppen und Institu-tionen schuld an wirtschaftlicher und sozialer Malaise. Auf die Universitäten fallen ihre Gedanken indes nicht – oder nur insgeheim. Nun, die Botschaft in Hein...

Fear of deficits should not limit our ability to seek solutions to the medical needs of our aging population. There are many possibilities, argues this eminent economist.

My career as “professional economist” spans more than five decades. Entrance into the economics profession, however, began rather later than usual. I graduated from Brooklyn College in 1950 with majors in chemistry and biology. I never took a course in economics during my undergraduate years. From 1950 to 1952, I went on to graduate training in bio...

The economy is a process in historical time. Time is a device that prevents everything from happening at once. The production of commodities takes time; and the consumption of goods, especially durables, takes considerable time. Economics is primarily the study of how households and firms make decisions regarding production and consumption activiti...

Risk management computer models developed by the "quants" of Wall Street and used by investment bankers did not predict the financial derivative crisis that almost sunk the global financial community in 2007. This article explains why these complex models were wrong and why models like Taleb's black swan approach are all based on nonapplicable axio...

In this updated and revised edition of Post Keynesian Macroeconomic Theory, Paul Davidson explains how and why contemporary macroeconomic textbooks fail to incorporate Keynes's liquidity and financial analysis framework to explain the importance of money and financial markets in the real world of experience. This important text develops Keynes's an...

This paper indicates that Keynes's General Theory provided many examples of actual behavior that differed from that predicted by classical theoryâthe mainstream economics of Keynes's time. This behavior included herd behavior in financial markets, the use of conventions, decisions made under uncertainty that differ from decisions made under probabi...

This paper explain why, given Keynes's General Theory, worries over the size of the government's national debt per se are foolish. It is more important to educate politicians and the public that government fiscal policy should be designed to make sure that aggregate market demand will produce sufficient profits so that entrepreneurs will hire all d...

This paper argues that Nassim Taleb's "black swan" argument regarding uncertainty is equivalent to Frank Knight's epistemological concept of uncertainty. Moreover, both behavioral economists and post-Walrasians use an epistemological concept of uncertainty, in part related to Taleb's black swans. This black swan approach differs significantly from...

Marshall's asset equilibrium model provides a way of explaining the identity of entrepreneurs. Keynes adopted this model but transformed it when he emphasized the short-period and volatile character of long-term expectations. This entails a view of entrepreneur identity in which radical uncertainty plays a central role. This in turn deepens the pos...

Politicians and talking heads on television are continuously reminding the public that the current economic crisis that began in 2007 as a small sub prime mortgage default problem in the United States has created the greatest economic catastrophe since the Great Depression. As I pointed out in two recent articles (Davidson, 2008a,1 Davidson 2008b,2...

On New Years Day in 1935 Keynes (1973a, p. 492) wrote a letter to George Bernard Shaw stating: To understand my new state of mind, however, you have to know that I believe myself to be writing a book on economic theory which will largely revolutionize not I suppose at once but in the course of the next ten years the way the world thinks about econo...

Why has financial deregulation led to credit crisis? This macroeconomist returns to John Maynard Keynes for an explanation of the failure of financial marketsâand indeed the failure of accepted economic theory todayâto warn the nation, no less to prevent its occurring.

Different axioms underlie efficient market theory and Keynes's liquidity preference theory. Efficient market theory assumes the ergodic axiom. Consequently, today's decision makers can calculate with actuarial precision the future value of all possible outcomes resulting from today's decisions. Since in an efficient market world decision makers "kn...

This note responds to comments made by various reviewers on the analytical content of the 2007 book >i>John Maynard Keynes>/i>, "Great Thinkers in Economics" series, by Paul Davidson. It attempts to clarify some semantic problems and also to clarify the relationship between Keynes's analytical system and mainstream classical theory.

This paper attempts to explain the death blow given to the revolutionary analysis developed by the greatest thinker in economics in the 20th century. It shows that, though Paul Samuelson saved the term “Keynesian” from being excoriated from post second world war textbooks by the McCarthy anti-communist movement, the cost of such a saving was to sev...

First paragraph »In Economics you can not convict your opponent of error, you can only convince him of it. And even if you are right you cannot convince him […] if his head is already so filled with contrary notions that he cannot catch the clues to your thought which you are trying to throw to him« (attributed to Keynes by Austin Robinson in his i...

This paper considers John Kenneth Galbraith's views on the nature of money and a monetary economy. Although recognised as a lifelong and prominent Keynesian, to many, Galbraith's principal theoretical contributions appear less concerned with the detail of financial sectors or the nature of money per se than other leading Post Keynesians. However, c...

Is there a way to lower oil prices? Yes, says this author. First, we acknowledge that speculation has driven prices up to current levels. Then, weâthe U. S. governmentâsell oil into the market. Read on.

Computerized markets do not work the way the old securities markets once did. In the past, there were always market makers who stood between the buyer and the seller. Today, this is an antiquated system, relegated to such ancient institutions as the New York Stock Exchange. But this economist argues they are of far more than symbolic importance. Ef...

Does Minsky's theory explain recent market instability? For financial fragility, Minsky argued, specific preconditions must occur. These preconditions have not occurred, therefore recent financial market instability is not a Minsky moment. Instead the recent financial market instability is due to an insolvency problem of large underwriters caused b...

This paper exlains the cause of the sub prime market failure in the US and suggests policies to copy with the problem.

This paper explains, in terms of Galbraith's "conventional wisdom" and "innocent fraud" of mainstream economics, why the U.S. economy has experienced significant backsliding from the degree of progress our economic policies and institutions made toward producing a civilized economic society. It then sets out policy proposals for making progress tow...

The basis of Keynes’s revolution in economic theory has been placed in the multiplier (Johnson, 1961, p. 144; Patinkin, 1982, p. xxi), or in the fixity of money-wages and prices (Modigliani, 1944), or in the reversal of the Marshallian price and quantity adjustment velocities (Leijonhufvud, 1968;1 Friedman, 1974, p. 18), or in the failure of market...

In 1988, an alumnus of the Kennedy School (Greg Davidson) and his economist father (I) wrote a book entitled Economics for a Civilized Society (1988). Of this book, Ken Galbraith wrote: “This remarkably informative, wide-reaching book is the civilized product of two civilized authors”. In 1996 this book went into a second edition at the same time t...

Michal Kalecki came to Cambridge as Keynes was completing his General Theory of Employment, Interest and Money. Joan Robinson noted that “without any contact either way, Michal Kalecki had found the same solution. … The interesting thing is that two thinkers, from completely different political and intellectual starting points, should come to the s...

In How Economics Became a Mathematical Science, Roy Weintraub has provided a well-written fascinating book that suggests, at least to this reader, why Keynes’s General Theory was shunted to a wrong track and has never had any real impact on the theories and models proposed by rigorous mainstream economic theorists.

With the liberalization of international financial markets in the past two decades, cross-border financial transactions have grown to epic proportions. This growth, DeAngelis (1999–2000) argues, has exposed “national economies to the whims of financial markets and security owners with no particular ‘national allegiance’. No government can afford to...

John Williamson coined the term “Washington Consensus” in 1989. This term, however, means different things to different people1 — and apparently even different things to Williamson at different times. Williamson (2002) states that this consensus requires ten reforms: 1. Fiscal Discipline. This was in the context of a region where almost all the cou...

Lavoie, King, and Dow share one common theme in their criticism of my review of King’s (2001) book A History of Post Keynesian Economics. They all object, in different ways and in different degrees to (1) my definition of the boundary lines that encompass Post Keynesian economics and (2) who, in the 21st century, should be entitled to be labeled a...

Keynes’s General Theory of Employment Interest and Money (1936) is developed primarily in a closed economy context. Keynes did, however, introduce an open economy analysis when he noted that 1. trade could modify the magnitude of the domestic employment multiplier (Keynes, 1936, p. 120), 2. reductions in money wages would worsen the terms of trade...

A headline on the front page of the New York Times (January 13, 2005) stated, “U.S. Trade Deficit Rises to a New High; More Risk to the Dollar”. Since then The Times has reported that in January and February 2005, the monthly U.S. trade deficit was approximately $60 billion each month. In other words, Americans spent $60 billion more on imports tha...

John King has written a powerful, interesting, and useful History of Post Keynesian Economics. King states that although Post Keynesian theory mounted a major challenge to orthodox macroeconomics in the last few decades, it has “ultimately failed to supplant it” (2002, p. 1). The object of this book is to explain (determine?) why Post Keynesianism...

Peace is usually considered socially desirable. Yet the historical record indicates that the ending of hostilities can cause severe economic problems in the form of a significant increase in the rate of unemployment and a downturn in national production even for the victorious nations.

At the beginning of the new millennium, Ecuador abandoned the use of national money and instead adopted the U.S. dollar as its official currency for settling domestic contractual transactions. Since it is claimed that dollarization eliminates the use of monetary policy (and exchange rate policy) as weapons to cure a nation’s macroeconomic problems,...

The global economy is at a crossroads. We can try to muddle through with the existing defective international financial system, while hoping that minor tinkering will quarantine the devastating depressionary forces experienced by developing nations and avoid contagion spilling over to developed nations. Or we can produce a new financial architectur...

Today’s conventional wisdom states that central banks will be very successful if they engage in developing a monetary policy that targets a specific rate of inflation. To understand whether a central bank can successfully pursue an inflation target policy we must inquire (1) what is the theory that informs us whether a central bank can target infla...

After the Asian contagion, the Russian default, and the Brazilian real reeling, many people are asking whether the liberalization of international financial markets that started in the 1970s has gone too far. Have liberalized financial markets become so fragile as to threaten the health of the global economy?

For most students who studied economics in any American University during the last half of the 20th century, Paul A. Samuelson was thought to be a direct disciple of Keynes and his revolutionary general theory analysis. Samuelson is usually considered the founder of the American Keynesian school which he labeled neoclassical synthesis Keynesianism...

How one interprets volatility in the international financial markets and therefore chooses a policy stance regarding these markets depend on the underlying economic theory that one explicitly, or implicitly, utilizes to explain the role of financial markets in a market-oriented entrepreneurial economy. There are two major alternative theories of fi...

Since March 2000, the terrorist organization “the bears” have struck Wall Street with a devastating impact on our enterprise economic system. Al-Qaida terrorists on September 11 may have made a more dramatic impact on our way-of-life, but the number of lives destroyed by the bears may ultimately prove to be greater.

The entrepreneurial system that most people call capitalism, though imperfect, is the best system humans have yet devised for promoting economic growth, development and prosperity. In fact, classical economic theory in its nineteenth- and early twentieth-century version and its modern Walras-Arrow-Debreu interpretation that is the foundation of twe...

This chapter appraises the many versions of Keynes - Old Neoclassical, New Keynesians, Old Classical or New Classical Theorists - as adopting Keynesian general theory as their basic framework. It considers a different stream of post-Keynesian economics. The Samuelson brand is also aligned with the works of James Tobin and Franco Modigliani, all of...

The article written by the prominent thinker in Post Keynesian economic theory examines the main contribution to macroeconomics made by the group of scientists aimed at resurrecting the forgotten aspects of J. M. Keynes legacy. The author considers interrelations between fundamental uncertainty, non-neutrality of money and the role of forward contr...

Despite a significant decline in the value of the dollar, the U.S. trade imbalance has almost doubled in the past three years indicating that the Marshall-Lerner condition is not applicable. Continued political pressure to devalue the dollar may result in the end of the de facto dollar standard that historians will call "bursting the dollar bubble....

Classical theory monetarists assumed the quantity theory's equation of exchange gave the central bank direct control of inflation via an exogenous money supply. After Milton Friedman's "natural rate of unemployment" thesis, classical theory recognized that inflation targeting could only be achieved by affecting the unemployment rate. Keynes's theor...

This paper first discusses the evolution of John Kenneth Galbraith from a young neoclassical economist to a strong advocate of Keynes's policies. Later, it explains how Galbraith encouraged and supported the development of the Journal of Post Keynesian Economics.

This paper explains why a declining dollar is likely to prove deleterious to both the US economy and the Global economy. It provides statistics to demonstrate that despite a 25 percent drop in the dollar in 3 years, the US trade deficit has doubled in value. It explains why this doubling has occurred in terms of the absence of the Marshall- Lerner...

This paper responds to the criticism that many heterodox economists, who want to be labeled as Post Keynesians, are rejected by my defining Post Keynesian theory as limited to those theories that adopt Keynes's analytical framework of aggregate demand and supply functions derived from the rejection of three restrictive classical axioms--that is, th...

Despite the continuing support for the ‘Washington Consensus’ within the IMF, the World Bank and the US Treasury, most astute observers of the international financial system recognize that there is something seriously wrong with the existing system. Although many recognize the symptoms of a severe malady in the system, few realize what the fundamen...

The evidence of the past 15 years has demonstrated that attempting to implement the 10 reforms of the Washington Consensus has ultimately proven to be a disaster for developing nations. If the empirical evidence is of the failure of the Washington Consensus, then why does the G-7, the World Bank, and the IMF seek to tie aid for Latin American natio...

In 1989, John Williamson summarized a "Washington Consensus" on what policies developing countries should undertake to stimulate economic growth given the international financial system. Unfortunately, the experience of the 1990s demonstrated that the international financial system is seriously flawed, and this has contributed to the failure of man...

Este ensayo de Paul Davidson critica los postulados básicos y la adopción en bloque de la diez reformas del consenso de Washington, cuya aplicación en los últimos lustros ha sido desastrosa para los países en desarrollo. Muestra que los postulados del libre cambio y algunas de las recomendaciones que se derivan de ellos (disciplina fiscal, liberali...

This paper interprets Weintraub's book, How Economics Became a Mathematical Science , to suggest why Keynes's General Theory has never had any real impact on the theories and models proposed by rigorous mainstream economic theorists. What is meant by "rigor" and "proof" in mathematical analysis? Mathematicians' and economists' views about these con...

In A History of Post Keynesian Economics Since 1936, John King has written an excellent historian's view of the development of Post Keynesian economics. The author of this paper has actually lived through the development of Post Keynesian economics from its beginning in the 1950s. Accordingly, the paper corrects some inaccurate historical details p...

This paper explains why once non-probabilistic (i.e., a non-ergodic stochastic system) uncertainty is introduced into an orthodox freely flexible exchange rate model, the concept of the elasticity of expectations explains the open economy system will be extremely unstable except under the most stationary of economic circumstances. Alternative fixed...

López and Kriesler have argued that Kalecki not only discovered the principle of effective demand independently of Keynes, but in Kalecki's theory of price, distribution, investment, and money and finance is superior to Keynes's General Theory. These claims of superiority may hold against Old (neoclassical synthesis) and New Keynesian macrotheories...

This paper expands Keynes’s closed economy model of The General Theory to an open global entrepreneurial system. Orthodox open economy models assume that economic problems are always due to some supply-side impeifection or rigidity. This paper explores the difference between Keynes’s open system and the classical system and demonstrates why the pol...

This book seeks to explain the financial crisis of the 1990s, explores its consequences, and considers the possibility of worse in the future. The book emphasizes the central role of domestic and international markets in determining the economic growth rate, unemployment levels, and the international payments position of capitalist economies. It th...

Until 1973 the post-war international payments system was, in large measure, shaped by Keynes’s thesis that flexible exchange rates and free international capital mobility are incompatible with global full employment and rapid economic growth in an era of multilateral free trade (Felix, 1997–8). This resulted in a stable international monetary syst...

Until 1973 the postwar international payments system was, in large measure, shaped by Keynes’s thesis that flexible exchange rates and free international capital mobility are incompatible with global full employment and rapid economic growth in an era of multilateral free trade (Felix, 1977-8FELIX, D. “ On drawing policy lessons from recent Latin A...

The paper starts with a critical review of two alternative theories of capital markets: neoclassical efficient-market theories and Keynesian liquidity preference theories, which differ radically in their views concerning the functions and operation of capital markets. Contrasting the experience of the global economy in the pre- and post-Bretton Woo...

The turmoil that has characterised the global financial markets since the 1990s, and particularly the crisis in East Asia, has generated a great deal of support for proposals to add some frictions to the wheels of international finance, as part of overall reforms to the global financial architecture. With this in view, this paper explores the econo...