This book explains the influences, in terms of persons and events, that
led Keynes to overthrow the classical theory of economics and replace it with his own
revolutionary general theory.
PAUL DAVIDSON is Editor and co-founder of the Journal of Post Keynesian Economics.
He is the author, co-author or editor of 18 books and more than 220 published professional
articles. He has taught at the University of Pennsylvania, Rutgers University, University
of Bristol (UK), and the University of Tennessee. He has also held Visiting Professorships
at University of Nice, Institute For Advanced Studies (Vienna), and University of
Strasbourg, He has been the Associate Director of the Economics Division of Continental
Oil company, a member of the Brookings Economics Panel, and consultant to numerous
organizations including Resources For the Future, Energy Policy Project (Ford Foundation),
central Bank of Ecuador, Central Bank of Venezuela, Central Bank of Uruguay, and the
Interamerican Institute of Capital Markets, Federal trade Commission, Western Union
Telegraph Company, Chase Econometrics Associates, State of Alabama, New York State
Consumer Protection Agency, Federal Trade Commission, and the U.S. International
Communications Agency (USIA and USIS).
Table of Contents
List of Figures x
List of Tables xi
Preface xiii
An Introduction to Keynes and His Revolutionary
Views 1
Keynes's early intellectual surroundings 3
Keynes's intellectual development 5
How the Great War and Its Aftermath Affected Keynes's
Thinking 7
Keynes's Middle Way: Liberalism is Truly a New Way 13
The Before and After of Keynes's General Theory 18
Keynes's revolutionary theory versus mainstream classical
theory 18
Axioms and theory building 26
The neutral money axiom 27
The gross substitution axiom 30
Uncertainty and the ergodic axiom 31
Aborting Keynes's revolutionary analysis 35
The Conceptual Difference between Keynes's General Theory and Classical Theory - Savings
and Liquidity 38
What is a classic book? 38
Say's Law 40
The aggregate supply function 44
The aggregate demand function 44
A note on Friedman's alternative definition of saving 55
Further Differentiating Keynes's Aggregate Demand Function 58
Two aggregate demand components 58
Investmentspending 60
What about other components of D[subscript 2]? 64
Government taxes and spending 65
Appendix to chapter 6: deriving the aggregate supply and aggregate demand
functions 68
The Importance of Money, Contracts, and Liquid Financial
Markets 75
The reality of money contracts 75
Contracts, markets, and the security blanket of liquidity 78
Liquidity and contracts 87
The role of financial markets 90
Financial markets and Keynes's liquidity theory 96
The need for market orderliness 97
Booms and busts 98
Is reality predetermined, immutable, and ergodically knowable or nonergodic, unknowable,
and transmutable? 100
Crucial decisions and Schumpeterian entrepreneurship 112
Designing policy 114
World War II and the Postwar Open Economies System 116
Planning for the postwar open economy system 117
Classical Trade Theory versus Keynes's General Theory of International Trade and
International Payments 126
The benefits associated with the classical theory of international
trade 126
International trade and liberalized markets: the facts 127
Trade, the wealth of nations, and the law of comparative
advantage 128
Can a reduction (devaluation) in the exchange rate always cure an unfavorable trade
balance? 138
Reforming the World's Money 145
A lesson from the early post-World War II history 145
The Bretton Woods experience and the Marshall Plan 146
Keynes, free trade, and an international payments system that promotes full
employment 148
Changing the international payments system 152
Inflation 160
Contracts, prices, and inflation 161
The inflation process in a Keynes world 162
Incomes inflation 163
Incomes policy 164
Keynes's Revolution: The Evidence Showing Who Killed Cock
Robin 169
Fixed wages and the problem of unemployment 174
Who actually aborted Keynes's revolution? 176
Samuelson's Neoclassical Synthesis Keynesianism 176
The coming of Keynesianism to America 179
How did Samuelson learn Keynes's theory? 180
The axiomatic differences between Samuelson's Neoclassical Keynesianism and
Keynes/post-Keynesian theory 183
What about Hicks's IS-LM model? 185
Conclusion 187
Notes 190
Bibliography 200
Index 206
224 pages, Paperback
