Heterodox
Overview Paul Davidson took Keynes' General Theory of Employment Interest and Money seriously. The interpretation in mainstream textboooks misses important points. Keynes' book was about theory, not primarily about (short-run?) fiscal or monetary policy. Keynes does not explain persistent unemployment from imperfections or sticky or rigid money wages or prices. A general theory is one that has less axioms than the special case treated by, say, Marshall. Davidson identified, specifically, three axioms relaxed or rejected by Keynes: Neutrality of money. For Keynes, money is non-neutral in all runs. Gross substitution. Money has no substitutes; it cannot be produced from labor. Ergodicity. Important time series in economics can be non-ergodic. Numerical probabilities cannot necessarily
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Paul Davidson took Keynes' General Theory of Employment Interest and Money seriously. The interpretation in mainstream textboooks misses important points. Keynes' book was about theory, not primarily about (short-run?) fiscal or monetary policy. Keynes does not explain persistent unemployment from imperfections or sticky or rigid money wages or prices. A general theory is one that has less axioms than the special case treated by, say, Marshall. Davidson identified, specifically, three axioms relaxed or rejected by Keynes:
- Neutrality of money. For Keynes, money is non-neutral in all runs.
- Gross substitution. Money has no substitutes; it cannot be produced from labor.
- Ergodicity. Important time series in economics can be non-ergodic. Numerical probabilities cannot necessarily be assigned to all possible outcomes. Some might not even be known.
Davidson, following Weintraub, took overall economic activity from a Keynes-like model of aggregate supply and demand. This is neither a 45 degree diagram found in, say, Samuelson's textbook, nor what is in current mainstream textbooks. Aggregate supply and demand are curves in the space of monetary proceeds and employment. Their intersection is the point of effective demand. In Davidson's development, investment is autonomous and not a function of current income.
Davidson's perspective led to conflict with other Post Keynesians. Labor markets do not clear, given either competitive or non-competitive markets. One does not need Kalecki's degree of monopoly. At times, he appreciated the internal critique of marginalism offered by Sraffa those developing his ideas. But he thought that they did not appreciate Keynes' emphasis on uncertainty. On the other hand, some, such as Eatwell, might argue that Davidson's emphasis on money was an imperfection. I think both perspectives assert that Keynes' rejection of Say's law is not confined to the short run.
Maybe developments in the theory of endogenous money are also in tension with some of Davidson's work. Keynes assumed in the General Theory, but not in the Treatise on Money, that the monetary authority could vary the supply of money.
Davidson also wrote about various policy suggestions and international financial institutions. For example, he did not think the Tobin tax would achieve its goals.
Davidson insisted that the Post in "Post Keynesianism" should be capitalized and that no hypen should seperate the words.
Some Aspects of Professional LifeDavidson received an undergraduate degree from Brooklyn College. He performed research in biochemstry at the University of Pennsylvania during 1950-1952. He performed military service during the Korean War.
He switched to economics. Sidney Weintraub supervised his doctorate dissertation at the University of Pennsylvania. He moved to Rutgers in 1958. I think his stint as an executive at an oil company in the early 1960s influenced his views on Keynes' user cost.
He helped found the Journal of Post Keynesian Economics in 1978 and co-edited it with Sidney Weintraub.
After a purge of heterodox economics at Rutgers, Davidson moved, in 1986, to the University of Tennesee at Knoxville. I know of a number of heterodox economists who came out of Rutgers when Davidson was there. The career of Anne Mayhew, an institutionalist, overlapped with Davidson at the University of Tennesee.
In more recent years, Davidson was a visiting scholar at the New School for Social Research, Bernard Schwartz Center for Economic Policy Analysis.
Obituaries elsewhere: Chicago Tribune, Greg Davidson on his father at Daily Kos.
Very Selective Bibliography- Paul Davison. 1968. Money, portfolio balance, capital accumulation, and economic growth. Econometrica 36(2): 291-321.
- Paul Davison. 1972. Money and the Real world. Macmillan
- Paul Davison. 1989. The economics of ignorance or the ignorance of economics? Critical Review 3(3-4): 467-487.
- Paul Davison. 1991. Is probability theory relevant for uncertainty? A Post Keynesian perspective. Perspectives on Economics 5: 29-43.
- Paul Davison. 1994. Post Keynesian Macroeconomic Theory: A Foundation for Successful Economic Policy for the Twenty-First Century. Edward Elgar
- Paul Davison. 2007. John Maynard Keynes. Palgrave Macmillan
- J. E. King. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar.