Uncertainty, international money, employment and theory / edited by Louise Davidson.

Format:

Book

Author/Creator:

Davidson, Paul.

Contributor:

Davidson, Louise.

Harry E. Humphreys Book Fund.

Series:

Davidson, Paul, 1930- Selections ; Essays. v. 3.

The collected writings of Paul Davidson ; vol. 3.

Language:

English

Subjects (All):

Uncertainty.

International finance.

Money.

Keynesian economics.

Employment (Economic theory).

Physical Description:

xiv, 466 pages : illustrations ; 25 cm.

Place of Publication:

New York : St. Martin's Press, 1999.

Summary:

This volume reprints articles explaining why differing presumptions about the nature of uncertainty lead economists to differing policy prescriptions. Orthodox theory presumes probabilistic risk is synonymous with uncertainty. Consequently, self-interested agents can reliably predict the future by statistically analyzing market data. This results in a laissez-faire philosophy where government cannot improve the outcome of the decisions of individuals. Alternatively, Keynes presumed the future was not predictable from existing data and therefore there was a role for government to protect its citizens from potential difficulties resulting from unfettered market activities.

The relationship between Keynes's uncertainty concept, international financial markets and global unemployment is then analyzed. Problems such as volatile financial markets, for example the Asian contagion, are analyzed and solutions that differ from orthodox policies are developed. Finally differences between Old, New and Post Keynesians, all vying for Keynes's mantle, are explored.

Contents:

Part I Uncertainty and Probability

1 Reality and Economic Theory 3

1 Reality

Predetermined, Immutable and Ergodically Knowable, or Non-ergodic, Unknowable and Transmutable? 3

2 Immutable Reality Theories 6

3 Are Probabilities Knowable but Unknown Because of Limited Human Reasoning Power? 9

4 Keynes, Uncertainty and a Transmutable (Creative) Reality 13

5 Why is an Ontological Uncertainty Theory a More General Theory than Orthodox Theory? 14

6 Non-stationarity, Non-ergodicity, Sunspots and Bubbles 15

7 Crucial Decisions and Schumpeterian Entrepreneurship 17

8 Designing Policy 20

2 Uncertainty in Economics 30

1 Decision-making in Economics 30

2 The Absence of Uncertainty in Nineteenth-Century Classical Economics 30

3 Uncertainty in Today's Orthodox Economics 31

4 Uncertainty and Ergodic Stochastic Processes 32

5 Distinguishing between Uncertainty and Probabilistic Risk 33

6 Keynes' Uncertainty Concept and the Search for Microfoundations in Orthodox Economic Theory 34

3 Austrians and Post Keynesians on Economic Reality: A Response to Critics 38

1 Is Reality Immutable or Transmutable? 39

2 Immutable Reality 40

3 Are Probabilities Knowable but Unknown because of Limited Human Reasoning Power? 42

4 For Austrians the Market is a Turing Machine 42

5 Keynes, Uncertainty and a Transmutable (Creative) Reality 43

6 Response to Runde 44

7 Response to Torr 46

8 Response to Prychitko 47

9 Response to Boehm and Farmer (B-F) 49

Part II International Aspects

4 A Post Keynesian Positive Contribution to Theory 59

1 Thirlwall's Law 60

2 Possible Effects 61

3 An Exception to Thirlwall's Law: The United States in the 1980s 62

5 Reforming the World's Money 64

1 A New International Payments System 67

2 Alternative Proposals 72

3 Some Criticisms of Williamson's Target Zone System 73

4 Some Criticisms of McKinnon's PPP Rate System 75

5 A Comparison of the Alternative Proposals 76

6 The Viability of Keynesian Demand Management in an Open Economy Context 89

2 Politically Correct Demand Management in Western Democracies 90

3 Are the Twin Deficits (Fiscal and External) Restrictive? 92

4 Is there an Applicable Message from Keynes? 93

5 The Seduction of Mercentilist Demand Management 94

6 A Post Keynesian View of Recent History 95

7 Who Wants to Be the Engine of Growth? 97

8 The Flexible Exchange Rate Market 98

9 Fighting Currency Fires in International Capital Markets 99

10 Reforming the World's Money to Prevent Fires and Restore Global Prosperity 100

7 The General Theory in an Open Economy 103

1 Keynes's General Theory and an Open Economy 106

2 Capital Movements 107

3 Flexible Exchange Rates and Export-Led Growth 109

4 Why the Preference for Export-Led Growth? 110

5 The Facts vs the Theory of Flexible Exchange Rates 115

6 Reforming the International Payments System 116

8 Are Grains of Sand in the Wheels of International Finance Sufficient to do the Job when Boulders are often Required? 119

1 Is Social Control of Exchange Markets Bad? 120

2 Capital Uncertainty and Speculative Flows 121

3 Reforming the World's Money 127

9 Global Macro-Policies for Reducing Persistent High Unemployment Rates in OECD Countries 137

1 The Golden Age of Economic Development 137

2 The Lesson that Should Have Been Learned 140

3 The Post Keynesian Explanation of Persistently High OECD Unemployment 141

4 Why the Law of Comparative Advantage is Inapplicable to Our Global Economy 143

5 Additional Macroeconomic Errors Embedded in Mainstream Conventional Wisdom 144

6 Reforming the World's Monetary Payment System 145

10 The Case for Regulating International Capital Flows 147

1 The Facts 148

2 Explaining the Facts 150

3 Underlying Theory: Keynes vs Classical Microfoundations 154

4 The Need for Market Orderliness 156

5 Where Do We Go From Here? 160

Part III Money and Employment

11 The Nature of Money 169

1 The Entrepreneurial System Solution to Basic Economic Problems 170

2 Money and Contracts 171

3 Defining Money in an Entrepreneurial System 172

4 The Medium of Contractual Settlement Function 173

5 The Store of Value Function 174

12 Money: Cause or Effect? Exogenous or Endogenous? 179

1 Money's Role 180

2 Exogenous vs Endogenous Money: The Conceptual Foundations 183

3 The Supply of Money Process Revisited 190

4 Finance - Real vs Inflation Bills 191

13 Can Money be Neutral Even in the Long Run? Chartalism vs Monetarism 196

1 Monetarism and Neutral Money 197

2 Knapp, Keynes and the Law 198

3 What Type of an Economic System is 'Irrational' Enough to Use Money Contracts that Fix Prices and are Enforceable only in Nominal Terms? 199

4 Information Decisions and Uncertainty 201

5 Keynesian Uncertainty, Money and Explicit Money Contracts 202

6 Liquidity 202

14 Eichner's Approach to Money and Macroeconomics 211

15 It's Still the Economy, Mr President 217

16 Clinton's Economic Plan 221

17 Tampering with the American Dream 227

1 Why is Substantial and Persistent High Rates of Unemployment and Underemployment Preferable to Some Inflation? 230

18 Asset Deflation and Financial Fragility 232

1 The Mainstream Approach 232

2 The Post-World War II Record: Growth and Inflation under Fixed vs Flexible Exchange Rates 234

3 The Real Wealth Effect is a Liquidity Effect in a Non-Neutral Monetary System 236

19 Do Informational Frictions Justify Federal Credit Programmes? 246

1 The Ergodic, One-Unit Lender, and Homogenous Borrowers Rabbits 248

2 Securitization and Diversification and the No-Liquidity Rabbit 250

3 The No-Collateral and the Liar Rabbits 251

4 The Investment Fund Rabbit 251

20 What are the Essential Elements of Post Keynesian Monetary Theory? 254

1 Taxonomy 255

2 Keynes's Taxonomic Attack on Say's Law 256

3 Can Relative Price Changes Induce D[subscript 2] to Fill the Gap? 258

4 Investment Spending, Liquidity, and the Non-Neutrality of Money Axiom 260

5 What Type of an Economy System is 'Irrational' Enough to Use Money Contracts? 261

6 Information, Decisions and Uncertainty 263

21 Volatile Financial Markets and the Speculator 276

1 Ergodicity and Efficient Markets 277

2 Stiglitz, Speculators and Efficient Markets 277

3 Summers, Tobin and Super-Efficient Markets 280

4 Keynes, Speculations and Liquid Financial Markets 281

5 Keynes, Liquid Financial Markets and the J-S Findings 283

6 Ergodicity, Efficient Markets and the J-S Findings 284

7 Are Real Capital Allocation Decisions Efficient? 286

8 Non-Ergodicity, Speculative Whirlpools and Bandwagons 287

9 A Policy Implication: Buffering Conventional Wisdom 289

10 Conclusion: Fixed Exchange Rates and One-Way Bets 290

22 Unemployment, Inflation and a Civilized Economy 296

1 A Natural Rate of Unemployment? 297

2 Global Complications for Any Programme of Domestic Job Creation 299

Part IV Theory

23 The Elephant and the Butterfly: Or Hysteresis and Post Keynesian Economics 305

1 What are the Issues that Separate Us? 306

2 Are Unit Roots Necessary for Hysteresis? Are they Compatible with Keynes's Uncertainty Concept? 307

3 Is it Meaningful to Associate Hysteresis with Non-Stationary Unit Roots of Linear Systems? 308

4 Non-Linearities and Non-Local Long-Run Memories 309

5 Whose Hysteresis Concept is Relevant? 310

6 The Shocking Language of Hysteresis 312

24 Would Keynes be a 'New' Keynesian? 318

1 What is New Keynesian Economics? 318

2 Keynes's Treatment of Aggregate Supply and Demand 322

3 Keynes on Expectations and Policy Irrelevance 324

4 Would a Government Policy to End Coordination Failure Promote Full Employment? 324

5 What about Money and New Keynesian Analysis? 325

6 So What if there is No Keynesian Beef in NKE? 326

7 Providing a True General Theory via a Taxonomic Attack on Say's Law 328

25 The Asimakopulos View of Keynes's

General Theory 337

2 Was Keynes's Analysis Less Soundly Based than Kalecki's? 338

3 Was Kahn the Power behind Keynes's Analytical Throne? 342

4 Weintraub vs Asimakopulos on Aggregate Supply 344

5 Money-Wage Changes and the Demand for Labour 345

6 Is There an Aggregate Demand for Labour in the Real Wage vs Employment Quadrant? 352

7 Is the Multipliet a Process over Time? 352

8 Money and Finance 354

9 The Role of Finance 356

26 In Defence of Post Keynesian Economics: A Response to Mongiovi 361

1 Criticisms of Keynes 361

2 A Post Keynesian Response to these Criticisms 363

3 Is Mongiovi's or Keynes's Monetary Theory Faulty? 370

4 Mongiovi's Faulty Attack on the Two Essential Elasticity Properties 373

27 What Revolution? The Legacy of Keynes 379

1 Where is Keynes's Legacy in Mainstream Keynesianism? 379

2 Mainstream Keynesians vs Keynes on Policy Prescriptions for a Global System 381

3 Why Has the Mainstream Ignored Keynes's Revolutionary Legacy? 382

4 Keynes and Einstein vs Tobin on What is a General Theory? 383

5 Is the Lack of Perfect Price Flexibility a Necessary and Sufficient Condition for Unemployment Equilibrium? 386

6 Is Unemployment Due to Reversing the Marshallian Speeds of Adjustment of Prices and Quantities? 387

7 Essential Elements of Keynes's Legacy 388

28 Did Keynes Reverse the Marshallian Speed of Adjustment? 392

1 Is the Essence of Unemployment Less than Perfectly Flexible Prices? 393

2 The Keynes Aggregate Supply and Demand System 394

3 Are Differing Speeds of Adjustment of Prices vs Quantities Relevant to Keynes's Analysis? 399

4 What is the Basis for Reversing the Marshallian Speeds of Adjustment of Prices and Quantities Argument 400

5 Understanding Keynes's Use of Marshallian Speeds of Reaction Analysis 401

6 What Happens if the Money Wage Falls Pari Passu With Spot Market Prices? 404

29 Setting the Record Straight 411

1 Tobin vs Keynes on Effective Demand and Supply Imperfections 414

2 Tobin's Old Keynesian Ignoratio Elenchi 415

3 Will Flexible Prices Always Continuously Clear All Markets? 417

4 Keynesian Unemployment: Short-Run Disequilibrium or Long-Period Equilibrium? 418

5 Are Differing Speeds of Adjustment of Prices vs Quantities Relevant? 420

6 Keynes's Principle of Effective Demand 423

7 Non-Producible Assets - Hedges Against an Unpredictable Future 427

8 How to Answer Keynes's 'Precise Question' 430

30 Post Keynesian Employment Analysis and the Macroeconomics of OECD Unemployment 437

1 The Post Keynesian Explanation of OECD Unemployment 438

2 The Logical Difference: Keynes vs a Natural Rate Analysis 441

3 Is there a NAIRU in an Entrepreneurial economy? 447

31 Stagflation 453.

Notes:

Includes bibliographical references and index.

Local Notes:

Acquired for the Penn Libraries with assistance from the Harry E. Humphreys Book Fund.

ISBN:

0312221916

OCLC:

42874278