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Paul Davidson. John Maynard Keynes. New York: Palgrave Macmillan. 2007. Pp. 224. ISBN 1-4039-9623-7 (hb). US$99.95.
Paul Davidson is renowned as a defender of John Maynard Keynes' legacy against generations of what he regards as misguided neoclassical economists and what Joan Robinson once labelled bastard Keynesians. As Davidson (1972) has long made clear, there is little to choose between them, particularly in their approach to monetary theory. In this book Davidson continues to sharpen his critique of what passes for conventional macroeconomics and monetary theory. His intention is to convince the intelligent layperson and the professional economist that mainstream macroeconomics is not applicable to the monetary economy in which we live. To that end Davidson employs the revolutionary analysis in the General Theory as a vehicle not only to concentrate his attack on mainstream macroeconomics (both the new Classical and New Keynesian) but also to outline the basis for the way forward for both monetary-macroeconomics and a new international monetary order. The book is therefore not another biography of Keynes, but an attempt to succinctly convey Keynes' theoretical insights to a new generation of economists. On mat score Davidson's timing could hardly have been better, as the failure of the International Monetary Fund has left the international monetary system in disarray just as the fall-out from the sub-prime crisis threatens the global economy with a rerun of the Great Depression.
In this book Davidson masterfully leads the reader through a complex web of issues based on Keynes' monetary analysis developed in the General Theory. He focuses specifically on the failure of Walrasian general equilibrium tiieory (the core of orthodox monetary theory and macroeconomics) and the consequent failure to understand the relationship between liquidity and markets (Walrasian monetary economics is seen to be an oxymoron), the need for a new international monetary order and an assessment of why Keynes' theoretical revolution failed. In a review of this length it is difficult to do justice to the richness and clarity of Davidson's exposition, so I will concentrate on adding some additional insights and suggested reading for those who wish to dig deeper into Davidson's central thesis - the need to develop Keynes' analytical insights into the properties on a monetary economy. Today, some individuals despair at...