Money and the Real World: Understanding Economics in Everyday Life - Personal Finance, Budgeting & Investment Guide for Practical Financial Success

Davidson is the founder of a school of economics called Post Keynesian.It is based on a synthesis of the work of Joan Robinson,GLS Shackle,Sidney Weintraub,and Dennis Robertson(with a mathematical assist from Harry Johnson coming in the form of an appendix published in 1955 in one of D. Robertson's Economic Journal articles).It has practically nothing to do with the work of JM Keynes as contained in his A Treatise on Probability(1921)or his General Theory(1936).A potential problem for anyone considering reading this book is that D uses many of the same words and variables Keynes used but gives them different definitions.First,consider Keynes's two basic mathematical models of the GT.The first model is that expected aggregate demand,D=f(N),CAN BE DEFINED AS D=D1+D2=pO,where p=the expected price and O=F(N)is real output,O is a function of total employment,N ,and Z=P+wN=g(N),where P equals expected future profit and w equals the current actual money wage being paid to the aggregate labor force N.Z obviously equals expected profits(P)plus total short run variable costs wN.Keynes called Z the expected aggregate supply function since it depends on future expected profit.Keynes called D the expected aggregate demand function because it depends on future expected prices.Keynes called the SET of all possible expected results the aggregate supply CURVE.It is the set of all possible D=Z INTERSECTIONS.Only one element of the set of all possible D=Z INTERSECTIONS can actually occur.Keynes called this the POINT of EFFECTIVE DEMAND.This outcome is specified by Keynes's SECOND MODEL Y=C+I=PO,where P equals the ACTUAL current price of aggregate output O,C=actual aggregate consumption and I=actual aggregate investment.Y obviously equals actual aggregate demand.D MUST equal expected aggregate demand because D1 equals expected aggregate consumption and D2 equals expected aggregate investment.Davidson ,following the error filled model of Robertson and Johnson in 1955,redefines Z=pO and D=C+I,where D is redefined to equal actual aggregate demand and Z is redefined to equal the aggregate expected supply.Davidson's D =Z model is incoherent as the left hand side of his equation is measured in actual values while the right hand side of his equation is measured in expected values.Davidson's error filled model ,which is identical to the error filled mathematical model of Robertson-Johnson first published in the Economic Journal of 1955,has been THE major cause of confusion about Keynes's actual model.There are many,many other parts of this book which are unclear.The potential reader is advised to work out Keynes's modeling for himself in chapter 20 of the GT unless he is prepared to wade through a large number of logical confusions and mathematical inconsistencies.