Financial Markets, Money, and the Real World
Financial Markets, Money, and the Real World is a compilation of much of Paul Davidson's most important work toward his lifelong goal of "resurrecting Keynes's analytical vision" (p. 3). Readers of Professor Davidson's previous books, most importantly Money and the Real World (1978) and International Money and the Real World (1992), are advised that the current volume contributes very substantial value added. For example, chapter 3 ("Uncertainty and Reality") contains a brilliant disquisition on the epistemological underpinnings of mainstream and heterodox models. The later chapters of the book present a fresh examination, from the Post Keynesian perspective, of contemporary issues such as persistent United States trade deficits, exchange rate volatility, destabilizing international capital flows, and proposals to reform the global financial architecture. The distinctive feature of the economics we call Post Keynesian is a strong emphasis on the role of uncertainty in decisions to employ resources, to invest in new capital goods, or to store wealth. Following in the line of]. M. Keynes and O. L. S. Shackle, Davidson has taken the case for the non-equivalence of uncertainty and actuarial (or probabilistic) risk to a new level of cogency. He concurs with Paul Samuelson that the conceptual substructure of mainstream economics is supplied by the theory of stochastic processes, which treats an economic time series as a "finite realization" of an ergodic stochastic process. If economic reality is governed by ergodic stochastic processes, then