Post Keynesian Theory and Policy
Show Less

Post Keynesian Theory and Policy

A Realistic Analysis of the Market Oriented Capitalist Economy

Paul Davidson

How did economic “experts” worldwide fail to predict the financial crisis of 2007-2008? Eminent economist Paul Davidson discusses how mainstream economic theory may not be applicable to the world of experience. Post Keynesian theory is designed to be applicable to the real world, and this book demonstrates how applying it to policy formulation could help practically resolve economic problems. Davidson goes on to demonstrate how many Post Keynesian economists warned of the impending financial crisis as early as 2002.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 4: Keynes–Post Keynesian theory: money and money contracts

Paul Davidson


The income principle behind Keynes’s theory is simple. Income is earned whenever a person or firm sells a newly produced good or service in the market place. For example, when a person spends money to buy this book new, the total purchase price contributes to the income of the book seller, who, in turn, has paid part of this purchase price to contribute to the income of the publisher, who uses part to pay income to its employees. The publisher has paid a sum to the income of the printer for printing the book. Furthermore, the publisher contributes to the author’s income by making a royalty payment equal to a contractual agreed upon percentage of the funds received from the book seller. Whenever people decide to save part of their income instead of spending it on newly produced goods and services, that portion of income that is saved is denying other people income that would be earned if the saver had decided not to save, but rather to spend all of their income on newly produced goods and services. In order for people and firms to earn income they must engage in the production of goods and services that someone else buys in the market place. Consequently, when workers cannot find employment, it is due to the fact that employers do not expect to be able to sell profitably the additional output that the unemployed workers, if hired, could help to produce.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.