2008-06 Davidson on Keynes

This article reviews the treatment of open economy issues in Paul Davidson’s book, John Maynard Keynes (2007). Davidson aptly summarizes Keynes’s criticism of the international monetary system for the asymmetric “burden of adjustment” it places on deficit countries compared with surplus countries, which imparts a contractionary bias to the world economy. Davidson also updates Keynes’s proposals for global monetary reform and extends his analysis of international trade. However, Davidson’s arguments about mainstream views of international finance and the ineffectiveness of exchange rate adjustments are on less solid ground. This article suggests reformulations of Davidson’s interpretations on the latter two points.