A Refutation of the Paul Davidson and Post Keynesian Claim that Paul Samuelson Was Never a Keynesian
29 Pages Posted: 28 Nov 2016 Last revised: 4 Dec 2016
Date Written: November 23, 2016
The Journal of Post Keynesian Economics (JPKE) published a shoddy, unwarranted, unprofessional, and unscholarly attack on Paul Samuelson written by Paul Davidson, the former editor of the JPKE for 37 years from 1978-2014, in early 2015. The main claim of this polemic, masquerading as a learned, scholarly, academic, journal article, is the completely unsupported and preposterous claim that Paul Samuelson rejected Keynes’s macroscopic Theory of Effective Demand and was really a neoclassical economist who believed that in the long run a laissez faire, private sector economy would self adjust by itself to achieve optimal levels of employment, income, consumption goods and investment goods.
Samuelson, of course, did reject, incorrectly, the technical exposition that Keynes made in explicating and supporting his Theory of Effective Demand in the General Theory in chapters 3, 20, and 21, which he, like Paul Davidson, could not follow, while completely accepting Keynes’s Theory of Effective Demand, which stated that it is was generally not possible, except as a limiting case, for a laissez faire, private sector economy to reach an optimal equilibrium of output and employment without direct government intervention in the short run or long run.
Samuelson’s mistake is practically identical to the same type of mistake made by J M Keynes himself in the A Treatise on Probability, 1921, concerning G. Boole’s theory of interval valued probability in Boole’s 1854 The Laws of Thought. Keynes argued that the technical exposition used by Boole to actually derive his results in his worked out problems was incorrect. However, Keynes fully accepted Boole’s Theory of interval values probability. Keynes then provided a different, modified, technical exposition, based on his definition of conditional probability, that allowed him to rework all of the Boolean examples, that Keynes felt included incorrect definitions and steps, of Boole’s interval valued probability analysis.
Samuelson, correctly, did reject the mathematically, erroneous, Post Keynesian D-Z model of Sidney Weintraub, Paul Wells, Paul Davidson, and many other Post Keynesians, as well as the erroneous claims made by that school about uncertainty. He also rejected the limiting frequency interpretation of probability, used by G L S Shackle and Paul Davidson as the foundation for their truly bizarre and mind boggling nonsense about all events in economics being unique events, as well as their “Outer Limits” view of the mathematical, measure theoretic concepts of ergodicity and non ergodicity that require the limiting frequency version of probability to be the only definition of probability.
Samuelson was deliberately mislead by Joan Robinson, Austin Robinson, and Richard Kahn based on their false claims that they had discovered all sorts of mathematical errors in the General Theory(GT), despite Richard Kahn’s valiant attempts to correct Keynes’s errors before the publication of the GT in 1936, in chapters 3, 20, and 21.
Samuelson’s interpretation of the GT rests on chapters 3, 8-10, 23, as well as Keynes’s final publication in the Economic Journal of June, 1946 on issues related to international trade and economic philosophy plus his own 45 degree cross model. Samuelson’s major refinement of the formal, technical explanation of Keynes’s Theory of Effective Demand was to argue that the public sector, operating through expansionary and contractionary fiscal and monetary policies based on changes in government spending, taxing, and interest rates, can generate appropriate changes in the aggregate price level, p, so that the real wage, w/p, can be raised or lowered depending on the public policies that generate increases or decreases in p. Samuelson accepted the fundamental point of chapters 2 and 3 of the GT, which was that labor, as a whole, bargains for a money wage, w, and not a real wage, (w/p). Labor, as a whole, can’t raise or lower their real wage, which was one of the major point of the exposition made by Keynes in chapter 2, because they bargain for a money wage.The classical and neoclassical position had always been that the supply of Labor was a function of the real wage. Appropriate fiscal and monetary governmental policies, that raise or lower p, can alter the real wage by increasing or decreasing p. These changes will then decrease or increase, respectively, the aggregate level of the real wage (w/p). The private sector then reacts to the public sector’s policy prescriptions and interventions, which cause a rise or fall in the real wage, (w/p), by decreasing the amount of labor hired in the aggregate if the economy is facing inflationary problems or increasing the amount of labor hired in the aggregate if the aggregate problem is deflation.
Paul Samuelson correctly rejected the Post Keynesianism of Joan Robinson, GLS Shackle, Sidney Weintraub and especially Paul Davidson, due to the myriad errors in their models that have nothing to do with Keynes’s technical exposition in chapters 20, 21, and the appendix to chapter 19 of the GT, where Keynes compared his chapter 20 (21) model to Pigou’s 1933 model contained in chapters 8-10 of Part II in The Theory of Unemployment.
Post Keynesianism failed because of severe errors of omission and commission committed by Post Keynesians since the early 1950’s. No Post Keynesian ever correctly assessed Keynes’s technical work done on his D-Z model in chapters 20, 21, and the appendix to chapter 19 of the GT. Davidson simply used a sleight of hand by trying to substitute Sydney Weintraub’s error filled work on the D-Z model, based on the error filled work of Dennis Robertson and Ralph Hawtrey published between 1954 and 1956 in the Economic Journal, for Keynes’s work. Samuelson, correctly, rejected the Weintraub model, as well as Davidson’s clever, tricky, and sneaky attempt to substitute Weintraub’s model for Keynes’s model and pass off the result as Keynes’s GT model. Samuelson caught on to this intellectual fraud right away and didn’t let Davidson get away with his trick.
Keywords: Aggregate supply curve versus aggregate supply function, Don Patinkin, Z=P wN, D=pO, Samuelson
JEL Classification: B10, B12, B16, B20, B22
Suggested Citation: Suggested Citation