A rejoinder to O'Donnell's critique of the ergodic/nonergodic explanation of Keynes's concept of uncertainty

Paul Davidson

Journal of Post Keynesian Economics, 2015, vol. 38, issue 1, 1-18

Abstract: O’Donnell’s attack on the ergodic/nonergodic approach to Keynes’s uncertainty concept is erroneous. Keynes’s produced a general theory by imposing fewer restrictive axioms than classical theory. Keynes’s explicitly attacked the classical theory’s axiom that an actuarially certain knowledge regarding the future is available to decision makers; thus Keynes’s analysis rejects the ergodic hypothesis. Keynes’s theory does not substitute the assumption that all economic activity must be nonergodic. Keynes’s theory simply permits an analysis where the payout for some economic decisions (e.g., “animal spirits” investment spending) are made under uncertainty, i.e., without actuarial knowledge of the future payout of such spending decisions. O’Donnell’s epistemological approach implicitly supports the laissez faire view that there should not be any government interference with operation of free product and financial markets for government interference policies may only worsen future outcomes in a world where humans including Keynes, economists, and government officials do not have the capability to understand how the economy works.

Date: 2015
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DOI: 10.1080/01603477.2015.1078701

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