Steve Keen, Debunking Economics: The Naked Emperor Dethroned, 2nd edition (Zed, 2011), £18.99
When I first became interested in Marxist political economy, I longed for a critique of mainstream economics written by someone who was thoroughly familiar with the discipline. Heterodox economist Steve Keen has produced just such a work.
He explains why the kind of economic theory taught on most university courses is irrelevant to actually existing capitalism.
Economists rely on graphs showing supply and demand for commodities that are assumed to curve downwards and upwards in accordance with theory, determining prices by their intersection. As Keen demonstrates with great clarity in the first part of his book, in practice there is no reason why such curves should exist or take the form they are supposed to.
He goes on to debunk each facet of the mainstream economics built on these microeconomic underpinnings. The kind of macroeconomic models produced by economists are shown to be pure fantasy. They assume an equilibrium that does not exist and fail to take serious account of important features of capitalism such as credit and, often, time. As Financial Times columnist Martin Wolf recently admitted, the result is an economics built on “a fairy story” in which “the dominant theoretical paradigm holds that a financial crisis cannot happen”.
As Keen makes clear, many of his most devastating arguments are not new. They have existed for decades, even if orthodox economics remains oblivious to them. The author deserves praise for bringing them together and presenting them in a manner accessible to a broad audience.
The main shortcoming of this book is its dismissal of the Marxist alternative.Keen bases this on a well-known critique of Marx’s transformation of values into prices of production by Ian Steedman. But Keen does not take the replies to Steedman seriously, simply asserting that Marxists have made philosophical rather than mathematical responses and that Marxists are not unanimous in how they have responded.
But as a great many Marxist have pointed out in different ways, the system Steedman presents is not Marx’s. It involves calculating value on the basis of physical output rather than socially necessary labour time—the mathematics is therefore hardly relevant to Marx’s theory.
Keen’s discussion of Marx’s theory will seem crude and shambolic for anyone familiar with Capital. At points it is clear that Keen simply misunderstands what he has read and has not taken the trouble to consult the relevant Marxist literature, relying instead on accounts by what is sometimes called the “neo-Ricardian” school.
Despite such horrors towards the end, this is for the most part a useful book. Anyone who wants to know what’s wrong with mainstream economics should read it, even if they treat some of Keen’s conclusions with caution.