Review of Steve Keen, Debunking Economics:

The Naked Emperor of the Social Sciences London: Zed Books, 2001 Steve Keen's Debunking Economics is a provocative book; deliberately so is my conjecture. The anti-Vietnam war movement in Adelaide dichotomised into either militants or moderates. I belonged to the second group, because I thought it the proper way for academics to play a public role in vital political and social issues. I also thought it would be counter-productive to do otherwise (no prize for guessing the respective weights attached to the two reasons). Steve, I'm sure, would have been a militant. Certainly that is his approach here. I worry that this may backfire, for I have sympathy with his aims and many of his arguments and judgements. Time will tell who is right (perhaps I could say that the militants wanted the Australian revolution to occur first, then the troops could be brought home and conscription abolished. The moderates thought it better to get an ALP government elected because these two objectives were core items in Labor's election manifesto). Keen's object is to go behind what is currently taught to economics undergraduates in order to reveal the conceptual bases of their instruction and the ideological purposes involved. He comes to his task with a thorough knowledge of the classics of the subject, of Adam Smith as well as of Karl Marx, and with considerable analytical skills of the modern sort.He is a graduate of the political economy movement at the University of Sydney, and his Ph.D. dissertation was an amalgam of the theories of Dick Goodwin and Hy Minsky, two modern maverick greats, both alas now dead. Goodwin was a pupil and then a colleague of Wassily Leontief and Joseph Schumpeter at Harvard, and a pupil of Roy Harrod and Henry Phelps Brown at Oxford. He was much influenced by Maynard Keynes's writings and by Richard Kahn, Joan Robinson and Piero Sraffa of his Cambridge, England colleagues in the post-war period. Though he ceased to be a member of the communist party by the 1940s he remained an informed fan of Marx's writings, especially of Marx's deep knowledge of how capitalism works. (Joan Robinson used to say of Schumpeter that he was Marx with the adjectives changes.) This background, together with his love of Wicksell's economics and teaching physics at Harvard during World War II, led to Goodwin's pioneering contribution of models of cyclical growth. They incorporated his insight that trend and cycle are indissolubly mixed, not separable and determined by different sets of factors, as usually happens in orthodox economics. Minsky also knew his Marx. He worked with Oskar Lange as a young man. His great contribution was to show how real and monetary factors interrelated to produce cycles as capitalist economies evolved through time. While he drew on the writings of Keynes and Michal Kalecki, his financial instability hypothesis associated with the analysis of the effects on firms and on the economy, of the non-realisation of the expected cash flows arising from investment projects, is highly original. It has proved of greater and greater value in our understanding in recent years of the financial instabilities and crises in the world economy. Keen's contribution is to put these two strands together to provide a structure for illuminating the malfunctionings of modern interrelated capitalist economies. He does this in a way which not only draws on the insights of our past masters but also employs the most modern of analytical techniques. With such a background it is easy to understand his horror at the contents of modern textbooks. Increasingly they model the capitalist world as though it were conforming to the dictates of Frank Ramsey's benevolent dictator, choosing optimum paths of accumulation over time for all its citizens. Keynes's long run in which "we are all dead" (well, he's dead and we are in the long run, as an IMF wit recently put it) has returned to dominate our supposed understanding of what is happening. Short-term instabilities are viewed as mere aberrations, fluctuations around this long-period optimum trajectory. Against this macroeconomic background, modern microeconomics has a bias towards examining the behaviour of competitive markets (as set out most fully and rigorously in the Arrow-Debreu model of general equilibrium), not as reference points but as approximations to what is actually going on. Of course, departures from them are taught, increasingly by the clever application of game theory. Moreover, the deficiencies of real markets of all sorts are examined in the light of the implications, for example, of the findings of the asymmetric information theorists (three of whom - George Akerlof, Michael Spence, and Joe Stiglitz - have just (10/10/01) been awarded this year's Nobel Prize. From Amartya Sen on, the Nobel Prize electors seem to be back on track). While professional economists increasingly get to know of these and other developments, often through the pages of the excellent Journal of Economic Perspectives, the most used undergraduate textbooks are usually light years away from such enlightenment. Moreover, alternative approaches in our subject, economic history and the history of economic thought are either being marginalized in, or driven out altogether from most undergraduate courses. Keen's book is directed against these trends. He examines what is taught in macroeconomic and microeconomic courses and what their deficiencies and shortcomings are. And he suggest alternatives, some of which come out of the many influences on him and his own contributions. As I said, I understand his impatience and anger and I applaud his aims. I just worry that the tone of the book and, sometimes, his assertions may allow critics to sidetrack the arguments along byways which may seem plausible but ultimately miss the point - to the detriment of the training of future generations in what Keynes memorably called "our miserable subject". Nevertheless, if I were given a free hand to design a course, I would urge my pupils to read both Keen's book and Hugh Stretton's marvellous alternative text (Economics: A New Introduction, published by Pluto in 1999) as well as the best of the mainstream texts now available. (I would also urge them to read some of the great originals too!) Only then would I feel they had been introduced to the appropriate material with which to make up their own minds what approach(es) to take in their studies. As it is, without the insights of a Keen and a Stretton (and of the past greats), I fear we are likely to produce well trained but uncritical cogs, the better to fit the needs of our modern industrialised societies. It is not the proper role of university teachers either to be hired prize fighters or produce them. Geoff Harcourt(2002) “Review of Steve Keen, Debunking Economics: The Naked Emperor of the Social Sciences", post-autistic economics review : issue no. 11, January, article 5. __________________ This review originally appeared in the Financial Review