Debunking Economics: The Naked Emperor of the Social Sciences by Steve Keen
Zed Books, July 1st, 2001 (2007 Reprint)
I have read very little on economics. So little that I think I can list every book I’ve ever read on the subject with less than one hand:
Basic Economics by Thomas Sowell
The Road to Serfdom by Friedrich Hayek
The Return of the Great Depression by Vox Day
I read The Communist Manifesto once but I’m not sure that quite counts. I did listen to about an eighth of Wealth of the Nations as an audio book but not nearly enough to claim that I have read it. Along with these I’ve read a lot of articles as well as few books on the subject but always at the level of a layman. I have heard of Keynes, the Austrian School, Milton Friedman, Ricardo and many other names but don’t ask me for summaries on their perspectives or anything they’ve said on the subject. And let’s not forget that reading isn’t the same as understanding and I’ve never formally studied or gone very in-depth on the discipline. The author of the latter work on the list has highly recommended the subject of this review but it has been a decade since he recommended it and I’ve only recently got around to doing so.
I want to emphasise my ignorance here because I found this book (more so than the others), a rather difficult read and my level of understanding may be poor. This review is something of an exercise at synthesising what I have read. In case it wasn’t already clear — I’m the ignoramus.
People tend to be doctrinaire about their economic views as they are usually linked closely with their political views. This is a problem when Economics is supposed to be an academic discipline within the Social Sciences and therefore needs to be approached dispassionately — something politics very seldom is. What is learned early in the first pages of the books is just how wedded mainstream economists are to their theories with or without their personal political perspectives. John Derbyshire often reminds me in his podcasts of Thomas Carlyle’s description of Economics as the “dismal science” and after reading this, I can see why.
Keen is not literally “debunking economics” but debunking what he calls neo-classical economic thought which is very much in the mainstream. As he states early on, he has not himself done this but has brought together the thoughts of many dissident economists going back over one hundred years and distilled it into a book that anyone with enough interest will be able to follow. He has also pointed out a number of misunderstanding or misinterpretations made about economists such as Keynes and Marx.
What immediately jumped out reading the book were all the assumptions behind so many economic models and theories. Indeed the word comes up so many times that I almost wish I’d kept count as I read. One that comes early on is the assumptions made about consumer behaviour which can be traced back to Jeremy Bentham:
The community is a fictitious body, composed of the individual persons who are considered as constituting as it were its members. The interests of the community then, is what? — the sum of the interests of the several members who compose it. It is in vain to talk of the interest of the community, without understanding what is in the interest of the individual. (Benthem 1780)
Quoted in Chapter 2: The calculus of hedonism
Now I may never have studied economics but I did briefly study moral philosophy and Benthem certainly seems an odd choice to use as a guide to human behaviour today. Especially given just how much the economy has changed since he wrote that. What this assumes is that consumers will continue the same behaviour as their income rises. The example he uses are bananas and biscuits and it is assumed in economic models that a single consumer will continue to buy more of the same thing as his income rises.
This assumption comes up again later with another assumption about economic equilibrium. Keen has discussed at length the unwillingness of economists to abandon their models despite their failures and concludes:
“If you believe that the free market system will naturally tend towards equilibrium — and also that equilibrium embodies the highest possible welfare for the highest number — then ipso facto, any system other than a complete free market will produce disequilibrium and reduce welfare. You will therefore oppose minimum wage legislation and social security payments — because they will lead to disequilibrium in the labour market. You will oppose price controls — because they will cause disequilibrium in produce markets. You will argue for private provision of services — such as education, health, welfare, perhaps even police — because governments, untrammeled by the discipline of supply and demand, will either under or oversupply the market (and charge too much or too little for the service).
In fact, the only policies you will support are ones that make the real world conform more closely to your economic model.
Chapter 7: There is madness in their method
So a two hundred year old social theory is at the core of economic modeling today and this is far from the only one. As mentioned, another is the assumed existence of equilibrium in the market when it seems to my ignorant self that markets are more cyclical or to use a real world example more comparable to the chaotic nature of the weather. Though I would say that meteorologists have a better track record with their predictions than economists. Climate scientists… not so much.
Something that occurred while reading (remembering I found parts very difficult to follow), was that I was not wedded to any of these theories and so I didn’t find anything controversial about what was being said though people committed to any of these models or theories likely would.
Keen does mention somewhere, though I didn’t remember to note it, that you don’t need to know anything about economics to engage in commerce. And this got me thinking about assumptions that exist in other disciplines. After all, it is also true that you don’t need a full understanding of human anatomy to perform heart surgery or a full understanding of an automobile to engineer an exhaust manifold. Of course both the latter would have general knowledge but would still have their specialty. With economics in the real world, a lot comes down to instinct, opportunity and hard work.
This is not to say that economists aren’t important but if what they’re doing is based on a faulty view of the way the system works and that real-world decisions are being made based on these assumptions than there is a serious problem.
Keen devotes the second last chapter to a criticism of Marxist economic theory, which was interesting and then leaves the last chapter to a number of alternative schools of thought. He indicates a preference for what he calls Post-Keynesian but gives a fair overview of each of the others. And that brings up another aspect about the book I found refreshing. Keen is quite open about where he comes from politically but is fair-minded about alternatives and open about his own bias.
As I’ve said, this was a difficult work but I am glad I pushed myself through it. It certainly isn’t for everyone (and probably not for me), but at the very least, it gave me plenty to think about.
Note: This book has been updated and reprinted a number of times so the edition I have listed above, may have some significant differences from the more recent versions. This was the only physical copy I could find for a reasonable price at the time of purchase.