The final chapter Steve Keen’s Debunking Economics is a brief overview of the major competing alternative economic schools of thought. The question posed is whether these schools present a viable alternative to neoclassicism and marxism, both of which Keen has already dismissed. He now goes on to evaluate Austrian, Sraffian, post-Keynesian and evolutionary economics, as well as Econophysics. I will look at Keen’s evaluation of these schools of thought and discuss his conclusions.
Keen’s view on the Austrian school is similar to that of myself and other post-Keynesians: it shares many characteristics with neoclassicism. These include but are not limited to: an exogenous money supply (ex. Lachmann and Schumpeter), Say’s Law, a variant of marginal productivity theory, reductionism and a government versus markets perspective. Hence, many of his earlier critiques – Sraffa’s work on capital, the excessive focus microeconomics, and post-Keynesian views on banking and the money supply – could equally be applied to Austrians. Keen himself thinks that Austrians deal with uncertainty, but (again, ex. Schumpeter and Lachmann) I’m not even sure this is true – for example, Hayek completely misused the term. Hence, criticisms of neoclassical models based on irreducible uncertainty may also apply to some Austrian arguments.
While Keen applauds Austrians’ analysis of capitalism as more dynamic than that of neoclassical economics, he notes that they do seem to retain the belief that capitalism has a ‘natural’ state that should not be ‘interfered with,’ and they actually seem to take it much further than their neoclassical counterparts. This is particularly apparent – also something that I have noted – with Hayek’s ‘spontaneous order.’ Though it is an interesting concept, it has been misused as an ideological tool against government, without considering the ‘spontaneous order’ that may evolve inside government, or the possibility the dichotomy between governments and markets may be a false one.
All in all, it’s hard to deny Austrians are part of the marginalist tradition, something Mises explicitly said. Hence, I don’t consider the school a truly ‘alternative’ way of thinking about economics, even if it has something to offer.*
Keen praises Sraffa’s work as “the most detailed and careful analysis of the mechanics of production in the history of economics,” and notes the importance of the interesting conclusions that it brought to light. Nevertheless, Sraffa’s analysis is a static one that seems to be dependent on the existence of a long run equilibrium (here Keen quotes the Sraffian Ian Steedman as evidence). Due to the lack of dynamism in Sraffian models, Keen’s previous comments about dynamics and equilibria could be applied to Sraffa. Keen ends by noting the subtitle of Sraffa’s magnum opus: “Prelude to a critique of economic theory.” He suggests Sraffa’s main aim was to provide a basis with which to critique other theories, rather than present a positive alternative. I’ve no doubt Sraffian readers will disagree.
This school of thought is characterised by the application of modern chaotic modeling techniques to economics. Hence, the models produced are far better suited to generating the kind of instability we observe in capitalist economies than are those used in neoclassical economics. Keen comments that the school isn’t really a direct critique or challenge of neoclassical economics, instead dismissing it outright and presenting an alternative.
Bearing the lack of direct engagement with economists in mind, it’s not surprising that the physical scientists suffer somewhat from a curse of being a mirror image of economists. Keen says that they have been rediscovering old insights such as IS-LM, then using them with other, incompatible models such as rational expectations. They also seem to have an ‘everything looks like a nail when you have a hammer’ problem, and are applying inappropriate laws, such as conservation to the distribution of wealth, or electromagnetism to immigration.
Perhaps econophysicists should be more willing to read through the history of thought – as I noted in my post on mathematics, this type of imperialism/arrogance in physicists is no prettier than in economists (commenter Blue Aurora told me that some econophysicists have been more willing to engage with the discipline recently, which is a good development). Despite these flaws, the tools of modern chaotic modeling are surely a promising area for the future of economics.
Keen’s discussion of this field is the first time I have been properly introduced to it, so I’ll be brief. Keen seems to think that evolutionary science is an appropriate and promising field, but one that lacks maturity. Many evolutionary concepts, such as adaption and survival of the fittest, are surely applicable to capitalist firms and product evolution. Having said that, economics lacks the equivalent of the gene to ground the evolutionary approach, so many evolutionary models are often forced to rely on analogy. Perhaps – and hopefully – the evolutionary school will be able to establish a coherent grounding in the future, but for now it is not a strong enough alternative to neoclassicism.
As this is the school Keen and I both most closely align with, you’ll not be surprised to hear the many advantages we think it has to offer: dealing with uncertainty; the relative lack of ideological commitment to any particular system; paying sufficient attention to money, debt and banking; more reality based models of the firm; freedom from reductionist constraints, and much more.
The main problem with this school is the lack of coherency. It’s almost defined as ‘not neoclassical economics’ (and, Keen might add, not Marxism either). Post-Keynesiansism does not really have an agreed upon methodology, something that has worked against its status as a fully fleshed out alternative.
As a brief aside: personally I don’t see why class shouldn’t be adopted as the ‘official’ methodology of post-Keynesians. It is compatible with many of the core tenets of the school – for example, the idea that individual actions should be understood in their class context fits in with the post-Keynesian idea that microeconomics should have ‘macrofoundations.‘ Furthermore, there is also an element of ‘reclaiming classical economics’ to post-Keynesianism, and the classicals generally used class as a methodological starting point. Finally, many of the models – including Keen’s – already use classes as agents, so it seems like a natural progression.
Overall, it seems post-Keynesianism is simply less rigid and more reality-based than its neoclassical counterpart, and is more fleshed out than other alternatives, save a problem with a unified methodology.** Although I suggested that this methodology should be class, perhaps – and this something to which Keen alludes – the lack of a rigid methodology is a strength rather than a weakness. Viewed from this angle, post-Keynesian economics can accept and develop concepts from all of the alternative fields (as well as institutional economics, which Keen doesn’t mention). This also solves the ‘divide and conquer’ problem – part of the reason for neoclassicism’s dominance seems to be the splits between its rivals, which as you can see are many. Generally, I think cooperation between the alternative schools of thought may be the key to building a robust alternative to the curiously resilient school of neoclassicism.
*Obviously there are strong divides within the Austrian school. Rothbardianism is barely worth exploring, while Hayek and Mises have some insights but were fairly tainted by the government-market dichotomy. As I have noted above, Schumpeter and Lachmann seemed the most willing to abandon certain pretenses and come to interesting conclusions.
**Actually, judging from the constructive comments on my marxist economics post, I have more faith in marxist economics than does Keen. However, I will need to explore it more fully before I can come to a definitive conclusion.