I will reprint a review of Keens book from 2003(Review of Austrian Economics), for a variety of reaons mainly that it is not well known.
Steve Keen (2001) Debunking Economics, Annandale, NSW, Australia: Pluto Press,
335 + ix pp., $27.50
Debunking Economics is a bold attempt to shake the foundations of the neoclassical
economic mainstream. Embarking on this review, we had suspected we might ﬁnd large
areas of agreement with a fellow apostate. However, Keen’s work suffers from many of the
very faults of which he accuses the mainstream. The most troublesome is that Keen’s work
is quite frequently ideologically motivated, even while criticizing neoclassical practitioners
for ideological economics. In the end we ﬁnd it a brave but ﬂawed effort to dethrone the
current economic orthodoxy.
Methodological Holism Versus Methodological Individualism
Keen demonstrates that many attempts to aggregate quantities applying to individuals, so
as to come up with a measure for “society’s utility” or “society’s indifference curves,” lack
coherence. Fair enough. But the conclusion he draws from that fact is an ideological one.
After pointing out the ﬂaws in certain aggregate measures, Keen says, “society must exist
as an entity in its own right” (p. 40). But that doesn’t follow from his argument; indeed,
we would say Keen hasn’t taken the argument far enough. “Social utility” is a meaningless
concept, period, and so it is not surprising that (as Keen shows) it cannot be calculated from
“Society” is one of many useful concepts with which individuals comprehend their world.
It is true that there are many aspects of individual experience from which we can usefully abstract a social aspect. But it is purely metaphysical speculation to imagine that an abstraction
from individual experience exists apart from the individual experience itself. (Ironically,
Keen immediately follows the quote above with a criticism of the mainstream for its “unscientiﬁc nature.”) As we see it, society is a network of practices, practices whose existence
is entirely dependent upon their being subscribed to by individuals.
Keen goes on to say, “society is something more than the sum of its individual members”
(p. 47). Keen believes that his truism explodes the economist’s traditional “atomistic”
method of focusing on the individual (e.g. p. 261 and p. 306). But this doesn’t follow at
all: All “social” outcomes are the composite of individual actions, even if such actions
are inﬂuenced by the existence of others. One does not show the limitations of physics by
pointing out the inﬂuence of The Communist Manifesto.
The idea of society as an independent being above and beyond its members is, of course,
a key element in many collectivist ideologies. Keen, in reaching conclusions that do not
follow from the arguments he presents, is letting his ideological slip show.
Keen’s critique of mathematical economics is emblematic of the book as a whole: he
takes many shots at the mainstream, and some of them hit the target. For instance, we
think his suggestion that mathematical economics pursue research in dynamic systems and
simulations is sound.
We especially liked the discussion (pp. 178–183) of dynamic versus static models, and the
example of a dynamic system with multiple, unstable equilibria that nonetheless oscillates in
the neighborhood of those equilibria. We feel this is a good metaphor for the real economy,
which possesses what may be called equilibrating forces—forces that keep the economy
from going too far “awry”—but never actually achieves equilibrium. As Keen puts it, “rather
than equilibrium being where the action is, equilibrium tells you where the model will never
be” (p. 183).
In addition, Keen does a good job in highlighting some of the contradictions at the heart
of the theory of perfect competition. The elementary problem with the theory is that rather
than employing the limit analysis implicit in its equations to examine conditions as perfect
competition is approached, analysis proceeds as if the system were at its limit, leading to
Keen offers a clever analogy to explain the problem: one can “prove” that the Earth
is ﬂat if one is allowed to treat the tiny local deviations from ﬂatness as non-existent
(p. 86). All of these contiguous, ﬂat segments of the Earth must yield a ﬂat Earth as
In fairness to Keen, we note that he is willing to follow his theorizing even when it
leads him onto ideologically foreign territory. Keen, who clearly sees himself as more
interventionist than his neoclassical colleagues, here attacks an argument for anti-trust
laws. And Keen admits that the neoclassical mainstream follows their own logic to argue
for intervention to control monopolies.
However, in his zeal to attack mainstream economics, Keen often overshoots. After
“debunking” the notion that the production of a ﬁrm is constrained by rising marginal
costs, Keen asks what does constrain a ﬁrm’s production? Quite oddly, his answer is “rising
marketing and ﬁnancing costs” (p. 73). But those are rising marginal costs themselves!
Keen has fallen prey to the fallacy, exposed by Mises ( 1998:319), that there is any
important economic difference between “production costs” and “sales costs.”
The Uniqueness of Labor
His ideological bias is epitomized in Keen’s analysis of labor. He repeats the clich´e that
labor is a unique commodity, and is therefore exempt from the traditional laws of supply
and demand (pp. 111–112).
But there is nothing to distinguish the supplier of labor (who ceteris paribus prefers
leisure) from a supplier of wood pulp (who ceteris paribus prefers the beauty of his virgin
forest). The fact that the laborer depends on his wages for sustenance is irrelevant, since all
sellers of commodities use their income to obtain life’s necessities. (After all, couldn’t the
proverbial “bond coupon clipper” claim that she is “forced” to accept whatever interest rate
prevails on the market, since she relies on her coupons to eat, and is therefore also subject
Keen (2002a) argues that there truly is a difference, since the supply of labor is ﬁxed
at 24 hours per day, while the sellers of other commodities can increase their output. But
this rejoinder relies on the very same assumptions of convenience that Keen ostensibly
abhors. The short-run supply of trees is just as ﬁxed as the short-run supply of labor hours;
the owner of a forest can’t cut down more trees today than are standing on his property.
Furthermore, Keen’s model of labor is every bit as unrealistic as the neoclassical model of
ﬁrm production (which Keen ridicules). In truth, a person’s body is a machine that produces
a variable amount of “service,” just as a plot of land can be cultivated intensively to squeeze
more trees out (at future cost). A worker certainly cannot supply 24 hours of labor per day
for any extended period.
We thus see that Keen’s attack on the mainstream, “apologist” belief in wages equaling marginal productivity, is unfounded. Like his orthodox opponents, Keen has used
a simpliﬁed model that yields the conclusion (labor is exploited by capitalism) that he
Keen includes interesting sections on various heterodox schools, including Marxism, evolutionary economics, complexity theory, Post-Keynesian economics, Austrian economics,
and Srafﬁan economics. He seems to come down on the side of evolutionary economics as
having the most promising future (p. 311).
Keen has an excellent discussion of Marx’s labor theory of value (pp. 278–295), in which
he demonstrates that it is not even internally consistent. However, Keen instead posits a
real-cost theory of value, ignoring the Austrian insight that costs themselves are subjective.
He never addresses the theory of subjective value, but instead baldly states the somewhat
stunning proposition that “the subjective utility of the buyer and seller are irrelevant to the
price” (p. 273). What in the world could Keen mean? If one just drives one’s cost in making
mud pies high enough, one can charge an arbitrarily high price for them?
Keen is not unsympathetic to the Austrian School, but it does not seem to us that he fully
understands it. For instance, Keen gets the posited effect of interest rates on the “roundaboutness” of production backwards. (Keen has later acknowledged that the section is in
error [2002b].) He is also wrong in implying that the Austrians depend on an equilibrium
analysis of returns to factors of production to defend distribution in the market economy.
(In fact, the Austrian analysis of the return to entrepreneurs relies entirely on disequilibrium
Furthermore, Keen’s debunking of the “equilibrium always” view of Say’s Law does not
refute Say’s Law (pp. 189–199), but only an equilibrium-always treatment of it. The work
of Mill et al. (see Hazlitt,  1995) show that Say’s Law is perfectly sound if seen
as expressing a prevailing tendency in the market economy, rather than as an equilibrium
relationship that always holds true.
Keen concludes that the Austrian school is “too close to its neoclassical cousin to make a
major contribution to reformed economics.” But, in at least one fundamental critique, that
of the limitations of all formal modeling of economic activity, the Austrians are further
from the neoclassicals than any of the other schools Keen discusses.
Despite our criticisms, we are glad Keen wrote the book, and glad that we had the chance
to read and review it. Keen is raising important questions, even if we cannot go along with
him on all of his answers.
 By way of illustration: The limit of 1/n as n approaches inﬁnity is zero. But we cannot assume that 1/n iszero, because then we get nonsense like n ∗ 1/n = 0!
Hazlitt, H. (Ed.) ( 1995) The Critics of Keynesian Economics. Irvington-on-Hudson, NY: The Foundation for Economic Education.
Keen, S. and Murphy, R. (2002a) E-mail discussion of March 23 archived at: http://maelstrom.stjohns.edu/
Keen, S. (2002b) E-mail discussion of March 18 archived at: http://maelstrom.stjohns.edu/CGI/wa.exe?A2=ind0203&L=hayek-l&P=R13866&D=0&H=0&O=T&T=1.
Mises von, L. ( 1998) Human Action. Auburn, AL: Ludwig von Mises Institute.
Robert P. Murphy
New York University
Ludwig von Mises Institute