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Home Commentary A Critical Reading of Steve Keens DebunkingEconomics (Limposture conomique)

ACriticalReadingofSteveKeensDebunkingEconomics
(Limpostureconomique)
by Samir Amin
(Feb 17, 2015)
Topics: Economic Theory , Political Economy ~ Places: Global

1. Let me begin by saying that I have read Steve Keens

SA isdirectorofthe
book DebunkingEconomics(Limpostureconomique) with
ThirdWorldForuminDakar,
the greatest pleasure and, moreover, that I learned a great
Senegal.Hisbookspublished
deal from it. I have never read anything quite so convincing
byMonthlyReviewPress
includeTheLiberalVirus,The
on the absurdity, the absence of simple realism, the
WorldWeWishtoSee,The
nonsensical hypotheses and unforgivable errors in logic,
LawofWorldwideValue,and,
that characterize the whole of vulgar economics
mostrecently,TheImplosion
theneoclassicalself-proclaimedmainstreameconomics.
ofContemporaryCapitalism.
For my part, I needed no convincing as to the ideological (in
Thisarticlewastranslated
the worst sense of the word) nature of that pile of rubbish
fromtheFrenchbyShane
cluttering up the economics taught in our universities. That
Mage.
is why I never thought it worthwhile to waste time in
proving it by a detailed and precise examination of those
Nobelists' lucubrations. It was enough for mebrieyto point out the absurdity and logical
mistakes of all the tendencies in conventional economics, whose only real concern was to set up
an anti-Marx in opposition to the scientic analysis of capitalism initiated by Marx. The reader of
my early book, (written as a doctoral thesis in 1954-1955 and defended in 1957)Laccumulation
lchellemondiale(AccumulationonaWorldScale) will have understood that my overall concern
was to continue the work of Marx through an analysis of modern globalized capitalism under the
forms and conditions characterizing it in that periodi.e.,the 1950s,the morrow of the second
world war. Because it was marginal to my main preoccupation, as a committed intellectual,
caring above all to help reinforce progressive struggles through the best possible analysis of
capitalist reality, I regarded the critique of conventional academic economics as relatively
unimportant. In that framework, I thought the most important thing was to emphasize in my
analysis the reality of the mechanisms of global capitalisms unequal reproduction mechanisms,
the contrast between the dominant imperialist centers and the subaltern peripheries struggling
for their emancipation.

Such being the case, there remained the need for a serious critique of conventional economics.
Indeed, the false ideas it conveys are not limited in their devastating eects to professional
economists and the bourgeois ruling classs decision makers; they have injected the Liberal
Virus(see my 2003 book of that title) into the working classes themselves. So I am personally
grateful to Steve Keen for having accomplished that, and having done it brilliantly.

2. It will not be hard for me to point out, though briey, our areas of basic agreement.
(i) I began my career in higher education with studies in mathematics and physics, which I gave up
in favor of economics in order to secure for myself a professional life more in concordance with
my intention to live as a militant. What I learned in mathematics (a bit faded, now) had showed
me that those economists claiming a mathematical basis for their doctrines were very poor
mathematicians. As I have written, no scientic profession would ever employ them, so striking
was their incompetence. For example, setting zero as the nal point of a curve tending toward
zero amounts to ignoring the real eects of the specic and individual form of the equation at
issue.
(ii) I armed that the general rule is decreasing, not increasing, costs; and because of this rms
naturally try to get bigger, a necessary condition for them to retain market share and stay
protable.Sizeisdecisive, I wrote. Accumulation naturally leads a rm to gigantism, to oligopoly
(or monopoly) status.
(iii) I armed that the real capitalist economic system proceeds from one state of disequilibrium
to another, without ever tending toward equilibrium. Each of the successive states of
disequilibrium results from working-class struggles, from conicts among capitalist sectors, and
from actions of nation-states within the globalized systemwith all these factors modifying the
conditions under which the accumulation process proceeds.
(iv) I deduced from the preceding proposition that it is useless and pointless to seek out the
conditions for general market equilibrium. I criticized Walras for his attempt to do so and pointed
out that the Auctioneer he specied as prerequisite to his solution amounted to a veritable God
knowing in advance everything about the reactions of market participants and all the eects of
those reactions. General Equilibrium would thus be the instantaneouseect of such perfect
knowledge about all the participants in the over-all market.
(v) I subsequently sharpened that observation by calling attention at least to the distinction
between two sorts of markets: the market for real investment goods (production and purchase of
new machines) and the market for titles to the ownership of capital (such as equities).
There exists no generalized market allowing someone to confound the two, unless it be a
someone by whom money would be deemed nonexistent. Financialization is an immanent
characteristic of capitalism.
(vi) I likewise sharpened my critique of conventional economics by ridiculing its having resort to
expectations and, to boot, to rational expectations, which, taken to its limit, leads to Debreus
preposterous notion of a society of Godlike individuals with foreknowledge of the entire future.
Only thus would the decisions of each and of all result instantlyin general equilibriumthe best,
because the only possible, of all equilibria.

(vii) I treated with equal ridicule the hypothesis, necessary to the conventional theory of general
equilibrium, that postulates an original layout of the cards (the asset distribution determined by
individual property rights); with, behind that hypothesis, the hypothesis of a righteous despot
who decides, though nobody can ever know how, the moral denition of justice to be expressed
in that layout.
All of these fundamental considerations simply stem from my refusal to treat economics as an
atemporal, transhistorical, science. As did Marx, I considered historical materialismhistorical
realityto be the source from which ows the analysis of the economic forms proper to the
successive epochs and various locations in the framework of which those economic forms were
operative. Theoryishistory, I wrote.

3. The convergence between Steve Keens writings and my own extends beyond the brief
comments in the preceding section.
(i) I pointed outalready in lAccumulationand subsequently made more explicit my
understanding of what I termed the active role of [credit] money in the accumulation process.
For each of the stages of its unfolding (corresponding to the time required for existing capital
equipment to wear out to the point where it has to be replaced with new and more eective
equipment) the process requires the borrowing of funds, and I have given the formula by which
their quantity can be calculated with precision. The supply of [credit] money determines the
demand for it. The money supply does not exist independently from the demand for credit.
(ii) I disclosed the relationship linking the real-wage rate apparently needed to allow accumulation
to proceed in accordance with the allocation of labor and capital goods between Department I
(production of capital goods) and Department II (production of consumption goods). From this I
deduced that conformity to this proportionality does not result in any tendency of the prot-rate
to fall. Having made that point, I immediately added that strikes, etc., (struggles to maintain or
increase the real-wage rate) do not act like a magic dial showing what real-wage rate is really
needed (a counterpart, thus, to the invisible hand invoked by apologists for the market). On this I
made my own the analyses of Baran and Sweezy; the normally dominant tendency of capitalism is
to prevent real wages from increasing in proportion to the productivity of social labor, and,
because of this, to the two Departments of Production in Marxs model must be added a
Department III of surplus absorption. Capitalism cannot function otherwise.
(iii) I made Marx more complete (and even revised him) in two respects: that which concerns the
level of ground rent and of mineral rent; and that involving the determination of the rate of
interest, as distinct from the rate of prot. But those two subjects are not directly of concern in my
evaluation of Steve Keen, which is the topic of this note.

4. On one basic point I disagree with Steve Keen and intend to stick to my positions, unconvinced
by Steve Keens arguments that criticize Marx by citing supposed logical inconsistencies.
The transformation of values into prices of production, if carried out properly (i.e., by
denominating the contribution of productive inputs in terms of prices of production rather than
of values) precludes equality between the rate of prot calculated in terms of prices of production
and the rate of prot calculated in terms of values. All the bourgeois critics of MarxBhmBawerk followed by all the neoclassicsconcluded on such basis that this was Marxs error and

signaled the failure of his attempt to treat labor as the source of the values from which prices can
be determined. Sraa and Keen, though themselves critics of neoclassical economics, share this
viewpoint with Sraan Marxists (Ian Steedman, Ronald Meek, Arun Bose) whose arguments are
repeated by Keen.
In my opinion, this criticism of Marx is meaningless. I have always contended that the dierence
between those two versions of the prot rate is normal, reecting capitalisms characteristic
phenomenon of economic alienation (sometimes termed market alienation). For those two prot
rates to be equal would render transparent the phenomenon of exploitation of labor by capital
as, for example, was the exploitation of an enserfed peasant who had to work three days for
himself on his allotted land and three for the eneed lord and master. The distinctive nature of
capitalism is precisely that it overclouds exploitation, since the wage-worker who sells his labor
power thinks that he is selling his labor. The above criticism of Marx results from an empiricist
philosophy, dominant in Anglo-Saxon culture, that recognizes and considers only the immediate
appearance of phenomenain this case, the market prices known to prevail.
Having made this criticism his own, Keen falls back on Sraas model of a generalized market
directly denominated in prices. Unfortunately, Sraas model (see my criticism of it in TheLawof
WorldwideValue) proves nothing; it merely exhibits the unmediated reality. In Sraas model
prices are elucidated on the basis of a system in which they depend on the distribution of income
between wages and prots; however, in Marxs model the values are independent of that
distribution.
For Sraa, of course, commodity production (and the price-mechanism whose elucidation it
allows) is indeed a sort of production whose operative factors are labor and commodities (capital
equipment and raw materials). A trivial observation. Marx never thought labor was like a set of
magic words whose enunciation, as if by a sorcerer, would by itself produce things. Labor
operates with other commoditiescapital equipment and raw materialsthat it transforms into
new use values (consumer goods and other capital goods).
Sraas argument is that, in the last analysis, transformation (deducing prices from the startingpoint of values) involves an endless regress. For the capital goods in current use were produced at
a previous time, and by use of capital goods that were themselves produced still earlier. And so
forth, right back to Adam and Eve. Once given their place in such a limitless chain, commodities
are indeed objects that are always produced by means of other objects and of labor. A correct
remark, but trivial: yes we today would be incapable of producing what we today produce, absent
the contributions of our ancestors. That observation is not much help in understanding the ways
in which commodities are produced currently, in the framework of capitalisms specic social
structuresways that are very dierent from the ways regulating, ten thousand years ago, the
social organization of a hunting community that likewise used objects, arrows for example, in
their hunts.
Sraas argumentation is no dierent from the professedly timeless and transhistorical argument
of vulgar economics. It is directly perceptible that labor, equipment, and nature really do
contribute to production. I here add-in nature, since no more than the other factors is it exterior
to the results of labor: the same work, with the same tools, will yield more wheat on a eld

receiving abundant rainfall than on an arid, unirrigated, plot. But, again, this trivial ahistorical
comment says nothing about how agriculture currently functions under capitalism.
Bhm-Bawerk was the rst to have seen that Sraas model (which, of course, he never saw; he
was speaking, in the manner of his time, about a general model of the market) implied, in the last
analysis, resort to a series projected into a past of unlimited duration. One must date labor,
must compare the value of current labor to its value yesterday, the day before yesterday, the day
before that.And to do that we need a rate by which to discount the past or, if we are looking
forward, to discount the future. But how are we to choose the rate to be used? Going back to
Adam and Eve rates of .1 or .01 percent might seem suitable. Looked at that way, time is
productive in the banal sense that it is the past which makes the present possible. Yet another
trivial observation: it takes time to make anything, production is never instantaneous, as it would
be if done through the magical words of a sorcerer. Or should we set the rate at which we
discount according to what the current set of humans think right: perhaps 10 percent, perhaps 50
percent? But here again there exists no rationalrule, valid for all now-existing human beings, that
would allow determination of a single precise and universal measurement of that discount-rate.
For a starving man a loaf of bread now is worth more than a thousand loaves after his death; for
the rich man, with no need to care for his future, one loaf today is worth exactly the same as one
loaf tomorrow.
Marx stays clear of any resort to such trivialities of coee-house anthropology. Therefore he
chooses to examine how, in contemporary capitalism, production is organized according to the
distribution of labor and of capital equipment between two concomitant series of productive
activities: that of consumption goods and that of the capital goods required for their output under
todays conditions.
When we, like Marx, speak of today we dont signify a momentary instant (as always is supposed
in the theory of general equilibrium) but a stage dened by utilization of certain types of capital
equipmentthose whose use is possible and eective given a societys level of scientic and
technological knowledge. In the (stationary) model of simple reproduction the values of consumer
goods and of capital goods are entirely determined by that technological know-how under the
prevailing distribution of capital equipment between the two Departments of Productionwe are
dealing with productive actions carried out simultaneously, not successively. But in an expandedreproduction model (in which output grows over time) improvements in technological know-how
allow, at the ensuing stage, for greater production of consumer and capital goods using the same
quantity of direct labor in the two Departments taken together. In this sense, at each stage the
successive types of capital goods invented and put into operation have dierent use values. On
this point, Keen is entirely in the right: Marx does not slight use-value; he combines it with
exchange-value. Keen is entirely in the right when he states that a simplistic and vulgarized
Marxism which ignores the existence of use value falsies what Marx thought and wrote.Unless
use value be taken into account, Marxs sentence declaring that capitalism constantly
revolutionizes the production-process would have no meaning.
By choosing, for the formulation of his reproduction-model, the quantity of capital-equipment
objects currently availablewhich are owned as private property by each capitalist, which are
extremely diverse (dierent machines having each one its specic value in use), and which are
distributed suitably for the productive activities of each of the two Departments, Marx seems to

avoid considering the question of the origin both of those capital goods and of their distribution
among dierent owners. On this topic,Keen is entirely in the right to state that this question
equally needs consideration by any formulator seeking to model the workings of the market.Keen
is entirely in the right to point out that, to legitimize the distribution of that stock of capital goods,
conventional economics has to postulate a despot responsible for the original distribution of
cards. Marx avoids any such incongruous and fantastical hypothesis. In its place he gives an
historical analysis of the ways in which some (in the course of becoming the modern bourgeoisie)
dispossessed others (the former direct producers) from ownership of their means of production.
Theenclosuresexpropriating the poor peasantry and forcing them to emigrate toward cities
where they could sell their labor power, and then the eect of competition allowing some
capitalists to wipe out others, constitute the warp and woof of the real historical processin
sharp contrast to those lucubrations about an original layout of the cards.
At the conclusion of my criticism of Walras, of Sraa, and of all conventional economics I
emphasized the conceptwhich I believe is Marxs ownof the productivity of social labor. This
does not signify the productivity of a worker as distinct from that of the machines with which he
worksa laborer who is working, to boot, under given natural conditions. Marx linked together
the concrete work done, the capital equipment possible under contemporary knowledge, and the
natural conditions of productionall of which conventional economics breaks apart in its attempt
to arrive at separate productivities for labor, for capital, and for natural resources. He knew that
conventional economics is doomed to failure in trying to evaluate those separate productivities,
as Keen brilliantly proves.
The linkage established by Marx among what we might agree to term factors of production
concrete labor, distinctive types of capital equipment, available natural resourcesimplies that
we should continue Marxs work on the transformation of concrete labors (involved in the
production of dierent use-values) into abstract labor. In this regard I have put forward an
answer to that question (seeThreeessaysonMarxsTheoryofValue).
Where Keen does failhe fails to replace the two theories he considers erroneous, that of the
neoclassics and that of Marx, with a new economic theory enabling us better to understand our
worldshines forth in the latter pages of his book. His discussions devoted to Hayek, to the postKeynesian and Sraan schools of thought, to complexity theory, and to the evolutionist school
arein my opinionseverely impoverished. I nd in them nothing important that would be
helpful in letting us understand the contemporary world anybetter.
Of course I share Keens point of view: a great deal of intellectual eort is still neededto
understand the actual worldbetter; and the exegesis of Marx is no eective replacement for the
critique of conventional economics. Marxs work needs to be furthered without any reluctance to
innovate. Which is what, in all modesty, I have tried to do. Chaos-theory models, linked to
complexity theory (which has always been that of Marx) are worth much more study than has yet
been the case. In that regard I wish Keen the best of luck.
Keen, with excellent arguments, predicted the oncoming nancial crisis. I merely note that my
Marxist tools likewise led me to the conclusion that a great nancial crisis, inscribed in the logic of
the new generalized-monopoly capitalism, was inevitable (I make reference to my 1978 book, coauthored with Andr Gunder Frank, Nattendonspas1984 [LetsNotWaitfor1984]). Answering in

2002 a question from a journalist, I foresaw the nancial collapse. When? he asked me. In less
than ten years I replied to him. In my analysis I distinguished the market for real capital
equipment from the market for titles to capital-ownership, a distinction excluded in principle by
the absurd hypothesis of rational expectations economics. For the same reasons I had, from the
very outset, foreseen the unviability of the Euro system, which today is coming apart under our
very eyes.
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