Friday, January 20, 2012

Steve Keen on Debunking Economics

I post here a video talk by Steve Keen, held as an open session of the IIEA Economists Group, 16 November 2011. I think this talk was held in Ireland (but I could be wrong).


  1. Kind of irrelevant but why do Post Keynesians, like Keen and yourself, like (or at least appreciate) Schumpeter?

  2. (1) Schumpeter held an endogenous view of the money supply - as Post Keynesians do:

    "credit is essentially the creation of purchasing power for the purpose of transferring it to the entrepreneur, but not simply the transfer of existing purchasing power. The creation of purchasing power characterises, in principle, the method by which development is carried out in a system with private property and division of labour. By credit, entrepreneurs are given access to the social stream of goods before they have acquired the normal claim to it. It temporarily substitutes, as it were, a fiction of this claim for the claim itself.” (Schumpeter 1983 [1934]: 107).

    (2) Hyman Minsky was a student of Schumpeter, and Schumpeter was Minsky's dissertation adviser at Harvard. Minsky's theory developed out of the basic framework of Schumpeter's theory.

    It is explained here:

  3. I should add that Post Keynesians obviously do not follow Schumpeter in his adherence to Walrasian general equilibrium theory, and the alleged long term tendency to Walrasian general equilibrium. Also, Schumpeter's "circular-flow model" is a kind of general equilibrium, basically in a stationary state.

    I suppose Schumpeter held that general equilibrium could be a real world state - just as, I suspect, Hayek did too, early in his career (certainly when he produced Prices and Production). You might know Mayer attacked Schumpeter's first major work for making general equilibrium a real state (Yūichi Shionoya, Schumpeter and the idea of social science: a metatheoretical study, p. 157).

    Mises and Rothbard, I assume, accepted a long term tendency to general equilibrium, even if the state was never attained, and the ERE a purely imaginary state.

    Lachmann made real progress when he criticised Mises for that view and concluded the economy is a on-going, open-ended "market process" with subjective knowledge and subjective expectations:

    "Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians "logical" and neoclassicals "mathematical" economists, wrote: "Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease" ... It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision."

    (Ludwig M. Lachmann, "From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society," Journal of Economic Literature 14.1 (1976): p. 60).

    By these words, it appears Lachmann is saying that there is no tendency towards general equilibrium in a market economy.

    1. winner's curse assures that there has never been and will never be long run general equilibrium

      the accurate bid in an auction is not the last bid but the next to last bid; hence there is never equilibrium