Steve Keen

The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory

It is somewhat common for heterodox economists to come to the defense of neoclassical microeconomic theory. This is due to many reasons, but perhaps the commonest one is ignorance. It seems that most heterodox economists are not aware of the many critiques or that as a collective they completely undermine neoclassical theory. The objective of the article is to dispel ignorance by using the existing criticisms to delineate a systematic critique of the core components of neoclassical microeconomic theory: the supply and demand explanation of the price mechanism and its application to competitive markets. The critique starts by examining the choices, preferences, utility functions, and demand curves, followed by examining production, costs, factor input demand functions and partial equilibrium, and ending with perfect competition and the supply curve. In the conclusion, the implications of the results will be extended to the firm and imperfectly competitive markets, and then the question whether general equilibrium theory or game theory can save neoclassical microeconomic theory.

Bailing out the Titanic with a Thimble

Global economic downturn severely affected the US economy. The main reasons for the situation is USs excessive debt and falling prices which needs to be tackled by using monetary means or outright debt moratoria.

Standing on the toes of pygmies : why econophysics must be careful of the economic foundations on which it builds

Modern economic theory does not provide a sound foundation on which to build econophysics. Pivotal concepts like utility maximization, perfect competition, and diminishing marginal productivity are empirically and logically flawed. Physicists should not use any of these in econophysics, and should be wary of many other models accepted by economists.

The dynamics of the monetary circuit

As is well known, Keynes (1936) asserted that a monetary economy differs fundamentally from a barter economy. However, he provided no a priori foundation for his analysis that clearly ruled out a barter framework, which left the way open for Hicks’s Walrasian interpretation of The General Theory, and the ultimate decline of Keynesian economics.

USE-VALUE, EXCHANGE VALUE, AND THE DEMISE OF MARX'S LABOR THEORY OF VALUE

Karl Marx was the greatest champion of the labor theory of value. The logical problems of this theory have, however, split scholars of Marx into two factions: those who regard it as an indivisible component of Marxism, and those who wish to continue the spirit of analysis begun by Marx without the labor theory of value. In the debate between these two camps, the former has attempted to draw support from Marxs concepts of value, while the latter has ignored them, taking instead as their starting point the truism that production generates a surplus. Nevertheless, a careful examination of the development of Marxs logic uncovers the profound irony that, after a chance rereading of Hegel, Marx made a crucial advance which should have led him to replace the labor theory of value with the theory that commodities in general are the source of surplus. Marxs value analysis is thus consistent, not with those who would defend the labor theory of value, but with those who would transcend it.

Profit Maximization, Industry Structure, and Competition: A critique of neoclassical theory

Neoclassical economics has two theories of competition between profit-maximizing firms—Marshallian and Cournot–Nash—that start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

Predicting the ‘Global Financial Crisis’: Post‐Keynesian Macroeconomics

The ‘Global Financial Crisis’ is widely acknowledged to be a tail event for neoclassical economics (Stevens, 2008), but it was an expected outcome for a range of non‐neoclassical economists from the Austrian and post‐Keynesian schools. This article provides a survey of the post‐Keynesian approach for readers who are not familiar with this literature. It will briefly cover the history of how post‐Keynesian economics came to diverge so much from the neoclassical mainstream, and focus on post‐Keynesian macroeconomics today and its alternative indicators of macroeconomic turbulence.

The Misinterpretation of Marx's Theory of Value

The “technical†interpretation of Karl Marxs theory of value, which asserted that the concept of use-value played no role in his economics, has in recent years been shown to be ill-founded. In particular, R. Rosdolsky (1977) and S. Groll (1980) have established the importance that Marx attached to the concept of use-value in his theory of value, while I have shown that the use-value is an essential component of his analysis of the commodity, and that when properly applied, that analysis invalidates the labor theory of value (Keen 1993). This modern re-evaluation of Marx raises the question of how the traditional view developed in the first place. R. Hilferding aside, the answer does not paint a complimentary picture of the scholarship of either friend or foe of Marx in the debate over his theory of value.

Keynes’s ‘Revolving Fund of Finance’ and Transactions in the Circuit

Keynes’s primary motivation in writing “Alternative theories of the rate of Interest” and “The “ex-ante” theory of the rate of interest” was to counter attempts by Ohlin and others to recast his liquidity preference theory as no more than a supply and demand model of the determination of the rate of interest. This rearguard action was ultimately unsuccessful, given the profession’s ultimate acceptance of Hicks’s IS-LM analysis as a summary of the General Theory. However, it also had a positive outcome, as tussling with Ohlin’s arguments led Keynes to propose that investment finance was “an additional demand for money” (Keynes 1937b: 247) to the General Theory’s triumvirate of transactions, precautionary and speculative demands.

From stochastics to complexity in models of economic instability

Sixty years ago, the leading lights of the economics profession chose to model economic fluctuations as if they were caused by stochastic disturbances to an underlying stable, heavily damped system, in the mistaken belief that “a mathematically unstable system does not fluctuate; it just breaks down.” A perceptive minority instead concluded that the fundamental relations in economics must be nonlinear. It is shown that a single sector model with nonlinear behavior by workers, capitalists and the government generates a chaotic explanation for the most extreme of economic fluctuations, a Great Depression. A multi-sectoral model of a stylized economy confirms the judgment that economics is fundamentally a nonlinear discipline, by establishing that the input-output nature of production generates substantive nonlinearities, even when linear behavioral functions are assumed.