July 4, 2012

Steve Keen’s Critique of Marx’s Theory of Value: A Rejoinder

Posted in Economics, Theory tagged , , , , , , at 03:38 by Matthijs Krul

After a long period of being virtually a lone voice in the non-Marxist wilderness railing against neoclassical economics, its structure, assumptions, and ideas, Professor Steve Keen appears to finally be heard. The current crisis has dented much of public and scientific confidence alike in economic orthodoxy (as it should). Nothing illustrates this better perhaps than the story of the British Queen, Elizabeth II, writing to the colleagues of the London School of Economics and asking them the pointed question: how did you not see this coming, and if you could not, what are you being paid for? This is perhaps somewhat unfair, as the specifics of any particular crisis depend on many specific and contingent factors that the more general and imprecise nature of neoclassical (macro-)economics is barely equipped to address, and few other theories fare that much better. But Keen has rightly pointed out that he did predict this crisis, and also in its form as the collapse of a speculative bubble in real estate and finance, as he did in the previous edition of his excellent best-selling critique of political economy, Debunking Economics. This Cassandra position, now perhaps turned into one more akin to Tiresias, has given him occasion to publish a new and expanded version of this book – one I recommend all readers to buy for its excellent and systematic critiques of the inconsistency of much of the neoclassical framework beyond the sphere of mere applied mathematics.(1)

However, this is not to say one should not also examine Keen’s work itself with a critical eye. As a supporter of the contemporary (neo-)Marxist theories of economics, and since this blog has the purpose, among other things, of promoting a Marxist outlook on politics and economics suitable for contemporary conditions, it is a serious fact that in the book mentioned above Professor Keen rather sharply dismisses the contribution of Marxist economics to understanding modern political economy. (He explicitly subtitles a paragraph: “Why most Marxists are irrelevant, while most of Marx is not”).(2) While he seems inclined to rhetorically praise Marx, he quite explicitly dismisses Marx’s economic theories as inferior to his own approach, which appears based on an understanding largely derived from Piero Sraffa. To go into the specifics of Sraffianism, post-Keynesianism and so forth would require a lengthy narration of the history of economic thought, one that would interest few people. More to the point, the average intelligent layman reading Keen’s book will want to know: who is right? And quite justly so. Now in chapter 17 of his book, Professor Keen provides, after a brief overview of classical economics, essentially three arguments against what he takes as Marx’s theory of value (often called the “labor theory of value”). Therefore, I shall endeavour to rejoin these arguments Keen advances against Marx’s theory of value in due order. –I must warn the reader that this will contain a considerable amount of complex and very abstract discussion, based on Marx’s conceptual understanding and terminology as applied to his pure theory of capitalism. Although I have endeavoured to write it so it is maximally understandable for people not much used to Marx’s terms and way of thinking, one may find it boring and confusing, as I cannot summarize the entirety of his theory as well as address Professor Keen’s critiques. Therefore, one may want to skip this article, or focus only on the sections dealing with the implications of all this theorizing.– Read the rest of this entry »

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