The Australasian Accounting Business and Finance Journal, May 1, 2009
Research Online is the open access institutional repository for the University of Wollongong. For... more Research Online is the open access institutional repository for the University of Wollongong. For further information contact Manager Repository Services: morgan@uow.edu.au. ... Keen, S., The confidence trick, Australasian Accounting Business and Finance Journal, ...
Traducción de Alberto Supelano. Se publica con autorización del autor. Sugerencia de citación: Ke... more Traducción de Alberto Supelano. Se publica con autorización del autor. Sugerencia de citación: Keen, S. El coronavirus expone brutalmente las falacias de la economía neoclásica y la globalización.
is correct that I was addressing too many audiences in my paper (Keen 2014)post-Keynesian macroec... more is correct that I was addressing too many audiences in my paper (Keen 2014)post-Keynesian macroeconomists, neoclassical macroeconomists, and the general publicand that this confused the exposition. In my reply I will restrict myself just to the first audiencepost-Keynesian macroeconomists who accept that the money supply is endogenousthough I will also contrast this audience's position with neoclassical arguments. In Section 2 I clarify and correct my core proposition by deriving, from simple expenditure matrices, thatgiven the endogeneity of moneyaggregate demand and aggregate income necessarily include the change in debt. In Section 3 I address specific criticisms of other aspects of my paper, including my interpretation of precedents in the literature. <a>2 THE ROLE OF THE CHANGE IN DEBT IN AGGREGATE DEMAND AND AGGREGATE INCOME Consider three hypothetical monetary systems: <ll> A. Neither borrowing nor lending is possible. B. Borrowing and lending are possible, but only from one sector (or agent) to another (Loanable Funds). C. Banks lend to non-banks (Endogenous Money). 1 It is more correct to say that expenditure out of existing money is the only source of income-thus reversing 'Say's law' with the proposition that 'Demand creates its own supply'.
Forecasts by economists of the economic damage from climate change have been notably sanguine, co... more Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere. This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists. Nordhaus has misrepresented the scientific literature to justify the using a smooth function to describe the damage to GDP from climate change. Correcting for these errors makes it feasible that the economic damages from climate change are at least an order of magnitude worse than forecast by economists, and may be so great as to threaten the survival of human civilization.
In this brief article I explain why the expectation amongst economists that Brexit means Britain ... more In this brief article I explain why the expectation amongst economists that Brexit means Britain will experience significant economic losses, thanks to the reversal of the gains from specialisation, is incorrect. The background assumptions regarding comparative advantage are false and cannot inform real-world situations. However, this is not the same as to suggest Britain as a post-Brexit country will follow successful trade policies.
The economic theory that motivated the deregulation and privatization of the US electricity indus... more The economic theory that motivated the deregulation and privatization of the US electricity industry is seriously flawed in three crucial ways. First, the Marshallian theory of the firm is based on two mathematical errors which, when amended, reverse the accepted welfare rankings of competitive and monopoly industry structures: on the grounds of corrected neoclassical theory, monopoly should be preferred to competition. Second, while proponents of deregulation expected market-clearing equilibrium prices to apply, it is well known that the equilibrium of a system of spot market prices is unstable. This implies that imposing spot market pricing on as basic an industry as electricity is likely to lead to the kind of volatility observed under the deregulation. Third, extensive empirical research has established that on the order of 95% of firms do not produce under conditions of rising marginal cost. Requiring electricity firms to price at marginal cost was therefore likely to lead to bankruptcies, as indeed occurred. The economic preference for marginal cost spot market pricing is therefore theoretically unsound, and it is no wonder that the actual deregulatory experience was as bad as it was.
The "technical" interpretation of Marx's theory of value, which asserted that the concept of use-... more The "technical" interpretation of Marx's 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, Rosdolsky 1977 and 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 puzzle of how the traditional view developed in the first place. 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. 2 Wagner Though the main proponents of the "technical" interpretation of Marx were the professedly Marxian scholars Sweezy, Meek and Dobb, this school in fact had its genesis in critiques of Marx by conservative opponents. The first of these was the "professorial socialist" Adolph Wagner, who argued in his 1879 Grundlegung that Marx had eliminated use-value from his analysis. Marx was aware of this interpretation of Capital, and his Marginal Notes on A. Wagner (Marx, 1879-hereafter referred to as Wagner) constitute a polemic against it. After dismissing Wagner's conclusion that value is only use-value as "`driveling'", he presented his dialectical vision of the commodity as a union of use-value and exchange-value, and then forcefully observed that only an obscurantist, who has not understood a word of Capital, can conclude: Because Marx, in a note to the first edition of Capital, overthrows all the German professorial twaddle on `use-value' in general,…-therefore, use-value does not play any role in his work.… (ibid, p. 198-99) Marx provided an important clue to understanding the statement he referred to above in The Contribution (Marx 1859, p. 28) that use-value, while outside economic analysis in general, belongs to the sphere of political economy only when it is itself a determinate form. He explained that "Whoever satisfies his own need through his product, does create a use-value, but not a commodity. In order to produce a commodity, he must not only produce a use-value, but use-value for others, social use-value. So use-value itself-as the use-value of the `commodity'-possesses an historically specific character." (Wagner, p. 199). At the end of that same paragraph he provided a commentary on the method by which he derived the
The issue of the proper relationship of finance to economics and society is a fraught one, both g... more The issue of the proper relationship of finance to economics and society is a fraught one, both globally and in Islamic societies. This relationship involves not only historic precedent, religious guidance, culture and politics, but since the late 1700s, also economic theory, which attempts both to describe reality and changes it, since theory is used as a guide to economic policy. The end-product of this interplay of disparate forces has, on occasions, been disastrous with the most recent instance being the global financial crisis of 2008. Some aspects of that crisis were peculiar to interest-based finance, which is an institution that Islamic societies aspire to avoid. Others may arise even in an interest-free environment, if other measures are not taken to uphold the guiding principles of social and economic stability and distributional equity. In this comment on Muhammad Anas Zarqa’s paper (Zarqa, 2017), I focus upon four such issues: • The nature of lending in modern banking, • Whether profit-sharing based lending fundamentally overcomes the macroeconomic problems of interest-based lending, • How to discount for uncertainty in profit-making ventures; and • Whether to discount future costs and benefits for social purposes.
The introduction of a General Theory perspective on investment into Hicks's trade cycle model... more The introduction of a General Theory perspective on investment into Hicks's trade cycle model generates a cyclical growth model which reconciles the apparently divergent visions of Harrod and Hicks. Growth occurs without the need to postulate autonomous investment, cycles occur without ceilings or floors, cycles and growth are interdependent, the rate of growth depends on the rate of investment, plausible values can be given to fundamental parameters, and differences in national growth rates can be explained by differences in national propensities to invest. Given that we're about to start discussing Neri's paper on endogenous growth theories, this may be of interest to some.
In the ongoing debate over discount rates and climate change, William Nordhaus has championed a h... more In the ongoing debate over discount rates and climate change, William Nordhaus has championed a higher discount rate to account for risk. Nicholas Stern has championed a lower rate. Here we prove that in the case of a stream of future losses, risk can only be represented by a lower discount rate, never a higher one.
The rational investor behavior and news triggered price change assumed by the Efficient Market Hy... more The rational investor behavior and news triggered price change assumed by the Efficient Market Hypothesis (EMH) could not explain most of asset price variances, suggesting the need for an alternative theory. The Behavioral Finance Theory advocates that economic judgments and decisions in markets are often irrational because of systematic and predictable psychological bias. However, due to the lack of measurable investment behaviors, proponents of the efficient market hypothesis (EMH) argue that irrational behavior could not be reliably identified and predicted. Here we show that the price-takers behavior gauged by the normalized excess demand (NED) can be measured and the results explain most of the variances of SP500 daily returns over eight years of available data, the remaining variances are due to price-makers behavior, an influence abstracted out by the Walrasian general equilibrium theory. The interactions between behaviors of price-takers and price-makers drive market price fluctuations. For short-term prediction, we demonstrate that detected market makers' inventory positions often lead to intraday and daily market reversals. For long-term forecasting, feedback analyses of NED and SP500 data reveal signals of looming plunges and recovery processes in 2000, 2008, and 2020 market crises.
The Australasian Accounting Business and Finance Journal, May 1, 2009
Research Online is the open access institutional repository for the University of Wollongong. For... more Research Online is the open access institutional repository for the University of Wollongong. For further information contact Manager Repository Services: morgan@uow.edu.au. ... Keen, S., The confidence trick, Australasian Accounting Business and Finance Journal, ...
Traducción de Alberto Supelano. Se publica con autorización del autor. Sugerencia de citación: Ke... more Traducción de Alberto Supelano. Se publica con autorización del autor. Sugerencia de citación: Keen, S. El coronavirus expone brutalmente las falacias de la economía neoclásica y la globalización.
is correct that I was addressing too many audiences in my paper (Keen 2014)post-Keynesian macroec... more is correct that I was addressing too many audiences in my paper (Keen 2014)post-Keynesian macroeconomists, neoclassical macroeconomists, and the general publicand that this confused the exposition. In my reply I will restrict myself just to the first audiencepost-Keynesian macroeconomists who accept that the money supply is endogenousthough I will also contrast this audience's position with neoclassical arguments. In Section 2 I clarify and correct my core proposition by deriving, from simple expenditure matrices, thatgiven the endogeneity of moneyaggregate demand and aggregate income necessarily include the change in debt. In Section 3 I address specific criticisms of other aspects of my paper, including my interpretation of precedents in the literature. <a>2 THE ROLE OF THE CHANGE IN DEBT IN AGGREGATE DEMAND AND AGGREGATE INCOME Consider three hypothetical monetary systems: <ll> A. Neither borrowing nor lending is possible. B. Borrowing and lending are possible, but only from one sector (or agent) to another (Loanable Funds). C. Banks lend to non-banks (Endogenous Money). 1 It is more correct to say that expenditure out of existing money is the only source of income-thus reversing 'Say's law' with the proposition that 'Demand creates its own supply'.
Forecasts by economists of the economic damage from climate change have been notably sanguine, co... more Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere. This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists. Nordhaus has misrepresented the scientific literature to justify the using a smooth function to describe the damage to GDP from climate change. Correcting for these errors makes it feasible that the economic damages from climate change are at least an order of magnitude worse than forecast by economists, and may be so great as to threaten the survival of human civilization.
In this brief article I explain why the expectation amongst economists that Brexit means Britain ... more In this brief article I explain why the expectation amongst economists that Brexit means Britain will experience significant economic losses, thanks to the reversal of the gains from specialisation, is incorrect. The background assumptions regarding comparative advantage are false and cannot inform real-world situations. However, this is not the same as to suggest Britain as a post-Brexit country will follow successful trade policies.
The economic theory that motivated the deregulation and privatization of the US electricity indus... more The economic theory that motivated the deregulation and privatization of the US electricity industry is seriously flawed in three crucial ways. First, the Marshallian theory of the firm is based on two mathematical errors which, when amended, reverse the accepted welfare rankings of competitive and monopoly industry structures: on the grounds of corrected neoclassical theory, monopoly should be preferred to competition. Second, while proponents of deregulation expected market-clearing equilibrium prices to apply, it is well known that the equilibrium of a system of spot market prices is unstable. This implies that imposing spot market pricing on as basic an industry as electricity is likely to lead to the kind of volatility observed under the deregulation. Third, extensive empirical research has established that on the order of 95% of firms do not produce under conditions of rising marginal cost. Requiring electricity firms to price at marginal cost was therefore likely to lead to bankruptcies, as indeed occurred. The economic preference for marginal cost spot market pricing is therefore theoretically unsound, and it is no wonder that the actual deregulatory experience was as bad as it was.
The "technical" interpretation of Marx's theory of value, which asserted that the concept of use-... more The "technical" interpretation of Marx's 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, Rosdolsky 1977 and 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 puzzle of how the traditional view developed in the first place. 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. 2 Wagner Though the main proponents of the "technical" interpretation of Marx were the professedly Marxian scholars Sweezy, Meek and Dobb, this school in fact had its genesis in critiques of Marx by conservative opponents. The first of these was the "professorial socialist" Adolph Wagner, who argued in his 1879 Grundlegung that Marx had eliminated use-value from his analysis. Marx was aware of this interpretation of Capital, and his Marginal Notes on A. Wagner (Marx, 1879-hereafter referred to as Wagner) constitute a polemic against it. After dismissing Wagner's conclusion that value is only use-value as "`driveling'", he presented his dialectical vision of the commodity as a union of use-value and exchange-value, and then forcefully observed that only an obscurantist, who has not understood a word of Capital, can conclude: Because Marx, in a note to the first edition of Capital, overthrows all the German professorial twaddle on `use-value' in general,…-therefore, use-value does not play any role in his work.… (ibid, p. 198-99) Marx provided an important clue to understanding the statement he referred to above in The Contribution (Marx 1859, p. 28) that use-value, while outside economic analysis in general, belongs to the sphere of political economy only when it is itself a determinate form. He explained that "Whoever satisfies his own need through his product, does create a use-value, but not a commodity. In order to produce a commodity, he must not only produce a use-value, but use-value for others, social use-value. So use-value itself-as the use-value of the `commodity'-possesses an historically specific character." (Wagner, p. 199). At the end of that same paragraph he provided a commentary on the method by which he derived the
The issue of the proper relationship of finance to economics and society is a fraught one, both g... more The issue of the proper relationship of finance to economics and society is a fraught one, both globally and in Islamic societies. This relationship involves not only historic precedent, religious guidance, culture and politics, but since the late 1700s, also economic theory, which attempts both to describe reality and changes it, since theory is used as a guide to economic policy. The end-product of this interplay of disparate forces has, on occasions, been disastrous with the most recent instance being the global financial crisis of 2008. Some aspects of that crisis were peculiar to interest-based finance, which is an institution that Islamic societies aspire to avoid. Others may arise even in an interest-free environment, if other measures are not taken to uphold the guiding principles of social and economic stability and distributional equity. In this comment on Muhammad Anas Zarqa’s paper (Zarqa, 2017), I focus upon four such issues: • The nature of lending in modern banking, • Whether profit-sharing based lending fundamentally overcomes the macroeconomic problems of interest-based lending, • How to discount for uncertainty in profit-making ventures; and • Whether to discount future costs and benefits for social purposes.
The introduction of a General Theory perspective on investment into Hicks's trade cycle model... more The introduction of a General Theory perspective on investment into Hicks's trade cycle model generates a cyclical growth model which reconciles the apparently divergent visions of Harrod and Hicks. Growth occurs without the need to postulate autonomous investment, cycles occur without ceilings or floors, cycles and growth are interdependent, the rate of growth depends on the rate of investment, plausible values can be given to fundamental parameters, and differences in national growth rates can be explained by differences in national propensities to invest. Given that we're about to start discussing Neri's paper on endogenous growth theories, this may be of interest to some.
In the ongoing debate over discount rates and climate change, William Nordhaus has championed a h... more In the ongoing debate over discount rates and climate change, William Nordhaus has championed a higher discount rate to account for risk. Nicholas Stern has championed a lower rate. Here we prove that in the case of a stream of future losses, risk can only be represented by a lower discount rate, never a higher one.
The rational investor behavior and news triggered price change assumed by the Efficient Market Hy... more The rational investor behavior and news triggered price change assumed by the Efficient Market Hypothesis (EMH) could not explain most of asset price variances, suggesting the need for an alternative theory. The Behavioral Finance Theory advocates that economic judgments and decisions in markets are often irrational because of systematic and predictable psychological bias. However, due to the lack of measurable investment behaviors, proponents of the efficient market hypothesis (EMH) argue that irrational behavior could not be reliably identified and predicted. Here we show that the price-takers behavior gauged by the normalized excess demand (NED) can be measured and the results explain most of the variances of SP500 daily returns over eight years of available data, the remaining variances are due to price-makers behavior, an influence abstracted out by the Walrasian general equilibrium theory. The interactions between behaviors of price-takers and price-makers drive market price fluctuations. For short-term prediction, we demonstrate that detected market makers' inventory positions often lead to intraday and daily market reversals. For long-term forecasting, feedback analyses of NED and SP500 data reveal signals of looming plunges and recovery processes in 2000, 2008, and 2020 market crises.
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