Book Review

That economics is important for the understanding of history should be fairly uncontroversial. However, contemporary mainstream economics (or neoclassical economics) is particularly unsuited as an aid to historical studies, due to its asocial and ahistorical nature. Related to this is the extremely bad reputation of economics in recent decades. The problem is not so much economics, per se, but claims made about the economy by economists. Part of the problem has been the use of economic theory for purposes for which it was never intended. Much of the blame for this must lie in the education economists receive, which does not teach them the limitations to their analysis, nor the historical circumstances in which the subject developed. This is important because the domination of neoclassical theory is a relatively recent phenomenon. The type of economics which is now regarded as orthodoxy only really came to dominate the discipline after World War II. Even then, certainly until the 1980s, there were many competing schools of economic thought. Unfortunately economics came to a position of dominance in policy and elsewhere just at the time that orthodox economics came to dominate the field, and, what is worse, extreme versions associated with monetarism and economic rationalism.	1
Debunking Economics attempts to arm outsiders against the extreme claims of economists. It provides ammunition to enable them to argue with economists, highlighting the shortcomings of the theory. As a heterodox economist unhappy with mainstream neoclassical theory, I find myself very much in agreement with the purpose of the book, though, for reasons explained below, less happy with parts of its execution. My first question on reading the book was: What audience is it intended for? Here, I think that the answer is — for non-economists. Professional orthodox economists are unlikely to be much influenced by the book's critique of their subject, except for the very best theorists, who are well aware of the problems with the theory discussed. This is because the economics which the book debunks is the economics which is taught to students, not that practised by economics at the frontier of the discipline (p. 15). Its criticisms are aimed at the mainstream of neoclassical theory, and although it calls this `economics' as if it solely defined the discipline, it does briefly survey the myriad other schools which purport to better explain the working of the economy in the final chapter. These non-mainstream or heterodox economists will be familiar with many of the problems with mainstream theory that are discussed in the book. This leaves non-economists, including historians, as its main audience. Here, however, lies one of the problems with the book. Much of the argument is over elaborate and over complicated, both in its discussion of neoclassical theory and of its critique. To give just one example, the discussion of indifference curves, which is usually taught in intermediate microeconomics courses as a simple two dimensional graph, is elaborated in terms of a three-dimensional surface in the book, which does not add to the details of the model, merely the level of complication.	2
Debunking Economics is an important, interesting yet infuriating book. It makes many significant and telling criticisms of the economic orthodoxy, so that it is essential reading for all those who want not to be fooled by economics or by economists, but many of its claims need to be quite radically modified. Although many of the criticisms of orthodox economics are well taken, some of them are extreme and have already been incorporated into economic theory. For example, the failure of economics to be able to derive a social welfare function (pp. 40–48) is portrayed as undermining the foundations of the theory. However, economics has moved on, and most welfare analysis is conducted in terms of pareto efficiency, which was explicitly postulated so as not to rely on the necessity of aggregating individual preferences to social ones. There is a lot wrong with the concept of pareto efficiency, which is the central guiding concept of most modern economics, but this is not discussed in the book. Similarly, Chapter 3, which is devoted to an exposition of Sraffa's 1926 critique of the neoclassical theory of production, concludes that `economic theory is thus fallacious' (p. 83). Again, this claim is only true for the partial equilibrium models taught in introductory and intermediate microeconomics courses, where industries are analyses in isolation with the ceteris paribus assumption that everything, including inter-industry relation remains constant. However, in the realm of high theory, the frontier of the subject is with general equilibrium models, where the Sraffa critique simply does not apply. (There are, of course, other problems with these general equilibrium models, some of which are dealt with in Chapter 8.) The book critically examines many of the standard results of economics, which have provided guidelines for policy and for non-economists. These include the supposed benefits from increased competition and the idea that wages reflect the contribution of labour and profits, the contribution of capital. Keen also highlights the important omissions from economic theory, the inadequate treatment of time, of money, of expectations, and of history and society. These are crucial, especially if economics is regarded as a social science, which it must, of course, be.	3
To conclude, this is an important book for the non-economist to help understand the limitations and shortcomings of the orthodox neoclassical doctrines which drive most policy and much of the study of economics. However, the reader needs to beware, as some of the arguments are overcomplicated, and some of the claims against the orthodoxy are too extreme.	4
University of New South Wales PETER KRIESLER

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