Why isn’t Steve Keen an Austrian?

Fantastic Steve Keen interview with Max Keiser below:

I’m genuinely puzzled by Steve Keen.  He correctly, brilliantly, diagnoses the problem – unsustainable growth of Ponzi debt finance that has grown like a cancer in every corrupt-at-the-top Western economy.  He correctly, brilliantly, identifies this Ponzi-finance system as the antithesis of true capitalism.  He correctly, brilliantly predicts that Japanese-style resuscitation efforts will only result in Zombie banks, Zombie companies, Zombie governments and a Zombie economy.  He correctly, brilliantly points out that politicians like Obama have been duped by corrupt advisors into thinking that giving trillions of e-dollars to the bankers will somehow kickstart the economy (it won’t do anything other than save these Ponzi-schemers’ own corrupt skins). 

If Steve Keen so clearly sees government as part of the problem, as a cesspool for rent-seeking behaviour, why doesn’t he grasp the only real solution – less government, less corruption, real competition in money – a return to gold and silver as money? Why isn’t he a follower of Murray Rothbard rather than (indirectly) that corrupt confused dandy, that semi-fascist Nazi-sympathiser, J.M. Keynes?

I’m sure if Keen had been schooled in Austrian economics at university he would have become a fantastic Austrian economist.

Then again, given I was unemployable as an Austrian at university and couldn’t even consider pursuing a PhD in the field (given the politics involved), perhaps he did the sensible thing and perhaps he is a closet Austrian on the inside.

So much of what I hear from him is pure Austrianism, pure Peter Schiff, pure Rothbard, I’m sure he’s sympathetic to at least some of ABCT and Austrianism more generally.  Or is it just that you can’t teach an old post-Keynesian dog new tricks?

Steve, tell me I’m right.  Please.

  1. December 20, 2009 at 8:13 am

    Hi Karmaisking,

    If by Austrian you meant Schumpeter, then you might classify me as 75% Austrian. Unfortunately most Austrians seem to reject the one I regard as their most brilliant son.

    I am miles from pure Rothbard–I find most of his analysis mediocre at best.

    I have sympathy for the anti-equilibrium side of Austrian thinking–since I’m clearly non-equilibrium in my own analysis–but see their theory of value as a fellow traveller with the neoclassicals.

    Subjectivism works in some domains of economic analysis, but a subjectivist theory of value doesn’t cut it as an analysis of production–for reasons that I explain in the chapter “The holy war over capital” in my Debunking Economics. We need a hybrid theory which can be both objectivist and subjectivist in appropriate domains, and I derive my own from my interpretation of Marx–which annoys Marxists almost as much as my critiques of the theory of the firm annoy neoclassicals.

    There are so many beliefs in Austrian economics that I regard as theoretically or empirically hollow, from Say’s Law to the analysis of money (including the belief that we can have a commodity-based [gold/silver] monetary system), that I could never wear an Austrian cloak (you’ll find that Schumpeter rejects these same points, if you read his Theory of Economic Development).

    In the end, I don’t regard any of the existing schools as adequate–as you’ll see from the post before the one you comment on here where I take a stick to Post Keynesians. My problem with them is that they also refuse to learn new tricks.

    So in that sense it doesn’t matter that I don’t see myself as an Austrian–because I don’t see myself as an (entirely) Post Keynesian either.

    • September 17, 2016 at 1:33 am

      Schumpeter understood that bank lending is a form of “forced savings” by society. (His term not mine). If that forced savings goes to risk burdening entrepreneurs shrewdly judged and selected by honest bankers the creative destruction of capitalism takes hold and works it’s magic of wealth creation. If shrewd bankers devolve into lenders to mindless asset flippers per Minsky not so much. I believe this is Keens main point. Gaining traction I hope.

  2. December 20, 2009 at 10:00 am

    Perhaps you’ll have your own school eventually – Keenian economics (as in, “I’m keen on Keenianism”).

    Some consider that Ellen Hodgson Brown’s work on publicly-owned State banks in the US justifies a new school of finance – “Brownian” economics.

    But, please (please!) reconsider your position on money.

    Gold and silver can work as money. We could measure prices of bread in micrograms of gold if we had to. There are intrinsic qualities to money that the Austrians identified nearly a century ago that make free markets gravitate towards commodity money – gold and silver.

    How you can be so brilliant and not “get” this basic fundamental elementary point is unbelievably frustrating.

    Then again, why 99.9% of the human population doesn’t get it either is unbelievably frustrating to me (perhaps it’s the flouride in the water supply?). It’s the primary reason why bankers are (laughably!) treated like fiat paper Gods in the Anglosphere. If people realised gold was real money they’d be much less respectful of digits on a bank’s computer screen, and much less respectful of “GDP” as a measure of the true wellbeing of an economy.

    Anyway, regardless of these issues, I admire both your independence and your incredible analytical skills (you must be one of the most innovative modellers in economics today). I’m proud you’re an Australian.

    I’m sure you are part of the cutting edge of truly innovative academic economists leading us out of the darkness.

    Nobel prizes are made of the stuff you are writing about. Eventually.

  3. Phil
    December 20, 2009 at 3:16 pm

    Hi karmaisking,

    I agree with Steve when he states that Rothbard’s analysis mediocre. I find it interesting that for a belief in disequilibrium, Austrian economists continue to use equilibrium models!

    Using equilibrium models to analyze a complex system such as a capitalistic economy which clearly undergoes the processes of dynamic disequilibrium is like using an abacus to calculate differential equations. In IT we have a saying: GIGO (garbage in, garbage out).

    Your comment about Keynes is interesting. It reminds me of Ludwig von Mises, who was quite supportive of fascism as long as it smashed unions, the working class, and ensured that people were subjected to the wage labour system. Only when the fascists started to interfere with the privilege and power of the rich did he start to voice concerns.

    You may be interested in the following:

    What are the myths of capitalist economics?


    Is “anarcho”-capitalism a type of anarchism?


  4. December 20, 2009 at 10:34 pm

    Austrians don’t use equilibrium models. In fact, they eschew mathematical modelling of the ever-evolving market economy entirely.


    That’s the very reason why they are not respected by most academic economists, who prefer to build very precise but wholly unrealistic neo-classical models that predict outcomes within 0.00001 of a percent, but cannot predict turning points and are generally out by massive orders of magnitude. I classify these mainstream academic economists as literally insane and have explained why numerous times on this blog (do a word search “mad”).

    So I agree with this comment of yours:

    “Using equilibrium models to analyze a complex system such as a capitalistic economy which clearly undergoes the processes of dynamic disequilibrium is like using an abacus to calculate differential equations.”

    But find your understanding of Austrianism lacking. Very badly.

    Given you’re attacking an Austrian straw man, I’m sorry to say I don’t find your argument about Rothbard persuasive. Perhaps read more Rothard and von Mises and you might have a more nuanced, accurate view of true Austrianism.

    Frankly, I find it slanderous to say von Mises supported fascism. He did not. He was forced to flee the Nazis. His books were literally burned by the Nazis. He was one of the most consistent fighters for true liberalism in the 20th century. Read Hulsmann’s biography “The Last Knight of Liberalism”.

    Again, you seem to have a very misleading caricature of Austrian economics in your head that simply doesn’t stand up to any kind of close scrutiny.

    This kind of caricature against Austrianism I find very disturbing, lumping Austrians with conventional mainstream “free market” types (“Austrians are against the working classes! A gold standard would engender class inequality! A small group would end up with all the gold!”). All of this is rubbish, but for some reason people just don’t get it.

    Then again, given there is not a single working Austrian economics professor in the whole of Australia or the UK, it’s hardly surprising the school isn’t widely known, well understood or accurately portrayed to the public.

    Hulsmann, de Soto, Hoppe, Rothbard, von Mises… most of these names are completely unknown, even to the academics in Australia, let alone the broader Australian public.

    I doubt whether more than 3 people in the whole of Australia would have actaully read these writers’ works.


  5. Phil
    December 21, 2009 at 5:48 am


    I have read some of the Austrian works, as the Mises website provides them freely available online. While they eschew mathematically modeling the economy, it is clear that they ‘model’ capitalistic economies in equilibrium through a priori logic and verbalizations, whether they actually use mathematical models or not.

    Although neoclassical models are quite unrealistic, at least they are on the right track to analyzing how an economy functions: through mathematics and modeling. Hopefully, in the future it will be physicists, engineers, system analysts, sociologists and psychologists that will displace Austrians, neoclassicals, Keynesians and Marxists as the new economic modelers who actually understand how markets actually function in the real world.

    I agree that von Mises was persecuted by the Nazis, this much is obvious. This does not erase history, however. He was quite supportive of Italian fascism that subdued the working class and unions, only to start speaking out against fascism once it got out of hand. These inconvenient facts have been edited out of Austrian history for obvious reasons. Read through the links I gave or perform a search on the site to find out more.

  6. December 21, 2009 at 6:51 am

    He must have been supportive of Italian fascism around the same time he was writing A Treatise on Socialism, critiquing state planning and calling for a return to liberalism in Europe. Strange.

    If you can find a quote from von Mises specifically lauding Mussolini or Italian fascism, I’d appreciate the reference. I’ve read this biography of Mises and can’t recall a single quote from Mises lauding Italian fascism in any of the 1160 pages of text:


    Without IN ANY WAY supporting or excusing Mussolini or Italian fascism more broadly, I do note that from the end of WWI to the beginning of the 1920s Italy descended into unprecedented chaos and repeated economic crisis, with multiple, deeply indebted govts passing through parliament, causing disaster after disaster. The chaos only stopped with Mussolini’s leadership.

    B.A. Santamaria, an Australian Catholic political thinker for whom I have great respect, was a vocal advocate of Mussolini and Italian fascism right up until Mussolini sided with Hitler. I certainly don’t agree with everything Santamaria wrote, but his intellect was lightyears ahead of today’s sterile anodyne media commentators.

    To my mind BA Santamaria’s work on Italian fascism shows that many people at the time made very sharp distinctions between Italian fascism and German fascism. BA Santamaria couldn’t stand German fascism but was sympathetic to Getile’s ideas which were the foundation of Italian fascism:


    By the way, if anyone can add more detail to Santamaria’s WP entry, please do so. It’s not that great right now:


    I’ll read the links you’ve provided if you read For a New Liberty by Murray Rothbard, page by page:


  7. Phil
    December 21, 2009 at 7:24 am

    Well, if you’re interested in reading more, than you can do so. You can find the references to von Mises within, but I will not put you under any obligation to read anything.

    However, I have given up respecting Austrian economic theory and political economy as I can’t stand the a priori pre-scientific methodology.

    When I first starting learning economics, I thought that Austrianism would provide an exciting alternative to conventional neoclassical thought. Now I find their work as unbearable as Marxism, with their lack of tough empirical science as opposed that found in physics, engineering and IT – a critique I find that generalizes across all major economic schools of thought.



  8. December 21, 2009 at 7:44 am

    Phil, thanks for the references. I’ve skimmed them and couldn’t find any mention of Mises specifically, which is why I asked for help. Some of the anarchist stuff leaves me as cold as Austrianism leaves you. Rothbard called hardcore anarchist thought “frenzied nihilism” which is pretty accurate in my view.

    I consider anarcho-capitalism a useful framework to critique the quasi-fascist system of govt we currently suffer under, but post-Westphalian Europe is probably as anarchic as I’d want to go. Multi-state Europe flourished (much more than India or China) because it was mult-state after the Treaty of Westphalia. That “anarchy” after the collapse of the Roman Empire ironically became its greatest strength.

    Sadly, modern Europeans don’t see it that way, which is why they are heading for disaster with the EU.

    And Phil, although I thank you for contributing, you seem a bit scatter-gun in your critiques. First, you say Austrian modelling relies on equilibrium based assumptions – which it most definitely does not. Then you criticise Austrianism for not doing more mathematical modelling and relying on primitive a priori observations. But that is the strength of Austrianism – Austrians are the most “realistic” economists because they only assume things that are UNDENIABLE.

    From these solid foundations they can still make surprisingly accurate predictions and observations.

    See here:


    And here:


    If you think humans can be mathematically modelled, then you’re no scientist. The human brain is one of the most complex organisms in the universe. It’s unlikely we’ll be able to mathematically predict the preferences of a single human over time, let alone millions.

  9. Phil
    December 21, 2009 at 9:11 am

    It appears we agree to disagree on economic theory and political economy.

    Good chatting with you.



  10. December 22, 2009 at 7:39 am


    Update: After some work, I have been able to track down this quote from von Mises on Italian fascism:

    “It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.”

    He wrote this in 1927 – probably at the height of the “success” of facsism in Europe.

    His statement that “their intervention has, for the moment, saved European civilization” was factually correct. Italy in particular was faced with chaos and economic upheaval from the end of WWI right up until when Mussolini came to power.

    As I stated previously, many other thinkers were supportive of Mussolini at the time, including BA Santamaria.

    It is also true that von Mises had to flee German fascism in the end.

    However, I admit it is overstating the case to say he was never sympathetic towards fascism. He clearly was in the late 1920s, preferring fascism to communism.

    Then again a lot of other intellectuals staked out similar positions in the 1920s. Heck, I admit I would have made the same choice if I was forced to choose between the two.

    Mistakes are made by intellectuals all the time. A lot of economists today are supportive of central banking. They’ll be ashamed of themselves in 50 years’ time, but I won’t be around to tell them off.

  11. May 11, 2012 at 3:01 pm

    “The merit that Fascism has thereby won for itself will live on eternally in history.”

    This is not an endorsement of Fascism. It’s the stated realization, fascists would use their rise to power, and the illusory revitalization of the nations it infected, through deficit spending and debt as a justification for it’s implementation. He was not wrong. He was beyond prescient.

  12. My RIghts
    June 6, 2012 at 9:33 pm

    You guys rock and great hummor

  13. postkey
    September 15, 2016 at 7:47 am
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