Austrian capital theory and macroeconomics

Austrian capital theory and macroeconomics - AUSTRIAN...

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Richard M. Ebeling, ed. Austrian Economics: Perspectives on the Past and Prospects for the Future Hillsdale, MI: Hillsdale College Press, 1991, pp. 303-324 Austrian Capital Theory And The Future of Macroeconomics Roger W. Garrison* During an early phase in the preparation of this paper, I was invited to address the Economics Workshop at California State University, Hayward. I sent a recently completed manuscript entitled "Is Milton Friedman a Keynesian?" [1990] to be distributed in advance to the workshop's participants. On reading my answer to this seemingly impish question, Professor Charles Baird, who was arranging for my visit, advertised the session with a title of his own choosing: "Keynesianism and Monetarism: Is There a Schilling's Worth of Difference?" He hoped that he hadn't posed this question too subtly and that it would be understood that the reference was to the Austrian schilling. Anyone who knows Austrian macroeconomics will confidently anticipate that Professor Baird's question was to be answered in the negative. But his allusion to the currency of Austria inspires a more positive comparison of macroeconomic theories. If Keynesianism and Monetarism are within a schilling of one another, the gulf that separates these theories from Austrian macroeconomics is on the order of a hundred schillings. Attention to the time element in the process of production and, more specifically, the incorporation of an intertemporal capital structure are what characterize Austrian macroeconomics and set it apart from the more widely accepted formulations of macroeconomic relationships. The hundred-schilling difference that Austrian capital theory makes is celebrated by Austria's hundred-schilling note, which features none other than Eugen von Böhm-Bawerk. Never mind that it was his service as Minister of Finance rather than his authorship of Capital and Interest that won him such a place of honor. The hundred-schilling note can serve modern Austrian macroeconomists as a reminder that the multistage production process, through which inputs are transformed over time into consumable outputs, underlies such conventional macroeconomic aggregates as national income and national output; that the proper management of the schilling can create conditions for intertemporal coordination and economic growth; and that mismanagement of the schilling can induce intertemporal discoordination, economic stagnation, and cyclical patterns of boom and bust. Capital theory, which owes so much to Böhm-Bawerk, provides the underpinnings for an Austrian analysis of the economy's performance in both favorable and unfavorable monetary environments. A careful assessment of the more conventional treatment of these Austrian concerns reveals that capital-based distinctions play a critical role even in theories that do not openly admit of capital considerations. The fact that such considerations are only implicit or severely understated has the effect of trivializing issues that would
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Austrian capital theory and macroeconomics - AUSTRIAN...

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