Capital-Based Macroeconomics: Austrians, Keynes, and Keynesians
39 Pages Posted: 13 Aug 2013
Date Written: August 7, 2012
The recent revival of boom-bust business cycles and the world–wide slow recovery from 2009-2012 has renewed interest in the analysis of a money-production economy developed by Keynes and capital-structure based Austrian macroeconomics developed by Hayek, Mises, Rothbard, and most recently by Garrison. Both approaches identify time, money, banking, and financial markets, interest, and investment as the major sources of coordination failure leading to recession or depression. When compared to single aggregate modern macroeconomic models, both Keynes’s and the Austrians’ model, with their lower level of aggregation, provide a better understanding of how an economy goes wrong, However, the paper argues that Keynes’s model is flawed because it lacks a capital-structure foundation. Keynesian macroeconomic policy is generally unnecessary and if applied consistently destabilizes the economy. Austrian economics and its capital-based macroeconomics provide better guidance on cause, recovery, and more importantly, prevention.
Keywords: business cycles, recovery, recession, macroeconomic policy, capital structure, Keynes, Hayek, Mises, Keynesian economics, Austrian economics
JEL Classification: B22, E32, E50, E51, E52, E60
Suggested Citation: Suggested Citation