Capital-Based Macroeconomics: Austrians, Keynes, and Keynesians

39 Pages Posted: 13 Aug 2013

See all articles by John Cochran

John Cochran

Metropolitan State University of Denver

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

Cochran, John, Capital-Based Macroeconomics: Austrians, Keynes, and Keynesians (August 7, 2012). Available at SSRN: or

John Cochran (Contact Author)

Metropolitan State University of Denver ( email )

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