The Road Less Traveled: Monetary Disequilibrium, Austrian Capital Theory, and the 'Keynesian Diversion'
34 Pages Posted: 13 Nov 2015 Last revised: 4 Dec 2016
Date Written: September 26, 2016
For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that his revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium theory (MDT) and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.
Keywords: Monetary Disequilibrium Theory, Quantity Theory of Money, Austrian Capital Theory, Austrian Business Cycle, J.M. Keynes, F. A. Hayek, Free Banking
JEL Classification: B10, B22, E30, E42, E50, E58, N10
Suggested Citation: Suggested Citation