Addressing Hayek's Challenge: Sticky Consumption, Sequestered Capital, and ABCT

25 Pages Posted: 17 Oct 2017 Last revised: 11 Nov 2017

See all articles by Nicholas Adam Curott

Nicholas Adam Curott

Ball State University - Department of Economics

James McClure

Ball State University - Department of Economics

David Chandler Thomas

Ball State University - Department of Economics

Date Written: October 13, 2017

Abstract

F.A. Hayek’s trade cycle theory was triumphant in the early 1930s, but withered within a decade as criticisms went unanswered. Hayek challenged others to “prove” theoretically what he “knew” intuitively about business cycles. In the late 1990s, Roger Garrison produced a logically sound and pedagogically persuasive model that answers most criticisms. Unfortunately, the volatile path of consumption required by this model is empirically at odds with a body of empirical work that indicates that consumption is sticky. To address this, we modify Garrison’s model to identify not just the capital usages in the stages of production, but also pre-production (R&D) capital that is deliberately sequestered. With sequestered capital in play, sticky consumption can be logically accommodated, providing an answer to Hayek’s challenge.

Keywords: Sticky Consumption, Sequestered Capital, Austrian Business Cycle Theory, ABCT, Hayek's Challenge, Roger Garrison, Hayek, Business Cycles

JEL Classification: El 4, E21, E32

Suggested Citation

Curott, Nicholas Adam and McClure, James and Thomas, David, Addressing Hayek's Challenge: Sticky Consumption, Sequestered Capital, and ABCT (October 13, 2017). Available at SSRN: https://ssrn.com/abstract=3054257 or http://dx.doi.org/10.2139/ssrn.3054257

Nicholas Adam Curott

Ball State University - Department of Economics ( email )

Muncie, IN 47306-0340
United States

James McClure

Ball State University - Department of Economics ( email )

Muncie, IN 47306-0340
United States

David Thomas (Contact Author)

Ball State University - Department of Economics ( email )

Muncie, IN 47306-0340
United States
408-859-8185 (Phone)

HOME PAGE: http://www.davidchandlerthomas.com

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