Review of Austrian Economics - The Ludwig von Mises Institute

More documents

Recommendations

Info

New Classical and Old Austrian Economics: Equilibrium Business Cycle Theory in Perspective Roger W. Garrison* The recent flourishing of New Classical economics, and especially its Equilibrium Business Cycle Theory (EBCT), has given a fresh hearing to the Old—but still developing—Austrian Business Cycle Theory (ABCT). While the New and the Old differ radically in both substance and methods, they exhibit a certain formal congruency that has captured the attention of both schools. The formal similarities between EBCT and ABCT invites a point-bypoint comparison, but the comparison itself dramatizes differences between the two views in a way that adds to the integrity and plausibility of the Austrian theory. In modern macroeconomic literature, the label EBCT is applied sometimes so broadly as to include New Keynesian as well as New Classical constructions and sometimes so narrowly as to preclude the very developments within the New Classical school that are most closely related to ABCT. So-called Real Business Cycle Theory, in which cyclical movements of macroeconomic variables are characterized by both market clearing and Pareto optimality, is sometimes designated as the only true equilibrium construction. The comparison of New Classical and Old Austrian theories is best facilitated by letting EBCT refer to those theories in which (a) individuals make the best use of the information available to them and (b) an informational deficiency temporarily masks the interventions of the monetary authority. As exposited by Robert Lucas (1981), Robert Barro (1981) and others, EBCT so conceived accounts for business cycles in terms of the actions of market participants confronted with what has come to be known as a signal-extraction problem. Difficulties in *Roger W. Garrison is an associate professor of economics at Auburn University. Helpful comments on an earlier draft of this paper from Parth Shah, Sven Thommesen, and an anonymous referee are gratefully acknowledged. The Review of Austrian Economics, Vol. 5, No. 1 (1991): 91-103 ISSN 0889-3047 91
92 The Review of Austrian Economics, Vol. 5, No. 1 interpreting price signals during a monetary expansion also lie at the root of ABCT as introduced by Ludwig von Mises (1953) and developed by Friedrich A. Hayek (1967). Comparing Lucas's EBCT with Hayek's ABCT, R. W. van Zijp (1990) argues that Lucas is not a Hayekian on the grounds of the differing goals of the two theorists. Hayek sought to explain the business cycle in terms of a multitude of partially conflicting individual plans; Lucas seeks to predict the behavior of the "representative individual" during the course of the business cycle (p. 20). Kim Kyun (1988) provides an historical perspective by finding links between modern EBCT and business-cycle theories of the inter-war period. He concludes that the New Classical economists have so revolutionized the style of argument that their ability to challenge old views and deal with key issues is seriously restricted (pp. 112-14). William Butos (1985) assesses the claims that Hayek pioneered modern EBCT and finds them misleading. While Hayek took the equilibrium relationships established by price theory as the point of departure for his business-cycle theory, the techniquebound EBC theories take those same relationships to be effective constraints throughout the course of the business cycle (pp. 337 and 341). These treatments of the relationship between EBCT and ABCT are mutually reinforcing and are consistent with my own Austrian perspective on New Classicism (Garrison 1986, pp 443-45; 1989, pp. 19-23). Substance and Method It is possible to describe a business cycle in such general terms that the description is consistent with both EBCT and ABCT yet distinct from, say, Keynesian and Marxian theories. The common ground can most easily be identified in terms of the reactions of market participants to a price change whose origins are possibly real, possibly monetary, or possibly both. Similarities between EBCT and ABCT reveal themselves despite the fact that the particular price featured in the two theorists is the price of output (in EBCT) and the price of credit (in ABCT). 1 Points of congruency derive from the fact, emphasized in each theory, that market participants cannot easily (or costlessly) distinguish between the real and the monetary component of the change. lr The difference in terms of the particular price featured in the two theories accounts for an anonymous referee's observation that in EBCT the cycle is initiated by a rise in the interest rate [in the sense of a greater spread between input and output prices], while in ABCT the cycle is initiated by a fall in the interest rate [in the sense of cheaper credit].
Page 2 and 3:
The Review of Austrian Economics Vo
Page 4 and 5:
Page 6:
Dedication Volume 5, number 1, of t
Page 10:
Articles
Page 13 and 14:
4 The Review of Austrian Economics,
Page 15 and 16:
Page 17 and 18:
Page 19 and 20:
10 The Review of Austrian Economics
Page 21 and 22:
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50: 40 The Review of Austrian Economics
Page 76 and 77: Austrian Capital and Interest Theor
Page 78 and 79: Endres: Capital and Interest Theory
Page 102 and 103: Garrison: Equilibrium Business Cycl
Page 112: Garrison: Equilibrium Business Cycl
Page 116 and 117: Marxism, Capitalism and Mercantilis
Page 118 and 119: Review Essay 109 nate private tradi
Page 120 and 121: Review Essay 111 colonists to buy o
Page 122 and 123: Review Essay 113 But, perhaps ironi
Page 124: Book Reviews
Page 127 and 128: 118 The Review of Austrian Economic
Page 148 and 149: The Review of Austrian Economics Vo
Page 150 and 151:
Page 152 and 153:
Dedication Volume 5, number 2, of t
Page 154:
Review of Austrian Economics Volume
Page 158 and 159:
The Great Depression of 1946 Richar
Page 160 and 161:
Vedder and Gallaway: The Great Depr
Page 162 and 163:
Page 164 and 165:
Page 166 and 167:
Page 168 and 169:
Page 170 and 171:
Page 172 and 173:
Page 174 and 175:
Page 176 and 177:
Page 178 and 179:
Page 180 and 181:
Page 182 and 183:
Page 184 and 185:
Page 186:
Page 189 and 190:
Page 191 and 192:
Page 193 and 194:
Page 195 and 196:
Page 197 and 198:
Page 199 and 200:
Page 201 and 202:
Page 203 and 204:
Page 205 and 206:
Page 207 and 208:
Page 209 and 210:
Page 211 and 212:
Page 213 and 214:
Page 215 and 216:
Page 217 and 218:
Page 219 and 220:
Page 221 and 222:
Page 223 and 224:
Page 225 and 226:
Page 227 and 228:
Page 229 and 230:
Page 231 and 232:
Page 233 and 234:
Page 235 and 236:
Page 237 and 238:
Page 239 and 240:
Page 241 and 242:
Page 243 and 244:
Page 245 and 246:
Page 247 and 248:
Page 249 and 250:
Page 251 and 252:
Page 253 and 254:
Page 255 and 256:
100 The Review of Austrian Economic
Page 257 and 258:
Page 259 and 260:
Page 262 and 263:
The Preferred Tax Type: Comment on
Page 264 and 265:
Tabarrok: Preferred Tax Type 109 He
Page 266 and 267:
Comment on Preferred Tax Type: Repl
Page 268 and 269:
Herbener: Comment on Preferred Tax
Page 270 and 271:
Herbener: Comment on Preferred Tax
Page 272:
Book Reviews
Page 275 and 276:
Page 278 and 279:
If You're So Smart: The Narrative o
Page 280 and 281:
Book Reviews 125 But do his own fin
Page 282:
Book Reviews 127 with the Austrian
Page 285 and 286:
Page 287 and 288:
show all

Review of Austrian Economics - The Ludwig von Mises Institute

Create successful ePaper yourself

Delete template?

Save as template?