Capital-based macroeconomics: Recent developments and extensions of Austrian business cycle theory

Abstract

Tjhebusiness of and the macroeconomic models of cycle theory Hayek ohn Maynard Keynes were the two major rivals in the 1930s. From the 940s to the late 1W0s, however, the framework developed by Keynes in The General Theory of Employment, Interest, and Money dominated economic policy and pedagogy, despite logical and theoretical problems with the model. Much of the success of the Keynesian approach within the profession was due to the follow-up developments by Sir John Hicks (1967b) and Paul Samuelson (1948). These economists developed simple graphical presentations (the IS-LM model and the Keynesian Cross) that made it easy for economists to grasp the implications of the theory, to extend and develop the theory, and to use the theory for historical analysis and policy applications. Most important, the simplifications provided a pedagogy for teaching the Keynesian model to new students of economics.Hayek's business cycle model-which was partially responsible for his winning the Nobel Prize in economics in 1974-was temporarily abandoned, not because it was wrong, but partly because, as Hicks (1967c, p. 204) has argued, while the writings of Hayek and Mises on business cycle theory were in English, they were not English economics, and partly because the model was too complex. The current neglect or downplaying of Austrian insights by mainstream economists can be attributed to similar factors, most recently expressed by Yeager (1997) andWagner (1999). The inabili W to effectively communicate Austrian insights is compounded by the fact that publication of papers with Austrian or capital-based macroeconomic themes have, in general, JOHN P. COCHRAN is professor of economics at Metropolitan State College of Denver.

The gold standard in contemporary economic principles textbooks: A survey

“…For further reading on these subjects, see the following resources. Monetary disequilibrium: Cochran (2001) and Horwitz (1996). Stable money: Dorn (1987) and Herbener (2004).…”

Austrian business cycle theory: Variations on a theme

“…Growth associated with the new technological possibilities can be consistent with underlying tastes and resource constraints and hence can be sustainable. Cochran (2001) uses the Garrison framework and insights from Lewin (1999) to critique real business cycle theory. 8 Cycle-like phenomena however, are explained by random productivity shocks that may be positive (growth enhancing) or negative (growth impeding).…”

Nobelity and novelty: Finn Kydland and Edward Prescott’s contributions viewed from Vienna

“…8 Garrison (2006) offers a rudimentary incorporation of technological change as a factor explaining aspects of the business cycle that has some parallels with RBC. For an overview of the contributions and implications of Garrison's analysis relative to modern mainstream macroeconomics, see Cochran (2001). behavior with respect to policy changes] forecasting... is, while scientifically more demanding, entirely operational" (44). 9 Their assertion that useful models will be rejected by the data in econometric estimation rules out such pursuit.…”