Friday, June 15, 2012

Briefly Covering Austrian versus Mainstream Macroeconomics

This is a lengthy, but important, quotation from Roger W. Garrison's book Time and Money:  The Macroeconomics of Capital Structure.  Professor Garrison succinctly distinguishes Austrian economics from mainstream macroeconomics.  All emphasis is mine.

Adopting a means-ends framework for macroeconomic theorizing is a way of emphasizing the critical time dimension--the time that elapses between the employment of means and the achievement of ends. 
In a modern, decentralized, capital-intensive economy, the original means and the ultimate ends are linked by the myriad decisions of intervening entrepreneurs.  As the market process moves forward, each entrepreneur is guided by circumstances created by the past decisions of all entrepreneurs and by expectations about the future decisions of consumers and of other entrepreneurs.  
 These are the decisions associated with what Ludwig Lachmann has called a network of plans. 
The concretization of these plans gives rise to a capital structure,  which we will call--to emphasize the time dimension--the intertemporal structure of capital. 
Austrian macroeconomics, then, concerns itself with two critical aspects of economic reality:  the intertemporal capital structure and entrepreneurial expectations.  Mainstream macroeconomics has long ignored the first-mentioned aspect but has become keenly attentive--almost obsessively attentive--to the second.
On my [i.e., Garrison's] interpretation, Lachmann's writings argue for a better balance of attention and suggest that the mainstream's overemphasis of expectations is directly related to its underemphasis of capital structure.

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