TIME AND MONEY
Macroeconomics of Capital Structure
THE LONG AND THE
SHORT OF IT
In early 1997 a
small group of world-class economists, serving as panelists in a session
of the American Economics Association meetings, addressed themselves to
the question "Is there a core of practical macroeconomics that we should
all believe?" Their listeners could hardly imagine that a second group
of economists were gathered across the hall to answer a similar question
about microeconomics. Dating from the marginalist revolution of the 1870s,
microeconomics has had a readily recognizable core--and one that has grown
increasingly solid over the past century. By contrast, the Keynesian revolution
that began in the 1930s ushered in a macroeconomics that was--at least
from one important point of view--essentially coreless. The capital theory
that underlay the macroeconomics being developed by the Austrian school
was nowhere to be found in the new economics of John Maynard Keynes.
"One major weakness in the core of macroeconomics," as identified by AEA
panelist Robert Solow (1997a: 231f), "is the lack of real coupling between
the short-run picture and the long-run picture. Since the long run and
the short run merge into one another, one feels that they cannot be completely
independent." Ironically, when the same Robert Solow (1997b: 594) contributed
an entry on Trevor Swan to An Encyclopedia of Keynesian Economics,
he took a much more sanguine view: "[Swan's writings serve] as a reminder
that one can be a Keynesian for the short run and a neoclassical for the
long run, and that this combination of commitments may be the right one."
The present volume takes Solow's more critical assessment to be the more
cogent. The weakness, or lacking, in modern macroeconomic theorizing can
most easily be seen by contrasting Keynes's macroeconomics with Solow's
own economics of growth. In the short run, the investment and consumption
magnitudes move in the same direction--both downward into recession or
both upward toward full employment and even beyond in an inflationary spiral.
The economics of growth, which also allows investment and consumption to
increase together over time, features the fundamental trade-off faced in
each period between current consumption and investment. We can increase
investment (and hence increase future consumption) if and to the extent
we are willing to forgo current consumption. For a given period and with
a given technology, any change in the economy's growth rate must entail
consumption and investment magnitudes that move, initially, in opposition
to one another.
So, can we accept or find practical use for a macroeconomics (1) in which
consumption and investment always move together in the short run, (2) in
which these two magnitudes must move in opposition to change the economy's
rate of growth, and (3) for which the long run emerges as a seamless sequence
of short runs?
Keynes (1936: 378), whose demand-dominated theory offered us nothing in
the way of a "real coupling," simply refocused the profession's attention
on the short-run movements in macroeconomic magnitudes while paying lip
service to the fundamental truths of classical economics: "if our central
controls succeed in establishing an aggregate volume of output corresponding
to full employment as nearly as is practicable, the classical theory comes
into its own again from this point onward." This statement comes immediately
after his claim that the "tacit assumptions [of the classical theory] are
seldom or never satisfied."
The classical economists, or so Keynes's caricature of them would lead
us to believe, focused their attention exclusively on the long-run relationships,
as governed by binding supply-side constraints, and relied on Say's Law
("Supply creates its own Demand," in Keynes's rendering) to keep the Keynesian
short run out of the picture.
If Keynes focused on the short-run picture, and the classical economists
focused on the long-run picture, then the Austrian economists, and particularly
Friedrich A. Hayek, focused on the "real coupling" between the two pictures.
The Hayekian coupling took the form of capital theory--the theory of a
time-consuming, multi-stage capital structure envisioned by Carl Menger
( 1981) and developed by Eugen von Böhm-Bawerk ( 1959).
Decades before macroeconomics emerged as a recognized subdiscipline, Böhm-Bawerk
had molded the fundamental Mengerian insight into a macroeconomic theory
to account for the distribution of income among the factors of production.
Dating from the late 1920s, Hayek ( 1975 and  1967), following
a lead provided by Ludwig von Mises ( 1953), infused the theory with
monetary considerations. He showed that credit policy pursued by a central
monetary authority can be a source of economy-wide distortions in the intertemporal
allocation of resources and hence an important cause of business cycles.
Tellingly, Robert Solow, as revealed in an interview with Jack Birner (1990:
n28), found Hayek's arguments to be "completely incomprehensible." A major
claim in the present book is that Hayek's writings--and those of modern
Austrian macroeconomists--can be comprehended as an effort to reinstate
the capital-theory "core" that allows for a "real coupling" of short-run
and long-run aspects of the market process. Hayek was simply observing
an important methodological maxim that was later articulated by Mises (1966:
296): "[W]e must guard ourselves against the popular fallacy of drawing
a sharp line between short-run and long-run effects. What happens in the
short run is precisely the first stages of a chain of successive transformations
which tend to bring about the long-run effects."
The question addressed by the AEA panelists in 1997 is but an echo of a
lingering question about the nature of macroeconomic problems posed by
John Hicks (1967: 203) three decades earlier: "[Who] was right, Keynes
or Hayek?" The most recent answer to Hicks' question is offered by Bruce
Caldwell in his introduction to
Contra Keynes and Cambridge (vol.
9 of the Collected Works of F. A. Hayek). According to Caldwell
(1995: 46), "neither was right. Both purported to be supplying a general
theory of the cycle, and in this, neither was successful." This verdict
can be called into question on two counts. First, Chapter 22 of Keynes's
Theory, "Notes on the Trade Cycle," is not advertised as a general
theory of the cycle, and the remainder of Keynes's book is concerned primarily
with secular unemployment and only secondarily if at all with cyclical
variations. Second, although Hayek's Prices and Production and related
writings were concerned primarily with cyclical variation, applicability
took priority over generality. Hayek's focus ( 1967: 54) on a money-induced
artificial boom reflects the fact that, as an institutional matter and
as an historical matter, money enters the economy through credit markets.
Hence, it impinges, in the first instance, on interest rates and affects
the intertemporal allocation of resources. He recognized that a fully general
theory would have to encompass other institutional arrangements and allow
for other possible boom-bust scenarios.
But there is a greater point that challenges Caldwell's answer. The major
weakness that Solow saw in modern macroeconomics has as its counterpart
in Austrian macroeconomics a major strength. There is a real coupling
between the short run and the long run in the Austrian theory. The fact
that the Austrian economists feature this coupling is the basis for an
alternative answer to Hicks' question: Hayek was right--as argued by O'Driscoll
(1977b) and most recently by Cochran and Glahe (1999). More substantively,
identifying the relative-price effects (and the corresponding quantity
adjustments) of a monetary disturbance, as compared to tracking the movements
in macroeconomic aggregates that conceal those relative-price effects,
gives us a superior understanding of the nature of cyclical variation in
the economy and points the way to a more thoroughgoing capital-based macroeconomics.
WHAT'S IN A NAME?
The subtitle of
this book, The Macroeconomics of Capital Structure, is intended
to suggest that the macroeconomic relationships identified and explored
here are, to a large extent, complementary to the relationships that have
dominated the thinking of macroeconomists for the past half century. Arguably,
the macroeconomics of labor, which is the focus of modern income-expenditure
analysis, and the macroeconomics of money, which gets emphasis in the quantity-theory
tradition, have each been pushed well into the range of diminishing marginal
returns. If further pushing toward a fuller macroeconomic understanding
is to pay, it may well involve paying attention to the economy's intertemporal
In a more comprehensive and balanced treatment of the issues, we might
want to present a macroeconomics of labor, capital, and money. This trilogy
is sequenced so as to parallel the title chosen by Keynes: The General
Theory of Employment, Interest, and Money. Capital does not appear
in his trilogy, but its shadow, interest, does. The lack of conformability
in Keynes's identification of the objects of study--employment (of labor),
capital's shadow, and money--should alert us at the outset to the enduring
perplexities that theorizing about capital and interest entails. Classical
economists saw the rate of interest, also known as the rate of profit,
as the price of capital. Keynes, who clearly rejected this view, would
have us believe that the shadow is actually being cast by money. Keynes's
critics, particularly the members of the Austrian school, took the rate
of interest to reflect a systematic discounting of future values--whether
or not capital was involved in creating them or money was involved in facilitating
their exchange. Decades of controversy have demonstrated that the interest
rate's relationship to capital and to money is not a simple one. In the
present study, capital--or, more pointedly, the intertemporal structure
of capital--is the primary focus. The centrality of the interest rate derives
from its role in allocating resources--and sometimes in misallocating them--within
the economy's capital structure.
Undeniably, claims can be made to justify each of the three candidates
(labor, capital, and money) as an appropriate basis, or primary focal point,
for macroeconomic theorizing. The rationale for labor-based macroeconomics
and for money-based macroeconomics are more often assumed than actually
spelled out. The case for capital-based macroeconomics, however, is at
least equally compelling and has a special claim on our attention because
of its relative neglect.
employment of labor is logically and temporally prior to the creation of
capital. Capital goods, after all, are produced by labor. Even the macroeconomic
theorists who have devoted the most attention to capital have typically
identified labor, together with natural resources, as the "original" means
of production. And although the employment of labor in modern economies
is facilitated by a commonly accepted medium of exchange, the use of money
is not fundamentally a prerequisite to employment. The employment of labor
can take place in a barter economy, and self-employment in a Crusoe economy.
Employee compensation accounts for a large portion--more than seventy percent--of
national income even in the most capital-intensive economies. The earning
and spending by workers, then, dominates in any circular-flow construction.
The occasional widespread unemployment in modern economies is the most
salient manifestation of a macroeconomic problem. And cyclical variation
in economic activity is conventionally charted in terms of changes in the
unemployment rate. The pricing of labor even in markets that may otherwise
be characterized by flexibility can be affected by attitudes about fairness,
implications for worker morale, and considerations of firm-specific human
capital. Hence, changes in labor-market conditions can result in quantity
adjustments and/or price adjustments not fully accounted for by simple
supply-and-demand analysis. All these considerations give employment a
strong claim to being the primary focus for macroeconomic theorizing.
is the use of money that puts the macro in macroeconomics. In the context
of a barter system, it is difficult even to imagine--unless we think of
a widespread natural disaster--that the economy might experience variations
in market conditions that have systematic economy-wide repercussions. But,
with trivial exceptions, money is on one side of every transaction in modern
economies. Unavoidably, however, the medium of exchange is also a medium
through which difficulties in any sector of the economy--or difficulties
with money itself--get transmitted to all other sectors. Further, the provision
of money even in the most decentralized economies is--not to say must be--the
business of a central authority. This institutionalized centrality translates
directly into a central concern of macroeconomists. Money comes into play
both as a source of difficulties and as a vehicle for transmitting those
difficulties throughout the economy. Using terminology first introduced
by Ragnar Frisch (1933), we can say that money matters both as "impulse"
and as "propagation mechanism." So involved is money that macroeconomics
and monetary theory have, in some quarters, come to be thought of as two
names for the same set of ideas. Monetarism, broadly conceived, is simply
Macroeconomics What, then, is the case for capital-based macroeconomics?
Considerations of capital structure allow the time element to enter the
theory in a fundamental yet concrete way. If labor and natural resources
can be thought of as original means of production and consumer goods as
the ultimate end toward which production is directed, then capital occupies
a position that is both logically and temporally intermediate between original
means and ultimate ends. The goods-in-process conception of capital has
a long and honorable history. And even forms of capital that do not fit
neatly into a simple linear means-ends framework, such as fixed capital,
human capital, and consumer durables, occupy an intermediate position between
some relevant production decisions and the corresponding consumption utilities.
This temporally intermediate status of capital is not in serious dispute,
but its significance for macroeconomic theorizing is rarely recognized.
Alfred Marshall taught us that the time element is central to almost every
economic problem. The critical time element manifests itself in the Austrian
theory as an intertemporal capital structure. The scope and limits to structural
modifications give increased significance to monetary disturbances. Simply
put, capital gives money time to cause trouble. In a barter economy, there
is no money to cause any trouble; in a pure exchange economy, there is
not much trouble that money can cause. But in a modern capital-intensive
The macroeconomic significance of the fact that production takes time suggests
that, for business-cycle theory, capital and money should get equal billing.
The nature and significance of money-induced price distortions in the context
of a time-consuming production processes was the basis for my early article
"Time and Money: the Universals of Macroeconomic Theorizing"
(1984)--and for the title of the present book. Macroeconomic theorizing,
so conceived, is a story about how things can go wrong--how the economy's
production process that transforms resources into consumable output can
get derailed. Sometime subsequent to the committing of resources but prior
to the emergence of output, the production process can be at war with itself;
different aspects of the market process that governs production can work
against one another. Thus, the troubles that characterize modern capital-intensive
economies, particularly the episodes of boom and bust, may best be analyzed
with the aid of a capital-based macroeconomics.
AN EXERCISE IN
This book was originally
conceived as a graphical exposition of boom and bust as understood by the
Austrian school. In its writing, however, the horizon was extended in two
directions. First, a theory of boom and bust became capital-based macroeconomics.
The relationships identified in pursuit of the narrower subject matter
proved to be a sound basis for a more encompassing theory, one that sheds
light upon such topics as deficit spending, credit controls, and tax reform.
The general analytical framework that emerges from the insights of the
Austrian school qualifies as a full-fledged Austrian macroeconomics. Chapter
3 sets out the capital-based framework; Chapter 4 employs it to depict
the Austrian perspective on economic growth and cyclical variation; Chapter
5 extends the analysis from monetary matters to fiscal and regulatory matters;
Chapter 6 offers a variation on the Austrian theme by introducing risk
and uncertainty and making a distinction--in connection with the distribution
of risk and the exposure to uncertainty--between preference-based choices
and policy-induced choices.
Second, the task of setting out and defending a capital-based (Austrian)
macroeconomics requires a conformable labor-based (Keynesian) macroeconomics
with which to compare and contrast it. The comparison was not well facilitated
by the existing renditions of conventional macroeconomics--the Keynesian
cross, ISLM, and Aggregate-Supply/Aggregate-Demand. Fortunately, it was
possible to create a labor-based macroeconomic framework that remains true
to Keynes (truer, arguably, than the more conventional constructions) and
that contains important elements common to both (Keynesian and Austrian)
frameworks. The resulting exercise in comparative frameworks requires a
second set of core chapters. Chapter 7 sets out the labor-based framework;
Chapter 8 employs it to depict the Keynesian view of cyclical variation
and of counter-cyclical policies; Chapter 9 shifts the focus from stabilization
policy to social reform.
As it turns out, money-based macroeconomics is virtually framework-independent.
Any framework that tracks the quantity of money, the economy's total output,
and the price level can be used to express the essential propositions of
Monetarism. However, two separate strands of Monetarism can be identified--one
that offers a theory of boom and bust and one that denies, on empirical
grounds, that the boom-bust sequence has any claim on our attention. Both
strands can be set out with the aid of either the labor-based framework
(We're all Keynesians, now) or the capital-based framework (A close reading
of Milton Friedman reveals elements of Austrianism). Chapter 10 deals with
the Monetarists' view of boom and bust; Chapter 11 deals with depression
as monetary disequilibrium.
The intertemporal structure of capital gets a strong emphasis throughout
the book--an emphasis that some might judge to be unwarranted. But this
book emphasizes the structure of capital in the same sense and in the same
spirit that Friedman's work emphasizes the quantity of money or that the
New Classical economists emphasize expectations. We tend to emphasize what
we judge to have been unduly neglected in earlier writings. Chapter 12
summarizes and puts capital-based macroeconomics into perspective.
The emphasis in macroeconomics during the final quarter of the twentieth
century has clearly been--not on labor, not on capital, not on money--but
on expectations, so much so that theories tend to be categorized and judged
primarily in terms of their treatment of expectations. Static expectations
are wholly inadequate; adaptive expectations are only marginally less so.
The assumption of rational expectations has become a virtual prerequisite
for having any other aspect of a macroeconomic construction taken seriously.
There is something troubling, however, about the notion of an expectations-based
macroeconomics. Readers of Lewis Carroll and Dennis Robertson will sense
a certain grin-without-the-cat flavor to modern treatments of expectations.
Chapter 2 of the present book deals head on with the issue of expectations
in the context of the development of macroeconomics over the last three-quarters
of a century and argues that there has been an overemphasis on expectations
in modern theory which is ultimately attributable to the corelessness of
modern macroeconomics, to the lack of "real coupling," as identified by
Solow, between short-run and long-run macroeconomic relationships, or--more
concretely--to the failure to give due attention to the economy's intertemporal
POINT OF DEPARTURE
AND STYLE OF ARGUMENT
F. A. Hayek's contribution
to the development of capital theory is commonly regarded as his most fundamental
and path-breaking achievement (Machlup, 1976). His early attention to "Intertemporal
Price Equilibrium and Movements in the Value of Money" (1928; English translation
in Hayek, 1984) provided both the basis and inspiration for many subsequent
contributions. The widely recognized but rarely understood Hayekian triangle,
introduced in his 1931 lectures at the University of London, were subsequently
published (in 1931 with a second edition in 1935) as Prices and Production.
The triangle, described in the second lecture (Hayek,  1967: 36-47),
is a heuristic device that gives analytical legs to a theory of business
cycles first offered by Ludwig von Mises ( 1953: 339-366). Triangles
of different shapes provide a convenient but highly stylized way of describing
changes in the intertemporal pattern of the economy's capital structure.
In retrospect we see that the timing of Hayek's invitation to lecture at
the London School of Economics takes on a special significance. We learn
from the preface of the subsequent book that had the invitation come earlier,
he couldn't have delivered those lectures; had it come later, he probably
wouldn't have delivered them. "[The invitation] came at a time when I had
arrived at a clear view of the outlines of a theory of industrial fluctuations
but before I had elaborated it in full detail or even realized all the
difficulties which such an elaboration presented" (Hayek,  1967:
Hayek mentions plans for a more complete exposition and indicates that
his capital theory would have to be developed in much greater detail and
adapted to the complexities of the real world before it could serve as
a satisfactory basis for theorizing about cyclical fluctuations.
A decade after the London lectures the more complete exposition took form
as The Pure Theory of Capital (1941). In this book Hayek fleshed
out the earlier formulations and emphasized the centrality of the "capital
problem" in questions about the market's ability to coordinate economic
activities over time. The "pure" in the title meant "preliminary to the
introduction of monetary considerations." Though some 450 pages in length,
the book achieved only the first half of the original objective. The final
sixty pages of the book did contain a "condensed and sketchy" (p. viii)
treatment of the rate of interest in a money economy, but the task of retelling
the story in Prices and Production in the context of the Pure
Theory of Capital was put off and ultimately abandoned. The onset of
the war was the proximate reason for cutting the project short; Hayek's
exhaustion and waning interest in the business-cycle issues--and his heightened
interest in the broader issues of political philosophy--account for his
never returning to the task. In later years he acknowledged that Austrian
capital theory effectively ended with his 1941 book and lamented that no
one else has taken up the task that he had originally set for himself (Hayek,
More fully developing the Austrian theory of the business cycle came to
be synonymous with writing the follow-on volume to Hayek's Pure Theory.
Many a graduate student has imagined himself undertaking this very project,
only to abandon the idea even before the enormity of the task was fully
comprehended. Thus, while the comparatively simple relationships of capital-free
Keynesian theory captured the attention of the economics profession, the
inherently complex relationships of Austrian theory languished.
Time and Money is not the sequel to Hayek's Pure Theory.
Rather, the ideas and graphical constructions in the present volume take
the original Hayekian triangle of Prices and Production to be the
more appropriate point of departure for creating a capital-based macroeconomics.
The trade-off between simplicity and realism is struck in favor of simplicity.
Hayek's triangles allow us to make a graphical statement that there is
a capital structure and that its intertemporal profile can change. This
statement enables the Austrian theory to make a quantum leap beyond the
competing theories that ignore capital altogether or that treat capital
as a one-dimensional magnitude.
It is true, of course, that the triangles leave much out of account, but
so too--despite their complexity--do the Pure Theory's warped
pie-slice figures that are intended to make some allowance for durable
capital (Hayek, 1941: 208 and 211). Degrees of realism range from K (for
capital) to an aerial photograph of the Rust Belt. K is too simple; everything
from the Pure Theory to the aerial photograph is too realistic for
use in a macroeconomic framework. The Hayekian triangle is just right.
It is comparable in terms of the simplicity/realism trade-off to the Keynesian
cross; and it is comparable in this same regard to other graphical devices
(the production-possibilities frontier, the market for loanable funds,
and markets for labor) that make up the capital-based framework. Sophomores
in their first economics course sometimes complain about all the considerations
that the simple Marshallian supply and demand curves fail to capture. As
they reel off a list of particulars, the professor waits patiently to deliver
the news: "What's remarkable about supply and demand curves is not that
they leave so much out of account but that they account for so much on
the basis of so little." The same point is an appropriate response to those
critical of Hayekian triangulation.
The style of argument in
Time and Money may appear to some as strangely
anachronistic--as theory from the 1930s and pedagogy from the 1960s. This
appearance is not without significance. The theory is from the 1930s because
it was during that period that capital theory was dropped out of macroeconomics.
The pedagogy is reminiscent of the 1960s because Austrian macroeconomics
is missing the stage of development that the alternative (Keynesian) macroeconomics
was pacing through during that decade. The sequence of frameworks from
the Keynesian cross to ISLM to Aggregate-Supply/Aggregate-Demand has no
counterpart in Austrian macroeconomics. Instead, we have the Hayekian triangle
accompanied by critical assessments and apologetic defenses, followed in
time with the Pure Theory, which was an unfinished task and strategic
miscue, followed by years of neglect. In recent years there has been a
scatter of restatements of the Austrian theory, many of which are contorted
by the near-obligatory attention to the current concerns of mainstream
macroeconomics, such as expectations and lag structure. Not surprisingly,
there can be only limited success in reintroducing the old Austrian insights
into a macroeconomics whose development over the past half-century has
followed an alternative course. Accordingly, if the constructions and argumentation
in Time and Money are pedagogical throwbacks, partially remedial
in nature, they are unapologetically so.
The modern Austrian school is fairly well defined in terms of axiomatic
propositions and methodological precepts, but there are significant differences
in judgment about the appropriate research agenda. Some members of the
school have long turned a blind eye to the issues of business cycles and
to macroeconomics more broadly conceived.
Classics in Austrian Economics:
A Sampling in the History of a Tradition, edited by Israel Kirzner
(1994), gives little or no hint that the Austrian economists ever asked
a macroeconomic question, let alone offered answers that show great insight
and much promise for development. And while Kirzner himself has contributed
importantly to the development of capital theory, primarily in his Essays
on Captial and Interest: An Austrian Perspective (1996), he has steered
clear of macroeconomics. His introductory essay includes a brief assessment
of the developments on this front: "[R]ecent Austrian work on Hayekian
cycle theory [and presumably on Austrian macroeconomics generally] seems,
on the whole, to fail to draw on the subjectivist, Misesian, tradition
which the contemporary Austrian resurgence has done so much to revive"
(p. 2). Similarly, Nicolai Foss' Austrian School of Modern Economics:
Essays in Reassessment (1994) gives no clue of the existence of a modern
Austrian macroeconomics. Karen Vaughn's Austrian Economics in America:
The Migration of a Tradition (1994) leaves the impression that macroeconomics
never reached--or possibly shouldn't have reached--the American shore.
And in her recent reflections on the development of the Austrian tradition
(1999), she hints that progress is to be measured in part by the school's
distancing itself from the issues associated with the business cycle.
The capital-based macroeconomics offered in this volume is intended to
help put capital back in macro and help put macro back in modern Austrian
economics. This undertaking is bolstered by the judgment of Machlup that
Hayek's contribution to capital theory was both fundamental and path-breaking
and by the belief that a macroeconomic framework that features the Austrian
theory of capital can compare favorably to the alternative frameworks of
The five parts and
twelve chapters of this book are arranged to accommodate a variety of backgrounds
and interests. Chapter 2 is aimed primarily
at fellow macroeconomists and students of macroeconomics who are already
familiar with the various modern schools of thought, such as New Classicism
and New Keynesianism. These and related schools have become so focused
on "expectations" as virtually to require an up-front discussion of the
implicit assumptions or understandings about the role of expectations in
the performance of the economy and in the effectiveness of macroeconomic
policy. Readers not so steeped in the modern tradition of macroeconomics
may want to skip Chapter 2--or possibly save it for a later reading.
The original conception of the book--as a graphical exposition of the Austrian
theory of the business cycle--has its realization in Part II, especially
Chapters 3 and 4. The ideas in these two chapters--with or without the
extensions offered in Chapters 5 and 6--stand on their own. (Although Chapter
6 is offered as a variation on an Austrian theme, the discussion there
breaks loose from the strict confines of the graphical model and discusses
risk-related aspects of boom-bust cycles.)
Readers interested in the Keynes-Hayek debate will want to compare the
macroeconomics of Chapters 3 and 4 with the macroeconomics of Chapters
7 and 8. These two sets of core chapters, which give shape to Parts II
and III, are designed to allow Keynes and Hayek to go head-to-head.
Though designed with the Keynes-Hayek debate in mind, the labor-based framework
set out in Chapter 7 allows for revealing perspective on the Keynes-Keynes
debate. Conflicting interpretations of Keynes's General Theory are
partially reconciled by a first-order distinction between policy issues
(Chapter 8) and issues of social reform (Chapter 9).
Readers who are interested in the relationship between the Austrian theory
and the competing theories of other market-friendly schools of macroeconomic
thought will want to pay special attention to Chapters 10 and 11, which
make up Part IV and deal with the various forms and outgrowths of Monetarism.
The money-based macroeconomics of these political allies, however, is presented
with the aid of both the labor-based macroeconomics of Part III and the
capital-based macroeconomics of Part II and therefore cannot be read separately
from the earlier chapters.
The final chapter can be read in its turn or--for those who read novels
this way--in conjunction with the introductory chapter.