Austrian Macroeconomics

—Capital-Based Macroeconomics

Adapted from Time and Money: The Macroeconomics of Capital Structure by Roger W. Garrison

Summary

Capital-Based Macroeconomics is an outgrowth of the Austrian theory of the business cycle—a theory set out in 1912 by Ludwig von Mises and developed in the 1930s by Friedrich A. Hayek and others.

A Methodological Point

Before we can even ask how things might go wrong, we must first explain how they could ever go right.                              — F. A. Hayek

The Elements of Capital-Based Macroeconomics

1.The Production Possibilities Frontier

2.The Loanable-Funds Market

3.The Structure of Production

4.Stage-Specific Labor Markets

Applications of Capital-Based Macroeconomics

1.Sustainable Growth (supported by saving)

2.Unsustainable Growth (triggered by credit creation)

A summary Comparison

Increased Saving vs. Credit Expansion:

1.Saving supports genuine growth.

2.Credit expansion triggers booms and busts.