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The Road Less Traveled: Monetary Disequilibrium, Austrian Capital Theory, and the “Keynesian Diversion”

In: Research in the History of Economic Thought and Methodology

Author

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  • Scott Burns

Abstract

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’sGeneral Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.

Suggested Citation

  • Scott Burns, 2016. "The Road Less Traveled: Monetary Disequilibrium, Austrian Capital Theory, and the “Keynesian Diversion”," Research in the History of Economic Thought and Methodology, in: Research in the History of Economic Thought and Methodology, volume 34, pages 337-363, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rhetzz:s0743-41542016000034b012
    DOI: 10.1108/S0743-41542016000034B012
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    More about this item

    Keywords

    Monetary disequilibrium theory; Austrian business cycle theory; quantity theory of money; J. M. Keynes; F. A. Hayek; free banking; B10; B22; E30; E42; E50; E58; N10;
    All these keywords.

    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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