Friday, March 8, 2013

Some good thoughts from Gene (yes, that's a little redundant)

- Keynes is Wicksell above the natural rate and Hayek is Wicksell below the natural rate. I generally agree. Both of course added interesting elaborations too - Keynes to the determination of the interest rate itself and Hayek to the mechanisms through which departures from the natural rate operated.

- He thinks Garrison should stand on his own two legs, without Hayek. This was a very intriguing point. I don't know if I agree but I liked it. When you read Hayek it's actually surprising how hard it is to translate into modern macroeconomic diagrammatic thinking. I found myself frustrated with the lack of a sense of production fontiers and aggregate output. When people read Hayek and don't have this problem I think it's because they're unintentionally reading Garrison into Hayek. But if you take a look at the way Hayek actually put it, this is a contribution of Garrison's - it's not something that comes out naturally in the original. So in that sense I like Hayekian Garrison. But it's definitely a neat idea. Gene is emphasizing the sustainable production frontier. In a lot of ways, we can thinking about the sustainable production frontier as a way of characterizing dynamic equilibrium in a static presentation - without the system of differential equations that can make that less accessible. I think Gene is right - that's pretty cool.

- And today, he points out Keynes's appreciation of Cantillon effects. He is thinking about the Treatise here, but as I've pointed out in the past (here, here, and I think some other places) Cantillon effects are acknowledged as being very real in the General Theory too, just not the decisive factor in the business cycle. I for one think the empirical evidence suggests they're real. I'm just not sure they carry the significance a lot of Austrians think they do.

1 comment:

  1. "I found myself frustrated with the lack of a sense of production fontiers and aggregate output"

    Hayek doesn't use these terms but a major component of his theory is surely that an unexpected increase in the money supply will lead business to expand production beyond its equilibrium level and this will prove unsustainable. Garrison in my view simply took this part of Hayek's theory and (among other things) turned it into PPF diagrams and wording.


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