In response to the question "What about expectations?", we get New Classical monetary misperception theory, real business cycle theory, and new Keynesian theory. This is the state of modern macroeconomics. While each of these theories include rigorous demonstrations that the assumptions about expectations are consistent with the theory itself, none are accompanied by persuasive reasons for believing that there is a connection between the theoretical construct and the actual performance of the economy over a sequence of booms and busts. Applicability has been sacrificed to rigor. The Keynesian spur has led us to this dead end.Time and Money is one of several assigned books for my macroeconomics course this semester. The second chapter displays Garrison’s strong grasp of other modern macro theories and their unfortunate divergence from trying to model/explain the world as we know it. Having only read through chapter three, which begins to lay out the foundation of Austrian Business Cycle Theory (ABCT), I’ve already come across several discrepancies with modern monetary operations. In forthcoming posts, I hope to address these disagreements and outline a new theory that combines the positive features of Post-Keynesian monetary economics and Austrian capital theory.
Bibliography
Roger W. Garrison (2007-03-16). Time and Money (Routledge Foundations of the Market Economy) (Kindle Locations 801-806). Taylor & Francis. Kindle Edition.
Perhaps unintentionally, Garrison also defends the Misesian a priori approach to economics. If you're practicing pure theory where your assumptions aren't tested, but the predictions are, then it makes sense to use a methodology that at least pays a premium for keeping assumptions that are actually relevant to the real world.
ReplyDeleteI should really re-read the book, but I wasn't that impressed by its exposition of capital theory. The main purpose of the book is to establish a modelling link between different theories, but even then Garrison -- for some reason -- relies on introductory macro. models. But even there, why not include DSGE or IS/LM?
ReplyDeleteI'll certainly keep an eye out for the points you mention. Personally I'm curious to read Garrison's book since I've spent relatively little time on ABCT and frequently hear others in my program reference Garrison's approach. So far I'mt not that impressed, but I'll provide updates as I get further along (maybe help you avoid spending the time re-reading it).
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