Academic journal article Journal of Private Enterprise

Roger W Garrison and the Integration of Austrian and Mainstream Macroeconomics

Academic journal article Journal of Private Enterprise

Roger W Garrison and the Integration of Austrian and Mainstream Macroeconomics

Article excerpt

I. Introduction

Garrison's early article, "Austrian Macroeconomics: A Diagrammatical Exposition," published in New Directions in Austrian Economics, appeared in in 1978. The type of graphic exposition he introduced was then uncommon in the Austrian literature, with the few diagrams appearing previously in Hayek's Prices and Production ([1931] 1935, pp. 39-61) and The Pure Theory of Capital (1941, pp. 101- 431) and in Rothbard's Man, Economy, and State ([1962a] 2009; see, e.g., pp. 282, 314, 334, and 383) being the only notable exceptions. Even more exceptional was that Garrison showed how the Austrian models could be presented alongside their Keynesian alternatives in the same diagram. Often, the difference is that the Keynesian dimension would be static, ignoring production time, and in some sense accurately descriptive, but compared to the Austrian version, offering less explanatory power (Garrison 1985).

This comparison cuts two ways: if a model lacks explanatory power, there are fewer ways it can be falsified against reality. The failure of Keynesian and new-Keynesian economists to predict, or policymakers to prevent, the 2008-09 financial crisis and recession has been followed by Keynesian policy responses. Though ineffective, these responses have typically been criticized as being too conservative and insufficiently Keynesian. In contrast, the Austrian model could come up short against reality in numerous ways. Garrison refined his analysis in a series of articles culminating in the definitive version presented in Time and Money (2001). Time and Money is aptly characterized as the most important book on macroeconomics that the Austrian school has produced since Human Action.

Garrison's approach to macroeconomic analysis stems from distinctly Austrian philosophical perspectives that nonetheless should be especially attractive to open-minded non-Austrians. These perspectives include the role of subjectivity in entrepreneurial planning and how this subjectivity frustrates most approaches to measuring the capital stock. His background in electrical engineering gave him a unique understanding of how installing capital limits subsequent resource reallocation and the scope for technique reswitching.

Garrison's study of Mises and Hayek, among others, contributed an awareness of how the sustainable growth resulting from technological progress and lowered time preference differs radically from the unsustainable growth that results from expansionary policy. This awareness, virtually unique to the Austrian school, was lost by our mainstream colleagues several generations ago. The Austrian capital-based macroeconomics Garrison espoused explains how expansionary government policy, which aims at removing political actors' election risk, actually makes our lives much riskier by destabilizing the macroeconomy. The Austrian causal-realist story purports to explain much more than competing mainstream theories, which are uniformly more limited and less satisfactory.

The rest of the paper is organized as follows: Section 2, "Engineering and Austrian Methodological Foundations," discusses Garrison's formative background; section 3, "Production and Interest," discusses the coordinating and equilibrating role of capital markets and the interest rate; section 4, "Unsustainable Expansion," explicates the boom phase of the business cycle; section 5, "Keynes and the Austrians," presents Austrian objections to Keynesian business cycle theory; section 6, "Austrian Business Cycle Theory and Monetarism," does the same for Milton Friedman's business cycle theory; section 7, "Austrian vs. Real Business Cycle Theory," does the same for RBCT; section 8, "Lacuna in ABCT," discusses some needed areas for future research; and section 9 concludes.

II. Engineering and Austrian Methodological Foundations

Garrison received a bachelor of science in electrical engineering in 1967 from the University of Missouri at Rolla. This curriculum introduced him to capital budgeting or engineering economics long before he began formally studying economics (Garrison 2004a). …

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