Time and Money: The Macroeconomics of Capital Structure

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Time and Money: The Macroeconomics of Capital Structure by Roger W. Garrison Routledge * 2001 * 272 pages * $99.00

Although it was Tolstoy who said that "the highest wisdom has but one science-the science of the whole," these words express with uncanny accuracy the practice of the Austrian school of economics. One of the hallmarks of that school is that it sees economics as an integrated whole, with a few initial principles underpinning every theory. It is in this spirit that Roger Garrison of Auburn University has written Time and Money, an in-depth exploration of Austrian, Keynesian, and monetarist macroeconomic theory. The three principles Garrison deploys as the launching pad for his excursion into these issues are scarcity, the market for loanable funds, and the time structure of production. Each is represented throughout this work by a simple diagram-production possibilities frontiers, supply and demand curves, and Hayekian triangles, respectively. Tying these together enables Garrison not only to furnish a standard account of the Austrian (that is, Mises-Hayek) theory of business cycles, but also to draw other implications of Austrian macroeconomics as well as to obtain penetrating insights regarding the nature of Keynesian and monetarist alternatives.

Another comparison of various macroeconomic paradigms may sound to many economists like flagellation of an expired equine. Yet Garrison rises above such potential ugliness and draws a number of fresh insights. One of these may be a triumph of style over substance-but in a good way. His coining of the term "capital-based economics" not only captures one of the most important distinctions between the Austrian approach to macroeconomic theorizing and its rivals, but may also be a public relations coup as well. Just as the "supply-side" designation effectively pointed out a fundamental deficiency of the Keynesian approach and re-popularized a basic truth that had gone out of fashion, Garrison's use of the term "capital based" points to another shortcoming of conventional analysis and has the potential to lend new appeal to bygone verities.

Garrison uses his graphical tools judiciously. He takes them as far as they are applicable, but no further. Yet the graphics employed in Time and Money are not mere window-dressing. Their role is twofold: demonstrating the coherence of the Austrian vision and exposing the limited scope of its Keynesian and monetarist rivals. They permit us to see that those two paradigms are really special cases of the Austrian theory, obtained by disabling or ignoring the market mechanisms that, when functioning properly, align the capital structure with consumer desires. …

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