Chapter 11: A Roundabout Approach to Macroeconomics: Some Autobiographical Reflections
11. A roundabout approach to macroeconomics: some autobiographical reflections* Roger W. Garrison I. INTRODUCTION: SETTING THE STAGE ‘Roundaboutness’ is a concept featured in Austrian capital theory. Homely stories about the bare-handed catching of fish are a prelude to a discussion of the economy’s capital structure. The outputs of some stages of production become inputs to others. Production takes time. The capital structure, broadly conceived, has a temporal profile – one that can be modified in response to changes in intertemporal consumption preferences and resource constraints. This was the central message of Eugen von Böhm-Bawerk (1959). Alfred Marshall, who theorized in terms of the short period and the long period, taught us that most problems in economics stem from the ever-critical time element. I think Marshall was right on time. But I also believe that a healthy understanding of some of those problems – particularly the ones in macroeconomics – is not best facilitated by his simple short-period/longperiod distinction. Adopting Marshallian methods, John Maynard Keynes dealt with the polar extremes in the quality of expectations, casting serious doubt on the viability of a market system. In the short run, the time element itself is no problem: short-run expectations faithfully reflect reality. If the level of spending changes, the multiplier process plays itself out in a clockwork sequence of spending and earning, eventually achieving a new circular-flow equilibrium. Long-run expectations, however, are another matter. Here, the time element is a debilitating problem: these expectations, if you can call them that, are baseless. The future...
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