March 2005 Two Natural Rates: Friedman and the Austrians

The key controversy that lies at the heart of macroeconomics is, and long has been, the question of what causes business cycles. Many different explanations have been offered for the cyclical movements in prices, production, employment, and so forth. These explanations have included, among others, phenomena as diverse as irrational exuberance, technologica

November 2002 Capital, Credit Expansions, and the Subsistence Fund

This paper is not meant to be an exercise in the history of economic thought. Nevertheless, it is interesting to note Reisman's comments about why certain sound ideas from classical economics have been abandoned by more recent economists. On the one hand, many pro-capitalist economists "felt obliged to discard virtually the whole of [classical economics] insofar as it could not immediately be validated on the basis of the neoclassical principle of diminishing marginal utility" (1996, p. 474). In addition, the fact that Adam Smith endorsed both a labor theory of value and the notion that capitalists systematically exploit the working class convinced many that "classical economics is permeated with support for Marxism"(1996, p. 475). Unfortunately, but not too surprisingly, in many cases "this hostility to classical economics on the part of the defenders of capitalism has kept them from any serious study of it" (1996, p. 475) . This is not to say that Austrians are ignorant of classical economics. That is far from the truth. In fact, among today's economists, Austrians are probably more sensitive to issues in the history of economic thought than is any other group. It still is true, One possible manifestation of this may be the fact that the wages-fund idea can seldom be found in recent Austrian works, even those that explicitly address issues in capital theory. For example, Roger Garrison's book on macroeconomics and capital structure refers to the idea only twice (2001, pp. 36, 58); while books by Peter Lewin (1999) and Steven Horwitz (2000) offer brief discussions, but primarily in the context of the historical development of economics. One can only conclude that such writers see the subsistence fund as a concept of no great theoretical significance. however, that ..