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“Capital Theory, Inflation, and Deflation: The Austrians and Monetary Disequilibrium Theory Compared”

Posted by
January 6, 2010
in Blog

“It can be argued that two apparently divergent macroeconomic schools of thought that have persisted in the history of economics are both part of a larger theoretical view which is capable of meeting most of these criteria. The Austrian theory of the trade cycle as described by Ludwig von Mises (1912, 1966) and F. A. Hayek (1933, 1935, 1939) and the “pre-Keynesian” monetary disequilibrium theory of deflation of Clark Warburton (1946 and 1966), Herbert Davenport (1913), Leland Yeager (1986), and Robert Greenfield (1994) both analyze ways in which microeconomic coordination can be upset by disequilibria in the money and/or time markets. Both theories are part of a consistent line of thought, yet to be fully developed, dating back before Keynes, known as monetary equilibrium theory. The Austrian theory and the monetary disequilibrium approach can be seen as explaining the consequences that follow from the two possible cases (inflation and deflation) in which monetary equilibrium is not maintained.F. A. Hayek (1933, 1935, 1939) and the “pre-Keynesian” monetary disequilibrium theory of deflation of Clark Warburton (1946 and 1966), Herbert Davenport (1913), Leland Yeager (1986), and Robert Greenfield (1994) both analyze ways in which microeconomic coordination can be upset by disequilibria in the money and/or time markets. Both theories are part of a consistent line of thought, yet to be fully developed, dating back before Keynes, known as monetary equilibrium theory. The Austrian theory and the monetary disequilibrium approach can be seen as explaining the consequences that follow from the two possible cases (inflation and deflation) in which monetary equilibrium is not maintained.” Read more.

“Capital Theory, Inflation, and Deflation: The Austrians and Monetary Disequilibrium Theory Compared”
Steven Horwitz
Journal of the History of Economic Thought, 18 (2), Fall 1996: 287-308. Reprinted in The Legacy of
Friedrich von Hayek, Vol III: Economics, Peter J. Boettke, ed., Cheltenham UK: Edward Elgar, 2000.