지은이: Steven Horwitz
Prepared for the 2011 APEE meetings in Nassau, Bahamas, March 2011.
※ 발췌(excerpts):
* * *
The Great Recession of recent years has rekindled an economic debate that first erupted around 80 years ago between Hayek and Keynes. (...) The general idea is that Hayek had much more confidence in the self-correcting powers of markets while Keynes was more focused on the ways in which those processes could break down. In turn, the Hayekian perspective on recessions has seen the boom that precedes the bust as being the period that deserves the most attention, as it is there that government manipulation of the monetary system leads to intertemporal discoordination and the mistaken investments that are eventually revealed as the boom turns to bust. Keynesians, by contrast, have devoted their energy to the bust phase of the cycle (...).
Although these differences are certainly real and meaningful, they only scratch the surface of what I would argue is the most fundamental difference between Hayek and Keynes. To understand why they disagreed on the degree to which markets were self-correcting and therefore the degree to which governments were needed and able to improve on the outcomes market produced, we need to get behind the broad visions of self-adjustment and the role of government to their actual economics. (...) However, the differences are unlikely to be found at the level of, say, the Austrian business cycle theory as such versus the Keynesian income-expenditure model as such. Those "macro" models rest on very different visions of the underlying ^microeconomic^ processes. Each thinker's view of the stability of the macroeconomy is really a reflection of how they understood the coordination processes of the microeconomy.
More specifically, I will argue that it is how each thinker understood, or failed to understand, the role of capital in the market economy that is at the bottom of their contrasting visions of the economy as a whole. These contrasting conceptions of capital are crucial for their understanding of the broader issue of whether the market is capable of generating intertemporal coordination or whether it is prone to systematic failures in this regard. Keynesianism has long believed the latter and I will argue that Keynes's flawed view of capital can help to explain why, and why his view of intertemporal coordination is mistaken. Finally, I will look at how these views of capital contribute to how Hayek and Keynes saw the business cycle and especially policy during the bus phase.
The Austrian Conception of Capital
(...) Austrian capital theory begins where the Austrian school began, with Carl Menger's (1981[1871]) ^Principles of Economics^. Specifically, it is Menger who delineated the difference between goods of the "first order" and goods of the "higher order." First-order goods are those devoted to the direct satisfaction of consumer wants. Goods of higher orders are those that contribute to the making of first-order goods. The piece of bread I eat for breakfast is a first-order good, while the flour, eggs, milk, etc. that went into making it are second-order goods. The inputs that went into making the flour or the milk (...) are third-order goods, and so on. For Austrians, capital can be understood generally as any input that contributes to the production of a first-order good, either directly or indirectly. That is, capital is all of the goods higher orders.
Another way of viewing the question of what makes something capital is to see it as a matter of function. Capital is what capital does: contribute to the plans of entrepreneurs. This observation's importance is that the same good can be capital in one situation and not another. The identical ham sandwich would be a consumer good and not capital if I have prepared it at home for the purpose of direct consumption. However, If I had taken that exact same sandwich and put it in a picnic basket and then sold it in my store, it is now a capital good as it is an "unfinished" element of my plan to sell complete picnic lunches. What makes the sandwich capital or not is its relationship to other goods and services and the plan of actors. It is context or, better yet, the place a good sits in the structure or network of production that determines its capital quality. The Austrian theory of capital denies that one can look at a good or service, or even a non-material asset, standing alone and determine whether or [not] it is capital. It is not the physical qualities of the good that make that determination but where it sits in the network of plans of actors. This is why Ludwig Lachmann(1956: 4) continually refers to the ^structure^ of capital:
Because being capital depends upon a good's location within a plan, it is possible, and quite likely, that the same good can serve as capital in more than one imaginable plan. Any single good has what Lachmann(1956: 2) calls "multiple specificity," which is the quality of being used in more than one, but yet a still limited, number of uses. What is central for the Austrian theory is that capital is not homogeneous; capital goods are not perfect substitutes for one another. Any given good can only serve in a limited number of production plans, and it is not possible to create any given production plan out of any given capital goods. Goods ae not infinitely substitutable, and not all goods have the requisite complementarity necessary to be part of any particular production plan. This emphasis on the "heterogeneity" of capital distinguishes Austrian capital theory from many of its predecessors, especially those, most obviously Knight's "Crusonia plant" or Solow's "shmoo," that viewd capital as a homogeneous fund of resources from which equally useful "ladles" could be applied to any production processes.
Recognizing that capital is heterogeneous in this way suggests the importance of the complementarity and substitutability of capital. When viewed as part of a production plan, the various capital inputs must "fit together" in order for that plan to be executed. How well varioius capital inputs can be fit together in this fashion is their degree of complementarity. What entrepreneurs do in constructing their plans is to integrate complementary capital inputs. In the mind of the entrepreneur at the moment the plan is put in motion, the various capital inputs are all in a comlementary relationship to one another. Substitution, by contrast, is a feature of capital goods when we consider dynamic change. The plans of entrepreneurs are always constructed in a world of uncertainty and may fail to play out as intended. When plans fail to one degree or another, entrepreneurs may choose to reshuffle their capital inputs and formulate a new plan. At this point, the central question is the degree to which one capital good can substitute for another in the plan. The substitutability of capital is what matters when change is necessary.
What guides this process of plan formulation, deconstruction, and reconstruction is monetary calculation. In a market economy where capital goods have money prices, those prices enable entrepreneurs to prospectively formulate budgets and retrospectively calculate profits and losses. Budget based on those prices are what enable entrepreneur to decide which capital goods will effectively serve as complements in an integrated production plan. After that plan has been executed, profits and losses signal owners of capital whether or not the plan was successful, which enable them to decide whether the uses of capital were, in fact, sufficiently complementary to continue. (...)
The process of entrepreneurship and monetary calculation is one of constant plan creation, execution, and revision with the corresponding consideration of the complementarity and substitutability of the capital inputs into those plans. The result of this ongoing process is the production of a capital structure that is an unintended consequence of the various decisions being made by entrepreneur. Although each individual entrepreneur is consciously and intentionally fitting together complementary capital items into production plans, the degree of integration and complementarity in the capital structure of the economy as a whole is an emergent outcome of the interplay between intra-plan complementarity and inter-plan substitution.
In this Austrian vision, the economy is something like a large, jigsaw puzzle with capital goods serving as the individual pieces and no final picture to guide the various independent efforts to create meaningful image. For Hayek and the other Austrians, those pieces are each uniquely shaped though still able to interlock with some finite number of other pieces to form a potentially meaningful pattern when joined in the right ways. If we further imagine that jigsaw puzzle "tells" us that we have joined pieces together correctly by emitting a pleasurable sound when we do so and a very unpleasant one when we do not, we have a fairly good analogy to the market. Those beeps serves as the analogy to profits and losses and help to guide all of us trying to, each working our own area, construct this puzzle without a picture to guide us. From this perspective, the capital structure and the process of monetary calculation that drives it is the fundamental coordinating process of the market economy. Fitting those pieces together as correctly as possible, in response to knowledge and incentives produced by the pleasuable and unpleasurable beeps of profit and loss, is what ensures ongoing economic coordination and growth. Capital is central to the idea that markets do not require outside intervention to be sufficiently coordinated.
Capital in Keynes
Keynes's conception of capital could not have been more different. In general terms, Keynes treated capital as either an undifferentiated aggregate, seeing capital as part of the broader "factors of production' in A Treatise on Money in 1930, or in terms of capital assets to be invested in The General Theory in 1936. In many ways the problem is that Keynes does not really have a theory of capital in the sense that Hayek and the Austrians use the term. As Hayek points out in his review of the Treatise, what Keynes was doing in that book was trying to tell a Wicksellian story about investment, savings and the price level but without the Austrian(via Bohm-Bawerk) theory of capital on which Wicksell's original argument rested. Specifically, Hayek(1995[1931]: 125) argues that Keynes's treatment of the process by which current output is produced is flawed precisely because he views that process as "an integral whole in which only the prices paid at the beginning for the factors of production have any bearing on its profitableness." In other words, Keynes does not recognize that production comes in stages and capital goods sit in specific places in that staged process, or, in Menger's terms, that capital goods can occupy different orders in the structure of production.
Keynes argues as if changes [in] investment are sufficient to explain changes in the production process because of their effects on the aggregate capital of the community. Compared to the Austrian focus on the underlying adjustment processes among the stages of production and the specific capital goods that occupy them, Keynes is operating too high of a level of aggregation where he cannot distinguish among those stages of production. As Hayek points out, it is changes in the price differential between goods in those different stages (i.e., good of different orders) that determine the flow of resources in the production process. Keynes's "neglect" of the "possibility of fluctuation between these stages" is what Hayek sees as leading him to trouble in his discussions of the role of investment and his understanding of "macroeconomic" phenomena. This is the context for one of Hayek's most quoted lines about Keynes, which comes from Hayek's (1995 [1931]: 128) review of the Treatise: "Mr. Keynes's aggregate conceal the most fundamental mechanisms of change." From an Austrian perspective, it is the disaggregated structure of capital and the movement of resources and specific capital goods, and the labor complementarity to them, among the various stages of production that is the foundation of any understanding of larger scale "macroeconomic" changes.[1]
keynes's aggregative view of capital is also clear in a brief footnote in The General Theory that discusses the work of Frank Knight. Hayek and Knight had long sparred over their own contrasting conceptions of capital, with Hayek strongly criticizing the Knightian view that capital was best understood as an undifferentiated, homogeneous aggregate out of which "dollops" could be applied to the production of particular consumer goods. This was quite the opposite from the Austrian view of capital as differentiated, heterogeneous and embodied in specific goods. In the chapter on "The Classical Theory of Interest," Keynes (1936: 176) footnotes approvingly a 1932 article of Knight's which Keynes claims "confirms the soundness of the Marshallian tradition as to the usefulness of Bohm-Bawerk analysis." In the appendix to that chapter, Keynes has an explicit discussion dismissing Mises and Hayek's theory of interest as linked to the relative prices of capital goods and consumption goods. Keynes admits that "it is not clear how this conclusion is reached" and tries to reconstruct the argument. He eventually accuses Mises of "confusing the marginal efficiency of capital with the rate of interest' (1936: 1930. However, the concept of the "marginal efficiency of capital" would have been foreign to the Austrian precisely because treating capital as a whole that has a "marginal efficiency" ran against their conception of the capital structure. The question is always about the value productivity of specific assets given their place in the structure of production.
This overly aggregated concept of capital and its inability to see movements among the stage of production poses another problem for Keynes. It makes it difficult for him to understand how capital can lose value without change in its physical character. In the only real mention of the Austrian view of capital in The General Theory, Keynes(1936: 76) says:
(...) Keynes seems puzzled by the Austrian claim that capital can be "consumed" even though there is no net decrease in physical capital. The answer to the puzzle is that capital, for Austrians, is about value not about the physical object itself. If we build a machine in anticipation of some specific future demand and then discover our expectations were wrong, the machine will drop in value (which is a form of capital consumption) but it does not crumple into dust. Capital good are valued in terms of the (discounted) value of the future consumption goods they will produce. If consumer demand changes, the value of the capital good changes (assuming it is insufficiently versatile to produce whatever new product is now in demand) and capital value is lost, thus capital has been consumed even though the physical stock of capital has not changed. This point will be important in our later discussion of the business cycle.
Keynes's discussion of capital in the "Concluding Notes" chapter of The General Theory demonstrates a very different view of it than that held by the Austrians, and many others. (...) For the Austrians such as Hayek, capital was intricately connected with the process of economic calculation that required private ownership, exchange, and money prices (Mises 1920). On Hayek's view, Keynes radically misunderstood the nature of capital and its role in the market economy.
A few years after The General Theory appeared, Hayek was highly critical of just this part of the argument. He claimed that Keynes had provided an "economics of abundance" in which the scarcity of capital good was irrelevant because he had ignored the relative price mechanism, preferring instead to treat the value of capital only as a discounted flow of future services based on a monetarily determined rate of interest. In such a world, sufficiently expansionary monetary policy could reduce interest rates so low as to make capital seem abundant. As Hayek noted (2007 [1941]: 343):
( ... ... )
Contrasting Visions of Intertemporal Coordination
Austrians such as Hayek have long argued that one cannot understand why an economy goes into recession without first understanding how economies work when they are healthy. With that understanding, Austrians tend to look for disruptions in the processes that normally keep an economy "healthy" as a way to explain how they might get sick. More specifically, they look for explanations of recessions or "busts" by asking if the bust was preceded by a boom. A boom is not a necessary condition for a recession but it is sufficient, and Austrians argue that a preceding boom is the most frequent cause of a bust. Key to understanding that boom-bust cycle is how the capital structure gets distorted in the boom, which also helps to understand how Austrians view the bust.
One of the fundamental differences between Hayek and Keynes was the question of whether markets were capable of generating intertemporal coordination on their own. Hayek and the Austrian were working from a classical loanable funds theory of the interest rate. On this view, the interest rate was the price of time, emerging from the supply of loanable funds from the savers and the demand for loanable funds by investors. Should the public wish to save more, this would increase the supply of loanable funds and push down the interest rate, encourage more borrowing/investing to make use of that new savings. (...) In contemporary terms, the Consumption and Investment terms of total income traded off against each other to keep total income stable even as people's savings preferences changed. Hayek also saw this process as maintaining intertemporal coordination as the lower time preference of savers were matched by the lengthening of production processes and the investment in higher order capital goods that the resulting lower interest rate and larger quantity of loanable funds supplied made possible.
Keynes in contrast, denited that there was such a nexus that coordinated savins and investment. In The General Theory, Keynes(1936: 21) wrote:
(... ...)
Another way of viewing the question of what makes something capital is to see it as a matter of function. Capital is what capital does: contribute to the plans of entrepreneurs. This observation's importance is that the same good can be capital in one situation and not another. The identical ham sandwich would be a consumer good and not capital if I have prepared it at home for the purpose of direct consumption. However, If I had taken that exact same sandwich and put it in a picnic basket and then sold it in my store, it is now a capital good as it is an "unfinished" element of my plan to sell complete picnic lunches. What makes the sandwich capital or not is its relationship to other goods and services and the plan of actors. It is context or, better yet, the place a good sits in the structure or network of production that determines its capital quality. The Austrian theory of capital denies that one can look at a good or service, or even a non-material asset, standing alone and determine whether or [not] it is capital. It is not the physical qualities of the good that make that determination but where it sits in the network of plans of actors. This is why Ludwig Lachmann(1956: 4) continually refers to the ^structure^ of capital:
It will be our main task in this book to study the changes which this network of capital relationships, within firms and between firms, undergoes as the result of unexpected change. To this end we must regard the 'stock of capital' not as a homogeneous aggregate but as a structural pattern. The Theory of Capital is, in the last resort, the morphology of the forms which this pattern assumes in a changing world.This emphasis on relationships and unexpected change also highlight the dynamic nature of the theory.
Because being capital depends upon a good's location within a plan, it is possible, and quite likely, that the same good can serve as capital in more than one imaginable plan. Any single good has what Lachmann(1956: 2) calls "multiple specificity," which is the quality of being used in more than one, but yet a still limited, number of uses. What is central for the Austrian theory is that capital is not homogeneous; capital goods are not perfect substitutes for one another. Any given good can only serve in a limited number of production plans, and it is not possible to create any given production plan out of any given capital goods. Goods ae not infinitely substitutable, and not all goods have the requisite complementarity necessary to be part of any particular production plan. This emphasis on the "heterogeneity" of capital distinguishes Austrian capital theory from many of its predecessors, especially those, most obviously Knight's "Crusonia plant" or Solow's "shmoo," that viewd capital as a homogeneous fund of resources from which equally useful "ladles" could be applied to any production processes.
Recognizing that capital is heterogeneous in this way suggests the importance of the complementarity and substitutability of capital. When viewed as part of a production plan, the various capital inputs must "fit together" in order for that plan to be executed. How well varioius capital inputs can be fit together in this fashion is their degree of complementarity. What entrepreneurs do in constructing their plans is to integrate complementary capital inputs. In the mind of the entrepreneur at the moment the plan is put in motion, the various capital inputs are all in a comlementary relationship to one another. Substitution, by contrast, is a feature of capital goods when we consider dynamic change. The plans of entrepreneurs are always constructed in a world of uncertainty and may fail to play out as intended. When plans fail to one degree or another, entrepreneurs may choose to reshuffle their capital inputs and formulate a new plan. At this point, the central question is the degree to which one capital good can substitute for another in the plan. The substitutability of capital is what matters when change is necessary.
What guides this process of plan formulation, deconstruction, and reconstruction is monetary calculation. In a market economy where capital goods have money prices, those prices enable entrepreneurs to prospectively formulate budgets and retrospectively calculate profits and losses. Budget based on those prices are what enable entrepreneur to decide which capital goods will effectively serve as complements in an integrated production plan. After that plan has been executed, profits and losses signal owners of capital whether or not the plan was successful, which enable them to decide whether the uses of capital were, in fact, sufficiently complementary to continue. (...)
The process of entrepreneurship and monetary calculation is one of constant plan creation, execution, and revision with the corresponding consideration of the complementarity and substitutability of the capital inputs into those plans. The result of this ongoing process is the production of a capital structure that is an unintended consequence of the various decisions being made by entrepreneur. Although each individual entrepreneur is consciously and intentionally fitting together complementary capital items into production plans, the degree of integration and complementarity in the capital structure of the economy as a whole is an emergent outcome of the interplay between intra-plan complementarity and inter-plan substitution.
In this Austrian vision, the economy is something like a large, jigsaw puzzle with capital goods serving as the individual pieces and no final picture to guide the various independent efforts to create meaningful image. For Hayek and the other Austrians, those pieces are each uniquely shaped though still able to interlock with some finite number of other pieces to form a potentially meaningful pattern when joined in the right ways. If we further imagine that jigsaw puzzle "tells" us that we have joined pieces together correctly by emitting a pleasurable sound when we do so and a very unpleasant one when we do not, we have a fairly good analogy to the market. Those beeps serves as the analogy to profits and losses and help to guide all of us trying to, each working our own area, construct this puzzle without a picture to guide us. From this perspective, the capital structure and the process of monetary calculation that drives it is the fundamental coordinating process of the market economy. Fitting those pieces together as correctly as possible, in response to knowledge and incentives produced by the pleasuable and unpleasurable beeps of profit and loss, is what ensures ongoing economic coordination and growth. Capital is central to the idea that markets do not require outside intervention to be sufficiently coordinated.
Capital in Keynes
Keynes's conception of capital could not have been more different. In general terms, Keynes treated capital as either an undifferentiated aggregate, seeing capital as part of the broader "factors of production' in A Treatise on Money in 1930, or in terms of capital assets to be invested in The General Theory in 1936. In many ways the problem is that Keynes does not really have a theory of capital in the sense that Hayek and the Austrians use the term. As Hayek points out in his review of the Treatise, what Keynes was doing in that book was trying to tell a Wicksellian story about investment, savings and the price level but without the Austrian(via Bohm-Bawerk) theory of capital on which Wicksell's original argument rested. Specifically, Hayek(1995[1931]: 125) argues that Keynes's treatment of the process by which current output is produced is flawed precisely because he views that process as "an integral whole in which only the prices paid at the beginning for the factors of production have any bearing on its profitableness." In other words, Keynes does not recognize that production comes in stages and capital goods sit in specific places in that staged process, or, in Menger's terms, that capital goods can occupy different orders in the structure of production.
Keynes argues as if changes [in] investment are sufficient to explain changes in the production process because of their effects on the aggregate capital of the community. Compared to the Austrian focus on the underlying adjustment processes among the stages of production and the specific capital goods that occupy them, Keynes is operating too high of a level of aggregation where he cannot distinguish among those stages of production. As Hayek points out, it is changes in the price differential between goods in those different stages (i.e., good of different orders) that determine the flow of resources in the production process. Keynes's "neglect" of the "possibility of fluctuation between these stages" is what Hayek sees as leading him to trouble in his discussions of the role of investment and his understanding of "macroeconomic" phenomena. This is the context for one of Hayek's most quoted lines about Keynes, which comes from Hayek's (1995 [1931]: 128) review of the Treatise: "Mr. Keynes's aggregate conceal the most fundamental mechanisms of change." From an Austrian perspective, it is the disaggregated structure of capital and the movement of resources and specific capital goods, and the labor complementarity to them, among the various stages of production that is the foundation of any understanding of larger scale "macroeconomic" changes.[1]
keynes's aggregative view of capital is also clear in a brief footnote in The General Theory that discusses the work of Frank Knight. Hayek and Knight had long sparred over their own contrasting conceptions of capital, with Hayek strongly criticizing the Knightian view that capital was best understood as an undifferentiated, homogeneous aggregate out of which "dollops" could be applied to the production of particular consumer goods. This was quite the opposite from the Austrian view of capital as differentiated, heterogeneous and embodied in specific goods. In the chapter on "The Classical Theory of Interest," Keynes (1936: 176) footnotes approvingly a 1932 article of Knight's which Keynes claims "confirms the soundness of the Marshallian tradition as to the usefulness of Bohm-Bawerk analysis." In the appendix to that chapter, Keynes has an explicit discussion dismissing Mises and Hayek's theory of interest as linked to the relative prices of capital goods and consumption goods. Keynes admits that "it is not clear how this conclusion is reached" and tries to reconstruct the argument. He eventually accuses Mises of "confusing the marginal efficiency of capital with the rate of interest' (1936: 1930. However, the concept of the "marginal efficiency of capital" would have been foreign to the Austrian precisely because treating capital as a whole that has a "marginal efficiency" ran against their conception of the capital structure. The question is always about the value productivity of specific assets given their place in the structure of production.
This overly aggregated concept of capital and its inability to see movements among the stage of production poses another problem for Keynes. It makes it difficult for him to understand how capital can lose value without change in its physical character. In the only real mention of the Austrian view of capital in The General Theory, Keynes(1936: 76) says:
It seems probably that capital formation and capital consumption, as used by the Austrian school of economists, are not identical either with investment and disinvestment as defined above or with net investment and disinvestment. In particular, capital consumption is said to occur in circumstances where there is quite clearly no net decrease in capital equipment as defined above. I have, however been unable to discover a reference to any passage where the meaning of these terms is clearly explained. The statement, for example, that capital formation occurs when there is a lengthening of the period of production does not much advance the matters.
(...) Keynes seems puzzled by the Austrian claim that capital can be "consumed" even though there is no net decrease in physical capital. The answer to the puzzle is that capital, for Austrians, is about value not about the physical object itself. If we build a machine in anticipation of some specific future demand and then discover our expectations were wrong, the machine will drop in value (which is a form of capital consumption) but it does not crumple into dust. Capital good are valued in terms of the (discounted) value of the future consumption goods they will produce. If consumer demand changes, the value of the capital good changes (assuming it is insufficiently versatile to produce whatever new product is now in demand) and capital value is lost, thus capital has been consumed even though the physical stock of capital has not changed. This point will be important in our later discussion of the business cycle.
Keynes's discussion of capital in the "Concluding Notes" chapter of The General Theory demonstrates a very different view of it than that held by the Austrians, and many others. (...) For the Austrians such as Hayek, capital was intricately connected with the process of economic calculation that required private ownership, exchange, and money prices (Mises 1920). On Hayek's view, Keynes radically misunderstood the nature of capital and its role in the market economy.
A few years after The General Theory appeared, Hayek was highly critical of just this part of the argument. He claimed that Keynes had provided an "economics of abundance" in which the scarcity of capital good was irrelevant because he had ignored the relative price mechanism, preferring instead to treat the value of capital only as a discounted flow of future services based on a monetarily determined rate of interest. In such a world, sufficiently expansionary monetary policy could reduce interest rates so low as to make capital seem abundant. As Hayek noted (2007 [1941]: 343):
It is clear that if we want to understand at al the mechanism which determines the relation between costs and prices, and therefore the rate of profit, it is to the relative scarcity of the various types of capital goods and of the other factors of production that we must direct our attention, for it is this scarcity which determines their price.He followed that by noting that scarcity in this context can be understood as a good where an increase in demand will increase its price. Even if one, as Keynes does, assumes idle resources, on the Austrian view of capital, not every idle resource is a perfect substitute for another, thus the very heterogeneity of capital makes individual capital goods scarce. Hayek's clear implication is that Keynes was seriously mistaken about the nature of capital and its importance in generating economic coordination.
( ... ... )
Contrasting Visions of Intertemporal Coordination
Austrians such as Hayek have long argued that one cannot understand why an economy goes into recession without first understanding how economies work when they are healthy. With that understanding, Austrians tend to look for disruptions in the processes that normally keep an economy "healthy" as a way to explain how they might get sick. More specifically, they look for explanations of recessions or "busts" by asking if the bust was preceded by a boom. A boom is not a necessary condition for a recession but it is sufficient, and Austrians argue that a preceding boom is the most frequent cause of a bust. Key to understanding that boom-bust cycle is how the capital structure gets distorted in the boom, which also helps to understand how Austrians view the bust.
One of the fundamental differences between Hayek and Keynes was the question of whether markets were capable of generating intertemporal coordination on their own. Hayek and the Austrian were working from a classical loanable funds theory of the interest rate. On this view, the interest rate was the price of time, emerging from the supply of loanable funds from the savers and the demand for loanable funds by investors. Should the public wish to save more, this would increase the supply of loanable funds and push down the interest rate, encourage more borrowing/investing to make use of that new savings. (...) In contemporary terms, the Consumption and Investment terms of total income traded off against each other to keep total income stable even as people's savings preferences changed. Hayek also saw this process as maintaining intertemporal coordination as the lower time preference of savers were matched by the lengthening of production processes and the investment in higher order capital goods that the resulting lower interest rate and larger quantity of loanable funds supplied made possible.
Keynes in contrast, denited that there was such a nexus that coordinated savins and investment. In The General Theory, Keynes(1936: 21) wrote:
Those who think [that an act of individual saving inevitably leads to a parallel act of investment] are deceived... They are fallaciously supposing that there was a nexus which unites decisions to abstain from present consumption with decision to provide for consumption; whereas the motives which determine the latter are not linked in any simple way with the motives that determine the former.(...) The motives that determine each[saving and investment] are completely distinct, unlike the Hayekian conception in which the interest rate serves as the nexus that brings investment and savings together. With savings and investment cleaved in this way, Keynes can also show that the Consumption and Investment component of total income can move in the same direction.
(... ...)
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