Book Discussion: Roger Garrison, Time and Money

Economics Economics Questions
1

There seems to be scarce little economics discussion on this forum devoted to… economics. So, I thought I’d spark some. For those of you who have taken the time to study Roger Garrison’s Time and Money (and the subsequent symposium devoted to it in QJAE) what impressions did the book leave on you.

Whilst I view it as an excellent step forward in Austrian BCT, I do have some misgivings. My views on the book largely reflect those expressed by Ludwig van den Hauwe. I applaud the excellent exposition of Keynesian theory (see Butos’ paper), but I do think that he had precious little analysis of Austrian theory (besides his work on expectations and risk). I’d have liked it if Garrison had devoted some time to a discussion of FRB and whether or not it is a cause of the busness cycle, AFAIK, Garrison comes down on the side of negative in answer to that question.

I’m greatly looking forward to any works that may build on it. I think his graphical depiction is problematic theoretically, but it is still a very useful pedagogical tool. I think Guido Huelsmann goes too far in his criticism, and in doing so misses the entire point of the book. The book was never intended to make advances on Austrian business cycle theory in the language of Austrian economics (although, I don’t deny that he such advances are necessary), rather, it was meant to introduce Austrian thought to mainstream macroeconomists in a language they can understand. Theoretically, his PPF doesn’t reflect the fact that in Austrian BCT the cause of the bust is the fact that economic resources are scarce, IOW, it would be physically impossible for the duelling “production structures” to be completed. This is also seen in his omission of any discussion of the subsistence fund. The Hayekian Triangles used in the book are problematic, as highlighted by Walter Block and William Barnett.

Now, a few questions concerning the book that could provide a basis for any discussion:

  • Is your opinion of the book, on the whole, positive or negative?
  • What flaws does Garrison’s Time and Money contain?
  • In which directions would you like to see his work developed?

I’ve already answered the first two, so I’ll discuss the last point quickly. I’d like to see some refinement of Garrison’s graphical depiction. Where Austrian theory eludes graphical depiction I think it would be appropriate to highlight the shortcomings in footnote and provide some sort of explanation of why the shortcomings of any possible graphical depiction do not, in any large way, affect the theoretical foundations of ABCT.

2

I just ordered this book a few days ago, anxiously waiting for it to get here. I studied some of his powerpoints, so am somewhat familiar with the way he uses the PPF and connects it with the hayekian triangles and market for loanable funds.

Can you summarize the problems you have with his graphical analysis, and the Hayekian Triangles? Or link to Block or Barnett’s critique? Thanks.

I will definitely have more to add to this thread when it arrives.

3

Discuss a book that’s free. Most of us are cheap-os.

4

Here is Block’s and Barnett’s critique.

I’ve only skimmed it very thoroughly (not a Block fan), so I’ll provide you the link instead of destroying the argument in an attempt to summarize it. From what I understand of the paper, B&B don’t really address the pedagogical aspects of Hayekian triangles, which I believe capture the Austrian arguments quite nicely. Even if they aren’t technically sound.

Read this to get an idea of another possible way of representing the ABCT graphically (at the expense of lacking communication with the mainstream, which I believe is a huge flaw). Also of interest would be the symposium devoted to it in QJAE (papers are here, here, here, here, here, here and here). Huelsmann’s paper has some good criticisms, although, I’d argue many of them are misguided and too harsh. For example, he argues that Garrison’s book is essentially neoclassical macroeconomics, and is therefore not true to the Austrian tradition. Now, I’d argue that the entire point of Garrison’s work is to put Austrian macroeconomics is language that neoclassical economists can understand.

In terms of other papers that may be of interest Horwitz, Cochran and Garrison have some other papers that will be worth reading, that are part of the “Garrisonian project”. There’s also another symposium in the QJAE devoted to the teaching of Austrian macroeconomics that might be worht reading.

In terms of flaws in his graphical analysis. I think Huelsmann makes a good point in that not only is Garrison’s conception of the PPF very unorthodox but it makes his exposition of the ABCT empty and indeed somewhat misleading. The crux of the ABCT is simply that there are not enough resources to complete the two structures of production, which is in line with the typical intepretation of the PPF, in that, it simply cannot be transgressed. Moreover, in Garrison’s model, the economy moves of the PPF and then back into it. I’d argue that the ABCT implies that the economy moves into the PPF in the bust phase and then back on to it once the “bust” has been completed.

Another problematic part of Garrison’s analysis is that his notion of time preference refers entirely to the market of loanable funds, as opposed to the intertemporal allocation of resources, as Salerno argues.

I had some other criticisms that I can’t think of right now, but in spite of them, it’s a superb work as is an essential book for anybody seriously interested in Austrian macroeconomics. If you supplement it with Huerta de Soto’s treatise you’ll understand the ABCT extremely well. Huerta de Soto’s book focuses more on the micro processes that cause macroeconomic distortions, and is a better exposition of the Austrian theory of the business cycle. Garrison’s will inform you about mainstream economics and give you a more even handed analysis, elucidating exactly where the Austrian approach fits.

5

It’s been a while since I read the critique, but I find this criticism of the PPF to be typical of pointless nitpicking whenever anything even remotely resembles the tools of mainstream analysis. (See the pointless debate about the concept of indifference, for example)

If you interpret the PPF as a sustainable frontier, as Garrison does (and he is not the first to do so), rather than one that can never be crossed, then what is the difference? Pretend the actual frontier is further out if you wish. Why would that have such an impact on his analysis?

6

I think Huelsmann’s article was not good form, a lot of his points were instances of him being pedantic more than anything else. This said, I think the point about the PPF was spot on. If we conceive of the PPF in the way Garrison wants us to, the ABCT is empty, at least as far as his graphical exposition goes. The ABCT is essentially a theory of the impossibility of completing the production structures as favoured by consumers and the production structure that entrepreneurs wish to complete due to the distorted prices they have received. Now, the cause of this impossibility is insufficient real resources. Meaning, if Garrison wishes to allow the economy to trangress the PPF he has no reason for the boom to end.

7

I am wondering tho, what is the rationale for interpreting the PPF as one that is only sustainable? I thought the point of the PPF was to define the maximum that could be produced in the economy given technology and resources. Is Garrison’s PPF simply located “inside” the PPF that has the usual absolute bounds which it is impossible to move outside?

If anyone have a good rationale or a link to a paper on how its justified to define the PPF like this, id be happy.