Thursday, December 11, 2008

Austrians vs Keynes

A little bit of cognitive dissonance for me at Marginal Revolution. Tyler Cowen, who is plugging through GT, says:
Keynes admits that with economic development labor gets very specialized, or very closely connected to particular capital goods, so yes there are capital complementarities of the Austrian kind. But Keynes thinks such fragilities will only help his argument, while rendering the analytics too messy. He declares his intention to proceed with homogeneous magnitudes of capital and labor.

This chapter often fails to receive its proper due; it is very important for understanding the location of Keynes in the history of economic thought.

With this one chapter, Austrian capital theory falls off the map.
Austrian capital theory certainly did fall off the map, but there is clearly nothing in Keynes GT that pushed it. If you can find an actual argument for why capital complementarities with labor can be brushed over, please also tell me how the Government giving money to ditch diggers will help unemployed investment bankers.

For another perspective on why Austrian capital theory "fell" off the map, you can check out Rothbard's biography of Keynes (pdf). If the crappy models aren't bad enough for you, then you can always read about the person himself.


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