Capital macroeconomics: an introduction to the alternative

We have prepared a series of articles on capital macroeconomics for you. This introductory part introduces you to the cornerstones of this theory and the personalities behind it. There are not many Czech texts on this topic and that is why this series will be here for you. Perhaps you will enjoy it, because the "mainstream macro" is not the only theory that exists!

FA Hayek
FA Hayek

Do you find modern mainstream macroeconomics full of large numbers, many aggregates, ignoring an individual's behavior, boring? Do you think that those educated macroeconomists, calculating GDP and other numbers, speak something strange? Do you think that many macroeconomic theories are simply beyond common sense?

Then there is "capital macroeconomics" for you. A theory that is consistently based on microeconomic foundations, a theory that does not dictate to us "what growth is right," a theory that is often not in opposition to common sense.

It may strike you that capital macroeconomics lacks economic aggregates, not even GDP. From the point of view of capital macroeconomics, this number is meaningless, almost meaningless. Why, we will show it in other parts of this series.

The whole capital macroeconomics is due to the elaboration and dissection of the Austrian theory of the business cycle (also known by the abbreviation ABCT - Australian business cycle theory), the foundations of which can be seen in the work of the Austrian economist Ludwig von Mises (1912). He followed up on his work and further developed the theory, especially in the 30s, economist (and Mises's pupil) FA Hayek (and others).

Capital macroeconomics is based on the fact that savings and investment are coordinated primarily by market-driven interest rates, which play the role of price. At the same time, Hayek showed that this market in particular, and interest rates in particular, are very sensitive to state intervention. In contrast to Keynesian macroeconomics, this theory evaluates the influence of the central bank negatively.

The methodology of capital macroeconomics could then be summarized in one quote by FA Hayek, which we will follow in our series - first we will explain everything and only then we will look at ABCT and the current crisis from the perspective of the capital macro.

"Before we start dealing with how something is going wrong, we must first explain how it should actually work properly."

"Before we can even ask how things might go wrong, we must first explain how they could ever go right."

- FA Hayek

By the way, a long time ago here one article on this topic was published. You can read it, but in this series we will analyze capital macroeconomics more comprehensively and perhaps even more vividly 🙂

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