Libertarian Papers vol. 1 (2009), Art. No. 40: “A Thought Experiment Comparing Austrian and Keynesian Stimulus Packages“, by Wladimir Kraus
Abstract: Essentially, there are two competing views of how to overcome an economy-wide recession/depression. The Austrian view understands the free-play of competition as the most potent means to overcome the short-run mismatch between an excessive boom-level of nominal wages/prices and depressed crisis-level volume of aggregate spending. In the Keynesian view, the disastrous mismatch between desired saving and planned investment inherent in capitalist economies requires the government to step in and take up the burden of spending to infuse the lacking demand for products and labor.
The thought experiment presented in the paper is designed to provide the reader with a direct comparison of major analytical claims of the two competing approaches to assess the ability of each of the two to affect, positively or negatively, employment, capital accumulation, and the general standard of living/real wages.
{ 5 comments }
The Austrian argument here sounds very similar to Selgin and White’s arguments regarding fractional reserve banking – that increased money savings should be met with bank credit expansion.
Thank you, Mr. Kraus, for this excellent comparison. The reasoning and even terminology of Keynesians is duplicated perfectly. The absurdity of an Austrian stimulus package financed by credit expansion is hilarious. Thank you for this excellent paper.
I found the paper to be confusing. It seems as if it should have a more straightforward presentation.
I can’t unambiguously buy into the hypothetical scenario.
“Particularly, businesses in the higher stages of production (capital goods industries), who suffer the most during the downturn, benefit from the funds
that enable them to stay in business and supply companies down the structure of production with necessary inputs.
Why would they be eager to turn the crank upon receiving stimulus? It’s not money they need, it’s income that they need. They will not employ people based on a cash injection unless they know more are behind it. What they need is demand.
Also, I’m not sure how it all washes with the “Lieu of Conclusion” “Practically, all one need to do is not to interfere with the fundamental
market forces of supply and demand but let them their job.”
“Why would they be eager to turn the crank upon receiving stimulus? It’s not money they need, it’s income that they need. They will not employ people based on a cash injection unless they know more are behind it. What they need is demand.”
The demand on the market comes in form of the money spent on product or a service by business.
What’s the difference between money received and income, according to Mr. Ackermann? What’s income?
Calculations of profit/loss are never done in something other than money. Real business decisions are made on the basis of money profits. To argue otherwise, is to simply misunderstand what motivates people in a market economy.
“What’s the difference between money received and income…”
A stimulus, applied to the inputs as the paper asserts, I took to mean a one-time payment.
Income, on the other hand, would be continuous payments derived from output. If there is no visibility on demand going forward, companies will run lean.
Turning the crank would be desirable if there is not finished inventory, but that most likely will not be the case in a recession. They would hoard the stimulus, and clear inventory first.
Comments on this entry are closed.