Roger Garrison

Quotes From

Time and Money: The Macroeconomics of Capital Structure (2001)

• The idea that entrepreneurs know enough about their respective positions in the Hayekian triangle to hedge against the central bank is simply not plausible. It all but denies the existence of an economic problem that requires for its solution a market process.#
• Austrian theory may best account for some nineteenth-century downturns and for the downturn at the end of the 1920s easy-money boom; Monetarist theory may best account for the prolonged contraction that followed the initial downturn in 1929 and for the subsequent downturn in 1937, which seems to be wholly attributable to an unexpected and ill-advised monetary contraction.#
• In the judgment of the Austrians, Keynes had disaggregated enough to reveal potential problems in the macroeconomy but not enough to allow for the identification of the nature and source of the problems and the prescription of suitable remedies. By contrast the Monetarists, in the Austrians’ judgment, have not disaggregated enough even to reveal the potential problems.#
• Unlike the Keynesian and Austrian visions, then, the Monetarist vision can be stated in terms of changes in output Q or real income Y/P without special reference to the individual objects of expenditure or components of output V and I. In effect, Monetarism is virtually framework-independent. As long as a framework gives sufficient play to the variables included in the equation of exchange, the Monetarist vision can be expressed in that framework. #
• With the direct cash-balance effect in play and the consequent increase in the derived demand for labor, it is not clear that the possible misperception of the real wage has any claim on our attention. Monetarism could easily do without this particular twist.#
• [According to Monetarists, during a monetary expansion] firms perceive the real wage to be falling; workers (initially) perceive it to be rising. . . . To the firm, the “real wage” means the wage rate in comparison to the price of the firm’s output. Changes in this classical, or Ricardian, real wage are not difficult to perceive. To the worker, the “real wage” means the wage rate in comparison to the prices of all the goods and services that the workers buy. Changes in this more neoclassical, or Fisherian, real wage are relatively difficult to perceive.#
• When [Keynes] deals with cyclical unemployment, the high demand for money is a secondary phenomenon; the primary problem is a collapsed marginal efficiency of capital. When he deals with high money demand as a primary problem, he links it to secular and not cyclical unemployment.#
• The Austrian theory of the business cycle is a theory of the unsustainable boom. It is not a theory of depression per se. In particular, it does not account for the severity and possible recalcitrance of the depression that may follow on the heels of the bust.#
• If the economy could be usefully modeled as the market for a single service, there would not likely be any issues that would give macroeconomics a distinct subject matter. #
• The change in the interest rate affects the pattern of employment and not the magnitude.#
• In general and for any given stage of production, [in response to a change in the interest rate] the specific factors undergo price adjustments; the nonspecific factors undergo quantity adjustments.#
• Although a typical technological innovation occurs in one or a few markets, it allows, through resources reallocation, for increases in the production possibilities all around.#
• What manifests itself on the demand side of the loan market as a loss of business confidence manifests itself on the supply side as an increase in liquidity preference.#
• To the extent that an increase in saving is accompanied by an increase in liquidity preferences, it does not substantially increase the supply of loanable funds and hence has little effect on the rate of interest.#
• If we think in terms of market solutions to economic problems, we must accord expectations a crucial role. But that role is overplayed if it is assumed that expectations come ready-made on the basis of information that is actually revealed only as the market process unfolds; it is underplayed if it is assumed that expectations are and forever remain at odds with economic realities despite the unfolding of the market process. Either assumption would detract from the equally crucial role played by the market process itself, which alone can continuously inform expectations. #
• Expectations are not rational in the strong sense of that term, but they do become more rational with increased levels of policy activism and with cumulative experience with the consequences of it.#
• The adjective “rational” [in rational expectations] refers neither to a characteristic of the market participant whose expectations are said to be rational nor to a quality of the expectations per se. It refers only to the relationship between the assumption about expectations and the theory in which it is incorporated. #
• Expectations can be regarded as endogenous in a special sort of way when the market process has been set against itself by policies that affect the intertemporal allocation of resources.#

“Reflections on Reswitching and Roundaboutness” (2003)

• What is the justification for a rarified unit of capital (dated labor) whose utilization is unwarranted outside the context of the most abstract models?#
• Essential to the projects [which exhibit reswitching] is an interspersing of revenues and outlays. Any project for which all outlays are made before any revenues are received cannot have multiple internal rates of return.#
• The particular temporal profiles of reswitching-prone techniques are sufficiently quirky as to warrant neglect in setting out fundamental supply-side principles – an argument that has its parallel in the neglect of the Giffen good in setting out fundamental demand-side principles.#