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Fall 2011
ISSN 0890-913X
Volume 27, Number 1

Contrasting Concepts of Capital: Yet Another Look at the Hayek-Keynes Debate

Steve Horwitz, St. Lawrence University
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TheJournalofPrivateEnterprise27(1),2011,927ContrastingConceptsofCapital:YetAnotherLookattheHayek-KeynesDebateStevenHorwitz*St.LawrenceUniversityAbstractIarguethattheeconomicsofHayekandKeynesdivergesmostsignificantlynotwithrespecttopolicybutintheirunderstandingoftheroleofcapitalinamarketeconomy,andhowcapitalrelatestoissuesofsavingsandinvestment.Specifically,HayeksAustrianconceptionofcapitalprovidesadifferent,andverydisaggregated,visionofthemarketprocessthatcanhelpidentifytheflawsinKeynesiantheoryandpolicy.HayeksviewofcapitalforcestheeconomisttoconsiderthemicroeconomicfoundationsofmacroeconomicphenomenainawaythatvalidatesHayekscomplaintthatKeynessaggregatesconcealthefundamentalmechanismsofchange.JELCodes:B22,B31,E12Keywords:Keynes;Capitaltheory;Businesscycles;Macroeconomics;HayekI.IntroductionTheGreatRecessionofrecentyearshasrekindledaneconomicdebatethatfirsteruptedaround80yearsagobetweenfutureNobelLaureateFriedrichHayekandLordJohnMaynardKeynes,perhapsthemostimportanteconomistofthe20thcentury.Fromthousandsofpagesoftextinacademicjournals,popularmagazines,andonline,toarapvideothathasbeenseenbymorethan2millionviewers,thisroundoftheHayek-Keynesdebateis,quiteplausibly,evenlargerscaleandmoreintensethantheoriginal.Muchofthecurrentconversationhasfocusedonthewaysinwhichthetwothinkersvisionsoftheeconomyweresodifferentandtherebyledtoverydifferentpolicyconclusions.ThegeneralideaisthatHayekhadmuchmoreconfidenceintheself-correctingpowersofmarketswhileKeyneswasmorefocusedonthewaysinwhichthoseprocessescouldbreakdown.Inturn,theHayekianperspectiveonrecessions*IthankChuckBairdandJeffYoungforcommentsonanearlierdraft.9
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