If you are authenticated and think you should have access to this title, please contact your librarian. Don't have an account? This chapter attempts to read the poetry of young Milton within the uncertain horizons of his own lived history. It thus focuses on the problematic of becoming at the heart of Poems For if notes of apocalyptic and rebirth sound throughout the volume, this chapter nonetheless shows how the staging and re-staging of this theme ultimately folds hoped-for millenarian rupture back into the fabric of secular time.
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Milton Now by Catharine Gray (ebook)
Austrian macroeconomics is distinguished from the macroeconomics of both Keynes and Friedman by its acceptance of the Wicksellian concept of the natural rate and by its attention to the consequences of a bank-rate deviating from the natural rate. It is distinguished from Wicksellian macroeconomics, however, in terms of the particular consequences taken to be most relevant.
For Wicksell , pp. If, for instance, the natural rate rises as a result of technological developments, inflation will persist until the bank rate is adjusted upward. A relatively low bank rate may create "tendencies" for capital to be reallocated in ways not consistent with the natural rate, but those tendencies do not, in Wicksell's formal analysis, become actualities. Real factors continue to govern the allocation of capital, while bank policy affects only the general level of prices Ibid.
Also, Wicksell's informal discussion, which accompanies his formal exposition, gives greater scope for actual quantity adjustments within the capital structure Ibid. For the Austrians, the effects of a cheap-credit policy on the general level of prices is, at best, of secondary importance. If in fact the discrepancy between the two rates of interest is attributable to technological developments, as Wicksell believed it to be Ibid.
If, alternatively, the discrepancy is more typically attributable to inflationist ideology, as Mises a, pp. Still, this general rise in prices, this fall in the purchasing power of money, is of less concern to the Austrians than the changes in relative prices that result from the artificially low bank rate of interest. The "tendencies" for reallocation within the capital sector acknowledged by Wicksell become "actualities" in the Austrian view. The market process is not so fail-safe as to preclude any investment decision not consistent with the overall resource constraints.
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Newly created money put into the hands of entrepreneurs at an artificially low interest rate allows them to initiate production processes that eventually conflict with the underlying economic realities Hayek, c, pp. Where Wicksell claimed that tendencies toward reallocation do not become actualities, the Austrians claim that actual reallocations induced by credit expansion are unsustainable. The artificial boom ends in a bust. In his discussion of Keynesian and Austrian concerns about interest-rate effects, Friedman claims that the importance of ultimate effects, as compared to first-round effects, is an empirical question Gordon , p.
The Austrians recognized that ultimately , after boom, bust, and recovery, empirical analysis would reveal no lingering effects of the initial credit expansion on the bank rate of interest relative to the natural rate. The economy overall would be less wealthy for having suffered a boom-bust cycle, and hence the natural rate itself might well be higher. But the relative magnitudes of the initial and ultimate effects is no basis for ignoring the market process that produced them. The first-round effects constitute the initial part of a market process that plays itself out within capital and resource markets; the loss of wealth and possible increase in the natural rate is the ultimate effect of that same market process.
The Dynamics of an Unsustainable Boom Although Friedman does not engage in process analysis in his treatment of the interest rate as it is affected by credit expansion, he does engage in process analysis in his treatment of the wage rate as it is affected by price-level inflation Friedman, , pp.
The first-round effects consist of a discrepancy between two wage rates: the rate as perceived by the workers and the rate as perceived by the employer. Friedman could have made the claim, in connection with these labor-market dynamics, that "the importance of the ultimate effects in comparison to the first-round effects is an empirical question. But Friedman does not dismiss his own analysis with a rhetorical question about an empirical test.
Instead, he sees the first-round effects as the initial part of a market process that plays itself out within labor markets, and he sees the reestablishment of the natural rate of unemployment as the ultimate effect of that same process. There is empirical evidence consistent with both the Monetarist treatment of labor markets and the Austrian treatment of credit markets.
The unsustainablility of an inflation-induced boom in labor markets and of a credit-induced boom in capital markets is suggested by a natural rate of interest and a natural rate of unemployment that are independent of monetary policy. Data on inflation rates and unemployment rates for the last several decades must be accounted for in terms of some market process through which monetary expansion has an initial effect, but not a lasting one, on real magnitudes.
Whether the most relevant market process is one working through labor markets or one working through credit markets is a matter of logical consistency, plausibility, and historical relevance. This comparison of Monetarism and Austrianism in the context of the dynamics of an unsustainable boom seems to create an alliance between these two schools against Keynesianism. The allied account of an artificial boom that contains the seeds of its own destruction stands in contrast to the Keyensian account of a bust attributable to a sudden and fundamentally unexplainable loss of confidence in the business community.
But the alliance is only a tactical one. Any theory of a boom-bust cycle is inconsistent with Friedman's plucking model, which suggests that there are no such cycles to be explained. The original context in which Friedman offered his account of the inflation-induced labor market dynamics makes the inconsistency understandable. Friedman was not attempting to identify a market process that fits neatly into his own Monetarism.
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Instead, he was demonstrating the fallacy of a politically popular Keynesian belief that there is a permanent trade-off between inflation and unemployment. Based upon the empirical study done by A. Phillips in the late s, many Keynesians came to believe that the inverse relationship between rising nominal wages and unemployment constituted a menu of social choices and that policymakers should acknowledge the preferences of the electorate by moving the economy to the most preferred combination of inflation and unemployment.
Friedman was willing to do battle with the Keynesian optimizers on their own turf. Accounting for the inverse relationship in terms of a misperception of wages, he was able to show that the alleged trade-off existed only in the short run and therefore did not constitute a sound basis for policy prescription.
There is no evidence, however, that he considered these labor-market dynamics to be an integral part of his own macroeconomics, although some Monetarists, notably Edmund S. Phelps , and most textbook writers have taken them to be just that. Austrianism is set apart from the other two schools in this regard.
And, by adopting a fundamentally different framework at a lower level of aggregation, the Austrians have been able to identify the capital-market dynamics essential to the understanding of such cycles. A Summary Assessment: The Wicksellian Watershed and the Austrian Sieve In the broad sweep of the history of macroeconomic thought, the Wicksellian theme, in which there can be a temporary but significant discrepancy between the bank rate and the natural rate of interest, constitutes an important watershed.
A significant portion of twentieth-century macroeconomics can be categorized as variations of this Wicksellian theme. Hayek; and British theorists working in the tradition of the Currency school: Ralph Hawtrey, Dennis Robertson, and taking his cue from the Austrians, the early Lionel Robbins.
Excluded from this category are those theorists who deny, ignore, or downplay the Wicksellian theme, typically by adopting a level of macroeconomic aggregation too high for that theme, in any of its variations, to emerge. Exemplifying these theorists are Irving Fisher and, following him, Milton Friedman.
Even Don Patinkin, who draws heavily on Wicksell's ideas about the dynamics of price-level adjustments, belongs to this group. His chosen level of aggregation, which combines consumer goods and investment goods into a single aggregate called commodities, precludes from the out set any non-trivial consequence of the discrepancy between the bank rage and the natural rate. Axel Leijonhufvud , p. Wicksell and Fisher are at the headwaters of two separate traditions labeled "Saving-Investment Theories" and "Quantity Theory. This interpolation between Keynes's two books is designated "Z-theory" Ibid.
Drawing from the first book, it allows for a natural rate of interest from which the bank rate can diverge, and drawing from the second book, it allows for the resulting disequilibrium to play itself out through quantity adjustments rather than through price adjustments. Leijonhufvud's hybrid Keynesian theory gives play to the Wicksellian theme and fits comfortably in the list of "Saving-Investment" theories.
With the exposition of his "Z-theory," Leijonhufvud has clearly identified himself as a Wicksellian. In the Treatise , the discrepancy between the bank rate and the natural rate did not have a significant effect on the saving-investment relationship; in the General Theory , significant disturbances to the saving-investment relationship were not attributed to a discrepancy between the two rates. By offering his Z-theory in support of Keynes's candidacy as a Wicksellian, Leijonhufvud tacitly admits that Keynes had actually managed to skirt the Wicksellian idea first on one side, then of the other.
Keynes's chosen level of aggregation, together with his neglect of Wicksellian capital-market dynamics, establishes an important kinship to Fisher, Friedman, and Patinkin. Keynes, according to Hayek, "is a quantity theorist, but modified in an even more aggregative or collectivist or macroeconomic tendency" Ibid. The Wicksellian watershed, as employed by Leijonhufvud, makes a first-order distinction between broad categories of theories on the basis of subject matter.
In one category, the subject is saving and investment and the market process through which these macroeconomic magnitudes are played off against one another. In the other category, the subject is the quantity of money and the market process through which changes in the supply of or demand for money affect other real and nominal macroeconomic magnitudes.
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An alternative first-order distinction, more in the spirit of Hayek's critique of Keynes, is one based on alternative levels of macroeconomic aggregation. The notion of a Wicksellian watershed might well be supplemented by the notion of an Austrian sieve. In one broad category of theories, the level of aggregation is low enough to allow for a fruitful exploration of the Wicksellian theme. In the other category, the level of aggregation is so high as to preclude any such exploration. Based on their high levels of aggregation, then, both Keynesianism and Monetarism fail to pass through the Austrian sieve.
This is the meaning of Hayek's claim that Keynes is a quantity theorist and of the corresponding claim that Friedman is a Keynesian. This interpretation is almost universally attributed to Hicks on the basis of his early article and to Hansen on the basis of his subsequent exposition.
Friedman clearly recognizes his kinship to Keynes in terms of their fundamental approach: "I believe that Keynes's theory is the right kind of theory in its simplicity, its concentration of a few key magnitudes, its potential fruitfulness. I have been led to reject it not on these grounds, but because I believe that it has been contracted by experience" Friedman, , p.
Allan H. Meltzer identifies the type of theorist that produces Keynes's kind of theory: "Keynes was the type of theorist who developed his theory after he had developed a sense of relative magnitudes and of the size and frequency of changes in these magnitudes.
He concentrated on those magnitudes that changed most, often assuming that others remained fixed for the relevant period" Meltzer, , p. This method is not as laudable as it may seem. Austrian macroeconomic relationships are spelled out in various contexts by Ludwig von Mises , F. O'Driscoll, Jr. The aphorism "the bigger the boom, the bigger the bust" must be applied cautiously. The Austrian theory links the necessary, or unavoidable, liquidation to the credit-induced misallocations. It does not imply, as, for example, Gordon Tullock seems to believe, that all the actual liquidation during the Great Depression is to be explained with reference to misallocations that characterized the previous boom.
Much, if not most, of the liquidation during the s can be attributed, as Rothbard indicates, to misguided and perverse macroeconomic and industrial policies implemented by the Hoover and Roosevelt administrations 5. The relative emphasis on secular unemployment, as compared to cyclical unemployment, is consistent with Meltzer's interpretation of Keynes Meltzer, , pp. In most modern textbooks, involuntary unemployment is taken to mean cyclical unemployment.
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