The seminar The Austrian School in Historical Context: Its Rebirth and Continuing Relevance presented by the professor and economist Richard Ebeling, is a group of sessions where he discusses the pertinence of the several contributions the Austrian School of Economics made during the 20th century.
In this session, Ebeling shares the Austrian Capital Theory, its conception of production in comparison to the fundamental flaws of Keynesian Economics. He presents the two conflicting approaches that emerged during the last years of the 1930s, one of John Maynard Keynes and the other one from Eugen Böhm von Bawerk’s argument later presented and defended by Friedrich Hayek.
In Keynesian perspective, what determines the level of output and employment is the current level of spending and whether that current level of spending in total is equal to the amount that firms have incurred as costs to bring that current level of output to market”.
Keynes’ proposals have dominated all the we called the Macroeconomic Theory and Policy discussion. In his view, the driving force in the macro-economy is a lack of sufficient final demand for output as a whole to generate the revenues that will be large enough to make it profitable for business as whole to employ all those looking for and designing employment. His view was opposite to the views of both the Classical Economics and the Austrian School of Economics.
In Keynesian view, what holds the economy back? The villain in his story is the savings. “
Ebeling proceeds to discuss the classical view of Austrian approach to the nature and use of capital. In John Stuart Mill’s perspective, savings are used to consume less than is produced, is saving; and that is the process by which capital is increased. Also, he discusses Böhm-Bawerk’s approach on savings and future consumer’s demand. In few words, trading money now, is to spend more in the future which means that more capital will be created.
Böhm-Bawerk’s reply was to point out that production is always a forward-looking, a process of applying productive means today with a plan to have finished consumer goods for sale tomorrow.
Keynes fundamental error in not understanding how savings creates employment. If you haven’t watch the whole collection, click here!
Economist, professor and author
Nuestra misión es la enseñanza y difusión de los principios éticos, jurídicos y económicos de una sociedad de personas libres y responsables.
Universidad Francisco Marroquín