ABSTRACT
The macroeconomics of capital structure is not intended as a substitute for all other macroeconomic constructions. But the issues highlighted by it do deserve attention both in elementary treatments of macroeconomic relationships and in advanced theorizing. Any theoretical construction that makes a first-order distinction between consumption and investment is fundamentally deficient if it does not recognize the teleological and temporal relationships between these two magnitudes: we invest now in order to consume later. No school of thought actually denies this means-ends connection. Even Keynes (1936: 104) writes, “Consumption – to repeat the obvious – is the sole end and object of all economic activity.” Similarly, no school can deny that production takes time. But does the existence and variability of production time have a first-order claim on our attention? This is the issue that separates the schools of thought. Conventional macroeconomics makes the assumption that this time dimension can safely be ignored in dealing with short-run variations in output and employment; Austrian macroeconomics takes production time to be a foundational concern. The implications of a variable production time and of the possibility of a mismatch between intertemporal production decisions and preferred intertemporal consumption patterns give both substance and flavor to capital-based macroeconomics.
