Principles of Economics * Macroeconomics * The Government Budget
Things to Read on the Afternoon of April 16, 2014

Afternoon Must-Read: Tyler Cowen (2008): Keynes’s General Theory, Chapter Four, *The Choice of Units*

Tyler Cowen (2008): Keynes’s General Theory, chapter four, The Choice of Units: "This chapter may seem cryptic but...

...the key is the tiny footnote to Hayek; this chapter is Keynes obsessing over capital theory and the Austrians. Hayek argued that an economic downturn should be understood as a discombobulation of the capital structure and here is Keynes arguing against that approach.  When you cut through the terminology, Keynes says that capital heterogeneity isn’t needed to generate aggregate demand analysis and that his core mechanisms will operate in any case. Keynes admits that with economic development labor gets very specialized, or very closely connected to particular capital goods, so yes there are capital complementarities of the Austrian kind.  But Keynes thinks such fragilities will only help his argument, while rendering the analytics too messy.  He declares his intention to proceed with homogeneous magnitudes of capital and labor.

This chapter often fails to receive its proper due; it is very important for understanding the location of Keynes in the history of economic thought. 

With this one chapter, Austrian capital theory falls off the map....