macro: Are We All Hayekians Now?

Scott Sumner thinks we are, but Bob Murphy gently explains that this bus won’t arrive until the Keynesians and Chicago economists acknowledge the signal fact that interest rates are prices and capital production has a price sensitive time structure:

the interest rate is a price that allocates investment among projects of different length. It’s not merely a lever for “more investment or less?” To lower interest rates, in the hope of spurring total spending while ignoring the distortions among choice of investment projects, would be akin to raising taxes on labor and not realizing this would affect hair salons more than oil rigs.

1 comment to macro: Are We All Hayekians Now?

  • Roger McKinney

    And to accept that, they would have to disaggregate their capital, which they don’t know how to do.

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