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Rethinking the Keynesian RevolutionKeynes, Hayek, and the Wicksell Connection$
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Tyler Beck Goodspeed

Print publication date: 2012

Print ISBN-13: 9780199846658

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780199846658.001.0001

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A Treatise versus Prices and Production

A Treatise versus Prices and Production

(p.40) Chapter 2 A Treatise versus Prices and Production
Rethinking the Keynesian Revolution

Tyler Beck Goodspeed

Oxford University Press

This chapter delves into the first Keynesian and Hayekian variations on the Wicksellian theme, namely, Keynes’s A Treatise on Money (1930) and Hayek’s Prices and Production (1931). We explain that in both works, the authors integrate the role of relative prices fundamentally into Wicksell’s cumulative process and thereby seek to develop Wicksell’s theory into a theory of the business cycle. The market–natural rate distinction remains, as does the potential divergence between saving and investment, which for both authors drives the cycle. Ultimately, disequilibrium in the two models stems from an unresolved conflict within the structure of production, a rivalry between producers of consumer and investment goods corresponding strictly to the failure of adjustment between saving and investment. In this, the Wicksellian two-rates framework is decisive, constituting a disequilibrating trip wire within capital markets that touches off a progressive sequence of ultimately re-equilibrating secular price changes. Nonetheless, both models contain flaws, which the chapter touches upon.

Keywords:   Keynes, Hayek, natural rate, A Treatise on Money, Prices and Production, market rate, saving, investment

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