ȀȄȁ Partʺ: Economicsspecific recommendations, especially not quantitative ones. Ļe best it
can recommend to policymakers is to avoid disrupting an economic envi-
ronment that facilitates the coordination of private plans. What history
particularly warns against is disruptions from excessively contractionary
or expansionary monetary policy. Ļe case for dependability in monetary
policy—for rules, not episode-to-episode discretion—deserves attention.
Macroeconomics gives scant specific guidance for remedying the fears
and uncertainties of lateȁǿȀǿ. It is true in principle that a monetary pol-
icy even more expansionary than already adopted could revive spending by
offsetting the fall in money’s velocity—by gratifying the temporarily inten-
sified demand to hold money. Unlike many earlier recessions, however,
the current one is not marked by monetary tightness. To ease money and
credit further would aggravate the “exit-strategy” problem for the Federal
Reserve, the problem of how safely to reverse the great expansion of its
balance sheet. Furthermore, such a short-run-oriented expedient might
well destroy the Federal Reserve’s hard-won reputation as guardian of the
value of money.
In summary, Austrian economics, including macroeconomics, recog-
nizes how messy (“imperfect”) reality is, with so much depending on rad-
ically decentralized knowledge and decisions to be coordinated somehow.
Decisions are guided, not only by current conditions but also by chang-
ing experience, theories, entrepreneurial spirit (Keynes’s “animal spirits”),
intuitions, and hunches. Austrian emphasis on the subjective element is
amply warranted. Fortunately, attention to the psychological contagion of
speculative booms and paralyzing fear is gaining academic respectability.
Ļis cannot all be formalized and rigorized in the way sought by
mainstream economic models, with their functional forms and specific
parameters informing ambitious and successful policy. Perhaps remark-
able intellectual advances will some day satisfy such aspirations. Until
then, however, theory and policy must remain modest.
Ļe current disarray in macroeconomics and the exaggerations of lately
fashionable free-marketry give Austrian economists an opportunity to
earn the attention of the mainstream. In business-cycle theory, their broad
time-and-money orientation holds more promise than their specific appli-
cation of capital and interest theory criticized above, which may have
seemed more plausible under certain past historical-institutional condi-
tions than it is in general. Austrian macroeconomics has much in com-
mon, and could develop still more in common, with monetarism, with
work like that of Clower and Leijonhufvud and Howitt, and even with