INFOGRAPHIC: Keynesian vs. Austrian Economics
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There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).
In order to get a full understanding of the two schools of economic thought, please refer to the infographic above. Open the image in a new tab for a larger version.
If anyone feels I did a misrepresentation of either school, let me know!
UPDATE: I’d like to go over some of the comments and problems addressed to me.
- “Animal Spirits is misrepresented” – I just personally thought explaining that further would be too much text. If anyone would like to get a full explination of what Keynes meant by this term, read this Wikipedia article on Animal Spirits
- “This is biased towards the Austrian School” – Well I am obviously an Austrian economist, so there is only so much I can argue with that point. That said, I HONESTLY tried to represent Keynes properly and would love to hear from any Keynesians what can be changed to help represent them properly.
- “Malthus was not an economist” - He may be more of a philosopher, but many consider him an influence of Keynes.
- “Ron Paul is not an economist” - Just because he is a doctor and politician by profession does not mean he is not a well known Austrian Economist. He has many books on the subject, is a senior fellow of the Mises Institute, and has personally got many individuals to research Austrianism further
- “Than is spelled wrong in the Malthus Quote” – Damn, my bad =(. It is fixed in the printable version
- “It should not be total utils, but marginal utility on that graph” – It is supposed to represent the marginal utility graph, I just didn’t label it. The graph should show total utility marginally decreases with each dollar increase. The printable version has the entire chart labeled.
- “Praxeology is not the right term to describe the whole organizational pattern of the social order. It refers only to the logical implications of human action that can be known through deduction.” - Well put. Just hard to figure out how to graphically represent that….
Sources:
MaynardKeynes.org
Investopedia.com
Econlib.org
Mises.org
LearnLiberty.org
EconStories.TV
Step 1 of the Austrian business cycle theory needs a modification. It’s not low interest rates that create money, but money creation that lowers interest rates.
Here’s Joe Salerno: “But the Fed does not directly set interest rates. This is the great modern myth, which was designed to conceal the Fed’s true modus operandi. The Fed influences interest rates by creating and injecting dollar reserves into the banking system. The additional reserves increase the supply of loanable funds relative to the economy’s demand and thus induce banks to offer loans at lower interest rates in order to attract borrowers for the additional funds. So causation runs from the increase in Fed–created base money to reduced interest rates. Lower interest rates are just one of the distortions caused by the Fed’s unrestrained power to create money ex nihilo.”
Source: http://mises.org/daily/5437/What-We-Need-to-Know-about-Money
Smiling Dave:
Thanks for the response! Personally, I had never heard that was the way the Fed operates. I was always under the impression that they set the Fed Funds Rate and the banks can then borrow at that lower rate (creating money).
I will have to look into this further and read that article more in depth when I have a bit of time later on. Very interesting though.
As I recall, the fed sets the discount rate at which they lend to banks in trouble. But banks don’t like to admit they’re in trouble by going to the discount window; they borrow from each other and pay the fed funds rate. The fed controls that rate too but doesn’t set it, that’s why they state what their target is — to be achieved by their open market activity.
I’m not sure that all applies anymore with money cascading through a dozen central bank outlets, fed buying short, medium, and long-term treasuries. (and of course government agencies buying almost all mortgages.)
Great windfall for mega banks; so they don’t mind kicking back 17 billion or so.
[…] This is an interesting graphic contrasting Keynesian with Austrian economics. (HT2 Tom Woods) I could quibble with a few little […]
Hi, great job. How about making a similar infographic about: Chicago school of economics vs Austrian economics