B25 - History of Economic Thought since 1925: Historical; Institutional; Evolutionary; Austrian; Stockholm SchoolReturn

The doctrine of beneficial effects of price level stabilization is an integral part of modern mainstream economics. In the 1920s and 1930s, Friedrich August von Hayek questioned this monetary policy regime, and stressed injection effects of the newly created money aimed at price level stabilization in the economy with expanding natural output. This paper compares the Hayekian theory with mainstream economics. A simple graphical apparatus is used to clarify major differences between the two theories. Standard textbook models are applied to show why the Hayekian approach favours secular deflation over price level stabilization which may lead to the boom-bust cycle. The next section presents New Keynesian arguments in favour of stable prices or even low inflation, and it shows why the Hayek recommendations may result in quasi-recession. The "Wicksellian" equation, which relates inflation gap to the real interest rate gap, is derived to reconcile the Hayek approach with the mainstream perspective. Finally, it is demonstrated that New Keynesian price rigidities might be of much lower importance when the decline in prices is caused by technological progress. A gradually falling price level is then identified as a natural response of the price system in the expanding economy.

This article analyses opinions and teleological approach of Czech economist Karel Engliš (1880-1961) and his relation to the Austrian Economics during the first three decades of the 20th century. He grew out from the Austrian subjective psychological school although he later refused its methodological psychological subjectivism and value theory. Engliš formed an original teleological economic school upon Kant's noetics. This paper describes Engliš's relation to the Austrian school: the polemic approach of Karel Engliš to Austrian Economics, followed by Engliš's agreement with certain postulates of the Austrian School. Engliš supported the conclusions of the Austrian School regarding irreplaceability of economic individualism as the basis for a modern economic market system.

This article demonstrates that the pure time-preference theory of Ludwig von Mises is inconsistent. A productivity element is studied in the Fisher model, and it is shown that time preference is neither a necessary nor a sufficient condition for the existence of interest. An attempt is also made to reconcile the Austrian theory with the neoclassical theory of interest. It is suggested that the key difference lies in the definition of interest as such, and it is concluded that the Austrian theory is only a special case of a more general neoclassical framework.