The Keynesians would attempt to explain market processes with what is known as the circular flow model. This simplistic narrative would clinically explain how consumer expenditures flow from houses to firms, while the inverse would allow wages, rents and dividends as well as goods and services to then flow toward the households.
The reason that this process is so utterly simplistic and lacking in any sort of structured vigor, is that Keynes and those whom adhere to his fallacious methods were too stuck on the mathematics and less desiring of itemizing the process theoretically. What is included in this process are the wages and other monies government entities extort and then parcel out to the rest of the economy.
The Keynesians' suited measurement of economic value is GDP. The GDP assumption is so comical, the Keynesian's negligence of how inflation can cause this number to seem higher than what is the true measure of real wealth makes them heedless to the business cycle in general. GDP also measures nominally all value in an economy, accounting for the incorrect assumption of the CPI average, plus a further presumed measure of value (hedonic adjustment) that does not exist.
The larger the scale of which one attempts to measure the value, the more difficult the resulting factors arrived to. The valuing of components should only occur within the private level of the economy, especially since the government owns nothing! A value of an economy assumes that the government owns those things. GDP therefore is an excuse to perpetuate government money as well as to provide a pretense for the perpetuation of their public goods.
As one may be aware, government credit expansion causes inflation and misallocation of resources. Typically in order to expand credit the government needs to lower the rate of interest, and for this reason the introduction of a central bank arose.
As Keynes and his followers were confused on how economies functioned, the Austrians were able to elaborate properly the system of a free economy. Including all theoretical aspects of our method, the primitive method of Keynesianism is obviously vanquished.
As mentioned previously in another blog post, Eugen Bohm Von Bawerk not only laid the foundation for the destruction of Marx's theory of exploitation, but also mortified Keynesianism altogether. Rothbard took on the role of simplifying every aspect of Austrian Economics to the core of their theoretical purpose.
It is true indeed that Friederich Hayek elaborately described what is a reiteration of Bohm Bawerk's Capital Theory with his Hayekian triangle. The one difficulty of ever reading Hayek and attempting to convince neophytes to the theories of a movement attempting to attain freedom of government intervention is that his haughty syntax confuses many readers. Rothbard lured in newcomers and to this day convinces those whom even think they can disprove the theories of how fundamental and very realistic they actually are.
To state that Hayek was the proper founder of Capital Theory by labeling it the Hayekian triangle, simply because he received a Swedish central bank prize for his introduction of meaningless mathematics for the academician in his research, would be to cede ground to the state. Rothbard had none of this and basically simplified Bohm Bawerk enough to have Hayek at one point practically embrace anarchism.
It was so fundamental to the Rothbardian movement to have Man, Economy and State be released, as Hayek continued on the path of confounding minutiae. Many of Hayek's works were lost in the annals of his later academic employers, i.e. LSE.
Rothbard on the other hand is now leading a movement whilst deceased. His itemization of the structure of production is at the core of the Austrian Economics movement. It is elaborate yet concise. His cursory method demonstrated that rotating the triangle 90 degrees confuses the neophyte, and adding supply and demand curves is completely unnecessary overall.
Rothbard showed with one beautiful visual in his book how the structure of production begins with land and labor, travels through higher order goods toward lower order goods, finally arriving at the lowest order which is the consumer stage. At every stage of the structure of production quantities of funds revert back to land and labor. Factors are advanced to each stage of the structure of production, and in accordance with the mark up, the capitalist-entrepreneur will earn a speculative return--a rate of return or agio.
In so understanding this diagram, and as well the more purified description I gave in a previous post, an aspiring Rothbardian can come to understand that the IS-LM curve analysis is completely irrelevant. I shall further elaborate in my next post how Rothbard's depiction can be applied to the business cycle itself.
