The Saving/Investment Explanation of Business Cycles in Hayek and Myrdal: Similarities and Differences

Abstract

Friedrich von Hayek and Gunnar Myrdal developed new explanations for business cycles that went beyond monetary interpretations as a response to the historical developments of the period immediately following the Great Depression and analytical developments offered by Wicksell, the Cambridge School (Marshall, Pigou and Robertson) and the Austrian School (mainly Mises). They established a relationship between business cycles and the disequilibrium between saving and investment levels. Myrdal and Hayek gave a ‘real’ dimension to the contemporary, mostly monetary, explanations of the time. This chapter analyses the similarities and differences of Hayek’s and Myrdal’s business cycle explanations. This is particularly relevant for contemporary business cycle analyses because they offer an explanation based on a dynamic disequilibrium between savings and investment that enriches the current analyses which tend to focus principally on monetary disequilibrium or price dynamics.