The “values-riches” model: An alternative to garrison’s model in austrian macroeconomics of growth and cycle

Abstract

T he values-riches model is a pedagogical and graphical representation of Austrian macroeconomics, combining four elements: the concept of invariable money (Reisman 1996), the capitalization theory of interest of Fetter (1904, 1914) and Mises (1998), the Hayekian structure of production (Hayek 1931), and the growth theory of Bohm-Bawerk (1959). This model offers a simple visual illustration of equilibrium, growth, and business cycle as they may be conceived in an Austrian framework. The graphical approach of this model is heavily influenced by Garrison (2001). It will be argued below that Garrison's model represents and relates real macroeconomic magnitudes. The values-riches model, 1 on the other hand, seeks to display the relations between the great macroeconomic nominal variables (values) and the flows of quantities of consumer goods (riches). The two models are therefore to some extent complementary, offering two different viewpoints on the production process. But there are also a number of theoretical disagreements between them, specially about the theory of interest, that must not be overlooked and will be pointed out in this paper.