If Keynes Focused on the Short-Run and the Classical Economists Focused on the Long-Run, then Hayek Focused on Their Coupling

If Keynes focused on the short-run picture, and the classical economists focused on the long-run picture, then the Austrian economists, and particularly Friedrich A. Hayek, focused on the “real coupling” between the two pictures. The Hayekian coupling took the form of capital theory – the theory of a time-consuming, multi-stage capital structure envisioned by Carl Menger and developed by Eugen von Böhm-Bawerk. Decades before macroeconomics emerged as a recognized subdiscipline, Böhm-Bawerk had molded the fundamental Mengerian insight into a macroeconomic theory to account for the distribution of income among the factors of production. Dating from the late 1920s, Hayek, following a lead provided by Ludwig von Mises, infused the theory with monetary considerations. He showed that credit policy pursued by a central monetary authority can be a source of economy-wide distortions in the intertemporal allocation of resources and hence an important cause of business cycles.

--Roger W. Garrison, Time and Money: The Macroeconomics of Capital Structure, Foundations of the Market Economy (London: Routledge, 2002), 4.