Money and Monetary Policy

This part treats the contrast between conventional monetary policy and the Austrian approach. The starting point is the concept of money as a tool to facilitate economic exchange and as an indispensable instrument of rational economic calculation. In the praxeological perspective, the interest rate is intimately linked to time preference. From that it follows that monetary policy creates havoc when the policy rate of interest deviates from its natural rate. Austrian economics treats money and inflationinflation fundamentally different from conventional macroeconomics and rejects on this basis current central banking and aggregate demand management. Conventional macroeconomicConventional macroeconomics theory and policy stand in contrast to the Austrian macroeconomicsAustrian macroeconomics which offers a proper well-developed theory of the business cycle that differentiates between a productivity-led economic expansion and a credit-driven boom-and-bust sequence.