Time and Money: The Macroeconomics of Capital Structure

Time and Money asks what macroeconomics looks like when production time sits at the center of the model. Roger W. Garrison, its sole author, published it with Routledge in 2001 in a series edited by Mario J. Rizzo and Lawrence H. White; a Taylor & Francis e-Library edition followed in 2002. Across five parts and twelve chapters he builds a graphical apparatus, applies it to growth and the business cycle, then rebuilds Keynesian and Monetarist theory on the same axes. His central argument is that saving and credit expansion can both lower the interest rate, while only saving gives producers a signal that consumers will later validate.

Read it for the comparative method. Garrison makes each school answer one question, how consumption and investment trade off over time, and shows where each framework places its decisive assumption. It suits a reader who has taken basic or intermediate macroeconomics and will follow a curve as it shifts in one panel and propagates to the next. The book offers no portfolio guidance, downturn forecast or assessment of present-day central banking.

The core device, set out in chapter 3, joins three familiar pieces. A loanable-funds market sets an interest rate; a production possibilities frontier bounds sustainable consumption and investment; Hayek's triangle depicts production as stages ending in consumer goods. The first two share an investment axis and the last two share a consumption axis, so a change in one panel must register in the others. Garrison offers it as a frame for discussing the market process, declining to treat it as an equilibrium solver. Saving held as cash feeds loanable funds only indirectly. The loan rate carries more than pure time preference. The triangle's slope reflects the interest rate without equaling it, because value added at each stage includes new inputs. An economy can push temporarily beyond the frontier or sit inside it with idle resources.

Chapter 4 puts the frame to work on growth. Garrison treats technology, resource availability and time preference as distinct sources of growth, noting that a technological advance can raise, lower or leave unchanged the interest rate; growth driven by more saving is one case among several. When people choose to save more, the lower rate favors longer-horizon projects, and inputs move toward early stages while late-stage consumer production contracts for a time. In Garrison's account, the lengthened structure later delivers the added future consumption savers wanted. His labor-market graphs first treat labor as nonspecific, then qualify: workers with stage-specific skills stay put and see wages rise or fall, while nonspecific capital, such as a truck hauling more sawhorses and less lawn furniture, shifts use.

The book's central contrast follows. Garrison sizes a credit expansion to match the earlier rise in saving, so the initial fall in the rate is much the same, measured against the natural rate that would otherwise prevail; that fall need not appear as an observable cut. Preferences are unchanged. Investors respond to cheap credit by starting longer projects, while income earners, discouraged from saving by the same low rate, consume more. The triangle is pulled at both ends and its middle stages are drained, and output temporarily moves beyond the frontier. As projects advance, entrepreneurs meet scarcities of the complementary resources needed to complete them; their bidding and borrowing push rates up, and early-stage commitments are exposed as malinvestment. A secondary contraction can follow if rising liquidity preference turns misallocation into a spiral of falling income and spending.

Garrison bounds this account carefully. Answering Hicks, he combines malinvestment with overinvestment, a general expansion of all stages that helps a boom persist. He ties the investment bias to credit as the channel for new money; transfers to consumers would bias output toward consumption, and he expects that case to be less disruptive because late-stage investments liquidate more easily. Mixed and neutral injections form further cases. On expectations he avoids both extremes. Entrepreneurs cannot locate themselves precisely in a complex capital structure, so widespread hedging cannot cancel the cycle, yet many form judgments that prices transmit, and some hedge before the turn. The model traces a process and assigns no date to a crash.

Part III applies the same panels to Keynes, whose system Garrison reconstructs as labor-based. Keynesians may contest the reconstruction, but it exposes what the paradox of thrift requires. In his version, collapsed investment demand keeps the economy inside its frontier whether wages are sticky or flexible; wage behavior changes only how the damage appears. He then sets a Keynesian picture, in which falling spending drags every stage down, beside a Hayekian one, in which added saving lengthens the structure while total spending holds. He explicitly declines to claim that markets always or necessarily coordinate this way. The possibility alone, he argues, negates the claim that trying to save more must defeat itself.

Part IV turns to Monetarism. Friedman's plucking model holds that output falls well below trend and rebounds but rarely rises far above it, a pattern some later statistical tests supported. Garrison accepts the asymmetry and argues that the frontier constraint produces it in broad aggregates, so a boom in investment's composition can hide behind aggregates that look like bust and recovery. In our reading, that establishes compatibility; confirmation would need disaggregated evidence on stage-level investment and relative prices. He credits New Keynesian work on price adjustment and treats the monetary-disequilibrium theory of Clark Warburton and Leland Yeager as a complement to the Austrian theory of the unsustainable boom. Some downturns may involve one mechanism, some both.

The closing chapter calls the framework no substitute for all other macroeconomic models, then separates two questions: which markets deserve analytical focus, and do decentralized decisions tend toward coordination? His matrix places Hayek at capital and coordination, Friedman at labor and coordination, Keynes at labor and discoordination, and Ludwig Lachmann at capital and discoordination. Garrison qualifies that cell: Lachmann declined to call the market process inherently perverse and left open whether equilibrium forces can be trusted to coordinate plans over time. As a heuristic, the grid shows how political allies can be analytical rivals.

Garrison names the main limitation: his linear triangle sets compounding and reswitching aside, unresolved, to show the general pattern of allocation over time, measuring no magnitudes. He reserves durable capital, feedback loops and specificity for careful, qualified application of Hayek's original construction. The book's central-bank detail dates from 2001. Read it to trace how saving or credit moves through rates, output mix and production stages. The author's Time and Money page offers chapter 3 and chapter 4 as separate PDFs, a fair test of the graphical method.