1. In your book (Time and Money, 2001) you present a graphical framework that captures the essence of Austrian Macroeconomics. The first impression is that this project is something that the Austrians should welcome, either to explain the business cycle theory in a simpler way (traditional Austrian literature is not an easy reading) or to facilitate a critical debate about the use of graphics in economics. How did you become involved with this idea?

I was led to a graphical approach in graduate school where I was confronted with the Keynesian ISLM analysis and realized that Austrians didn't have a viable alternative to it. There was no way to put Keynesian macro head-to-head with Austrian macro. So even at that early stage, one of my objectives was to create an Austrian graphical framework that could compare favorably with mainstream constructions. The general idea was that it takes a set of graphics to beat a set of graphics, so I pursued it on that basis.

In the early 1970s, I wrote my first graphical piece, which was eventually published by the Institute for Humane Studies (in 1978) as a monograph titled Austrian Macroeconomics. It was based on Mises's classical rendition of the relationships, so it was hard for modern students to understand-because it wasn't in their analytical language. That piece was welcomed many Austrian economists, even those who weren't particularly fond of graphical analysis per se. Murray Rothbard, for instance, who was not known for his analytics, loved the graphics. He simply saw the piece as "the Keynesians being beaten at their own game."

But I think the technique goes well beyond that. Adopting a graphical form is a good way to get a coherent exposition of the theory. The graphs impose a certain discipline on your thinking. You have to line up the diagrams and sometimes make adjustments to the theory to make it all work. Yet, these adjustments, it usually turns out, have a basis in the Austrian literature-for instance, the business of pushing beyond the production possibilities frontier as a way to represent an "overheated" economy. If you put the theory in a graphical form you can see this aspect of the policy-induced boom; you see that people are investing more and consuming more. That means pushing beyond the frontier. It's something that has rarely been noticed in the Austrian literature, but it's there and it's a logical necessity. The interlocking graphs have a way of flushing out almost all of the critical aspects of the Austrian argument.

2. Graphics imposing discipline recalls an engineering approach…

My undergraduate degree is in electrical engineering. After graduation I ended up in the Air Force, spending my time in upstate New York in a Research and Development Laboratory as a systems engineer specializing in electronic countermeasures. The Vietnam war ended about the same time I was released from the military, and there was a glut in the market for engineering. My options were to stay in warfare electronics, which I didn't want to do, or get out from engineering, which I also didn't want to do…but that's what I did and I got into economics. My engineering degree was from a school in Missouri, which required students to take one class covering both microeconomics and macroeconomics. I did a Masters in Economics at the University of Missouri-Kansas City. Then I worked for 3 years at the Federal Reserve before continuing my graduate studies at the University of Virginia.

3. Is Austrian macroeconomics a contradiction in terms? In your book, you ask Austrians to accept that the market processes have consequences for macroeconomic aggregates. What was the reaction to this approach?

The reaction was really mixed. As I already mentioned, Rothbard liked my Austrian Macroeconomics, but I also got some hate mail from people who said that it was a sacrilege to Mises to represent his ideas with macroeconomic graphs; it was just unacceptable.

That was my first indication of a strong visceral attitude against graphical expositions. But I haven't spent much time defending the approach-because I'm more interested in dealing with people who find the graphs helpful than confronting people who simply say that graphs are inappropriate and walk away. I had a student in my office, for instance, who told me: "you can show me the graphs if you want, but you might as well show me a head of cabbage; they mean about the same thing to me."

Even micro involves aggregation. If you have the supply and demand for apples, you treat apples as if they are all alike, you build up the total, or aggregate, demand for apples, and so on. You would have to disaggregate the apples if you're trying to account for the price differences among different varieties of apples. The point is that you need your level of aggregation to be consistent with the theory in which it is employed, but this is true for micro no less than for macro. There's nothing unique about using macroeconomic aggregates.

4. You introduced a new key phrase: "capital-based macroeconomics." Could you tell us about the advance in the field facilitated by this new vision?

I'm gratified to see the phrase "capital-based macroeconomics" catch on. Not long after I started using it, I began to see it appear in quotation marks or with a "so-called" attached. Now, it's frequently used as a generic term and with no special reference to my work. That's good. The idea, of course, is to use a name that's based on the substance of the theory rather than on its national origins.

There's room for advancement mainly in the form of empirical studies, or better, historical studies, which is the Austrians' understanding of empirical anyway. Ben Powell, a GMU graduate who is now on the faculty at San Jose State in California, has pushed forward in this direction. He wrote a very good article explaining Japan's recession using the Austrian theory. He took Japan as a case study that fits nicely into the capital-based framework. The piece was published in the Quarterly Journal of Austrian Economics. He recently he told me that the article was inspired by my Time and Money.

Also, there is a working paper at the International Monetary Fund that wonders out loud if the Austrian theory might have current applicability. That piece, by Stefan Oppers, is essentially a review article based on my book. Though the paper's conclusions are mixed and weak, I'm encouraged to see the IMF pay attention to the Austrian theory of the business cycle.