Some Capital-Theoretic Fallacies in Garrison's Exposition of Austrian Business Cycle Theory: A Research Note

Abstract:     
This paper examines elements of Roger Garrison's Time and Money as an exposition of Austrian Business Cycle Theory. This paper demonstrates an entrepreneur may simultaneously classify a capital good into several orders, as orders of goods are defined by Austrian economists. Hayekian triangles are defined. This paper demonstrates that the shape of a Hayekian triangle varies with the interest rate, even if real resources are not reallocated across stages of production. It is demonstrated, by means of an example, that no systematic tendency need exist for entrepreneurs to respond to lower interest rates by reallocating resources from producing low order goods to producing higher order goods, or otherwise increasing the capital-intensity of the structure of production. The rejection, as is typical of Garrison and others in the modern Austrian school of economics, of a physical measure of the average period of production and of a production function with an aggregate measure of capital as an argument is not sufficient for rigorous capital theory. Hayekian triangles are arguably not a good tool for investigating or explaining capital theory.

Keywords: Austrian Economics, Sraffian Economics, Input-Output Tables and Analysis, Capital Theory, Business Cycles

JEL Classifications: B25, B51, D57, E22, E32

Working Paper Series