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Some Capital-Theoretic Fallacies of Austrian Economics

Robert L. Vienneau


September 8, 2008

This article demonstrates certain doctrines of the Austrian school of economics are untenable. The focus is on certain aspects of capital theory undergirding Austrian Business Cycle theory. Other criticisms of Austrian Business Cycle Theory from Cambridge-Italian economists are briefly surveyed. 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 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 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 capital theory.

Number of Pages in PDF File: 37

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

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

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Date posted: February 26, 2008 ; Last revised: September 9, 2008

Suggested Citation

Vienneau, Robert L., Some Capital-Theoretic Fallacies of Austrian Economics (September 8, 2008). Available at SSRN: https://ssrn.com/abstract=1097803 or http://dx.doi.org/10.2139/ssrn.1097803

Contact Information

Robert L. Vienneau (Contact Author)
Independent ( email )
209 Maple Street
Rome, NY 13440
315-336-5417 (Phone)
315-334-4964 (Fax)
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