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

37 Pages Posted: 6 Mar 2009 Last revised: 24 Feb 2010

Date Written: February 22, 2010

Abstract

In response to the global economic crisis, some have advocated that economists consider the economics of the Austrian school. This paper examines elements of Roger Garrison’s Time and Money as an exposition of Austrian Business Cycle Theory not incorporating some of the more complex elements of Hayek’s Pure Theory of Capital. 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 Classification: B25, B51, D57, E22, E32

Suggested Citation

Vienneau, Robert L., Some Capital-Theoretic Fallacies in Garrison's Exposition of Austrian Business Cycle Theory: A Research Note (February 22, 2010). Available at SSRN: https://ssrn.com/abstract=1354336 or http://dx.doi.org/10.2139/ssrn.1354336

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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