Some Capital-Theoretic Fallacies in Garrison’s Exposition of Austrian Business Cycle Theory
40 Pages Posted: 5 Sep 2010
Date Written: September 4, 2010
In response to the global economic crisis, some have advocated that Austrian school macroeconomics be reconsidered. 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 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: Suggested Citation