Myopia and Optimal Growth: A Rational Reconstruction of F.A. Hayek's Capital Theory

Posted: 30 Oct 2011 Last revised: 14 May 2014

See all articles by Arash Molavi Vasséi

Arash Molavi Vasséi

University of Hohenheim, Department of Economics

Date Written: October 23, 2011

Abstract

This paper translates F.A. Hayek’s informal capital theory into a dynamic equilibrium model. The focus is restricted to Hayek’s largely unrecognized contribution in "Utility Analysis and Interest", published by The Economic Journal in 1936, being restated in "The Pure Theory of Capital", first published in 1941. The underlying premise is that Hayek adopts infant versions of modern analytical tools during his time at the London School of Economics (LSE) such that a rational reconstruction of his capital theory by established neoclassical tools is admissible. The major result is that Hayek’s capital theory contains a generalization of the Ramsey-Cass-Koopmans model. In concrete, Hayek provides the solution to an infinite-horizon deterministic social planner optimization problem in a one-sector economy such that the rate of pure time preference encapsulated in the discount factor increases in prospective utility. With respect to stability properties, he emphasizes that the system converges even in the special case of constant returns to per-capita accumulation.

Keywords: Hayek, capital theory, time preference, Mackey topology, recursive utility, optimal growth

JEL Classification: B21, B22, B31, B41, D90

Suggested Citation

Molavi Vasséi, Arash, Myopia and Optimal Growth: A Rational Reconstruction of F.A. Hayek's Capital Theory (October 23, 2011). Available at SSRN: https://ssrn.com/abstract=1951032 or http://dx.doi.org/10.2139/ssrn.1951032

Arash Molavi Vasséi (Contact Author)

University of Hohenheim, Department of Economics ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany
0049 711 459 22594 (Phone)
0049 711 459 22598 (Fax)

HOME PAGE: http://economics.uni-hohenheim.de/71294.html

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