The Average Period of Production: History of an Idea

Journal of the History of Economic Thought, Forthcoming

30 Pages Posted: 13 Aug 2014 Last revised: 2 Nov 2016

See all articles by Peter Lewin

Peter Lewin

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Nicolas Cachanosky

Metropolitan State University of Denver; American Institute for Economic Research

Date Written: August 12, 2014

Abstract

Austrian capital theory tried to capture the intuitive and basically undeniable importance that time plays in economic life, but arguably was diverted down a blind alley with Böhm-Bawerk’s average period of production, a purely physical measure of 'roundaboutness' -- the length of the production process. Such a measure is a chimera. But the intuition is strong and the idea survived and reappeared at various points in the history of capital theory. Almost unknown to economists an alternative value measure of roundaboutness existed at least since Hick’s formulation of his average period (AP) in 1939, which, coincidentally was exactly the same measure discovered by the financial actuary Frederick Macaulay in 1938, called by him duration (D). Macaulay’s D, more richly interpreted as Hicks’s AP, is a measure that more appropriately captures what it was that the Austrians struggled to express over many years in their capital theory and in their analysis of the business cycle.

Keywords: capital theory, roundaboutness, average period of production, duration, modified duration

JEL Classification: B22, E23

Suggested Citation

Lewin, Peter and Cachanosky, Nicolas, The Average Period of Production: History of an Idea (August 12, 2014). Journal of the History of Economic Thought, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2479408 or http://dx.doi.org/10.2139/ssrn.2479408

Peter Lewin (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Nicolas Cachanosky

Metropolitan State University of Denver ( email )

Student Success Building
890 Auraria Pkwy #310
Denver, CO 80217
United States

HOME PAGE: http://www.ncachanosky.edu

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

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