Some Fallacies of Austrian Economics

36 Pages Posted: 31 Jul 2006

Date Written: September 2006


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. Quotations from the Austrian school economist Ludwig Lachmann and the Italian-Cambridge economist Joan Robinson exhibit common findings on the impact of expectations on the valuation of capital goods and the consequent difficulties in aggregating capital across individuals. 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.

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 Fallacies of Austrian Economics (September 2006). Available at SSRN: or

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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