Abstract
For an interpretation of his theory of interest we shall employ the presentations given by Wicksell [1893, pp.95ff.], Lutz [1967] and Dorfman [1958/59; 1959].1 As will become clear later, their interpretations reflect only part of von Böhm-Bawerk’s ideas. Von Böhm-Bawerk based his theory on the law of the superiority of more roundabout methods of production: With a given expense, the output will be the greater, the longer the time-span between expense and output. The following example has often been used to illustrate this law: First a fisherman catches fish with his hands. He lays back a part of them until he can afford to stop fishing for a while in order to braid a fishing net. With this net he will be able to catch more fish than before. The same is true if he manufactures a boat. Hence the law of superiority of more roundabout methods is valid.
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References
A good introduction is given by Krelle, [1969], pp.63–72.
Circularity is used here and later on in the meaning use of a good to produce that same good i.e. use of a hammer to hammer out a new hammer; another example would be the sowing of corn in its reproduction. We also use instead of circularity recycling.
The entrepreneur has to wait in the average τ units of time until the production of the consumption good is finished. Since the wage w of a laborer is equal to his consumption in a stationary state, the entrepreneur has to invest wτ for each employed laborer.
There is a certain danger in an explanation along the lines of Figure 2.2, as it is a temporal process diagramm. The concept of capital, however, implies a stock of goods existing at a point in time.
Stiglitz [1974, p.899] claims Wicksell to be a “neoclassicist.” We follow here, however, the terminology of Lutz [1967].
The relationship between the Wicksellian point-input-point-output model and modern neoclassical capital and growth theory is well presented by Cass [1973].
Von Stackelberg used the terms “maturing time” (“Ausreifungszeit”) instead of “total production period” and “average maturing time” (“mittlere Ausreifungszeit”) instead of “average production period,”
The most convincing critique of the average production period concept can be found in Morgenstern [1935].
Among others Lachmann dealt with the problem of capital structure in his article “Böhm-Bawerk und die Kapitalstruktur”, Zeitschrift für Nationalökonomie, vol.XIX, 1959, pp.235–245. He was one of the few that worked with Austrian Capital Theory during the years between 1940 and 1970, and we refer the reader to two further publications by the same author: Capital and its structure, London, 1956, “Die geistesgeschichtliche Bedeutung der österreichischen Kapitaltheorie in der Volkswirtschaftslehre”, Zeitschrift für Nationalökonomie, Vol. XXVI, 1966, pp.152–167.
In The pure Theory of Capital, London, 1941, von Hayek considered questions relevant in this context. See also Lutz [1967, pp.54–6 4 and p.65]. — In “Elemente einer dynamischen Theorie des Kapitals (Ein Versuch)” published in Archiv für mathematische Wirtschaftsund Sozialforschung, Vol.7, 1941, pp.8–29, 70–93, von Stackeiberg attempted a dynamic analysis of his Model I shown above, in spite of the sophistication of his attempt in the end he did not succeed. See also Keetz [1976, pp.277–282].
See Samuelson, Foundations of Economic Analysis, Cambridge, Mass., 1947, p.233, footnote 30 and Koopmans, “Allocation of Resources and the Price System” (New York, Toronto, London, 1957, p.114–115) in: Three Essays on the State of Economic Science (New York, Toronto, London, 1957), Hicks, Value and Capital, Oxford, 1939, pp.153–154, had already recognized the problem.
See also Kennedy, “Time, Interest, and the Production Function”, in Value, Capital and Growth. Papers in Honor of Sir John Hicks, edited by J.N.Wolfe, Edinburgh, 1968, pp.275–290.
Dorfman’s [1958/1959; 1959] and Kuenne’s [1962,19631 contributions are more in the nature of the history of economic analysis than really new approaches. The only exceptions that should be mentioned here are the works of Maurice Allais (see Allais [1962]), but they were not noticed very much in the literature.
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Faber, M. (1979). The Austrian Theory of Interest. In: Introduction to Modern Austrian Capital Theory. Lecture Notes in Economics and Mathematical Systems, vol 167. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-48310-3_2
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