Economics Dictionary of ArgumentsHome
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| Capital: Capital in economics refers to assets used to produce goods and services, including financial capital, machinery, buildings, and human skills. It represents an investment in productive resources, contributing to economic growth, productivity, and wealth generation. Capital can be physical or human, and its accumulation is crucial for development._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Austrian School on Capital - Dictionary of Arguments
Harcourt I 149 Capital/reswitching/capitalreversing/Neoclassicals/Austrian School/Harcourt: Why did the original neoclassical parables omit the double-switching and capital-reversing possibilities and why, essentially, must they be supposed to occur in comparisons of technologies such as those actually used? Here the „parables“ again: Harcourt I 122 (1) an association between lower rates of profits and higher values of capital per man employed; (2) an association between lower rates of profits and higher capital-output ratios; (3) an association between lower rates of profits and (through investment in more 'mechanized' or 'round-about' methods of production) higher sustainable steady states of consumption per head (up to a maximum); (4) that, in competitive conditions, the distribution of income between profit-receivers and wage-earners can be explained by a knowledge of marginal products and factor supplies. Harcourt I 150 Capital/Austrian school: The basic Austrian concept of capital may be expressed by supposing,… Time:… first, that labour is applied uniformly through time to produce (say) a unit of output and, … Labour: …secondly, that the greater is the time taken for the final product to emerge, the smaller is the total amount of labour that is needed overall. This is the basis of the Austrian measure of 'capital' in terms of an average period of production. Rate of profit/wage rates: It follows that at very high rates of profits (and low real-wage rates), techniques which use more total labour but less time will be cheapest; while at low rates of profits, the more time-intensive methods of production will be the most profitable. With discreteness in technology, one technique may be the most profitable for a range of values of r; but once it disappears, it never reappears again. Harcourt I 151 Though we are only making comparisons of equilibrium positions, we nevertheless always start with a high rate of profits and move to situations with low ones and it is sometimes hard to remember that we are not being told about an actual process, for example, how an economy may move, through accumulation and deepening, from a high r, scarce capital position to a low r, abundant capital one - and what we may hope to achieve by this process. Reswitching/Harcourt: Now consider the case where we compare two methods, in neither of which is labour applied uniformly over time. Then it is clear that the ratio of the costs of the methods of producing a unit of net output at different values of r can fall below and rise above unity.* A. (…) method A - has a large input of labour at the beginning of its (two-period) gestation period, B. method B - has a larger gestation period (three periods) than A, a small input of labour at the start and a large one towards the end which is, however, less than the total input in A. The total input of labour in A is less than that in B. Then at very high values of r, interest on interest on interest on the cost of labour employed at the start of method B must exceed the wage and interest costs of method A, so that A is preferred to B. Capital cost: (If we ignore wage costs and talk instead in terms of real capital, we would say that the real capital cost of B is greater than that of A. Since both methods produce the same output, clearly A will be preferred.) Input/labour/time: At very low or zero values of r, A will also be preferred because it has the lower total input of labour (and time!). But there is an intermediate range of values of r where the investment of most of B's labour for a shorter period than A's at moderate rates of interest makes B's total cost less than A's. Hence B is preferred. The analogy between this result and the possibility of multiple rates of return to investment in present value calculations has been noticed by several writers, for example, Bruno, Burmeister and Sheshinski [1966](1), pp. 528 and 533. >Reswitching. * In Samuelson's example, w does not change as r does. Sraffa [1960], pp. 34-8, however, llustrates the same phenomena, though, admittedly, in a different context, in an example in which w does change (in a manner determined by its functional relationship with r) and the same result is obtained. 1. Bruno, M., Burmeister, E. and Sheshinski, E. [1966] 'Nature and Implications of the Reswitching of Techniques', Quarterly Journal of Economics, LXXX, pp. 526-53. - - - Coyne I 15 Capital/Austrian School/Coyne/Boettke: Beginning with Carl Menger’s work in 1871, Austrian economists have emphasized the unique characteristics of capital, which refers to goods that are valued because of their contribution to producing subsequent consumer goods. In his Principles of Economics, Menger presented production as a sequential process that involved capital goods (what he called “goods of a higher order”), which are combined to produce final consumer goods (what he called “goods of the first order”). Coyne I 17 In fact, improvements in economic well-being require changes to the capital structure in response to changes in economic conditions, more accurate knowledge of those conditions, and improvements in technology and organizational forms. Cf. >Capital structure/Lachmann. The result is the need for ongoing capital substitution and re-grouping in the face of changing circumstances. The problem with traditional neoclassical methods of studying the capitalist production process lies in either treating capital as a homogeneous blob, or relying on a momentary snapshot of the capital structure at some period of time. In contrast to either the blob method or period analysis, Austrian economists emphasize that we need to focus on the process by which combinations of heterogeneous and specific capital are shuffled and reshuffled in the broader context of the capital structure. Capital stock: The concept of the capital structure stands in contrast to the idea of a "capital stock," which refers to an aggregate measure of all capital at a point in time. >Capital stock/Austrian School._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Austrian School Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 Coyne I Christopher J. Coyne Peter J. Boettke The Essential Austrian Economics Vancouver 2020 |
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