Böhm-Bawerk and Shibata on power or market

In 1935 the Japanese economist Shibata criticized Böhm-Bawerk's discussion to deny the role of power on market and argued that the validity of Böhm-Bawerk's conclusion depends crucially on his special assumptions on the structure of production in his theory of interest. Unfortunately, both Böhm-Bawerk and Shibata used in their discussions an untenable supposition that the value of heterogeneous capital, which depends on values of endogenous variables, can be given exogenously. Our aim is to reconsider the problem in the light of a new interpretation of Böhm-Bawerk's theory of interest, which is free from this supposition.     

Production Period and Cycles: Several Interpretations in a Neo-Austrian Economic Perspective

The aim of this contribution is to study the notion of the period of production by taking into consideration the time-consuming nature of capital. Long delays between investment expenditures and receipts of profits from capital are indeed a remarkable property of the Austrian theory of capital. The study of the great essays of the neo-Austrian capital theory modeling allows us to postulate that there are at least two large contributing groups depending upon whether the production period is endogenous or exogenous. Our work consists in showing the well-founded methodology of the first current by suggesting a neo-Austrian inerpretation of the non-steady state behavior of the standard macroeconomic model. We show that the origin of economic cycles is the potential conflict between the producer's plan of investment through the period of production and the inter-temporal choices of the consumers.     

Plug-and-play,mix-and-match: a capital systems theory of digital technology platforms

Digital technology platforms have transformed the modern economy, disrupting existing industries and creating new ones. In this paper I synthesize Austrian capital theory with general systems theory to analyze why these digital platforms have had such a large and relatively rapid impact. In large part this impact arises from certain architectural features of digital technologies and networks, particularly modularity, which enables digital platforms to change their scale of operations and be adaptable to unknown and changing conditions. Modularity reduces the costs of combining and reconfiguring combinations of individual elements in networks. Austrian capital theory’s focus on the combination of specific capital elements in production thus provides a valuable lens through which to analyze digital technology platforms and the economic reasons for their large and rapid development.

     

Market process(es) and (un)knowledge

By extending an underdeveloped idea of Lachmann, I show that the Austrian theory of the market process à la Kirzner is unable to explain the diversity of market processes because it neglects the imperfect inter-market mobility of factors of production. I show that by taking into account the imperfect mobility of capital equipment and the associated reshuffling costs, it is possible to formulate a set of empirically testable implications about the unfolding of the market process. Furthermore, I show that reshuffling costs shape the context in which the learning process takes place and that the epistemic assumption of structural opacity on which the Austrian theory of the market process relies is not incompatible with the epistemics assumption of structural transparency of neoclassical economics. These epistemic assumptions can be seen as the two poles of a “knowledge spectrum”, from potential omniscience to sheer ignorance.     

Profit Expectations and Confidence: Some unresolved issues in the Austrian/Post-Keynesian debate

Austrian and Post-Keynesian economists both continue to make important contributions to subjectivism in economics. Yet, as the ongoing debate between members of the two schools demonstrates, Austrians and Post-Keynesians have very different views about the possibility of intertemporal coordination in a market economy. This paper returns to the debate between Hayek and Keynes in order to respond to a contemporary Austrian critique of Keynes's theory of expectations. The paper shows that the fundamental difference between the two schools ultimately boils down to the nature of conventional expectations and the question of confidence. If the conventional expectation holds to assume the future will look enough like the present to give investors confidence in their decisions, Hayek's arguments about the possibility of intertemporal coordination merit attention. If, however, this convention does not hold, as Keynes thought was sometimes likely, the self-regulating potential of a market economy is called into question.     

Austrian themes and the Cambridge capital theory controversies

The Review of Austrian Economics - While Austrian economists and their models were only indirectly involved in the Cambridge capital theory controversies that came to a dramatic head in 1966,...     

虚拟经济条件下的资本市场与宏观经济分析

随着20世纪后期以来经济虚拟化进程的加速，需要一种新的宏观分析方法，能够将资本市场理和宏观经济理论更好地结合起来。本文在这方面作了一些尝试。试图将资本市场作为经济中内生的一部分，与居民、企业和银行等经济中其他部门联系起来，从而更好的分析和解释宏观经济波动。     

Quality and Inclusion of Producers in Value Chains: A Theoretical Note

This paper develops a formal theory of the endogenous process of the introduction of high quality production in developing countries. Initial differences in income and capital and transaction costs are shown to affect the emergence of and the size of the high quality economy. Initial differences in the production structure and the nature of transaction costs—as well as the possibility of contracting between producers and processors—are shown to determine which producers are included in the high quality economy, and which not.     

Financial Market Imperfections, Labour Market Imperfections and Business Cycles

A Greenwald–Stiglitz (1993a) style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints. The propagation mechanism is carefully modelled: because of capital market imperfections (only standard debt contracts are traded), firms' labour demand changes in response to changes in their balance-sheet position; because of labour market imperfections (efficiency wages), employment and unemployment fluctuate in response to shifts in labour demand. The virtue of the model is its simplicity. Despite the fact that unemployment is endogenous, the dynamic behaviour of the model under rational expectations can be characterised analytically.
JEL classification : E 32     

The dynamics of a banking duopoly with capital regulations

This paper analyses the dynamics of a banking duopoly game with heterogeneous and homogeneous players (as regards the type of expectations' formation), to investigate the effects of the capital requirements introduced by international accords (Basel-I in 1988 and more recently Basel-II and Basel-III), in the context of the Monti-Klein model. This analysis reveals that the policy of introducing a capital requirement tends to stabilise the market equilibrium (both with heterogeneous and homogeneous banks). Moreover, it is shown that 1) when the capital standard is reduced the market stability is lost through a flip bifurcation and subsequently a cascade of flip bifurcations may lead to periodic cycles and chaos; 2) when the expectations are heterogeneous even the case of multi-stability may be present.Therefore, although on the one side the capital regulation is harmful for the equilibrium loans' volume and profit, on the other side it is effective in keeping or restoring the stability of the Cournot–Nash equilibrium in the banking duopoly.     

Capital gains taxation in an economy with an ‘Austrian sector’

This paper examines the effects of a proportional capital gains in an economy with an Austrian sector (with wine and trees) and an ordinary sector. We analyze the effect of capital gains taxation (on both an accrual and a realization basis) on the efficiency with which resources are used within the Austrian sector. Since time is the only input which can be varied in the Austrian sector, this amounts to looking at the effect of capital gains taxation on the harvesting time or selling time of assets. Accrual taxation decreases the selling time of Austrian assets. Realization taxation decreases the selling time of some Austrian assets and leaves it unchanged for others. Inflation further reduces the selling time of assets taxed on an accrual basis; often, but not always, inflation increases the selling time of Austrian assets taxed on a realization basis. We also examine the effect of the special tax treatment of capital gains at death and find that the current U.S. tax system, under which capital gains taxes are waived at death, encourages investors to hold assets longer.In contrast to these results — which suggest that the capital gains tax can reduce the holding period of an asset — we show that there is a sense in which such taxes (at least when levied on a realization basis) discourage transactions and increase holding periods. It is never profitable to change the ownership of an Austrian asset between the time of the original constraint and the ultimate harvesting of the asset for final use.Capital gains taxation diverts resources from the Austrian sector to the ordinary sector. The effects on the efficiency of the allocation of investment between sectors are complicated and not easy to summarize.     

A risk-based rationale for two-way capital flows: Why do capital flights and inward foreign direct investments co-exist?

This paper develops a positive theory of two-way capital flows—the outward flight of productive capital, and inward foreign direct investment that acquires ownership of local production units. The model exploits insights from decision-making under uncertainty, and traces out how entrepreneurial incentive to engage in risky production impacts equilibrium returns on capital. Contrary to expectation, productive assets tend to flow from capital-poor to capital-rich economies, while foreign direct investment follows the reversed pattern. By examining the nature of optimal interventions, the paper also demonstrates the inherent conflict of interests between host and source countries engaged in capital market liberalization.     

Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory

An Austrian interpretation of the New Keynesian small menu cost model of the business cycle is proposed. Austrian and New Keynesian business cycle theories share the feature that the cycle is generated by rigidities which prevent the economy from adapting instantaneously to changing conditions. Austrian business cycle theory is capital-based, focusing on credit expansion which artificially lowers interest rates and causes an investment boom and unsustainable business expansion. In contrast, the New Keynesian small menu cost model of the business cycle is based on nominal rigidities which prevent markets from clearing. Small menu costs introduce dichotomous behavior, where firms find it locally optimal to avoid instantaneous output price adjustments in the face of the cost, but this local optimum results in economy-wide output and employment fluctuations which are much greater in relative magnitude. The small menu cost model of the business cycle is extended and reinterpreted in light of Austrian business cycle theory with heterogeneous, multiply-specific capital, thus providing a rigorous formalization of the Austrian business cycle. The Austrian interpretation of this New Keynesian model fortuitously addresses several of its shortcomings. JEL classification B53, E12, E23, E32     

The Economics of Karl Marx: Analysis and Applications

Abstract

Controversy focuses on three questions: Is capital a distinct factor of production? Is capital quantifiable in a theoretically consistent manner? Are process stories necessary around convergence to, or changes in, equilibrium interest rates? To all, Kaldor answers ‘yes’ to Knight's ‘no’. The controversy is historically important in: 1) shifting issues in recurring twentieth century capital theory controversies from periods of production to production functions, from roundaboutness to diminishing returns; 2) revealing Knight's position on increasing knowledge offsetting diminishing returns over time as an unacknowledged ‘precursor’ of new growth theory; 3) marking the turning point for Kaldor's attachment to Austrian theory.     

Human capital heterogeneity of the unemployed and jobless recoveries

The jobless recovery enigma remains largely unsolved. As a special case of broader unemployment, the term “jobless recovery” describes an economic recovery where output recovers—and even expands—yet employment growth remains anemic. While the effects of these prolonged recoveries are significant—from increased crime to a lifetime reduction in wages—they are not well understood. Building on the insights of labor market matching models that incorporate heterogeneity among workers, this paper sheds light on jobless recoveries, developing a first-of-its-kind index of human capital heterogeneity for the unemployed, and testing that index using of a Structural Vector Autoregression. I demonstrate that the extent to which unemployed human capital is heterogeneous and specific, rather than homogeneous and general, plays a key and under-appreciated role in the labor market; increases in human capital heterogeneity can account for between one-quarter to three-quarters of the joblessness of the past three recoveries in the pre-COVID era.     

Does Capital Account Liberalization Discipline Budget Deficit?

The paper investigates whether free capital mobility leads a government to tighten its budget deficit for fear of being penalized from the international capital market. The author tests the hypothesis using three‐stage least squares (3SLS), which can control for the endogenous nature of capital account liberalization. Even the conservative measure shows that, if capital account liberalization were exogenously imposed, ceteris paribus, government budget deficit would be reduced by 2.275% of GDP. Furthermore, 3SLS results show that this disciplinary effect is stronger for countries under a fixed exchange rate regime or for countries with weak central bank independence. The disciplinary effect is also found to be stronger in more recent periods—the 1990s—during which capital market integration has been most prevalent.     

Expectations and interest rates on mortgage loans

We examine the role of expectations for interest rates on mortgage loans. Our empirical results, based on cointegration tests, indicate a violation of the expectations hypothesis on the German loan market. In contrast to the capital market, a failure of the expectations hypothesis on the loan market cannot be attributed to the market segmentation hypothesis. Using a simple two-period model, we can show that the deviation from the expectations hypothesis is stronger than on the capital market and such that it confirms the common practice of choosing between loans with variable or fixed interest rates.An earlier version was presented at the annual meeting of theVerein für Socialpolitik 1994. We are grateful to Jürgen Wolters and an anonymous referee for their useful comments and suggestions.     

The classical roots of the Austrian theory of capital and entrepreneurship

The paper deals with the continuities and discontinuities between some classical, Austrian and neo-Austrian authors with regard first to the theory of capital and then to the theory of entrepreneurship. Part I focuses on the elements of continuity between the classical and the Austrian theory of capital. These elements have been singled out by dealing first with the distinction between individual and national capital; and then with the difference between the resulting circulating-fixed capital and free-invested capital distinctions in the light, first, of the concept of roundaboutness and, then, of the method of vertical integration. Part II focuses on the elements of continuity between the Austrian theory of individual behaviour and the classical theory of national wealth. The distinctions between logical and historical time and between economics of time and economics in time are used to assess the links between the theory of capital as developed by the classics and Böhm-Bawerk, on the one hand, and the theory of entrepreneurship as developed by the neo-Austrians, on the other.     

Private Property and Economic Calculation: A Reply to Andy Denis

Two years ago, in an article in this journal, Andy Denis revisited and added to the Socialist Calculation Debate, one of the 20th century’s greatest debates in economic theory. Denis argued that Austrian economists draw unsupported conclusions from their argument in claiming that private rather than several property is necessary for economic calculation. We note in this article that Denis’ argument rests on two key points: first, that the legal owners of capital, or the capitalists, play a purely passive role in the resource allocation process, and, second, that it is the managers who bear the entire burden of speculative decision making and economic calculation. We then proceed to criticize both points. Key to our argument is the fundamental insight of Austrian economics that the market is an open-ended process of discovery, coordination and value creation, where resource ownership and allocation is impossible to sever from entrepreneurship due to the inherent uncertainty of the future. We argue that, from the Austrian market process perspective, economic calculation indeed requires private property, and not simply several control, because entrepreneurship under competitive discovery must be subject to both the lure of profit and the risk of loss.     

Expectations in Austrian Business Cycle Theory: An Application of the Prisoner's Dilemma

The standard account of Austrian Business Cycle theory posits that central bank manipulations of interest rates fool bankers and investors into believing that there has been an increase in the real supply of loanable funds available for capital investment. However, reliance on foolishness ignores the entrepreneurial emphasis within the Austrian tradition and fails to produce the strongest possible case for Austrian Business Cycle theory. We use the prisoner's dilemma framework to model the profit maximizing behavior of bankers and the investors under uncertainty when the market rate of interest is below the underlying rate of time preference.