Peter Bernholz

Studies in Austrian capital theory, investment, and time

Summary of the Papers.- 1. On the Development of Austrian Capital Theory.- 2. Relationships between Modern Austrian and Sraffas Capital Theory.- 3. Austrians Versus Austrians I: A Subjectivist View of Interest.- 4. Austrians Versus Austrians II: Functionalist Versus Essentialist Theories of Interest.- 5. A Neo-Austrian Two-Period Multisector Model of Capital.- 6. Own Rates of Interest in a General Multisector Model of Capital.- 7. A Neo-Austrian Approach to the Open-Endedness of the Future : An Overview.- 8. Neo-Austrian Characterization of Proportional Prices with Positive Rate of Interest Relative to the Growth Rate.- 9. Roundaboutness, Nontightness and Malinvaud Prices in Multisector Models with Infinite Horizon.- 10. Competitive Finite Value Prices: A Complete Characterization.- 11. Time and Production: Period versus Continuous Analysis..- 12. Flow and Fund Approaches to Irreversible Investment Decisions.- 13. On the Methodology of Strategic Interaction in Time.- 14. A Dynamic Game with Macroeconomic Investment Decisions Under Alternative Market Structures.- 15. Remarks on a Dynamic Game with Macroeconomic Investment.- 16 A Dynamic Macroeconomic Investment Game with Non-Linear Saving Behavior.- 17. Time Irreversibilities in Economics: Some Lessons from the Natural Sciences.- List of Authors.

A Neo-Austrian two-period multisector model of capital

In the seventies there have been various attempts to revive Austrian capital theory,1 which may be classified into three groups: (1) HICKS’ [20,22]2 approach has received most attention [8,9,10,12,16,23]. But HICKS is only so far a Neo-Austrian as he takes into consideration the time-consuming nature of capital production [10]. He does, however, not use the Austrian concepts of superiority of roundabout methods, of impatience and of the period of production. (2) To the second group belong TINTNER [33], VON WEIZSACKER [34,35,36], REETZ [31] and FEHL [11,12,13] who resume the concept of the period of production. But as proved by the great capital controversy of the thirties [26] this is a dubious tool for the analysis of non-steady state developments (see e.g. [30]). Furthermore WICKSELL [37], AKERMAN [1], V.STACKELBERG [32] and VON HAYEK [17] demonstrated the possibility of deriving the conclusions of the Austrian capital theory without this concept. (3) The autors of the third group employ superiority, roundaboutness and time preference to prove that the rate of interest is positive. JAKSCH [24,25] shows in a general linear multisector model that investment implies a positive rate of interest under certain rather strong conditions. Using a weak definition of superiority he is able to show that superiority follows from efficiency and roundaboutness.

Time-consuming innovation and positive rate of interest

In a recent paper Gale and Rockwell [9] have given a restatement of the Malinvaud-Starrett theory of interest1. They interpreted this theory as follows: „Together these results may be thought of as providing a concise and elegant solution to what is probably the central problem in the theory of interest, namely, to explain why virtually all economic systems exhibit positive interest rates. The theorems show that, for any efficient program the competitive conditions alone (that is, intertemporal profit maximization) guarantee that (in a steady state) the interest rate will be not only positive but at least as large as the growth rate. The result stands somewhat in contrast to some of the reasons which are often given for the positivity of interest rates, such as roundabout methods of production or impatience on the part of consumers. The M a lin vaud-Starrett theory shows that these considerations are probably not the essential ones. Thus, even in a world using only direct rather than roundabout production methods, and made up of patient rather than impatient consumers, it would still be true that efficient competitive programs would exhibit positive interest rates.