Segundo Parcial - Economía Austriaca
I. Foundations of Austrian Capital Theory
Subjective Value dictates that the value of inputs (capital goods) is derived backward from the value of the outputs (consumer goods).
Value is considered a forward-looking concept, anticipating future satisfaction of consumer preferences, rather than being determined by past costs.
Production is a sequential process where goods of higher order (more distant from consumption) are transformed into goods of lower order (closer to consumption, or consumer goods).
For something to happen in production (B), something else (A) must necessarily have happened before it.
The definition of whether a good is of higher or lower order is not fixed by its physical nature, but depends crucially on the plan of the actor or how the good is used.
II. Capital Structure, Time, and Productivity
The concept of time is inseparable from the concept of capital.
Greater rewards to saving occur only if methods of production that consume more time are adopted.
Böhm-Bawerk emphasized the time needed for creating specific capital goods and that capital is an intertemporal structure of intermediate goods.
Roundaboutness (or roundabout production) describes the degree to which the production process encircles or locks resources (capital) over time.
Methods of production that consume more time require extensive prior preparation.
These methods are more productive, leading to a greater volume of consumption goods and allowing consumption to be extended further into the future.
The degree of roundaboutness is determined by the rate of interest.
The value of higher-order goods (capital) is always determined by the expected value of the lower-order goods (consumer goods) they will help produce.
The correctness of this valuation depends completely on entrepreneurial abilities.
Bawerk’s Concentric Circles (Bullseyes): This diagram illustrates the sequential stages of production.
Inner circles represent longer maturity (more distant from consumption), while outer circles represent shorter maturity (closer to consumption).
The center of the bullseye is typically more specialized and more capital-intensive, while the frontiers (outer rings) are less specialized and more labor-intensive.
Real saving (resources produced but not consumed) is the foundation that funds the creation and expansion of the inner, longer-maturity rings.
Economic Development is characterized by:
Bawerk: A growing average period of production.
Lachmann: A growing complexity in the capital structure, shown by an increased number of production stages.
III. Capital Heterogeneity and the Entrepreneurial Plan
Capital resources are inherently heterogeneous (not homogeneous or uniform), differing in physical properties, use, and the specific plans they satisfy.
Because capital is heterogeneous, it cannot be aggregated into a simple stock ('K') using monetary values, unless all plans are perfectly coordinated (equilibrium).
The crucial element of capital is the plan empresarial (entrepreneurial plan), which seeks to combine resources to create more value.
Capital is fundamentally a network of plans.
The value of capital goods is derived from the entrepreneur's expectation of future profits.
Two concepts characterize the capital structure:
Complementarity (Coherence): The fact that multiple capital goods are often necessary to produce a final consumer good, ensuring resources fit together into an optimum combination or plan.
Substitutability (Adaptability): The ability of existing capital goods to be repurposed for alternative production plans when the original plan fails or market conditions change.
Socialist Calculation Debate: The impossibility of socialist central planning is due to capital being heterogeneous and multi-specific.
Without private property and market prices for the means of production, planners lack the relative scarcity indicators needed to determine the most efficient use and combination of capital resources.
Critique of Neoclassical Models: Modeling capital as homogeneous leads to conclusions like diminishing returns (Solow model), while the recognition of capital heterogeneity and complementarity supports the possibility of long-term growth from sustained capital accumulation.
IV. Neutrality and Non-Neutrality of Money
Neutrality of Money (Mainstream View): The belief that changes in the money supply do not affect real economic variables (like production or unemployment) in the long run, affecting only nominal variables (like the price level).
This view is accepted by most macroeconomic models, including Monetarism and New Keynesianism.
Non-Neutrality of Money (Austrian View): The conviction that changes in the money supply do affect real variables and relative prices, especially in the short run.
This is a cornerstone for explaining the Austrian Business Cycle Theory (ABCT).
Four Propositions Supporting Neutrality (which Austrians dispute):
Money acts only as a veil, meaning the economy operates like a barter economy underneath.
Monetary equilibrium holds at all times, meaning there is never an excess demand for or supply of money.
Changes in the money supply only affect the aggregate price level (Quantity Theory of Money), not the quantity of output.
Changes in the rate of inflation do not affect real variables (Super-neutrality).
Sources of Non-Neutrality:
Cantillon Effects: New money is injected unevenly, granting first recipients greater purchasing power and causing relative prices to change before the aggregate price level fully adjusts, leading to resource reallocation.
Forced Savings (Forced Saving): Monetary expansion leads to inflation, which reduces the purchasing power of those whose incomes or savings have not yet adjusted. This involuntarily redirects resources away from consumption and toward investment.
Money Illusion: Individuals confuse nominal and real changes in the economy, causing them to alter their behavior based on changes in nominal variables (like wages or prices).
Sticky Prices and Long-Term Contracts: Prices and wages do not adjust instantaneously; contracts denominated in nominal terms lock in expectations, causing non-neutral effects when inflation differs from those expectations.
Mundell-Tobin effect:
Commodity money:
V. Austrian Business Cycle Theory (ABCT)
ABCT explains economic fluctuations as a result of monetary policy distorting intertemporal coordination.
When the monetary authority expands credit, the market rate of interest falls below the natural rate (the rate that reflects voluntary savings preferences).
This artificially low rate signals that consumers are willing to save more and encourages entrepreneurs to undertake longer-term, more roundabout projects (investment increases).
This leads to mal-investment (dis-coordinated investment in the wrong types of capital) because the actual saving does not support the new capital structure being built.
The boom is unsustainable because there is a mismatch between the heterogeneous capital structure created and the actual preferences of consumers.
The downturn (depression) occurs when the mismatch becomes too great and the unsustainable structure must be liquidated and capital reallocated to align with real consumer preferences.
VI. The Intellectual Heritage
Carl Menger discovered subjective value, inspiring the Austrian school and influencing capital theory.
Eugen von Böhm-Bawerk (Bawerk) developed the idea of capital as a time-consuming process and the importance of the time structure of capital.
Ludwig von Mises argued that nobody should call themselves an economist or exercise their right to vote without being familiar with Bawerk's Capital and Interest.
Bawerk refutes Marx's theory of exploitation by demonstrating that labor value does not fully determine price and omitting the element of entrepreneurial discovery and time.
Marx's view of capital is that it is a social relation used by one class to dominate and exploit others, not a factor for creating wealth.
F.A. Hayek introduced the term "neutral money" to English economics and stressed the non-neutral effects of money, connecting them to the business cycle.
Ludwig Lachmann is prominent for emphasizing capital heterogeneity and the importance of entrepreneurial plans in defining the structure of capital.
Clark's Critique: Argued that production stages occur simultaneously (steady state equilibrium), suggesting time is irrelevant; this view is incompatible with the Austrian focus on sequential processes and the causal efficacy of time.
VII. The Industrial Revolution (RI) Context
The Industrial Revolution (RI) (c. 1760–1850 in England) was a slow, gradual, and cumulative process driven by rapid capital accumulation and the evolution of previously existing factors.
The RI was enabled by the possibility of applying innovation to commercial and productive activities.
Key factors allowing the RI to occur were strong private property rights and clear rules for resolving differences.
The RI transformed society from a rigid agrarian system to an urban industrial system with social mobility.
Technological advancements (e.g., textile machinery, steam engines) were successful because they were combined with commercial ideas and new methods of financing (e.g., early stock exchanges).