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1 – 10 of over 58000In the early 1930s, Nicholas Kaldor could be classified as an Austrian economist. The author reconstructs the intertwined paths of Kaldor and Friedrich A. Hayek to disequilibrium…
Abstract
Purpose
In the early 1930s, Nicholas Kaldor could be classified as an Austrian economist. The author reconstructs the intertwined paths of Kaldor and Friedrich A. Hayek to disequilibrium economics through the theoretical deficiencies exposed by the Austrian theory of capital and its consequences on equilibrium analysis.
Design/methodology/approach
The author approaches the discussion using a theoretical and historical reconstruction based on published and unpublished materials.
Findings
The integration of capital theory into a business cycle theory by the Austrians and its shortcomings – e.g. criticized by Piero Sraffa and Gunnar Myrdal – called attention to the limitation of the theoretical apparatus of equilibrium analysis in dynamic contexts. This was a central element to Kaldor’s emancipation in 1934 and his subsequent conversion to John Maynard Keynes’ The General Theory of Employment, Interest, and Money (1936). In addition, it was pivotal to Hayek’s reformulation of equilibrium as a social coordination problem in “Economics and Knowledge” (1937). It also had implications for Kaldor’s mature developments, such as the construction of the post-Keynesian models of growth and distribution, the Cambridge capital controversy, and his critique of neoclassical equilibrium economics.
Originality/value
The close encounter between Kaldor and Hayek in the early 1930s, the developments during that decade and its mature consequences are unexplored in the secondary literature. The author attempts to construct a coherent historical narrative that integrates many intertwined elements and personas (e.g. the reception of Knut Wicksell in the English-speaking world; Piero Sraffa’s critique of Hayek; Gunnar Myrdal’s critique of Wicksell, Hayek, and Keynes; the Hayek-Knight-Kaldor debate; the Kaldor-Hayek debate, etc.) that were not connected until now by previous commentators.
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Nicolás Cachanosky and Peter Lewin
In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and…
Abstract
In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and average period of production, (2) we show that the ABCT has strong financial foundations (consistent with its microeconomic foundations), and (3) we offer examples of how to use the flexibility of this approach to apply ABCT to different contexts and scenarios.
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Members of the Austrian school held particular views on capital. In this essay the development of Austrian theorising on capital is assessed and contrasted with what has been…
Abstract
Members of the Austrian school held particular views on capital. In this essay the development of Austrian theorising on capital is assessed and contrasted with what has been presented as the Neoclassical view. So far as this subject is concerned it was Böhm‐Bawerk, among the older members of the Austrian school, who became widely known as the main contributor (partly because some of his work was translated early).
Peter Lewin and Nicolas Cachanosky
A comprehensive understanding business cycles needs to account not only for the allocation of resources over time but also for resource allocation across industries at any point…
Abstract
Purpose
A comprehensive understanding business cycles needs to account not only for the allocation of resources over time but also for resource allocation across industries at any point in time. But to properly understand how these “time-distortions” take place and how the price mechanisms that drive them work, a clear and well-defined conceptualization of the “average length” of the structure of production is required. The authors use insights provided by Macaulay’s duration and Hicks’s average period to show that financial duration and related concepts have a direct connection to macroeconomic stability.
Design/methodology/approach
This study uses a theoretical and conceptual approach. It first presents the connection between average period of production and financial duration and then compares and applies this to macroeconomic business cycle theories.
Findings
This study points to important implications for macroeconomic policy. It not only claims that a low interest rate contributes to the creation of asset bubbles but also shows the market mechanism through which the real sector is affected. The application of financial concepts to macroeconomic cycles shows the price mechanism through which resources are allocated across industries.
Originality/value
The financial approach we offer to business cycles is fairly unexplored. As such, this paper offers a novel conceptual and theoretical framework for business cycles.
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Future needs play an important part in economic action. They urge private householders as well as society as a whole to choose between the immediate consumption of income and the…
Abstract
Future needs play an important part in economic action. They urge private householders as well as society as a whole to choose between the immediate consumption of income and the saving of income for present and future satisfaction. In this situation of choice in economic conduct, Böhm‐Bawerk (1851–1914), the well‐known Austrian economist of the second generation, analysed the subject of time preference and put forward an explanation for interest. The aim of this essay is to review this theory and to assess its significance for present‐day economics.
This chapter uses Austrian capital theory to illustrate why empirical work can be elusive in typical Austrian themes. It explores the nature of the problem and different…
Abstract
This chapter uses Austrian capital theory to illustrate why empirical work can be elusive in typical Austrian themes. It explores the nature of the problem and different alternative solutions to empirical challenges. This chapter also discusses the Austrian literature’s epistemological approach to empirical work to shed light on the controversial relationship between Austrian theory and empirical testing. Finally, this chapter offers examples of how Austrian and mainstream economics can find a common empirical ground.
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Addresses the theory of capital and interest of Eucken. Explains howEucken works out the temporal aspects of the economic process indifferent monetary systems, market structures…
Abstract
Addresses the theory of capital and interest of Eucken. Explains how Eucken works out the temporal aspects of the economic process in different monetary systems, market structures and economic systems. The theory is critically evaluated. Eucken made essential contributions to the theory of capital and interest (ranking alongside the works of Böhm‐Bawerk, Wicksell, Cassel, Fisher, Allais, Hirschleifer and a few other economists). The profession would benefit from closer acquaintance with his ideas.
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In standard discussions (capitalistic economy), business firms and the income‐distribution property of production factors are dealt with in a manner in which they are independent…
Abstract
In standard discussions (capitalistic economy), business firms and the income‐distribution property of production factors are dealt with in a manner in which they are independent from each other and there is no interaction as such between them. Furthermore, no role whatso‐ever is assumed for externalities. If we accept that there is interaction between production factors and these factors because of the existence of externalities affects each other, therefore it is only natural to come to this conclusion that both the definition of business firm and the share of production factors should be changed. The proposal developed in this paper is based on this very important consideration. The profit share of Mudareb (profit‐sharing agent) has been used in this paper to cover more general issues, such as labor's income share in an Islamic system. The Mudareb's relative share might be justified on the grounds that he has the appropriate expertise, profession, so to speak. This justification can be extended to “labor” in general, be it in industry, services, and other economic activities. It seems that, it is not only the degree of expertise and skill which determines the labor's share, but also its interaction with other expertises which makes one qualified to share part of the profit. This interaction provides better results than the same of individual skills. The application of the proposal not only increases output and hence the total revenue of a firm, but also helps keep the production cost at its lowest possible level. Furthermore, it leads one to look at a firm as an interacting body of different expertise. Increase in efficiency together with low production costs are to the mutual benefits of both the workers and the firm. Furthermore, there would not only be zero monitoring cost, but also eliminates shirking while increasing the effort of the workers to its maximum level.
Ludwig Lachmann looked to the Austrian School of economics as an intellectual space of refuge from the sterile formalism that constituted the academic work of the mainstream…
Abstract
Ludwig Lachmann looked to the Austrian School of economics as an intellectual space of refuge from the sterile formalism that constituted the academic work of the mainstream economics establishment. From an early interest in capital theory, he moved to broader epistemological, methodological, and institutional concerns – specifically from the subjectivism of values to the subjectivism of expectations and the implications thereof for human action. Human action in disequilibrium was his central focus. This chapter examines the relationship of Lachmann’s views to the Austrians, those who preceded him, those of his time, and those who have come after him. During his lifetime, his views sometimes provoked controversy. I examine this from the perspective of 2017 and the concerns of the modern Austrian intellectual community and find that Lachmann’s views are surprisingly much more complementary to those of his contemporary Austrians than have perhaps hitherto been realized.
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