Skip to main content Accessibility help
×
Home
Hostname: page-component-5959bf8d4d-4p99k Total loading time: 0.306 Render date: 2022-12-07T18:17:17.152Z Has data issue: true Feature Flags: { "useRatesEcommerce": false } hasContentIssue true

THE AVERAGE PERIOD OF PRODUCTION: THE HISTORY AND REHABILITATION OF AN IDEA

Published online by Cambridge University Press:  01 February 2018

Peter Lewin
Affiliation:
Navenn Jindal School of Management, University of Texas at Dallas, plewin@utdallas.edu
Nicolás Cachanosky
Affiliation:
Department of Economics, Metropolitan State University of Denver, ncachano@msudenver.edu.

Abstract

Austrian capital theory tried to capture the intuitive and basically undeniable importance that time plays in economic life, but arguably was diverted down a blind alley with Eugen von Böhm-Bawerk’s average period of production, a purely physical measure of ‘roundaboutness’—the length of the production process. For the general case, such a measure is a chimera. But the intuition is strong, and the idea survived and reappeared at various points in the history of capital theory. Almost unknown to economists, an alternative value measure of roundaboutness has existed at least since John Hicks’s formulation of his average period (AP) in 1939, which, coincidentally, was exactly the same measure discovered by the financial actuary Frederick Macaulay in 1938, called by him “Duration” (D). Macaulay’s D, more richly interpreted as Hicks’s AP, is a measure that more appropriately captures what it was that the Austrians struggled to express over many years in their capital theory and in their analysis of the business cycle.

Type
Articles
Copyright
Copyright © The History of Economics Society 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Backhouse, Roger. 2006. “Hayek on Money and the Business-Cycle.” In Feser, Edward, ed., The Cambridge Companion to Hayek. Cambridge: Cambridge University Press, ch. 2.Google Scholar
Böhm-Bawerk, Eugen von. [1884, 1889, 1921–23 vols.] 1959. Capital and Interest. South Holland: Libertarian Press.Google Scholar
Braun, Eduard, Lewin, Peter, and Cachanosky, Nicolás. 2016. “Ludwig Von Mises’s Approach to Capital as a Bridge Between Austrian and Institutional Economics.” Journal of Institutional Economics 4 (1): 132137. doi: 10.1017/S1744137416000102.Google Scholar
Cachanosky, Nicolás. 2014a. “Expectation in Austrian Business-Cycle Theory: Market Share Matters.” The Review of Austrian Economics 28 (2): 151165. doi: 10.1007/s11138-014-0267-7.CrossRefGoogle Scholar
Cachanosky, Nicolás. 2014b. “The Effects of U.S. Monetary Policy on Colombia and Panama (2002–2007).” The Quarterly Review of Economics and Finance 54: 428436. doi: 10.1016/j.qref.2014.03.003.CrossRefGoogle Scholar
Cachanosky, Nicolás, and Lewin, Peter. 2014. “Roundaboutness Is Not a Mysterious Concept: A Financial Application to Capital-Theory.” Review of Political Economy 26 (4): 648665. doi: 10.1080/09538259.2014.957475.CrossRefGoogle Scholar
Cachanosky, Nicolás, and Lewin, Peter. 2016. “Financial Foundations of Austrian Business-Cycle Theory.” Advances in Austrian Economics 20: 1544. doi: 10.1108/S1529-213420160000020002.CrossRefGoogle Scholar
Cachanosky, Nicolás, and Salter, Alexander. 2017. “The View from Vienna: An Analysis of the Renewed Interest in the Mises–Hayek Theory of the Business Cycle.” The Review of Austrian Economics 30 (2): 169192. doi: 10.1007/s11138-016-0340-5.CrossRefGoogle Scholar
Cohen, Avi J. 2008. “The Mythology of Capital or of Static Equilibrium? The Böhm-Bawerk/Clark Controversy.” Journal of the History of Economic Thought 30 (2): 151171. doi: 10.1017/S1042771608000161.CrossRefGoogle Scholar
Cohen, Avi J. 2010. “Capital Controversy from Böhm-Bawerk to Bliss: Badly Posed or Very Deep Questions? Or What ‘We’ Can Learn from Capital Controversy Even if You Don’t Care Who Won.” Journal of the History of Economic Thought 32 (2): 121. doi: 10.1017/S105383720999040X.CrossRefGoogle Scholar
Cohen, Avi J., and Harcourt, Geoffrey C.. 2003. “Whatever Happened to the Cambridge Capital-Theory Controversies? Preliminaries: Joan Robinson’s Complaints.” Journal of Economic Perspectives 17 (1): 199214.CrossRefGoogle Scholar
Faber, Malte. 1979. Introduction to Modern Austrian Capital Theory. New York: Springer-Verlag.CrossRefGoogle Scholar
Felipe, Jesus, and McCombie, John S. L.. 2014. “The Aggregate Production-Function: ‘Not Even Wrong.’” Review of Political Economy 26 (1): 6084. doi: 10.1080/09538259.2013.874192.CrossRefGoogle Scholar
Fratini, Saverio M. 2014. “The Hicks–Malinvaud Average Period of Production and ‘Marginal Productivity’: A Critical Assessment.” European Journal of Economic Thought 21 (1): 142157.CrossRefGoogle Scholar
Garrison, Roger W. [2001] 2002. Time and Money. The Macroeconomics of Capital Structure. London and New York: Routledge.Google Scholar
Garrison, Roger W. 2006. “Reflections on Reswitching and Roundaboutness.” In Koppl, R., ed., Money and Markets, Essays in Honor of Leland B. Yeager. New York: Routledge, pp. 186206.Google Scholar
Hayek, Friedrich A. [1931] 1967. Prices and Production. New York: Augustus M. Kelley.Google Scholar
Hayek, Friedrich A. 1936. “The Mythology of Capital.” The Quarterly Journal of Economics 50 (2): 199228.CrossRefGoogle Scholar
Hayek, Friedrich A. [1941] 2001. The Pure Theory of Capital. Chicago: Chicago University Press.Google Scholar
Hicks, John R. [1939] 1947. Value and Capital. Oxford: Oxford University Press.Google Scholar
Hicks, John R. 1965. Capital and Growth. Oxford: Oxford University Press.Google Scholar
Hicks, John R. 1973. Capital and Time. Oxford: Oxford University Press.Google Scholar
Hodgson, Geoffrey M. 2014. “What Is Capital? Economists and Sociologists Have Changed Its Meaning: Should It Be Changed Back?” Cambridge Journal of Economics 38 (5): 10631086.CrossRefGoogle Scholar
Jevons, William S. [1871] 1888. The Theory of Political Economy. London: Macmillan.Google Scholar
Kirzner, Israel M. 2010. Essays on Capital and Interest. Indianapolis: Liberty Fund.Google Scholar
Knight, Frank H. 1935. “Professor Hayek and the Theory of Investment.” The Economic Journal 45 (177): 7794.CrossRefGoogle Scholar
Koppl, Roger G. 2014. From Crisis to Confidence: Political Economy After the Crash. London: Institute of Economic Affairs.Google Scholar
Kritzman, Mark. 1992. “What Practitioners Need to Know... About Duration and Convexity.” Financial Analysts Journal (November/December): 1720.Google Scholar
Lester, Robert B., and Wolff, Jonathan S.. 2013. “The Empirical Relevance of the Mises–Hayek Theory of the Trade Cycle.” The Review of Austrian Economics 26 (4): 433461. doi: 10.1007/s11138-013-0225-9.CrossRefGoogle Scholar
Lewin, Peter. [1999] 2011. Capital in Disequilibrium. Auburn: Ludwig von Mises Institute.CrossRefGoogle Scholar
Lewin, Peter, and Cachanosky, Nicolás. 2014. “A Financial Framework for Understanding Macroeconomic Cycles: The Time Structure of Production Is Relevant.” Journal of Financial Economic Policy 8 (2): 268280. doi: 10.1108/JFEP-07-2015-0041.CrossRefGoogle Scholar
Lewin, Peter, and Cachanosky, Nicolás. 2015. “What Is Capital? (Again) Contributions from Finance and Economics.” SSRN Electronic Journal. doi: 10.2139/ssrn.2613469.Google Scholar
Luther, William J., and Cohen, Mark. 2014. “An Empirical Analysis of the Austrian Business-Cycle Theory.” Atlantic Economic Journal 42 (2): 153169. doi: 10.1007/s11293-014-9415-5.CrossRefGoogle Scholar
Macaulay, Frederick R. 1938. The Movements of Interest Rates. Bond Yields and Stock Prices in the United States since 1856. New York: National Bureau of Economic Research.Google Scholar
Machlup, Fritz. 1935. “Professor Knight and the Period of Production.” The Journal of Political Economy 43 (5): 577624.CrossRefGoogle Scholar
Malinvaud, Edmond. 2003. “The Legacy of Knut Wicksell to Capital Theory.” Scandinavian Journal of Economics 105: 507525.CrossRefGoogle Scholar
Menger, Carl. [1871] 2007. Principles of Economics. Auburn: Ludwig von Mises Institute.Google Scholar
Mises, Ludwig von. [1912] 1981. The Theory of Money and Credit. Indianapolis: Liberty Fund.Google Scholar
Mulligan, Robert F. 2002. “A Hayekian Analysis of the Structure of Production.” Quarterly Journal of Austrian Economics 5 (2): 1733.CrossRefGoogle Scholar
Orosel, Gerhard O. 1987. “Period of Production.” In Newman, P. K., Eatwell, J., Eatwell, B., and Milgate, M., eds, The New Palgrave Capital Theory. New York: Macmillan, pp. 212219.Google Scholar
Poitras, Geoffrey. 2007. “Frederick R. Macaulay, Frank M. Redington and the Emergence of Modern Fixed Income Analysis.” In Poitras, G., ed., Pioneers of Financial Economics. Volume 2. Cheltenham: Edward Elgar Publishing, ch. 4.Google Scholar
Powell, Benjamin. 2002. “Explaining Japan’s Recession.” The Quarterly Journal of Austrian Economics 5 (2): 3550.CrossRefGoogle Scholar
Redington, Frank M. 1952. “Review of the Principles of Life-Office Valuations.” Journal of the Institute of Actuaries 78 (3): 286315.Google Scholar
Samuelson, Paul A. 1945. “The Effect of Interest Rate Increases on the Banking System.” American Economic Review 35 (1): 1627.Google Scholar
Weil, Roman L. 1973. “Macaulay’s Duration: An Appreciation.” Journal of Business 47 (4): 589592.CrossRefGoogle Scholar
Wicksell, Knut. [1911] 1934. Lectures on Political Economy. Volume 1. London: Routledge.Google Scholar
Yeager, Leland B. 1976. “Toward Understanding Some Paradoxes in Capital Theory.” Economic Inquiry 14 (3): 313346.CrossRefGoogle Scholar
Young, Andrew T. 2005. “Reallocating Labor to Initiate Changes in Capital Structures: Hayek Revisited.” Economics Letters 89 (3): 275282. doi: 10.1016/j.econlet.2005.05.033.CrossRefGoogle Scholar
Young, Andrew T. 2012. “The Time Structure of Production in the US, 2002–2009.” The Review of Austrian Economics 25 (2): 7792. doi: 10.1007/s11138-011-0158-0.CrossRefGoogle Scholar
22
Cited by

Save article to Kindle

To save this article to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

THE AVERAGE PERIOD OF PRODUCTION: THE HISTORY AND REHABILITATION OF AN IDEA
Available formats
×

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

THE AVERAGE PERIOD OF PRODUCTION: THE HISTORY AND REHABILITATION OF AN IDEA
Available formats
×

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

THE AVERAGE PERIOD OF PRODUCTION: THE HISTORY AND REHABILITATION OF AN IDEA
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *