The neo-Austrian framework

Any denomination is unsatisfying and it is not really convincing to call the neo-Austrian the Hicksian Capital and Time model. Our aim in this first part is to show that the so-called neo-Austrian framework is simply another way to look at production activities. We can gain in intuition by thinking of an analogy with demography. It is well known that, in this discipline, there is place for two approaches. The first one considers all the individuals of different ages, at a given date, and the second considers each generation all along their life time, at different dates. But the important events have the same significance: births, deaths, marriages, etc. … mean the same things in the two approaches.

As in demography, we may imagine two approaches in order to represent production activities. It is possible to interpret the standard von Neumann–Leontief–Sraffa model as a transversal approach: at a given date, we look at the productive system of an economy as a superposition of elementary processes which have begun at different past dates. So there is a place for a longitudinal approach; we may look at each different elementary process all along its economic lifetime. The neo-Austrian approach is a longitudinal approach of the productive system.

Clearly, in the two approaches, the modelling of production activities amounts fundamentally to represent the way by which goods are produced by other goods.