Download Inflation and Deflation in Capital

Capital and Entrepreneurship.
A Subjectivist Exposition of
Roundaboutness and the
Structure of Production
Antony Mueller
UCS Graduate Business School
University Caxias do Sul, Brazil
[email protected]
Variant Meanings of “Capital”
 Capital
as Financial Capital
 Capital a Production Goods
 Capital as a Stock
 Capital as a Production Process
 Capital as a Productive Force
 Capital as a Factor of Production
Capital Theory
 Heterogeneity
vs homogeneity of
capital
 Structured vs. unitary
 Production process vs. fixed stock
 Separate productivity of factors of
production vs Coordination and
Specialization
 Permanence vs. Non-permanence
 Absence of Entrepreneur vs. Pivotal
Role of Entrepreneurship
Roundaboutness – Umwegproduktion
Q
Roundabout
Production
Standard
Production
Available Time
Q
New Roundabout
Production
Standard
Production
B
t1
to
RTP
E
S
RP’
RP
SP
RTP
RTP n
RTP m
Sn
Sm
S
Roundaboutness and Stages of
Production (dAD = 0)
DoR
+ΔD
FP
-ΔD
dAD = Change in Aggregate Deman
DR = Degree of Roundaboutness
FP = Final Product
dD = Change in Demand
Modeling capital as “Hayekian
triangle”
A simple Hayekian triangle – Stages of Production
Degrees of Consumption
Maturity
SP1, ........ ,
SPx, ..........
Consumable
Output
SPn Consumption
Stages of Production (SP)
Savings and economic growth in
the Hayekian triangle
D
AC
B
C
B
A
Shortening of Production Structure
DR
+dD
FP
-dD
Unsustainable Production Structures
Central Planning Distortions
DR
+dD
FP
+dD
Soviet-Cuba Style Development
Policy = Guns and Butter Policy
+DR
+dD
+dD
SoP
Imports-maintained Production
Structure
DR
+dD
FP
+dIM
Growth-cum-debt development
strategy in a three-stages model
DR
+dD
FP
+dD
+dIM
Forced Savings
DR
+dEX
FP
-dD
+dD
Natural and cyclical production
frontiers
P
NPF
AD
CPF
Po
Q0
Output
Productivity-induced expansion
P
NPFo
NPF’
P0
P1
AD
Q0
Q1
Output
Money-induced expansion in the
loanable fund model

i
ICD/CCD
S
dAD
S + dM
LF
Savings and credit supply and
demand
i
S
CD
S+ΔM =
TCS
in
im
En
Em
TC
Productivity gains and inflation
targeting – recipe for a boom bust
cycle?
NPF
P
NPF’
AD
CPF
P3
CPF’
P0 P2
AD’
P1
Q0 Q3
Q1
Q2
Output
Government and consumption
credit-driven expansion

i

i0
I
I+CC+GC
S
S + dM
I, C, G
Effect on production frontier

P
NPF’
NPF
CPF ‘
CPF
AD’
AD
Q2
Q0
Q1
Output
Credit expansion and credit
crunch – financial markets

i
S - dM
I
S
S + dM


i’’
 i0
 i’
dAD’’ dAD dAD’
LF
Austrian Disaggregation








PQ = Pc (Qc) + PI (QI1 +...+ QIx + ... + QIN)
Keynesian Disaggregation:
PQ = Y
Y= C + I + G
Monetarist Disaggregation:
MV = PQ
MV = YrP
M = MB x m
Money side and goods side
MxV=QxP
(MV/P) = Q
P
Q
Po
MV/P
Q
Money side and goods side –
Change of Q
MxV=QxP
(MV/P) = Q
P
Qo
Q1
Po
P1
MV/P
Q
Money side and goods side –change
of M and/or V
MxV=QxP
(MV/P) = Q
P
Q
P1
Po
MV/P’
MV/P
Q
Equation of Exchange

Equation of Exchange

MV = PQ

Keynesian Model:

MV = P (Qc + QI + QG)

Monetarist Model:

MB x m x V = P x Yr

Disaggregated Model

MB x m x V = Pc (Qc) + PI (QI1 +...+ QIx + ... +
QIN) + PA(QA)
Classical, Monetarist, and
Keynesian View



Classical Position:
 Auto-Stabilization through interest rate
Keynesian Position:
 Destabilization through investment (paradox of
thrift) – Stabilization through deficit spending
Monetarist Position:
 Destabilization through money – Stabilization
through stable money supply
Problem and its Solution
Instability through money, banking and
government
 Solution proposals
 Gold standard
 Commodity standard
 Denationalization of money
 Hundred per cent reserve requirement

Summary
Causes of Instability in Keynesianism and
Monetarism: I and Ms
 Realb Business Cycle: Shocks, mainly
external
 Instability in Austrian Economics: deviation
of monetary rate of interest from natural
rate
 Causes of instability in this model: Any
kind of interventionism as to I, G, Ms, Md, i
 Cycle gets amplified because of Fractional
Reserve Banking

Main elements of this model
Time preference
 Roundaboutness
 Stages of production
 Standard production
 Roundabout production
 Capital
 Entrepreneurship
