Austrian Economists Rediscovering Sraffa

Some recent papers by economists of the Austrian school rediscover some aspects of post-Sraffian price theory. Others would benefit from more knowledge of post-Sraffian price theory. But the authors do not know this.

Fillieule (2007) is a rediscovery of Sraffa's standard commodity. He sets out a special case of Hayekian triangles in which an infinite series of datad labor inputs are used to produce current net output. "Only circulating capital is taken into account", and "the proportion between capital goods and originary factors is the same in all stages." Fillieule, unlike Sraffa, has wages advanced instead of being paid out of net output. He gestures at Sraffian subsystems. Production at any year can be viewed as decomposed into producing the net output, producing the capital goods needed to produce net output one year hence, producing capital goods needed for the production of the capital goods that go into producing net output two years hence, and so on.

Consider the analysis of the choice of technique. Different techniques have different standard commodities. One must pick one numeraire in the analyis. The numeraire cannot simultaneously be two different standard commodities. I do not know if these observations undermine Fillieule's conclusions.

Mateusz Machaj (2015) responds to the Fillieule (2007) and Hülsmann (2011). He emphasizes intertemporal labor intensity and considers variations in the amount of labor (originary factors more generally) hired at each stage of production. It is unclear to me how such variations can be independent of one another. Those working in the direct production of corn are presumably producing for immediate consumption and seed corn for the production of seed corn for use in production next year. In other words, some ratio of their labor is simultaneously going into production at every stage of production illustrated in a Hayekian triangle. I doubt Machaj's 2017 book resolves this question.

Howden (2016) is a response to Machaj (2015). Howden rejects that one can analyze a change in the rate of profits without considering individual savings and investment decisions. He adopts an outdated supply (savings) and demand (investment) approach to explaining interest rates and fails to see that an open model can be considered. Howden correctly notes that Machaj's description of changes in the amount of labor applied at specified stages is unmotivated. But he sticks to obsolete physical notions of roundaboutness. His article is full of quotations for ideas that some, including Austrian-school economists, would say have been transcended:

"the assertion that artificial reductions to the interest rate cause an unsustainable lengthening in the structure of production is the central tenet of the Austrian theory of the business cycle."

Machaj (2017a) is a reply to Howden (2016).

Manish (2018) is a response to Machaj (2017b) and defends the Pure Time Preference Theory (PTPT) theory of the rate of interest. I am not sure that it makes sense for a general preference for present goods over future goods outside a steady state, when relative quantities are changing. Nor am I sure that the Austrian approach of imputing values to higher order goods can explain interest rates without presuming interest rates.

Granot (2019) is a rediscovery of price Wicksell effects. He finds that for a given technique, the average period of production varies non-monotically with the interest rate. This result was explained by Sraffa in Section 48, pages 44-45, of his book.

Harwick (2022) and Iborra (2021) reference me. A previous version of Milana (2023) did reference me. He still references Osborne. Even though Harwick sticks unknowingly to considering one-way models from originary factors - no consideration of production of commodities by means of commodities for him, I can find something to agree with. He thinks simple models are a good way to approach capital theory. One should not start with the most general model. For me, the most general model would be one of general joint production, multiple types of labor, no simplifications of simple fixed capital, multiple types of land on each of which many types of agricultural commodities can be grown, and so on.

References

• Renaud Fillieule. 2007. A formal model in Hayekian macroeconomics: the proportional goods-in-process structure of production. Quarterly Journal of Austrian Economics. 10: 193-208.
• Er'el Granot. 2019. An overlooked scenario of "reswitching" in the Austrian structure of production. Quarterly Journal of Austrian Economics. 22 (4): 509-532.
• Cameron Harwick. 2022. Unmixing the metaphors of Austrian capital theory. The Review of Austrian Economics 35 (2): 163 - 176.
• David Howden. 2016. The interest rate and the length of production: a comment. Quarterly Journal of Austrian Economics. 19 (4): 345-358
• Jörg Guido Hülsmann. 2011. The structure of production reconsidered. Working paper.
• Rafael Garcia Iborra. 2021. A financial analysis of reswitching. Revista Procesos de Mercado 18 (1): 220 - 244.
• Mateusz Machaj. 2015. The interest rate and the length of production: an attempt at refomulation. Quarterly Journal of Austrian Economics. 18 (3): 272-293.
• Mateusz Machaj. 2017a. Interest and the length of production: a reply. Quarterly Journal of Austrian Economics. 20 (2): 164-170.
• Mateusz Machaj. 2017b. Money, Interest, and the Structure of Production: Resolving Some Puzzles in the Theory of Capital. Lexington.
• G. P. Manish. 2018. A brief defense of Mises's conception of time preference and his pure time preference theory of interest. Quarterly Journal of Austrian Economics. 21 (2): 95-109.
• Carlo Milana. 2023. Refuting Samuelson's capitulation on the re-switching of techniques in the Cambridge capital controversy. The Review of Austrian Economics. Not yet assigned to an issue.