The Production Of Commodities And The Structure Of Production

Many of my examples illustrate simple structures of production for models in which commodities are produced with commodities. Economists following the Austrian school often illustrate the structure of production with Hayekian triangles. Accordingly, this post illustrates a Hayekian triangle with a model in which commodities are produced out of commodities. I consider the case in which only circulating capital exists. This post is a rewrite of this one.

The following are taken as given for the technique in use:

• A: The nxn Leontief input-output matrix in physical terms. Assume all commodities are basic and the economy is productive.
• a₀: The n-element row vector of direct labor coefficients.
• d: An n-element column vector that is in the proportions in which commodities are consumed.

Define:

denom = a₀(I - A)^-1d

From the given data, one can find the quantities of labor-time in the first column below.

Distribution of Work in a Given Year

Labor Time	Purpose
a0d/denom	To produce (1/denom) d, a basket of commodities for consumption at the end of the current year.
a0A d/denom	To produce capital goods to be used to produce the (1/denom) d basket of commodities for consumption at the end of the next year.
a0A2 d/denom	To produce capital goods to be used to produce capital goods to produce the (1/denom) d basket of commodities for consumption at the end of two years hence.
...	...

The first column can be summed:

(1/denom) a₀(I + A + A² + ...)d = a₀(I - A)^-1d/denom = 1 person-year

So the above table shows a decomposition, per person-year, of employment in a given year. It is a Hayekian triangle. Because it is constructed from a model of the production of commodities, the elements go on forever. No last year exists in the future for which capital goods are currently being produced.

The capital goods, Aⁿ d, approach the ratios of Sraffa's standard commodity. Consequently, the ratio of labor inputs approaches a constant, related to the maximum rate of profits.

Hayekian triangles are not necessarily set out with a single physical measure of an unproduced input at each stage. The value of capital goods per worker varies because of three effects:

• Composition effect: a different mixture of capital goods is used for different rates of growth.
• Price Wicksell effect: the capital goods are re-evaluated at different prices with a different interest rate.
• Real Wicksell effect: the capital goods vary with the technique, and the cost-minimizing technique varies with the interest rate.

The wage-rate of frontier is useful for visualizing these effects. They do not go away just because one represents the structure of production as a Hayekian triangle. The sort of regularities that Machaj (2017), for example, assumes with variations in the interest rate lack logical foundation.

I want to that the price of the commodities consumed at the end of the year is:

[w(r)/denom] [a₀d + a₀A d (1 + r) + a₀A² d (1 + r)² + ... ]

The terms in the above are useful in representing a Hayekian triangle in price terms.

A model of the production of commodities by means of commodities with general joint production cannot necessarily be represented to a series of inputs of dated labor inputs. I go back and forth on my intution in the case of pure fixed capital.

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.
• Harris, Donald J. 1973. Capital, distribution and the aggregate production function. American Economic Review 63(1): 110 - 113.
• Machaj, Mateusz. 2017. Money, Interest, and the Structure of Production: Resolving Some Puzzles in the Theory of Capital. Lanham: Lexington Books.