Saturday, November 03, 2007

Yeager Mistaken

Just when I planned on putting aside Austrian economics until receiving referee reports...

The Ludwig von Mises Institute has made Time, Uncertainty, and Disequilibrium: Exploration of Austrian Themes available. These 1979 proceedings were edited by Mario J. Rizzo. The conference at which these papers were presented was held at New York University on 7 January 1978.

For some reason, Austrian economists take Leland B. Yeager as having an authoritative response to the Cambridge Capital Controversy. So I reference his 1976 Economic Inquiry article in my recent refutation of Austrian Business Cycle Theory. These proceedings have an article by Yeager, "Capital Paradoxes and the Concept of Waiting", that I have not previously had access to. Also, Roger Garrison responds with a comment.

Yeager's supposed resolution to the CCC is, roughly, to take interest as the price of waiting, defined as "the tying-up of value over time". Since value is part of its definition, the amount of waiting embodied in a technique cannot be measured by the physical characteristics of a technique. The amount of waiting embodied in a technique can then be expected to vary with prices and interest rates. Thus, reswitching does not seem paradoxical to Yeager.

Yeager acknowledges that he has not resolved the puzzle of "perverse" switches. Presumably, a lower interest rate is associated with the adoption of a technique embodying relatively more waiting. Yet around a perverse switch point, a lower interest rate is associated with the adoption of technique that produces less consumption per worker. How can this be? If laborers work with more waiting - a factor of production - shouldn't they get more output?

Anyways, this incorrect claim shows that Yeager had not fully absorbed the lessons of the CCC:
"The demand for waiting, as for labor and land-use, derives from the factor's capacity to contribute to output - ultimately, output of consumer goods and services - and from consumers' demand for that output. The relative strengths of consumer demands for goods embodying relatively large amounts of particular factors affect producer demands for those factors and so affect their prices. A decline in consumer demand for a highly waiting-intensive good tends to lower the rate of interest." - Leland Yeager
The last statement is without foundation.


Anonymous said...

"price of waiting"? I thought that the Austrians' considered that Bohm-Bawerk's theory had demolished such concepts in favour of "time preference"?

Well, sometimes -- Rothbard invoked the concept of "waiting" quite a lot:

"What has been the contribution of these product-owners, or 'capitalists', to the production process? It is this: the saving and restriction of consumption, instead of being done by the owners of land and labour, has been done by the capitalists . . . The capitalists, therefore, made an essential contribution to production. They relieved the owners of the original factors from the necessity of sacrificing present goods and waiting for future goods." [Man, Economy, and State, pp. 294-95]

Is "time preference" just another word for "waiting" which, in turn, just another word for "sacrifice of abstinence"?

Compare Senior to Rothbard. For Senior, "the worse educated" classes "are always the most improvident, and consequently the least abstinent." For Rothbard, "the major problem with the lower-class poor is irresponsible present-mindedness." [For a New Liberty, p. 154]

Bukharin had a few good words to say on this in his Economics of the Leisure Class, when he pointed out the obvious: "time preference" is dependent on social class and so "interest" is rooted in class monopoly of property.

Austrian economics has a certain lack of coherence which is cute, I suppose, if it were not for for its aim to defend capitalism (and usually capitalists). Which explains the knots it ties itself into...

An Anarchist FAQ

Robert Vienneau said...

Yeager is a fellow-traveller with Austrians and contrasts some parts of his views with theirs.

I like the Bukharin book as well.

I did think of including in my paper a complaint that I could not find any recent author defending the Austrian theory who set it out in an analytically precise way. Garrison's book, for example, is about how to illustrate Austrian Business Cycle Theory, teach it, and contrast it with other theories, presuming it's true.