Thursday, April 09, 2009

Knight Wins - No, Hayek Wins The Cambridge Capital Controversy

The best understanding of the Cambridge Capital Controversy is still an unresolved question, without a consensus having been reached. This presents an opportunity for fans of any long departed economist writing on capital theory. They can declare him or her the victor in the CCC avant le letter.

I barely recall Santiago Valiente (1980). But I seem to remember somebody declaing Knight the winner of the CCC.

On the other hand, Jack Birner argues that Hayek should be considered the winner:
"If the article [Hayek 1934] had been more widely known and understood, there would never had been a Cambridge debate. [Footnote:] Co. for instance [Hayek 1934], note 2 on pp. 212-13, which explains why there is not always a one-to-one correspondence between the rate of interest and the value of capital. Hayek's highly sophisticated analysis of the relations between input and output through time makes use of the same three-dimensional diagrams that seven years later were to constitute the core of [The Pure Theory of Capital]. Not only is the model of 1934 taken over almost unchanged in PTC, it is used there to analyze the most complicated of the various cases Hayek distinguishes, the one with durable capital goods." - Jack Birner (1999)

Some ironies arise here. Hayek and Knight opposed one another in the second great capital controversy in neoclassical economics. I think Birner is correct in arguing that Hayek thought of his triangles and the analysis in Prices and Production as a simplified and incomplete version of his more advanced capital theory. But that simplified version is itself a rejection of the even simpler Austrian theory associated with Böhm Bawerk and the "average period of production".

Anyways, my refutation of Garrison's version of Austrian Business Cycle Theory has been rejected by the Cambridge Journal of Economics. One of the reviewers stated that I need to rewrite it in view of Birner's article. I intend to take this advice.

So in the process of responding to reviews, I have retreated from arguing that ABCT is mistaken to arguing merely that Garrison's version of ABCT is mistaken. Garrison's version is the most prominent among scholars. I'll leave open whether an internally valid ABCT can possibly be constructed on Hayek's Pure Theory of Capital and "Ricardo effect" analysis. I am hardly alone, however, in doubting that it can be:
"The book [PTC] could not achieve its aim, because of Hayek's lack of formal and mathematical skills and the impossibility of the task itself [Footnote:] as taught by the outcome of the Cambridge capital controversies" -- Hansjörg Klausinger (2006)
"Whether or not Hayek's discussion of the Ricardo effect is refuted by arguments made in the Cambridge capital debates will be left aside in this paper." -- Theodore Burczak (2001: 64)
  • Jack Birner, "The Place of the Ricardo Effect in Hayek's Economic Research Programme", Revue d'Économie Politique, V. 106, N. 6 (Nov-Dec 1999): 803-816
  • Theodore A. Burczak "Profit Expectations and Confidence: Some Unresolved Issues in the Austrian/Post-Keynesian Debate", Review of Political Economy, V. 13, N. 1 (Jan. 2001): 59-80.
  • F. A. Hayek "On the Relationship between Investment and Output", Economic Journal (1934)
  • Hansjörg Klausinger "'In the Wilderness': Emigration and the Decline of the Austrian School", History of Political Economy, V. 38, N. 4 (2006): 617-644.
  • Wilfredo Santiago Valiente (1980) "Is Frank Knight the Victor in the Controversy between the Two Cambridges?" History of Political Economy, V. 12, N. 1: 41-64

1 comment:

Anonymous said...

Caldwell, in Beyond Positivism, reports Garrison as saying that his version of the ABCT had not been well-received amongst Austrian School economists themselves.