Monday, March 11, 2024

To Do: Perverse Switch Points And The Economic Life Of A Machine

Table 1: Lower Rate of Profits Around A Switch Point
Traditional Marginalist Story'Perverse' Marginalist Story
Traditional Austrian StoryNegative real Wicksell effect, greater net output per workerPositive real Wicksell effect, smaller net output per worker
Longer economic life of machineLonger economic life of machine
'Perverse' Austrian StoryNegative real Wicksell effect, greater net output per workerPositive real Wicksell effect, smaller net output per worker
Shorter economic life of machineShorter economic life of machine

I have been thinking about perturbations of coefficients in a model of fixed capital. This research can be redirected to find examples to fill in the above two-by-two table. Under obsolete marginalist teaching, a lower rate of profits encourages firms to addopt more capital-intensive techniques. At least two measures of capital intensity are available. Burmeister champions a measure of real Wicksel effects. Böhm-Bawerk championed a measure of the period of production which I am identifying, in this context, with the economic life of a machine.

The upper-left entry is the only one that conforms to the traditional story with both measures. I want to show that all four entries are possible. By perturbing an example from Salvadore Badone, I can fill in three of the entries, all but the bottom right. By perturbing an example of a 'one good' model, I can fill in that square and repeat two others. I also have an example from Bertram Schefold. I'd like to find a single example with perturbations that can fill in all four squares.

I want to recall that this work complements the corn-tractor model from Ian Steedman. Around each switch point, a different type of tractor is produced in Steedman's model, unlike in these examples. Each tractor works at constant efficiency, while I allow efficiency to vary. We both look at variations of the economic lives of machines. And this analysis is examining an issue independent of capital-intensity, as usually argued about in the Cambridge Capital Controvery. Demonstrating this independence is rather the point of filling in the above table.

I need a survey of analyses of fixed capital that does not end with a pure fixed capital model. Or, at least, I need to summarize a paper from Biao Huang. Perhaps I can avoid such a survey by just citing a model of pure fixed capital for existence but otherwise de-emphasize it. My goal is to be as terse as possible, with illustrations.

I also need to say something about why economists of the Austrian school should care. It seems to me that such economists often say that they have long ago developed their theory where it no longer relies on aggregate measures or physical measures of capital-intensity. I want to assert that they have not succeeded and still implicitly rely on the intuition from previous theory. Saverio Fratini makes a similiar case. It seems to me that I just need to note the existence of these claims and argue that the economic life of machines is one aspect of the Austrian theory of capital.

A difficulty arises of where to publish this. My previous version was rejected from Metroeconomica. Their editors, reviewers, and readers are unlikely to be astonished by these claims. On the other hand, some editors and authors of mainstream journals would claim they have long ago moved to and then transcended abstract models which this sort of work does not address. Yet they continually have a non-articulated background intuition inconsistent with the theory of prices of production. Fabio Petri has long argued along these lines.

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