A RETROSPECTIVE LOOK AT “THE HAYEK STORY”: ROUNDABOUTNESS, STICKY CONSUMPTION, AND SEQUESTERED CAPITAL

James McClure, David Chandler Thomas and Lee Spector

Journal of the History of Economic Thought, 2021, vol. 43, issue 1, 83-102

Abstract: Friedrich Hayek’s business cycle theory withered throughout the 1930s as he admitted that its underlying model of Böhm-Bawerkian roundaboutness was incomplete and inadequate. In 1934, Hayek started a two-volume book on capital theory, completing only one volume in 1941. Curiously, Hayek ([1941] 2009) cites John Hicks’s (1939) Value and Capital but not the financial measure of roundaboutness that Hicks suggested as a substitute for Böhm-Bawerkian roundaboutness. In 1967, in “The Hayek Story,” Hicks criticized the inexplicable lags. Hayek maintained his view that consumption was sticky and responded to Hicks with a mound-of-honey analogy. Nevertheless, Hayek maintained that his business cycle theory was fundamentally correct and continued to hope that others might someday discover a capital structure theory to undergird it. Toward fulfilling Hayek’s hope, we suggest augmenting the canonical stages of production with a sequestered-capital stage where products are invented, productized, and inventoried prior to launch, uncoordinated by observable prices.

Date: 2021
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Working Paper: A Retrospective Look at The Hayek Story: Roundaboutness, Sticky Consumption, and Sequestered Capital (2020)
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