The Austrian Theory of Capital: A Basic Model

Pavel Potuzak
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Pavel Potuzak: Prague University of Economics and Business

Chapter Chapter 2 in Austrian Theory of Capital and Business Cycle, 2022, pp 7-20 from Springer

Abstract: Abstract The Austrian theory of capital emphasizes the time element in the production process. It differs from neoclassical theory, in which capital is considered a homogeneous mass. Austrian capital theory was designed to explain allocation of material resources that can change not only in the neoclassical long run, but also in the short run. The basic concept of capital in neoclassical theory, fixed capital, is not central to Austrian theory, because it lacks the key characteristics of capital from the Austrian perspective. This chapter presents the main ideas of the founder of Austrian capital theory, Eugen von Böhm-Bawerk, in some detail. Emphasis is placed on the structure of production and the concept of roundaboutness. A new graphical model clarifies misunderstandings that have appeared in the literature, especially those related to the higher productivity of roundabout methods.

Keywords: Austrian capital theory; Heterogenous capital; Natural interest rate (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-18728-5_2

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DOI: 10.1007/978-3-031-18728-5_2

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