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Uncertainty in the Austrian Theory of Capital

Stefan Schmitz

Method and Hist of Econ Thought from University Library of Munich, Germany

Abstract: This paper is based on the traditional Austrian Theory of Capital which deals with expected values of future returns of investments over various periods of time. The longer the time period that elapses between the beginning of a production process and its end, the higher the (expected) productivity must be due to positive time preferences of individuals. This paper focuses on the uncertainty of future returns and on uncertainty preferences, instead. Based on the Hayekian idea of the dispersion of knowledge in society, it will be shown that there is a systematic relationship between the structure of capital and uncertainty. This result will be derived for a production process characterized by complete vertical integration and one which is not completely vertically integrated. The distinction between these two settings is crucial, if one accepts the distinction between an individual and a social period of production and the planning horizon which are introduced in this paper.

Keywords: Austrian Economics; Uncertainty; Capital Theory (search for similar items in EconPapers)
JEL-codes: B13 D21 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2002-11-04
New Economics Papers: this item is included in nep-pke
Note: Type of Document - pdf; prepared on wordfile on mac; pages: 37; figures: none. Submitted to Review of Austrian Economics
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Journal Article: Uncertainty in the Austrian Theory of Capital (2004) Downloads
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