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Uncertainty in the Austrian Theory of Capital

Author

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  • Stefan W. Schmitz

    (ICE, Austrian Academy of Sciences)

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.

Suggested Citation

  • Stefan W. Schmitz, 2002. "Uncertainty in the Austrian Theory of Capital," Method and Hist of Econ Thought 0211001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpmh:0211001
    Note: Type of Document - pdf; prepared on wordfile on mac; pages: 37; figures: none. Submitted to Review of Austrian Economics
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    References listed on IDEAS

    as
    1. Morishima,Michio, 1992. "Capital and Credit," Cambridge Books, Cambridge University Press, number 9780521418409.
    2. Lewin, Peter, 1997. "Rothbard and Mises on Interest: An Exercise in Theoretical Purity," Journal of the History of Economic Thought, Cambridge University Press, vol. 19(1), pages 141-159, April.
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    6. Peter J. Boettke (ed.), 1994. "The Elgar Companion to Austrian Economics," Books, Edward Elgar Publishing, number 53.
    7. Klaus H. Hennings & Heinz D. Kurz, 1997. "The Austrian Theory of Value and Capital," Books, Edward Elgar Publishing, number 839.
    8. Foss Kirsten & Foss Nicolai & Klein Peter G. & Klein Sandra K., 2002. "Heterogeneous Capital, Entrepreneurship, and Economic Organization," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 12(1), pages 1-20, March.
    9. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
    10. Israel M. Kirzner, 1996. "Essays on Capital and Interest," Books, Edward Elgar Publishing, number 1009.
    11. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
    12. repec:ucp:bkecon:9780226320625 is not listed on IDEAS
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    2. Robert Mulligan, 2006. "Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 19(4), pages 311-336, December.
    3. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 21(4), pages 301-328, December.

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    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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