Capital and Entrepreneurship. A Subjectivist Exposition of Roundaboutness and the Structure of Production - PowerPoint PPT Presentation

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Capital and Entrepreneurship. A Subjectivist Exposition of Roundaboutness and the Structure of Production

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  1. Capital and Entrepreneurship. A Subjectivist Exposition of Roundaboutness and the Structure of Production Antony Mueller UCS Graduate Business School University Caxias do Sul, Brazil antonymueller@yahoo.com

  2. Variant Meanings of “Capital” • Capital as Financial Capital • Capital a ProductionGoods • Capital as a Stock • Capital as a ProductionProcess • Capital as a Productive Force • Capital as a Factor of Production

  3. Capital Theory • Heterogeneity vs homogeneity of capital • Structured vs. unitary • Production process vs. fixed stock • Separate productivity of factors of production vs Coordination and Specialization • Permanence vs. Non-permanence • Absence of Entrepreneur vs. Pivotal Role of Entrepreneurship

  4. Roundaboutness – Umweg-produktion Q Roundabout Production Standard Production Available Time

  5. Q New Roundabout Production Standard Production B t1 to RTP E S

  6. RP’ RP SP RTP RTP n RTP m Sn Sm S

  7. Roundaboutness and Stages of Production (dAD = 0) DoR +ΔD FP -ΔD dAD = Change in Aggregate Demand DR = Degree of Roundaboutness FP = Final Product dD = Change in Demand

  8. Modeling capital as “Hayekian triangle” A simple Hayekian triangle – Stages of Production Degrees of Consumption Maturity Consumable Output SP1, ........ , SPx, .......... SPn Consumption Stages of Production (SP)

  9. Savings and economic growth in the Hayekian triangle D A C B C B A

  10. Shortening of Production Structure DR +dD FP -dD

  11. Unsustainable Production StructuresCentral Planning Distortions DR +dD +dD FP

  12. Soviet-Cuba Style Development Policy = Guns and Butter Policy +DR +dD +dD SoP

  13. Imports-maintained Production Structure DR +dD FP +dIM

  14. Growth-cum-debt development strategy in a three-stages model DR +dD +dD FP +dIM

  15. Forced Savings DR +dEX FP -dD +dD

  16. Natural and cyclical production frontiers P NPF AD CPF Po Q0 Output

  17. Productivity-induced expansion P NPFo NPF’ P0 P1 AD Q0 Q1 Output

  18. Money-induced expansion in the loanable fund model • i ICD/CCD S S + dM dAD LF

  19. Savings and credit supply and demand S S+ΔM = i CD TCS in im En Em TC

  20. Productivity gains and inflation targeting – recipe for a boom bust cycle? P NPF NPF’ AD CPF P3 CPF’ P0 P2 AD’ P1 Q0 Q3 Q1 Q2 Output

  21. Government and consumption credit-driven expansion • i I I+CC+GC S S + dM • i0 I, C, G

  22. Effect on production frontier • P NPF’NPF CPF ‘ CPF AD’ AD Q2 Q0 Q1 Output

  23. Credit expansion and credit crunch – financial markets • i S - dM I S • S + dM • i’’ • i0 • i’ dAD’’ dAD dAD’ LF

  24. PQ = Pc (Qc) + PI (QI1 +...+ QIx + ... + QIN) Keynesian Disaggregation: PQ = Y Y= C + I + G Monetarist Disaggregation: MV = PQ MV = YrP M = MB x m Austrian Disaggregation

  25. Money side and goods side M x V = Q x P (MV/P) = Q P Q Po MV/P Q

  26. Money side and goods side – Change of Q M x V = Q x P (MV/P) = Q P Qo Q1 Po P1 MV/P Q

  27. Money side and goods side –change of M and/or V M x V = Q x P (MV/P) = Q P Q P1 Po MV/P’ MV/P Q

  28. Equation of Exchange • Equation of Exchange • MV = PQ • Keynesian Model: • MV = P (Qc + QI + QG) • Monetarist Model: • MB x m x V = P x Yr • Disaggregated Model • MB x m x V = Pc (Qc) + PI (QI1 +...+ QIx + ... + QIN) + PA(QA)

  29. Classical Position: Auto-Stabilization through interest rate Keynesian Position: Destabilization through investment (paradox of thrift) – Stabilization through deficit spending Monetarist Position: Destabilization through money – Stabilization through stable money supply Classical, Monetarist, and Keynesian View

  30. Problem and its Solution • Instability through money, banking and government • Solution proposals • Gold standard • Commodity standard • Denationalization of money • Hundred per cent reserve requirement

  31. Summary • Causes of Instability in Keynesianism and Monetarism: I and Ms • Realb Business Cycle: Shocks, mainly external • Instability in Austrian Economics: deviation of monetary rate of interest from natural rate • Causes of instability in this model: Any kind of interventionism as to I, G, Ms, Md, i • Cycle gets amplified because of Fractional Reserve Banking

  32. Main elements of this model • Time preference • Roundaboutness • Stages of production • Standard production • Roundabout production • Capital • Entrepreneurship