Public Debt and Price Stability

2014 ◽  
Vol 15 (1) ◽  
pp. 42-61 ◽  
Author(s):  
Carl Christian von Weizsäcker
Keyword(s):  
Capital Market ◽  
Public Debt ◽  
Market Equilibrium ◽  
First Century ◽  
Price Stability ◽  
Real Rate ◽  
Capital Theory ◽  
Austrian Capital Theory ◽  
Austrian Capital ◽  
Average Period Of Production

Abstract Modernized Austrian capital theory implies: in capital market equilibrium without public debt the average period of production equals the average waiting period of households. In the twenty-first century and for the OECD plus China area, demographic and production parameters are such that capital market equilibrium implies a negative real rate of interest. Price stability implies a non-negative real rate of interest. Prosperity requires capital market equilibrium. Thus, positive public debt is required for price stability under conditions of prosperity. Some conclusions are drawn for actual international macropolicy.

THE AVERAGE PERIOD OF PRODUCTION: THE HISTORY AND REHABILITATION OF AN IDEA

2018 ◽  
Vol 40 (1) ◽  
pp. 81-98 ◽  
Author(s):  
Peter Lewin ◽  
Nicolás Cachanosky
Keyword(s):  
Economic Life ◽  
Average Period ◽  
Blind Alley ◽  
Capital Theory ◽  
Austrian Capital Theory ◽  
History Of ◽  
Austrian Capital ◽  
Average Period Of Production ◽  
The Business Cycle ◽  
Value Measure

Austrian capital theory tried to capture the intuitive and basically undeniable importance that time plays in economic life, but arguably was diverted down a blind alley with Eugen von Böhm-Bawerk’s average period of production, a purely physical measure of ‘roundaboutness’—the length of the production process. For the general case, such a measure is a chimera. But the intuition is strong, and the idea survived and reappeared at various points in the history of capital theory. Almost unknown to economists, an alternative value measure of roundaboutness has existed at least since John Hicks’s formulation of his average period (AP) in 1939, which, coincidentally, was exactly the same measure discovered by the financial actuary Frederick Macaulay in 1938, called by him “Duration” (D). Macaulay’s D, more richly interpreted as Hicks’s AP, is a measure that more appropriately captures what it was that the Austrians struggled to express over many years in their capital theory and in their analysis of the business cycle.

Austrian Capital Theory

2019 ◽  
Author(s):  
Peter Lewin ◽  
Nicolas Cachanosky
Keyword(s):  
Capital Theory ◽  
Austrian Capital Theory ◽  
Austrian Capital

scholarly journals The Natural Rate of Interest and the Optimal Rate of Interest in the Steady State

2021 ◽  
pp. 17-41
Author(s):  
Carl Christian von Weizsäcker ◽  
Hagen M. Krämer
Keyword(s):  
Steady State ◽  
Public Debt ◽  
Fundamental Equation ◽  
Optimal Rate ◽  
Natural Rate ◽  
Real Rate ◽  
Capital Theory ◽  
Steady State Rate ◽  
Natural Rate Of Interest ◽  
State Rate

AbstractThe “natural rate of interest” is the hypothetical, risk-free real rate of interest that would obtain in a closed economy, if net public debt were zero. It is considerably less than the optimal steady-state rate of interest, which is equal to the system’s growth rate. This holds for a very general “meta-model.” The fundamental equation of capital theory holds on the optimal steady-state path: T = Z − D, where T is the overall economic period of production, Z is the representative private “waiting period” of consumers and D is the public debt ratio. Prosperity is at least 30% lower at the natural rate of interest than at the optimal rate.

Capital Valuation, What is it and Why does it Matter? Insights from Austrian Capital Theory

2017 ◽  
Vol 12 (s1) ◽  
Author(s):  
Peter Lewin
Keyword(s):  
Social Systems ◽  
Social Process ◽  
Austrian Economics ◽  
Market Process ◽  
Capital Theory ◽  
Business Valuation ◽  
Future Earnings ◽  
Productive Activities ◽  
Austrian Capital Theory ◽  
Austrian Capital

AbstractThe ability to rationally evaluate time-consuming productive activities is what distinguishes capitalism from alternative social systems. Capital-accounting provides the framework for such evaluations that allow decision-makers to calculate the relative values to them of alternative productive activities. In this paper I show how insights from Austrian Capital Theory help to understand this process of evaluation. Austrian economics stresses that evaluation is an essentially subjective process. Entrepreneurs’ estimates of future earnings, which depend on the consumers’ subjective evaluations of the produced products, will vary and they must compete for productive resources in a dynamic trial and error social process. Entrepreneurial evaluations, nevertheless, can be described in terms of familiar financial concepts that encapsulate both the capital-value and the duration of any contemplated business venture. Value and time are the two essential dimensions of dynamic business valuation. I examine these concepts with a view to describing that social process, using what can be known and what needs to be imagined. I conclude that there is no silver bullet formula or method to evaluate a business that would give an objectively correct answer – obviously not, or else we would not have need of a competitive market process – but there

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