Austrian Macroeconomics - Ludwig von Mises Institute

INVESTMENT
In order to deal with (net) investment an additional relationship
must be introduced into the model, namely the relationship
between the quantity of capital (dollar value) in the structure of
production and the production time associated with it. ("Quantity
of capital" here refers to all the capital in the structure of
production. In Figure 2 it referred to the quantity that exists at
each stage of the structure of production.) Although these two
dimensions of the structure of production (quantity of capital
and production time) are defined independently ofone another,
there is, according to Austrian theory, a relationship between
them. Again, this relationship has its genesis in the writings of
Jevons: "Capital simply allows us to expend labor in advance."29
More capital, Jevons went on to show, allows us to expend labor
further in advance.3 0
The positive relationship between capitaland production time
has suffered several set-backs during its development. B6hm­
Bawerk, for instance, couched it in terms ofthe "average period
of production," inadvertently causing the formulation to be ambiguous.
But Mises and the contemporary Austrian theorists
(e.g., Hayek and Rothbard) fully recognize the errors in B6hm­
Bawerk's formulation. 31 They still accept, however, the basic
notion that there is a positive relationship between the quantity
of capital and the production time associated with it. Mises, for
instance, argues that" ... every increase in the supply ofcapital
goods available results in a lengthening ofthe period of production,
and of waiting time, ..."32 and conversely that" ... [a]n.
increase in the quantity of capital goods available is a necessary
condition for the adoption of processes in which the period of
production and therefore waiting time are longer."33 Similar
statements can be found in Rothbard's formulation: "Any increase
in capital goods can serve only to lengthen the structure,
i.e., to enable the adoption of longer ... processes."34
Hayek points out the difficulties of talking about "changes in
the period of production" when the term refers to the actual
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