Why Hayek Abandoned the Average Period of Production?

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Abstract

Between 1933 and 1936, Frank Knight and Friedrich Hayek engaged in a spirited dispute about the Austrian Theory of Capital through an exchange of articles that revealed Knight’s criticism and Hayek’s defense of the concept of the Average Period of Production (APP). The controversy began with attacks by Knight (1933) in his Capitalistic Production, Time and the Rate of Return, to which Hayek (1934) responded with On the Relations between Investment and Output. Later, Knight (1934, 1935) continued with his “Capital, Time and the Interest Rate” and Professor Hayek, with his Theory of Investment. Finally, Hayek (1936) accepted in The Mythology of Capital problems that the concept of the APP caused the Austrian theory of capital, stating that he would never use it.

Posted for comments on 11 Aug 2017, 9:53 am.

Comments (2)

  • Avi J. Cohen says:

    The stated argument of the paper is that, “Unlike Cohen (2003), this work will show in detail how the arguments of Knight persuaded Hayek of the inappropriateness of the APP as an instrument of general equilibrium analysis of the process of aggregate capital accumulation, in both equilibrium and comparative statics.”

    But Cohen’s (2003) conclusion includes:

    Hayek also recognizes the measurability problems associated with any period of production, due to the influence of the interest rate on the calculation of the length of any production period. Outside of a model with a single homogeneous input and one-commodity output, Hayek (1941, 141–42) freely acknowledges that “all attempts to reduce the complex structure of waiting periods . . . are bound to fail, because the different waiting periods cannot be reduced to a common denominator in purely technical terms.”

    The author’s conclusions (pp 13-14) are all part of the conclusions of Cohen (2003).

    Another stated difference from Cohen (2003) is that the author excludes additional Knight and Hayek papers discussed in Cohen (2003). One would expect of original work to extend the scope of literature discussed, rather than limit it!

    I cannot find any original contribution in the paper.

    I also note much sloppiness suggesting the paper was not proofread – spelling errors “Bõhm-Bawer (fn 3); repeated sentences “The production period lacks a beginning and an end” (p 4); the wrong title of the Cohen (2003) article in the References; among others. When an author does not care to take the time to proofread his/her work, the reader loses motivation to take the time to read it carefully.

  • Julian Libreros says:

    Dear Professor David Cohen,

    Thank you a lot for your comments. I will integrate the remarks in the document.

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