In my previous post, I suggested that Mason Gaffney "read carefully
Clark's 1890s criticism of Bohm-Bawerk's criticism of classical capital
theory of interest and Knight's 1930s debates with F.A. Hayek over the
concept of capital again. He would find that it was Bohm-Bawerk's and
Hayek's fixation on 'capital' to mean capital goods only that drew the
criticisms. The classics and their "faithful" followers understood
capital in the theory of interest as funds, not capital goods." He
apparently didn't check the relevant sources and has responded instead
with some asides and a misleading quote from Lionel Robins. Here's one
of the instructive statements from J.B. Clark that Gaffney would have
found, had he cared to read:
"The basing of interest on a comparison that is not actually made in
life, is, perhaps, traceable to a definition. The acute author of the
theory that we are criticizing [i.e., Bohm-Bawerk] has determined at the
outset to treat capital and capital goods, or concrete instruments of
production, as, for scientific purposes, identical. Capital is always
'mediate goods,' or those that, in the series of phenomenon by which
goods for direct consumption are created, stand between labor and such
goods. For the common and practical conception of capital as a
permanent fund or amount of wealth expressible in money, -- thought not
actually embodied in money, -- there is substituted the conception of
concrete goods, distinguishable from others by reason of the place that
they occupy in the order of industrial production ... This course has
entailed confusion in the writings of each one who has adopted it, and
it has caused needless controversies between different writers" (1893, 306).
In his preface to The Distribution of Wealth, Clark also distinguishes
his work from those of the "Austrian economists, Karl Menger and
Friedrich von Wieser ... von Bohm-Bawerk" on the basis of "a recognition
of the difference between permanent capital, or an abiding fund of
productive wealth, and particular capital-goods, or instruments of
production, which perish in the using" (1899, viii-ix).
Marshall (1920, 650 n.2) also notes the unhelpfulness of Bohm-Bawerk's
criticisms when he writes: " ... there is no reason to believe that the
accounts which Prof. Bohm-Bawerk has given of the 'naive productivity
theories,' the 'use theories' etc. of capital and interest would have
been accepted by the older writers themselves as well-balanced and
complete presentations of their several propositions. Nor does he seem
to have succeeded in finding a definition [of capital] that is clear and
consistent." It was this tradition of capital theory that Knight wrote
against Hayek.
Gaffney also asserts that "When Keynes rushed into the vacuum left by
the acapitalistic theories of Clark and Knight he faced an analytically
analogous problem with his multiplier, dragging out over time." No so.
Keynes (1936) sided with Knight's arguments against the Hayek and
Bohm-Bawerkian claims, although he still used the Austrian definition of
'capita' as capital goods, a definition firmly now entrenched in modern
macroeconomics. In any case, bringing in Keynes's multiplier argument
here is merely a wasteful diversion. The fund concept of capital was
contained in the works of Marshall, Pigou, Knight, and Robertson, at
least before the 1950s. Wicksell, who was trying to find common ground
between classical and Austrian theories of interest ended up with more
confusion than clarity. Note, for example, his various attempts to
define the natural rate of interest in his Interest and Prices (1898)
through the Lectures on Political Economy (1906).
In short, Robins should have done a better job of restating the
classical principles rather than to claimed what Gaffney attributes to
him: "From 1870-1920, 'much of the economics was . an economic theory of
acapitalistic production. Considerations of capital theory proper .
simply disappear from the picture' (Robbins, 1934)". We still can go
back to the classics and recover their insights that got badly distorted
during the 1930s and carried on into the 20th century. Reference,
"Austrian Capital Theory: Help or Hindrance?" Journal of the History of
Economic Thought (1997, 261-85) or Chapter 6 in Classical
Macroeconomics: Some Modern Variations and Distortions (Routledge 2003).
I hope Gaffney makes some serious attempts to check the relevant
literature before putting out his views.
James Ahiakpor
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