James Ahiakpor writes:   
  
"I would suggest that 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.  And as Knight pointed out to   
Hayek, "capital" as "funds" comes out of savings from income, it does   
not take time to create as capital goods do.  The problem was one of   
language, which the Austrians needed to make a greater effort to   
understand, as the speakers of that language intended it. "  
  
  
I find in Frank Knight the statement that in a "going concern" the lapse of  
time between input and output is eliminated because input and output are  
simultaneous. That is like saying college students are educated instantly  
when the outflow of graduates equals the inflow of new freshmen. It  
indicates to me (along with other evidence) that Knight did not understand  
much about inventory management and cash flow or the corresponding financial  
truths, or integral calculus either for that matter. I am afraid he got  
carried away by the exuberance of his own verbosity and lost track of how  
capital as a platonic fund must relate to capital actually stored in  
physical or mental or other such real form.  
  
Accordingly, Lionel Robbins could write in his 1934 Introduction to  
Wicksell's Lectures,   
  
"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)".  
  
Wicksell in his "grape-juice model" had no problem keeping the inventory  
from vanishing in a going concern, he just inverted the order of  
integration. Tragically, the profession gradually followed Knight and  
Stigler and discarded Wicksell, the Swedish Austrian, along with the  
Austrian Austrians. I am not aware whether the Austrian Austrians ever  
caught up with Wicksell, but if they did I hope someone will spread the  
word.  
  
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. So he, or one of his expositors (I do  
not know which, but someone out there probably does), came up with the  
instantaneous or "vertical" multiplier. The squabbling over this lasted 15  
years or so, as I recall, until people got the idea. Minds were so locked  
into the timeless or instantaneous thinking of Clark and Knight, it was hard  
to readjust. Graduate students had to suffer through all this, hoping for  
light at the end of the tunnel and wondering if the agony was worth it.  
  
Auguste Comte said that theories deal either with relations of sequence, or  
of coexistence. Wicksell's grape-juice model, like the vertical multiplier,  
deftly converted a relation of sequence into the corresponding one of  
coexistence. May we all learn from it, and flee from the confusions sown by  
Clark, Knight and Stigler.  
  
Mason Gaffney