The Austrian Theory of Capital : An Attempt at Clarification

Traces of the Austrian capital theory may be detected in the modern growth theory. Yet, it was not generally accepted as it contains many confusions and unsettled points. This paper tries to clarify some of the misunderstandings that are present in this theory. It clarifies the notion of roundaboutness, it describes in detail the reasons for a higher productivity of longer methods, and it examines why the Austrian authors put emphasis on the structure of production. A decrease in time preference is studied in detail, and new diagrammatical tools are introduced to pin down the dynamics of the economy