Austrian Business Cycle Theory : On the Interest Rate and the Cambridge Capital Controversy
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Critics of the ABCT believe that CCC constitutes a strong rejection of the austrian theory of capital. Apart from the empirical evidence of ABCT, one problem with the assumptions of the reswitching theory is that it assumes that ABCT is all about the change in capital-intensiveness following a change in interest rates. ABCT does not even depend on the change in interest rates per se, nor even on a "single" natural interest rate as some wrongly believed; Sraffa being just one of them. But as the reswitching technique theory implies the possibility of capital reversing, which is to say, the association between the nature of the production techniques employed and rate of interest is not a monotonic one. That is, a decline in interest rates might lead to a lengthening in the structure of production through more capital-intensive techniques, when at the same time a further decline in interest rates will trigger a drop in the length of the structure of production through less capital-intensive techniques. In other words, that relationship is U-shaped.
Austrian Business Cycle Theory : On the Interest Rate and the Cambridge Capital Controversy
Austrian Business Cycle Theory : On the…
Austrian Business Cycle Theory : On the Interest Rate and the Cambridge Capital Controversy
Critics of the ABCT believe that CCC constitutes a strong rejection of the austrian theory of capital. Apart from the empirical evidence of ABCT, one problem with the assumptions of the reswitching theory is that it assumes that ABCT is all about the change in capital-intensiveness following a change in interest rates. ABCT does not even depend on the change in interest rates per se, nor even on a "single" natural interest rate as some wrongly believed; Sraffa being just one of them. But as the reswitching technique theory implies the possibility of capital reversing, which is to say, the association between the nature of the production techniques employed and rate of interest is not a monotonic one. That is, a decline in interest rates might lead to a lengthening in the structure of production through more capital-intensive techniques, when at the same time a further decline in interest rates will trigger a drop in the length of the structure of production through less capital-intensive techniques. In other words, that relationship is U-shaped.