1. Capital and Entrepreneurship. A Subjectivist Exposition of Roundaboutness and the Structure of Production Antony Mueller UCS Graduate Business School University Caxias do Sul, Brazil antonymueller@yahoo.com

2. Variant Meanings of “Capital” Capital as Financial Capital Capital as Financial Capital Capital a Production Goods Capital a Production Goods Capital as a Stock Capital as a Stock Capital as a Production Process Capital as a Production Process Capital as a Productive Force Capital as a Productive Force Capital as a Factor of Production Capital as a Factor of Production

3. Capital Theory Heterogeneity vs homogeneity of capital Heterogeneity vs homogeneity of capital Structured vs. unitary Structured vs. unitary Production process vs. fixed stock Production process vs. fixed stock Separate productivity of factors of production vs Coordination and Specialization Separate productivity of factors of production vs Coordination and Specialization Permanence vs. Non-permanence Permanence vs. Non-permanence Absence of Entrepreneur vs. Pivotal Role of Entrepreneurship Absence of Entrepreneur vs. Pivotal Role of Entrepreneurship

4. Roundaboutness – Umweg- produktion Q Roundabout Production Roundabout Production Standard Production Standard Production Available Time Available Time

5. RTP S to t1 New Roundabout Production Standard Production Q B E

6. SP RP RP’ RTP n RTP m SSmSn RTP

7. Roundaboutness and Stages of Production (dAD = 0) FP DoR -ΔD-ΔD +ΔD+ΔD dAD = Change in Aggregate Demand DR = Degree of Roundaboutness FP = Final Product dD = Change in Demand

8. Modeling capital as “Hayekian triangle” A simple Hayekian triangle – Stages of Production Degrees of Consumption Maturity Consumable Output Output SP1,........, SPx,.......... SPn Consumption Stages of Production (SP) Stages of Production (SP)

9. Savings and economic growth in the Hayekian triangle D A C B A C B C B A

10. Shortening of Production Structure DR FP +dD -dD

11. Unsustainable Production Structures Central Planning Distortions DR FP +dD

12. Soviet-Cuba Style Development Policy = Guns and Butter Policy +DR +dD +dD +dD +dD SoP SoP

13. Imports-maintained Production Structure DR FP +dD +dIM

14. Growth-cum-debt development strategy in a three-stages model FP DR +dD +dIM

15. Forced Savings DR FP -dD +dD +dEX

16. Natural and cyclical production frontiers P NPF AD CPF CPF Po Po Q0 Output

17. Productivity-induced expansion P NPFo NPF’ P NPFo NPF’ P0 P0 P1 P1 AD AD Q0 Q1Output

18. Money-induced expansion in the loanable fund model i ICD/CCD i ICD/CCD S S + dM dAD LF dAD LF

19. Savings and credit supply and demand CD S TCS i TC S+ΔM = inin im EnEm

20. Productivity gains and inflation targeting – recipe for a boom bust cycle? P NPF NPF’ P NPF NPF’ AD ADCPF P3 P3 CPF’ CPF’ P0 P2 AD’ AD’ P1 P1 Q0 Q3 Q1 Q2 Output Q0 Q3 Q1 Q2 Output

21. Government and consumption credit-driven expansion i I I+CC+GC S S + dM i I I+CC+GC S S + dM i0 i0 I, C, G I, C, G

22. Effect on production frontier P NPF’ NPF P NPF’ NPF CPF ‘ CPF ‘ CPF CPF AD’ AD’ AD AD Q2 Q0 Q1 Output Q2 Q0 Q1 Output

23. Credit expansion and credit crunch – financial markets iS - dM iS - dM I S S + dM S + dM i’’ i’’  i0  i’ dAD’’ dAD dAD’ LF dAD’’ dAD dAD’ LF

24. Austrian Disaggregation PQ = Pc (Qc) + P I (Q I 1 +...+ Q I x +... + Q I N ) PQ = Pc (Qc) + P I (Q I 1 +...+ Q I x +... + Q I N ) Keynesian Disaggregation: Keynesian Disaggregation: PQ = Y PQ = Y Y= C + I + G Y= C + I + G Monetarist Disaggregation: Monetarist Disaggregation: MV = PQ MV = PQ MV = YrP MV = YrP M = MB x m M = MB x m

25. Money side and goods side M x V = Q x P (MV/P) = Q Q MV/P P Q Po

26. Money side and goods side – Change of Q M x V = Q x P (MV/P) = Q Qo MV/P P Q Po Q1 P1

27. Money side and goods side –change of M and/or V M x V = Q x P (MV/P) = Q Q MV/P’ P Q Po P1 MV/P

28. Equation of Exchange Equation of Exchange Equation of Exchange MV = PQ MV = PQ Keynesian Model: Keynesian Model: MV = P (Qc + QI + QG) MV = P (Qc + QI + QG) Monetarist Model: Monetarist Model: MB x m x V = P x Yr MB x m x V = P x Yr Disaggregated Model Disaggregated Model MB x m x V = Pc (Qc) + P I (Q I 1 +...+ Q I x +... + Q I N ) + P A (Q A ) MB x m x V = Pc (Qc) + P I (Q I 1 +...+ Q I x +... + Q I N ) + P A (Q A )

29. Classical, Monetarist, and Keynesian View Classical Position: Classical Position:  Auto-Stabilization through interest rate Keynesian Position: Keynesian Position:  Destabilization through investment (paradox of thrift) – Stabilization through deficit spending Monetarist Position: Monetarist Position:  Destabilization through money – Stabilization through stable money supply

30. Problem and its Solution Instability through money, banking and government Instability through money, banking and government Solution proposals Solution proposals  Gold standard  Commodity standard  Denationalization of money  Hundred per cent reserve requirement

31. Summary Causes of Instability in Keynesianism and Monetarism: I and Ms Causes of Instability in Keynesianism and Monetarism: I and Ms Realb Business Cycle: Shocks, mainly external Realb Business Cycle: Shocks, mainly external Instability in Austrian Economics: deviation of monetary rate of interest from natural rate Instability in Austrian Economics: deviation of monetary rate of interest from natural rate Causes of instability in this model: Any kind of interventionism as to I, G, Ms, Md, i Causes of instability in this model: Any kind of interventionism as to I, G, Ms, Md, i Cycle gets amplified because of Fractional Reserve Banking Cycle gets amplified because of Fractional Reserve Banking

32. Main elements of this model Time preference Time preference Roundaboutness Roundaboutness Stages of production Stages of production Standard production Standard production Roundabout production Roundabout production Capital Capital Entrepreneurship Entrepreneurship