“The 1926 article does, however, take a different view from the 1945 article with regard to the explanatory sufficiency of equilibrium theory. The two sides the socialist calculation debate also differed on how much relevance the general-equilibrium approach has for understanding the factor pricing of a real-world market economy. In 1926 Hayek in Wieserian fashion saw “subjective value theory as a satisfactory explanation for economic processes”. But by 1945, as noted already, Hayek cautioned that a GE model “does not deal with the social process at all”.
If GE theory is insufficient for understanding the market process, then it needs to be supplemented (or partly replaced) by a theory of price and quantity adjustment through entrepreneurial competition (or something like it). Hayek would contribute to such a theory in his later essays “The Meaning of Competition” (1946) and “Competition as a Discovery Procedure” (1968).”
“Hayek emphasized the point that in equilibrium there is a tradeoff between more consumption and more investment: “the physical quantity of consumer goods per capita can only be increased by consistently devoting a larger part of productive resources to capitalistic investment rather than to immediate consumption.” One can illustrate the tradeoff by drawing a production possibilities frontier between consumption and investment, as Roger Garrison does in his book restating Hayekian macroeconomics, Time and Money. Although the point is simple, Hayek noted that it is implicitly denied by all those economists who “assume that the demand for capital goods changes in proportion to the demand for consumer goods”. The ranks of such economists in 1932 included “underconsumption” theorists of economic depressions, like John Maynard Keynes in his Treatise on Money (1930), which Hayek cited in this connection. Keynes amplified the underconsumption theme in his General Theory (1936). The assumption that consumption and investment move in the same direction has since been taken for granted by Keynesian macroeconomists up to the present day.”
pdf: “Editor’s Introduction” by Lawrence H. White, Duke U. workshop paper, for the forthcoming volume: F. A. Hayek, Capital and Interest, Vol. 11 of The Collected Works of F. A. Hayek.
Planned Contents of the Volume
1926 “Some Remarks on the Problem of Imputation”
1927 “On the Problem of the Theory of Interest”
1932 “Capital Consumption”
1934 “On the Relationship between Investment and Output”
1935 “The Maintenance of Capital”
1936 “Technical Progress and Excess Capacity”
1936 “The Mythology of Capital”
1936 “Utility Analysis and Interest”
1941 “Maintaining Capital Intact: A Reply to Professor Pigou”