Hayek’s Capital Theory Re-Constructed in Mathematical Model Form

The paper can be downloaded here.

ABSTRACT — “Myopia and Optimal Growth: A Rational Reconstruction of F.A. Hayek’s Capital Theory” by Arash Molavi Vasséi, U. of Hohenheim:

This paper provides a systematic translation of F.A. Hayek’s informal exposition of capital theory in “Utility Analysis and Interest” and The Pure Theory of Capital into a model. The underlying premise is that Hayek adopts infant versions of `modern’ analytical tools such that a rational reconstruction of his capital theory by established neoclassical tools is admissible. The major result is that Hayek’s capital theory contains a generalization of the Ramsey-Cass-Koopmans model. In concrete, Hayek provides the solution to an infinite-horizon deterministic social planner optimization problem in a one-sector economy such that the rate of pure time preference encapsulated in the discount factor increases in prospective utility. With respect to stability properties, he emphasizes that the system converges even in the special case of constant returns to per-capita accumulation.

Vasséi’s faculty page is here.

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One Response to Hayek’s Capital Theory Re-Constructed in Mathematical Model Form

  1. Younger Cato says:

    What a wonderful effort & potential contribution! I’ve fantasized about translating Hayek’s reasoning on capital theory into a formal algebraic equivalent. I thought, surely no one will want to “waste” their time on such an effort, and so I thought I would have a chance at making a meaningful contribution. I am so happy that a like-minded soul has risen to the challenge, regardless of “fashion”.

    I can’t wait to read this and feel at home. I’m hoping that it aligns well with Hayek’s original intention & my own suspicions.

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