Capital and Time: A Neo-Austrian Theory

In social accounting we are only concerned with values; we are not concerned with the quantities which these values represent, nor (in consequence) with price per unit of quantity. Thus we could deal with the accounting matters, which were our sole concern in the preceding Chapter, without making any assumption about physical homogeneity. Physically, there could be many inputs and many outputs; by confining attention to their values we made them homogeneous, whatever their physical character. When we pass to the more strictly economic application, we lose that advantage.

In this Chapter, and in most of those that follow it, I shall be trying to set the model to work. I am unable to do that without simplifying further. It is thus at this point that I shall introduce the standard simplifications of modern growth theory—taking the price-system, in particular, in the simplest possible terms. We have already allowed ourselves one rate of interest; we shall now allow ourselves just one other price, one non-intertemporal price. All 'original' inputs are taken to be homogeneous, and all final outputs homogeneous; so there is just one non-intertemporal price, the input-output price-ratio. It is natural, having made this simplification, to call the homogeneous input Labour; but we must be clear that no characteristic of actual labour comes into the argument, except that it is an input into the productive process, and not an output. If, at a later stage, we should feel the need to introduce a second original input (Land ?), it would come in on exactly the same footing. No more than this is implied when we call the original input Labour.

There is no similarly acceptable term for a homogeneous final output, but it will make for convenience to have one. It is to be thought of as standing for 'consumption goods in general'; so I shall just call it goods. (I do not think this will cause any confusion since we shall have no producers' goods that are separately traded.) Our single non-intertemporal price-ratio will accordingly appear as the 'wage' of 'labour' into terms of 'goods'—the real wage of labour. I shall denote it by w.

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