Capital and Time: A Neo-Austrian Theory

It would be perfectly possible, at the point we have now reached, to go forward on the well-beaten path of modern growth theory: using the relations, which are already at our disposal, so as to establish the conditions for the model economy to be in a steady state. As will be shown in the following chapter, we are ourselves on the way to a steady state theory, which is not substantially different from that which has become conventional; for in the steady state, where the structure of the economy is the same in every time-period, time has been so nearly abolished that the passage from the assumption of a 'sectoralized' technique to our assumption of a technique that is time-articulated cannot make much difference. So in our steady state theory we shall do little more than confirm well-established results. I wish, however, to present those results in a new way; and for that I need some additional preparation.

The steady state, in this book, will be no more than a means to an end—to the study of an economy which is not expanding uniformly, an economy in which things actually happen. Now for the study of a non-steady state path more assumptions are needed than for the study of a steady state path; more assumptions, and more distinctions. It will be useful, before we pass to the formal theory of a steady state, to examine these distinctions. For when we have them, we shall find ourselves able to take the steady state theory itself in a more fruitful way.

I begin with a distinction that is already present in steady state theory; for it will help in the setting-out of what follows. All we have got from the efficiency frontier (of the given technology) is the determination of the rate of interest (and the most profitable technique) when the wage is given—or, alternatively, of the wage and the corresponding technique when the rate of interest is given—so that, even for the determination of the price-system, something more is required. This can be found, as is well known,

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