Capital and Time: A Neo-Austrian Theory

By J. R. Hicks | Go to book overview

X Substitution

1

There is still one thing to be done, one very important thing, before we can leave our Standard Case and its Simple Profiles. We have hitherto supposed that the new technique, to which the Traverse is to be made, is given; what is to happen when there is a choice of techniques, so that the dominant technique may change in the course of the Traverse? This was a question, it will be noticed, which did not arise in Fixwage theory, where there must be just one dominant technique in any technology; but in Full Employment theory, where the wage will vary during the Traverse, we ought to allow for the possibility that the technique that is chosen for new processes will change, in response to changing wages.

Since each individual process extends over time, the choice should in general depend on expected wages as well as on current wages; but as I have previously explained, 1 I shall in this book leave that complication out of account. I shall assume static expectations—that the wage that is ruling at time T is expected to remain unchanged, at least so long as the processes started at time T are expected to continue. Since these expectations are 'wrong', the path that is chosen will not be an optimum path; it may sometimes behave in curious ways that are to be attributed to its non-optimality. But in positive economics it has its place; there is no simple assumption which throws more light on the kinds of things that are likely to happen.

As before, we start from a situation in which an old technique, belonging to an old technology, is dominant; and it will be convenient to make our usual assumption that initially the economy is in a steady state under that old technique. 2 There is then introduced, at time 0, a new range of practicable techniques. If the invention of these new techniques is to be effective, some of them must be more profitable than the old technique at the initial rate

-110-

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Capital and Time: A Neo-Austrian Theory
Table of contents

Table of contents

  • Capital and Time iii
  • Preface v
  • Contents ix
  • Part I- Model 1
  • I- Goods and Processes 3
  • II- The Process and Its Profiles 14
  • III- Social Accounting 27
  • IV- Technique and Technology 37
  • V- Full Performance and Full Employment 47
  • VI- Steady States 63
  • II- Traverse 80
  • VII- The Standard Case and the Simple Profile 81
  • VIII- The Fixwage Path 89
  • IX- The Full Employment Path 100
  • X- Substitution 110
  • XI- Shortening and Lengthening 125
  • XII- Ways Ahead 135
  • Part III- Controversy 149
  • XIII- The Measurement of Capital—value and Volume 151
  • XIV- The Accumulation of Capital 167
  • XV- The Production Function 177
  • Appendix 185
  • Index 211
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