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Böhm-Bawerk and Hicks modernized

Author

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  • Carl Christian von Weizsäcker

    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

The paper offers a modernized Böhm-Bawerkian approach to capital theory. The Wicksell effect turns out to be a measure for the degree of vertical distribution of labor. I show that a marginal rise in the rate of interest reduces the (modernized) period of production. A ‘generalized golden rule of accumulation’ is one result of our approach. Based on these results I define a coefficient of intertemporal substitution (CIS). As opposed to the traditional elasticity of substitution between labor and capital, the CIS is also well defined for negative real rates of interest. This is important in the twenty-first century, since we observe a strong overhang of private savings over private investments (secular stagnation).

Suggested Citation

  • Carl Christian von Weizsäcker, 2020. "Böhm-Bawerk and Hicks modernized," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 17(2), pages 208-219, September.
    • Handle: RePEc:elg:ejeepi:v:17:y:2020:i:2:p208-219
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    More about this item

    Keywords

    Austrian theory of capital; Wicksell effect; generalised golden rule of accumulation; coefficient of intertemporal substitution; negative real rate of interest;
    All these keywords.

    JEL classification:

    • E14 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Austrian; Evolutionary; Institutional
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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