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Volume 22 | No. 4 | Winter 2019 THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS VOLUME 22 | No. 4 | WINTER 2019 WWW.QJAE.ORG ARTICLES An Overlooked Scenario of “Reswitching” in the Austrian Structure of Production .........509 Er’el Granot The Macroeconomic Models of the Austrian School: A History and Comparative Analysis ...533 Renaud Fillieule Rothbard on the Economics of Slavery ........................................................................................565 Mark Thornton The Wealth Effect and the Law of Demand: A Comment on Karl-Friedrich Israel ..............579 Joseph T. Salerno A Note on Some Recent Misinterpretations of the Cantillon Effect ........................................596 Arkadiusz Sieroń The Relevance of Bitcoin to the Regression Theorem: A Reply to Luther .............................603 George Pickering Book Review: Narrative Economics: How Stories Go Viral and Drive Major Economic Events By Robert J. Shiller ...........................................................................................................................620 Brendan Brown Book Review: Indebted: How Families Make College Work at Any Cost By Caitlin Zaloom ............................................................................................................................627 Jeffrey Degner Book Review: The Bitcoin Standard: The Decentralized Alternative to Central Banking By Saifedean Ammous ....................................................................................................................634 Kristoffer M. Hansen Book Review: Beyond Brexit: A Programme for UK Reform By The Policy Reform Group .........................................................................................................642 George Pickering Book Review:Prosperity and Liberty: What Venezuela Needs… Rafael Acevedo (ed.) ........................................................................................................................651 David Gordon Book Review:Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly By John Quiggin ...............................................................................................................................655 David Gordon Book Review:The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas By Janek Wasserman........................................................................................................................660 David Gordon Remembering Ulrich Fehl, German Economist and Prominent Scholar with a Deep Knowledge of Austrian Economics ..............................................................................................664 Peter Engelhard FOUNDING EDITOR (Formerly The Review of Austrian Economics), Murray N. Rothbard (1926–1995) EDITOR, Joseph T. Salerno, Mises Institute and Emeritus, Pace University BOOK REVIEW EDITOR, Mark Thornton, Mises Institute ASSISTANT EDITOR, Timothy D. Terrell, Wofford College COPY EDITOR, J. Mark Stanley PUBLICATIONS DIRECTOR, Judy Thommesen, Mises Institute ASSOCIATE EDITORS Per Bylund, Oklahoma Jeffrey M. Herbener, Grove David Howden, St. Louis State University City College University–Madrid Matthew McCaffrey, University of Manchester CONTRIBUTING EDITORS Philipp Bagus, Universidad Rey Juan Carlos Mateusz Machaj, University of Wroclaw Carmen Elena Dorobăt, Leeds Trinity University G.P. Manish, Troy University Lucas M. Engelhardt, Kent State University–Stark Xavier Mera, University Rennes Nicolai Juul Foss, University of Copenhagen Robert P. Murphy, Mises Institute David Gordon, Mises Institute Malavika Nair, Troy University Randall G. Holcombe, Florida State University Alexandre Padilla, Metropolitan State University Jörg Guido Hülsmann, University of Angers of Denver Peter G. Klein, Baylor University Shawn R. Ritenour, Grove City College EDITORIAL ADVISORY BOARD D. T. Armentano, Emeritus, University of Hartford Jesus Huerta de Soto, Universidad Rey Juan Carlos James Barth, Auburn University Frank Machovec, Wofford College Robert Batemarco, Pace University Yuri Maltsev, Carthage College Walter Block, Loyola University John C. Moorhouse, Wake Forest University Donald Bellante, University of South Florida Robert F. Mulligan, Indiana University East James Bennett, George Mason University Hiroyuki Okon, Kokugakuin University Bruce Benson, Florida State University Ernest C. Pasour, Jr., Emeritus, North Carolina Samuel Bostaph, University of Dallas State University Mark Brandly, Ferris State University William Poole, University of Delaware Peter T. Calcagno, College of Charleston Thorsten Polleit, Degussa Bank AG Anthony M. Carilli, Hampden-Sydney College W. Duncan Reekie, University of Witwatersrand Dan Cristian Comanescu, University of Bucharest Morgan O. Reynolds, Texas A&M University Raimondo Cubeddu, University of Pisa Pascal Salin, University of Paris Thomas J. DiLorenzo, Loyola College in Maryland Frank Shostak, Sydney, Australia Richard M. Ebeling, The Citadel Josef Sima, CEVRO John B. Egger, Towson University Gene Smiley, Marquette University Robert B. Ekelund, Emeritus, Auburn University Barry Smith, State University of New York–Buffalo Lowell Gallaway, Ohio University Thomas C. Taylor, Emeritus, Wake Roger W. Garrison, Auburn University Forest University Fred Glahe, University of Colorado Richard K. Vedder, Ohio University Steve H. Hanke, The Johns Hopkins University Hans-Hermann Hoppe, Emeritus, University of Nevada–Las Vegas THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS VOLUME 22 | No. 4 | 509–532 | WINTER 2019 WWW.QJAE.ORG An Overlooked Scenario of “Reswitching” in the Austrian Structure of Production Er’el Granot* JEL Classification: B53, E43, L11, L16, D24, B25, L23 Abstract: Since Samuelson’s (1966) reswitching example in the 1960s, it became clear that the Average Production Period (APP) is not necessarily a decreasing function of the interest rate. Recently, Fillieule (2007) and Hülsmann (2010) have shown that Samuelson’s example is not a mere curiosity. They showed that in a reasonable production structure model, the length of production increases with the interest rate instead of decreasing. However, their model did not present “reswitching” behavior. In this paper a generic model of the structure of production, in which both Fillieule’s and Hülsmann’s models are specific cases, is presented. It shows that the APP has a nonmonotonic dependence on the interest rate, which resembles a “reswitching” behavior: it increases for low-interest rates up to a maximum value, and then decreases back to almost the initial value. The decrease occurs within a relatively narrow range of interest rates, which may explain why it was missed in the literature. INTRODUCTION ecently, there has been a revival in the interest in the reswitching Rdebate. The debate is part of the Cambridge capital debate, which took place during the 1960s and 1970s (Harcourt 1972, 1976; * Er’el Granot ([email protected]) is a professor at the Department of Electrical and Electronics Engineering, Ariel University, Israel. Quart J Austrian Econ (2019) 22.4:509–532 509 Creative Commons https://qjae.scholasticahq.com/ BY-NC-ND 4.0 License 510 Quart J Austrian Econ (2019) 22.4:509–532 Cohen and Harcourt 2003). While the capital debate did not end with a clear conclusion, Samuelson (1966) used a nice pedagogical example to illustrate the problem, in what was considered to be one of the main pillars of economics. One of the conclusions of Böhm-Bawerk’s intratemporal studies was that the players’ time preference determines the pure rate of interest (PRI), and therefore when the PRI decreases the entrepreneur seeks more productive roundabout production processes (Böhm-Bawerk 1959). Conse- quently, it seems that the natural conclusion is that when the PRI decreases, the structure of production lengthens. This conclusion affected not only the neo-classical school but significantly influenced the Austrian school of thought. Hayek (1933, 1935) developed Jevons’s structure of production and Böhm- Bawerk’s analysis in his business cycle studies. Rothbard (2008) developed Hayek’s treatment by integrating the interest rate in the structure of production. The general structure appears in more modern writings.1 The reswitching debate did not have a considerable impact on the Austrian school, probably because it was not regarded initially as more than a mere curiosity. Moreover, it is true (see Murphy [2003]) that the validity of reswitching does not fundamentally contradict Böhm-Bawerk’s claim that the entrepreneurs’ time-preferences is directly related to their willingness to lengthen or to shorten the production process. In fact, the reswitching effect does not contradict any fundamental praxeological law. However, does it affect the structure of production? Fillieule (2007) constructed a simple model for the structure of production. In his model the structure of production consists of infinite stages of production, i.e., the structure of production begins at the dawn of humanity. Moreover, it was taken that in every stage the ratio between the amount of money invested in original factors of production (labor and land) and the amount of money invested in capital goods is a given constant ratio. Under these fundamental propositions, the structure of production has an exponential shape. That is, the structure of production decays exponentially the higher one goes in the production’s stages, since the 1 See, e.g., Skousen (1990), de Soto (2006). Er’el Granot: An Overlooked Scenario of “Reswitching”… 511 ratio between the amounts of investment in
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