We Need to Shift the Focus Away from Stages of Production and Back to Average Period of Production

The Hayek-Garrison treatment is missing the Hicksian component. It seems that neither Hayek nor Garrison made the same connection as Hicks did. The Hayek-Garrison framework shifts the emphasis away from the APP [Average Period of Production] toward relative changes in stages of production. However, even though stages of production (the particular order in which production needs to take place—i.e., mining first, retailing last) are a clear conceptual device, they do not have an objective counterpart in reality. Because of this, empirical studies that try to test the ABCT [Austrian Business Cycle Theory] following Garrison’s model face significant difficulties. . . .

To save the structure of production, we need to shift the focus away from stages of production and put it back into the APP.⁶ To do this, we need to follow Hicks’s lead, with the advantage of modern financial analytical tools and mathematics.

⁶While related to each other, APP and stages of production are conceptually different. We can imagine a production process with fewer stages of production but a higher APP and another production process with more stages of production but a shorter APP. This is possible because stages of production have to be arbitrarily delimited. The number of stages of production may or may not shed light on how long a production process is.

—Nicolás Cachanosky and Peter Lewin, “The Role of Capital Structure in Austrian Business Cycle Theory,” Journal of Private Enterprise 33, no. 2 (Summer 2018): 25, 25n6.