The Austrian Approach Can Be Vastly Improved by Recasting Böhm-Bawerk’s Ideas in a Framework of Individual Human Plans

We turn to take up the aspect of capital that has proved perhaps most fascinating to economists and yet seems to have provided them with their greatest difficulties and with fuel for their fiercest controversies, — the relation between capital and waiting. In general economists associate the “Austrian” approach to capital and interest theory with a major emphasis on the time lapse between inputs and outputs — the theory revolving around concepts such as the length of the period of production, or of investment, the amount of waiting thus involved, and the “productivity” of the time concepts so distinguished. On the other hand the Clark-Knight view of the capital and interest problem vigorously disputes the stress on waiting, casting its own theory in terms that not only do not depend on an integration of the waiting concept into the theory of production, but which even challenge the economic meaningfulness of the concept altogether.

The controversy has been alive now for over six decades, with now the one approach, now the other, seeming to hold the allegiance of the bulk of current theorists. In recent years both views have been reflected in the literature; in particular the “Austrian” approach has, as we shall see, been accorded a more respectful hearing than on many occasions in the past. Our task in the present chapter will be to review the principal ideas to be found on the subject of waiting in this modern capital-and-interest literature. We will find much to criticize in this literature: while our greatest dissatisfaction must be with the Clark-Knight tradition, we find ourselves constrained to take sharp exception to many of the ideas used in recent attempts to rehabilitate the Böhm-Bawerkian approach. It will be our position that much of the confusion that has clouded the subject for so long can be avoided without difficulty by adhering resolutely to the planning approach — that is, by consistently seeking the explanation of all economic events by referring to the individual human plans to which these events can be traced back. What is valid in the “Austrian” approach, in particular, we will maintain, can be vastly improved by explicitly recasting Böhm-Bawerk’s seminal ideas within such a “planning”  — rather than a technological  — framework. It will prove helpful at this stage to preface our discussion with a brief review of our own position on the matter of capital and waiting as developed in the first chapter of this essay. It will be recalled that at the heart of this position there lay the idea of intertemporal exchanges; our view of capitalistic production sees it as a particular aspect of such an exchange across time.

—Israel M. Kirzner, An Essay on Capital (New York: Augustus M. Kelley Publishers, 1966), 73-74.