The Hayekian Triangle Depicts the Macroeconomy as Having a Value Dimension and a Time Dimension

The Hayekian triangle, as described in Hayek’s second lecture (Hayek 1967), is a heuristic device that gives analytical legs to a theory of business cycles first offered by Ludwig von Mises (1953). A right triangle depicts the macroeconomy as having a value dimension and a time dimension. It represents at the highest level of abstraction the economy’s production process and the consumer goods that flow from it. One leg of the triangle represents dollar-denominated spending on consumer goods; the other leg represents the time dimension that characterizes the production process (Figure 5.1). In a fundamental sense, the Hayekian triangles in their various configurations illustrate a trade-off recognized by Carl Menger and emphasized by Eugen von Böhm-Bawerk. At a given point in time and in the absence of resource idleness, investment is made at the expense of consumption. Investment, which entails the commitment of resources to a time-consuming production process, adds to the time dimension of the economy’s structure of production. To allow for investment, consumption must fall initially in both nominal and real terms. Once capital restructuring is complete, the corresponding level of consumption is higher in real terms than its initial level. The nominal level of consumption spending, however, is lower than its initial level because a greater proportion of total spending is devoted to the maintenance of a more time-consuming production structure.

—Roger W. Garrison, “Hayekian Triangles and Beyond,” in Hayek, Co-ordination and Evolution: His Legacy in Philosophy, Politics, Economics and the History of Ideas, ed. Jack Birner and Rudy van Zijp (London: Routledge, Taylor and Francis e-Library, 2001), 110.