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Home | Mises Library | Dangers of the one-good model: Böhm-Bawerk's critique of the "naïve productivity theory of interest"

Dangers of the one-good model: Böhm-Bawerk's critique of the "naïve productivity theory of interest"

Tags Monetary TheoryPrices

12/26/2005Robert P. Murphy

This paper will attempt to illustrate Böhm-Bawerk's arguments through a simple, general equilibrium model in which the capital good is distinct from the consumption good. We will see that the standard one-good model of neoclassical growth theory obscures the subtleties in Böhm-Bawerk's critique. Only in a model with multiple goods can one fully appreciate the “Austrian” approach to capital and interest theory.

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Contact Robert P. Murphy

Robert P. Murphy is a Senior Fellow with the Mises Institute. He is the author of many books. His latest is Contra Krugman: Smashing the Errors of America's Most Famous KeynesianHis other works include Chaos Theory, Lessons for the Young Economist, and Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015) which is a modern distillation of the essentials of Mises's thought for the layperson. Murphy is cohost, with Tom Woods, of the popular podcast Contra Krugman, which is a weekly refutation of Paul Krugman's New York Times column. He is also host of The Bob Murphy Show.

References

Journal of the History of Economic Thought, 4, December 2005 (pp. 375-382).
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