Prices and Production: Lecture II, Part II

Published Mon, Jun 1 2009 4:03 AM | laminustacitus

The most essential feature of the capitalist system of production, as stated in the prior entry, is the fact that at any moment a larger quantity of the original means of production is being employed for the satisfaction of a future time. The raison d'être for the capitalist system is that by lengthening the process of production, it is possible to obtain more consumers' goods from any given natural resources. The main interest for us in respect to this is the fact that any change from a process of production of any duration to one of a greater, or lesser duration will result in definite changes for the structure of production. For our purposes, it is useful to employ a schematic representation of the structure of production via the Hayekian triangle.

In the Hayekian triangle, one of the sides of the triangles symbolizes the temporal dimension of the continual use of intermediate products in the structure of production, which can be subdivided into separate regions symbolizing different stages of production (for our purposes this will be the vertical dimension), the other side of the triangle symbolizes the output of consumer goods (the horizontal dimension), and the hypotenuse represents the successive application of the original means of production. Indeed, the hypotenuse also elucidates the value of the original means of production, and the vertical dimension the progress of time, in arbitrary units, so that “the inclination of the line representing the amount of original means of production used means these original means of production are expended continuously during the whole process of production.” Ergo, it is then apparent that the horizontal dimension represents the value of the consumers' good output; on a similar note, the entire figure of the Hayekian triangle represents value, not physical output, with the interest rate intentionally neglected for this lecture.

The area of the triangle represents the totality of the successive stages that the original means of production passes through in order to become consumers' goods. In addition, the area also displays the total quantity of intermediate, producers' goods necessary at any moment in time to secure a non-stop stream of consumers' goods. It should be clear that the proportion between the amount of intermediate goods, and the amount of output must expand with the length of the roundabout production-process. As the time interval between the first use of the original means of production, and the final completion of consumers' goods increases, then the structure of production becomes more capitalistic, and vice versa.

For the purpose of lucidity, in Prices, and Production, Hayek transforms the picture of continuous process of production into one that makes cross sections corresponding to the periods of production in the aggregate structure in which goods flow from period, to period at regular intervals. This results in what looks most like a bar-graph with bars extending from the vertical axis, and with the lengths of these bars increasing a la a value crescendo until they reach their highest peak at the final consumers' goods output. Though Hayek proceeds to utilize this diagram throughout the lecture, since I do not have the images necessary for proper communication, I will henceforth try to eschew for the purposes of this live-blog.