Yeager Mistaken

Just when I planned on putting aside Austrian economics until receiving referee reports...

The Ludwig von Mises Institute has made Time, Uncertainty, and Disequilibrium: Exploration of Austrian Themes available. These 1979 proceedings were edited by Mario J. Rizzo. The conference at which these papers were presented was held at New York University on 7 January 1978.

For some reason, Austrian economists take Leland B. Yeager as having an authoritative response to the Cambridge Capital Controversy. So I reference his 1976 Economic Inquiry article in my recent refutation of Austrian Business Cycle Theory. These proceedings have an article by Yeager, "Capital Paradoxes and the Concept of Waiting", that I have not previously had access to. Also, Roger Garrison responds with a comment.

Yeager's supposed resolution to the CCC is, roughly, to take interest as the price of waiting, defined as "the tying-up of value over time". Since value is part of its definition, the amount of waiting embodied in a technique cannot be measured by the physical characteristics of a technique. The amount of waiting embodied in a technique can then be expected to vary with prices and interest rates. Thus, reswitching does not seem paradoxical to Yeager.

Yeager acknowledges that he has not resolved the puzzle of "perverse" switches. Presumably, a lower interest rate is associated with the adoption of a technique embodying relatively more waiting. Yet around a perverse switch point, a lower interest rate is associated with the adoption of technique that produces less consumption per worker. How can this be? If laborers work with more waiting - a factor of production - shouldn't they get more output?

Anyways, this incorrect claim shows that Yeager had not fully absorbed the lessons of the CCC:

"The demand for waiting, as for labor and land-use, derives from the factor's capacity to contribute to output - ultimately, output of consumer goods and services - and from consumers' demand for that output. The relative strengths of consumer demands for goods embodying relatively large amounts of particular factors affect producer demands for those factors and so affect their prices. A decline in consumer demand for a highly waiting-intensive good tends to lower the rate of interest." - Leland Yeager

The last statement is without foundation.