Sunday, March 27, 2011

Paul Rosenstein-Rodan: An Appreciation

I have benefited greatly from the close reading of several of Mr. Rosenstein-Rodan's essays. The two essays of his that have been most infuential on my thinking are "The Coordination of the General Theories of Money and Price" and "The Role of Time in Economic Theory." The last essay in particular, published in 1934, has challenged me to think about time in new and challenging ways.

Rosenstein-Rodan discusses the concept of time from every angle, and leaves no area unexamined. He is also an excellent essayist. The three problems Mr. Rosenstein-Rodan identifies are (1) the economic period; (2) time as an economic good (the disposition of it); and (3) the actual process of change through time. While the last problem is the most interesting, I found the first one the most important.

For one thing, the equilibrium values of wants in relation to goods depend on the period of time under consideration. This subtle point is sometimes lost in the minds of professional economists. An optimal distribution of resources will obtain with every new change in the period of time for which one is economizing. This implies that there is no single equilibrium value in a market process involving time. This problem is heightened when imperfect foresight is introduced as an ancillary assumption to the main analysis. The presence of uncertainty makes the specific character of goods demanded in the future unknowable. Consequently, no exact planning as to the procurement of these goods can be made; people can only estimate these goods en bloc. It follows from this that the farther one looks into the future, the more uncertain the character of goods demanded becomes. As Rosenstein-Rodan puts it, "these wants cannot be foreseen concretely."

I found all this intensely interesting. I even have some notes in scholia. I will reproduce them for you to read. Comments are welcome:

"the role of time in the Austrian theory of production raises important problems concerning the relationship between productivity and human foresight. If, as a general rule, uncertainty increases as the "time element" expands outward, then, as a consequence, the nexus between productivity and capital intensity is destroyed. In other words, uncertainty and productivity via increasing stages of production cannot rise together because the proportion of wants affected are forced to move in two directions in response to the conflicting forces of production and ignorance. It is true that the Austrian production process has as its aim the satisfaction of future wants, but the "time element" introduces uncertainty into the model so that now no direct nexus can exist between capital productivity and time."

It is very rare for an article to cause me to write so much! Rosenstein-Rodan is a neglected Austrian. But his work is very important. Just look at what it has done to the Austrian theory of capital!

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