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Critical Reflections on Rothbard’s Concept of Gross Investment

  • Eduard Braun EMAIL logo

Abstract

This paper critiques Rothbard’s ([1962] 2004. Man, Economy, and State – A Treatise on Economic Principles. Auburn, AL: Mises Institute) concept of gross investment. Rothbard introduced the concept in order to demonstrate his point that it is not consumer spending that primarily drives the economy, like the mainstream Keynesian view maintains, but the capitalists’ spending. In this paper, it is argued that, contrary to Rothbard’s opinion, the amount of gross investment as he defines it does not contain significant information concerning the question as to whether the capital structure of a society can be upheld or not. Instead, it is an arbitrary figure that depends on the length of the different stages of production. This problem has not been recognized by Rothbard because his exposition rests upon the assumption of an equal time length for all stages. Apparently, he has been led astray by his intention to find arguments against the importance of consumer spending in the determination of output.

Acknowledgements

The author thanks professors Jörg Guido Hülsmann and David Howden for helpful comments on an earlier draft of this paper.

References

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  1. 1

    Barnett II and Block (2006, 40, n. 3) provide a list of further references.

  2. 2

    One reviewer asked whether the fact that the amount of payments for intermediate goods varies with the number of stages does not itself violate the ceteris paribus condition. As will become clear in the following, however, this is exactly the point: the amount of these payments is not an independent variable but simply reflects the number of stages.

Published Online: 2014-6-4
Published in Print: 2014-7-1

©2014 by Walter de Gruyter Berlin / Boston

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