Latest Quarterly Journal of Austrian Economics

Here are the article summaries and links to full papers in the latest QJAE.

The Marginal Efficiency of Capital
Edward W. Fuller

ABSTRACT: The purpose of this paper is to explain the marginal efficiency of capital. The net present value diagram is derived and used to illustrate how the interest rate regulates the intertemporal allocation of resources. The net present value diagram is then used to show that the marginal efficiency of capital contradicts the net present value method of ranking investment projects. The net present value diagram is integrated into the capital-based framework to demonstrate that the interest rate cannot regulate the intertemporal allocation of resources in Keynes’s theory of investment.

KEYWORDS: John Maynard Keynes, marginal efficiency of capital, net present value, economic calculation, interest rates, interest rate sensitivity, intertemporal allocation of resources, banking, business cycles, capital-based macroeconomics

How Entrepreneurship Theory Created Economics
Christopher Brown and Mark Thornton

ABSTRACT: Richard Cantillon is credited with the discovery of economic theory and was the first to fully consider the critical role of entrepreneurship in the economy. Cantillon described entrepreneurship as pervasive and he casted the entrepreneur with a pivotal role in the economy. Using a sample of models from Cantillon’s Essai, we provide evidence that his theory of entrepreneurship was the fundamental tool by which he constructed economic theory and that absent his theory of entrepreneurship his theoretical constructions fail. We believe this discovery both highlights the importance of entrepreneurship and contributes to our understanding of the nature of economic theory.

KEYWORDS: Richard Cantillon, entrepreneurship theory, economic geography, labor markets, intrinsic value, circular flow model, price-specie flow mechanism

Driving the Market Process: “Alertness” Versus Innovation and “Creative Destruction”
Samuel Bostaph

ABSTRACT: This paper summarizes and compares the theories of entrepreneurship of Joseph A. Schumpeter and Israel M. Kirzner as presented in their major scholarly contributions to economic analysis. It is argued that Kirzner’s theory of entrepreneurial action as “the driving force of the market” contributes greatly to a fundamental understanding of the market process. In contrast, it is argued that Schumpeter’s theory that entrepreneurship is the agent of “creative destruction” of an ongoing state of general equilibrium is spurious. It is also argued that his view that entrepreneurship is the internal force for the economic development of any economy, market or non-market, reveals a seriously inadequate understanding of both the market process and the economics of nonmarket economies.

KEYWORDS: entrepreneur, entrepreneurship, market process, Austrian School

Legal Monocentrism and the Paradox of Government
Jakub Bo?ydar Wi?niewski

ABSTRACT: In this paper I shall argue that, in contrast to its monocentric counterpart, only the institutional framework of legal polycentrism can overcome the problem of the so-called “paradox of government”—that is, establish effective and robust governance structures without simultaneously empowering them to overstep their contractually designated tasks and competences. To accomplish this, I shall critically evaluate the logical consistency of the solutions advanced in this context by the proponents of legal monocentrism, based on the claim that institutional constraints in the form of democratic elections or checks-and-balances can place working constitutional limitations on the power of a coercive monopolist of law and defense.

KEYWORDS: legal polycentrism, institutions, paradox of government, rule-following, rule of law, checks and balances, critical rationalism

Sunk Costs and Contestable Markets
Mateusz Machaj

ABSTRACT: The aim of this paper is twofold: to reformulate the concept of contestable markets in the context of property boundaries, and to recapitulate the characteristics of “sunk costs.” The first section outlines the idea of contestable markets developed in the 1980s and contrasts it with the perfect competition model. The second section explains the notion of sunk costs as entry barriers in the contestable markets framework. The third section summarizes the relation between costs and prices. The fourth section separates sunk costs from fixed costs and formulates main propositions on their nature. The fifth section deals with the contestable markets model, where sunk costs are perceived as an inefficient barrier to market entry. The sixth section modifies contestable markets theory in compliance with the “Austrian” theory of competition.

KEYWORDS: contestable markets, sunk costs, market competition, freedom of entry, price system, property rights


About Russell Lamberti

Russell Lamberti is a regular contributor to Mises SA. He is Chief Strategist at ETM Analytics, an Austrian-influenced economic research firm based in Johannesburg. Although he wrties about many topics, you'll most often find him slaying patent and copyright law and exposing the biggest bubble in history: fractional reserve banking.
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