Money, Banks and Finance in Economic Thought

The Scheme of the Circular-Flow in the 1930’s Capital Controversies

Ruijs Philip, Université d'Angers

By the end of the 1920’s a debate emerged between the Austrian School and the Kiel School over the former’s “monetary business cycle theory”. Once F.A. Burchardt (of the Kiel School) attacked Böhm-Bawerk’s time-based production theory and its ‘ring-scheme’ (foundations under the Austrians’ business cycle theory) the debate evolved into a ‘capital controversy’ concerning issues about, and surrounding, the schematic representation of the ‘circular flow’ (or ‘structure of production’). The capital controversy involved questions such as whether Böhm-Bawerk confused the ‘laws of building-up’ and the ‘laws of maintenance’ of a capital stock; the distinction and use of ‘statics and dynamics’; the distinction between ‘original factors’ and ‘intermediate goods’; the possibility of measuring a ‘period of production’; the necessity of including ‘circularities’ in the schematic representation of production; and the need for distinguishing (the production of) fixed- and circulating capital.


Keywords: Capital debates; capital controversies; Austrian School; Kiel School; Böhm-Bawerk; Schematic representation of the ‘circular-flow’; reproduction; ‘circularities’; “real-side” of the economy; ‘statics and dynamics’ in the 1930’s; statics and stationar

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