The Sharp-Eyed Tyler Cowen...
...is the first person to ever explain chapter 4 of Keynes's General Theory to me. Tyler:
Tyler Cowen: Keynes's General Theory, chapter four, The Choice of Units: This chapter may seem cryptic but the key is the tiny footnote to Hayek; this chapter is Keynes obsessing over capital theory and the Austrians.
Hayek argued that an economic downturn should be understood as a discombobulation of the capital structure and here is Keynes arguing against that approach. When you cut through the terminology, Keynes says that capital heterogeneity isn't needed to generate aggregate demand analysis and that his core mechanisms will operate in any case.
Keynes admits that with economic development labor gets very specialized, or very closely connected to particular capital goods, so yes there are capital complementarities of the Austrian kind. But Keynes thinks such fragilities will only help his argument, while rendering the analytics too messy. He declares his intention to proceed with homogeneous magnitudes of capital and labor.
This chapter often fails to receive its proper due; it is very important for understanding the location of Keynes in the history of economic thought.
With this one chapter, Austrian capital theory falls off the map...
The footnote is:
[4] Cf. Prof. Hayek’s criticisms, Economica, Aug. 1935, p. 247.
It is attached to the word "formula" in the passage:
In order to arrive at the net National Dividend, Professor Pigou[3] deducts such obsolescence, etc., “as may fairly be called ‘normal’; and the practical test of normality is that the depletion is sufficiently regular to be foreseen, if not in detail, at least in the large.” But, since this deduction is not a deduction in terms of money, he is involved in assuming that there can be a change in physical quantity, although there has been no physical change; i.e. he is covertly introducing changes in value. Moreover, he is unable to devise any satisfactory formula[4] to evaluate new equipment against old when, owing to changes in technique, the two are not identical...
