The structure of production

Most macroeconomics treats output as one quantity. This tradition treats it as a sequence: ore before steel, steel before tools, tools before the machine that makes the thing on the shelf. The claim is that the shape of that sequence matters, and that a change in the terms on which the future is bought changes the shape.

Eight lessons. The first two build the picture. A five-stage chain with round numbers, then the diagram Hayek drew for it in the second of four lectures delivered at the University of London and published in 1931 as Prices and Production. The second lesson spends as much space on what the diagram cannot show as on what it can, and every one of those limits is Hayek's own.

The third and fourth put the trade-off between consuming now and consuming later on one picture, and show what abstaining from consumption does to the shape.

The fifth and sixth are Lachmann's contribution, from Capital and Its Structure, published in 1956. Capital goods are used in combinations, and the combinations are not obvious in advance. A machine without the things it needs beside it is worth less than it cost, and finding out which machines can be moved to a second use is expensive.

The seventh is Garrison's formal presentation from Time and Money, published in 2001, which joins the triangle to two other diagrams, and what a formalisation costs a theory built on heterogeneity.

The last is the honest one. The production structure is the hardest part of this theory to measure, published statistics measure something adjacent rather than the thing itself, and Hayek disowned the simplification that made the early version tractable.

Nothing here is a forecast, a policy position or a view about any security, and ValueScreener gives no advice.