A Capital-Based Theory of Secular Growth

Roger Garrison (2001) provides a welcome diagrammatic exposition of Austrian, capital-based macroeconomics. The exposition attempts to account not only for Austrian Business Cycles (ABCs), but also for long-run, secular growth. Secular growth is a focus of mainstream growth theory that has arguably been neglected by Austrian analysis. However, Salerno (2001) argues that the type of secular growth described by Garrison (2001, p. 54) is implausible. He argues that, in the absence of technological or institutional change, time preferences must be falling over time for net capital accumulation to be sustainable. This paper outlines a capital-based theory of secular growth based on the consideration of intangible capital. The nonrivalrous nature of intangible capital goods allows for external effects. The technology becomes available to firms and individuals that (a) are not forced to wait through the innovative stages of production and (b) do not compensate those firms and individuals that do. Furthermore, (c) innovative stages of production may be viewed not only as aimed towards the production of consumption goods, but also towards further innovation – "standing on the shoulders of giants". The theory presented here reconciles Garrison's exposition to the Salerno critique. It also provides a bridge between many insights of mainstream, endogenous growth theory and Austrian, capital-based macroeconomics. JEL Codes: E0, O0, B53