Fritz Machlup on Strigl and Eucken (1935)

Fritz Machlup’s 1935 review of Richard von Strigl’s Kapital und Produktion and Walter Eucken’s Kapitaltheoretische Untersuchungen organizes its assessment around the books’ independent convergence:

The congruence of the ideas expressed in the books before us is so striking that they could have been written and published only at the same time, for neither of the two authors would have repeated so uniformly what the other had said before.

Both authors vary one datum while holding others constant, combining subjective value theory and opportunity-cost reasoning with an account of capital as a subsistence fund. This fund maintains productive factors during processes that take time to yield consumers’ goods. Machlup distinguishes their agreement on these foundations from their treatment of monetary mechanisms and economic fluctuations.

His reconstruction of Strigl emphasizes the material conditions of production. Synchronizing productive activities does not eliminate the need to maintain factors before finished goods become available. The distinction between consumption sustaining production and pure consumption therefore determines how the subsistence fund is used and replenished. Free capital complements fixed capital and labour; an insufficient fund requires shorter processes or a slower rate of subsistence consumption. Machlup also stresses that the fund supports payments to land as well as labour, extending the argument beyond a narrowly conceived wage fund.

Machlup’s criticisms concern analytical consistency and the measurement of consumption through time. Strigl’s separation of cost and substitution principles sits uneasily with opportunity-cost theory, while his treatment of overhead confuses average and marginal costs. More importantly, Machlup questions the proposition that additional saving and investment need not quantitatively change demand for consumers’ goods. An unchanged aggregate consumed over a longer production period means less consumption per unit of time. Transferring goods from pure to productive consumption can sustain longer production only if the fund lasts longer. He nevertheless notes that Strigl draws no further conclusions from the faulty proposition.

Strigl applies this maintenance constraint to the business cycle. Bank-credit expansion can provide financing beyond the resources available to sustain productive factors. Increased demand for capital goods accompanies additional wage payments that also raise demand for consumers’ goods. Attempted lengthening of production thus coincides with capital consumption, producing an unsustainable configuration. Machlup distinguishes this explanation from Hayek’s by its absence of a lag between rising investment and rising consumption. Strigl recognizes the damage caused by deflation but warns that reflation may obstruct adjustment or intensify capital consumption. Machlup does not extend these conclusions to Eucken: shared capital-theoretical premises do not establish agreement on monetary questions.

Eucken’s contribution reconstructs capital and interest theory by distinguishing available productive capacities, treated as data, from the employment of their services, which requires explanation. Longer maturation periods can increase output and alter the services and production goods employed, although their incremental gains diminish. Durable instruments make production continuous and obscure its separate beginnings and endings without removing the analytical importance of an average maturation period.

The subsistence fund connects feasible production periods with productivity, factor valuation, and interest. A larger fund permits productive improvements and raises the value of productive factors. Entrepreneurs can consequently pay interest for temporary command over it, and competition induces them to do so. For Machlup, time supplies the connection between wage-fund reasoning and marginal productivity. Dividing a fund by the number of workers cannot determine wages without specifying how long it must support them. That duration must correspond to reproduction, while labour productivity depends on the production period that available subsistence permits.

The closing discussion examines Eucken’s distinction between saving that precedes investment and saving simultaneous with it. His association of voluntary monetary saving with the former and forced saving with the latter leaves implications requiring fuller monetary analysis. Machlup values Eucken’s investigation of machinery chiefly for clarifying problems and praises his methodological introduction. The review’s central achievement is to foreground time and material maintenance while preserving distinctions between common theoretical foundations, disputed propositions, and separate explanations of economic fluctuations.