The Hayekian triangle is a visual representation of the capital structure of production after it has been disaggregated across time. My question is, why not disaggregate Human Capital as well? Have the base of the triangle measure the temporal distance from production and have the side of the triangle measure the marginal product of labor.
Not too sure on what the actual stages would be, has there been anything written on this topic?
Mahsah,
What are you trying to explain by desegregating Human Capital? Perhaps it is related to something I have been thinking about.
Human beings have time preference. For example, an unmarried man lives for today, prefers to consume now as opposed to save for the future. If he gets married, his time preference changes. He prefers to produce more (motivated, someone else now depends on him), he saves more, and prefers to consume less. Add a couple of kids, and his time preference now stretches out years. He is also motivated to produce more.
In other words, his personal time structure of production lengthens, becomes more round about so to speak, with increased responsibility. You could conceive of this condition using the triangle you describe.
So, we have two personal time structures: One, a single man, prefers consumption over savings and investment, and a married man with kids, higher productivity (motivated to become more productive), higher consumption relatively speaking, and higher savings.
Is this where you’re going with your question? If so, then the next step is to think about what happens to the individual triangles when the economy’s time structure is artificially lengthened by central bank intervention.
Personal time structures become artificially lengthened too. Men and women who perhaps would not have gotten married and had kids without the artificial boom condition, find themselves unable to support a family during the bust. Divorce, broken families, social problems result. Human capital wasted, similar to wasted capital in the economic sense.
The Fed’s intervention affects more than the economy. It warps personal time preferences, sends false signals to individuals in their personal lives, a similar boom / bust results on a personal level.
The implications are more than an integration between the micro and macro economy. It implies that the macro boom / bust is occurring at the level of the individual.
/rambling theorizing.
(No offense to unmarried men who are highly motivated and productive, it’s just an example)
I was mainly thinking about this because of the Higher Education bubble that we are experiencing in America. There’s a massive expansion of credit (student loans). High School degrees are useless on their own; an Undergraduate degree is considered the minimum these days, and even that is becoming worthless, resulting in more students attending graduate school. In a sense the structure of production is lengthening, quite visibly.
Besides that, its hard to look at common stories of “useless degrees” and hundreds of thousands of dollars of student loan debt and not think “malinvestment”: Example
I suppose the main thing missing is overconsumption (of labor)… that seems like it would imply an artificially low unemployment rate and/or artificially high wages.
Your thoughts are interesting though, and I suppose “education” is really only one element of human capital… Maybe the earliest stage would be parenting, or even parents themselves.
Yes. Your ideas are in line with my thinking on the subject. An expansion of credit, not based on real saving, but a fiat credit expansion, directed into student loans. Undergraduate and Graduate degrees, an artificial lengthening of the time structure of production. Without the credit expansion, personal time preference would have determined by the pattern of consumption and saving. The credit expansion causes a distortion; an investment in a degree rather than producing today.
If the credit expansion was based on real savings, the resulting interest rate would coordinate the relationship between current consumption and investment, in this case, in an investment in an advanced degree.
Yes. Take Mises’ parents for example. They were educated, successful. Mises’ own time structure incorporated his parents. It’s like being able to start up a civilization having been given a hammer, rather than having to invent fire and iron making first. This is more akin to initial “capital”, I suppose.
Disclaimer: This is all theorizing…