...Production takes time. The capital structure, broadly conceived, has temporal profile--one that can be modified in response to changes in intertemporal consumption preferences and resource constraints. This was the central message of Eugen von Bohm-Bawerk (1959).

Alfred Marshall, who theorized in terms of the short period and the long period, taught us that most problems in economics stem from the ever-critical time element. I think Marshall was right on time. But I also believe that a healthy understanding of some of those problems--particularly the ones in macroeconomics--is not best facilitated by his simple short-period/long-period distinction.

Adopting Marshallian methods, John Maynard Keynes dealt with the polar extremes in the quality of expectations, casting serious doubt about the viability of a market system. In the short run, the time element itself is no problem: Short-run expectations faithfully reflect reality. If the level of spending changes, the multiplier process plays itself out in a clockwork sequence of spending and earning, eventually achieving a new circular-flow equilibrium. Long-run expectations, however, are another matter. Here, the time element is a debilitating problem: These expectations, if you can call them that, are baseless. The future is shrouded in an impenetrable fog of uncertainty, leaving the current level of investment spending to be determined by unruly psychological factors--Keynes's infamous "animal spirits." The resultant circular flow will gush and ebb and even on average may not entail enough flow to fully employ the labor force.

The circular-flow framework, exercised in both its short-run and long-run modes, seems to me to be exactly the wrong framework for understanding and dealing with the time element in macroeconomics. Identifying the polar cases of "no problem" and "debilitating problem" doesn't get us any closer to a solution to all those intermediate cases lying between the poles. The tell-tale feature that inevitably characterizes this framework has been recognized in recent years by Robert Solow (1997)--namely the lack of any "real coupling" (Solow's term) between the short run and the long run. In Solow's reckoning, the two runs simply divide our discipline's subject matter into (1) the problem of maintaining full employment of existing resources and (2) the determinants of economic growth.

A viable alternative to the Keynesian circular-flow framework is the Austrian means-ends framework. People employ means (investment) to achieve ends (consumption). In a capital-using economy, there is a significant time dimension separating means and ends. We realize that some production processes take more time than others. And, thinking in macroeconomic terms, we recognize that production time can increase or decrease for the economy as a whole as market conditions warrant. In the "medium run" (a term from Solow, 2000), the problem is one of adjusting production decisions to (intertemporal) consumption preferences--a problem that Axel Leijonhufvud (1998) urges us to put back on our macroeconomic agenda. The only solution available in a decentralized economy is one involving entrepreneurial responses to changing market signals and especially to changes in the rate of interest. The time element here (Bohm-Bawerk's "roundaboutness" of production activities) is a key variable in the system. Like other endogenous variables, it is subject to marginal adjustments in response to parametric changes. Of course, there is uncertainty. And the fog is more of a problem the farther into the future the entrepreneurs are trying to see. But still, what seems to be called for is an application of marginalism and not a contrasting of the polar cases.

At the very dawn of the Keynesian revolution, the circular-flow framework and the means-ends framework were seen as the two real live alternatives (Hicks, 1967). Marshall-cum-Keynes gets you one vision of the economy (plus a toolkit of policy options); Bohm-Bawerk-cum-Hayek gets you another vision of the economy. In the early 1930s, Friedrich A. Hayek was brought to the London School of Economics by Lionel Robbins precisely for the purpose of providing a counter to the ideas of Keynes. But Hayekian ideas proved ineffective against the Keynesian avalanche. Debate continues to this day about just why Hayek failed to review the General Theory (Caldwell, 1998) and just how he lost out to Keynes.

At mid century, Hayek's business cycle theory, a theory that contained the seeds of a full-fledged capital-based macroeconomic framework, had sunk into oblivion. His books, including Prices and Production, which was the print version of the lectures he had delivered at LSE in 1931, were long out of print. Undergraduates of my generation--even economics majors--would never hear about Hayek, much less learn that his theory was once the principal rival of Keynes's. The index in Paul Samuelson's Principles of Economics, 7th ed. (1967), which dominated the field at the time, refers the reader to a single footnote in an appendix on commodity and factor pricing--where Hayek is portrayed, in effect, as being on the losing side of the socialist-calculation debate.

Prices and Production didn't get back into print until 1967, when it was offered by Augustus M. Kelley as part of a reprint series. But in that year, I was a long way from reading Hayek and, in fact, a long way from studying economics. The progression of my own studies from the sinusoidal rhythms of alternating current to the cyclical fluctuations of a mixed economy was a roundabout one--hence the double entendre of this essay's title.

II. Flashback: Electrical Engineering and Engineering Econ

In January of 1967 I was completing the course requirements for a BS in Electrical Engineering. Few students could finish the course work in four years at the Missouri School of Mines and Metallurgy (now the University of Missouri at Rolla). Most took five years. I was lucky to get through in four-and-a-half--especially in view of my having completed the first two years at a junior college. Getting some early course work behind me at Joplin Junior College kept the cost of my education down. I could live at home and cover the out-of-pocket expenses with income from part-time and summer jobs. The junior college put me a little behind in terms of the applied engineering courses, but it put me way ahead in terms of mathematical skills. Martha McCormick was probably the best college-level professor of mathematics in the state.

Partly because of McCormick, along with some excellent junior high and high school math teachers, mathematics was my strong suit. But it was McCormick herself who steered me away from it. At the time, she knew more economics than I did. She knew that even an advanced math degree did not translate into attractive employment opportunities. Her suggested alternative was an applied field--engineering. She suggested electrical engineering because that specialty made use of the most sophisticated mathematical techniques.

I was very good at textbook engineering but was a virtual non-starter in the electronics labs. Given some output specifications, I could design a circuit and determine the power requirements and the parametric values of all the elements and active components with ease--so many ohms here, so many farads there, and so many watts. If my calculations called for a few 500-ohm resistors and a couple of 30-farad capacitors, I was off to the supply room. It was a rude awakening--to say nothing of the embarrassment--to learn that a 30-farad capacitor would be about the size of a boxcar!

When I eventually acknowledged the constraints imposed by reality and could actually get the raw materials for a circuit, I had no trouble putting them all together--but only if the other students would leave me alone. Which is to say that I was no good at team work. Unfortunately, we usually had six hands working on one circuit. That was an exercise in frustration for me. Things were no better in the heavy-machinery lab, where we had only three hands working on the circuit. As a not-too-subtle safety reminder, the lab instructor had left one pair of sneakers welded to the floor--a result of an earlier student completing the circuit in an all-too-personal way. Each of us had to work with one hand behind his back. And by the way, "behind her back" is a phrase that had little application at Rolla in the 1960s. The female population at the Missouri School of Mines could have been measured in pico-farads.

Whether involving individual effort or team effort, the technical courses at MSM were given precedence over other courses--few in number--that were outside the hard sciences. I took a one-semester course in economics (both micro and macro) to fulfill the social-science requirement. I remember the Keynesian diagrammatics and remember thinking that Samuelson's rendition of the circular-flow, complete with small drain spout that vented saving away from the investment pump, had something of a comic-book character to it. Neither the diagram nor the text inspired careful study of Keynes, and there was no hint of a more appealing alternative. The lectures on unemployment and business cycles were no help. I remember only that the professor ended almost every sentence with the words "as such." And sometimes there were two back-to-back "as suches"--one deliberate, one subconscious.

The only other course that had any economics content at all was taught in the civil engineering department. It was called Engineering Economics--with the Economics always pronounced...

NOTE: All illustrations and photos have been removed from this article.



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