Jonathan has a long discussion on Hayek and capital theory, which I think is very good, but I want to clarify (perhaps unnecessarily) one point about my earlier post. I've been reading some of Pure Theory of Capital, but it's not like this has introduced me to the Ricardo Effect and I've concluded myself that because Hayek highlighted the Ricardo Effect, Hayek thought consumption and investment move in opposite directions. What I was struck by the other day was that he just comes out and says it, without even any reference to the Ricardo Effect (I assume that is what he has in mind, but maybe not):
Starting on page 47:
"In the following list of propositions the first of each pair is intended to represent the traditional or "Anglo-American" point of view, while the second gives the contrasting "Austrian" view on the same problem:
9A. The deamnd for capital goods is asumed to vary in the same direction as the demand for consumers' goods but in an exaggerated degree.
9B. The demand for capital goods is assumed to vary in the opposite diretion from the demand for consumers' goods."
Certain modern Austrians will go nuts if you have the audacity to agree with Hayek on this point. They'll tell you you don't understand Austrian economics. I just want to clarify that it's not just me extrapolating business cycle theory from a book that wasn't primarily about businss cycle theory.