Geoscience Reference
In-Depth Information
5.1
Time in Economics
Walter Isard was concerned with the importance of correctly analyzing the role of
the dimensions of time and space in economics as witnessed by his research
together with Liossatos (Isard and Liossatos 1979 ). My intention with this paper
is to shed some more light on how the many aspect of time ought to be represented
in spatial and non-spatial economic theory.
First, the theoretically most convenient way is to represent time as a continuous
variable, as is common in the modeling of many dynamic economic processes and
especially in growth analysis. This implies that the processes are modeled as
ordinary differential equations or in two dimensional space as partial differential
equations, as shown by Puu ( 2003 ).
Second, a procedure that is popular in applied economic models, is to represent
the dynamic economic processes as a discrete set of periods (e.g. weeks, months,
quarters or years).
Third, a quite novel approach in dynamic economic theory is to subdivide the
dynamic analysis into substantially different interactive time scales of the eco-
nomic processes.
A quite different and economically realistic aspects of time is the representation
of each good in terms of durability (or alternatively the rate of depreciation) and
each production process in terms of its' duration.
5.2
Time as the Essential Element of Capital
More than a century ago in a critique of the Marxian definition of capital as
accumulated labour Knut Wicksell ( 1966 , 1967 ) proved that the time use or
duration of a production process determines the value of capital.
This had earlier been demonstrated in B¨hm Bawerk's numerical tables describ-
ing roundabout processes [B¨hm Bawerk ( 1959 -1921); Burmeister ( 1974 );
Morgenstern ( 1935 ); Marschak ( 1934 ); Dorfman ( 1959 ); Hicks ( 1970 ); Hicks
( 1973 )].
The mathematician Wicksell realized that the numerical tables used by B¨hm
Bawerk could be densely represented as a mathematical maximization problem.
This became the famous wine storing problem. See also Jevons ( 1871-1970 ). He
assumed that the value of the wine would be growing with the time of storage.
During the storage time a natural biological process using solar energy and the
activity of yeast would contribute to the growing value of the wine, finally to be
determined by the willingness to pay for the matured wine. The limiting factor on
the time of storage is the opportunity cost of storage, including the loanable funds
rate of interest.
In his model V(T) is the net value of the wine, if it is brought to the market at
time T.
Search WWH ::




Custom Search