Structure of production and non-steady-state dynamics

The main contribution of this thesis is the introduction of ideas of Austrian capital theory into a Solow/Ramsey model. These ideas are more productive longer methods of production, heterogeneous capital, capital specificity and time requirement in production. This enables us to trace the effect of change in saving rate and in the capital structure on the economy. Welfare maximising rules for the amount of savings and capital structure are attained and used to evaluate the theory of the forced savings induced business cycle. If forced savings change the firms expectations about consumers pure time preference, then the structure of production will be lengthened and the business cycle is made possible, but it will be realised only if the mistake in expectations is large enough and capital specificity low enough.