Heterogeneity and time

Although heterogeneity and time are central aspects of economic activity, it was predominantly the Austrian School of economics that emphasized these two aspects. In this paper we argue that the explicit consideration of heterogeneity and time is of increasing importance due to the increasing environmental and resource problems faced by humankind today. It is shown that neo-Austrian capital theory, which revived Austrian ideas employing a formal approach in the 1970s, is not only well suited to address issues of structural change and of accompanying unemployment induced by technical progress but also can be employed for an encompassing ecological-economic analysis demanded by ecological economics. However, complexity, uncertainty, and real ignorance limit the applicability of formal economic analysis. Therefore, we conclude that economic analysis has to be supplemented by considerations of political philosophy. Copyright 2006 American Journal of Economics and Sociology, Inc.