Hayek on the Ricardo Effect

This video covers Friedrich Hayek’s 1942 essay on “The Ricardo Effect.” David Ricardo first noted that there is substitution between labor and capital. When the price of labor is high, producers use more capital, and vice versa. Hayek draws on this idea to discuss business cycle theory. But, does economic data support Hayek’s hypothesis? This video takes a look while addressing acyclical and procyclical real wages as well as labor and capital comovement, as opposed to substitution.