Contrasting Concepts of Capital: Yet Another Look at the Hayek-Keynes Debate

23 Pages Posted: 4 Apr 2011

Date Written: March 20, 2011


Although much of the debate between Hayek and Keynes is today portrayed in terms of policy differences, those are not the most fundamental divisions between their conceptions of economics. I argue that their economics diverges most significantly in how they understand the role of capital in a market economy, and how capital relates to issues of savings and investment. Specifically, Hayek’s Austrian conception of capital provides a very different, and very much disaggregated, vision of the market process that can help identify the flaws in Keynesian theory and policy. When capital is seen as reflective of human plans and where it is understood to have multiple but not an infinite number of uses, the economist is forced to consider the microeconomic foundations of macroeconomic phenomena in a way that validates Hayek’s complaint that Keynes’s aggregates conceal the fundamental mechanisms of change.

Keywords: Keynes, capital theory, business cycles, macroeconomics, Hayek

JEL Classification: B22, B31, E12, E32

Suggested Citation

Horwitz, Steven, Contrasting Concepts of Capital: Yet Another Look at the Hayek-Keynes Debate (March 20, 2011). Available at SSRN: or

Steven Horwitz (Contact Author)

Ball State University ( email )

Department of Economics
Ball State University
Muncie, IN 47306
United States
765 285 5384 (Phone)

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