Value and Capital: Austrian Capital Theory, Retrospect and Prospect

25 Pages Posted: 9 Nov 2016 Last revised: 14 Jan 2017

Peter Lewin

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Nicolas Cachanosky

Metropolitan State University of Denver; American Institute for Economic Research

Date Written: November 7, 2016

Abstract

The time is right for a reexamination of Austrian capital-theory. We attempt to capture the essence of Carl Menger’s approach to capital, highlighting the important distinction between goods and the valuable services they yield (implying that goods are valuable only because they yield valuable services) and highlighting also the importance of money in facilitating exchange and production and in providing the means to value them. We look at the capital-theory of Böhm-Bawerk and suggest that, in many respects, this was a wrong turn, although it did set in motion valuable efforts to clarify the importance of the heterogeneity of productive-resources and their growing complexity over time. We examine the production-function, micro and macro, and show that it is logically untenable and useless as an instrument for empirical investigation, and that this has been known for decades. Of the Austrians after Menger, only Mises followed Irving Fisher in focusing on valuation. He did so in the context of explaining the importance of calculation. Mises’s approach to capital has been insufficiently understood and appreciated. By way of conclusion we draw from our considerations to provide a research agenda in Austrian capital theory.

Keywords: Austrian Capital Theory, Roundaboutness, Average Period of Production, Production Function

JEL Classification: B53, E22, E23

Suggested Citation

Lewin, Peter and Cachanosky, Nicolas, Value and Capital: Austrian Capital Theory, Retrospect and Prospect (November 7, 2016). Review of Austrian Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2866019 or http://dx.doi.org/10.2139/ssrn.2866019

Peter Lewin (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Nicolas Cachanosky

Metropolitan State University of Denver ( email )

Denver, CO 80217
United States

HOME PAGE: http://www.ncachanosky.edu

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

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