Capital theory - notas de clase
I. Foundational Austrian Concepts
The concept of value is always forward-looking, focusing on future potential and what consumers are willing to pay, rather than historical costs or backward calculation.
Production is understood as a sequential process, meaning goods must be produced in a necessary order over time (for B to happen, A must have happened first).
The concept of time is inseparable from capital and has causal efficacy, meaning time actively causes change (such as discovery and correction of plans).
The market operates as an entrepreneurial process driven by actors constantly seeking and discovering opportunities to allocate resources to higher-valued uses.
II. The Nature of Capital
Capital is broadly defined as produced means of production.
Menger defined capital as the combination of economic goods of higher order in the present for purposes that lie in the future.
A resource only becomes capital when it is incorporated into an individual's production plan.
Capital goods are valued for their ability to produce other goods that ultimately satisfy consumer desires.
Capital goods are heterogeneous (different) and multi-specific (capable of serving more than one purpose or plan).
They are heterogeneous both in their physical properties and because of the varying subjective plans they can fulfill.
The core Austrian contribution is focusing on the structure of capital, not an aggregate, homogeneous stock ("K").
The capital structure is an intertemporal network of plans.
It is meaningless to aggregate the capital stock using monetary values unless all individual plans are perfectly coordinated (a condition only met in theoretical equilibrium, which the real world never reaches).
III. Key Austrian Capital Theory Concepts
Order of Goods (Menger/Böhm-Bawerk):
Higher/Major Order Goods (Capital Goods) are more distant from final consumption in the production sequence (e.g., oil, machinery, raw materials).
Lower/Minor Order Goods (First Order/Consumption Goods) are closest to consumption.
The value of higher order goods is always and without exception derived from the expected final value (the subjective valuation) of the consumer goods they help produce.
Roundaboutness (Roundabout Production): The degree to which a production process ties together resources over time, involving complexity and prior preparation.
Roundaboutness means using time and capital to create tools or processes that make future production more efficient — a longer path that pays off with higher output later.
Methods of production that are more roundabout (consuming more time) can yield greater rewards or a larger volume of consumption goods in the future.
This requires real saving (postponement of resources produced but not consumed) to finance the long period of production.
The degree of roundaboutness is determined by the rate of interest.
Böhm-Bawerk's Circles (Bullseye Diagram): Illustrates the sequential structure of production.
The outer rings (shorter maturity/closer to consumption) are generally less specialized, more labor-intensive, and less capital-intensive.
The inner rings (longer maturity/farther from consumption) are generally more specialized, more capital-intensive, and less labor-intensive.
Tasa de Interés (Rate of Interest): Reflects the temporal preference—the difference in value between goods available in the present and goods available in the future.
A higher interest rate acts as a disincentive to long, roundabout production methods.
IV. Entrepreneurship and Capital Structure
The entrepreneurial plan is the essence of capital.
The accuracy of valuing higher order capital goods depends entirely on the individual's entrepreneurial abilities (the ability to discover value differences and make correct forward-looking calculations).
An entrepreneurial error is an incorrect valuation that leads to losses rather than profits.
Complementarity is the aspect of a capital structure concerning coherence, describing how well various capital goods fit together into a production plan (e.g., a factory building and its assembly machines complement each other).
Substitutability is the aspect concerning adaptability, describing how easily an existing capital good can be reallocated to a new purpose if the original plan fails.
Substitutability is often a matter of degree, determined by how well the capital good fits a new use and the cost of adjustment.
V. ACT Applications
Socialist Calculation Debate: Socialist planning is impossible because without private property and prices for the means of production, there are no relative scarcity indicators for heterogeneous capital goods.
Planners cannot determine which specific capital goods to combine or in what proportions to efficiently satisfy consumer demand, leading to mal-investment.
Business Cycle Theory (ABCT): Fluctuations arise from mal-investment—a misalignment in the capital structure—rather than a shortage of aggregate demand.
Mal-investment results from a cluster of systematic entrepreneurial errors (often caused by central bank monetary policy depressing the interest rate, thus artificially encouraging overlong roundabout processes).
Recovery requires halting distortions, allowing bad investments to be liquidated, and letting capital be reallocated to new uses that align with consumer preferences.
Economic Development: Development is characterized by a growing complexity in the capital structure, evidenced by a greater quantity of production stages.
Interfering with the market to promote specific industries means government planners cannot calculate the subjective opportunity cost of bidding capital away from other potential uses, potentially retarding development.
ACT argues that long-term growth can result from continued capital accumulation because heterogeneity and complementarity counteract the diminishing returns assumed by classical growth models.
VI. Historical and Theoretical Context
Industrial Revolution (RI): This fundamental societal transformation (c. 1760-1850 in England) was a slow, cumulative process rooted in a rapid evolution over previously accumulated capital factors (savings).
Key drivers included the possibility of applying innovation to commercial activities, strong private property rights, and clear rules for resolving differences.
The RI destroyed rigid, agrarian class systems and created social mobility by rewarding entrepreneurship, invention, and production.
Critique of Neoclassical Theory: Neoclassical models often treat capital as homogeneous and assume inputs (Capital and Labor) are given.
By ignoring heterogeneity, time, and the unfolding process of discovery, these models necessarily omit the role of the entrepreneur.
Critique of Marxist Theory: Marx's theory is based on the labor theory of value and views capital primarily as a social relationship where one class exploits the value created by the labor of others.
Böhm-Bawerk directly refuted Marx's exploitation theory by emphasizing that the value of capital is forward-looking and based on expectation, not backward-looking labor inputs.