Ebook: Capital and Its Structure (Studies in economic theory)

Peter Lewin is the only contemporary Austrian who has written at length on Lachmann's capital theory. This is almost ironic because, as Lewin himself notes, capital theory is probably the most important topic in Austrian economics and yet no Austrian since the 1970 revival has written about it.

Well for those who ever develop an interest in capital theory, the Austrian position can be found here in this short little book. Lachmann's book is a tour de force. It is important to remember that Lachmann is describing a world in perpetual disequilibrium (i.e., the real world). This means that the prices for goods are not yet equlibrium prices. Therefore, it makes no sense at all to speak of aggregate values of capital goods. We cannot add up all the capital goods (in monetary terms) and hope to get a reliable or meaningful measure of the value of capital. Now while it is clear that we cannot add computers and automobiles, Lachmann goes even further and argues that we cannot even add up their monetary values (prices) because these prices are disequilibrium prices. This is because all capital goods are used in some production plan. But not all production plans succeed. Business is about success AND failure. Therefore, the prices of these capital goods are not accurate because the use to which they are put will result in failure and error. Prices of capital goods in a disequilibrium world cannot serve as accurate indicators of value. This is why Lachmann spoke of capital as a "structure."

This is the theory of capital Lachmann employs in this book. He makes use of several illustrative examples throughout the book. This theory is also applied to financial markets and the Austrian business cycle theory, among other things. Austrian economists have yet to fully appreciate the implications of Lachmann's analysis. For example, how cogent is Mises' calculation argument if prices in a capitalist market are always inaccurate indicators of value? Kirznerian entrepreneurship cannot even rescue Mises' point because Lachmann challenged the very ability of prices (even in disequilibrium) to convey meaningful information in the second chapter of this book "On Expectations." There is must to be done with Lachmann's capital theory. I only hope that the silence of the contemporary Austrian school will not prevent future generations from developing Lachmann's theory further.