Acknowledgments
I owe a large intellectual debt to two remarkable and very different teachers.
Preface to the Second Edition
It has been twelve years since the original publication of this book in 1999. Much has happened in the intervening years to affect its relevance.
1. Introduction and Outline
“Case Study”
This book is the result of a capital project, a production plan. More accurately it is the final product of a series of related intertemporal plans, and is the intermediate product of some higher level plans. This structure of plans encompasses both my own particular plans and the plans of others, like the publisher and the editors. As I write this, it is still too early to say whether the project is to be judged a success, by me or the other planners.
Part I. Background: Equilibrium and Change
2. What Does Equilibrium Mean? A Discussion in the Context of Modern Austrian Ideas
Equilibrium Examined and Defined
A term which has so many meanings that we never know what its users are talking about should be either dropped from the vocabulary of the scholar or “purified” of confusing connotations.
(Machlup 1958:43)
The continuing use of the word “equilibrium” by different people to mean different things justifies yet another brief examination. No pretense, however, is made at completeness.
3. Equilibrium and Expectations Re-Examined: A Different Perspective
[F]rom time to time it is probably necessary to detach oneself from the technicalities of the argument and to ask quite naively what it is all about.
(Hayek 1937b: 54)
Part II. Capital, Interest, and Profits
In Part II I consider some of the more traditional areas of capital theory. Chapter 4 discusses the nature of capital. It is a curious fact about the concept of capital in economics that economists still disagree about what it is. A brief historical overview suggests that this probably has something to do with the evolution of the concept in the context of economic evolution more broadly.
4. Capital in Historical Perspective
Introduction: The History of Capital Theory is Relevant
Considerations involving capital are as old as economics itself. And, perhaps more than any other field in economics, current capital theory bears the stamp of its history. Modern discussions are very heavily influenced by the categories developed by capital theorists since Adam Smith, and by the contexts in which they wrote. The history of capital theory is a history of complex, often esoteric, intellectual battles.
5. Modern Capital Theory
Wicksell and others attempted to defend and extend Böhm-Bawerk’s approach (Lutz 1967; Ebeling 1997). With the advent of the Keynesian revolution, however, interest in capital theory waned. It revived slowly in the post-war period. In retrospect we may identify two main lines of development. One is the familiar neoclassical approach, in which capital simply came to be understood as an amorphous stock of production potential equal to K as an argument in a production function.
6. The Hicksian Marriage of Capital and Time
Reviving the Austrian Theory of Capital
John Hicks has written extensively on capital. In addition to his three very influential books which have capital in the title (1946, 1965, 1973b) he has published numerous articles.
