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Capital: The Great Unknown

Capital theory is one of the most controversial topics in economics and an object of debate inside the Austrian School of Economics. If Böhm-Bawerk’s capital theory, usually identified as the Austrian Capital Theory, left many Austrian economists unsatisfied, a clear definition of capital, consistent with Mengerian subjectivism, is still to be seen inside the School. Following Ludwig Lachmann’s application of hermeneutics to economics, this paper attempts to define capital as the outcome of subjective mental processes, determined by individual intentions and expectations, rather than by specific physical or economic features. The paper does not aim to totally redefine capital theory but, more specifically, to reach a definition for capital, capital goods, and capital value; these definitions attempt to complete the work initiated by Lachmann in the hope of finding a certain consensus among scholars dissatisfied with the present state of capital theory, which is dominated by an objectivist post-Ricardian perspective. Indeed, when defining capital Lachmann seems unable to remain consistent with his own brilliant criticism of the Ricardian perspective. In particular, by distinguishing between ‘potential’ and ‘actual’ capital goods and capital in general, I try to overcome this gap and to define capital and capital goods in radically subjectivist terms.