TY - JOUR
AU - Harper, David, A
AB - Abstract We undertake a comprehensive descriptive and comparative ontology of capital in the history of economic thought post-1870. Beginning with the pioneering contributions of Menger, Böhm-Bawerk, Clark and Knight, we reassess the familiar dualistic ontology of capital that contrasts ‘materialist’ and ‘fundist’ approaches. Advancing beyond this dualism, we find that the ontology of capital is an evolving mosaic presenting many nuances and overlapping with other ontologies concerning notions of time and atomism. There is no substitute for examining the diverse theories, causal explanations and conceptual systems in which capital is embedded. In episodic capital controversies, economists have employed distinctive metaphors of capital revealing hidden presuppositions that imply specific functional and dispositional properties of capital. Ontological comparison can uncover implicit ideas about capital, as evidenced in the metaphors used by Böhm-Bawerk, Hayek and Robinson. The benefits of a descriptive and comparative approach are further illustrated in our critical appraisal of the modern monetary ontology of capital associated with Piketty, business finance and growth accounting. Differentiated by their specific ontologies, each explanation of capital in market economies should be regarded as at best a very partial account, though our assessment shows that some explanations are relatively more fragmentary and impoverished than others. There can be few economists who do not use the word “capital” almost every day of their working lives. But… [these] economists have ceased to ask fundamental questions about capital (Lachmann, 1956, p. v) 1. Introduction The economic category ‘capital’ together with its predicates and descriptors—capital formation, accumulation, measurement, value and structure—has a long history in economics. Capital has been a central concept in the analysis of capitalist economies since at least the advent of classical economics. By the 1880s, economists began to write about the overlap and tensions between popular economic thought on capital and its growing use in ‘scientific application’ (Sidgwick, 1887, p. 118; Cannan, 1894, p. 217; Nicholson, 1906, p. 41). This paper will focus upon the ontology of capital in ‘scientific’ economic thought as developed by economists rather than its use in popular economic thought where ‘at any given time and place’, it may ‘float in the public mind’ (Schumpeter, 1954, p. 38).1Our interest will be in the economic theories in which a capital concept is embedded—theories that explain how capital is formed, accumulated, measured, valued, structured and so forth. Economists have often indulged in episodes of ontological reflection, elaboration and critique over the meaning and role of capital in economic theory. These episodes coincided with three well-known debates on capital theory in the history of economics in the last 120 years: the capital controversies from the 1880s to about 1910, again in the 1930s and early 1940s and once more in the Cambridge controversies during the 1960s and 1970s. Respectively, and most notably in terms of directly addressing ontological questions concerning capital, Veblen (1908A, 1908B) contributed two articles in the first controversy; more indirectly, Hayek (1936) entitled one of his articles on capital ‘The Mythology of Capital’ in the second round; the Cambridge controversies featured deep questions concerning ‘ideological commitment’ in capital theory that bear upon ontological questions as well (Cohen and Harcourt, 2005, pp. xlv–vi; Cohen, 2010, p. 15).2 Despite all the intellectual effort exerted by economists in the three major controversies mentioned above, a critical question was left up in the air: what ‘meaning’ should we give to ‘the concept of capital in the analysis of industrial capitalist societies?’ (Cohen and Harcourt, 2003, p. 200). Historians of economics have not given this question substantive ontological reflection. This paper endeavours to remedy that deficiency; it is the first attempt in this field to undertake a systematic descriptive and comparative ontology of capital. Section 2 outlines economists’ pioneering contributions on the ontology of capital during the first capital controversy post-1870 and examines John Hicks’ dual ontology that is elicited from this early work. Section 3 considers what has been achieved so far in this field, what complications have been ignored by Hicks’ characterisation and what gaps remain? Section 4 offers a ‘descriptive ontology’ of capital along methodological lines suggested by Mäki (2001, pp. 11–2) in which we examine the presuppositions that selected economists have worked with when they have embedded capital (including its predicates and descriptors) in economic theory. These are exercises in ‘articulating and making explicit the ontological underworld’ of economists’ beliefs concerning capital (Mäki, 2001, p. 7). In this section, given the vast literature on capital theory, we proceed selectively. The ontology of capital enters on the ground floor of economic theorising, affects the subsequent structure of economic theory and is relevant to both its diagnostic quality and explanatory power. Inserting the category capital into an economic theory, as Dobb (1973, p. 7) explains in another context, will not only provide ‘a scaffolding…in which human thought can operate, but is laying emphasis upon certain factors and relationships and excluding others or casting them into the shadows’. Section 5 further explores the ‘shadows’ by extending and elaborating our descriptive ontology of capital using as a point of departure the metaphors economists have used either self-consciously to explain their own ontology of capital, capital formation, value and structure, or to develop ontological critiques of other approaches. Section 5 adopts a more comparative and revisionary orientation in the light of our descriptive exercises. This section, informed by our previous historical perspective, examines some selected aspects of the ontology of capital; specifically, it critically appraises the resurgence of the monetary ontology of capital evident in the recent work on capital. Here, we follow Mäki (2001, p. 12) and proceed by appraising some examples of the monetary approach: first, to develop in an a posteriori fashion, an accurate account of the ontological presuppositions contained in some of these capital theories in the monetary tradition; second, to identify mismatches with other modern approaches. While criticisms developed in our comparative ontological work do not suggest that the monetary approach should be abandoned, they do highlight what it leaves in the ‘shadows’ and correspondingly, the factors responsible for severely limiting its explanatory power. 2. Economists’ reflections on the ontology of capital: an overview This section provides a survey of economists’ musings on the nature of capital. We consider Menger’s seminal ideas followed by the dual ontology of capital enunciated by Böhm-Bawerk and Clark, which was further refined by Hicks. 2.1 Pioneering contributions and the emergence of a dualistic ontology Menger ([1883]1985) pioneered the study of economic ontology and the ontology of capital in particular. He refers to the general nature of capital and other economic phenomena in his debate with the German Historical School. He specified the essential properties and building blocks of fundamental economic categories. He asked: ‘what is their nature’ and what causes their ‘movement?’ Answering these questions was the ‘goal of scholarly research [which] is not only cognition, but also the understanding of phenomena. We have gained cognition of a phenomenon when we have attained a mental image of it. We understand it when we have recognized the reason for its existence and for its characteristic quality (the reason for its being and for its being as it is)’ (Menger, [1883]1985, p. 43, his emphasis). Menger suggested that economists should try to understand the existence and nature of capital. His point of departure was the study of the morphology of economic phenomena. The objective was to describe such phenomena ‘in all their complexity and multi-formity’ (Menger ([1889]1994, p. 12). Contemporaneously, both Eugen von Böhm-Bawerk and John Bates Clark began to reflect on the ontology of capital along the lines suggested by Menger, though they did not cite Menger’s methodological prescriptions or use the term ontology. Böhm-Bawerk’s ([1889]1923) Positive Theory of Capital and, in particular, Book I on the ‘Concept and Nature of Capital’ are a masterful survey of definitions interspersed with occasional bursts of descriptive ontology and ontological critique. His history discerns enduring themes. The first is a theme dating back to 1678 that understood capital in a dual sense as interest-bearing sums of money and also capitale dicitur bonum omne quod possidetur—every good in the possession of individuals is called capital. Second, with the development of ‘economic science’, economists have sought to amplify both of these conceptions of capital (Böhm-Bawerk, [1921]1959, pp. 17–8). In the era of classical economics, capital was credited with the causal power of ‘productivity’. This ontological property was recognised by Menger: capital (as goods) used in production possess ‘productivity …of an essentially different nature’ to that of durable wealth and also sums of money that ‘mercantilism’ had previously accorded the exclusive status of capital (Menger, [1871]1950, p. 304). Clark discerned a similar dual ontology of capital running through all economists’ work up to the 1880s including his own, but he amends the simple monetary ontology to take into account its potential underlying productivity as well. Thus, ‘capital is always “mediate goods”, or those that, in the series of phenomena by which goods for direct consumption are created, stand between labour and such goods’. This is essentially a characterisation of classical, physical capital as produced means of production. Additionally, capital can be conceived in value terms as a monetary fund—a fund that must be ‘productive’ and not passive. Moreover, some economists used these ‘two different conceptions of capital interchangeably’ (Clark, 1888, pp. 10–1; also Clark, 1893, p. 306). 2.2 Hicks’ refinement of the dual ontology Nearly a century later, Hicks (1974) recovered the basic elements of the dual descriptive ontology of capital originally recognised by Böhm-Bawerk and Clark. For Hicks, there are two enduring and oftentimes competing ontologies evident in economists’ conceptualisations of the nature of capital up to the 1970s. The first ontology posits that capital has a physical or ‘materialist’ dimension, while the second highlights the value or ‘fundist’ dimension of capital. The former emphasises the physical identity of capital goods that may have embodied within them certain changeable market values. Although Hicks’s dual ontology suggests that eliciting economists’ ontological commitments on capital is straightforward, we maintain that undertaking a descriptive ontology of capital is always a complex affair. On closer examination, there are far too many episodes in the history of economists’ thinking about capital where Hicks’ dualist approach proves inadequate. For example, Cohen (2008, p. 154 n13) rightly points out that Hicks’s taxonomy is not sharp enough to capture the materialist and fundist elements in the work of both Clark and Böhm-Bawerk. Similarly, Kirzner (1976) finds that no Austrian economist can neatly be fitted into either the materialist or fundist category. Notwithstanding the limitations of Hicks’s Procrustean bed, Cohen and Harcourt (2005, p. xxvii) rehabilitate the dualistic approach: ‘Capital controversies originate in the dual nature of capital. Economists conceive of capital both as a heterogeneous collection of specific capital equipment used in production, and as a homogeneous fund of financial value that flows among alternative uses to establish a uniform rate of return. Capital controversy originates in the tension between these physical and value conceptions of capital’ (emphasis added). Although the appeal to a simple dualistic ontology may have originally instigated the controversies over capital in the history of economic thought, several questions remain: What determines the outcomes of those controversies—are ontological factors pivotal signals or just accompanying noise? Why do the controversies keep renewing and resurfacing if controversy turns solely on the simple distinction between physical and value conceptions? And how is the foregoing dualistic ontology of capital re-expressed, reformulated and reweighted in economic theory such that the controversies over capital are driven to persist? We do not attempt a comprehensive response to all these questions here, but merely endeavour to demonstrate that descriptive ontology in this field throws up many complications. Some economists’ contributions are multifaceted and involve layered analyses incorporating capital that express different ontological commitments, revised commitments and even inconsistent commitments that are adopted for different reasons, such as analytical tractability and the need to introduce elements of realism given the particular problem or the pragmatic purpose of the theorist. Some of these complications are illustrated below. 3. Tensions arising from the dualistic ontology in contributions post-1870 Let us take a more detailed, selective look at some post-1870 contributions to show how, from a descriptive-ontological standpoint, understanding the nature of capital becomes more complicated than any dualistic ontology allows. The ontology of capital is an evolving mosaic, presents many twists and turns, inconsistencies and overlaps with other ontological commitments and it is especially affected by economists’ commitments relating to the ontology of time. 3.1 Carl Menger’s ontological revision In Menger’s Principles of Economics ([1871]1950), we find an order-of-goods conception of capital in which heterogeneous, complementary ‘combinations of goods of higher order…that yield an income’ constitute ‘capital’ (Menger, [1871] 1950, p. 304). For Menger, capital is formed in the realm of production. In short, he developed a real or a ‘materialist’ theory of capital (Endres and Harper, 2011, pp. 362–63). Menger does not underscore the physicality of capital goods. All economic goods for Menger were inseparable from human valuations and specifically entrepreneurial ideas about the causal relations between capital-goods combinations and human needs. Economic theorists must regard capital formation processes that use physical objects in production as being inextricably linked to forward-looking human valuations and expectations. Capital for Menger is a combinatorial or relational phenomenon and not something purely physical or an intrinsic technical property of capital goods that exists independently of the human mind. That capital goods were a product of nature and labour—produced means of production with certain technical properties—was irrelevant from an economic point of view. Capital has a form and structure created by economising agents. Already we can appreciate Menger’s quite nuanced, sophisticated ontology of capital that a ‘materialist’ label would not adequately capture. To add another layer of difficulty for any descriptive approach, we find Menger (1888) revising his original conception of capital in the light of capital theory debates that took place after 1871. At this point in the history of doctrines on the subject, Menger preferred to emphasise a monetary ontology of capital—a monetary fund used to generate or acquire an income or yield on investment in productive economic goods of higher order. Schumpeter (1954, p. 899) describes the intellectual shift: “though ‘physical’ concepts still enjoyed greater popularity, non-physical ones began to intrude. Capital tended to become a fund or sum of assets consisting of money or evaluated in money. This tendency shows well in the work of Menger, who at first, in his Grundsätze, defined capital as ‘goods of higher order’, but later on …as ‘productive property…[considered] as a sum of money productively used’.” Yet as his contemporaries realised, this ontological turn was towards revision and towards many-sidedness in conceptualising capital. His earlier approach was not renounced.3 Menger wanted to reassert the virtues of the term ‘capital’ used in ordinary business as ‘sums of money (Geldbeträge)—not to every sum of money, but only sums of money devoted to the acquisition of income’ (Tuttle, 1903, p. 85). Economists should not, in Menger’s new view, arbitrarily redefine capital in various ways that emphasised the technical properties of economic goods used in production. Economists would risk doing just that if they lost sight of the popular concept of capital understood in terms of its monetary dimension. The archetypal fundists in Hicks’s characterisation were the mercantilists who fixed attention on superficial monetary features of capital. Menger’s revised ontology of capital rejected the simplistic fundism of the mercantilists because money does not express what capital embodies (e.g., capital structure) and neither explains the processes of capital formation nor the consequences of capital formation and its causal power of productiveness. Böhm-Bawerk was not prepared to accept Menger’s ‘developmental’ concept of capital for ‘scientific’ usage. He complained that any type of monetary ontology relying on ‘vernacular usage… is so beset with unpredictable variations’; it was analytically intractable for Böhm-Bawerk who formulated a more technical, classical capital theory based on a determinate, macro-subsistence fund, which later attracted Menger’s strong disapproval (Endres, 1997, pp. 146–78). There can be no clearer example of the importance of recovering and describing nuanced ontologies of capital in the history of economics than the Menger–Böhm-Bawerk divide on this subject. Menger’s ontological revision was concerned with the consequences of the relative neglect of a relational property of capital in contemporary discussion. Menger may have paid obeisance to the popular monetary notion of capital but for reasons that had more to do with explanatory completeness (in terms of capturing the many dimensions of capital) and with the dangers of macro-technical fundism of the Böhm-Bawerkian kind. 3.2 Layered ontologies of capital and time: the Böhm-Bawerk–Clark controversy We have seen above that analytical tractability, more than ontological beliefs as such, influenced Böhm-Bawerk’s decision to reject Menger’s approach. The Böhm-Bawerk–Clark debate is also instructive in demonstrating that undertaking descriptive economic ontology is a many-layered endeavour.4Böhm-Bawerk (1895, p. 121) was adamant that: ‘I know no capital other than the concrete goods that constitute it’. Capital is heterogeneous material goods ‘called mills, looms, ploughs and locomotives’. It is these real goods and not any incorporeal fund of value that ‘can grind corn or spin yarn, or plough up land or carry a load’ (Böhm-Bawerk, [1889]1923, p. 58). Similarly, Clark (1893, pp. 306–7) had also conceived capital as concrete instruments of production that are valued with reference to their rental return and may be accumulated or depreciated as a physical stock, but he added that ‘true capital’ is that which earns interest and is an abstract, abiding monetary fund. That fund lives on forever within and through the instruments of production as they are replaced or become obsolete. Clark elaborates on his concept of ‘true capital’ and demonstrates how it has the following properties: it is permanent, its allocation is easily synchronised across production processes, it possesses no historical time-based component of waiting or Böhm-Bawerkian roundaboutness in production, it is homogeneous so that its elements are perfectly mobile across the economy and it is readily changeable in terms of its form of embodiment. Böhm-Bawerk’s objections to Clark’s ‘true capital’ reveal additional layers of ontological belief. First, there was the question of different perspectives on realism: economic ‘science’ holds ‘up the mirror to the world of reality [and] must have reference to concrete capital goods…Calling anything other than concrete capital goods by the name of capital is either to use a mere figure of speech or to assert something positively false’ (Böhm-Bawerk, 1895, p. 121). Second, there is the clash over different ontologies of time in economic analysis. Clark proceeded with a static-state analysis of capital (Cohen, 2008, pp. 154–5), and his properties of capital (permanence, synchronisation, homogeneity and mobility) sat comfortably in that timeless framework. At most, his capital theory, which was concerned with capital value (distribution) and capital productivity, employed comparative static methods. A key point in this controversy, and one that features in other examples used later in this paper, is the inextricable link between ontologies of capital and of time. Clark regarded time as a neutral, universal substance in which capital formation unfolds; time is infinitely divisible and capital is fully formed in the long-run stationary state that has no end-point in finite time. By contrast, Böhm-Bawerk wanted to retain a finite-time structure of production that included time-preference to help explain interest on capital. So it is scarcely surprising that he objected to Clark’s timeless properties of capital. There was some common ground between Böhm-Bawerk and Clark, however. Of particular relevance here is that both agreed on using a macro-fund of capital as an analytical tool. However, while Böhm-Bawerk’s capital theory attempted to explain the emergence of capital structures and their effects, the meaning of ‘temporal’ in his structural analysis was not truly temporal in a realist sense of historical, irreversible time. Indeed, the general Austrian ontological outlook on capital formation and time from Menger onwards was always married to a deceptively simple proposition: ‘Production is a process in time’ (Hicks, 1973, p. 12). In Menger’s ([1871] 1950, p. 67) discussion of capital, time and causality are linked: the ‘idea of causality…is inseparable from the idea of time’. Capital formation is a temporal process in that time elapses between cause and effect.5 Such effects are not reversible in historical time as opposed to revocable events in logical or ‘Newtonian’ time. To make an ontological commitment to the latter is to accept that time is ‘causally inert’ and independent of its contents (O’Driscoll and Rizzo, 1985, p. 55). Böhm-Bawerk produced the rudiments of a capital theory ‘of time’ in the sense of logical time rather than ‘in time’ conceived as a causally consequential historical process (Hicks, 1976, p. 287). Böhm-Bawerk’s period-of-production analysis employs time only as a parameter determined by the inherent technical properties of capital goods, and time was also a measure of capital intensity in his analysis. It is a vexed question as to whether or not even Böhm-Bawerk appreciated the antinomy evident in his attempts to incorporate historical time into capital theory. He may have been committed to the idea of historical process in theorising on capital and capital structure, as his responses to Clark seem to suggest. Nonetheless, as Streissler (1969, p. 254) perceptively observed, the outcome never lived up to the promise. Böhm-Bawerk’s theoretical work was set in the context of a ‘bastard stationary state’ in which ‘aggregates remain constant while their structures change, in which only variances but not aggregates are parameters of thought (Böhm-Bawerk’s capital theory is a good example). Unhappily this is likely to be a model self-contradictory in the last resort, because a change in economic variance tends to reflect back on the values of the aggregates’. Genuine changes in an economy’s overall capital structure are caused by qualitative changes in the arrangement, properties, composition and scale of capital goods. 4. The ontology of capital in economic theory and explanation 4.1 Capital embedded in diverse theoretical contexts It is one thing to define capital per se as a fund of purchasing power, a sum of values embodied in heterogeneous assets and so forth, but it is another thing altogether to embed a chosen capital concept in an economic theory or economic explanation. A commitment to a particular ontology of capital will have consequences for explaining capital as an economic entity, whether it be a thing, a complex of properties, a process, an accumulated quantum or a structure. In post-classical economics, capital was initially accorded a place in various theories of production and distribution and then later appeared in theories of innovation, business cycles and economic growth. The fundamental production role was formalised in post-classical language by phrases such as ‘capital as a factor of production’ (Hennings, 1987). As the twentieth century unfolded, new ways were found for embedding capital in widely divergent theoretical contexts: capital formation as an entrepreneurially driven phenomenon in economic development (Schumpeter, [1911]1934), capital as an input in Leontief models of production (e.g., Dorfman et al., 1958), aggregate capital in the Cobb–Douglas aggregate production function and growth theory (e.g., Meade, 1962; Hicks, 1965), theories of capital-time structures (e.g., Hicks, 1973) and capital structure (e.g., Lachmann, 1956), the macrodynamics of capital structures (e.g., Hagemann and Scazzieri, 2009) and capital as a complex adaptive system (e.g., Harper and Endres, 2010) and as an emergent order (Harper and Endres, 2012). This is not meant to be an exhaustive list, but it illustrates something important about the ontology of capital at a most general level: that capital has causal powers that can be expressed and explained in many varied theoretical contexts and on different ontological levels. Again we must turn to Menger for the earliest guidance on this matter. The key to according a place for capital in any economic theory is to give it, by assertion, description or rationalisation, some causal powers. Menger’s sophisticated, inclusive research directives for the study of economic ontology are worth recalling here (for more detail, see Endres and Harper, 2011, pp. 360–61). Over the course of time, economists have often represented capital in an abstract manner as a universal (a ‘genus’ as Menger calls it). When expressed in that way, it is asserted that capital makes a causal difference to the goods that instantiate it. Instances of capital are inserted into cause–effect relations with other entities: ‘All things are subject to the law of cause and effect’ (Menger, [1871]1950, p. 51). Thus, capital can be theorised as being formed in relational structures constituted by elements or goods that are combined in a particular way, that is, as a causally ordered, structured entity. For Menger, capital may be analysed on several levels (viz. as orders of goods in production, in terms of degrees of aggregation, time profiles of a capital investment and various value dimensions), and this explains the great variegation of capital concepts embedded in economic theory during the twentieth century. Sometimes during that century economists have used capital in economic theories as a universal (‘a genus’) and at other times as a species. The latter has allowed for considerable hybridisation in the way capital is used to explain economic phenomena when inserted in different types of theoretical system—these systems are elucidated in recent ontological work (see below). 4.2 Substitute systems and surrogate systems Mäki (2009, p. 11) outlines how economists insert economic categories into their theories; his guidance is useful for examining how economists explain capital phenomena. According to Mäki, theorising practices attempt to isolate causal mechanisms, including mechanisms that would not figure in common-sense discourse. That way, economists may gain access to the deeper causes of the phenomenon in complex reality. As Mäki points out, there may be hidden ‘mediating mechanisms’ that require explanation and that commonsense understanding cannot grasp (e.g., spontaneous orders and invisible-hand mechanisms). For example, what are the mediating mechanisms responsible for capital to be formed in the first place and for the emergence and destruction of capital structures? When the economic category capital carries the burden of explanation, one of the following conceptual systems is involved (Mäki, 2009, p. 5): Substitutes: theories are not meant to be representative of real systems but ‘examined for their own sake’. There is no intention to connect with, accurately describe or access, real-world phenomena—the question of resemblance is neglected. Formalistic modelling is predominant here. Moreover, instrumentalist methodologies are commonly employed. Surrogates: relations between elements in a theory correspond to relations in the real world. The construction of economic theories is motivated by the need to find and describe resemblances in the real world. For example, a system starting with an assumption that capital is constituted by complementary combinations of heterogeneous economic goods, has a capacity, from the outset, to resemble its real target. Both types of systems modify the idea of capital in economics in ways that may look outlandish from the standpoint of everyday users of the term capital. Especially in ‘substitute systems’, capital will be unrepresentative of capital in any real-world economy. The Knight–Hayek capital debate in the 1930s demonstrates how using either a substitute system or a surrogate system has major ramifications for a theorist’s ontological stance on capital. With embellishments designed in response to charges made by Hayek, Knight updated Clark’s ontology of capital conceived as a permanent, enduring, homogeneous fund. This overarching ontology, supported by auxiliary ontological commitments, was inserted into what was to become the canonical model of capital in a stationary state (a ‘substitute system’) (Emmett, 1998; Cohen, 2003). Those commitments were as follows: in the stationary state, production and consumption were simultaneous; as a corollary, historical time is causally inefficacious (time intervals in production are inconsequential for capital formation and accumulation) and capital is conveniently aggregated through adding homogeneous units, it is perfectly mobile, independent of agents’ expectations, easily divided and transformed. This capital concept was entirely suited to being included in the analyses using the Cobb–Douglas aggregate production function (see e.g., Robinson, 1953–4). It gave that approach analytical rigour and tractability and it was chosen not only because it has properties facilitating the formal treatment of allocation, production and equilibrium growth, but also because it is consistent with other selected features of the substitute system, such as the requirement that all inputs are continuously variable, substitutable and have well-defined marginal products. In using that production function for largely pragmatic or instrumental reasons, economists were entering unwittingly the underworld of ontological commitments proper to it. What is cast into the ‘shadows’ (to use Dobb’s evocation mentioned earlier) only becomes clearer when we use comparative ontology. We turn next to consider Hayek’s objections based on his surrogate system. Hayek’s ontology of capital was motivated by an overriding theoretical interest in the role of capital in business cycles. He develops a surrogate conceptual system founded upon the idea of heterogeneous capital-goods combinations undertaken by entrepreneurs in an intertemporal process. Hayek appreciated the commonsense business ontology of capital, that is, that the ‘entrepreneur necessarily and inevitably thinks of his capital in terms of money…[and] has no other way of thinking of its quantity than in value terms’ (Hayek, 1934, p. 161). However, this commonsense view was of little help in two major tasks: (i) analysing intertemporal coordination problems in the capital structure and (ii) seeking to explain the unintended economy-wide consequences of entrepreneurs’ use of monetary calculation that was prone to errors, giving rise to malinvestments at lower levels of the economic order. For Hayek, capital is a combinatorial entity created by entrepreneurial agency in an environment infused with incomplete knowledge. Moreover, ‘capital goods…may be turned to different combinations with the services of the permanent factors [e.g., land] into a great many alternative streams of consumers’ goods of different size, time-shape and composition’ (Hayek, 1936, pp. 219–20; bracketed insert added). During business cycles, what becomes paramount is the economy-wide and industry-level structure and composition of capital combinations, and the relative immobility of capital. The formation and destruction of capital are not a comparative-static, allocative problem as it is in a Knightian stationary state. Capital conceived as a Knightian ‘homogenous mass’ would not be applicable in these circumstances and thus would not resemble reality because it eliminates history in the sense of an existing capital structure (Hayek, 1934, pp. 228–9, his emphasis). By contrast, Knight’s approach was ‘blind to capital adjustment issues’ during business cycles, such as the mismatching of intertemporal, combinatorial decisions to form, reshuffle or scrap capital when there are shifts in time preference and technology; these issues were cast into the shadows, so to speak. Furthermore, Hayek’s surrogate system exemplifies a multi-layered ontology related to time. He was unwilling to reduce capital and its formation to ‘a single time dimension’ (Hayek, 1936, p. 203). For Hayek, capital-goods combinations possess a unique temporal signature and they emerge and form structures in an irreversible causal process. In our view, the choice of a capital concept and acceptance of its underlying ontology may be a matter of problem-dependence in cases such as the use of Knightian capital in a neoclassical production function in order to develop theories of production, distribution and growth, or alternatively to use Hayekian capital in business cycle research. Hayek (1936, p. 227) claimed that Knight was promoting a ‘mythology of capital’ because his theory, inter alia, was confined to a ‘fictitious stationary state’. However, in the terminology of Mäki (2009, p. 6), Knight was using ‘a fictional substitute system’ not merely for practical purposes; his scientific purpose, as reinforced by a problem-dependent methodology, also diverged from Hayek. In fact, Knight looked forward to developing another methodology to deal with the kinds of historical questions Hayek had focussed upon, such as problems of changes in capital formation (Cohen, 2003, p. 487). Knight failed to complete this task. For us, this affirms, firstly, the tension between ontological commitments and tractability for the specific problem under consideration in a chosen theoretical context. Secondly, it suggests the potential for ontological critiques—in this case on Hayek’s part. Critiques may prompt economists to circumscribe, revise or even radically change their ontological commitments, and develop alternative approaches as the research problem demands. Knight’s ontology of capital was quite limited in terms of explaining the actual human experience of capital because his ‘substitute system’ for incorporating the category capital was based upon a ‘theoretic’ rather than ‘ontic’ orientation towards reality (Lawson, 2005A, pp. 430–31). Ontic approaches rely upon what Mäki calls surrogate systems for elaboration; these insert capital in economic explanations in order to illuminate ‘an aspect of reality that the theorist is attempting to understand, describe, explain, or represent’. The resulting abstractions attempt to capture descriptively realistic aspects of capital and, for example, provide information about their causal history (as per Hayek’s approach to capital). In contrast, Knight’s work was ‘theoretic’ in that it inserts capital into an economic theory in such a way that its ontological properties are consistent not with an aspect of reality but pre-eminently with other conceptual categories and properties of a formal model. Such models rely upon idealisations that ‘are necessarily descriptively false’ (Runde, 1996, p. 21) and thus ‘invoke fictions’ (Lewis, 2011, p. 219). They also facilitate deducible, formal solutions for theoretical completeness rather than offer obvious empirical counterparts (Runde, 1996, pp. 24–5).6 According to Lawson, ‘theoretic’ approaches are ‘so at variance with the open, structured, intrinsically dynamic nature of social reality, that the chances of…providing insight on any aspect of social reality are rather slim’ (Lawson, 2005B, p. 455). A spirited defence of idealisation and the ‘theoretic’ orientation is provided in Dorfman et al. (1958, p. 281) who treat capital as identical units called ‘shmoos’.7 The units of shmoos do not exhibit ‘properties of the real world’. Shmoos are purely fictional entities because actual capital does not resemble a stubby-legged bowling ball. Furthermore, shmoos are just one of many elements in another idealised model, such as a production function. So when capital is referred to in terms of shmoos ‘it is the model we are analysing, not the world’ (p. 281, their emphasis). Nonetheless, the ultimate objective of such modelling of which shmoos are only one element is to ‘capture what is important about economic systems’ (p. 351). Like Knight, in their view a ‘test’ of such importance is entirely internal to the formal model. For instance, an equilibrium solution to systems of demand and supply equations in a general equilibrium model must pass the test of ‘existence’. Exploring and examining formal problems of existence would essentially test for logical consistency. Thus ‘systems of equations whose assumptions do not guarantee the existence of a solution may fail to be a useful idealisation of reality’ (p. 351). Yet many years later, Blaug (2003, p. 151) reminded economists that Arrow and Debreu ‘simply abandoned’ the quest to show how a mathematical solution of ‘existence’ is associated with the outcome of competition between participants in real market interactions. More recently, a criticism along similar lines appeared in respect of Knightian, homogeneous capital (or Samuelson’s shmoos) inserted as an argument in the aggregate production function—a tool that remains a foundation of neoclassical theories of growth and economic development. This tool takes for granted that: the marginal product of capital is well defined; capital is continuously variable and substitutable; and the production function has conventional curvature properties. It is an empirical matter whether capital with these properties behaves in the required manner. Zambelli (2018) has now convincingly demonstrated that any empirically meaningful aggregate production function cannot possess these properties. 5. Capital metaphors, descriptive ontology and Robinson’s critique Metaphors have not yet attracted the attention of historians concerned with ontologies of capital, although participants actually involved in various capital controversies were well aware of them (see Table 1). During the capital controversies of the 1880s, Böhm-Bawerk ([1921]1959, p. 263) commented that economists’ discussion of capital requires a ‘line of imagery’ to reveal hidden meaning and to distinguish it from other economic phenomena. For example, his approach to capital employed analogical reasoning, firstly, by insisting that capital be considered within a ‘period of production’ framework and, secondly, by arguing that capital is formed through ‘roundabout methods of production’. In general, such figures of speech enable economists to write about one thing (capital) in terms of another. Specific metaphors fulfil the role of suggesting processes and structures that create new meaning for the term capital. Moreover, they have ‘generative’ power in identifying causal mechanisms and properties not previously recognised by economists; in that sense, they have ‘emergent’ content that ‘portray the underlying subject in a unique and novel way’ (Lewis, 1996, p. 495). Properties of capital (such as its value, structure, malleability, mobility and capacity for aggregation), their description and comprehension, often rely on literary devices. Furthermore, when those properties are embedded in an economic theory or explanation, their metaphorical representation is part of an overarching analytical context often referred to as a model that, in turn, is also a notable metaphor. McCloskey (1995, p. 219) surveys some of the metaphors that ‘economists live by’. One of the ‘master metaphors’ of economists is the ubiquitous use of the term ‘model’. If models are metaphors then the reverse is also true—so that metaphors, once identified, can equally function as one way we may access and describe economists’ preferred heuristics on capital and, therefore, their ontological presuppositions on the subject. Choosing the right metaphor is not just a rhetorical strategy in a game of persuasion as sometimes implied by McCloskey (Mäki, 2009, pp. 14–5). For example, the choice of a capital or capital-structure metaphor betrays ontological commitments and judgements that have consequences for subsequent theorising and explanation. The range of economists’ questions and explanations is limited to the terms, relations and materials represented in the structure of metaphors they use. The practices of employing abstraction to focus upon certain real characteristics of capital or of supposing manifestly false idealisations of capital can both be facilitated by using relevant metaphors. Metaphors help theory construction and may generate more complete explanations. Table 1. Distinctive capital metaphors since the 1870s Metaphor . Author . Author’s description . Used as ontological elaboration (E) or critique (C) . Conceptual system (after Mäki, 2009) . Analytic or explanatory context . Genus Menger ([1871]1950, p. 304, [1883] 1985, p. 14, [1889]1994, p. 12) • Morphology • Taxonomic • Many forms E Surrogate Methodological Controversy ∙ Body ∙ Globule Clark (1888, p. 14, 1893, p. 308) • Immortal • Lives by transmigration E Substitute Production & Distribution Single Coherent Mass Wicksell ([1900]1958, pp. 108–9) • Stored up mass of labour and land • Stratified in time E Substitute Production & Distribution Quantum of Matter Böhm-Bawerk (1906, p. 5) • Embodied in heterogeneous materials structured in time • Aggregated by value E Surrogate Production, Distribution & Interest Jelly Böhm-Bawerk (1907, p. 280) • Stripped of material existence • No structure C Substitute Production, Interest & Valuation Habit of Thought Veblen (1908A, p. 521, 1908C, p. 113) • Knowledge embodied in goods • Stock of intangible technological equipment E Surrogate Cultural Theory of Production Lever Schumpeter ([1911]1934, p. 116) • A particular sum of money • Instrument directing inputs to new uses E Surrogate Economic Development, Entrepreneurship & Business Cycles Inherently Immortal Organic Whole Knight ([1933]1999, p. 222, [1936]1999, p. 308) • Perpetually maintained E Substitute Production, Interest & Stationary State Analysis Population in Reproducing Economy Boulding (1934, p. 648, 658, 1953, p. 326) • Goods with age and survival distributions • Growing quantity through time E Surrogate Systems Theory: Production & Growth Fluid Hayek (1936, p. 217) • Has definite magnitude • Maintained intact under changing conditions C Substitute Production Combinations Hayek (1936, p. 219) • Different sizes and compositions • Mature at different dates E Surrogate Intertemporal Coordination of Production & Business Cycles Shmoo Samuelson ([1949]1966, p. 480) • Identical • Reproduces and grows costlessly • Instantly consumable E Substitute Economic Growth Meccano Sets Swan (1956, p. 344) • Reassembled at negligible cost • Infinitely durable • Instantaneously adaptable E Substitute Economic Growth •Combination •Network •Complex of Relations Lachmann (1956, p. 4, p. 59, 1975, p. 201) • Heterogeneous • Appears in networks of complementarity • Structured E Surrogate Structural Analysis & Entrepreneurial Agency •Leets •Ectoplasm •Mush Robinson (1961, p. 366, 368, 1977, p. 1332) • Boiled-down physical substance • Unstructured substance issuing from a physical medium • Has no history C C C Substitute Substitute Substitute Macro Production Function, Growth & Distribution Putty Phelps (1963, p. 265) • Continuously reshapable • Less elastic when it hardens into clay E Substitute Economic Growth Fossil Salter (1965, p. 273) • Goods with different histories • Not a measurable quantity E Substitute Economic Growth Metaphor . Author . Author’s description . Used as ontological elaboration (E) or critique (C) . Conceptual system (after Mäki, 2009) . Analytic or explanatory context . Genus Menger ([1871]1950, p. 304, [1883] 1985, p. 14, [1889]1994, p. 12) • Morphology • Taxonomic • Many forms E Surrogate Methodological Controversy ∙ Body ∙ Globule Clark (1888, p. 14, 1893, p. 308) • Immortal • Lives by transmigration E Substitute Production & Distribution Single Coherent Mass Wicksell ([1900]1958, pp. 108–9) • Stored up mass of labour and land • Stratified in time E Substitute Production & Distribution Quantum of Matter Böhm-Bawerk (1906, p. 5) • Embodied in heterogeneous materials structured in time • Aggregated by value E Surrogate Production, Distribution & Interest Jelly Böhm-Bawerk (1907, p. 280) • Stripped of material existence • No structure C Substitute Production, Interest & Valuation Habit of Thought Veblen (1908A, p. 521, 1908C, p. 113) • Knowledge embodied in goods • Stock of intangible technological equipment E Surrogate Cultural Theory of Production Lever Schumpeter ([1911]1934, p. 116) • A particular sum of money • Instrument directing inputs to new uses E Surrogate Economic Development, Entrepreneurship & Business Cycles Inherently Immortal Organic Whole Knight ([1933]1999, p. 222, [1936]1999, p. 308) • Perpetually maintained E Substitute Production, Interest & Stationary State Analysis Population in Reproducing Economy Boulding (1934, p. 648, 658, 1953, p. 326) • Goods with age and survival distributions • Growing quantity through time E Surrogate Systems Theory: Production & Growth Fluid Hayek (1936, p. 217) • Has definite magnitude • Maintained intact under changing conditions C Substitute Production Combinations Hayek (1936, p. 219) • Different sizes and compositions • Mature at different dates E Surrogate Intertemporal Coordination of Production & Business Cycles Shmoo Samuelson ([1949]1966, p. 480) • Identical • Reproduces and grows costlessly • Instantly consumable E Substitute Economic Growth Meccano Sets Swan (1956, p. 344) • Reassembled at negligible cost • Infinitely durable • Instantaneously adaptable E Substitute Economic Growth •Combination •Network •Complex of Relations Lachmann (1956, p. 4, p. 59, 1975, p. 201) • Heterogeneous • Appears in networks of complementarity • Structured E Surrogate Structural Analysis & Entrepreneurial Agency •Leets •Ectoplasm •Mush Robinson (1961, p. 366, 368, 1977, p. 1332) • Boiled-down physical substance • Unstructured substance issuing from a physical medium • Has no history C C C Substitute Substitute Substitute Macro Production Function, Growth & Distribution Putty Phelps (1963, p. 265) • Continuously reshapable • Less elastic when it hardens into clay E Substitute Economic Growth Fossil Salter (1965, p. 273) • Goods with different histories • Not a measurable quantity E Substitute Economic Growth Open in new tab Table 1. Distinctive capital metaphors since the 1870s Metaphor . Author . Author’s description . Used as ontological elaboration (E) or critique (C) . Conceptual system (after Mäki, 2009) . Analytic or explanatory context . Genus Menger ([1871]1950, p. 304, [1883] 1985, p. 14, [1889]1994, p. 12) • Morphology • Taxonomic • Many forms E Surrogate Methodological Controversy ∙ Body ∙ Globule Clark (1888, p. 14, 1893, p. 308) • Immortal • Lives by transmigration E Substitute Production & Distribution Single Coherent Mass Wicksell ([1900]1958, pp. 108–9) • Stored up mass of labour and land • Stratified in time E Substitute Production & Distribution Quantum of Matter Böhm-Bawerk (1906, p. 5) • Embodied in heterogeneous materials structured in time • Aggregated by value E Surrogate Production, Distribution & Interest Jelly Böhm-Bawerk (1907, p. 280) • Stripped of material existence • No structure C Substitute Production, Interest & Valuation Habit of Thought Veblen (1908A, p. 521, 1908C, p. 113) • Knowledge embodied in goods • Stock of intangible technological equipment E Surrogate Cultural Theory of Production Lever Schumpeter ([1911]1934, p. 116) • A particular sum of money • Instrument directing inputs to new uses E Surrogate Economic Development, Entrepreneurship & Business Cycles Inherently Immortal Organic Whole Knight ([1933]1999, p. 222, [1936]1999, p. 308) • Perpetually maintained E Substitute Production, Interest & Stationary State Analysis Population in Reproducing Economy Boulding (1934, p. 648, 658, 1953, p. 326) • Goods with age and survival distributions • Growing quantity through time E Surrogate Systems Theory: Production & Growth Fluid Hayek (1936, p. 217) • Has definite magnitude • Maintained intact under changing conditions C Substitute Production Combinations Hayek (1936, p. 219) • Different sizes and compositions • Mature at different dates E Surrogate Intertemporal Coordination of Production & Business Cycles Shmoo Samuelson ([1949]1966, p. 480) • Identical • Reproduces and grows costlessly • Instantly consumable E Substitute Economic Growth Meccano Sets Swan (1956, p. 344) • Reassembled at negligible cost • Infinitely durable • Instantaneously adaptable E Substitute Economic Growth •Combination •Network •Complex of Relations Lachmann (1956, p. 4, p. 59, 1975, p. 201) • Heterogeneous • Appears in networks of complementarity • Structured E Surrogate Structural Analysis & Entrepreneurial Agency •Leets •Ectoplasm •Mush Robinson (1961, p. 366, 368, 1977, p. 1332) • Boiled-down physical substance • Unstructured substance issuing from a physical medium • Has no history C C C Substitute Substitute Substitute Macro Production Function, Growth & Distribution Putty Phelps (1963, p. 265) • Continuously reshapable • Less elastic when it hardens into clay E Substitute Economic Growth Fossil Salter (1965, p. 273) • Goods with different histories • Not a measurable quantity E Substitute Economic Growth Metaphor . Author . Author’s description . Used as ontological elaboration (E) or critique (C) . Conceptual system (after Mäki, 2009) . Analytic or explanatory context . Genus Menger ([1871]1950, p. 304, [1883] 1985, p. 14, [1889]1994, p. 12) • Morphology • Taxonomic • Many forms E Surrogate Methodological Controversy ∙ Body ∙ Globule Clark (1888, p. 14, 1893, p. 308) • Immortal • Lives by transmigration E Substitute Production & Distribution Single Coherent Mass Wicksell ([1900]1958, pp. 108–9) • Stored up mass of labour and land • Stratified in time E Substitute Production & Distribution Quantum of Matter Böhm-Bawerk (1906, p. 5) • Embodied in heterogeneous materials structured in time • Aggregated by value E Surrogate Production, Distribution & Interest Jelly Böhm-Bawerk (1907, p. 280) • Stripped of material existence • No structure C Substitute Production, Interest & Valuation Habit of Thought Veblen (1908A, p. 521, 1908C, p. 113) • Knowledge embodied in goods • Stock of intangible technological equipment E Surrogate Cultural Theory of Production Lever Schumpeter ([1911]1934, p. 116) • A particular sum of money • Instrument directing inputs to new uses E Surrogate Economic Development, Entrepreneurship & Business Cycles Inherently Immortal Organic Whole Knight ([1933]1999, p. 222, [1936]1999, p. 308) • Perpetually maintained E Substitute Production, Interest & Stationary State Analysis Population in Reproducing Economy Boulding (1934, p. 648, 658, 1953, p. 326) • Goods with age and survival distributions • Growing quantity through time E Surrogate Systems Theory: Production & Growth Fluid Hayek (1936, p. 217) • Has definite magnitude • Maintained intact under changing conditions C Substitute Production Combinations Hayek (1936, p. 219) • Different sizes and compositions • Mature at different dates E Surrogate Intertemporal Coordination of Production & Business Cycles Shmoo Samuelson ([1949]1966, p. 480) • Identical • Reproduces and grows costlessly • Instantly consumable E Substitute Economic Growth Meccano Sets Swan (1956, p. 344) • Reassembled at negligible cost • Infinitely durable • Instantaneously adaptable E Substitute Economic Growth •Combination •Network •Complex of Relations Lachmann (1956, p. 4, p. 59, 1975, p. 201) • Heterogeneous • Appears in networks of complementarity • Structured E Surrogate Structural Analysis & Entrepreneurial Agency •Leets •Ectoplasm •Mush Robinson (1961, p. 366, 368, 1977, p. 1332) • Boiled-down physical substance • Unstructured substance issuing from a physical medium • Has no history C C C Substitute Substitute Substitute Macro Production Function, Growth & Distribution Putty Phelps (1963, p. 265) • Continuously reshapable • Less elastic when it hardens into clay E Substitute Economic Growth Fossil Salter (1965, p. 273) • Goods with different histories • Not a measurable quantity E Substitute Economic Growth Open in new tab Table 1 provides a list of distinctive capital metaphors used by economists since the 1870s. The Table excludes metaphors such as ‘production function’, which have been important in production theory more generally but do not make capital a direct referent (McCloskey, 1988, pp. 44–5). Notable features evident in the Table include the fact that only three major economists employ distinctive metaphors as a tool of ontological critique as opposed to a tool of description and elaboration: Böhm-Bawerk who aimed his critique at Clark’s capital conception; Hayek who debated with Knight and Pigou and used the fluid metaphor as a critical tool; and Robinson who used several telling and colourful metaphors to critique capital in neoclassical growth and distribution theory. Here, we see evidence of how metaphors can buttress economic theories over long periods of time. There is much commonality and underlying ontological complementarity between jelly, fluid and mush—metaphors used in quite separate epochs in the history of capital theory (i.e., 1907, 1936 and 1977). Several metaphors, such as globule, jelly, fluid, putty and mush, have in common the suppression of any meaningful structure in the nature of capital. The causal explanations of capital (formation, accumulation, valuation and so forth) offered in approaches that use these conceptions of capital seem inadequate in the minds of their critics. Consistent with Lawson’s use of the term ‘ontic’ cited above, those critics rely on an ‘ontic’ notion of causal explanation in order to show how capital fits into the causal structure of an economy or economic process. Specifically, in Clark’s ontology expressed by the ‘globule’ and his elaboration of that expression, there is no structure in evidence or causal history in operation. For example, there is no series of remarkable antecedent events that create capital or follow from the formation of capital, and there is no causal sequence of events bringing the globule into existence or instigating its growth. Lastly, there are no significant irreversible consequences and structures (e.g., no path dependencies). A capital globule is an isolated, closed or self-contained datum. Such globules are ‘items which exercise their own separate, independent and invariable (and so predictable) effects (relative to, or as a function of, initial conditions)’ (Lawson, 2003, p. 140). Ontological commitments to atomism implied by metaphors such as globule, jelly, fluid, shmoo and mush sustained a broadly common ontology of capital running from Clark in the 1880s to Robinson’s bête noire in the 1970s—neoclassical growth and distribution theory. Table 1 indicates that several economists attempted to escape from the mind-forged manacles of atomism and, relatedly, from various fictional idealisations. These economists sought unconvincingly to introduce descriptively realistic notions. Wicksell introduced time as a stratifying mechanism in an attempt to remove the strict homogeneity of globule-like capital. Like Böhm-Bawerk, he tried to introduce a time-structure into capital theory.8 Phelps allowed his ‘putty’ to turn into ‘clay’ (to allow fixed capital–labour proportions) in order to create a mechanism that reduced the degree of malleability and thence the mobility of capital in his growth model. His ‘baked clay’ admits of some rather trivial causal history in capital formation. Similarly, Swan’s ‘Meccano sets’ were instantaneously adaptable but they adapted in composed ‘sets’ that were pre-assembled in a way that incorporated technical progress, so they had a history as given in the latest booklet of instructions (Harcourt, 1972, p. 36) and they came in finite modules, thus adding minimal organisational structure to capital in his theory of economic growth. Finally, Salter (1965, p. 273, 276) tried to break away from ‘the self-contained present’ implied by the ontology of time underpinning capital that appeared in the neoclassical aggregate production function. He apprehended an economy’s capital stock as ‘fossilised history’—‘a “who’s who” of individual items of plant and equipment’ that could not meaningfully be aggregated. The fossil metaphor added an element of historical lock-in to his neo-Ricardian model of economic growth. Various ontological dimensions and properties are suggested by these metaphors. Menger’s ‘genus’ was a universal category admitting heterogeneous forms or entities (species); the ‘genus’ capital exists in the multifarious tokens that instantiate it, and it cannot exist separately or float freely from particular things. The dispositional properties of capital have characteristic manifestations that are activated when addressing particular problems in specific analytical settings.9 These manifestations become evident when a causal process is operative. For example, in stationary-state analysis that posits some simple causal mechanisms, the jelly and fluid metaphors display key dispositional properties of capital in the long run: it is a fully malleable, substitutable and mobile thing. In growth theory, the ‘Meccano’ metaphor manifests the clunkiness of capital goods that may only be put together in a manner dictated by certain technical properties as described in the instruction booklet. Also, the dispositional property of the ‘fossil’ in growth theory relates to the historical determinants of existing, already formed capital that is limited to a narrower range of future uses. (A similar comment applies to Boulding’s ‘population’ of goods.) By contrast, in a problem-dependent setting concerned with economic development, Schumpeter’s ‘lever’ metaphor presents a key dispositional property of capital triggered by entrepreneurs who attempt to use sums of money to prise open existing combinations of resources to foster production of new goods. So too in the conditions of economic change, Hayek’s and Lachmann’s ‘combination’ metaphor emphasises such properties; capital is an entrepreneurially driven and used entity and its historical origin is irrelevant (cf. ‘fossils’). As a corollary, Schumpeter, Hayek and Lachmann eschew objective, technical properties of capital goods (cf. the Meccano set). While the dispositional, technical properties of capital goods are manifested by several metaphors already mentioned, as well as others such as ‘coherent mass’ and ‘putty’, Menger, Hayek and especially Lachmann underscored the relational properties of capital goods—properties that privilege the minds, valuations and plans of the subjects involved in capital formation rather than the objects that they manipulate in production. Not untypical of many cases listed in Table 1, Lachmann’s ‘combination’ metaphor was supported by additional distinctive metaphors when particular descriptors and predicates of capital were employed. In Lachmann’s case, the nature of capital is differentiated from the nature of capital structures through his use of metaphors that refer to behavioural properties; those structures were manifested in the ‘networks’ of capital-goods complementarities that normally contained ‘gaps’—gaps that are not displayed in the objects (capital goods) themselves but perceived by entrepreneurs who then act to ‘scrap’ and ‘reshuffle’ capital (Endres and Harper, 2013). Joan Robinson’s three metaphors (leets, ectoplasm and mush) deserve special attention because they have ramifications for the dispositional and functional properties of capital. They all contributed to her critique of the Cobb–Douglas aggregate production function, which was used to study equilibrium growth (e.g., Swan, 1956; Meade, 1962). In that production function, capital is valued as a fund of money, whereas for Robinson capital is foremost a stock at the economy-wide level made up of heterogeneous goods that are not straightforwardly aggregated into a scalar measure. There is a common elision in the way economists use the term capital as a quantity: they assume that the quantity of capital is unambiguous and oftentimes conflate physical and value conceptions: Capital is not what capital is called, it is what its name is called. The capital goods in existence at a moment of time are all goods in existence at that moment. It is not all things in existence. It includes neither a rubbish heap nor Mont Blanc. The characteristics by which ‘goods’ are specified is that they have value, that is purchasing power over each other. Thus, in country Alpha an empty petrol tin is not a ‘good’, whereas in Gamma where old tins are a source of valuable industrial raw material, it is (Robinson, 1953–4, p. 83). Robinson raised questions in principle, turning on appropriate indices for aggregation in the light of theoretical problems of measuring and revaluing capital in monetary terms. In addition, since many capital goods are specifically built for a particular process of production (not readily substitutable or mobile), a scalar measure of capital is questionable on practical grounds when an economy is subject to continuous change. Capital formation and accumulation require entrepreneurs who occasionally find that the market value of their products ‘shrinks unexpectedly’ and ‘the value of capital goods falls or vanishes completely’ (Robinson, 1956, pp. 5–6). When production has to be re-organised by entrepreneurs, the shapes, sizes and specifications of capital goods must change pari passu. Robinson’s generative metaphors capture all these issues. They conjure up one dominant image: that of a mass or substance called capital cut off from any real-time path in an actual economy. This central ahistorical theme is at play in all of the following properties of neoclassical capital: it is independent from past techniques of production; it is instantly mobile between uses; technical change is absorbed costlessly and instantaneously without change of physical identity; it admits no disappointed expectations on the part of entrepreneurs who form capital; and finally, it ignores any possibility of persistent excess capital capacity due to the underlying assumption of perfect competition, which supposedly prevails in the long run (Robinson, 1970A, 1970B). Enabled by metaphors, Robinson displaced the term capital in aggregate production functions from its standard mathematical–technical context. More detailed economic properties of capital conceived as a homogeneous, amorphous mass were disclosed thereby and their explanatory consequences laid bare. Altogether, in her view, the resulting explanatory scheme was not up to the task of explaining production, accumulation and distributional processes in a dynamic capitalist economy. 6. Two recent monetary ontologies of capital: an appraisal In recent years, renewed attention has been given to elaborating on the monetary ontology of capital. Two approaches, exclusively focussing upon the monetary dimension, are considered in this section: Hodgson (2014) and Piketty (2014).10 These approaches insist on a high degree of correspondence between the term used in economics and in everyday business activity (Hodgson) and in growth accounting (Piketty). This recent work variously downplays the value of acquiring knowledge about capital obtained from substitute conceptual systems or more formal modelling using idealisation. For example, Hodgson (2014, p. 1078) favours the ‘commonplace business view’ of capital as ‘either money or the money value of alienable property’. The alienability condition seems to be consistent with the fact that it underlies the commonplace expressions of capital used in business and everyday discourse. However, it has far-reaching consequences not only for delimiting economic explanation. The elimination of human capital in Hodgson’s (2014) concept, as well as in Piketty’s (2014) approach, underscores the neglect of many universal properties of capital that have provenance in the history of economic thought, namely abstention from consumption in the present for higher future consumption, potential for depreciation, yielding a market rate of return and obsolescence by dint of creative destruction and innovation. For Hodgson (2014, p. 1078), many economists mean by capital ‘anything that contributes to the production of goods and services’. Used in that universal sense, the term is not ‘historically specific’. Capital must refer directly to something that is ‘money-oriented’ otherwise it is not capital at all as identified and observed in modern capitalist economies (p. 1080). Hodgson, therefore, eschews the considerable variation in concepts of capital exemplified in the history of economic thought. Limiting capital to a monetary notion restricts economists’ explanations of the emergence of capital and capital-related phenomena in real economies. Hodgson discusses definitions of capital at great length without embedding capital in a full-blown theory of capital, capital accumulation or capital value. His ontology of capital excludes from the economic analysis of capital value any vestiges of industry-level or macro-level phenomena (such as financial capital structures) beyond the business enterprise or household. Piketty (2014) takes the next logical step along the monetary line and proceeds to quantify national (and global) money values of capital over several centuries. As with all other approaches reviewed in our historical account in previous sections, Piketty’s capital concept is problem-dependent. He wishes to draw a normative result using a macro-empirical approach to growth and long-run distribution: ‘inequality’ in the distribution of measured capital (of a nonhuman kind) is undesirable and, therefore, calls for remedial economic policy responses. From a perspective covering several centuries, Piketty (2015, p. 52) expressly notices that the ‘multidimensional nature of capital’ creates difficulties, because capital has moved through ‘different historical forms’ such as concentration in agricultural land in one epoch, industrial plant and machinery in another, to the more modern concentration in real estate, intellectual capital and financial assets. In this view, capital is something that ‘migrates’ from one asset class to another over time. Here, we notice Clark’s ontology lurking in the shadows. To make his analysis empirically tractable, Piketty developed aggregate measures of capital expressed in terms of the monetary value of alienable assets (both physical and intangible assets such as intellectual property), not only those used in production but also claims on future consumption such as various forms of wealth that are tradable on markets, for example, art works and residential real estate. This approach dissolves the heterogeneity of those assets into a scalar. In doing so, it also rests implicitly on a deeper, substitute conceptual system with notable intellectual antecedents. Capital becomes an abiding fund of resources valued in monetary terms and that is ultimately reduced to an entity globally distributed (currently mal-distributed in his view) and migrating through economies over time. Piketty’s concept of capital is a hybrid in some respects; it is like a fund of ‘circulating capital’ in the older English Classical tradition and also strongly reminiscent of the Clark–Knight ontology. Piketty’s capital maintains its quantity while altering its form and composition. Piketty’s money-value aggregates ignore qualitative changes taking place within those aggregates and thus the myriad of changes in capital structures (especially changes due to developments in information, communications, transportation and energy) that have shaped human experience over the last two centuries. In our view, to adopt the monetary ontology of capital is to accept a recipe for significant explanatory incompleteness because it disavows economically relevant consequences arising from the capital formation at different organisational levels of the economic order. According to Wimsatt (1994, pp. 227–8): ‘any complex material objects can be described at a number of different levels of organisation’. Thus economists’ descriptions and explanations of capital must pertain to particular properties, activities, interactions, causal networks and regularities at certain levels of its organisation. Wimsatt observes that one very accessible level of description derives from ‘our common world of folk psychology’ concerning objects of interest (p. 226). Economists (like other scientists) actively search for interactions that purportedly occur ‘at other levels [of organization] to enrich and expand [their] awareness of and control over these other domains’ (p. 227) in which capital appears; they direct their theories of capital to specific levels (including interacting levels) of the phenomenon. By ‘organisation’ in respect of capital used in production, we mean anything other than atomistic exchange-based arrangements. Such arrangements might include simple finance-based transactions, and instances where production takes place in a smooth Walrasian world of highly elastic, readily exchangeable, homogeneous, perfectly malleable and substitutable inputs (see Baranzini and Scazzieri, 1986; Endres and Harper, 2012). The monetary ontology neglects significant organisational factors in production, including path dependencies, irreversibilities, indivisibilities and rigidities that make it costly to adjust the horizontal or vertical structure of capital goods (at the enterprise or industry levels of the economy), problems of scale, under-or over-investment crises and discrete breakdowns in production caused by unsustainable configurations of capital goods. All these factors call for examination on their own grounds and must be assessed ‘independently from the “financial” aspect’ (Pasinetti and Scazzieri, 2008, p. 4). Obviously, such an examination often requires departure from ‘the typical business man’s viewpoint’, which is usually restricted to capital value in the pure financial sense (Hicks, 1973, p. 12). 7. Conclusions We have charted the ontological underworld of capital by traversing three major capital controversies from the 1870s to the 1970s. Advancing beyond the dualistic ontology that has appeared in different guises since at least the 1880s, our study of descriptive and comparative ontology has grasped the key particularities of capital ontologies that have been driven by specific analytical problems occupying economists. Many of the economists examined in this paper were keenly aware of their ontological commitments concerning capital. They also appreciated the implications of those commitments that were elaborated in their critiques of capital, its descriptors and predicates. It is in ontological comparison and critique that many presuppositions are laid bare, as illustrated by the Böhm-Bawerk–Clark controversy, the Knight–Hayek debate and by Joan Robinson’s effective use of metaphors. The value of critique in this context is further illustrated in Section 6 when we appraise recent developments in the exclusively monetary ontology of capital. In order to consider the ontology of capital, there is no substitute for examining the theories and causal explanations in which this economic category is embedded. Nevertheless, irrespective of multifarious expressions conveying different meanings, there is evidence of patterns and serialisation in the ontology of capital over the period under review. We noticed the supreme relevance of the ontology of time underpinning economists’ conceptions of capital, the deep influence of a more primitive atomistic ontology in many cases and the layered characteristics of ontologies embedded in different conceptual systems, some of which addressed aspects of economic reality more than others. As discussed in Section 5, the different metaphors used by economists demonstrated a mosaic of recurrent patterns in the dispositional and relational properties of capital among some contributions. We discovered that distinctive capital metaphors did not function merely as elaborate ornamentations in economists’ discourse; rather, they added depth to various theoretical accounts of capital. Our study also supports Hayek’s (1988, p. 9) general epistemological presumption that any real, existent entity or process, such as capital, capital structure, value, formation, accumulation and so forth, will ‘transcend…our capacity to observe all the several circumstances operating in determination of their particular manifestations’. Accepting this presumption, economists would do well openly and self-consciously to choose ontological commitments on capital and thereby also emphasise attendant limitations such as certain neglected properties of capital and the explanatory consequences. Such choices will doubtless remain anchored to problem-dependent methodologies applied when capital is a subject of economic inquiry. Differentiated by their specific ontologies, each explanation of capital in capitalist economies should be regarded as fragmentary—and some explanations will appear impoverished relative to others. The resurgent monetary ontology of capital in modern economics discussed in Section 6 is a salutary reminder of this point—a point that also suggests why episodic capital controversy in economics, coupled with ontological critique and revision, is likely to remain a regular occurrence. Acknowledgements We are obliged to Paul Lewis for detailed comments, and to Geoffrey Brooke, Mark Donoghue, Alan Rogers and Amanda Tong for helpful advice. Three referees offered valuable suggestions that improved the final version. The usual disclaimer applies. Bibliography Baranzini , M and Scazzieri , R. 1986 . The exchange paradigm and the theory of production and distribution, in Baranzini , M. and Scazzieri R. (eds.), Foundations of Economics: Structures of Inquiry and Economic Theory , Oxford , Blackwell Google Scholar Google Preview OpenURL Placeholder Text WorldCat COPAC Blaug , M . 2003 . 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Here, we follow Dobb (1973, p. 1, 16, 32): ‘ideology’ is concerned with the biases imparted by a ‘whole system of thought, or a coordinated set…of related concepts’ (his emphasis) in which capital may be just one component. Thus in a pure, neoclassical (marginalist) theory of exchange and distribution in which capital plays a role, capital is isolated from its historical determinants and so prior distributional considerations are neglected. Such a system of economic thought is ‘ideologically conditioned’ insofar as it circumscribes the scope of thought about capital and the way capital functions within the circle of exchange. Furthermore, two economic theories may make similar presuppositions about the existence and nature of capital. Nevertheless, ideological biases might dictate that the category capital be utilised very differently in each of the two economic theories, thereby leading to different conclusions about the processes of capital formation, valuation and distribution. 3 Menger’s many-sidedness on the subject is foreshadowed in his Principles: ‘The fact that under developed trading conditions capital is reckoned in terms of money…has resulted in capital generally being interpreted in ordinary life as a sum of money… It is plain that this concept of capital is too narrow, and that a particular form of capital has been elevated to the status of the genus itself. On the other hand, the opposite error has been made by those who do not regard money capital as true capital at all’ (Menger, 1950, p. 304). 4 For a comprehensive exposition of this controversy, see Cohen (2008). 5 Robinson (1962, p. 26) made a similar point: ‘In an historical model, causal relations have to be specified. Today is a break in time between an unknown future and an irrevocable past’. 6 According to Runde (1996, p. 19), idealisations postulate ‘limit types’ (e.g., Knight’s stationary state) and/or rely upon ‘theoretical isolations’ (e.g., Knight’s assumption that time intervals in production are separate events such that they are not causally interdependent). 7 The term ‘shmoo’ was originally adopted in Samuelson ([1949]1966, p. 480). Shmoos were characters created by Al Capp and appeared in the Li’l Abner cartoons from the 1940s; they were identically shaped bowling pins with identical stubby legs. Shmoos were asexual, immortal and reproduce without cost. In Samuelson’s analytical work, they are capital goods that may instantly be turned into consumption goods as required. 8 Notwithstanding the inclusion of a more realistic treatment of time, Wicksell employed a substitute conceptual system in formulating his capital theory, while Böhm-Bawerk attempted, but arguably failed, to employ a surrogate system. 9 A dispositional property is a property that ‘has a characteristic manifestation…that occurs when the disposition…is triggered or activated in certain types of circumstances’ (McKitrick, 2003, p. 157). In general, if the circumstances arise, then the capital good x would exhibit the characteristic manifestation (i.e., the event-type). An example of a dispositional property of some capital goods is electrical conductivity, which becomes evident when an electric current is released. For instance, bundled strands of aluminium alloy in high-voltage overhead electricity transmission wires have the disposition to carry a flow of electric current (i.e., to transport electricity). 10 Another monetary ontology of capital not considered here, but which proceeds along similar lines to Hodgson’s, is provided by Lewin and Cachanosky (2018). © The Author(s) 2020. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Capital in the history of economic thought: charting the ontological underworld
JF - Cambridge Journal of Economics
DO - 10.1093/cje/beaa026
DA - 2020-08-27
UR - https://www.deepdyve.com/lp/oxford-university-press/capital-in-the-history-of-economic-thought-charting-the-ontological-eael7Int8f
SP - 1069
EP - 1091
VL - 44
IS - 5
DP - DeepDyve
ER -