The Review of Austrian Economics, 17:1, 135–137, 2004.
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Peter Lewin (1999) Capital in Disequilibrium: The Role of Capital in a Changing World,
Routledge, 255 + ix pp., $100.00.
Since the path breaking work of Mises and Hayek on capital theory in the 1930s and 1940s,
Austrian economists have produced three major works in the ﬁeld: Ludwig Lachmann’s
Capital and Its Structure, Israel Kirzner’s An Essay on Capital, and the book under review
here. Each of the three has its own virtues. Lachmann highlighted the subjective nature of
capital, the role of capital gains and losses in transforming the production structure, and he
brilliantly connected the activities of the ﬁnancial markets to capital theory. Kirzner, mean-
while, clariﬁed (as always) the views of his mentor, Mises, and illuminated the relationship
of those ideas to the broad sweep of capital theory.
Lewin’s book both incorporates and extends the insights of Lachmann and Kirzner.
Much like Kirzner, he is able to relate Austrian capital theory to ideas from both the main-
stream and other heterodox schools. And, like Kirzner, he deftly avoids the two traps facing
Austrian theorists in discussing neoclassical ideas: He neither treats them as nonsensical,
nor does he attempt to “blend” Austrian and neoclassical theories, an effort that could only
produce incoherence. Instead, Lewin (p. 119) recognizes neoclassical models as “idealized
construct[s],” which “[t]he process of actual decision-making must mirror in an implicit
way. . . ”
Lewin displays his Lachmannian heritage in his view of neoclassical equilibrium con-
structs. The passage of time implies changes in knowledge. In the present, the arena in
which choice occurs, the future growth of knowledge cannot be known or even probabilisti-
cally predicted. Faced with this genuine uncertainty, which is a constant presence in human
affairs, human action only can be a rough approximation of a mechanical decision-making
process in which all relevant factors are known with quantitative precision.
Lewin sounds this theme to open the book, in a two-chapter examination of the relation-
ship between equilibrium theorizing and the Austrian view of the irreducible uncertainty
facing the human actor. He stresses that to Austrians general equilibrium is a purely theo-
retical construct, useful as a limiting case implicit in economic thinking, but never present
in the real economy. He touches brieﬂy on the intra-Austrian split between Lachmann and
Kirzner as to whether a “tendency towards equilibrium” exists in the market economy,
generally coming down on the side of Lachmann in holding that it does not (pp. 20–26).
I found that Lewin offers a reconciliation of their positions: “There is no tendency for ex-
pectations in general to become more coordinated. Expectations operate at many different
levels, however. And at most of these levels, for most types of things there is a tendency
towards coherence” (43, emphasis in original). Exactly: Lachmann focused on the truth of
the ﬁrst quoted sentence, while Kirzner on that of the third.
Lewin continues with a magisterial survey of capital theory from Adam Smith through
Ricardo, Menger, Bohm-Bawerk, Clark, Knight, Dorfman, Joan Robinson, and Hicks. Here,