The Review of Austrian Economics, 18:2, 145–167, 2005.
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.
The Capital Idea and the Scope of Economics
PETER LEWIN email@example.com
School of Management, University of Texas at Dallas, Richardson, TX 75083
Abstract. This paper traces the idea of Capital from Adam Smith to modern times and shows how different
conceptions of Capital give rise to different approaches to economics and the range of problems that can be
investigated. A structural, as opposed to a stock, approach to Capital is shown to be more conducive to a studies
of business institutions and practices, and to rules, institutions and standards in a changing world.
KeyWords: Capital, structure, stock, aggregation, theory of the ﬁrm, economic growth, production function
JEL classiﬁcation: B1, B2, B53, L22, O3
1. Introduction: The Idea of Capital is Central but Lacks Clarity
Capital (I am not the ﬁrst to discover) is a very large subject, with many aspects;
wherever one starts, it is hard to bring more than a few of them into view. It is just
as if one were making pictures of a building; though it is the same building, it looks
quite different from different angles. As I now realize, I have been walking round my
subject, taking different views of it. (Hicks 1973:v).
The idea of Capital
is surely central to the study of economics. Its centrality, however,
has not prevented the development and persistence of substantial disagreement concerning
its meaning and signiﬁcance. It seems as if each generation of economists has invented its
own notion of Capital and its own “capital controversy.” The Classical economists thought
of capital in the context of a surplus fund for the sustaining of labor in the process of
production. Ricardo and Marx provide frameworks that encourage us to think of Capital as
a social class—the class of owners of productive facilities and equipment. The Austrians
emphasized the role of time in the production process. In Neoclassical economic theory we
think of capital as a quantiﬁable factor of production. In ﬁnancial contexts we think of it as
a sum of money.
Different views of capital have, in large part, mirrored different approaches to the study
of economics. We can see this in the revealing case of John Hicks. Hicks was perhaps the
most eclectic of modern economists to examine capital theory. He was preoccupied with
it over his long and productive career. He wrote three signiﬁcant full length works (Hicks
1946, 1965, 1973) and numerous articles on the subject of capital over a period of three
decades. He provided many insights into this complex area, but, in the ﬁnal analysis even
he was limited by the formalistic, quantitative methodological framework from which he
was unable (or unwilling) to break.