Most Students of Economics Encounter the Theory of Capital as Part of a Theory of Finance and/or Project Evaluation

Most students of economics encounter the theory of capital as part of a theory of finance and/or project evaluation. When considering the question of how to measure (known or estimated) values that occur at different points in time, they get introduced to the arithmetic of present values. And while the notion of present value can be elaborated and dissected in many subtle ways, its basics derive from some very straightforward, intuitive ideas. It is surprising, then, to find that capital theory is regarded as a particularly esoteric and largely irrelevant part of economics.

Obviously, although present-value arithmetic is an important part of an understanding of capital, it is only a part of that understanding. It is the other parts that have been regarded as obscure and irrelevant. Although capital theory may be difficult, it is hard to see that it could justifiably be judged as irrelevant. After all, the market economies of the world are often referred to as “capitalist” economies. Surely a good understanding of the meaning and significance of the “capital” in “capitalist” is of some importance, for history and for policy. If capital is that phenomenon that makes market economies different, ought we not to accord it a prominent place in the education of an economist?

--Peter Lewin, introduction and outline to Capital in Disequilibrium: The Role of Capital in a Changing World, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2011), 4.