Austrian economics and German business economics on capital accounting

Early generations of Austrian economists were already well aware of the fact that capital accounting is an indispensable prerequisite for entrepreneurial decision making, and especially Mises stressed this relevance of capital accounting in many of his books and essays. However, subsequent publications occasionally criticized that earlier Austrian works on capital accounting were fairly sketchy, that is, they lacked a thorough engagement in the topic. For example, Taylor (1970: 318) finds that "Austrian analysis does not deal with the special accounting problems of capital valuation and income determination", while Lewin & Cachanosky (2017: 14) note that "Mises points to capital-accounting but does not examine this further." Not least, Young (1987: 16) concludes that "Austrian economists are economists first; not surprisingly, they give little or no attention to many specific issues of accounting theory and practice that rightly occupy the attention of accountants." Fortunately, however, Austrian economics's "sister science" (Schmidt 1933: 106), namely German business economics, has elaborated on such accounting issues in depth and has developed an operationalization of capital accounting compatible with the general Austrian understanding. This paper aims to discuss existing Austrian works on capital accounting in light of the well-developed work of this very "sister science" and to resolve some fundamental inconsistencies within the Austrian view on capital accounting.