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Capital as a layer cake: A systems approach to capital and its multi-level structure

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  • Harper, David A.
  • Endres, Anthony M.

Abstract

We elaborate a systems approach to the nature of capital that develops the work of Menger and Lachmann (the "ML trajectory"). We propose a "layer cake" metaphor to capture the kernel of the ML approach and contrast it with the neoclassical metaphor of capital as an amorphous, homogeneous "jelly". According to the ML approach, capital is combinatorial and is organized structurally and relationally. The approach examines capital as it exists "out there" in the world, as it is actually formed and experienced by entrepreneurs. Capital goods only exist and become productive once they are connected in entrepreneurs' production plans so that the focus is upon relations of complementarity between heterogeneous capital goods as used in production. Hence, capital has a layered structure: there is a nested hierarchy of capital goods, capital combinations and economy-wide capital structures. Using Bunge's theory of systems, we investigate how each of these entities is a concrete system at a different layer of economic reality. Both capital combinations and overall capital structure arise in an irreversible, causal-genetic process in real time and capital structure has the added distinction of being an emergent, spontaneous order.

Suggested Citation

  • Harper, David A. & Endres, Anthony M., 2010. "Capital as a layer cake: A systems approach to capital and its multi-level structure," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 30-41, May.
  • Handle: RePEc:eee:jeborg:v:74:y:2010:i:1-2:p:30-41
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    References listed on IDEAS

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    1. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
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    3. Kenneth E. Boulding, 1956. "General Systems Theory--The Skeleton of Science," Management Science, INFORMS, vol. 2(3), pages 197-208, April.
    4. Kirsten Foss & Nicolai J. Foss & Peter G. Klein & Sandra K. Klein, 2007. "The Entrepreneurial Organization of Heterogeneous Capital," Journal of Management Studies, Wiley Blackwell, vol. 44(7), pages 1165-1186, November.
    5. E. Böhm-Bawerk, 1907. "Capital and Interest Once More: II. A Relapse to the Productivity Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 21(2), pages 247-282.
    6. Hicks, John R, 1974. "Capital Controversies: Ancient and Modern," American Economic Review, American Economic Association, vol. 64(2), pages 307-316, May.
    7. John Foster, 2006. "Why Is Economics Not a Complex Systems Science?," Journal of Economic Issues, Taylor & Francis Journals, vol. 40(4), pages 1069-1091, December.
    8. Lewis, Paul & Runde, Jochen, 2007. "Subjectivism, social structure and the possibility of socio-economic order: The case of Ludwig Lachmann," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 167-186, February.
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    Citations

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    Cited by:

    1. Anthony M. Endres & David A. Harper, 2012. "The kinetics of capital formation and economic organisation," Cambridge Journal of Economics, Oxford University Press, vol. 36(4), pages 963-980.
    2. Harper, David A. & Endres, Anthony M., 2012. "The anatomy of emergence, with a focus upon capital formation," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 352-367.
    3. Rosser, J. Barkley, 2012. "Emergence and complexity in Austrian economics," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 122-128.
    4. Anthony Endres, 2013. "Is the economics of time and ignorance a “classic”?," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 26(1), pages 17-25, March.
    5. Ehret, Michael, 2014. "Financial socialism: The role of financial economics in economic disorganization," Journal of Business Research, Elsevier, vol. 67(1), pages 2686-2692.
    6. Peter Lewin, 2014. "Hayek and Lachmann," Chapters,in: Elgar Companion to Hayekian Economics, chapter 8, pages 165-194 Edward Elgar Publishing.
    7. David Harper, 2014. "Property rights as a complex adaptive system: how entrepreneurship transforms intellectual property structures," Journal of Evolutionary Economics, Springer, vol. 24(2), pages 335-355, April.

    More about this item

    Keywords

    B25 B41 B53 D24 E22 L23 Capital Lachmann Menger Complementarity Production Systems Ontology;

    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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