The Theory of Capital

This chapter focuses on Oskar Lange’s contributions to capital theory during his early years in the United States (1934–1937). After being forced to leave Poland due to political repression, Lange transitioned from political activism to rigorous academic work, actively engaging in the ‘high theory’ discussions of the time. His 1936 article, “The Place of Interest in the Theory of Production”, marks a significant intervention in the debates about capital, as it challenges the Austrian School’s emphasis on time as the defining characteristic of capital and aligns more closely with the perspectives of Walras and Schumpeter. Lange critiques the Austrian theory articulated by Böhm-Bawerk and Hayek, which views capital primarily as a temporal factor. Instead, he argues for integrating capital into a general equilibrium framework, wherein interest rates reflect capital scarcity rather than merely intertemporal preferences. He draws from Schumpeter’s definition of capital as “command over means of production” and Marx’s reproduction schemes, emphasising the role of capital in production over its temporal aspects. Furthermore, the chapter situates Lange’s work within broader debates, including the discussions between Hayek and Sraffa and critiques from Knight. It highlights Lange’s unique synthesis of Walrasian equilibrium, Schumpeterian dynamics and Marxian institutional analysis.