Capital

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Chapter 3 in The Economics of Prosperity, 2023, pp 59-84 from Edward Elgar Publishing

Abstract: The complex structure of production that incorporates the market division of labor is only made possible using capital goods, which requires longer production processes. Producing capital goods requires saving and investment. The entire economic order consists of one integrated production structure. Because each capital good has its own place in the production process, capital forms a structure and is not, therefore, a homogeneous blob of shmoo, as represented by neoclassical production functions. Capital is a mental tool referring to the monetary value of capital goods. Producers use to assess the potential and actual success of various alternative production plans. The capital structure - the value of an ordered structure of heterogeneous, multi-specific, complementary production goods - continually changes as entrepreneurs make adjustments based on profit and loss calculations going forward. Just as private property is crucial for the development of the social division of labor, it is necessary for capital accumulation. For capitalists to have the ability and incentive to accumulate capital, they must be secure in their property. Total investment spending does not necessarily reflect an addition of economic value. Capital value is based on the appraisement of diverse, often contrary, entrepreneurial judgements, so will only be revealed after the market process. Monetary inflation via credit expansion will not increase net capital, but will lead to artificially low interest rates, malinvestment and capital consumption.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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