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

Journal of Economic Behavior & Organization
Publication Date
DOI: 10.1016/j.jebo.2010.01.006
  • B25
  • B41
  • B53
  • D24
  • E22
  • L23
  • Capital
  • Lachmann
  • Menger
  • Complementarity
  • Production
  • Systems
  • Ontology
  • Economics
  • Mathematics


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.

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