With capital theory suddenly transformed into a hot topic by Thomas Piketty’s best-seller, Robert P. Murphy lucidly restates the Austrian conception, attentive to the problems of commensurability between productive apparatus and its financial summarization. As he remarks: “The distinction between financial capital and physical capital goods is crucial and underscores all the issues to follow.”
The macroeconomic hypostasis of transactional equivalence (‘price’) into homogeneous substance (‘wealth’) is called into question in the name of an intrinsically and irreducibly diverse capital substrate. The ‘exchange value’ of capital — rather than being derived from some kind of stable economic essence — emerges continually from the market-process as a volatile consequence of the various entrepreurial projects that cut across it. (Like any other other good, capital is ‘worth’ exactly what it can fetch, with no underlying support of ultimate objective value.)
As Murphy emphasizes, this qualification is of special relevance to the theory of business cycles, since these are episodes of drastic capital (value) destruction, of a kind that eludes macroeconomic apprehension. Because capital ‘in itself’ is varied and path-locked, its ‘malinvested’ quantities — when exposed by the collapse of unsustainable economic projects — are crushed down to brutally-discounted salvage or scrap values.
If we use a model that represents the capital stock by a single number (call it “K”), then it’s hard to see why a boom period should lead to a “hangover” recessionary period. Yet if we adopt a richer model that includes the complexities of the heterogeneous capital structure, we can see that the “excesses” of a boom period really can have long-term negative effects. In this framework, it makes sense that after an asset bubble bursts, we would see unusually high unemployment and other “idle” resources, while the economy “recalculates,” to use Arnold Kling’s metaphor. (Kling link.)
‘K’ — the neoclassical capital aggregate, denominated in monetary units — is thus problematized by an opaque, heterogeneous, viscous productive matter, not only in theory, but also effectively — by financial crises. The economic crash is a complex epistemological-semiotic event, situated between the twin-aspects of capital, in the form of a commensuration catastrophe.
The ‘recalculation’ necessitated by the crash can therefore be evaluated as a ‘capital theory’ immanent to the economy, intrinsically prone to consensual macroeconomic hallucination. Rather than an arbitrary error, lodged in a superior perspective, the translation of sub-K (heterogeneous-technical capital) into K (homogeneous-financial capital) is a calculation process inherent within — and definitive of — capitalism as such, before it is isolated as a theoretical topic for political-economic analysis. Capitalism, in itself, is the tendency to arithmetical comprehension of itself. Operation of the price system cannot but imply an aggregated (financial) evaluation of the total productive being.
Austrianism opens a question as much as it resolves one, because capitalism cannot refrain from a cryptographic engagement with sub-K. Austro-skepticism relative to macroeconomics is consummated in the insight that only the economy can think the economy (without social-scientific transcendence), but in reaching this summit it simultaneously recognizes the economy as an auto-decrypting entity, which cannot be released from the problem it is to itself.
A proper appreciation of the heterogeneous structure of capital shows the weakness in standard theoretical approaches, which employ “simplifications for analytical convenience” that actually obscure the economic reality.
It would be far too convenient at this point to reduce “economic reality” (or sub-K) to heterogeneity in general — the simply unknowable. In this way, we would be seeking — no doubt vainly — to excuse ourselves from the cryptographic problem that capitalism itself is working out.