3 1 Capital Theory

Apuntes

3 1 Capital Theory Peter Lew in Carl Menger the discoverer of subjective value In the economic mainstrea m the Austri an school is most often associated wi th the Austrian theory of capital, especia ll y with the work of Bo hm - Bawerk (1 88 4, 1889). It is to the earli er work of Car l Menger ( 187 1) , how- ever, that we must look for the begin nings of this theor y. It was Menger’s re1narkable vi si on that provided the in sp iration for the development of a comprehensive view of the eco nomic system as a process driven by the subjective preferences of consumers. He showed that it is the value th at consumers put on products that determines the va lu e of the inputs that are used to produce those products and not the other way round, as had so often been thou ght. Value is a forward-looking rath er than a backward-looking concept. A unit of capital equ ipment is va lu ed because its owner can look fo rward to its produc in g a valued (by prospective consumers) output, rather than because it u sed scarce reso urces in its own produ ction. Th e val ue of the inputs is derived fro m the value of the outputs. Many important insights fo llow from thi s si mple, yet s...