The Pure Theory of Capital

The greatest failing of non-Austrian theories of macroeconomics, it’s been said, is that they lack a robust theory of capital. F.A. Hayek sought to fill out the theory of the business cycle with an impenetrable one, and the result was this remarkable 1941 treatise. It took him many years to write. It is surely his most detailed work in economic theory.

Appearing at the height of the Keynesian revolution, this treatise was sadly overlooked. Today it can be appreciated anew.

It offers a detailed account of the equilibrium relationships between inputs and outputs in an economy, Hayek’s stated objective was to make capital theory—which had previously been devoted almost entirely to the explanation of interest rates—“useful for the analysis of the monetary phenomena of the real world.” This takes him into a long explanation of the heterogeneity of the capital stock and its relationship to the passage of time.

Hayek reports that he never felt that he had fully completed the book but at 480 pages, it remains the most complete treatise on the subject ever published.

To be sure, this is for serious students, but the effort to grapple with Hayek’s thought is heavily rewarded here.