For a New Capital Theory : A Hermeneutical Approach

Capital theory is one of the most controversial topics in economics and an object of debate inside the Austrian School of Economics. If Böhm-Bawerk's capital theory, usually identified as the Austrian Capital Theory, left many Austrian economists unsatisfied, a clear definition of capital, consistent with Mengerian subjectivism, is still to be seen inside the School. Following Ludwig Lachmann's application of hermeneutics to economics, this paper tries to define capital as the outcome of subjective mental processes, determined by individual intentions and expectations, and not by specific physical or economic features. In this sense, a new, hermeneutical, definition of capital is brought out: both physical capital and capital value are newly defined. Moreover, the original distinction between potential and actual capital is introduced. Finally, a new production function, consistent with a radically subjectivistic approach, is presented as an alternative to the traditional neoclassic production function