Who Were the Sea Peoples?

J.A. Smith, that is: "Is labour capital? If a labour meeting labor in act, "labouring," certainly not. But the strengths, etc., which is employed in labor certainly is actual capital when it is in use, potential capital before it is in use. The labourer is therefore just as much and as really "a capitalist" as the employer. More exactly, the abilities, etc. presupposed by economic labour are capital, and their possessor is 'a capitalist.' But they are not usually recognized as, or named, capital... The refusal to call them capital wrongly separates them from other parts of wealth." -- J.A. Smith , “Further Notes on Some Fundamental Notions of Economics: Capital,” Economic Review , 1914. Although Smith does not use the term "human capital," it clearly is what he is talking about. Of course people, such as Adam Smith, had earlier noted that increases in human skills play an important part in increases in production. But had anyone earl...

One of the few times I recall disagreeing with Israel Kirzner was when we discussed what should be considered a capital good. I took Lachmann's view: "When capital is defined, with Boehm-Bawerk, as the 'produced means of production' land is, of course, excluded. But to us the question which matters is not which resources are man-made but which are man-used. Historical origin is of no concern of ours." -- Capital and Its Structure , p. 11 For a general theory of capital, this seems to me exactly right. (I put it this way because I don't wish to deny that for special purposes, we might need to distinguish between produced and non-produced goods.) Consider: I have a pile of fieldstones that I am using to build a stone wall. I pick one stone from the pile and carefully chip away at it with my stone hammer and chisel until it is the perfect shape I need for my wall. I put it in place and turn back to my pile. To my pleasant surprise, the next rock I spy just...

Or, how a freight locomotive may go a progress through the guts of the capital structure: the life history of a freight locomotive of the vintage, say, of 1890. It began in heavy main-line service. After a few years, the improvement in the new locomotives available and the development of the art of rail-roading made the unit obsolete for that service, which was taken over by more modern power. It was thereupon relegated to branch-line duty where the trains were shorter, the speeds lower, and the annual mileage greatly reduced. For some years it served in that capacity, but better power was continually being displaced from main-line duty and 'kicked downstairs' onto the branch lines, and eventually our locomotive was forced out at the bottom, to become a switcher in one of the tanktown yards along the line. But the march of progress was relentless, and, in the end, thanks to the combination of obsolescence and physical deterioration, it wound up on the inactive list. For some...

"In equilibrium, where, by definition, all values are consistent with each other, the use of money value as a unit of measurement is not necessarily an illegitimate procedure." -- Ludwig Lachmann, Capital and Its Structure , p. 2. Lachmann does not offer further explanation of what he is thinking, at least at this point. Certainly, out of equilibrium, the price of capital goods will change. Furthermore, there will be disagreement about the price of various capital goods. So two entrepreneurs, or two economists, might not reach agreement about the amount of capital in a firm or in a nation. But as long as one recognizes this, so what? As Mises noted, this valuation problem is no different for land or labor: all three are valued for the future income streams they will produce, and out of equilibrium those are always uncertain. If this is all Lachmann means, I agree with him, but I can't see why he calls using the estimated monetary NPV of a capital to "measure...

"More precisely, I define the marginal efficiency of capital as being equal to that rate of discount which would make the present value of the series of annuities given by the returns expected from the capital-asset during its life just equal to its supply price.. "Now it is obvious that the actual rate of current investment will be pushed to the point where there is no longer any class of capital-asset of which the marginal efficiency exceeds the current rate of interest. In other words, the rate of investment will be pushed to the point on the investment demand-schedule where the marginal efficiency of capital in general is equal to the market rate of interest.. "There is, to begin with, the ambiguity whether we are concerned with the increment of physical product per unit of time due to the employment of one more physical unit of capital, or with the increment of value due to the employment of one more value unit of capital. The former involves difficulties as to...

"Wicksell had already recognized serious problems with the marginalist approach to capital theory. Essentially, whereas labor and land can each be measured in terms of its own technical unit (man-hours, acres, et cetera) heterogeeous capital in the aggregate must instead be expressed in value terms -- how, otherwise, to sum a railroad and a sewing machine?" -- Goodspeed, Rethinking the Keynesian Revolution , p. 25 Assuming Goodspeed has Wicksell right here, Wicksell is mistaken. Of course, we can measure labor in man-hours and land in acres, and for some purposes those measures are useful... but not for economic analysis. In economical terms, land and labor should be "measured" exactly as capital is: by the discounted value of the future income streams they are expected to produce. An acre of land in Manhattan is in no economic sense the same as an acre in Antarctica, and a man-hour of Joe Blow's labor is not economically identical to an hour of Kobe Bryant...

Ever since my parents named me after Eugen Böhm-Bawerk , I have had a soft spot in my heart for the man. But that does not prevent me from realizing that his postulating time as a factor of production, so that land and labor have higher yields the longer they are invested, was a terrible derailment of capital theory. In fact, Böhm-Bawerk got this exactly backwards: it is not that investing for a longer period of time creates higher returns, it is that one will only invest in a longer production process when it has greater yields than a shorter one. If the error had disappeared with Böhm-Bawerk, it would not be worth noting. But it has continued to plague capital theory since, and created confusions for many subsequent capital theorists. Fortunately, Böhm-Bawerk's greatest student was able to escape the mare's nest Eugen had created: "The length of time expended in the past for the production of capital goods available today does not count at all. These capital goods a...