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Quotation of the Day…

… is from page 272 of the 1977 volume, edited by Walter Grinder, of Ludwig Lachmann’s papers, Capital, Expectations, and the Market Process; in particular, this quotation is from Lachmann’s 1940 Economica paper, “A Reconsideration of the Austrian Theory of Industrial Fluctuations“:

“[C]apital-intensification” or the “deepening of capital” is merely another form of Innovation.  Once we have rid ourselves of the notion of capital as a homogeneous aggregate and bear in mind its essentially heterogeneous character as an agglomeration of houses, ships, machinery, etc., it is easy to see that “an increase of capital per unit of output” does not just mean the addition of another piece of machinery to an otherwise unchanged equipment park, but that as often as not it will entail a complete re-arrangement of the existing productive apparatus, including depreciation of specific factors, and possibly a change in the character of the final product.

Thus, it is incorrect to insist that increasing the amount of capital relative to labor or other inputs (including previously assembled pieces of capital) necessarily reduces capital’s marginal productivity.  Being cognizant of this complex reality of capital and its structure makes much more difficult the task of composing simple theories about capital and its relationship to labor and to aggregate demand.  But this reality isn’t optional – and nor are the many real-world problems created by interventionist policies whose justifications are rooted in simplistic theories (such as those of Keynes) about the nature of capital and of the economy.


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