Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

282 Money, Bank Credit, and Economic Cyclesinvestors manage to provide them with considerable “mobility”through the juridical institutions of property and contractlaw, which regulate the different forms of transferring suchgoods. Thus the (extremely complex and prolonged) productivestructure permits the constant mobility of investors,through the exchange and sale of capital goods in the market. 16We are now ready to consider the concept of capital, whichfrom an economic viewpoint differs from the concept of “capitalgoods.” In fact we will define “capital” as the market valueof capital goods, a value estimated by the individual actors whobuy and sell capital goods in a free market. 17 Thus we see thatcapital is simply an abstract concept or instrument of economiccalculation; in other words, a subjective valuation of orjudgment on the market value entrepreneurs attribute to capitalgoods and on the basis of which they continually buy andsell them, attempting to make a pure entrepreneurial profitwith each transaction. Therefore in a socialist economy inwhich neither free markets nor market prices exist, it is perhapsfeasible to speak of capital goods, but not of capital: thelatter always requires a market and prices which are freelydetermined by the economic agents who participate in it. If itwere not for market prices and the subjective estimation of thecapital value of goods that compose the intermediate stagesin production processes, in a modern society it would beimpossible to estimate or calculate whether or not the finalvalue of the goods to be produced using capital goods offsets16 A demoralized entrepreneur who wishes to abandon his business andsettle elsewhere can find sure, constant mobility in the market: legalcontracts permit him to put his business up for sale, liquidate it and usehis new liquidity to acquire another company. In this way he achievesreal, effective mobility that is much greater than the mere physical ortechnical mobility of the capital good (which, as we have seen, is usuallyrather limited).17 Nonetheless on various occasions we will be forced to use the term capitalless strictly, to refer to the set of capital goods which make up the productivestructure. This loose sense of “capital” is the one intended by,among others, Hayek in The Pure Theory of Capital, p. 54; it is also the meaningintended by Lachmann in Capital and its Structure, where on page 11“capital” is defined as “the heterogeneous stock of material resources.”