Insisting on a Virtually Infinite Degree of Complexity in Capital Theory Reflects Mises’s Insights on Economic Calculation

Capital goods are related to one another, some as substitutes, some as complements. This fact would suggest that a theory of a capital-using economy must, at a bare minimum, allow for three distinctly different capital goods. (A two-good model of the capital sector could not allow for both substitutability and complementarity.) To allow for both intertemporal and atemporal substitutability and for both intertemporal and atemporal complementarity, the number of different capital goods must be multiplied. And allowing for various degrees of substitutability and complementarity requires still further multiplication. In its richest form, the capital theory introduced by Menger and developed by Böhm-Bawerk, Mises and Hayek cannot adequately be modeled by a three-good capital sector or even by an x-good capital sector where x is some determinate number. The Austrian theory of capital is based instead on the concept of a complex structure of production made up of a wide assortment of capital goods. The rejection of determinate models of the capital sector is consistent with the rejection of input-output models of the economy in general. The insistence on allowing for a virtually infinite degree of complexity reflects the insights of Mises on the problem of economic calculation (Mises, 1966 , pp. 200–31), and of Hayek on the use of knowledge in society (Hayek, 1945).

—Roger W. Garrison, “A Subjectivist Theory of a Capital-Using Economy,” in Austrian Economics Re-Examined: The Economics of Time and Ignorance, by Gerald P. O'Driscoll Jr. and Mario J. Rizzo, Routledge Foundations of the Market Economy 33 (London: Routledge, Taylor and Francis, 2015), 191-192.