Economics Dictionary of ArgumentsHome
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| Capital structure: In economics, capital structure refers to the mix of debt, equity, and other financing sources a company uses to fund its operations and growth. It influences a firm's financial stability, cost of capital, and risk profile, balancing returns for investors with the ability to meet financial obligations. See also Capital, Capital Value._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Capital Structure - Dictionary of Arguments
Rothbard III 401 Capital Structure/Rothbard: (…) there is no great difference between durable and less durable capital. Both are consumed in the course of the production process, and both must be paid for out of the gross income and gross savings of lower-order capitalists. >Production structure/Rothbard. In evaluating the payment pattern of the production structure, then, it is inadmissible to leave the consumption of nondurable capital goods out of the investment picture. It is completely illogical to single out durable goods, which are themselves only discounted embodiments of their nondurable services and therefore no different from nondurable goods. >Durable Goods/Rothbard, >Service/Rothbard, >Production/Rothbard, >Capital/Rothbard. The idea that the capital structure is maintained intact without savings, as it were automatically, is fostered by the use of the “net” approach. If even zero savings will suffice to maintain capital, then it seems as if the aggregate value of capital is a permanent entity that cannot be reduced. Rothbard III 402 This notion of the permanence of capital has permeated economic theory, particularly through the writings of J.B. Clark and Frank H. Knight, and through the influence of the latter has molded current “neoclassical” economic theory in America. To maintain this doctrine it is necessary to deny the stage analysis of production and, indeed, to deny the very influence of time in production.(1) >Interest rates/Rothbard, >Factors of Production/Rothbard. Production/time/Rothbard: The all-pervading influence of time is stressed in the period- of- production concept and in the determination of the interest rate and of the investment-consumption ratio by individual time preference schedules. Frank H. Knight/RothbardVsKnight: The Knight doctrine denies any role to time in production, asserting that production “now” (in a modern, complex economy) is timeless and that time preference has no influence on the interest rate. This doctrine has been aptly called a “mythology of capital.” >Time preference. RothbardVsKnight: Among other errors, it leads to the belief that there is no economic problem connected with the replacement and maintenance of capital.(2,3) Rothbard III 407 Every capitalist at every stage (…) demands goods that are more distantly future than the product that he supplies, and he supplies present goods for the duration of the production stage until this product is formed. He is therefore a net supplier of present goods, and a net demander of future goods. 1. If permanence is attributed to the mythical entity, the aggregate value of capital, it becomes an independent factor of production, along with labor, and earns interest. 2. The fallacy of the “net” approach to capital is at least as old as Adam Smith and continues down to the present. See Hayek, Prices and Production, 2nd ed. London: Routledge and Kegan Paul, 1935. Reprinted by Augustus M. Kelley, 1967. pp. 37–49. This book is an excellent contribution to the analysis of the production structure, gross savings and consumption, and in application to the business cycle, based on the production and business cycle theories of Böhm-Bawerk and Mises respectively. Also see Hayek, “The Mythology of Capital” in W. Fellner and B.F. Haley, eds., Readings in the Theory of Income Distribution (Philadelphia: Blakiston, 1946), pp. 355–83; idem, Profits, Interest, and Investment, passim. 3. For a critique of the analogous views of J.B. Clark, see Frank A. Fetter, “Recent Discussions of the Capital Concept,” Quarterly Journal of Economics, November, 1900, pp. 1–14. Fetter succinctly criticizes Clark’s failure to explain interest on consumption goods, his assumption of a permanent capital fund, and his assumption of “synchronization” in production._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Capital Structure
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