Richard von Strigl, Capital & Production

Strigl’s central aim is to rebuild capital theory as a theory of the whole production structure. Against views that treat capital as money, machinery, or a social power peculiar to capitalism, he defines it through time: capital is the use of originary factors of production in roundabout processes whose results arrive only later. The book proceeds from this abstract foundation to prices, interest, money, credit, and finally the trade cycle. Its thesis is that the economy’s temporal structure is governed by the supply of “free capital”—the subsistence fund that supports labor and other originary factors while production is not yet yielding consumer goods.

The problem of capital arises in roundabout production.

Chapter 1 develops this thesis from Böhm-Bawerk’s idea that longer, intelligently chosen production processes are more productive. The fisherman’s boat, the farmer’s fertilizer, and the factory’s machines are all cases in which earlier labor and natural resources are made to serve later output. Strigl’s formulation is deliberately simple:

A sacrifice of time permits a greater output.

Yet time cannot be lengthened at will. Roundabout production must be supported by already available consumer goods. If the subsistence fund is too small, production must be shortened or interrupted; if it is correctly used, production can reproduce itself. Hence Strigl’s decisive move is to treat consumer goods, when productively consumed, as capital. They are not capital by their physical character, but by the function their owner gives them.

Production can only be maintained if each attained subsistence fund is used to support another roundabout method of production.

This yields Strigl’s tripartite capital theory: free capital, intermediate products, and fixed capital. Machines and raw materials are visible capital goods, but they presuppose the prior existence of free capital and must eventually release it again through consumer-goods output. The key passage is programmatic:

New capital can be formed exclusively by free capital.

Chapter 2 then asks how a decentralized market keeps this temporal structure coherent. Strigl’s “vertical connectivity” of prices links factor prices, capital-goods prices, and consumer-goods prices through cost, marginal productivity, and interest. His “horizontal connectivity” explains substitution among goods and factors. Interest is the crucial temporal price: it selects which roundabout methods are economically possible. A lower interest rate permits longer processes; a higher rate forces shortening. Thus the price system is not a mere aggregate level but a web of relations coordinating heterogeneous goods over time.

Chapter 3 introduces money without abandoning the real-goods analysis. Money capital is not itself sustenance; it “represents” command over the subsistence fund and can finance production only insofar as real saved consumer goods are available. In the static case, monetary calculation guides real capital allocation because saved money corresponds to saved means of subsistence. Hence the free-market rate coordinates money capital with real capital:

The monetary interest determined on the free market by the supply of money capital is the “natural” or “equilibrium” interest rate.

The danger appears when credit expansion creates money capital not backed by real saving. Entrepreneurs are induced by an artificially low rate to begin longer processes, but the subsistence fund has not increased. Strigl’s business-cycle theory follows: the boom lengthens production beyond what can be completed; the crisis is the painful liquidation, shortening, and reallocation of these processes. In the appendix he summarizes the cumulative result:

the effects of credit expansion lead to an immobilization of all capital investments.

The appendices clarify both policy and concept. Strigl accepts the monetary theory of the cycle, but he is skeptical that policy can reliably neutralize credit disturbances, since authorities lack a precise index of the real supply of savings capital. The final postscript returns to the conceptual core, warning against identifying capital with visible equipment. Capital goods are wealth only when integrated into a viable temporal plan:

Owning capital equipment can never in itself represent wealth; it only becomes wealth if it can be integrated into the structure of production.

The work’s relevance lies in this anti-aggregate, capital-structural macroeconomics. It explains crises not as deficient demand in general, but as a discoordination between money, interest, saved subsistence, and the time-pattern of production. Strigl’s most original contribution is to make the subsistence fund—not machinery, not money, not “capital” as a homogeneous quantity—the foundation of capital theory and the key to understanding both growth and crisis.