The Continental Writers on Capital

The Continental Writers on Capital

The contributions of the later Continental economists to the understanding of the phenomenon of capital showed marked innovations, most of which have been rejected by the neo-clas­sical school. Bastiat, writing in the late 1840's, explained capital as stored-up labor, but showed how its value was constantly diminishing. The increasing productivity of labor made it pos­sible to produce the same item of capital a year later at a smaller labor cost. Certain obvious questions arise concerning the gaps in Bastiat's analysis, for example what causes labor's increasing productivity.

Von Thunen added to the theory of capital the diminishing productivity concept which he had applied so well to rent and wages. Indeed, starting with his basic definition of capital as stored-up labor, he analyzed the function of capital in much the same fashion as he had dealt with labor and land.
One of the most extensive works on capital is found in the writings of Eugen von Bohm-Bawerk. (1851-1914). His Kapital und Kapitalzins is a description- and critique of the history of theories of capital and interest, and a presentation of his own understanding of these subjects. His theory, depending upon the assumption that future values at the present time are less than present values, is known as the time preference concept. Men, he said, fail to calculate fully their future wants, therefore goods in the present are of more value than the same goods in the future. He also believed, as Bastiat, that present goods had greater value because capital was productive. The addition of more capital, however, had the effect of postponing the enjoyment of benefits for increasingly longer periods. Therefore, the value of capital had to be judged by its ability to make up the loss between the present consumption and future consumption of the goods which were turned into capital. By incorporating into his own theory the ideas of von Thunen on diminishing returns, Bohm-Bawerk provided the basis for much of our current thought on capital.