Capital, capital goods, and the factors of production: a comment

Braun (2024) argues that capital is not a factor of production and that the discipline should instead adopt the business notion of capital as the monetary valuation of a firm’s assets. This comment argues that Braun´s central difficulty is his proposal to dissolve the category of capital goods rather than to keep it distinct from, and complementary to, capital. Austrian economists have treated, since Menger, this distinction as basic. Capital goods, not capital in the monetary sense, are what produce output. Removing capital goods as a factor of production from economic theory leaves the discipline without a term for the physical structure that growth theory, distribution theory, and business cycle theory all depend on. The monetary notion of capital has a long history running through Clark, Fetter, Knight, and modern accounting theory. The two concepts—capital and capital goods—are not competitors. They answer different questions: the physical concept answers what is produced, with what, and how; the monetary concept answers how production is organized, coordinated, and evaluated by profit-seeking enterprises. The monetary concept functions as a veil over the physical reality. It is indispensable for guiding entrepreneurial action, but unable to explain production, growth, or business cycles without the physical theory underneath.