Eduard Braun

Capitalism is an economic system where almost all production and trade activities are organised by enterprises whose purpose is to maximise the return on the capital that has been invested in them. Economists, however, have almost universally defined capital in a way that makes it impossible for them to analyse the important practical and societal aspects of the economic calculations of capital-based enterprises in capitalism. In contrast, this book develops a theory of capital that is, at the same time, a theory of capitalism. Based on the definition of capital provided by the Historical and Institutional Schools, and later developed by Carl Menger and Ludwig von Mises, the theory of capital in this book takes account of the term “capital” as understood and used in actual business life. A theory of capital which is successful in explaining the rationale of economic calculations of profit-oriented enterprises in the market economy will necessarily also explain how the societal production process is organised in capitalism. Starting from the positive analysis of capital and capitalism, the book discusses the fair value and shareholder value revolutions of recent decades. These approaches, sometimes summarised under the label of “value-orientation,” have introduced theoretical neoclassical equilibrium concepts into the practice of enterprises in capitalism. The book argues that this has led to paradoxical and unsustainable results. It does not make sense to reform the institutions of economic calculation on the basis of a theory that does not in any way deal with these institutions. The book will be of great interest to readers in the areas of Austrian economics, institutional economics, history of economic thought, varieties of capitalism and financial accounting.

From the foreword by Guido H lsmann: Steeped in the tradition of the Austrian School, Dr Eduard Braun delivers a sweeping and original essay on the foundations of finance. Relying on sources in three languages, and delving deeply into the history of capital theory, his work sheds new light on a great variety of topics, in particular, on the history of the subsistence-fund theory, on the relation between monetary theory and capital theory, on economics and business accounting, on price theory and interest theory, on financial markets, on business cycle theory, and on economic history. The author reinterprets the role of money within the theory of finance. He revisits the theory of the purchasing power of money (PPM) and argues that a suitable definition of the PPM relates exclusively to consumer-good prices, not to capital-good prices. Dr Braun argues that the PPM in that sense is the bridge between the theory of money and the classical theory of the subsistence fund. His book shows that this is a fruitful approach and a promising framework for future research in a variety of contemporary fields, such as financial economics, finance, money and banking, and macroeconomics. Eduard Braun invites us to step back and reflect about the meaning of finance. This is time well spent, as readers of the following pages will discover.