Sequestered Capital: An Overlooked Lacuna in the Capital Structure

In 2015, David Thomas and I discovered a lacuna in Austrian capital structure theory. In this article, I will (1) explain the sequestered capital lacuna; (2) discuss the circumstances, good fortune, and scholarly works (especially those of Friedrich Hayek and Roger Garrison) that led to our discovery; (3) draw attention to the utility of sequestered capital as a means for uncovering operational insights about the timing of turning points of boom/bust phenomena (e.g., the Dutch tulipmania and the 1929 boom and bust of blind investment trusts); (4) present evidence that despite our having had seven publications on the subject (several accepted enthusiastically by reviewers and editors of Austrian journals), our discoveries remain largely overlooked by Austrian scholars; and (5) conclude that integrating sequestered capital into Austrian capital theory and Austrian business cycle theory would improve the ability of Austrian scholars to defend free-market capitalism from criticisms that investment is driven by animal spirits (John Maynard Keynes), speculative orgies (John Kenneth Galbraith), and irrational exuberance (George Akerlof, J. Bradford De Long and Andrei Shleifer, Robert Shiller, Richard Thaler, etc.).