Capital theory and liberty – why they belong together

Abstract Historically, issues surrounding capital and interest have been tied to conflicts over exploitation, domination and the choice between capitalism and socialism. By contrast, modern growth and financial theory define capital as a homogeneous factor in a production function or as a portfolio of financial claims, thereby bracketing both the system question and the long‑standing critique of capital income. The paper argues that a serious theory of capital must not be detached from the theory of economic systems and, by implication, from the configuration of liberties and unfreedoms that different institutional arrangements entail. Drawing on the practice‑based capital concepts of Menger and Mises, the paper sets out a notion of capital as a money‑denominated aggregate of business assets and liabilities used in monetary calculation, and shows how this concept is inseparable from an institutional framework characterized by private property, entrepreneurship, money and markets for loans and producer goods. In doing so, it proposes a way of reconnecting capital theory to the analysis of economic systems and liberty.