ABSTRACT
Ludwig Lachmann had begun working on the problems that Hayek wrestled with in capital theory in the 1940s. His capital theory provides the definitive understanding of the nature and working of the capital structure for current work by Austrians, through its reference to the nature of capital heterogeneity. The various components of the capital structure stand in sensible relationship to one another because they perform specific functions together. The shape of the capital structure will be different and, because capital assets are heterogeneous, specific, and durable, it will remain different from what it would otherwise have been. The value of the capital resource attributed to any production good is the projection of the subjective appraisal by the entrepreneur of its potential to produce something of value greater than what it costs to acquire and use. There is a clear connection between a consideration of the physical form of the capital structure and the notion of profitability.
