Ludwig von Mises, Das festangelegte Kapital (1931)

Ludwig von Mises’s Festschrift essay examines how inherited fixed capital constrains economically rational changes in production. Its five sections move from technological improvement and industrial location through trade policy and capital malinvestment to workers’ adjustment and entrepreneurs’ accounting judgments. The central distinction is between the arrangements one would choose if production could begin afresh and the choices justified when usable equipment already exists. Technical inferiority does not necessarily imply economic irrationality: replacing an older installation consumes scarce capital that may have more valuable uses elsewhere.

The opening thought experiment imagines rebuilding the world’s productive apparatus with contemporary technological and geographical knowledge. Factories, transport routes, agriculture, and settlement would look substantially different. Mises rejects the inference that their actual configuration therefore demonstrates capitalist waste. Capital considered abstractly may be mobile, but particular capital goods are already committed to specific purposes. Where physical transfer is impossible, relocation occurs through foregoing replacement at one site and investing elsewhere. History consequently enters economic calculation as a material constraint:

Ein wirtschaftlicher Kalkül, der sie nicht miteinschließen wollte, wäre fehlerhaft.

English translation: An economic calculation that sought not to include it would be erroneous.

Here “it” refers to the past, embodied in existing productive equipment. Mises illustrates the argument with a replacement calculation: annual operating savings from a new machine must justify its purchase price less the old machine’s disposal value. Similarly, moving production requires gains sufficient to warrant relocation costs. An older plant can therefore remain competitive, and further investment in improving it can be rational. This is neither an irrational attachment to history nor merely a friction obstructing an otherwise optimal adjustment; it is the rational use of inherited resources.

This reasoning supports Mises’s criticism of contemporary “rationalization” schemes and socialist promises of universally modern equipment. In his discussion of Atlanticus–Ballod, he objects to plans that assume wholesale reconstruction without adequately confronting capital scarcity. Even a hypothetical socialist administration would have to compare replacement with more urgent uses of resources. Mises reiterates his claim that socialism cannot perform economic calculation, but the immediate argument is narrower: changing ownership cannot abolish the scarcity that makes retaining serviceable equipment economical. His contrast between the calculating businessman and the technically enthusiastic engineer distinguishes economic improvement from technical perfection.

The second section applies this distinction to infant-industry protection. If establishing production at a better location is already profitable, a tariff is unnecessary; if protection alone makes it profitable, investment is diverted from uses it otherwise would have served.

Jeder Zoll, unter dessen Schutz neue Anlagen entstehen, die sonst nicht gebaut worden wären, solange die anderwärts bestehenden alten Anlagen noch verwendbar sind, führt zu Kapitalverschwendung.

English translation: Every tariff under whose protection new installations arise that would otherwise not have been built while the old installations elsewhere remained usable leads to capital waste.

Yet abolishing protection does not necessarily justify immediately abandoning the resulting plants. Once built, they too become inherited resources whose continued operation must be assessed against replacement costs. Protection thus has effects that outlast its repeal. Mises extends this reasoning to unilateral liberalization and to domestic tax privileges favoring particular kinds of enterprise: intervention changes investment patterns, while subsequent correction remains constrained by the capital already committed.

The third section distinguishes several origins of malinvestment: technological or geographical change, altered demand, withdrawn interventionist privileges, entrepreneurial misjudgment, and monetary disturbances that distort calculation. It also explains why losses are underestimated. Write-downs and bankruptcies reveal some failures, but reserves, concealed losses, and incomplete public accounting obscure others. Against optimistic accounts of “forced saving,” Mises argues that any additional capital formation associated with monetary depreciation must be weighed against capital lost through misdirected investment. Whether the gains exceed the losses is an empirical question, not something established by the existence of an investment boom.

Premature construction is not necessarily harmless merely because similar facilities might eventually have been needed: later construction could have incorporated improved technology. Moreover, losses must be compared with the limited capital available for new fixed investment, not with the entire accumulated capital stock.

Sie ist nicht zu messen durch Vergleich mit der gesamten Kapitalmenge, sondern durch Vergleich mit der für feste Neuanlage zur Verfügung stehenden Kapitalmenge.

English translation: It is to be measured not by comparison with the total quantity of capital, but by comparison with the quantity of capital available for new fixed investment.

This perspective informs his diagnosis of contemporary disruption: war, inflation, and protectionism have encouraged unsuitable installations while also consuming capital. Idle factories and unused productive capacity are visible consequences.

The fourth section extends the determinant of the past to labor. Mises portrays workers’ and consumers’ resistance to innovation in sharply hierarchical terms, crediting savers and entrepreneurs with economic progress. The analytical point is that skills, habits, mobility, and wage conditions belong among the actual constraints on investment.

Jedes Unternehmen hat sich den gegebenen Verhältnissen anzupassen, nicht aber mit Verhältnissen zu rechnen, wie es sie gerne haben wollte.

English translation: Every enterprise must adapt to the given circumstances, rather than reckon with circumstances as it would like them to be.

His agricultural example shows how rising rural wages can undermine investments previously sustained by cheap labor. The final section then separates economic viability from bookkeeping: depreciation does not itself enable competition. Continued operation depends on prospective earnings relative to operating costs and the alternative-use value of fixed assets. Book values affect reported losses, credit, and managerial reputation, but do not determine the operating decision. The essay’s enduring conceptual contribution is this separation of historical investment, accounting representation, and present economic choice: recognizing a past mistake need not make immediate abandonment rational.