Why We Still Lack a Framework for Capital Dynamics

A Problem Statement

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Despite extensive advances across macroeconomics, monetary theory, political economy, economic history, and legal scholarship, contemporary economic theory still lacks a coherent framework for understanding capitalism as a dynamic system. This absence does not stem from a lack of data, techniques, or partial explanations. Rather, it reflects a deeper problem: capital itself remains undertheorized as a time-binding, balance-sheet-constrained, and institutionally constituted process.

Over the past decades, multiple strands of scholarship have independently diagnosed fundamental shortcomings in standard economic modeling. Economic sociologists and historians have emphasized that markets are not natural equilibrating mechanisms but historically contingent institutional arrangements (Polanyi and Block, but also Jonathan Levy). Monetary economists have shown that macroeconomic models lacking stock-flow consistency are internally incoherent and incapable of capturing financial dynamics (Godley & Lavoie). Post-Keynesian and monetary circuit approaches have argued that production begins with credit and uncertainty, not with exchange or intertemporal optimization (Minsky and Graziani, but also J. W. Mason). Legal scholars have demonstrated that capital is not a neutral factor of production but a juridically encoded form of power, structured by property rights, priority, and state enforcement (Pistor). More recent work in political economy has further highlighted how profits, prices, and asset values are institutionally made rather than discovered by markets (Tankus, Isabella Weber, Brett Christophers).

Taken together, these contributions have decisively undermined the core assumptions of equilibrium-based, allocative models. Yet they have not converged on a unified analytical object capable of explaining how capital accumulates, binds the past to the future, and generates its own systemic imperatives. Instead, capital is fragmented across domains: as wealth in economic history, as balance-sheet entries in monetary economics, as legal status in jurisprudence, as rents in political economy, or as incentives in finance. What is missing is an integrated account of capital as a dynamic process that operates simultaneously across real production, finance, law, and time.

This fragmentation has important analytical consequences. Without a theory of capital as an irreversible commitment embedded in balance sheets, investment decisions remain a black box, treated either as behavioral reactions or as solutions to optimization problems that abstract from genuine uncertainty. Without a theory of capacity as historically accumulated and only partially malleable, economic dynamics are reduced to movements along supply and demand schedules. Without treating balance sheets as constraints on action rather than as accounting afterthoughts, financial instability appears as an exogenous shock rather than as an endogenous feature of normal economic operation. As a result, existing frameworks can describe isolated mechanisms—monetary operations, price formation, legal coding, or crisis dynamics—without explaining how these mechanisms cohere into a reproducible capitalist system.

The persistence of this gap is not accidental. Modeling capital as a dynamic, irreversible, and institutionally embedded process challenges core methodological commitments of modern economics: equilibrium closure, convexity, representative agents, and ergodic time. It also complicates disciplinary boundaries, as capital cannot be confined to “real” or “financial” spheres, nor to economics alone. Finally, theorizing capital as a system-level constraint rather than a neutral input foregrounds instability, conflict, and political intervention—features that resist formal simplification and technocratic treatment.