Why We Still Lack a Framework for Capital Dynamics
The material reproduction in capitalist societies depends on private investment decisions. Whether “capitalism” is even a meaningful analytical category – as opposed to a loose label for historically diverse market economies (Block) – depends on if capital can be shown to generate dynamics of its own. Yet no discipline in the social sciences today has succesfully explained and modelled these. The assumptions of the modelling champion, mainstream economics, have been dismantled from enough angles that the debate, among serious scholars, is over. What has not emerged from this success is a replacement: an account of capital as a temporal, balance-sheet-constrained, and institutionally constituted process that could tell you what drives investment, why it sometimes fails to materialize, and how the resulting dynamics propagate through the economy. The following essay surveys the most significant attempts to build such a framework, and tries to identify where and why each of them stops.
This is not merely an academic gap. A decade of near-zero interest rates after 2008 failed to produce the investment recovery that existing models predicted – in Japan for a generation – and policymakers lacked the theoretical resources to explain why, let alone to respond effectively. Whether the question is climate, industrial policy, the structural transformation of regions locked into declining industries or the fracturing of the global order, the absence of a framework for how investment decisions are actually made and what constrains them leaves progressive politics oscillating between empty radicalism that cannot specify what it wants the state to do and technocratic management that borrows its assumptions from the very frameworks it claims to have surpassed. The inability to articulate a credible economic alternative is not a failure of political will. It is, in significant part, a failure of theory.
The giants
Marx had capital as a driving force most squarely in view, and engaged with each of the dimensions that a theory of capital dynamics would need to integrate – money, credit, accumulation, crisis, the temporal structure of production. But his project of an Ableitung of the whole from the commodity form did not succeed: these dimensions remain scattered across an unfinished and internally inconsistent body of work rather than cohering into an operative framework. Even the tradition most committed to theorizing capital as a totality therefore still lacks a theory of the investment decision – and, crucially, of investment restraint.
Keynes brought the investment decision itself into the center of macroeconomic theory, and in doing so identified the core instability that equilibrium models cannot accommodate: that the inducement to invest is chronically weak, because agents operating under fundamental uncertainty can always choose liquidity over commitment. This was a genuine break. But Keynes theorized investment restraint primarily as a psychological problem – animal spirits, the marginal efficiency of capital, the liquidity trap – and channeled money’s influence on the real economy through a single transmission mechanism: liquidity preference determines the interest rate, the interest rate determines investment. The result is a framework in which money is non-neutral but enters the story at one – also contestable – point, rather than being constitutive of the economic process throughout.
The contemporaries
Jonathan Levy has most clearly restated this problem for the present. In The Real Economy (2025), extending his earlier Capital as Process (2017), Levy argues that no discipline in the social sciences today has a convincing theory of the economy, and sets out to rebuild one. His definition of capital as a “pecuniary process of forward-looking valuation” explicitly rejects the treatment of capital as a physical factor and places investment – as opposed to exchange, the commodity, or production – at the center of the economy. Levy pursues this through the full range of questions a theory of capital dynamics would need to answer: what determines the choice between hoarding and long-term investment, what corporations are and what purposes they serve, how stocks of wealth relate to flows of income, and why the inducement to invest is, as Keynes put it, chronically weak. This is a strong pre-analytic vision, in the Schumpeterian sense that Levy himself invokes. But it remains a vision: Levy’s tools are those of the historian – intellectual reconstruction, narrative, exegesis – and The Real Economy tells us what a theory of the economy would need to account for without building the operative machinery to model it.
Wynne Godley and Marc Lavoie have supplied genuine operative machinery. Their stock-flow consistent models insist that every financial flow must have a counterpart, that stocks and flows must cohere, and that macroeconomic analysis without balance-sheet accounting is incoherent. This is indispensable – it rules out a vast range of internally inconsistent theorizing. But stock-flow consistency is a discipline, not a theory of capital dynamics. It tells you that the books must balance; it does not tell you what drives investment, how capacity is built, why asset prices diverge from underlying conditions, or how legal and institutional structures shape the process.
Perry Mehrling has added institutional depth to the balance-sheet perspective and, in doing so, given the most concrete operative content to the thesis of the non-neutrality of money. His money view reconstructs the financial system as a hierarchy of interlocking balance sheets in which every actor faces a survival constraint – the obligation to meet payment commitments as they fall due, regardless of solvency. This makes visible the institutional microstructure through which temporal mismatches are absorbed, and distills the core mechanism of credit creation: that financial intermediaries choose to become illiquid so that a buyer can become liquid, and can in principle do so without limit, but in practice depend on organizing stable funding arrangements that sustain their intermediation. This is arguably the most precise operative account of financial dynamics available today. Yet it is achieved by a deliberate abstraction: Mehrling analyzes the purchase of an existing asset, explicitly setting aside the effects on income and production. When credit finances not a house purchase but an expansion of productive capacity, the entire interplay between real production and financial circulation comes into play, and Mehrling’s framework does not follow it there. His recent work on inflation as the “fourth price of money” represents an attempt to bridge from the financial system to the real economy through the price level, but the route runs through prices, not through the accumulation of capital as a triad of real stock — irreversible productive capacity —, source of profit in present flows, and claim on future returns in the financial stock. Mehrling’s forthcoming book project, which aims to integrate the fourth price into a comprehensive account of the monetary system as social infrastructure, may extend the framework further – but the direction of extension remains from finance outward, not from production inward.
J. W. Mason and Arjun Jayadev, in their forthcoming Against Money (2026), promise the most ambitious recent attempt to theorize money as a force that actively governs the real economy. Mason’s prior publications and lectures have already developed many of the building blocks: his argument that the world of money payments does not reflect an underlying real economy but actively constitutes it – not only in crises but as a permanent condition – through debt, capital, liquidity, and interest, is the sharpest available statement of the non-neutrality thesis. His starting point is that balance-sheet dynamics and real production “compose two separate systems, governed by two distinct sets of relationships” (Mason 2025) and that the task is to identify the points of articulation between them. This equals the framing of the problem this essay diagnoses. Whether the finished book advances beyond diagnosis to operative modeling of capital dynamics cannot be assessed on the basis of the work published so far. But the development of the project itself is telling: a planned chapter on the corporation was removed and is being developed into a separate book (The Hidden Abode, announced for 2027). The decision to defer the firm – “a central locus of the conflict between the logic of money and concrete productive activity” (Mason 2025) – to a second book enacts the very fragmentation this essay diagnoses. The ambition of the project nonetheless makes it one of the most anticipated contributions to the field.
Nathan Tankus‘s broader work – connecting Mehrling’s balance-sheet thinking with Minsky’s instability thesis and an insistence on tracing how economic outcomes are institutionally produced through administered prices, forbearance decisions, and the operative details of policy – represents a strong instinct for the needed integration. One specific finding is particularly consequential for the problem this essay diagnoses: his analysis of corporate investment planning has shown that the standard transmission mechanism from interest rates to investment is broken not at one point but at every link in the chain: discount rates are not interest rates, hurdle rates are not discount rates, hurdle rates have barely moved despite decades of falling risk-free rates, and even hurdle rates are not the dominant factor in investment decisions – firms set fixed capital budgets administratively and grow them at stable rates regardless of the cost of capital. The binding constraint on investment, Tankus argues, is the quantity of available finance, not its price – making investment not merely insensitive to interest rates but more insensitive at low rates, precisely when orthodoxy assumes strong responsiveness. This is exactly the kind of finding that a theory of capital dynamics would need to incorporate. But the positive question – how investment decisions are actually made and how they generate the systemic dynamics of capital accumulation – remains open.
Even the most prominent situative explanation – Richard Koo‘s balance-sheet recession thesis, which attributes investment restraint to post-bubble debt minimization – underscores rather than resolves this gap: contested even for the cases it was designed to explain, it offers a transitional pathology rather than a theory of what drives investment under normal conditions.
What this survey reveals is a pattern of systematic interruption: each contribution follows the logic of capital up to a specific boundary and stops there. Balance-sheet frameworks that model financial circulation with precision bracket production. Work that reconstructs what a theory of the economy would need to explain does not build the operative machinery to model it. Empirical demolitions of the orthodox transmission mechanism have not given rise to a positive account of what determines investment. These are not failures of ambition – the scholars surveyed here are, in several cases, explicitly working toward the integration this essay calls for. Yet no existing framework models capital simultaneously as what it is: irreversible productive commitment in the real stock, source of profit in present flows, and valued claim on future returns in the financial stock. Scholars who hold these aspects in view at once remain, in their reasoning, below the threshold of a model — which is therefore what remains to be built.
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A note on scope
This essay focuses its problem statement on capital dynamics as a temporal and balance-sheet-constrained process. Institutions enter the analysis as operative infrastructure — the financial microstructure through which capital operates: balance sheets, funding arrangements, hurdle rates, capital budgets, the hierarchy of the money system. A framework that abstracts from these models nothing. But the forces that constitute this infrastructure — the state that sets and guarantees the legal and monetary order, the international system that structures the monetary space, and the tension between capital and labor that shapes the conditions under which accumulation proceeds – are initially treated as given rather than derived. This marks a deliberate abstraction, not an oversight, and the point at which subsequent work would need to enter.
This problem statement abstracts from:
the social relations of the workplace. The question of what bosses do, how labor is controlled, and how the organization of production shapes outcomes (Marglin; Bowles and Gintis) – are not addressed.
the sociology of the firm. This is isolated by positing a stylized interest common to any firm: to survive, to grow, and to grow fast – where the relative weight between the survival constraint and the drive to expand varies with ownership structure. That the ordering is not arbitrary but structural follows from competitive accumulation itself: a firm that does not grow becomes, over time, vulnerable — which collapses growth back into survival. This suffices to make the firm a well-defined actor in the model without resolving who controls it or why. The deeper question – whether especially in the case of the corporation, managers, shareholders, or institutional inertia ultimately govern the firm’s behavior – is deferred, not because it is unimportant but because the dynamics of accumulation can be modeled at this level of abstraction.
the sectoral split and development. Sectoral change, the material content of investment, and the varying capitalizability of different activities (what can be turned into a capital asset and what resists it) represent a further layer of specificity that a mature framework would need to accommodate.
the nation-state and the international relations in which it operates. These are at any given time manifested as a social contract that reflects the political and economic constraints the state faces — which, it is assumed, always includes a specific growth model defended by a specific coalition. This contract is also expected to influence all other aspects listed above.
Whether a model that also abstracts from these dimensions will have explanatory power can only be shown through the construction of the model itself. Making these exclusions explicit is itself a methodological commitment: a framework that claims to explain everything at once typically explains nothing in particular. The goal is to build something specific enough to be wrong in informative ways.
Literature
Block 2012: Varieties of What? Should We Still Be Using the Concept of Capitalism? (In: Political Power and Social Theory 23: 269 ff.)
Bowles, Gintis 1993: Contested Exchange. (In: Journal of Economic Perspectives 7/1: 83 ff.)
Godley, Lavoie 2007: Monetary Economics.
Keynes 1936: The General Theory of Employment, Interest and Money.
Koo 2003: Balance Sheet Recession.
Levy 2025: The Real Economy.
Levy 2017: Capital as Process and the History of Capitalism.
Marglin 1974: What Do Bosses Do? The Origins and Functions of Hierarchy in Capitalist Production. (In: Review of Radical Political Economics 6: 60 ff.)
Marx 1867 ff: Das Kapital. Band 1 bis 3.
Mason 2024: Taking Money Seriously (https://jwmason.org/slackwire/taking-money-seriously/)
Mason 2025: Against Money. (https://jwmason.org/slackwire/against-money/)
Mason, Jayadev 2026: Against Money.
Mehrling 2012: Economics of Money and Banking, oder: MOOC. (https://sites.bu.edu/perry/lectures/mb-lectures/)
Mehrling 2024: A Money View of Inflation: The Fourth Price of Money. (In: Money View Symposium #4. Youtube)
Mehrling 2024: How Does Money Work. (In: Money View Symposium #4. Youtube)
Tankus 2020: Low Interest Rates Don’t Drive Market Concentration (Substack)
