The Kinetics of Capital Formation and the Making of Economic Organization
Abstract: We examine the inseparability of capital formation and economic organization. Capital possesses a complex, multi-level (micro, meso, macro) structure that is always in the process of transformation. Levels of the capital structure are interdependent and interactive. Correspondingly, economic organization at these various levels is not an independent entity in itself—it occurs as a by-product and structural aspect of capital formation. Rather than the transaction, our focal unit of analysis is a production notion: the capital combination which emanates from the kinetic organization of material by entrepreneurs. We consider the behavior of entrepreneurs as causal agents in specifying and appraising potential capital combinations, remodularizing production and scrapping capital. Entrepreneurs’ combinatorial actions often change existing materials to serve functions for which they were not originally designed, thereby changing capital structures and the shape and boundaries of economic organizations. Capital is created in a dynamic knowledge-generation process that turns on perceptions of gaps in the capital structure.