AUSTRIAN ECONOMICS AND GERMAN BUSINESS ECONOMICS ON CAPITAL ACCOUNTING

According to Mises (1949 [1998], 231), "[m]onetary calculation reaches its full perfection in capital accounting. It establishes the money prices of the available means and confronts this total with the changes brought about by action and by the operation of other factors. This confrontation shows what changes occurred in the state of the acting man's affairs, and the magnitude of those changes; it makes success and failure, profit and loss ascertainable." Early generations of Austrians have sometimes been accused of having lacked a thorough engagement in capital accounting despite its considerable importance, and only few works in the Austrian tradition have done so subsequently. However, these accusations are unjustified. There was no need for Mises, his predecessors, or disciples to formulate capital accounting more thoroughly, as this was already being done simultaneously by Austrian economics' "sister science" (Schmidt 1933, 106), namely German business economics, based on Austrian insights. This paper seeks to introduce the contemporary Austrian community to the dynamic accounting theory brought about by German business economists. We demonstrate how such accounting theory operationalizes capital accounting in detail and how it solves some fundamental issues of capital accounting that have remained unsolved by Austrians. Moreover, this paper reveals some fundamental misconceptions inherent in Austrian works on capital accounting and offers solutions drawn from the well-de-veloped dynamic accounting theory.