This chapter discusses the production function and the theory of capital. The dominance in neo-classical economic teaching of the concept of a production function has had an enervating effect upon the development of the subject. The neo-classical system is based on the postulate that, in the long run, the rate of real wages tends to be such that all available labor is employed. In spite of the atrocities that have been committed in its name, there is a solid core of sense in this proposition. The condition that the given amount of capital employs the given amount of labor entails a particular rate of profit. But the value of the stock of concrete capital goods is affected by this rate of profit and the amount of capital that was started with cannot be defined independently of it.