1 ECONOMIC INTERACTIONS ON NETWORKS Pedro P. Romero ∗ Department of Economics Casa Corona 204 Universidad San Francisco de Quito Círculo de Cumbaya, Quito-Ecuador Tel: (593) 22971700 ext. 1276 Fax: (593) 22890070 promero@usfq.edu.ec July 1st, 2013 Abstract Social network analysis and graph theoretical elements are incorporated into the hayekian capital theory in order to better illustrate its core concepts. Graph theory and an agent- based model are applied to formalize the heterogeneity of capital and the production process as a network, or ecology, of firms. A highly connected market could lead to multiple equilibria with only one on them yielding a Pareto situation. We show here that the greater the number of relational ties among firms, the more complex and productive the underlying production process of an evolving capital network. Empirical research from a social network analysis of Silicon Valley and financial ties in the Chicago area illustrate the main points. JEL Codes: B53, E22, L16 Keywords: Capital Theory; Graph Theory; Social Network Analysis, Agent-based Models. ∗ Thanks to Mike Clark, Dan D’Amico, Jenny Dirmeyer, Gavin Ekins, Andy Kashdan, Dan Klein, Geoff Lea, José Luis Lima, Rachel Nathanson, Richard Wagner, and Jackie Williams for their valuable comments. The usual caveat applies. Financial support from the H.B. Earhart Foundation and the Lynde and Harry Bradley Foundation is especially acknowledged.