Measure of Capital in Böhm-Bawerk's Flow Input Model

Abstract

One of the shortcomings of Böhm-Bawerk's capital theory is

his neglect of the compound interest rate in the calculation of

the value of capital. However, this paper shows that the introduction

of the compound interest rate itself may not invalidate

his assertion that the increase of value of capital will lengthen

the production period and thus decrease the interest rate, if

there exists a sensible measure of the "roundaboutness", as is

the case with Böhm-Bawerk uniform flow input model. The fundamental

problem with Böhm-Bawerk is that the average production

period cannot serve as a sensible measure of capital

under a general time distribution with multiple parameters, contrary

to his conjecture. An alternative measure of production

period under less restrictive conditions is also suggested with a

textual evidence.