Böhm-Bawerks Law of Increased Productivity of Increased Round aboutness. The Point-Input - Point Output Model

Abstract

Böhm-Bawerk was interested to explain why there is a positive rate of interest. One of the special and particularly important reasons for a positive rate of interest which he gave was his law that labour productivity increases with an increasing round-aboutness of production. The degree of roundaboutness is measured by the average period of production. Since the average period of production is a difficult concept we shall now analyse a model in which there can be no doubt about what is meant by the (average) period of production. This is the point input - point output model. We assume that all labour inputs of a process of production are concentrated in one period and that the same is true of outputs. Entrepreneurs have the choice between different production processes which differ in the time distance between labour input and final output and in the productivity ratio (final output per unit of labour input).