Austrian Capital Theory: Profit and ‘Roundabout’ Production

Abstract

Böhm-Bawerk (1888) devoted much effort to conceptualising the ‘essence’ of capital. He believed that Walrasian theory failed fully to incorporate this. The typical Walrasian treatment of ‘capital’ is in terms of ‘capital goods’, i.e. physically specified produced means of production. Böhm-Bawerk considered this to be a superficial view. He sought to go ‘behind’ capital goods and reduce them to dated components of labour and land inputs. These latter two factors were regarded as ‘original’ or ‘non-produced’ inputs that are ultimately responsible for all production.¹ All produced goods, including capital goods, could therefore, be decomposed into streams of ‘dated’, ‘original’ factors.