[austin.sipp]

Trying to understand Bohm-Bawerk’s controversial theory better.

It seems to me that Bohm-Bawerk’s idea that present goods are technically superior to future goods (referring here to the third reason why humans tend to undervalue future goods) is similar to the concept of there being different economies of scale. To use the examples from the lecture about “roundaboutness”: if I want to create a business selling water and trying to decide whether I wanted to use merely my hands, hollow out a coconut from a tree, or build an irrigation system into my house or place of business for super easy access. Those would be three “economies of scale” at which I could choose to create this business, and it is clear that my marginal cost would be lowest (and therefore total production the highest) in the third option. Thus, in the case where I want to maximize productivity the more roundabout/higher-scale process yields higher production.

Could you contrast these concepts or verify that indeed this is basically what he is getting at?

If these are indeed the same concept then I have two questions:

1) Why can we assume that there always exists a more roundabout process that yields higher production? Or is this supposed to be axiomatic/self-evident and we stop there?

2) Why is the time element necessarily the cause of one’s ability to move into a more productive economy of scale? I feel like most examples of economies of scale it is literally the ‘scale’ of what you are doing, rather than the time it takes to achieve the scale that yields the higher productivity.
– I think this might be the answer to how these are different concepts, where a time-intensive process is a special case of a more productive economy of scale, in which case I feel like it becomes much more questionable whether it is the time factor that causes the increased productivity

Does this make any sense? What are your thoughts?

[bob.murphy.ancap]

(Again, sorry about the delay.)

This is a really interesting question. The concepts of “the higher physical productivity of roundabout processes” and that of “economies of scale” are definitely different things in terms of definitions, but you might be right that in practice, they have significant overlap.

They’re not identical, however. I think you might be right that any example of economies of scale would involve greater roundaboutness, but the reverse doesn’t hold. I can devote the same total number of labor hours to Direct Process A, which yields x units of output, as I do to Roundabout Process A, which yields (say) 2x units of output. So that wouldn’t be an example of economies of scale, because economies of scale says that when you increase the amount of inputs, the output rises more than proportionally. Yet in this case, the amount of input stayed the same, I just changed the degree of roundaboutness.

Now regarding the other main part of your question: There is the element of selection. People would already have chosen the most physically productive methods to produce their desired outputs, *except* in cases where they didn’t want to wait for a longer process to come to fruition. So in the original equilibrium, it will necessarily be the case that if the person is willing to wait longer, he can adopt a longer, more roundabout process that is more physically productive.

BB just assumes as an empirical fact that there always exist more roundabout processes that have a higher physical productivity (per unit input). But to repeat myself, at any point in time, humans have exploited the most productive processes they know of, that deliver the product in an acceptable timeframe. So on the margin, any *more* productive process *not* in use, is lying idle because it requires too long of a wait.

I spell this stuff out better in the first chapter of my dissertation.

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