Eugen's Big Mistaken, Adventure
Ever since my parents named me after Eugen Böhm-Bawerk , I have had a soft spot in my heart for the man. But that does not prevent me from realizing that his postulating time as a factor of production, so that land and labor have higher yields the longer they are invested, was a terrible derailment of capital theory. In fact, Böhm-Bawerk got this exactly backwards: it is not that investing for a longer period of time creates higher returns, it is that one will only invest in a longer production process when it has greater yields than a shorter one. If the error had disappeared with Böhm-Bawerk, it would not be worth noting. But it has continued to plague capital theory since, and created confusions for many subsequent capital theorists. Fortunately, Böhm-Bawerk's greatest student was able to escape the mare's nest Eugen had created: "The length of time expended in the past for the production of capital goods available today does not count at all. These capital goods a...