Recent discussion on trade-cycle theory has served to emphasize the importance of a clear recognition of the fundamental characteristics of the productive system in general, largely by bringing into prominence the particular view of the structure of capitalistic production which underlies the “Austrian” approach to the theory of capital. It is the purpose of the present note to examine the adequacy of that picture as a representation of reality, and to contrast it with a different view of the productive process which, although it might claim to be the common-sense view, has perhaps been unduly neglected.

The first picture of the productive process which we will here consider is that which forms the basis of the Böhm-Bawerkian theory of capital. The fundamental point of Böhm-Bawerk's position lies in his conception of capital as the aggregate of intermediate products: capital goods merely represent the intermediate form which the “original” factors (i.e., labor and land) assume on their way to final “maturity” as consumable commodities or services. Since—it is argued—neither fixed nor circulating capital is capable of satisfying men's wants directly, these two types of producer goods are treated on the same footing and are both included under the significant designation of “intermediate products.”

This view of the nature of capital leads naturally to the concept of the “period of production.” The longer the period for which original factors are invested, the larger the total stock of intermediate products at any point of time.