CHAPTER VII

THE INVESTMENT OPPORTUNITY PRINCIPLES

§1. Eligible and Ineligible Options

The essential point of the preceding chapter is that thepossibility of more than one use of our resources affordsopportunity to invest by substituting one such use foranother. Whenever there is such a choice of alternatives,as for instance by changing from the “mining” to the“farming” use of one’s land, as per Table 3, there is adifferential sacrifice or investment of income during theearlier years for the sake of a differential return later.The fact that such alternative uses of labor, land, andcapital exist, introduces on the scene the whole subjectof “productivity”.

Bohm-Bawerk was profoundly right when he wrote:

“The statement of how the productivity of capital works intoand together with the other two grounds of the higher valuation ofpresent goods, I consider one of the most difficult points in thetheory of interest, and, at the same time, the one which mustdecide the fate of that theory .” 1

I have generally avoided the term productivity of capi-tal because it may be used ambiguously to mean physicalproductivity, or value return, or return over costs; andbecause it suggests that capital produces income valueinstead of the reverse; and because it attributes the1 Positive Theory of Capital, p. 277, footnote.

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