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Bohrn awed; offered three {3] reasons why interest rates are positive: 1. The Marginal Utility {M U) of income declines over time because economic agents expect higher incomes in the future. 2. The Marginal Utility {M U) of a commodity diminishes the greater is the length of time that passes before it becomes available to the economic agent. These two reasons indicate a positive rate of time preference which requires the payment of interest in retum for the deferral of activities consumptive or productive- into the future and the willingness to pay an interest in_g[d_e_r_tg command these activities in the present rather than in the future. 3. The technical superiority of present goods over future goods invotves a process of \"roundaboutness\". Greater amounts of capital implyr greater \"roundaboutness\" both lengthening the production period and increasing the amount of the nal product This increase in productivityr associated with capital would resutt in a positive interest rate. The notion of roundaboutness The end and aim of production i; the mating of things with which to satisfy our wants. Factors are combined in such a way that the desired maten'al good comes to existence. But one thing _l]as_._tg be considered according to Bohm 3mm and this has reference to the distance which lies between the exertion of human labor in the combined production and appearance of the desired good. W says \"we either put forth our labor just before the goal is reached or we intentionally take a \"roundabout ighledema, p.551} The end and aim of production is the making of things with which to satisfy our wants. Factors are combined in such a way that the desired material good comes to existence. But one thing has to be considered according to Bohm Bawerk and this has reference to the distance which lies between the exertion of human labor in the combined production and appearance of the desired good. Bawerk says "we either put forth our labor just before the goal is reached or we intentionally take a "roundabout way (Medema, p.551) For clarity on this notion, Bawerk gives an example to illustrate the significance of time in between production and consumption and the "roundabout way." A peasant requires drinking water. A spring is some distance away from his house. There are various ways in which he may supply water for his daily needs. Firstly, he may go to the spring each time he is thirsty and drink from his hallowed hands. This is the more direct way since he gets to satisfy his thirst immediately. But this is an inconvenient way since he cannot collect and store water for his other needs. Secondly, he may take a piece of log and make a pail out of it to be able to carry water from the spring to his house. This way is more convenient than the first, however, it involves a "roundabout" way of considerable length. He must first spend a day for making a pail, but before he does, he must look for wood which he could use to make the pail. Or he may use an axe to cut a tree, cut the logs into pieces, joins them so as to build a tunnel through which water can flow from the spring to the house. Between the time exerting labor and obtaining water which involved a "roundabout" way but then the result is better. The peasant no longer needs to walk from the spring to the house with a heavy pail; he already has a full supply of fresh water at his doorstep. The physical capital, in this case, is the tunnel of logs that the peasant built by expending labor through time.C. Eugen 1iron Elohrn Maconcepts: 8. Understand and explain the nature of capital. 9. Explain how the passage of time affect the positive rate of interest. 10. Discuss and explain the 3 reasons why interest rates are positive: 11. Differentiate between the Marginal Utility.r oi Income and the Marginal Utility:r of a {lornmddit'jir as regards to their behavior through the passage of timer from the present to the future. Eugen von Bohm Bawerk (1851 - 1914) (image source: https://www.austriancenter.com/wp-content/uploads/2014/08/Bohmbawerk3.jpg) Bohm Bawerk's signal contributions to Economics are his theories on capital and interest which are built on the idea that investment on physical capital lengthens the productive process and positively impacts productivity Bawerk pointed out that many consumption and production activities invariably occur over time and/or require a choice between present and future activities. There is a systematic tendency for economic agents to favor the present over the future, and this explains why interest rates are positive