2. Background
Developed for the calculation of organization capital, the CHS model is essentially an
application of the Cobb-Douglas form of a production function. The Cobb-Douglas
production function was originally proposed by Wicksell (1893, 1901) and tested
against statistical evidence by Charles Cobb and Paul Douglas in 1928. Cobb and
Douglas modeled the growth of the US economy from 1899 to 1922 (Cobb and Douglas,
1928, pp. 139-65). They based their study on a simplified view of the economy in which
production output is determined by the amount of labour involved (L), the amount of
capital invested (K) and the total factor productivity coefficient (A), reflecting the level
of technological advancement. Although these are not the only factors that affect
economic performance, their model proved to be remarkably accurate.