Eugen von Böhm-Bawerk
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Eugen von Böhm-Bawerk |
Eugen Ritter von Böhm-Bawerk (
February 12,
1851 –
August 27,
1914) was an
Austrian economist who made important contributions to the development of
Austrian economics. Trained in the
University of Vienna as a lawyer where he read
Carl Menger's
Principles of Economics. Though he never studied under Menger, he quickly became an adherent of his theories.
Joseph Schumpeter said that Böhm-Bawerk "was so completely the enthusiastic disciple of Menger that it is hardly necessary to look for other influences." During his time at the Vienna university he became good friends with
Friedrich von Wieser, who later became Boehm-Bawerk's brother-in-law.
After completing his studies he entered the Austrian ministry of finance. He spent the
1880s at the
University of Innsbruck (1881-1889). During this time he published the first two (out of three) volumes of his
magnum opus,
Capital and Interest. In 1889 he was called to
Vienna by the finance ministry to draft a proposal for direct-tax reform. The Austrian system at the time taxed production heavily, especially during wartime, providing massive disincentives to investment. Böhm-Bawerk's proposal called for a modern
income tax, which was soon approved and met with a great deal of success in the next few years.
He then became
Austrian Minister of Finance in 1895. He was to serve briefly and again on another occasion, although a third time he remained in the post from 1900-1904. As Finance Minister he fought continuously for strict maintenance of the legally fixed
gold standard and a balanced budget. In 1902 he eliminated the sugar subsidy, which had been a feature of the Austrian economy for nearly two centuries. He finally resigned in 1904, when the increased fiscal demands of the army threatened to unbalance the budget. Economic historian
Alexander Gerschenkron criticized his "penny pinching, 'not-one-heller-more-policies'," and lays much of the blame for Austria's economic backwardness on Böhm-Bawerk's unwillingness to spend heavily on public works projects. Joseph Schumpeter praised Böhm-Bawerk's efforts toward "the financial stability of the country." His image was on the one-hundred
schilling banknote between 1984 and 2002, when the
euro was introduced.
He returned to teaching in 1904, with a chair at the University of Vienna. He taught many students including Joseph Schumpeter,
Ludwig von Mises and
Henryk Grossman. He died in 1914.
Although he was a
liberal he was not the radical libertarian that the label of
Austrian economist suggests today. He wrote that he feared that unbridled free competition would lead to "anarchism in production and consumption." He wrote extensive critiques of
Karl Marx's economics in the 1880s and 1890s, and several prominent Marxists—including
Rudolf Hilferding—attended his seminar in 1905-06.
The first volume of
Capital and Interest, which Ludwig von Mises decreed as "the most eminent contribution to modern economic theory", titled
History and Critique of Interest Theories (1884), is an exhaustive study of the alternative treatments of
interest: use theories, productivity theories, abstinence theories, and so on.
Also included was a critique of
Marx's
exploitation theory. Böhm-Bawerk argued that capitalists do not exploit their workers; they actually help employees by providing them with an income well in advance of the revenue from the goods they produced, stating "Labor cannot increase its share at the expense of capital." In particular, he argued that the Marxist theory of exploitation ignores the dimension of time in
production and that a redistribution of profits from capitalist industries will undermine the importance of the
interest rate as a vital tool for monetary policy. From this criticism it follows that, according to Böhm-Bawerk, the whole value of a product is not produced by the worker, but that labour can only be paid at the present value of any foreseeable output.
Karl Marx and the Close of His System (1896) examined Marx's theory of
labour value, believing the error in Marx's system to have resulted from a self-contradiction of Marx's law of value, namely how the rate of profit and the prices of production of the third volume of Marx's
Capital contradict Marx's theory of value in the first volume. He also attacks Marx for downplaying the influence of
supply and demand in determining permanent price, and for deliberate ambiguity with such concepts.
Böhm-Bawerk's
Positive Theory of Capital (1889), offered as the second volume of
Capital and Interest, elaborated on the economy's time-consuming production processes and of the interest payments they entail. Book III,
Value and Price, developed Menger's ideas of
marginal utility outlined in his
Principles of Economics, to develop the idea of subjective value as related to
marginalism, in that things only have value insofar as such people want such goods:
A pioneer farmer had five sacks of grain, with no way of selling them or buying more. He had five possible uses—as basic feed for himself, food to build strength, food for his chickens for dietary variation, an ingredient for making whisky and feed for his parrots to amuse him. Then the farmer lost one sack of grain. Instead of reducing every activity by a fifth, the farmer simply starved the parrots as they were of less utility than the other four uses, in other words they were on the margin. And it is on the margin, and not with a view to the big picture, that we make economic decisions.
Further Essays on Capital and Interest (1921) was the third volume, which originally started as appendicies to the second volume.
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List of Austrian scientists*
List of Austrians*
biography of Eugen von Böhm-Bawerk by Roger Garrison on the
Mises Institute website. The article has more detail on his intellectual contribution, especially on the theory of interest.
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Böhm-Bawerk, Eugen von Biography in the
Concise Encyclopedia of Economics.
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Böhm-Bawerk, Eugen von Directory of links from the Open Directory Project
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Capital and Interest Complete text, authoritative edition, at
Econlib.
*
The Positive Theory of Capital Complete text, authoritative edition, at
Econlib.
