Capital and Interest
Encyclopedia
Capital and Interest is a three-volume work on finance
published by Austrian economist
Eugen von Böhm-Bawerk
.
The first two volumes were published in the 1880s when he was teaching at the University of Innsbruck.
The first volume of Capital and Interest, titled History and Critique of Interest Theories (1884), is an exhaustive survey of the alternative treatments of the phenomenon of interest
: use theories, productivity theories, abstinence theories, and many more.
In this work Böhm-Bawerk built upon the time preference
ideas of Carl Menger
, insisting that there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Furthermore, the value of future goods diminishes as the length of time necessary for their completion increases.
Böhm-Bawerk cited three reasons for this difference in value. First of all, in a growing economy
, the supply of goods will always be larger in the future than it is in the present. Secondly, people have a tendency to underestimate their future needs due to carelessness and shortsightedness. Finally, entrepreneur
s would rather initiate production with goods presently available, instead of waiting for future goods and delaying production.
Also included was a critique of Marx
's exploitation theory
. Böhm-Bawerk argued that capitalists do not exploit workers; they accommodate workers – by providing them with income well in advance of the revenue from the output they helped to produce.
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, built on Menger's Principles to present a distinctly Austrian version of marginalism
.
In an example, 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 chicken
s for dietary variation, an ingredient for making whisky, and feed for his parrot
s 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 started as appendices to the second volume, but appeared as a third volume.
All three volumes were recently published together as a bound set by Libertarian Press. Libertarian Press's edition was translated by Hans Sennholz
and first published in 1959.
The Ludwig von Mises Institute
made available in 2007 the William Smart translations as Capital and Interest, The Positive Theory of Credit, and Recent Literature on Interest.
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
published by Austrian economist
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
Eugen von Böhm-Bawerk
Eugen von Böhm-Bawerk
Eugen Ritter von Böhm-Bawerk was an Austrian economist who made important contributions to the development of the Austrian School of economics.-Biography:...
.
The first two volumes were published in the 1880s when he was teaching at the University of Innsbruck.
The first volume of Capital and Interest, titled History and Critique of Interest Theories (1884), is an exhaustive survey of the alternative treatments of the phenomenon of interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
: use theories, productivity theories, abstinence theories, and many more.
In this work Böhm-Bawerk built upon the time preference
Time preference
In economics, time preference pertains to how large a premium a consumer places on enjoyment nearer in time over more remote enjoyment....
ideas of Carl Menger
Carl Menger
Carl Menger was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.- Biography :Menger...
, insisting that there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Furthermore, the value of future goods diminishes as the length of time necessary for their completion increases.
Böhm-Bawerk cited three reasons for this difference in value. First of all, in a growing economy
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, the supply of goods will always be larger in the future than it is in the present. Secondly, people have a tendency to underestimate their future needs due to carelessness and shortsightedness. Finally, entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s would rather initiate production with goods presently available, instead of waiting for future goods and delaying production.
Also included was a critique of Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
's exploitation theory
Exploitation theory
The exploitation theory is the theory, most associated with Marxists, that profit is the result of the exploitation of wage earners by their employers....
. Böhm-Bawerk argued that capitalists do not exploit workers; they accommodate workers – by providing them with income well in advance of the revenue from the output they helped to produce.
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, built on Menger's Principles to present a distinctly Austrian version of marginalism
Marginalism
Marginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity...
.
In an example, 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 chicken
Chicken
The chicken is a domesticated fowl, a subspecies of the Red Junglefowl. As one of the most common and widespread domestic animals, and with a population of more than 24 billion in 2003, there are more chickens in the world than any other species of bird...
s for dietary variation, an ingredient for making whisky, and feed for his parrot
Parrot
Parrots, also known as psittacines , are birds of the roughly 372 species in 86 genera that make up the order Psittaciformes, found in most tropical and subtropical regions. The order is subdivided into three families: the Psittacidae , the Cacatuidae and the Strigopidae...
s 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 started as appendices to the second volume, but appeared as a third volume.
All three volumes were recently published together as a bound set by Libertarian Press. Libertarian Press's edition was translated by Hans Sennholz
Hans Sennholz
Hans F. Sennholz was an economist of the Austrian school of economics who studied under Ludwig von Mises. After serving in the Luftwaffe in World War II, he took degrees at the universities of Marburg and Köln. He then moved to the United States to study for a Ph.D. at New York University...
and first published in 1959.
The Ludwig von Mises Institute
Ludwig von Mises Institute
The Ludwig von Mises Institute , based in Auburn, Alabama, is a libertarian academic organization engaged in research and scholarship in the fields of economics, philosophy and political economy. Its scholarship is inspired by the work of Austrian School economist Ludwig von Mises...
made available in 2007 the William Smart translations as Capital and Interest, The Positive Theory of Credit, and Recent Literature on Interest.
See also
- Capital and Interest by Eugen von Böhm-Bawerk London: Macmillan and Co. 1890, trans. William A. Smart, 1890. Library of Economics and Liberty (Econlib).
- Capital and Interest: A Critical History of Economic Theory trans. William A. Smart (London: Macmillan, 1890) – which includes Capital and Interest in facsimile or image-based PDF.
- Capital and Interest by Eugen von Böhm-Bawerk
- The Positive Theory of Capital by Eugen von Böhm-Bawerk London: Macmillan and Co. 1891, trans. William A. Smart, 1891. Library of Economics and Liberty (Econlib).
- The Positive Theory of Capital trans. William A. Smart (London: Macmillan and Co., 1891) – which includes The Positive Theory of Capital in facsimile or image-based PDF.