Eugen von Böhm-Bawerk
Encyclopedia
Eugen Ritter von Böhm-Bawerk (February 12, 1851 in Brno
– August 27, 1914 in Kramsach
) was an Austrian
economist
who made important contributions to the development of the Austrian School of economics
.
, 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 Vienna, he studied political economy
and social science at the universities of Heidelberg, Leipzig
and Jena, under Karl Knies
, Wilhelm Roscher und Bruno Hildebrand
.
After completing his studies in 1872, he entered the Austrian ministry of finance. He held various posts until 1880, when he became qualified as a Privatdocent of political economy at Vienna. The following year, however, he transferred his services to the University of Innsbruck, where he remained until 1889, becoming professor in 1884. During this time, he published the first two (out of three) volumes of his magnum opus
, Capital and Interest
.
In 1889 he became councillor in the ministry of finance in Vienna
, and represented the government in the lower house on all questions of taxation. He drafted 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 Austria
n 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.
In 1897 he was ambassador to the German court
. In 1899 he was elevated to the upper chamber (House of Peers). In 1907 he became vice-president and in 1911 president of the Academy of Science.
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. 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.
: 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, which he discussed in his theory of roundaboutness
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
, claiming the basic 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 (part of the second volume), 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:
Further Essays on Capital and Interest (1921) was the third volume, which originally started as appendices to the second volume.
His critique of Marx's theories was put under intense scrutiny by Marxian economists, such as Nikolai Bukharin
, who argued in Economic Theory of the Leisure Class that Böhm-Bawerk's axiomatic assumptions of individual freedom in his subjectivist theories are fallacious in that economic phenomena can only be understood under the prism of a coherent, contextualised, and historical analysis of society, such as Marx's.
Many of Böhm-Bawerk's works were brought to the United States by Chicago industrialist and avid libertarian Frederick Nymeyer
through Libertarian Press.
Brno
Brno by population and area is the second largest city in the Czech Republic, the largest Moravian city, and the historical capital city of the Margraviate of Moravia. Brno is the administrative centre of the South Moravian Region where it forms a separate district Brno-City District...
– August 27, 1914 in Kramsach
Kramsach
Kramsach is a municipality in the Kufstein district of Austria, and is located 27 km southwest of Kufstein and 16.5 km west of Wörgl, at the northern side of the Inn River. Its main sources of income are the marble, timber and glass industries, as well as summer tourism. Kramsach is also known as...
) was an Austrian
Austrian Empire
The Austrian Empire was a modern era successor empire, which was centered on what is today's Austria and which officially lasted from 1804 to 1867. It was followed by the Empire of Austria-Hungary, whose proclamation was a diplomatic move that elevated Hungary's status within the Austrian Empire...
economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
who made important contributions to the development of the Austrian School of economics
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...
.
Biography
While studying to be a lawyer at the University of ViennaUniversity of Vienna
The University of Vienna is a public university located in Vienna, Austria. It was founded by Duke Rudolph IV in 1365 and is the oldest university in the German-speaking world...
, he read 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...
's Principles of Economics
Principles of Economics
Principles of Economics is a book by economist Carl Menger which is credited with the founding of the Austrian School of economics...
. Though he never studied under Menger, he quickly became an adherent of his theories. Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
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
Friedrich von Wieser
Friedrich Freiherr von Wieser was an early member of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry he first trained in sociology and law...
, who later became Boehm-Bawerk's brother-in-law. After Vienna, he studied political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
and social science at the universities of Heidelberg, Leipzig
University of Leipzig
The University of Leipzig , located in Leipzig in the Free State of Saxony, Germany, is one of the oldest universities in the world and the second-oldest university in Germany...
and Jena, under Karl Knies
Karl Knies
Karl Gustav Adolf Knies was a German economist.He is known as the author of Political Economy from the Standpoint of the Historical Method, one of the 19th century methodological treatises on German historical school of economics...
, Wilhelm Roscher und Bruno Hildebrand
Bruno Hildebrand
Bruno Hildebrand was a German economist representing the "older" historical school of economics. His economic thinking was highly critical of classical economists, especially of David Ricardo. His magnum opus was Economics of the Present and the Future . The basic aim of this work was to...
.
After completing his studies in 1872, he entered the Austrian ministry of finance. He held various posts until 1880, when he became qualified as a Privatdocent of political economy at Vienna. The following year, however, he transferred his services to the University of Innsbruck, where he remained until 1889, becoming professor in 1884. During this time, he published the first two (out of three) volumes of his magnum opus
Masterpiece
Masterpiece in modern usage refers to a creation that has been given much critical praise, especially one that is considered the greatest work of a person's career or to a work of outstanding creativity, skill or workmanship....
, Capital and Interest
Capital and Interest
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....
.
In 1889 he became councillor in the ministry of finance in Vienna
Vienna
Vienna is the capital and largest city of the Republic of Austria and one of the nine states of Austria. Vienna is Austria's primary city, with a population of about 1.723 million , and is by far the largest city in Austria, as well as its cultural, economic, and political centre...
, and represented the government in the lower house on all questions of taxation. He drafted 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
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
, which was soon approved and met with a great deal of success in the next few years.
He then became Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
n 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
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of 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
Alexander Gerschenkron
Alexander Gerschenkron was a Russian-born American Jewish economic historian and professor in Harvard, trained in the Austrian School of economics.Gerschenkron kept to his roots - in his economics, history and as a critic of Russian literature...
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
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
was introduced.
In 1897 he was ambassador to the German court
German Empire
The German Empire refers to Germany during the "Second Reich" period from the unification of Germany and proclamation of Wilhelm I as German Emperor on 18 January 1871, to 1918, when it became a federal republic after defeat in World War I and the abdication of the Emperor, Wilhelm II.The German...
. In 1899 he was elevated to the upper chamber (House of Peers). In 1907 he became vice-president and in 1911 president of the Academy of Science.
He wrote extensive critiques of Karl 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 economics in the 1880s and 1890s, and several prominent Marxists—including Rudolf Hilferding
Rudolf Hilferding
Rudolf Hilferding was an Austrian-born Marxist economist, leading socialist theorist, politician and chief theoretician for the Social Democratic Party of Germany during the Weimar Republic, almost universally recognized as the SPD's foremost theoretician of his century, and a...
—attended his seminar in 1905-06. He returned to teaching in 1904, with a chair at the University of Vienna. He taught many students including Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
, Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
and Henryk Grossman
Henryk Grossman
Henryk Grossmanalternative spelling: Henryk Grossmann , was a Polish-German economist and historian of Jewish descent....
. He died in 1914.
Published work
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 interestInterest
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 so on.
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 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, which he discussed in his theory of roundaboutness
Roundaboutness
Roundaboutness, or roundabout methods of production, is the process whereby capital goods are produced first and then, with the help of the capital goods, the desired consumer goods are produced....
and that a redistribution of profits from capitalist industries will undermine the importance of the interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
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
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
, claiming the basic 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
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
contradict Marx's theory of value in the first volume. He also attacks Marx for downplaying the influence of supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
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 (part of the second volume), Value and Price, developed Menger's ideas of marginal utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
outlined in his Principles of Economics, to develop the idea of subjective value as related to 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 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 marginMargin (economics)In economics, a margin is a set of constraints conceptualised as a border. A marginal change is the change associated with a relaxation or tightening of constraints — either change of the constraints, or a change in response to this change of the constraints.- Extensive and intensive margins...
. 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 appendices to the second volume.
His critique of Marx's theories was put under intense scrutiny by Marxian economists, such as Nikolai Bukharin
Nikolai Bukharin
Nikolai Ivanovich Bukharin , was a Russian Marxist, Bolshevik revolutionary, and Soviet politician. He was a member of the Politburo and Central Committee , chairman of the Communist International , and the editor in chief of Pravda , the journal Bolshevik , Izvestia , and the Great Soviet...
, who argued in Economic Theory of the Leisure Class that Böhm-Bawerk's axiomatic assumptions of individual freedom in his subjectivist theories are fallacious in that economic phenomena can only be understood under the prism of a coherent, contextualised, and historical analysis of society, such as Marx's.
Many of Böhm-Bawerk's works were brought to the United States by Chicago industrialist and avid libertarian Frederick Nymeyer
Frederick Nymeyer
Frederick Nymeyer was an industrialist from South Holland, Illinois, and a vocal advocate of early libertarianism and Austrian economics.Nymeyer founded the Libertarian Press and was largely responsible for bringing the economic writings of Eugen von Böhm-Bawerk to the United States...
through Libertarian Press.
External links
- Karl Marx and the Close of His System Complete text
- Karl Marx and the Close of His System, by Eugen von Böhm-Bawerk
- Biography of Eugen von Böhm-Bawerk by Roger Garrison. The article has more detail on his intellectual contribution, especially on the theory of interest.
- Böhm-Bawerk, Eugen von Biography
- Capital and Interest Complete text, authoritative edition.
- The Positive Theory of Capital Complete text, authoritative edition.