Eugen von Böhm-Bawerk was a professor of economics at the Universities of Innsbruck and Vienna, a finance minister of Austria for many years, a major contributor to the “Austrian School” of economic thought, and an important critic of Marxism. Building on the work of Carl Menger, he developed a theory of capital and interest centered on “the relation between present and future in economic life.” His analysis, in turn, provided the starting point for the theory of business cycles developed by his student Ludwig von Mises and by Friedrich A. Hayek. Böhm-Bawerk also pointed out internal contradictions in the value theory of Karl Marx’s Das Kapital, a critique with which Marxists continue to struggle today.

Böhm-Bawerk is best known for his three-volume work, Capital and Interest, the first volume of which, History and Critique of Interest Theories (1884), argued that previous attempts to explain the phenomenon of interest, particularly those by Marx and other socialist economists, were inadequate in ways that slighted the relation between present and future. In the second volume, The Positive Theory of Capital (1889), he offered his own explanation of interest. The third volume collected replies to various critics. For Böhm-Bawerk, the “nub and kernel” of the phenomenon of interest was that “present goods are as a general rule worth more than future goods of equal quality and quantity.” Thus, the fact that capitalists normally sell the product of labor for more than they pay the workers, and thus receive a “normal rate of profit” (interest) on investment in wages, does not represent an exploitation of the workers. Rather, it represents the discounting of future sums relative to present sums. Capitalists pay factory workers in advance of sales. The workers prefer to get wages today, equal to the present (time-discounted) value of the future sales revenue their work will generate, rather than wait for the larger (but later) sum that will arrive only when the output is sold. Socialist critics have naturally decried this as an apology for the capitalist’s income (in Marxian terms, surplus value).

Further Readings

Böhm-Bawerk, Eugen von. Capital and Interest. 3 vols. South Holland, IL: Libertarian Press, 1959.

———. Karl Marx and the Close of His System. Paul M. Sweezy, ed. Clifton, NJ: Augustus M. Kelley, 1975.