Eugen von Böhm-Bawerk was born in Brno, under the control of the Austro-Hungarian, February 12, 1851 by aristocratic family of civil servants. When he finished his law studies at the University of Vienna, followed the family tradition and joined the government service in the Austrian Ministry of Finance.
While studying law at the University of Vienna, at age 20, he read Principles of Economics, the prominent economist, Carl Menger, and was captivated by these ideas the rest of his life. When he finished his doctorate, in 1875, began his studies to teach economics and economic policy.
From 1881-1889, he joined the University of Innsbruck and was appointed professor in 1885 and in 1889, he was appointed advisor at the Ministry of Finance where he represented the government in the lower house of parliament.
During this period momentum, in 1889, the new tax law direct taxes because, until then, the tax burden of the Empire was on production, significantly discouraging investment in productive activities. Subsequently took over as Minister of Finance of Austria in 1895 and then between 1900 and 1904. During his time as Minister, fought fiercely in favor of keeping its currency link to gold price in favor of keeping the state budget balanced, as opposed to government spending on national projects. He returned to the University of Innsbruck where he remained until his death, with outstanding students as Joseph Schumpeter and Ludwig von Mises.
Professor Böhm-Bawerk died in Vienna, Austria, on August 27, 1914.
Main Projects and Contributions
From 1881-1889, he published two of the three volumes of his magnum opus, Capital and Interest, dedicated to financial issues. The first volume was published in 1884 under the title of History and Critique of Interest Theories (History & Criticism of theories of interest), a comprehensive analysis of the interest and its uses. He also studied the theories of Carl Menger time, which analyzes the different preferences that consumers place on different days of consumption, differentiating immediate consumption delay the consumption preference.
During the 1880s and 1890s, he wrote notable critical against the economic theories of Karl Marx, becoming number one enemy of the Communists. His approach was that the capitalist system did not exploit the worker, the foundation of Marxist theories of labor value, explaining that exploitation theory ignores the time of production, where the capitalists help income workers, before the production generate income.
His second volume was published in 1889 under the title, Positive Theory of Capital (Positive Theory of Capital) focused on the production time analysis of the economy and interest that these delays created as a result of the investment needed to finance the processes of production, inventory and work in progress.
As part of the second volume came Value and Price (value and price) which elaborates on the principles of Carl Menger utility of his Principles of Economics, developing the idea of subjective value where goods have value only if consumers want them. These ideas were developed further in the third volume published in 1921 with the title of Further Essays on Capital and Interest (More essays on principal and interest).
The impact of Böhm-Bawerk today
Professor Böhm-Bawerk was a great promoter of the theories of marginality, the concept of marginal utility and interest analysis and production times were great impetus to the development of corporate finances.
Eugen von Böhm-Bawerk was one of the leading members of the Austrian school of economics—an approach to economic thought founded by Carl Menger and augmented by Knut Wicksell, Ludwig von Mises, Friedrich A. Hayek, and Sir John Hicks. Böhm-Bawerk’s work became so well known that before World War I, his Marxist contemporaries regarded the Austrians as their typical bourgeois, intellectual enemies. His theories of interest and capital were catalysts in the development of economics, but today his original work receives little attention.
Böhm-Bawerk gave three reasons why interest rates are positive. First, people’s marginal utility of income will fall over time because they expect higher income in the future. Second, for psychological reasons the marginal utility of a good declines with time. For both reasons, which economists now call “positive time-preference,” people are willing to pay positive interest rates to get access to resources in the present, and they insist on being paid interest if they are to give up such access. Economists have accepted both as valid reasons for positive time-preference.
But Böhm-Bawerk’s third reason—the “technical superiority of present over future goods”—was more controversial and harder to understand. Production, he noted, is roundabout, meaning that it takes time. It uses capital, which is produced, to transform nonproduced factors of production—such as land and labor—into output. Roundabout production methods mean that the same amount of input can yield a greater output. Böhm-Bawerk reasoned that the net return to capital is the result of the greater value produced by roundaboutness.
An example helps illustrate the point. As the leader of a primitive fishing village, you are able to send out the townspeople to catch enough fish, with their bare hands, to ensure the village’s survival for one day. But if you forgo consumption of fish for one day and use that labor to produce nets, hooks, and lines—capital—each fisherman can catch more fish the following day and the days thereafter. Capital is productive.
Further investment in capital, argued Böhm-Bawerk, increases roundaboutness; that is, it lengthens the production period. On this basis Böhm-Bawerk concluded that the net physical productivity of capital will lead to positive interest rates even if the first two reasons do not hold.
Although his theory of capital is one of the cornerstones of Austrian economics, modern mainstream economists pay no attention to Böhm-Bawerk’s analysis of roundaboutness. Instead, they accept Irving Fisher’s approach of just assuming that there are investment opportunities that make capital productive. Nevertheless, Böhm-Bawerk’s approach helped to pave the way for modern interest theory.
Böhm-Bawerk was also one of the first economists to discuss Karl Marx’s views seriously. He argued that interest does not exist due to exploitation of workers. Workers would get the whole of what they helped produce only if production were instantaneous. But because production is roundabout, he wrote, some of the product that Marx attributed to workers must go to finance this roundaboutness, that is, must go to capital. Böhm-Bawerk noted that interest would have to be paid no matter who owned the capital. Mainstream economists still accept this argument.
Böhm-Bawerk was born in Vienna and studied law at the university there. After teaching at the University of Innsbruck and serving in the civil service, he was appointed minister of finance during the years 1895, 1897, and 1900. He left the ministry in 1904 and taught economics at the University of Vienna until his death in 1914.
________________________________________Selected Works
1890. Capital and Interest. London: Macmillan. Translated by William Smart. Reprint, 1959. Available online at: http://www.econlib.org/library/BohmBawerk/bbCI.html
1891. The Positive Theory of Capital. London: Macmillan. Translated by William Smart. Available online at: http://www.econlib.org/library/BohmBawerk/bbPTC.html
1962. Shorter Classics. South-Holland, Ill.: Libertarian Press.
Reference
http://www.econlib.org/library/Enc/bios/BohmBawerk.html
Reference Blog Salmón
http://www.elblogsalmon.com/economistas-notables/economists-notables-eugen-von-bohm-bawerk
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