Eugen Böhm von Bawerk
12 February 1851|
Brno, Austrian Empire
|Died||27 August 1914
School or tradition
|Alma mater||University of Vienna|
Eugen Böhm Ritter von Bawerk (German: [bøːm ˈbaːvɛʁk]; born Eugen Böhm; 12 February 1851 – 27 August 1914) was an Austrian economist who made important contributions to the development of the Austrian School of economics.
He was the Austrian Minister of Finance intermittently from 1895–1904, and also wrote a series of extensive critiques of Marxism.
While studying to be a lawyer at the University of Vienna, 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 and 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 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.
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 Akademie der Wissenschaften (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.
[It's] entirely conceivable to me that Mises might have described Böhm Bawerk as the most important Austrian economist.
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, 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. Further Essays on Capital and Interest (1921) was the third volume, which originally started as appendices to the second volume. 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. To illustrate the principle, Böhm-Bawerk used a practical example of a farmer who was left with five sacks of corn after harvest to provide for his needs until the next harvest.
Being a thrifty soul he lays his plans for the employment of these sacks over the year. One sack he absolutely requires for the sustenance of his life till the next harvest. A second he requires to supplement this bare living to the extent of keeping himself hale and vigorous. More corn than this, in the shape of bread and farinaceous food generally, he has no desire for. On the other hand, it would be very desirable to have some animal food, and he sets aside, therefore, a third sack to feed poultry. A fourth sack he destines for the making of coarse spirits. Suppose...that he cannot think of anything better to do with the fifth sack than feed a number of parrots, whose antics amuse him. Naturally these various methods of employing the corn are not equal in importance.... And now, putting ourselves in imagination at the standpoint of the farmer, we ask, What in these circumstances will be the importance, as regards his well-being, of one sack of corn? (III.IV.9)
...How much utility will he lose if a sack of corn gets lost? Suppose we carry out this in detail. Evidently our farmer would not be very wise if he thought of deducting the lost sack from his own consumption, and imperilled his health and life while using the corn as before to make brandy and feed parrots. On consideration we must see that only one course is conceivable: with the four sacks that remain our farmer will provide for the four most urgent groups of wants, and give up only the satisfaction of the last and least important, the marginal utility—in this case, the keeping of parrots. (III.IV.10)
Böhm-Bawerk's critique of Marx's theories was put under intense scrutiny by Marxian economists, such as Nikolai Bukharin. In his Economic Theory of the Leisure Class (1927), Bukharin argued 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. In contrast, Austrian economists have regarded Böhm-Bawerk's critique of Marx as definitive. For example, Gottfried Haberler argued Böhm-Bawerk's thorough critique of Marx's economics was so devastating that as of the 1960s no Marxian scholar had conclusively refuted it.
- Regarding personal names: Ritter was a title, before 1919, but now is regarded as part of the surname. It is translated as Knight. Before the August 1919 abolition of nobility as a separate estate, titles preceded the full name when given (Prinz Otto von Bismarck). After 1919, these titles, along with any nobiliary prefix (von, zu, etc.), could be used, but were regarded as part of the surname, and thus came after a first name (Otto Prinz von Bismarck). There is no equivalent feminine form.
- One or more of the preceding sentences incorporates text from a publication now in the public domain: Rines, George Edwin, ed. (1920). "Böhm Bawerk, Eugen von". Encyclopedia Americana.
- "Boehm von Bawerk, Eugen". New International Encyclopedia. 1905.
- Chisholm, Hugh, ed. (1911). "Boehm von Bawerk, Eugen". Encyclopædia Britannica (11th ed.). Cambridge University Press.
- George Reisman. https://mises.org/journals/qjae/pdf/qjae5_3_4.pdf (2/8/2012).
- Böhm-Bawerk, Eugen v. The Positive Theory of Capital. William A. Smart, trans. London: Macmillan and Co. 1891. Library of Economics and Liberty [Online] available from http://www.econlib.org/library/BohmBawerk/bbPTC16.html; accessed 30 August 2014; Internet.
- Economic Theory of the Leisure Class by Nikolai Bukharin 1927 at www.marxists.org
- Gottfried Haberler in Milorad M. Drachkovitch (ed.), Marxist Ideology in the Contemporary World– Its Appeals and Paradoxes (New York: Praeger, 1966), p. 124
- Biography of Eugen von Böhm-Bawerk by Roger Garrison. The article has more detail on his intellectual contribution, especially on the theory of interest.
- Eugen von Böhm-Bawerk (1851–1914). The Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.) (Liberty Fund). 2008.
- Eugen Böhm von Bawerk at DMOZ
- Eugen Böhm von Bawerk at the Mises Institute library
- Karl Marx and the Close of His System – Complete text (PDF) (PDF)
- Capital and Interest – Complete text, authoritative edition (PDF)
- The Positive Theory of Capital – Complete text, authoritative edition (PDF)
- Recent Literature on Interest
- Control or Economic Law