His theories of interest and capital were catalysts in the development of economics, but Böhm-Bawerk gave three reasons why interest rates are positive. First. Translator’s Preface↩. My only reasons for writing a preface to a work so exhaustive, and in itself so lucid, as Professor Böhm-Bawerk’s Kapital und Kapitalzins. Capital and Interest (LvMI) – Kindle edition by Eugen von Böhm-Bawerk, William Smart. Download it once and read it on your Kindle device, PC, phones or.

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So without land there would be no turnips, but the existence of land is scarcely the sufficient cause of the turnips. Here is the original English translation by Scottish economist William Smart, the one that had the largest impact on the American and British economic scene, and the one that remains lucid and penetrating.

We must not regard the first immediate spending of the money as its use: One of these neglected conceptions is that of the “Use of goods,” and one of the most important contributions to economic theory is the section devoted by Dr. The canon doctrine of interest had to all interrst reached its zenith sometime during the thirteenth century.

These commodities, under certain known conditions, will usually possess value, though their value is little proportioned to their amount; indeed, is often in inverse ratio. It has often been remarked that not only does our knowledge of interesting subjects ihterest develop, but also our curiosity regarding these subjects. First of all, we meet with Aristotle’s argument of the barrenness of money; only that the theoretically important point of interest being a parasite on the produce of other people’s industry, is more sharply brought out by the canonists.

If, now, we cqpital to the common consciousness to say what it is that capital does, or, forbears to do, that it should receive interest, we shall probably get two answers. Finally, he is as little impressed by the passages in Holy Writ which have been interpreted as forbidding interest p. When, therefore, the usurer would charge a price for time, as though it were a good received from him, he capitzl his neighbour, to whom the time he sells already belongs as much as it does interesh him, the seller, and he defrauds God, for whose free gift he demands a price.

The following, among others, may be regarded as direct exceptions: This theory, in fact, affords a striking instance of how our science caoital revenged itself for our unscientific treatment of it. And finally, he sells time, which belongs to the borrower just as much as it does to the lender and to all men. The legal prohibitions of interest may, of course, boum-bawerk taken as evidence of a strong and widespread conviction of the evils connected with its practice.

Yet the statement just given is elaborate and logical in comparison with that of many of the economists who profess the Productivity theory. Moreover, although more cautious in expression than the impetuous Calvin, he is quite as frank, pithy, and straightforward. The history of the interest problem, capitxl, begins with a very long period in which loan interest, or usury, alone is the subject of investigation. There was urgent need of assistance from theory, and this assistance was readily obtained from the growing science.


It happened too that the decaying theory of the fathers of the Church and of the scholastics nowhere came into sharper conflict with the needs of actual life than in the Netherlands, where a highly developed economy had created for itself a complete system of credit and banking; where, consequently, transactions involving interest were common and regular; and where, moreover, temporal inteeest, yielding to the pressure of practice, had long allowed the taking of interest.

From the standpoint of an ideal order of society, interest could not be capitao, but men being interesy imperfect, it cannot conveniently be eradicated, and so it were better to allow it within certain limits.

A pioneer farmer had five sacks of grain, capiatl no way of selling them or buying more. First comes a long-winded, and, it must be confessed, for all its subtlety a very lame attempt to prove that in the loan there is no alienation of the thing lent—a subject to which also the whole Diatriba de Mutuo is devoted.

Senior included abstinence among the costs of production as a second and independent sacrifice. Not to mention Calvin, who, indeed, had given the Catholic world quite other causes of offence, Molinaeus had much to suffer; he himself was exiled, and his book, carefully and moderately as it was written, was put on the Index. Interext the other hand, there are many, especially among the younger economists, who hold that such a division is inadmissible, and that the so-called undertaker’s profit is homogeneous with the profit on capital.

Translate the free labourer into a wage earner under capitalism, pay him the wage which is just sufficient to support himself and his family, and here also it is the case that he can produce more than his wage. It does not explain why he is able to sell the manufactured commodity, which is simply these materials and machines transformed by labour into products, at a higher price than the capital expended.

The Exploitation theory then makes interest a concealed contribution; not a contribution, however, from the consumers, but from the workers.

The question now is whether, bohm-vawerk view of this, we should not distinguish two quotas in the total sum of profit realised by the undertaking; one quota to be considered as result of the capital contributed, a second quota to be considered as result of the undertaker’s exertion.

Happily the circumstances are such that I can do so without prejudice to our investigation; for at the worst it is just those phenomena which we all recognise as interest that constitute the great majority, and contain the characteristic substance of the general interest problem.

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In the Netherlands, as I have already said, the works of Salmasius were almost immediately followed by a whole series of writings of similar tenor. One passage in ancient literature has, in my opinion, a direct value for the history of theory, inasmuch as it allows us to infer what really was the opinion of its author on the economic nature of interest; that is, the often quoted passage in the first book of Aristotle’s Politics.


Practically it came to this, that the loan was given nominally without interest, but that the creditor actually received, under the name of interesse, a regular percentage for the whole period of the loan, the borrower by a fiction being put in mora for that period. We have seen that the previous theories were founded on some positive work supposed to be done by capital. But the ordinary life of many a peasant proprietor who lives by continual toil, and never “gets out of the bit,”—that is, never does more than reproduce his bare living—might show that the assumption is not universally valid, and that labour by no means always produces more value than it consumes.

If, however, we look carefully into this illustration, we shall see that William not only had the use of the plane but the plane, itself, as appears from the fact that the plane was worn out during the year. The facts here are as stated: The broad implications of this work are being rediscovered today by younger Austrians building on his foundation for Austrian production theory. The question now is, Is such a dividend pure interest? It cannot be too often reiterated that the theory which explains interest must explain surplus value— not a surplus of products which may obtain value and may not; not a surplus of value over the amount of value produced by labour unassisted by capital; but a surplus of value in the product of capital over the value of the capital consumed in producing it.

Capital and Interest | Mises Institute

Considerations like these show that there is constant danger that an unjustifiable use may be made of arguments in themselves justifiable. In loan interest, and specially in loan interest derived from sums of money that are by nature barren, this characteristic is so peculiarly noticeable that it must excite question even where no close attention has been given it. In one place, quite in the spirit of Salmasius, Sonnenfels adduces as arguments for the capitalists’ claim, the want of their money, their risk, and the uses they might have got by the purchase of things that produced fruit.

It must be confessed that to those who are in the habit of looking upon all work as sacrifice, and all wage as compensation, there is something a little ridiculous in the statement of this theory. In view of the unsatisfactoriness of the answers hitherto given to our problem it is easy to see how another answer would arise.

At the back of this theory of interest is that theory of value which makes it depend upon costs of production. It must be carefully noted that the abstinence here spoken of is not abstinence from personal employment of capital in production—that would simply throw us back on the previous question, viz.

In this battle victory remained with the more stubborn party, and that party was the one whose very existence was endangered by the prohibition.