|
Eugen Ritter von Böhm-Bawerk[a] (German: [bø?m 'ba?v??k];
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 and neoclassical economics. He served intermittently as the
Austrian Minister of Finance between 1895 and 1904. He also wrote a series of
extensive critiques of Marxism.
Biography:
While studying to be a lawyer at the University of Vienna, Böhm-Bawerk
read Carl Menger's Principles of Economics and became an adherent of his
theories, although he never studied under him. Joseph Schumpeter saw
Böhm-Bawerk as "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 his 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, holding various posts until
1880, when he became qualified as a Privatdozent of political economy at
Vienna. The following year, however, he transferred his services to the
University of Innsbruck, where he remained until 1889, becoming a professor in
1884. During this time, he published the first two out of the three volumes of
his masterpiece, Capital and Interest. In 1889 Böhm-Bawerk became a
counsellor in the Ministry of Finance in Vienna and represented the government
in the lower house on all questions of taxation.[3] He drafted a proposal for
direct-tax reform. The Austrian system at the time taxed production heavily,
especially during wartime, which resulted in huge disincentives to investment.
Böhm-Bawerk's proposal called for a modern income tax, which was soon
approved and met with success in the next few years. Böhm-Bawerk briefly
became Austrian Minister of Finance in 1895. After a second brief period in the
position, after his third appointment to the post he remained in it from 1900
to 1904. There he fought continually 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 increased fiscal demands from the
army threatened to unbalance the budget. The economic historian Alexander
Gerschenkron criticized his "penny pinching, 'not-one-heller-more
policies'," and criticised Böhm-Bawerk's unwillingness to spend
heavily on public works. Joseph Schumpeter praised Böhm-Bawerk's efforts
toward "the financial stability of the country." His image appeared
on the one-hundred schilling banknote from 1984 until the euro was introduced
in 2002. In 1897, Böhm-Bawerk became 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 Sciences).[1][2] 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. His many students
there included Joseph Schumpeter, Ludwig von Mises and Henryk Grossman. He died
in 1914. George Reisman has called him the second most important Austrian
economist "after Ludwig von Mises."[4] And further: [It's] entirely
conceivable to me that Mises might have described Böhm Bawerk as the most
important Austrian economist.[4] Published work The first volume of Capital and
Interest, which Ludwig von Mises decreed to be "the most eminent
contribution to modern economic theory,"[5] was entitled History and
Critique of Interest Theories (1884). It is an exhaustive study of the
alternative treatments of interest: use theories, productivity theories,
abstinence theories, and so on. Included is 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 produce, 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, according to Böhm-Bawerk, that the whole value of a
product is not produced by the worker, but that labor can only be paid at the
present value of any foreseeable output. Karl Marx and the Close of His System
(1896) examined Marx's analysis of 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 von 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 the interest payments they entail. Further Essays on
Capital and Interest (1921) was the third volume, which originated with
appendices to the second volume. Book III (part of the second volume), Value
and Price, develops Menger's ideas of marginal utility outlined in his
Principles of Economics, to argue that the idea of subjective value is related
to marginalism, in that things only have value insofar as people want such
goods. To illustrate the principle, Böhm-Bawerk used the practical example
of a farmer who is left with five sacks of corn after harvest to provide for
his needs until the next harvest:[6] 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?[7] ... 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.[8] Böhm von
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),[9] Bukharin argued that Böhm von 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.
By contrast, Austrian economists have regarded his critique of Marx as
definitive.[10] Many of Böhm von Bawerk's works were brought out in the
United States by the Chicago industrialist and avid libertarian Frederick
Nymeyer, through Libertarian Press, the US arm of the Austrian School of
Economics.[11] Between 1880 and 1947 Böhm von Bawerk worked on the
imputation theory first explained by Carl Menger between 1840 and 1921. It
states that factor prices are determined by output prices. Böhm von Bawerk
provided a variation of the theory that targeted the entrepreneurs, breaking up
into three cases: 1. where the factor combination a + b exists such that
neither a nor b as isolated piece produces any value at all. Thus if a or b
were to be a loss, the other part of the "group" becomes wholly
valueless. This implies that every factor can have the value of the whole group
or alternatively can have no value (Kauder 179). 2. Where the combination a + b
+ c exists such that every piece has alternatively two values with a low
utility or a lower utility. Then the two values are considered the maximum and
minimum. Where a maximum is the group value and the minimum is the value of
each individual entity being utilized separately. "Assume that the
remaining glove can be used for polishing silverware. Then the maximum is the
value of the whole pair minus the use as a polisher, and the minimum is the
value as a polisher" (Kauder 179). 3. This just states how two
complementary goods can find employment outside the original combination and
the original combination can be preserved by replacing productive elements,
which have been lost with other factors.
|
|
