The Austrian Theory of Value and Capital, by Klaus Hennings

Klaus Hennings’ The Austrian Theory of Value and Capital: Studies in the Life and Work of Eugen von Böhm-Bawerk is under-appreciated.

It’s going for $165 on Amazon. Roger Garrison has a nice review of it. Elgar has a barebones page for it (and is selling it for £89.10).

So I’m unofficially requesting a new (hopefully less expensive) edition. It does need some editing help. Some pages are a big wall of text and could use some formatting. A few commas and a fresh spellcheck would help, too. Other than these superficial issues, though, the book is a great critical review and summary of Böhm-Bawerk’s contributions to economic theory.

It includes a biographical chapter, Böhm-Bawerk’s place in the history of economic thought, summaries of his ideas on consumer and producer behavior, overviews of his theories of capital and interest, and critical notes all along the way. There is what looks like a comprehensive bibliography of Böhm-Bawerk and some correspondence he had with Knut Wicksell in an appendix.

The Austrian Theory of Value and Capital is a great contribution to history of economic thought literature, but Hennings gives some of his own original and thought-provoking theoretical offerings, too.

Since there are close to zero online samples of his text, I’ll offer one here, with my own (only superficial) edits to make it more blog-friendly. This showcase of Hennings’ book came from the “Theory of Interest” chapter, pages 114-116 in the Elgar edition.


What Böhm gave in this first volume of his treatise is a critical scrutiny of the building blocks of various theories of interest. His rejection of these different ideas, and his reasons for it, therefore reveal much about the approach he was to follow in the second volume of his treatise. It is this aspect of the Geschichte und Kapitalzins-Theorien which is of interest here.

Outwardly the book follows a broad historical pattern. After a review of ancient and mediaeval disputes about the ethical admissibility of interest, Turgot is credited with having turned an ethical into an economic problem, while at the same time drawing on the sum of previous debates. Then Adam Smith is shown to have pronounced, in one form or another, most of the ideas on the rate of interest which were later elaborated upon by various writers. At this stage, Böhm leaves the historical pattern, and instead takes up these various ideas under systematic headings. He did, however, follow a loose historical sequence within each chapter.

This structure is blurred by the fact that Böhm was evidently at a loss to fit Ricardo and the majority of English classical economists into his scheme, so that he treated them together under the heading of ‘Colourless Theories’— a procedure which cannot have endeared him to Marshall. It was further blurred in later editions by various additions Böhm saw fit to include in the text: in particular, his long discussion of John Rae. Moreover, Böhm felt obliged to include brief analyses of minor writers even though he concentrated on major ones. This made for a rather prolix and involved treatment which hides rather than lays bare his underlying analytic argument.

In order to bring out the latter more clearly, Böhm’s reasoning will be summarized here without attention to historical detail and in a somewhat schematic manner under six headings, which correspond more or less to the main chapter headings in Böhm’s volume:

  1. The rate of interest is a real phenomenon, not just a matter of monetary economy, as Turgot and Adam Smith have shown.
  2. It is not sufficient to show that interest is paid because capital is productive. Böhm does not deny that capital is productive, if this is taken to mean that with capital a physical surplus can be produced. Yet on his reckoning this is not sufficient because the rate of interest is used in the calculation of the value of capital, and the fact that capital can be used productively is taken account of in this evaluation. Hence the ratio between the value of capital and the value of its return (which is what the rate of interest is) has to be explained by the way in which capital and its return are evaluated; it is not explained by reference to the fact that capital is productive. That is a necessary, but not a sufficient condition for the explanation of the rate of interest. Thus Böhm held that productivity theories of interest do not give enough.
  3. The same is true for the idea that the productivity of capital can be reduced to the productivity of land, which Böhm found expressed (among other things) in Turgot. Again he did not deny that land is productive; but only that the physical productivity of the land can explain a phenomenon he considered to be related to value.
  4. A similar argument is applied to Rodbertus and Marx, whom Böhm took as the main exponents of the idea that interest (or profit) is a form of exploitation. He finds this idea based on two premises which he considers equally unacceptable: (1) there is yet again the idea that interest can be explained by a physical productivity, the productivity of labour, and (2) there is also the labour theory of value which of course conflicted with his own theory of value.
  5. Nor is interest paid for abstinence or any other cost incurred by capitalists, as Böhm took Senior to say. Not only was the implied cost theory of value unacceptable to Böhm; he also contended that this particular argument involves double counting. The capitalist who has chosen a stream of returns in the future in preference to the enjoyment of funds in the present cannot also be rewarded for abstaining from present enjoyment. Nor can he be rewarded for any other work involved in this choice.
  6. As for the argument that interest is paid for the use of capital — an argument he found in the Continental classical tradition, and Hermann, Schäffle, Knies and Menger in particular — Böhm claimed that he had shown in his first book that capital goods can be considered as a stream of ‘stored-up’ services, and that they are evaluated as such. Hence the use of capital is clearly allowed for in the calculation of its value, and cannot constitute a separate item for which interest is paid.

In sum, then, the rate of interest is a real phenomenon, but it cannot be explained on the basis of physical productivities alone because it is too intimately tied up with the evaluation of capital as a sort of services. Rather, the rate of interest has to be explained on the basis of these evaluations. Moreover, as the evaluation of capital is based on the evaluation of future services, it will not do to consider past costs of constructing or acquiring capital.

With these considerations Böhm anchored the rate of interest firmly in the realm of value theory; and all the more so as his arguments amount to saying that interest is not paid ‘for’ something, whatever the ‘something’ may be. Rather, it is (as he was going to show) a necessary aspect of intertemporal evaluations. It was therefore in the framework of an intertemporal theory of value that Böhm was going to search for his own solution.

This solution is of course based on many of the ideas reviewed in the Geschichte und Kritik der Kapitalzins-Theorien — much more so in fact that Böhm was prepared to admit. For the first volume of Böhm’s treatise is basically a ‘negative theory’ (as Edgeworth called it) which prepared the way for his Positive Theorie des Kapitals.

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