Hennings misreads Böhm-Bawerk

I’m still working through Klaus Hennings’ great book, The Austrian Theory of Value and Capital.

I found an interesting mismatch between Böhm-Bawerk and Hennings. The mismatch is between p. 161 in Hennings and p. 365 in the Libertarian Press edition of Böhm-Bawerk’s Positive Theory.

From Hennings:

“Böhm’s second proposition, that the rate of interest will be lower the larger the work force of the economy, is even less tenable. Böhm conducted his argument in terms of capital (value) per worker, which can be interpreted as amounting to an assumption of constant returns to scale. Yet if there are constant returns to scale then there is no relation between the rate of interest and the size of the labour force (which clearly stands for the size of all non-produced resources taken together). Böhm’s assertion cannot hold.”

From Böhm-Bawerk:

“And so, with respect to the field we have up to this point been investigating, we have three factors to record as the definitive determining factors of the rate of interest. These are
1. The magnitude of the subsistence fund;
2. The number of workers that fund must support;
3. The graduation in the scale of increasing productivity that accompanies prolongation of the production period.
The manner in which these factors exercise their effectiveness can be summarized in the following proposition. The interest rate in a given economy will rise in inverse ratio to the subsistence fund, in direct ratio to the working population which that fund must support, and in direct ratio to the degree of productivity that marks continued prolongation of the subsistence fund, the smaller the worker population, and the quicker the decline in the surplus product.”

Obviously, both authors refer to these points elsewhere in their work, but these are the clearest examples I can find.

Hennings says that Böhm-Bawerk thought that an increase in the supply of labor would bring about a lower interest rate. Böhm-Bawerk clearly states the opposite.

Did Hennings misread Böhm-Bawerk?

I don’t think he’s referring to a different part of the Positive Theory, because the footnotes in Hennings refer to this same section of the Positive Theory.

I don’t have the original German edition–I wouldn’t be able to do much with it anyways–which is what Hennings refers to in his footnotes. But footnote 24, which comes right after what I quoted from Hennings, refers to Böhm-Bawerk crediting Thünen for the connection between marginal increases in the length of production and the rate of interest. This reference is just a couple pages before the Böhm-Bawerk quote above. So I’ve decided that Hennings had this part of the Positive Theory open when he was writing this section.

Böhm-Bawerk is right, though. An increase in the supply of labor pushes wage rates down and encourages more labor-intensive production techniques, which decreases the roundaboutness of production and increases the interest rate. This is one of Böhm’s clearer points in that section of the Positive Theory, so it is all the more intriguing that Hennings would think he said the opposite.


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