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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Another party of thinking and observing men went farther. 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. At the outset he rejects the usual authoritative foundation for the andd, and tries to show that, of the writings adduced in its support, some are to be understood in a different sense, and some have lost their validity through entire change of circumstances.

But the fact is that, in all this, we have an entire misconception of the origin of value. Of course it cannot be determined with mathematical exactitude, in each individual case, how much has been contributed to the making of the total profit by the objective factor, the capital, and how much by the personal factor, the undertaker’s activity.

To proofs from Revelation are added appeals to the authority of revered fathers of the Church, to canonists and philosophers—even pagan philosophers,—to bohm-bawerrk and new laws, to deductions from the jus divinum, the jus humanum, and—what is particularly important for us as touching the economic side of the matter—to deductions from the jus naturale.

But each of them omitted considerations enough to prevent its being accepted as a completely satisfactory theory. The lender could with the money purchase land for himself, or he could request that the land bought with his money be hypothecated to him till the debt is wiped out.

It seems natural to say that one part of the product pays wage and another pays interest, as compensation for the respective sacrifices. The truth is that, in this case, the one sacrifice of labour admits of being estimated in two ways: Then, of the total profit from the undertaking, that amount which would be enough to pay the usual rate of interest on the capital invested in it, is put down to capital, while the remainder is put to the account of the undertaker’s activity as the profit of undertaking.

In the case where the article in question is a perishable or a fungible thing, if the use is not to be paid for, it is a loan bearing no interest mutuum: In the hands of one who employs capital in production, the utility of his capital appears in the fact that the total product obtained by the assistance of the capital possesses, as a rule, a higher value than the total cost of the goods expended in the course of production.


But now a step farther in this direction was taken, although under protest of the strict canonists, by the introduction of two contract clauses.

These circumstances have left their stamp on the interest literature of England during the seventeenth and eighteenth centuries. But now the matter had again become practical.

Online Library of Liberty

And now the lawyers begin to take a more active part in the movement alongside the theologians—first the canon lawyers and then the legists. To argue that interrst of itself can bring forth no fruit is not to the point, for even land brings forth nothing of itself without expense, exertion, and human industry.

Where, as not seldom occurs notwithstanding this, exception is taken to profit obtained by personal exertions, the exception is not so much to the profit as such, as to some concrete and objectionable manner of getting it: It is generally called Interest when the capital consists of perishable or fungible goods.

He sees no force in the argument of the barrenness of money, for ane also, interedt other things barren by nature, the skill of man has made productive.

Capital and Interest | Mises Institute

We get interest simply because we prefer a remote to a present result. Passing over the immediate disciples of Calvin, who naturally agreed with the views of their master, there were few writers in the sixteenth century who ventured to argue in favour of interest on economical grounds.

The essence of interest, in short, is Discount. The latter, sometimes called Equalisation of Dividend Fund, is a provision for averaging the losses that are sure to occur over a series of years, blhm-bawerk are really a portion of the current expenses.

Nevertheless we borrow a scale from outside, and divide off the two shares arithmetically. The all-efficient ground of conviction was the Word of God, which, as they understood bohm-bawer, had condemned interest. Thus we fail to recognise that there is in natural interest, as well as in loan interest, the strange element of acquisition of wealth without labour.

The portion of total “profit” obtained by the private employer or undertaker, as such, is here eliminated; or, rather, it is made definite and measurable in being divided among the managing director, the ordinary directors, and the secretary, who are paid a fixed fee, salary, or, accurately and simply, a wage. But time is a common good that belongs to no one in particular, but is bohm-baawerk to all equally by God. The former, sometimes called Sinking, Wear and Tear, Repairs, or Replacement of Capital Fund, secures that fixed capital, or its value, is replaced in the proportion in which it is worn out, and thus provides a guarantee that the value of the parent capital is not encroached upon, or inadvertently paid away in dividend.

But even he, in the earlier editions of his Handlungswisenschaft 67 never once touches on the controversy as to the theoretic legitimacy of interest.

If, however, we admit this, we are itnerest in the old problem once more—how do goods, when used as capital in production, increase in value to a sum greater than their own original value? In short, regard it as we may, interest always appears as a parasitic profit, extorted or filched from the defrauded borrower.


In Germany, whose political economy during the seventeenth and even during the eighteenth century is not of much account, the Salmasian doctrine made its way slowly and bohm-bawdrk, gaining nothing in development.

Then the farmer lost one sack of grain. And the more flourishing the economical condition of a country the stronger was the reaction of practice against the dominant theory.

In the circumstances of the latter—where a perishable or fungible good is transferred—the use consists in one complete consumption; and it might be objected that, in such a case the use of a thing could not be separated from the thing itself. The decisive point was reached shortly before the year Thus the Productivity theory ends in suggesting that other and hostile theory according to which surplus value comes from labour, and is only snatched away by capital.

But alongside of expressions like these we find the accepted Salmasian doctrine. 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.

This is rendered more plausible by the fact that most loans of capital are made in money; we unconsciously assume the gold or notes we receive to be the same gold or notes we lent.

The loan at interest stands to inyerest loan not at interest in the same relation as the hire against payment—which is perfectly allowable—to the Leihe, where no payment is required commodatum.

This income is distinguished by certain notable characteristics. The proof from authority being thus disposed of, Calvin turns to the rational arguments usually given for the prohibition. Thus the worker, unprotected, gets simply the reproduced value of a portion of his labour; the rest goes to capital, and is falsely, if conscientiously, ascribed to the efficiency of capital.

Senior, the first and principal apostle of the Abstinence theory, saw very clearly that the inclusion of interest or profit among costs was an abuse of language.

If the consumers, again, will only pay a price equal to the value of the capital consumed, the various workers, including ingerest employer proper, will get their wage, and the value of the capital itself will be unimpaired, but there will be no interest. Lending belongs to that class of legal transactions in which the use of a thing is made over by its owner to another person.

Capital and Interest – Wikipedia

These words contain the theoretical problem of interest. It does not explain why he is able to sell the manufactured commodity, which is simply these materials and machines interrst by labour into products, at a higher price than the capital expended.

In these words Molinaeus sets himself in the most direct opposition to the Church’s doctrine.