Capital and Interest: A Critical History of Economical Theory
By Eugen v. Böhm-Bawerk
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, are that I think it may be advisable to put the problem with which it deals in a way more familiar to English readers, and to show that the various theories stated and criticised in it are based on interpretations implicitly given by practical men to common phenomena…. [From the Translator’s Preface, by William A. Smart.]
William A. Smart, trans.
First Pub. Date
London: Macmillan and Co.
The text of this edition is in the public domain. Picture of Eugen v. Böhm-Bawerk courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Translators Preface
- Book I,Ch.I
- Book I,Ch.II
- Book I,Ch.III
- Book I,Ch.IV
- Book I,Ch.V
- Book II,Ch.I
- Book II,Ch.II
- Book II,Ch.III
- Book III,Ch.I
- Book III,Ch.II
- Book III,Ch.III
- Book III,Ch.IV
- Book III,Ch.V
- Book III,Ch.VI
- Book III,Ch.VII
- Book III,Ch.VIII
- Book III,Ch.IX
- Book III,Ch.X
- Book III,Ch.XI
- Book IV,Ch.I
- Book IV,Ch.II
- Book IV,Ch.III
- Book V,Ch.I
- Book VI,Ch.I
- Book VI,Ch.II
- Book VI,Ch.III
- Book VII,Ch.I
- Book VII,Ch.II
The True Conception of the Use of Goods
Book III, Chapter V
All material goods (
Sachgüter) are of use to mankind through the action of the natural powers that reside in them. They are a part of the material world, and for that reason all their working, including their useful working, must bear the character that working generally has in the material world; it is a working of natural powers according to natural laws. What distinguishes the working of material
goods from the working of other kinds of natural
things, harmless or hurtful, is the single circumstance, that the results of such working admit of being directed towards the advantage of man, this direction also being under the rule of natural laws. That is to say, all things are endowed simply with working natural powers, but experience shows that these powers only admit of being directed to a definitely useful end, when the matter which possesses these powers has taken on certain forms that are favourable to them being so directed. All matter on the surface of the earth, for instance, among other forms of energy, possesses an amount of energy corresponding to its distance from the centre of the earth. But while men can do nothing with this form of energy when stored up in a mountain, that same energy is useful to them when the matter possessing it has taken on some form they wish—that is, some form in which the energy is available; say, that of a clock pendulum, or a paper weight, or a hammer. The energy of chemical affinity which carbon possesses is identical in every molecule of it. We get a direct economic utility, however, from the results of this energy only when the carbon has taken such forms as that of wood or coal; not when it exists as part of one of the constituents of the air. We may therefore say that the nature of material
goods, as opposed to those material
things that are not useful, is that they are such special forms of matter as admit of the natural powers they possess being directed to the advantage of man.
From this follow two important inferences, of which one concerns the character of the useful functions of material goods, and the other concerns the character of the use (
Gebrauch) of goods.
The function of goods can consist in nothing else than in a giving off, or rendering up, or putting forth of power; or, to use the terminology of physical science, the passing of energy into work. On the natural side it shows a complete parallelism with the character of the useful function performed by a manual labourer. In the same way as a porter or a navvy is of use, when he puts forth the natural power residing in his body in the form of rendering useful services, so are material goods of use through concrete forthputting of the natural powers inherent in them and capable of direction—physically speaking, through the forthputting in work of the available forms of energy they possess. It is by the passing of available energy into work that the “use” of goods is obtained by man.
The use (
Gebrauch) of a thing then is realised in this way: man takes the peculiar forms of energy of the good at the proper time, supplies the conditions necessary to render them available where they previously existed in an unavailable form, and then brings these forms of energy into proper connection with that object in which the useful effect is to take place. For instance, in order to “use” the locomotive the stoker fills the boiler with water, applies heat, and thus obtains in an available form the heat energy of the steam, which is transferred into energy of motion of the locomotive. This last-named energy is then transferred by connection to the carriages that convey persons or goods. Or one brings a book into the necessary relation with his eye for the image, which is continually being formed by reflection, to fall on the retina; or brings the house which continually offers shelter into proper relation with his whole person. But any “use” of material goods which does not consist in the receiving from them of useful results due to their inherent powers or forms of energy, is absolutely unthinkable.
I think I need have no fear of the propositions I have just advanced meeting with any scientific opposition. The conception laid down is no longer strange in our economic literature;
*57 and in the present state of the natural sciences the acceptance of it has indeed become a peremptory necessity. If by any chance it should be objected that this conception is one that belongs to the natural sciences and is not an economic one, I answer that in these questions economic science must leave the last word to natural science. The principle of the unity of all science demands it. Economic science does not explain the facts that belong to its province to the very bottom, any more than any other science does. It solves only one portion of the causal connection that binds together the phenomena of things, and leaves it to other sciences to carry the explanation farther. Not to mention other limiting sciences, the sphere of economic explanation lies between the sphere of psychological explanation on the one hand, and that of the natural sciences on the other. To give a concrete example. Economic science will explain thus far the circumstance that bread has an exchange value: it will point out that bread is able to satisfy the want of sustenance, and that men have a tendency to ensure the satisfaction of their wants, if necessary by making a sacrifice. But that men have this tendency, and why they have it, is not explained by economic science but by psychology. To explain that men want sustenance and why, falls within the domain of physiology. Finally, it also falls within the sphere of physiology to explain that bread is able to satisfy that want, and why it is able to do so, but physiology does not finish the explanation within its own sphere; it has to call in assistance from the more general physical sciences.
Now it is clear that all explanations given by economic science have a value only under this condition, that they are continuous with the related sciences. The explanations of economics cannot rest on anything that a science related to it is bound to declare untrue or impossible; otherwise the thread of the explanation is broken from the first. It must on that account keep exactly in touch with the related sciences at the points where they limit it, and one such point is just this question as to the working of material goods.
The one thing of which I have, perhaps, some reason to be afraid is, that the employment of this physical conception in regard to a certain limited class of material goods, especially to the so-called “ideal goods,” may be somewhat startling at the first glance to some readers. That,
e.g. a fixed and stationary dwelling-house, a volume of poems, or a picture of Raphael should be of use to us through the forthputting of inherent properties connected with one or other of the forms of energy, or, as we may shortly express it, the forthputting of its natural powers, may at first, I admit, be a little strange. Objections like these, however, which have their origin more in feeling than in understanding, may be removed by a single consideration. All the things that I have named enter into the relation which makes them “goods” only in virtue of the peculiar natural powers which they possess, and possess, indeed, in peculiar combination. That a house shelters and warms, is nothing else than a result of the forces of gravity, cohesion, and resistance, of impenetrability, of the non-conducting quality of building materials. That the thoughts and feelings of the poet reproduce themselves in us is mediated, in a directly physical way, by light, colour, and form of written characters; and it is this physical part of the mediation which is the office of the book. There must of course have been a poet soul in whom ideas and feelings waked, and, again, it is only in a spirit and through spiritual forces that they can be reawakened; but the way of spirit to spirit lies some little distance through the natural world, and over this distance even the spiritual must make use of the vehicle of natural powers. Such a natural vehicle is the book, the picture, the spoken word. Of themselves they give only a physical suggestion, nothing more; the spiritual we give of our own on accepting the suggestion; and if we are not prepared beforehand for a profitable acceptance of it,—if we cannot read, or, reading, cannot understand, or cannot feel,—it remains simply a physical suggestion.
With these explanations perhaps I may consider it established beyond question that material goods exert their economical use through the forthputting of the natural powers residing in them.
The individual useful forthputtings of natural powers that are obtainable from material goods I propose to designate as “Material Services.”
*58 In itself, indeed, the word Use (
Nutzung) would not be inappropriate, but to adopt it would be to surrender our conception to all the obscurity that now, unfortunately, hangs over that ambiguous expression.
The conception of Material Services is, in my opinion, destined to be one of the most important elementary conceptions in economic theory. In importance it does not come behind the conception of the economic Good.
*60 Unfortunately up till now it has received little attention and little development. From the nature of our task it is indispensable that we should repair this neglect, and follow out some of the more important relations into which the material services enter in economic life.
First of all, it is clear that everything which would lay claim to the name of a “good” must be capable of rendering material services, and that, with the exhausting of this capability, it ceases to have the quality of a good; it falls out of the circle of “goods” back into the circle of simple “things.” An exhaustion of this capability must not be thought of as an exhaustion of the capability to exert or to put forth energy in general; for what we have called the “natural powers” of the material are as imperishable as the material itself. But although these powers or forms of energy never cease to exist in some form or other, they may very well cease to be available for material services in this way, that the original good, in the course of doing work, has undergone such a change,—be it separation, dislocation, or uniting of its parts with other bodies,—that, in its changed form, its energy is no longer available for human use. For instance, when the carbon of the wood burned in the blast furnace has combined with oxygen in the combustion process, its powers cannot again be employed to smelt iron, although these powers are constant, and continue to work according to natural laws. The broken pendulum retains its energy due to gravity just as it did before, but the loss of the pendulum form does not allow of this energy being directed to regulate the clock. The exhaustion of capability to render material services we are accustomed to call the using up or Consumption of goods.
While all goods thus agree and must agree in this, that they have to render material services, they differ essentially from one another in the number of services that they have to render. On this rests the familiar division of goods into perishable and non-perishable, or better, into perishable and durable.
*61 Many goods are of such a nature that, to render the uses peculiar to them, they must give forth their whole power, as it were, at a blow, in one more or less intense service, so that their first use quite exhausts their capability of service, and is their
consumption. These are the so-called perishable goods, such as food, gunpowder, fuel, etc. Other goods, again, are, in their nature, capable of rendering a number of material services in the way of giving off these services successively, within a shorter or longer period of time; and thus after a first, or even after many acts of use, they may retain their capability of rendering further services, and so retain their character of goods. These are the durable goods, such as clothing, houses, tools, precious stones, land, etc.
Where a good successively gives off a number of material services, it may do so in one of two ways: either the services following each other evidently separate themselves from each other, as clearly marked single acts, in such a way that they are easily distinguished, limited, and counted,—as,
e.g. the single blows of a coining press, or the operations of the automatic printing press of a great newspaper; or they issue from the goods in unbroken, similar continuance,—as,
e.g. the shelter silently given over long periods of time by a dwelling-house. If, however, it is desired, in cases of this sort, to separate and divide the continuous amount of services—and practical need often requires this—the expedient is adopted that is generally taken in the dividing of continuous quantities; the dividing line that does not suggest itself in the phenomena under consideration is borrowed from some outside circumstance,
e.g. from the lapse of a definite time; as when one delivers over to the hirer of a house the services to be rendered by the house during the year.
Another essential feature that meets us in the analysis of material services is their capability of obtaining complete economical independence. The source of this phenomenon is that in very many, indeed in most cases, the satisfaction of a concrete human want does not demand the exhaustion of the entire useful content of a good, but only the rendering of a single material service. In virtue of this the single service in the first instance obtains an independent importance as regards the satisfaction of our wants, and then in practical economic life this independence is fully recognised. We give the recognition (1) wherever we make an independent estimate of the value of isolated services; and (2) wherever we make them into independent objects of business transactions. This latter happens when we sell or exchange single services, or groups of services, apart from the goods from which they proceed. Economical custom and law have created a number of forms in which this is effectuated. Among the most important of these I may name the relations of tenancy, of hire, and of the old
commodatum;*62 further, the institution of easements, of fee farm, of copyhold (
superficies). A little consideration will convince us that, as a fact, all these forms of transaction agree in this, that one portion of the services of which a good is capable is divided off and transferred separately while the rest of the anticipated services, be they many or few, remain with the ownership of the body of the good, in the hands of the owner of the good.
Finally, it is of great theoretic importance to determine the relations that exist between the material services and the goods from which they proceed. On this point I may put down three cardinal propositions, all of which appear to me so obvious that we may dispense here with any detailed proof of them; more especially as I have gone thoroughly into the subject on another occasion.
1. It seems to me clear that we value and desire goods only on account of the material services that we expect from them. The services, as it were, form the economical substance with which we have to do. The goods themselves form only the bodily shell.
2. It follows from the above, and appears to me equally beyond doubt, that, where entire goods are obtained and transferred, the economical substance of such transactions always lies in the acquisition and the transference of material services; indeed of the totality of these services. The transference of the goods themselves constitutes only a form—certainly a form that, in the nature of things, is very prominent, but still only an accompanying and limiting form. To buy a good can mean nothing, economically speaking, but to buy all its material services.
3. From this, finally, comes the important conclusion that the value and price of a good is nothing else than the value and price of all its material services thrown together into a lump sum; and that accordingly the value and price of each individual service is contained in the value and price of the good itself.
Before going farther let me illustrate these three propositions by a concrete example. I think all readers will agree with me when I say that a cloth manufacturer values and demands looms only because he expects to get from the looms the useful energies peculiar to them; that not only when he hires a loom, but when he buys it, he looks, as a fact, to the acquisition of its services; and that the ownership he acquires at the same time in the body of the machine only serves as greater security that he will obtain these services. Even if this ownership in point of law appears to be the primary thing, economically it is certainly only the secondary. And, lastly, it will be granted, I think, that the use which the whole machine renders is nothing else than the use of all its material services thrown together into one sum; and that similarly the value and price of the whole machine is nothing else, and can be nothing else, than the value and price of all its material services thrown together into one sum.
Bau und Leben, very beautifully puts the same point of view. Schäffle, I may say, forms an honourable exception among economists as regards this objectionable habit of not taking any trouble with the principles that regulate the working of goods.
Nutzleistung in my
Rechte und Verhältnisse; before that I used it in a work written in 1876 but not printed. It is employed by Knies several times in the second portion of his
Kredit, but unfortunately in the same ambiguous sense in which on other occasions he uses the word
Nutzleistung, introduced by Professor Böhm-Bawerk. Every translator finds the difficulty of rendering scientific terms from one language into another, but this difficulty is greater in political economy, where we are bound to use words “understanded of the people.” The word
Nutzleistung is one of these happy combinations which, as compounded of two familiar words, do not strike a German as peculiar or clumsy, and are yet strict enough to satisfy scientific requirements. But our language does not admit of many such combinations—the literal translation “use rendering” at once shows the impossibility in the present case—and in a translation one does not feel justified in coining a new word. In rendering the word thus it becomes necessary to eliminate a note that follows in the German edition, where Professor Böhm-Bawerk congratulates himself on having escaped Say’s
services productifs, which might be objected to on the ground that “only a person, not a thing, can render services.” The prefix “material” seems to me fairly to meet this objection, as the total expression now implies a service—a forthputting of natural power in the service of man—rendered by a material object.—W. S.
Gut by the English “good.” There is, indeed, reason for Mr. Ruskin’s sarcasm that our most famous treatise on Wealth does not even define the meaning of the word “wealth.”—W. S.
Rechte und Verhältnisse, p. 70, etc.
Rechte und Verhältnisse, p. 60, where, in particular, I have stated the character of the material services as primary elements of our economic transactions, and have deduced the value of goods from the value of the material services.
Der Kredit, part ii. pp. 34, 77, 78. He expressly calls the selling price of a house the price of the permanent use of a house in opposition to the hire price, which is the price of the temporary uses of the same good. See also his Geld, p. 86. Schäffle too (
Bau und Leben, second edition, iii.) describes goods as “stores of useful energies” (p. 258).
Rechte und Verhältnisse, p. 64.