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.]

Book Cover

Translator/Editor

William A. Smart, trans.

First Pub. Date

1884

Publisher

London: Macmillan and Co.

Pub. Date

1890

Copyright

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.

Criticism of the Say-Hermann Conceptions

Book III, Chapter VI

Having, then, sufficiently explained the nature and the constitution of the use of goods, let us come back to the principal point under consideration—the critical examination of the conception of “use” put forward by the Use theorists.

And first we ask, May it not be the case that the Uses (
Nutzungen) of the Say-Hermann school are identical with our Material Services (
Nutzleistungen)? There can be no doubt that they are not identical. That
something which the school in question calls “use” is intended to be the basis and the equivalent of net interest. The material services, on the contrary, are sometimes (in the case of durable goods) the basis of gross interest, embracing the net interest and a part of the capital value itself; sometimes (in the case of perishable goods) the basis of the entire capital value. If I buy the material services of a dwelling-house, I pay a year’s rent for the services of one year; this is a gross interest. If I buy the material services of a cwt. of coal, I pay, for the services of the single hour in which the coal burns to ashes, the whole capital value of the coal. On the other hand, what the Use theorists call “use” is paid for quite differently. The “use” that a cwt. of coal gives off during a whole year attains no higher price than, say, a twentieth part of the capital value of the coal. Use and Material Service must, therefore, be two quite distinct amounts. From this, among other things, it is clear that those writers who defined and pointed out the existence of what we have called material services, under the idea that they were defining the basis of net interest, and pointing to it, were under a serious delusion. This criticism applies particularly to the
services productifs of Say, and to Schäffle’s earlier definitions of use.

And now we come to the decisive question. If what the Use theorists called “uses” (
Nutzungen) are anything else than the “material services” of goods, does their conception represent anything real? Is it conceivable that between, beside, or among these material services we get some other useful thing from goods?

I can give no other answer to this question than the most emphatic No. And I think every one will be compelled to give this answer who admits that material goods are objects of the material world; that material results cannot be produced otherwise than through manifestations of natural powers; and that even the “utility” of a thing is an activity. Granted these premises,—none of which are likely to be opposed,—it appears to me that no other kind of use in material goods is conceivable than that which comes through the forthputting of their peculiar natural powers—that is, through the rendering of Material Services.

But it is not even necessary to appeal to the logic of the natural sciences. I appeal simply to the common sense of the reader. Take an example or two to remind us of what we mean when we say that goods are “of use.” A thrashing machine, there is no doubt, is of use economically in helping to thrash corn. How does it, how can it, render this use? Not otherwise than through putting forth its mechanical powers one after another, till such time as the worn-out mechanism refuses to put forth any more power of the same kind. Can any reader picture to himself the effect that the thrashing machine exerts in separating the corn from the ear under any other form than that of a forthputting of mechanical power? Can he imagine one single use that the machine could exert in thrashing, not through putting forth of power, but through some other kind of
Nutzung? I doubt it very much. The thrashing machine either thrashes by putting forth its physical powers, or it does not thrash at all.

It would be useless too to attempt to make out another kind of use or
Nutzung by pointing to different kinds of
mediate uses that can be got from the thrashing machine. Our grain when thrashed is certainly worth more than it was before being thrashed, and the increment of value is a use we get from the machine. But it is easy to see that this is not a use
in addition to the material services of the machine, but a use
through these services; that it is just the use of the machine. Take an exactly similar case. Suppose some one were to give me £50, and with it I were to buy myself a riding-horse. No one would say that I had received two presents—£50
and a riding-horse. We have just as little right to conceive of the mediate use of the material services as a second and different useful service of the goods.
*67

This becomes quite clear in the case of perishable goods. What do I get from a cwt. of coal? The heat-creating powers that it gives off during combustion, and which I pay for by the capital price of the coal, and, beyond that, nothing—absolutely nothing. And what I call my “use” of the coal consists in this, that I put these material services, as they issue from the coal, into connection with some one object in which I wish to effect a change through heat; the use lasts as long as these services issue from the burning coal.

And when I lend a man a cwt. of coal for a year, what does my debtor get from it? Just the heat-creating power that issues from the coal during a couple of hours, and besides that, in this case also, nothing—absolutely nothing. And his use of the coal likewise is exhausted in the same number of hours. It may perhaps be asked, Can he not, then, in virtue of the loan agreement, use the coal over a whole year? The owner, I admit, could have nothing to say against it, but nature has; and nature says inexorably that the use shall be over in a couple of hours. What then remains of the contract is, that the debtor is obliged at the expiry of the year, but not till then, to replace the loan by
another cwt. of coal. But it is surely a most extraordinary confusion of ideas that the fact of a man having to give a cwt. of coal at the expiry of a year in place of another cwt. of coal that has been burnt, should be taken to mean that, in the burned cwt. of coal, there continues to exist an objective use for a whole year!

For any “use of goods,” then, other than their natural material services, there is no room either in the world of fact or in the world of logical ideas.

Possibly many readers will consider this analysis sufficiently convincing. But the matter is too important, and the antagonistic views too deeply rooted, to admit of it resting here; and, accordingly, I shall try to bring forward still further evidence against the existence of the use postulated by the Use theorists. Of course the nature of my contention, as a negative one, does not allow of a positive proof. I cannot put before the mind the non-existence of a thing in the same way as I might put the existence of a thing. Nevertheless there is no lack of decisive evidence on the point, and indeed it is offered by my opponents themselves.

There are two criterions of a true proposition: that it is obtained by a correct process of reasoning, and that it leads to correct conclusions. In the case of the assertion we are combating—the assertion that there is an independent use—neither of these criterions applies, and what I mean to prove now is this:—

1. That in all the reasoning by which the Use theorists thought they had proved the existence of this Use, an error or a misunderstanding has crept in.

2. That the assumption of an independent Use necessarily leads to conclusions that are untenable.

After what has been already demonstrated, that there is no place for any objective Use or
Nutzung besides the Material Services, the proof of the above points should afford the fullest evidence that can be brought forward for my thesis.

67.

A hair-splitting critic might perhaps point out that the possession of good machines assists the maker to secure, say, a good credit, a good name, good custom, etc. The careful reader will have no difficulty in answering such objections. To the same category belongs the “use through exchange”.

Categories: Eugen v. Bohm-Bawerk