The Positive Theory of Capital
By Eugen v. Böhm-Bawerk
Geschichte und Kritik der Kapitalzins-Theorieen (1884), which I translated in 1890 under the title of
Capital and Interest, Professor Bohm-Bawerk, after passing in critical review the various opinions, practical and theoretical, held from the earliest times on the subject of interest, ended with the words: “On the foundation thus laid, I shall try to find for the vexed problem a solution which invents nothing and assumes nothing, but simply and truly attempts to deduce the phenomena of the formation of interest from the simplest natural and psychological principles of our science.”
The Positive Theory of Capital, published in Innsbruck in 1888, and here rendered into English, is the fulfilment of that promise…. [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
- Authors Preface
- Book I,Ch.I
- Book I,Ch.II
- Book I,Ch.III
- Book I,Ch.IV
- Book I,Ch.V
- Book I,Ch.VI
- Book II,Ch.I
- Book II,Ch.II
- Book II,Ch.III
- Book II,Ch.IV
- Book II,Ch.V
- Book II,Ch.VI
- 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 IV,Ch.I
- Book IV,Ch.II
- Book IV,Ch.III
- Book IV,Ch.IV
- Book IV,Ch.V
- Book IV,Ch.VI
- Book IV,Ch.VII
- Book V,Ch.I
- Book V,Ch.II
- Book V,Ch.III
- Book V,Ch.IV
- Book V,Ch.V
- Book VI,Ch.I
- Book VI,Ch.II
- Book VI,Ch.III
- Book VI,Ch.IV
- Book VI,Ch.V
- Book VI,Ch.VI
- Book VI,Ch.VII
- Book VI,Ch.VIII
- Book VI,Ch.IX
- Book VI,Ch.X
- Book VII,Ch.I
- Book VII,Ch.II
- Book VII,Ch.III
- Book VII,Ch.IV
- Book VII,Ch.V
Book II, Chapter VI
It is perhaps advisable to supplement our positive statement by a brief critical consideration of the most important objections that might be urged. Two of these appear to me particularly worth noticing. The first is, that the majority of goods which constitute capital are, by nature, quite unfitted to immediate consumption. There is, therefore, no sacrifice in withdrawing them from a use which they could never serve. Indeed, it is ridiculous to speak of the “non-consumption” of steam-engines and land improvements, of roofing tiles and bars of metal, as an act of saving or abstinence.
To me this seems a somewhat cheap, but still perfectly good, argument against those who formulate the theory of saving superficially or falsely. But, as against the essence of the theory, it proves nothing. If any one is stupid enough to interpret the theory of saving as meaning that finished capital, in its form as concrete capital, must be “saved,” he must submit to the retort that man cannot eat iron machines.
*40 But this is not at all the meaning of any thoughtful representative of the theory. What is maintained is only that, without saving, capital cannot be made or increased; that saving is as indispensable a condition of the formation of capital as is labour. And this is literally correct. The machines themselves have not been saved, but built. But in order to build them, men had previously to withdraw the productive powers necessary to building them from the service of the present; they had, therefore, in the strictest sense of the term, to save them.
It may serve towards the settling of this controversy to remark that the idea of sacrifice, of renunciation, and thus of moral desert, need not be associated with the conception of saving.
may be sacrifice in saving, and it
may be praiseworthy, but not at all necessarily. A man with a small income will, of course, feel it a sensible privation, and it will require strong self-denial in him to lay past anything; while one who has an income of £100,000, and is content to consume one half of it, has little claim to be considered a hero of asceticism because he saves the other half as capital. It is simply the
fact of a saving that is indispensable to the formation of capital; whether there is sacrifice and moral desert in it or not is all the same to the result. And it follows from this that the theoretical truth, that “saving” is necessary to the formation of capital, cannot and must not be used to justify, either morally or socio-politically, all and every taking of interest. This is another instance of that confusing of the theoretical with the socio-political problem of interest which I adverted to in another place
*43 as having done so much harm. One side mixed up the theoretical doctrine that the formation of capital must be preceded by saving, with the moral judgment that interest is justified as the “reward of abstinence,” and the other side, which saw, quite correctly, that interest could not be justified in such general terms, was misled, by the same confusion of the problems, into denying not only the false socio-political deduction but the true theoretical premiss.
If these two problems are kept distinct it will help us to give both parties their due. To Rodbertus and Lassalle we may grant at once that saving need not be moral heroism, and therefore is no sufficient socio-political justification of interest; but we must stand for the recognition of the theoretical truth that the fact of saving is in any case required to the formation of capital.
A second objection lays emphasis on the fact that, for a man to be able to accumulate capital, he must
acquire more than he uses, and draws the conclusion that it is essentially the productivity of labour—industriousness and not abstinence—to which the formation of capital is due. Thus Rodbertus says, in so many words, that if, in the beginnings of economic development, an “isolated worker has no time to make a tool because he must always live from hand to mouth,” the blame lies simply in the productivity of labour being too small. If, later, this productivity increases so much that, say, eight hours’ labour is sufficient to produce the day’s maintenance, then “from the labour time, which up till now he had to devote entirely to make what was absolutely necessary, he has a portion over for other labour, and it is this spare labour which he is now able to devote to the making of a tool.” And from this quite correct consideration Rodbertus draws the conclusion that it is
only the increasing of the productivity of labour, and
not saving, which makes the existence of such a primary capital possible.
*44 And still more briefly and strongly does Kleinwächter give expression to the same idea when he says: “He who transfers a portion, say a half, of his revenue to the bank is merely industrious. He might, for instance, by a five hours’ day of labour earn his bare maintenance, and devote, say, every afternoon to his recreation or enjoyment; instead of which the man works ten hours a day, and regularly carries what he earns in the afternoon to the savings-bank.”
I think this objection is very easily met. It is simply not correct to say that the man is “merely industrious.” He is industrious and saving. If he were simply industrious he would, every day, spend the produce of the afternoon’s labour, along with the produce of the forenoon’s labour, in immediate enjoyment of life. That he does not do so is because he is saving as well. I freely admit that greater industriousness, causing a return far exceeding necessary requirements, and, similarly, greater productivity of labour, very much facilitate saving, just as I admit also that, without acquisition, saving, as well as formation of capital, is absolutely impossible. But I must as emphatically claim recognition of the fact that the greatest acquisition could not lead to the formation of capital if a portion of it were not withdrawn from present use and “saved.” Production and Saving form two equally indispensable conditions of the formation of capital, and it is only dialectical one-sidedness—which, unfortunately, has already played much too great a part in the doctrine of capital—that could deny the co-operation of either of them.
But does not this involve me in contradiction with the proposition so earnestly contended for in last chapter, that all goods (and consequently all capital) proceed from two elements, of which saving is not one, viz. from nature and labour?
*47 Certainly it does not. It is not my intention to do as Senior did,
*48 and try to make Saving a third factor in production along with Nature and Labour. It does not stand
beside these factors, but behind them. It does not share with them in the work of production in such a way that any part of the same is due to it solely and peculiarly; it only effects that the productive powers, nature and labour, which in any case must do the
whole work of production, are directed straight to this and no other goal—the production of capital and not of consumption goods. In a word, it has its place, not among the
means of production, but among the
motives of production—the motives which decide the
direction of production. The proposition, then, that nature and labour are the only true productive powers, can stand perfectly well beside the wider assertion, that, if capital is to come into existence at all, there must, first, be certain intellectual dispositions through which renunciation is made of a portion of the immediate consumption that is otherwise possible; in other words, there must be “Saving.”
Saving, it is objected again, is a “non-consumption”—something purely negative; and a pure negation can bring forth nothing.
*49 To my mind there is more dialectic than truth in this argument. Is it quite correct to say that saving is something purely negative? How comes it, then, that, although nothing is easier than a “pure not-doing,” so many people feel saving an uncommonly difficult and disagreeable thing? In truth, saving is a mental business; and often, indeed, though
not always, a very troublesome mental business, preceded by long deliberation and conflict between contending motives. This, of course, does not constitute an act of production, and the representatives of the above dialectical objection are, in the end, quite right in raising it as an argument against those theorists who would dignify saving by the name of a third factor in production. But, indeed, simply mental as saving may be, it is sufficient to effectually fill the rôle which we have assigned to it in the formation of capital, viz. exerting an influence on the direction of production.
For the rest, whether it be a “pure negation” or not, we can, in no case, allow dialectical considerations to interfere with establishing important scientific facts. And it is an important scientific fact, which must be reiterated all the more emphatically that it has been disputed, that the progress of capital stands in a causal relation with the extension of the immediate claims put forward by individuals and peoples. Whatever body—be it an individual or a people—extends the claims of the moment so far as to exhaust, during the current period, the entire amount of consumption goods which its income makes possible for the current period, can neither make new nor increase old capital; and this fact finds accurate and straightforward expression in the proposition that saving is an indispensable condition of the formation of capital.
Suppose now that we have succeeded, after considerable trouble, in establishing the proposition that capital comes into existence through saving and devotion to production of what is saved, we have still got but half the answer to our inquiry as to the formation of capital. We have now to face the further question: On what does it depend that people can, will, and actually do save and produce intermediate products? Strictly speaking, this second question is the more important of the two; it points to the impelling and working forces in the formation of capital, while all that has preceded has merely laid down the external forms of the process.
The most general answer, but still, it must be confessed, insufficient for all its generality, runs thus: what people look to in economic life is the Value of goods. Here we touch a subject which is too important and too difficult to be spoken of merely in passing. To obtain the basis for the principal part of our work—the explanation of interest—we require to go into the theory of value. I shall, therefore, leave the theory of the formation of capital at this stage, returning to it shortly in the last chapter, where we shall give it the logical conclusion that it still lacks.
(Kapital und Albeit, p. 69); Rodbertus
(Das Kapital, p. 271). In a somewhat diluted form the same doctrine appears in Wagner
(Grundlegung, second edition, p. 600), who makes a distinction between goods in which the peculiarities of capital are inherent, and those in which they are not. The former are not, at least “directly,” objects of saving. Similarly Kleinwächter (Schönberg’s
Handbuch, first edition, p. 173).
Handbuch (p. 214) Kleinwächter comes a long way nearer our conception in assenting to it, as regards at least one of the chief forms of capital—tools of production. He allows that the making of such tools “always involves, to a certain extent, the renunciation of an immediate enjoyment,” because the materials which are made use of in making the tools of production might have been employed in making some kind of consumption goods; and thus there is no reason for objecting to call such a renunciation of enjoyment by the name of Saving. But it is different, he says, with the materials of production. Such things as raw wool, stone, and lime, etc., could not in any way be objects of direct consumption, and so could not be saved; they must be looked on, therefore, economically as products of labour only, and not as the result of saving. In this Kleinwächter is not logical. As regards the tools of production he, quite correctly, does not consider whether the finished tools themselves might have been consumed, but whether, by the instruments from which the tools were made, any consumption good might have been made; and because this is the case he answers the question as to saving in the affirmative. But if he had kept to this line of thought as regards the materials of production, he must have seen that, by means of the same productive powers as man uses to quarry stone, to build a house, or obtain lime for mortar, he might have made himself goods for immediate consumption,—
e.g. hunted wild animals or caught fish,—and that here, consequently, on exactly the same grounds and in exactly the same way as in the case of tools, saving does come into the question.
Handbuch, second edition, p. 215.
only the increase of productivity, and
not saving, makes the formation of capital possible.
Inquiry, pp. 207, 272.
Das Kapital, second edition, i. p. 619, in note (English translation, p. 608): “It has never occurred to the vulgar economist to make the simple reflection, that every human action may be viewed as ‘abstinence’ from its opposite. Eating is abstinence from fasting, walking abstinence from standing still, working abstinence from idling, idling abstinence from working, etc. These gentlemen would do well to ponder, once in a way, over Spinoza’s
Determinatio est Negatio.” Gide,
Principes d’Éc. Pol. p. 168: “Un act purement négatif, une abstention ne saurait produire quoi quo ce soit…. Sans doute on peut dire que si ces richesses avaient été consommées au fur, et à mésure qu’elles ont pris naissance, elles n’éxisteraient pas à cette heure, et qu’en conséquence l’épargne les a fait naître une seconde fois. Mais à ce compte, il faudrait dire qu’on produit une chose toutes les fois qu’on s’abstient d’y toucher et la non destruction devrait être classée parmi les causes de la production, ce qui serait une singulière logique.”
a priori, deny that possibly one might contrive to hunt up some subtle examples where capital (particularly social capital) comes into existence without saving properly so called. But all the more strongly do I hold by my proposition that, as regards the great mass of the economic formation of capital, saving, in the way I have indicated, has its place.