Capital and Interest: A Critical History of Economical Theory

Eugen v. Böhm-Bawerk, from the Warren J. Samuels Portrait Collection
Böhm-Bawerk, Eugen v.
(1851-1914)
CEE
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Editor/Trans.
William A. Smart, trans.
First Pub. Date
1884
Publisher/Edition
London: Macmillan and Co.
Pub. Date
1890
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Book III, Chapter VIII

The Independent Use: Its Untenable Conclusions

III.VIII.1

It is customary among the Use theorists, and even among others,*72 to make a distinction between a gross Nutzung, which is the basis of gross interest (rent or hire), and a net Nutzung, which is the basis of net interest. It is singular enough that we have all been in the habit of innocently repeating this distinction, without it ever occurring to any one that there was in it an irreconcilable contradiction.

III.VIII.2

If we are to believe the unanimous assurance of our theorists, Nutzung should be taken as synonymous with Gebrauch in the objective sense of the word. Now, if there is a net and a gross Nutzung, are we to understand that there are two Nutzungen, two Gebräuche of the same good—not, it must be remembered, two successive or two alternative kinds of Gebrauch, but two simultaneous cumulative Gebräuche that are obtained beside or in each other in every transaction, however elementary, where a Gebrauch enters?

III.VIII.3

That one good gives off two uses, the one after the other, can be understood. That one good permits of two kinds of use alternatively—as wood for building and for burning—can also be understood. It is quite conceivable even that one good should permit of two kinds of use simultaneously, the one beside the other, and that these furnish two distinct utilities; e.g. that a picturesque rustic bridge should at once serve as medium of traffic, and as object of aesthetic satisfaction.

III.VIII.4

But when I hire a house or a lodging, and make use of it for purposes of habitation, to imagine that in one and the same series of acts of use I am receiving and profiting by two different uses, a wider one for which I pay the whole hire, and a narrower one for which I pay the net interest contained in the hire; or to imagine that in every stroke of the pen that I put on paper, in every look that I throw on a picture, in every cut that I make with my knife, in short, in every use, however simple, that I get from a good, I get always two uses, in or beside each other;—this is in contradiction alike with the nature of things and with healthy common sense. If I look at a picture, or live in a house, I make one use of the picture or house; and if in this connection I speak of two things, whether Gebrauch or Nutzung, I am giving a wrong name to one of them,

III.VIII.5

To which of them do I give the wrong name?

III.VIII.6

On this point, again, the current view is a very strange one. The theorists we are speaking of certainly appear to have felt in some degree the impropriety of assuming two uses to exist alongside each other. For although as a rule they employ the word Nutzung to express two things, they sometimes make an attempt to put one of them out of sight. Indeed, the gross Nutzung is eliminated when it is split up into net Nutzung plus partial replacement of capital. Thus Roscher, whom we are justified in quoting as the representative of the current opinion, says:*73 "The Nutzung of a capital must not be confounded with its partial replacement. In house rent, for instance, over and above the payment for the Gebrauch of the house, there must be contained a sufficient sum for repairs, indeed enough for the gradual accumulation of capital sufficient to put up a new building." It follows that the thing for which we pay net interest is in truth a Gebrauch, and it is erroneous and inaccurate to apply the name to that for which we pay gross interest. I do not believe that it would be possible to put the representatives of this wonderful view in a more embarrassing position than by challenging them to define what they mean by Gebrauch. What else can it mean than the receiving or, if we like to give it an objective significance, the proffering of the Material Services of which a good is capable? Or, if there is any objection to my expression, let us say "useful services" with Say, or "releasing of a use from material goods" or "receiving of useful effects" with Schäffle, or however else we like to put it. But define the word as we may, one thing appears to my mind beyond dispute. When A makes over to B a house for temporary habitation, and B inhabits it, then A has given over to B the Gebrauch of the house, and B has taken the Gebrauch of the house; and if B pays anything for the Gebrauch, he does not pay a single penny of hire or rent for anything else than this;—that he may avail himself of the useful properties and powers of the house. In other words, he has paid for the Gebrauch transferred to him.

III.VIII.7

It may be said, Yes, perhaps so; but has not B consumed a portion of the value of the house itself? and if so, did he not get transferred to him a part of the value of the house itself, in addition to the use of the house? One who would argue thus might be expected to hold the somewhat singular view that two aspects of one event are two events. The truth of the matter is that the hirer has received the Gebrauch of the house, and only the Gebrauch; but in using it, and through using it, he has diminished its value. He has received a "store of energies," from which he is at liberty to "release" so many; he has done nothing but "release" or use them; but, naturally, the value of the remainder of the energies has been diminished thereby. To construe that as meaning that the hirer has received two things alongside each other, Gebrauch and partial value of capital, appears to me very much as if, in buying a fourth horse to match three he had already, a man were to consider it an acquisition of two separate things—first, a horse, and second, the complement of the team of four; and as if he were then to maintain that, of the £50 he paid, only one portion, say £25, was the price of the horse, while the remaining £25 was the price of the complement of the team! It is the same thing as if one were to say of a workman who had put up the cross on the steeple and thereby finished the building of the steeple, that he had performed two acts—first, had put up the cross, and second, had finished the building of the steeple; and were further to say that, if the workman took an hour to do the whole job, not more than three-quarters of an hour were needed for the erection of the cross, since a part of the whole time expended, say a quarter of an hour, must be put to the account of the second act, the completion of the building of the steeple!

III.VIII.8

But if, notwithstanding all this, some one thinks that he sees in Gebrauch, not the gross Nutzung, but another something which is ill to define, let him say in what the Gebrauch of a meal consists. In eating? It cannot be so, for that is a gross Nutzung, that swallows up the whole value of the capital, and of course we cannot confuse that with the true Gebrauch. But in what then does it consist? In an aliquot part of eating? or in something entirely different from eating? I am glad to think that the duty of answering this question does not fall to me, but to the Use theorists.

III.VIII.9

If, then, we are not to give the words Gebrauch and Nutzung a meaning that is equally opposed to language and to life, to the representations of practice and of science, we cannot deny the gross Nutzung the property of being a true Nutzung. But if there cannot be two Nutzungen, and if in any case the gross Nutzung must be recognised as that which correctly conveys the conception of Nutzung, then there is no need to argue further against the net Nutzung of the Use theorists.

III.VIII.10

But let us leave all that on one side, and confine our attention to the following. Whether the gross Nutzung be a true Nutzung or not, at any rate it is undoubtedly something. And the Use theorists would like to make out the net Nutzung to be something likewise. Now these two quantities, if they both actually exist, must at all events stand in some relation to each other. The net Nutzung must either be part of the gross Nutzung or it is no part of it; there is no third course. Now let us see. If we look at durable goods it seems probable that the net Nutzung is a part of the gross; for since the remuneration of the former, the net interest, is contained in the remuneration of the latter, the gross interest, so must also the first object of purchase be contained in the second, and be a part of it. This indeed even the Use theorists themselves maintain when they analyse the one sum of the gross Nutzung into net Nutzung plus partial replacement of capital. But look now at perishable goods. The net interest I pay in this case is not paid for their consumption (Verbrauch), for if, on the moment of the consumption, I replace the perishable goods by their fungible equivalent, I do not require to pay any interest. What I pay interest for is only the delay in the replacement of the equivalent; that is, I pay it for something that is not contained in the consumption—that most intense form of gross use—but stands quite outside it. Are we to conclude then that the net Nutzung is at once part and not part of the gross Nutzung? How can the Use theorists explain this contradiction?

III.VIII.11

I might draw out to much greater length the number of riddles and contradictions into which the assumption of the independent Nutzung leads us. I might ask the Use theorists what, for instance, I should represent to myself as the ten years' Nutzung, or the ten years' Gebrauch, of the bottle of wine that I drank on the first day of the first year? An existence it must have, for I can buy or sell it on a loan of from one to ten years. I might point out what a singular assumption it is, even verging on the ludicrous, that, on the moment when a good by its complete consumption actually ceases to be of use, it should really be only beginning to afford a perpetual use; that one debtor, who at the end of a year pays back a bottle of wine he borrowed, has consumed less than another who only returns the bottle of wine at the end of ten years, inasmuch as the former has consumed the bottle of wine and its one year's use, the latter the bottle of wine and its ten years' use; while all the time it is evident to everybody that both parties have obtained the same use from the bottle of wine, and that the obligation that emerges, to pay back another bottle of wine sooner or later, has absolutely nothing to do with the shorter or longer duration of the objective uses of the first bottle. But I think that more than enough has been said to carry conviction.

III.VIII.12

To sum up, I consider that three things have been here proved. I think it has been proved, firstly, that the nature of goods, as material bearers of useful natural powers, precludes the conceivability of any Nutzung that does not consist in the forthputting of their useful natural powers—that is, any Nutzung that is not identical with what I have called the Material Services of goods—those services being the basis not of net, but of gross interest; or, in the case of perishable goods, their entire capital value.

III.VIII.13

I think that it has been proved, secondly, that all attempts on the part of the Use theorists to demonstrate the existence or the conceivability of a net Nutzung different from the material services, are erroneous or based on a misunderstanding.

III.VIII.14

I think it has been proved, thirdly, that the assumption of the net Nutzung postulated by the Use theorists necessarily leads to absurd and contradictory conclusions.

III.VIII.15

I think, therefore, that I am entirely justified in maintaining that the net Nutzung, on the existence of which the Use theorists of the Say-Hermann school base their explanation of interest, does not in truth exist, but is only the product of a misleading fiction.

III.VIII.16

But in what way did this remarkable fiction enter into our science? And how came it to be taken for reality? By recurring for a little to the history of the problem I hope to dispel any doubts that may linger in the minds of my readers; and, in particular, I trust we may get an opportunity of estimating at its true value any prejudice that might still linger as a consequence of the former victory of Salmasius's theory.


Notes for this chapter


72.
It is as well to put it in so many words that, in this polemic on the conception of Use, I am in opposition, not only to the Use theorists properly so called, but to almost the entire literature of political economy. The conception of the Use of capital which I dispute is that commonly accepted since the day of Salmasius. Even writers who explain the origin of interest by quite different theories—e.g. Roscher, by the Productivity theory; or Senior, by the Abstinence theory; or Courcelle-Seneuil or Wagner, by the Labour theory—always conceive of loan interest as a remuneration for a transferred Use or Usage of capital, and occasionally they conceive even of natural interest as a result of the same use or usage. The only distinction between them and the Use theorists properly so called is this, that the former employ these expressions naïvely, using terms that have become popular, and do not trouble themselves as to the premises and conclusions of the Use conception,—which sometimes entirely contradict the rest of their interest theory; while the Use theorists build their distinctive theory on the conclusions of that conception. The almost universal acceptance of the error I am opposing may further justify my prolixity.
73.
Grundlagen, tenth edition, p. 401, etc.

End of Notes


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