The Positive Theory of Capital
By Eugen v. Böhm-Bawerk
In his
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.]
Translator/Editor
William A. Smart, trans.
First Pub. Date
1888
Publisher
London: Macmillan and Co.
Pub. Date
1891
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.
- Translators Preface
- Authors Preface
- Introduction
- 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
- Appendix
Isolated Exchange
Book IV, Chapter II
A peasant, whom we shall call A, requires a horse. His individual circumstances are such that he attaches the same value to the possession of the horse as he does to the possession of £30. A neighbour, whom we shall call B, has a horse for sale. If B’s circumstances also are such that he considers the possession of the horse worth as much as, or worth more than £30, there can, as we saw, be no exchange between them. Suppose, however, that B values his horse at considerably less, say at £10. What will happen?
First, it is certain that there will be an exchange; in the assumed circumstances each of the contracting parties can make a considerable profit by the exchange. If, for instance, the horse changes hands at £20, A, who considers it worth £30, makes a profit of £10, and B, who gets £20 for an article worth only £10 to him, gets the same amount of profit. They will, therefore, in any case, according to the proposition “rather a small gain than no exchange,” agree on making an exchange at a price advantageous to both of them. The question now is: How high will this price go? As to this it may be said definitely: The price must at all events be less than £30, otherwise A would have no economical advantage, and would have no motive for going on with the exchange. And it must at all events be higher than £10, or there would be no use in the exchange to B, and perhaps even loss. But the particular point between £10 and £30 at which the price will be fixed cannot be determined beforehand with certainty. Any price between the two is, economically, possible; a price of £10:1s. or a price of £29:19s. Here, then, is room for any amount of ” higgling.” According as in the conduct of the transaction the buyer or the seller shows the greater dexterity, cunning, obstinacy, power of persuasion, or such-like, will the price be forced either to its lower or to its upper limit. If both parties have equal skill in bargaining, the price will be fixed approximately midway; that is to say, about £20.
There is no difficulty in putting this briefly in the form of a general proposition. In isolated exchange—exchange between one buyer and one seller—the price is determined somewhere between the subjective valuation of the commodity by the buyer as upper limit, and the subjective valuation by the seller as lower limit.