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Title page from Capital and Interest: A Critical History of Economic Theory

Capital and Interest: A Critical History of Economic Theory

Ludwig von Mises described this as a “monumental work” which “is the most eminent contribution to economic theory”. He further stated that “a man not perfectly familiar with all the ideas advanced in theses three volumes has no claim whatever to the appellation of an economist”. It is a work which made the modern intertemporal theory of interest rates possible.

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Citation

Capital and Interest: A Critical History of Economic Theory, trans. William A. Smart (London: Macmillan, 1890).

Copyright

The text is in the public domain.

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Carl Menger (Author)

Menger’s Principles of Economics (1871) laid the groundwork for the subjective theory of value, which Böhm-Bawerk extended to capital and interest. Without Menger’s marginalist revolution, Böhm-Bawerk’s critical history and positive theory would not have been possible.

Friedrich von Wieser (Author)

Böhm-Bawerk’s brother-in-law, fellow Austrian economist, and co-developer of marginal utility theory. Though his focus was more on value, imputation, and cost theory, Wieser’s ideas on opportunity cost and value theory helped frame the intellectual setting in which Capital and Interest was written. He sometimes diverged from Böhm-Bawerk, but the two shaped the second generation of Austrian economics together.

Irving Fisher (Author)

American economist who built the modern intertemporal theory of interest. Fisher’s The Theory of Interest (1930) explicitly drew on Böhm-Bawerk’s insights about time preference, refining them with mathematical rigor. Böhm-Bawerk’s historical-critical foundation made Fisher’s formalization possible, cementing the continuity between Austrian and American capital theory.

John Bates Clark (Author)

American marginalist and contemporary of Böhm-Bawerk. Developed the marginal productivity theory of distribution, which interacted with Böhm-Bawerk’s theory of capital. Their debates over the nature of capital and interest—particularly Clark’s insistence that capital is permanent and yields a “natural rate”—were central to clarifying the distinctiveness of Böhm-Bawerk’s approach.

Ludwig von Mises (Author)

Böhm-Bawerk’s student and later the towering Austrian economist who praised Capital and Interest as indispensable. Mises adopted and extended Böhm-Bawerk’s time-preference theory of interest into his broader system of praxeology. Through Mises (and later Hayek and Rothbard), Böhm-Bawerk’s influence permeated 20th-century Austrian economics.

Knut Wicksell (Author)

There is a real intellectual link between Böhm-Bawerk’s Capital and Interest and Knut Wicksell’s Development of the Natural Rate of Interest, even though Wicksell is usually seen as working in a somewhat different tradition (the Swedish School).

Critical Responses

Journal Article

Interest Theories, Old and New

Frank Fetter

A critical essay that challenges Böhm-Bawerk, particularly his “roundaboutness” theory, while defending a purer time-preference view of interest. This piece shows how American economists engaged with and reshaped his ideas.

Book

Lectures on Political Economy

Knut Wicksell

Critiques Böhm-Bawerk’s “average period” concept and develops natural rate theory.

Connected Readings

Liberty Matters

Assessing Böhm-Bawerk’s Contribution to Economics after a Hundred Years

Richard Ebeling, Joseph T. Salerno, Roger W. Garrison, and Peter Lewin

Offers modern interpretations and assessments of Böhm‑Bawerk’s influence on capital theory, Austrian economics, and public policy.

Book

Interest and Prices

Knut Wicksell

Introduces the concept of the “natural rate of interest,” a development that extends Böhm-Bawerk’s intertemporal focus into monetary theory. Together, they frame the debate that influenced Mises and Hayek’s Austrian Business Cycle Theory.

Book

Human Action: A Treatise on Economics, in 4 vols. (LF ed.)

Ludwig von Mises

Mises described Capital and Interest as indispensable. In Human Action, he extends Böhm-Bawerk’s time-preference theory of interest into his system of praxeology, making the connection between capital theory and broader economic science explicit.

Book

Prices and Production

Friedrich Hayek

Hayek explicitly fuses Böhm-Bawerk’s theory of capital with Wicksell’s natural rate framework to build Austrian Business Cycle Theory. This work demonstrates how Böhm-Bawerk’s insights were transformed into a monetary-macro theory of booms and busts.


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