The business cycle · Course 3 of 15 · Capital, prices and money
Capital, time and interest
Bohm-Bawerk asked why a present good trades above the same good later, and built a theory of interest on the answer. Including what did not survive.
Menger showed that production takes time. Bohm-Bawerk asked what the time is worth, and the answer he built became the Austrian theory of interest.
The two works are Capital and Interest, 1884, which is a survey and a dismantling of every existing explanation of interest, and The Positive Theory of Capital, 1889, which is his own. Both were translated into English by Smart, in 1890 and shortly after, and the Positive Theory is the one this course mostly reads.
Seven lessons. The first three build the machinery: what capital is in this tradition, the claim that longer methods of production yield more, and the attempt to measure how long a method is. The next two are the theory of interest itself, in the form Bohm-Bawerk gave it and in the narrower form the later school kept. The sixth is his argument with Marx, which is the reason he is read outside this tradition at all.
The seventh is not optional and it is not a postscript. The measure in lesson three took heavy fire, first from Knight in the 1930s and later in a much larger dispute about whether capital can be measured as a quantity at all. A course that taught roundaboutness and skipped that would be advertising.
Some arithmetic, all of it round and invented. Nothing here is a forecast or a view about any security, and ValueScreener gives no advice.
A theory, not a measurement
Capital, time and interest is 7 lessons on capital, interest and money as this school defines them. These are definitions and arguments about definitions. Nothing here reads a balance sheet, and the capital in it is the economy’s, not the capital employed by a company you hold.
Related
- Menger and subjective value is the course before this one, and its last lesson is the delay this whole course puts a price on.
- What a discount rate is doing is the same question in a modern form: what a rate is charging for, before anyone argues about its size.
See our methodology for how the product reads a filing and what it refuses to compute.