Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-03T07:09:04.638Z Has data issue: false hasContentIssue false

Dangers of the One-Good Model: Böhm-Bawerk's Critique of the “Naïve Productivity Theory of Interest”

Published online by Cambridge University Press:  11 June 2009

Robert P. Murphy
Affiliation:
Department of Economics, Hillsdale College, 33 E. College Street, Hillsdale, MI 49242, USA. E-mail: Robert.Murphy@hillsdale.edu.

Extract

In the late nineteenth century, Eugen von Böhm-Bawerk's magisterial work (1881) or capital and interest provided the foundation upon which virtually all modern theories are built. In his first volume, History and Critique of Interest Theories, Böhm-Bawerk classified and (in his mind) refuted all previous explanations. Böhm-Bawerk thought a proper theory of interest must explain the apparent undervaluation of future goods For example, if a machine is expected to yield annual rents of $1,000 for ten years why does it sell now for less than $10,000? To answer this question was to provide a theory of interest, for only with such an undervaluation would it be possible for a capitalist to invest in machines, for example, and reap a flow of returns, over time greater than his initial investment.

Type
Research Article
Copyright
Copyright © The History of Economics Society 2005

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Böhm-Bawerk, E. von (1881) Capital and Interest (South Holland, IL: Libertarian Press, 1959).Google Scholar
Murphy, R. P. (2003) Unexpected Intertemporal Change in Theories of Interest (New York: New York University).Google Scholar
Romer, D. (1996) Advanced Macroeconomics (New York: McGraw-Hill).Google Scholar