A Modern Post-Mortem on Böhm's Capital Theory: Its Vital Normative Flaw Shared by Presraffian Mainstream Capital Theory

Abstract

The Nobel Prize of Piero Sraffa and Joan Robinson that Stockholm never awarded might have pleased at least one of them. Its citation would have included: “Their investigations uncovered a fatal normative flaw in Böhm-Bawerkian and modern mainstream capital theory.” Just prior to Alfred Marshall's 1890 ascendancy as leading world economist, Eugen von Böhm-Bawerk (1851–1914) perhaps wore that crown thanks to his three-volume treatise on the history and fundamentals of interest theories. Böhm (1884, 1889, 1909, 1912) somewhat independently followed in the footsteps of Stanley Jevons (1871) and himself strongly stimulated Knut Wicksell (1893), Irving Fisher (1906, 1907, 1930), and Friedrich Hayek (1931, 1941). Pugnacious and somewhat incoherent, Böhm and his disciples battled cogently the competing school of John Bates Clark (1899) and Frank Knight (1934, 1935a, 1935b), which idealized a permanentscalarcapital alleged to be virtually permanent and with a marginal productivity determining its interest rate in much the same way that primary labor's marginal productivity determines its real wage rate and primary land's marginal productivity determines its real rent rate(s). The Clark-Knight paradigm—and, for that matter, Frank Ramsey's 1928 mathematical clone—shares the Böhm-Hayek vital normative flaw.

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