6) Austrian Economics

austrian economics

In this chapter we will introduce the concepts of Austrian economics. We will give a generic overview, in collaboration with members of Mises Germany and Canada.

 

We will enumerate the best pieces of our friend and blogger under the pseudonym of Bawerk that stands for Eugen von Böhm-Bawerk.

Eugen von Böhm-Bawerk was one of the leading members of the Austrian school of economics—an approach to economic thought founded by Carl Menger  and augmented by works of Friedrich Wieser, Ludwig von Mises and Friedrich A. Hayek.
Böhm-Bawerk’s work became so well known that before World War I, his Marxist contemporaries regarded the Austrians as their typical bourgeois, intellectual enemies. His theories of interest and capital were catalysts in the development of economics, but today his original work receives little attention.

Böhm-Bawerk gave three reasons why interest rates are positive. First, people’s marginal utility of income will fall over time because they expect higher income in the future. Second, for psychological reasons the marginal utility of a good declines with time. For both reasons, which economists now call “positive time-preference,” people are willing to pay positive interest rates to get access to resources in the present, and they insist on being paid interest if they are to give up such access. Economists have accepted both as valid reasons for positive time-preference.

But Böhm-Bawerk’s third reason—the “technical superiority of present over future goods”—was more controversial and harder to understand. Production, he noted, is roundabout, meaning that it takes time. It uses capital, which is produced, to transform nonproduced factors of production—such as land and labor—into output. Roundabout production methods mean that the same amount of input can yield a greater output. Böhm-Bawerk reasoned that the net return to capital is the result of the greater value produced by roundaboutness.

 

Umberto Principe
Pen name of Italian Banker. He speaks many languages and is especially well versed in German. For privacy reasons he does not disclose his real name.
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