GERRIT GORTER
The present study of economics did not, of course, come out of thin air. Although thinkers in classical Greece already reflected on what we now call economics, it was largely in the eighteenth century that systematic thought on the subject began.
Two conceptual tools—the economic cycle and the idea of the invisible hand—date from that century and are still in use today, both in academic research and in education.
This site contains twenty-five portraits of important economists. Each offers a biographical sketch together with an indication of his (and, in one case, her) significance for the development of economic thought. They claim no more than to provide a first introduction to the lives and works of these pioneers.
These articles originally appeared in Dutch in the Tijdschrift voor het Economisch Onderwijs and were published on the website of Gerrit Gorter. The English translations are by Folkert Gorter.
Index
François Quesnay
Adam Smith
Thomas Robert Malthus
Jean-Baptiste Say
David Ricardo
Antoine Augustin Cournot
John Stuart Mill
Karl Marx
Walras
Carl Menger
Alfred Marshall
Vilfredo Pareto Eugen von Böhm-Bawerk
Knut Wicksell
Max Weber
Irving Fisher
Sam de Wolff
John Maynard Keynes
Joseph Alois Schumpeter
Joan Robinson
Jan Tinbergen
John Hicks
John Kenneth Galbraith
Milton Friedman
Paul Samuelson
Eugen von Böhm-Bawerk
Austrian Empire 1851–1914
In the second half of the nineteenth century, Vienna — the capital of the Austro-Hungarian Dual Monarchy — grew into the political and cultural center of Eastern Europe, comparable to metropolises such as Paris and London. Composers such as Schubert, Strauss, and Mahler spent time there; the founder of psychoanalysis, Freud, walked its streets, as did the philosopher Wittgenstein. Against the backdrop of all that cultural ferment, the rise of the Austrian School of economics (around 1870) appears somewhat pale. The founder of this school was Carl Menger. Here we turn our attention to one of his successors: Eugen von Böhm-Bawerk.
Böhm — to use this shortened form going forward — was born in 1851 in Brünn, then part of the vast Habsburg Empire, now Brno in today’s Czech Republic. His father was a high-ranking civil servant and envisioned a similar career in public service for his son. But things turned out differently. Böhm initially studied law in Vienna, but his coursework included some economics — Böhm’s interest was sparked. After lecturing at several German universities (Heidelberg, Leipzig, Jena), he was appointed professor at the University of Innsbruck in 1880. That same year, he married the sister of his best friend, fellow economist Friedrich Wieser, with whom he shared, among other things, a passion for mountaineering.
In 1884, his major work Kapital und Kapitalzins appeared — usually referred to in the literature by its English title, Capital and Interest. One of the most well-known elements of this book is the theory of roundabout production. You can try to catch a fish with your bare hands, but it’s quicker with a net. The problem is that you don’t have a net and will need to invest time in making this useful tool. In the meantime, however, you won’t be able to catch any fish. In short, you have to invest time and forego present income (fish) in order to secure higher future income (more fish).
In Böhm’s time, industrialization was gathering pace across the European countries. Enterprises increasingly relied on capital equipment, making the Produktionsumweg (roundabout production) ever longer. Böhm thus introduced the element of time into economics. It took increasingly longer for a product to be brought into existence. In effect, there was a trade-off: current production and consumption versus greater production and consumption in the future. The element linking the present and the future was interest.
Karl Marx had argued that the capitalists exploited the workers. The factor of production labor, he claimed, was entitled to the full product. If it received anything less, exploitation was taking place. Interest and profit were thus seen as part of the exploitation of the working class by the capitalists. Böhm left little of this view intact. Rather than consuming their wealth directly, capital owners made it available to enterprises for investment. As the production process became increasingly roundabout, it also took longer for these investments to yield returns. Capital owners could only be persuaded to forgo certain present consumption in favor of relatively uncertain future consumption if they were offered compensation for waiting — that is, interest. Nor could profit reasonably be called exploitation, as it constituted a reward for entrepreneurial risk.
With his theory of roundabout production, Böhm developed a fairly optimistic account of economic growth. He emphasized saving and investment as the means to achieve higher future output — albeit by taking the longer route. After all the gloom of economists like Malthus, Ricardo, and Marx — who envisioned all manner of doomsday scenarios — economics had returned to the optimism of its founding father, the ever-cheerful Adam Smith.
Böhm was not always a professor. During an interlude from 1889 to 1904, he worked at the Ministry of Finance — even serving as minister. Little is known about his personal life. He is said to have played the cello, had no children, and enjoyed cycling. Before Austria adopted the euro, Böhm’s portrait adorned the 100 Schilling banknote. Should you ever find yourself in Vienna with time on your hands, you can visit his grave at the Zentralfriedhof, where he was buried in 1914.