Eugen Böhm von Bawerk: Economist, Minister, Aristocrat
[This article is excerpted from The Austrian School of Economics: A History of Its Ideas, Ambassadors, and Institutions (2011). An MP3 audio file of this article, narrated by Paul Strikwerda, is available for download.]
In Austria, hardly any other economist has achieved the same kind of fame as Böhm-Bawerk. And with no other have such wide sections of the population come into contact, admittedly in an altogether trivial sense: his portrait adorned the hundred-Schilling note that was in circulation from 1984 to 2001. Eugen von Böhm-Bawerk was in many respects considered an exception in professional circles, too: he was one of the most quoted economists of his time, earned an excellent reputation internationally, taught on the largest law faculty in the world, and more than once occupied the office of finance minister of a major European power. Along with Carl Menger and Friedrich von Wieser, he constituted the founding triumvirate of the Austrian School. Economist Ewald Schams, a former military officer, recalled a glorious "campaign" characterized by "harmonious cooperation and downright tactical unity." Menger had "declared the fundamental principle," Wieser had provided the "factual structure," and Böhm-Bawerk had taken on the "duty to fight": "He was the fighter in the cause of modern theory" (Schams 1926, pp. 435–436).
The third of four children, Eugen Böhm was born in Brünn in 1851.1 His father was knighted (as Ritter von Bawerk) in 1854 while vice president of the Moravian governorship. Upon his father's early death, Eugen, only six years old, moved with his mother to Vienna. There he met Friedrich von Wieser, with whom he would develop a lifelong friendship, while attending the Viennese Schottengymnasium. The two friends always sought to outdo each other in school and later graduated at the same time with degrees in law (Tomo 1994, pp. 29–30). After his graduation, Böhm-Bawerk joined the Lower Austrian Finance Department.
With the help of Carl Menger, the two friends received two-year stipends toward study at the universities of Heidelberg, Leipzig, and Jena in 1875. In Heidelberg, Böhm-Bawerk dealt for the first time — in a seminar paper — with the subject that would occupy him for the rest of his life: the relationship, in economics, between the present and the future (Böhm-Bawerk 1891/1930, p. 237 n. 1). One year later, he put the "prototype of his later agio theory" into writing (Tomo 1994, pp. 49–51). Upon his return to Vienna, he continued working in the finance department, and was the first of Carl Menger's students to receive his Habilitation, for Rechte und Verhältnisse vom Standpunkt der volkswirtschaftlichen Güterlehre (Indemnity Rights from the Viewpoint of Economics — 1881). In the same year, the young lecturer and civil servant married his friend's sister, Baroness Paula von Wieser. The marriage, described as harmonious, remained childless (Schumpeter 1925, p. 67). In 1882, Böhm-Bawerk was entrusted with teaching a course in economics at the University of Innsbruck. Compared with Vienna, then the world's fifth-largest city, the University of Innsbruck, having the smallest law faculty (at around 200 students and 16 lecturers) in the Austrian monarchy (Pliwa 1908, nos. 9, 45), did not appear as a particularly attractive career step: "Sentenced to Czernowitz, pardoned to Innsbruck," is an adage handed down to this day in university circles in Vienna. Nonetheless, the Innsbruck years were the "happiest time of his life" (Kamitz 1956, p. 53) for the glowing Tirol enthusiast.
Before long he was appointed to a nontenured — and in 1884, to a tenured — professorship. That same year saw the publication of Geschichte und Kritik der Kapitalzinstheorie (History and Critique of Interest Theory, vol. 1 of Capital and Interest, 1890/1959), in which he "dissected practically all theories of capital interest … with tremendous rigor and astuteness" (Schumpeter 1925, p. 69). Though announced, the second volume was delayed, one reason being Böhm-Bawerk's election to dean of faculty. Another was that combining the theory of subjective value with his theory of capital proved to be rather difficult. As a kind of preliminary study, he published a two-part essay about the theory of subjective value in in Conrads Jahrbücher in 1886. This would be modified slightly and included in the already promised second volume, the Positive Theorie des Kapitals (1889a). With this easy-to-read and polished presentation, Böhm-Bawerk was able to distinguish himself as "sword of the new direction," and made a crucial contribution to the further promulgation of the Austrian School (Schumpeter 1925, p. 68). The two volumes — Geschichte und Kritik der Kapitalzinstheorie and Positive Theorie des Kapitals — published several times under the single title Kapital und Kapitalzins, were translated into English and established Böhm-Bawerk's "international reputation" (Schumpeter 1914b, p. 460). This was boosted even more by lively controversies and polemics: Böhm-Bawerk fought on four academic fronts simultaneously — against the Historical School's aversion to theory, against the Marxist exploitation theory, against the various cost-value theories, and against the efforts some were making to show that the Austrian School took no socio-political responsibility.
Böhm-Bawerk's attempts to return to a professorship in Vienna, and to be the successor of either Lorenz von Stein or Lujo Brentano, were in vain (Tomo 1994, pp. 157–162). He finally took a post in the Finance Ministry, which at that time managed with a staff of just 121 civil servants and 67 supporting staff (Kamitz 1956, p. 58). One of his first tasks was to revive the abandoned preparations for a comprehensive tax reform. Böhm-Bawerk remained a civil servant up until 1904; three times he was Finance Minister (1895, 1897–1898, 1900–1904) and in 1899 he was awarded a life-long membership of the Herrenhaus. Apart from working on the tax reform of 1886, in the course of which a progressive income tax of no more than 5 percent was introduced (RGBl 1896, no. 220, §172),2 he also succeeded in reducing the government's interest burden by converting public debt (Weiss 1924/1925, vol. 1, p. v). A balanced budget was of particular importance to Böhm-Bawerk because he believed it was the only thing that would secure the stability of monetary value. He did not shy away from using all the tricks of an experienced bureaucrat to block status-seeking, politically-motivated projects that lacked secure funding — such as a shipping-canal network for the whole of the monarchy (Gerschenkron 1977, pp. 81, 120–127). His maxim was that a finance minister should always be prepared to resign, but at the same time should always behave as if his desire was never to resign (Schumpeter 1925, p. 79). He resigned from the post permanently in 1904 when excessive demands from the military finally threatened to strain the budget.
In addition to his work in administration, Böhm-Bawerk devoted two hours a day to research and maintained close ties with the University of Vienna — initially as an examiner, and after 1891, as an honorary professor. In 1892 he contributed to the founding of the magazine Zeitschrift für Volkswirthschaft, Socialpolitik und Verwaltung (Journal of Economics, Social Policy, and Administration), and also played an important and integral role in the Gesellschaft Österreichischer Volkswirte (Society of Austrian Economists). After resigning as minister for the third time, he accepted a professorship that had been specially created for him. Böhm-Bawerk's lectures were "masterpieces," thanks both to "his systematic clarity throughout, and to his calm, considered, and one might say, intellectually buoyant presentation" (Engel-Janosi 1974, p. 37). Among those who later met in his seminar, in which an unusually open discussion ethos was prevalent (Mises 1978/2009, p. 32), were such eminent names as Ludwig von Mises, Franz Weiss, Richard von Strigl, Felix Somary, Emil Lederer, Rudolf Hilferding, Otto Bauer, Nikolai Bucharin, and Joseph Schumpeter (Hülsmann 2007a, p. 145). All in all, Böhm-Bawerk came across as a somewhat formal but warmhearted and empathetic person (Hennings 1997, p. 19). The "political economist" (Hülsmann 2007a, p. 150), in the true sense of the word, who from 1911 onward acted as president of the Kaiserliche Akademie der Wissenschaften (Imperial Academy of Sciences), died at the age of 63 while on vacation in Kramsach in the state of Tyrol, in August of 1914.
- 1. On the biography Böhm-Bawerk see especially Hennings 1969, Tomo 1994, Hennings 1997, pp. 7–25, and Hülsmann 2007a, pp. 93–96, 141–150.
- 2. RGBl — The Reichsgesetzblatt was the official law gazette of the Austro-Hungarian Empire from 1867 to 1918 (each with the number of the act and the year of decree).