Economics Dictionary of ArgumentsHome
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| Interest: A. Interest refers to the inclination, motivation or benefit that a person or group has in something. It can include personal preferences as well as involvement in or pursuit of a particular goal or topic that is important or beneficial to the individual.
B. Interest Interest in economics is the cost of borrowing money or the return on invested capital. It represents the time value of money, compensating lenders for foregone consumption and risk, while also reflecting the demand for funds in financial markets. See also Interest rates, Money, Price, Risks._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Ladislaus von Bortkievicz on Interest - Dictionary of Arguments
Kurz I 158/159 Interest/Bortkievicz/Böhm-Bawerk/Kurz: In his paper "Der Kardinalfehler der Böhm-Bawerkschen Zinstheorie;" Bortkiewicz (1906)(1) criticized the "Three Grounds" put forward by Böhm-Bawerk in his theory of capital and interest in favor of a positive rate of interest: Böhm-Bawerk: (1) the differences between wants and provision in different periods of time; (2) the systematic underestimation of future wants and the means available to satisfy them; and (3) the technical superiority of present compared with future goods of the same quality and quantity. Bortkiewicz focused attention on the third ground - according to Böhm-Bawerk (1889](2) 1902, 286) the "main pillar" of his theory of interest - which referred to a "purely objective factor" (Bortkiewicz 1906(1), 945). Was it possible to derive from it a value agio in favor of present goods as the basis of a positive rate of interest? Bortkiewicz did not think so - he rather considered Böhm-Bawerk's respective argument to contain the "cardinal error" of his entire construction. To Show this, he turned to a numerical example in the Positive Theory of Capital meant to illustrate the superiority of "more roundabout" processes of production. Bortkievicz: To Show this, he turned to a numerical example in the Positive Theory of Capital meant to illustrate the superiority of "more roundabout" processes of production. The example, Bortkiewicz maintained, was misleading because Böhm-Bawerk had given only an incomplete picture of the case under consideration. The example concerns production processes started in Kurz I 159 consecutive years. Alas, Böhm-Bawerk had assumed without any justification that all processes stop at the end of the process started first. If each process was instead taken to break off after the same number of years as the first one, we arrive at a uniformly staggered system of production. Now the process started first is no longer superior to all other processes with regard to all future time periods, because after its truncation the other processes still generate outputs, whereas the first one no longer does. Without a knowledge of the value relations between the goods obtained at different points in time, the result is a "non liquet" (Bortkiewicz 1906(1), 954). Bortkiewicz concluded that, seen from a purely formal point of view, he (Böhm-Bawerk) did not reason correctly. His argumentation, on which he puts the main weight, suffers from an internal mistake: It appears that we need not go beyond the very abstract scheme of v. Böhm-Bawerk to prove that interest cannot be determined, in the way he attempts to (nor, as I believe, in any other the technical conditions of production. (958)(1) >Interest. Kurz I 160 Interest/StolzmannvsBöhm-Bawerk: value of the product could not be regulated by it. As Rudolf Stolzmann (1896)(3) had already pointed out, this had the fatal implieation that Böhm-Bawerk's objection now applied also to his own theory. If Böhm-Bawerk was right in maintaining that with the universal use of the more capitalistic method the value of the product was bound to fall, then it was unclear whether this fall left any room for interest. At any rate, as Stolzmann had rightly stressed, interest "can no longer be derived from the difference between the amount of product which can be obtained without the capitalistic roundabout, and the amount of product which can be obtained with the help of it" (as quoted in Bortkiewicz 1906(1), 959). Bortkiewicz concluded: With these remarks Stolzmann has, I believe, really shown up the weakest point in the Böhm-Bawerkian theory of interest. The objective basis of this theory could in fact be held to be valid if it {were} established, on whatever grounds, that methods of production of different degrees of productivity are applied Side by Side, or, more exactly, must be applied under the condition that each producer follows uncompromisingly the economic principle. (960)(1). 1. Bortkiewicz, L. v. 1906. Der Kardinalfehler der Böhm-Bawerkschen Zinstheorie. Schmollers Jahrbuch 30: 943-972. 2. Böhm-Bawerk, E. v. [1889] 1902. Kapital und Kapitalzins. Vol. 2, Positive Theorie des Kapitales. 2nd ed. Innsbruck: Wagner'sche Universitätsbuchhandlung. 1909-14. Kapital und Kapitalzins. 3rd ed. 3 vols. Innsbruck: Wagner'sche Universitätsbuchhandlung. (Sraffa 761, 762, and 763) -I1889] 1959. Capital and Interest. 2 vols English translation of the fourth edition of Kapital und Kapitalzins South-Holland, 111.: Libertarian Press. 3. Stolzmann, Rudolf, 1896. Die soziale Kategorie in der Volkswirtschaftslehre. Berlin: Puttkamer & Mühlbrecht. Kurz, Heinz D. „Keynes, Sraffa, and the latter’s “secret skepticism“. In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Bortkievicz, Ladislaus von Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 |
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> Counter arguments against Bortkievicz
> Counter arguments in relation to Interest
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