History and Critique of Interest Theories

History and Critique of Interest Theories is the first volume of Eugen von Böhm-Bawerk three volume set Capital and Interest which was originally published in 1884. In History and Critique of Interest Theories, Böhm-Bawerk provides a broad historical survey of the major interest theories which had found prominence up to his day and additionally provides a thorough critiques each theory. Early in the book Böhm-Bawerk points out that while loan interest had originally occupied the efforts of theorists, the industrial revolution and the massive change this brought to Western economies, led to the need for theorists to explain the existence of originary interest. In order to explain originary interest Böhm-Bawerk points out that theorists were essentially trying to answer the following question: "Why is the gross return to capital regularly of greater value than the proportions of capital, which are consumed in acquiring that return?"

Classes of interest theories
In History and Critique of Interest Theories Böhm-Bawerk groups the interest theories which he examines into five classes:
 * Colorless theories: are those which built on the idea of Adam Smith and Anne Robert Jacques Turgot that there must be interest otherwise capitalists would have no desire to employ capital productively.


 * Productivity theories: are based on the idea that there is an inherent productive capacity which exists in capital. Examples of economists who utilized this explanation for orignary interest include Carl Menger and Jean-Baptiste Say.


 * Abstinence theories: put forth the idea that interest "is the equivalent of one element of cost which enters as a constituent into the price, namely, abstinence." Or in other words, interest is the payment to the capitalist to cover the cost of sacrificing the present enjoyment which could have been attained from the use of their capital.


 * Renumeration theories: attributed the existence of interest to work done by the capitalist.


 * Exploitation theories: are based on the belief that interest is nothing but a curtailment of the just wage that should go to the worker. This class of interest theory is part of the theoretical foundation of socialism, and was put forth by individuals such as Johann Karl Rodbertus and Karl Marx.

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