The positive theory of capital
The Positive Theory of Capital showcases Böhm-Bawerk's legendary method of systematic thinking and clear exposition, presenting what is called today the time-preference theory of interest: that the passage of time and the preference for the present over the future are the necessary and sufficient conditions for the emergence of interest. Capital is the corollary to that notion, since all production takes place over time.
The Positive Theory of Capital begins with full front matter by Smart himself. Seven sections follow: The Nature and Conception of Capital, Capital as an Instrument of Production, Value, Price, Present and Future, The Source of Interest, The Rate of Interest, and finally a rich and detailed index.
The positive theory of capital
It has taken me longer than I expected to follow up the publication of my Geschichte und Kritik der Kapitalzins-Theorieen by the present work. The heavy part of The Positive Theory of Capital lies in the theory of Interest. In the other portions of the subject I was able, at least on the whole, to follow in the footsteps of previous theorists, but for the phenomena of interest I had to put forward an explanation which breaks entirely new ground.
I make this latter statement with some confidence. It is quite true that my explanation of interest rests on certain important ideas previously put forward by Jevons. But Jevons did not give them that special application which might have made them serviceable towards the explanation of interest -if they had been taken in connection with certain other lines of thought not then familiar to Jevons. Thus it is that, in his interest theory, Jevons remained under the spell of the old classical opinions, notwithstanding these new lights which came to him from another quarter and were applied to other ends. And, moreover, as the ideas common to both of us were not borrowed by me from Jevons, but discovered in entire independence-indeed long before I became acquainted with Jevons's writings-I feel bound to take on myself, for good or ill as events may prove, the entire and undivided responsibility for the interest theory now put forward.
As regards the way in which I have treated the subject, I may be allowed to make two remarks.
The method of statement adopted for the most part throughout this book is that which people generally-not without a suspicion of passing judgment on it-call " abstract."
All the same I contend that my theory does not contain one single feature which is not based on true empirical principles. There are various ways of being empirical. We may obtain the facts of experience which serve us as foundations from economic history, or we may gather them from statistics, or we may try to get them directly in our common daily life by simple informal observation. No one of these three methods has any monopoly: each of them has its separate and peculiar sphere. In the nature of things the historical and the statistical method treat the matter of experience in much ampler fashion, and gather it from wider fields of observation ; but for that very reason they fail, on the whole, to seize any but the larger and more apparent facts: they put economic events, as it were, through a large sieve, where a great many delicate and unobtrusive, but, perhaps, more essential features of economic life, escape unnoticed. If, then, we would rescue these and make them objects of economic investigation- and for very many scientific problems we simply cannot do without taking cognisance of them-there is nothing for it but to have recourse to the comparatively narrow but always impressive personal observation of life.
Now I have endeavoured to make full use of all three methods of investigation. What help economic history and statistics could afford me in my task I have thankfully accepted and conscientiously made the most of, even where I have not explicitly mentioned the original materials with which I worked. But the matter thus obtained was not by a long way sufficient for my purposes. The theory of capital has to reckon with a number of facts which history and statistics have not recorded, partly because in their nature they could not, partly because attention has not hitherto been drawn to the importance of these facts. What, for instance, could history and statistics say about the question which is so important in the explanation of interest, as to whether there is in perishable goods an independent enduring use ? How much, again, could we get from them as to the actual grounds on which are based the different subjective estimates of present and future goods ? Or what have we learned-up till the present at least-as to the
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