Capital and Interest

Eugen von Bhm-Bawerk discusses the history and principles of interest, offering piercing critiques of failed theories and implementations from past eras.

The author's investigations range as far back as antiquity and the Middle Ages; how civilizations of old dealt - or failed to deal - with interest in concept and practice. Interest is earned on existing capital, without the owner of said capital engaging in work or activity, an example being money invested in government bonds. Why this income should exist is the initial question posed, and an answer is sought through investigating several facets of the economy.

Bhm-Bawerk's thesis is lengthy and meticulous, ranging across theories of production, the uses with which capital can be employed, the relevance of labor and ideas put across by scholars. He investigates the relationship of interest to debt, exploring whether interest itself is a rent on capital, and what this means in the short and long term. The author is keen to address and debunk ideas, such as the Marxist notion that the interest earned with capital is a manifestation of worker exploitation.

Published in the 1880s, Bhm-Bawerk's work was among the first to tackle the subject of interest while recognizing the significance of interest rates in the modern economy. His ideas would go on to inspire future works in the Austrian School of economics, influencing later thinkers such as Friedrich Hayek who elaborated upon related economic topics.