Capital and Interest by Eugen von Bohm Bawerk

Author:Eugen von Bohm Bawerk
Language: eng
Format: epub, pdf
Tags: Capital; Interest; Economics

In this way James Mill thinks that he has satisfactorily

1 The author (as is evident from a parallel passage on p. 100) means annuities which replace the original value of the machine in ten years, and at the same time pay interest at the rate fixed by the condition of the market.

explained interest, and at the same time maintained in its integrity his law that labour alone determines the value of goods. It is pretty obvious, however, that he has not succeeded in doing either.

It may be allowed to pass that he calls capital " hoarded " labour; that he calls the employment of capital employment of a mediate secondary labour; and that he considers the wearing out of the machine as a giving out of the hoarded labour by instalments. But why then is every instalment of hoarded labour paid by an annuity which contains more than the original value of that labour, namely, the original value plus the usual rate of interest thereon? Allowing that the remuneration of capital is the remuneration of mediate labour, why is the mediate labour paid at a higher rate than the immediate; why does the latter receive the bare rate of wages while the former receives an annuity higher by the amount of the interest ? Mill does not solve this question. He takes the fact that a capital, according to the state of competition in the market, has equal value with a certain number of annual payments that already include the interest, and uses this fact as a fixed centre, as if he had not taken upon himself to explain the profit, and therefore also the extra profit, that is contained in the annuity.

He says, I admit, in an explanatory tone, Profit is wage of labour. But he has a very false idea of the explanatory power of this phrase. It might perhaps be satisfactory if Mill could show that there is here a labour which has not yet received its normal wage, and will only receive it in the profit; but it is in no way satisfactory to explain profit as an extra wage for a labour that has already been paid at the normal rate by means of the sum for amortisation contained in the annuities. It is always open to ask, Why should mediate labour be more highly paid than immediate labour ? And this is a question towards the solution of which Mill has given not the slightest hint. Moreover by this artificial construction he even loses the advantage of remaining consistent with his Labour theory; for evidently the law that the amount of labour determines the price of all goods is rudely upset if .a part of the price is traceable, not to the amount of the labour expended, but to the greater height of the wage

that it receives! In this respect, therefore, Mill's theory comes considerably short of its professed object.

A very similar theory was put forward by M'Culloch, in the first edition of his Principles of Political Economy (1825), but omitted in later editions.

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