Menger and Böhm-Bawerk

Carl Menger was the most thoroughgoing subjectivist of the three marginalist revolutionaries, and he endeavored to distance his views from the formal analysis of Walras in particular. Bohm-Bawerk’s work on capital and interest in particular was considered a seminal contribution and it became known as the Austrian Capital Theory (ACT). Menger’s capital theory is consistent with his theory of subjective marginal utility. ACT is just the application of subjective value to the problem of capital valuation. Yet, this involves a number of issues that have influenced the development of capital theory in economics for years. In the post-World War II period, attention drifted away from European-style economics (including Austrian economics) and capital theory, and a consideration of the importance of the role of time in the production process was also abandoned. The ironic result is that Bohm-Bawerk’s approach leads to a treatment more aligned with a labor-based or neo-Ricardian production function than a subjective Austrian treatment.