The Mythology of Capital or of Static Equilibrium?: The Böhm-Bawerk/Clark Controversy

Abstract

This paper analyzes the 1893-1907 Böhm-Bawerk/Clark controversy, supplementing the published record with correspondence in the J.B. Clark and Giddings Papers. Economists conceive of capital both as heterogeneous, specific capital goods used in production, and as a homogeneous fund of financial value that flows to establish a uniform rate of return. Controversies begin when the dual conceptions are integrated into economic models with specific assumptions, and one conception is emphasized to the relative neglect of the other. Clark emphasizes a monetary fund of true capital over concrete capital goods. Böhm-Bawerk emphasizes concrete capital goods, but in his quantitative model of interest rate determination, capital takes the form of a homogenous subsistence fund. Their controversy centers around true capital. In Clark's static equilibrium model, he attributes interest to the power of "true capital" which is a permanent, homogeneous and perfectly malleable fund. Böhm-Bawerk objects because true capital eliminates time, which plays the central role in his agio theory. Because Clark's model avoids time issues, Böhm-Bawerk refers to it as a mythology of capital. In line with Hicks' observation that equilibrium is a signal that time . . . has been put to one side, I argue that a more accurate characterization of Böhm-Bawerk's objection is as a mythology of static equilibrium.

Keywords: capital, Böhm-Bawerk, J.B. Clark

JEL Classification: B13