ABSTRACT
In his P o s i t i v e Theory o f C a p i t a l ! , Bohm-Bawerk expounds his theory of interest in two parts. In the first part, he deals with the origin of the phenomenon of interest on capital. During his own lifetime, discussion of his interest theory was largely concentrated on this first part - that is, on his thesis that interest exists because future goods are valued less highly than present goods. He gave three reasons for this supposition; namely, the differences in the relationship between wants and the means for their satisfaction in different periods of time, the systematic subjective undervaluation of future goods as compared with present goods, and) finally, the superiority, due to technical reasons, of present goods as means for the satisfaction of our wants. In the second part of his theory of interest, Bohm-Bawerk examines the determinants of the level of the interest rate. I t is evident, however, that this division of the subject into two parts is
artificial, since any exposition of the determinants of the level of the rate of interest must also contain, implicitly, the causes of the phenomenon of interest. Moreover, there is a quite definite break between the first and second part of Bohm-Bawerk's work. The analysis in the second part is conducted without any reference to the higher valuation of present goods relative to future goods. Since this second part is undoubtedly central for Bohm-Bawerk's theory of interest, we shall concentrate in our exposition on that section of his work. Thus we gain the additional advantage of being able to avoid a long-winded discussion of the three reasons for the undervaluation of future goods. Accordingly, the sections of the P o s i t i v e T h e o r y important for the following discussion are Books I and II, which contain Bohm-Bawerk's theory of capital, and the third section of Book IV which deals with the level of the rate of interest on capital, as well as those 'Further Essays' in Volume II which elucidate these sections.
