ABSTRACT
In this chapter we investigate Böhm-Bawerk’s version of Austrian microeconomics. Böhm-Bawerk offered some ideas on the microfoundations of early Austrian economics which were elaborations on Menger’s theory of price formation. We therefore draw some comparisons with Carl Menger’s programmatic work on the principles of economic theory which originally established a distinctive Austrian tradition. Böhm-Bawerk’s microeconomics is also considered against the background of contemporary Walrasian, Edgeworthian and Marshallian thought as well as twentieth-century work on the theory of games. In reflecting on developments in game theory Oskar Morgenstern (1976:805) acknowledged that he was ‘constantly troubled’ by Eugen von Böhm-Bawerk’s early attempt to formulate a theory of price formation based on bargaining. Nevertheless, Morgenstern complimented Böhm-Bawerk for successfully treating ‘fundamentals’. Indeed, in the Theory of Games and Economic Behaviour, Von Neumann and Morgenstern (1947:9) paid tribute to Böhm-Bawerk’s pioneering work in microeconomic theory. Furthermore, in the early collaboration between von Neumann and Morgenstern, Böhm-Bawerk’s micro-analysis figured prominently: ‘I showed him [von Neumann] the causal relationships in [BöhmBawerk’s] price-theory, where…one obtains different results, depending on the assumed knowledge of the other’s position’.1 It is therefore surprising that Böhm-Bawerk’s microeconomics has not attracted careful analysis by historians of economic thought. Our warrant for this study also comes from Böhm-Bawerk (1891:380-1) himself: ‘We must not weary of studying the microcosm if we wish
rightly to understand the macrocosm of a developed economic order.’ Accordingly we shall give special attention to his ideas on value, exchange, markets and price formation, which we consider were elaborations and extensions of Menger’s ideas on these matters. Where relevant, as we proceed, any game-theoretic elements will be elicited later in this chapter.
