J. B. Clark's Capital Theory Caused Böhm-Bawerk To Predict the Revival of Underconsumptionism

In general the neoclassical school has followed a tradition which predated the subjectivist revolution and involves a productive system in which the different factors of production give rise, in a homogeneous and horizontal manner, to consumer goods and services. No thought whatsoever is given to the immersion of these factors in time and space throughout a temporal structure of productive stages, an aspect Austrian theorists typically do take into account. The above static framework provided the structure for the work of John Bates Clark (1847–1938), who carried it to its logical conclusion. Clark was Professor of Economics at Columbia University in New York, and his strong anti-subjectivist reaction in the area of capital and interest theory continues even today to serve as the foundation for the entire neoclassical-monetarist edifice. . . .

Böhm-Bawerk reacted immediately against the objectivist stance of Clark and his school. For instance, Böhm-Bawerk describes Clark’s concept of capital as “mystical” and “mythological”, pointing out that production processes never depend upon a mysterious, homogeneous fund, but instead invariably rely on the joint operation of specific capital goods which entrepreneurs must always first conceive, produce, select and combine within an economic process that takes time. Furthermore, according to Böhm-Bawerk, Clark views capital as a sort of “value jelly”, or fictitious notion. With remarkable foresight, Böhm-Bawerk warned that acceptance of such an idea was bound to lead to grave errors in the future development of economic theory. Indeed Böhm-Bawerk predicted with great prescience that if Clark’s circular, static model were to prevail, the long-discredited doctrines of underconsumption would inevitably revive, and when Keynes and his school appeared, Böhm-Bawerk was proven right (Böhm-Bawerk 1895).

—Jesús Huerta de Soto, The Austrian School: Market Order and Entrepreneurial Creativity (Cheltenham, UK: Edward Elgar, 2008), 55-56.