Böhm-Bawerk Sought a Universal Notion of Capital, but Menger Developed a Historically Specific View with Microeconomic Foundations

Just as in their respective treatments of the goods-character of goodwill, Menger’s sympathy for the everyday practices of economic agents and Böhm-Bawerk’s lack of concern for them are evident in their competing capital concepts. Menger’s respect for the lessons of ‘experience’ (a word he used tirelessly) led him to restrict capital to its actual role as diverse possessions which generate private incomes in a monetary economy (capital in the acquisitive sense). Böhm-Bawerk recognized the dual meaning of capital—that is to say, capital in the acquisitive sense, and capital in the technical sense—as an instrument of production. However, the centrality of the technical element in his choice of social capital as a guiding conception did not lead him beyond capital as an aggregate of produced goods with a durable foundation. He sought a universal notion, whereas Menger developed a view as to the content of capital historically specific to private ownership and entrepreneurial economizing in a monetary economy. In such an economy, entrepreneurial behaviour was not merely perfunctory or secondary to the technical dictates of the so-called Böhm-Bawerkian ‘instruments of production’. Menger’s theories of capital and money had microeconomic foundations: uncertain needs were served by holding cash balances, including speculative balances. The use of money cannot be precisely scheduled; it acts as a stock against the disappointment of individuals’ plans in uncertain conditions. Indeed, ‘Menger again and again stresses that demand is fickle, that it changes in unpredictable ways and that such changes bring about economic frictions’ (Streissler 1973). It is precisely in these conditions of uncertainty generated through demand fluctuations that the concept of capital in the acquisitive sense is formed in the minds of Menger’s entrepreneurs.

—A. M. Endres, Neoclassical Microeconomic Theory: The Founding Austrian Version, Foundations of the Market Economy (London: Routledge, Taylor and Francis e-Library, 2002), 171-172.