Boehm-Bawerk’s review of S. M. Macvane’s Working Principles of Political Economy diagnoses economics at a moment of theoretical transition. Its opening problem is pedagogical but also methodological: a textbook must offer beginners simple and settled truths, yet political economy no longer possesses an uncontested doctrinal core.
Where shall we find nowadays a stock of undoubted, clear, and simple truths?
The essay first situates Macvane between three schools. Classical economics once appeared to have solved value, wages, interest, rent, money, and credit; the historical school has since “shatter[ed] the belief” in that structure without supplying an adequate theoretical replacement; and the new abstract theorists, especially the adherents of final utility, have overthrown the classical value theory but have not yet produced a system compact and clear enough for elementary exposition. Macvane’s conservatism is therefore understandable. He preserves the classical framework, modifies it where necessary, and resists both historical relativism and marginal-utility reconstruction.
Boehm-Bawerk’s criticism begins with value. Macvane rejects Jevons’s route from utility to exchange value and retains the older cost doctrine.
Cost appears to him the “ultimate regulator of value.”
For Boehm-Bawerk, this shows both the strength and the limitation of the book. As teaching, it gives coherence; as theory, it leaves untouched the modern question of how costs themselves acquire value. The same ambivalence appears in Macvane’s account of capital. He approaches newer theory by emphasizing time: capital involves “waiting,” and the capitalist exchanges present commodities for future ones. Yet he falls back on Senior’s abstinence doctrine and on a wages theory closely resembling the classical wages fund.
The central argumentative section is therefore devoted to wages. Macvane holds that finished consumable goods first belong to capitalists, who consume part and save part; the saved portion becomes the fund from which productive laborers are paid.
“All that the saving classes save the hired classes receive as wages. . . . This is all they can in any case receive”
Boehm-Bawerk regards this as the book’s most serious error. Macvane treats the yearly quantity of finished enjoyable commodities as fixed, and wages as determined by the division of that fixed mass. Boehm-Bawerk replies that what is fixed, given productive powers and technique, is not the amount of consumable goods but the total annual product of all goods. The division between present consumption goods and intermediate capital goods is variable; it depends on saving, demand, and the distribution of purchasing power between laborers and capitalists.
This reverses Macvane’s causal order. Saving does not merely transfer already finished commodities to laborers; it helps determine in advance what kinds of goods will be produced. A high wage level itself creates demand for ordinary consumption goods, while capitalist saving shifts production toward capital goods.
Where Professor Macvane sees cause, I see effect, and vice versa.
Boehm-Bawerk adds that real wages need not consist wholly of consumable goods. If laborers save part of their income, they may demand claims on capital goods rather than finished enjoyments. Thus wages cannot be rigidly limited by an independently given stock of consumables.
The closing movement sketches Boehm-Bawerk’s own synthesis. Earlier wages-fund theory rightly saw that laborers must be maintained during the interval before their product ripens; newer productivity theories rightly connect wages to the value of labor’s product. The error lies in isolating either fact.
The difficulty, and the problem for science, consists in paying just attention to both facts.
His alternative joins marginal productivity to capital theory. Labor, like other productive goods, is priced by the value of its marginal product; but the accumulated capital fund determines how long and productive the community’s roundabout methods of production can be, and therefore helps determine that marginal product.
The price of the productive commodity, labor, depends, like the price of all means of production, in the first instance on the value of its product; that is, of its marginal product (Grenzprodukt).
The relevance of the review lies in this conceptual move. Boehm-Bawerk praises Macvane’s clarity, independence, and usefulness as a textbook writer, but uses the review to mark the inadequacy of classical cost and wages-fund doctrines. The essay shows Austrian capital theory emerging as a bridge between marginal value analysis and distribution: wages are not paid from a static heap of finished goods, but from a capital structure whose time dimension shapes the productivity of labor itself.
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