Eugen von Böhm-Bawerk on Entrepreneurial Profit (1885)

Eugen von Böhm-Bawerk’s integrated review of books by Victor Mataja, Gustav Gross, and Eduard August Schröder examines an unresolved problem in the theory of distribution: why entrepreneurs retain a surplus after wages, land rents, and interest have remunerated all contributing productive forces. Its central claim is that explaining how a surplus arises does not yet explain its economic nature or why it accrues specifically to the entrepreneur. The review develops this distinction through a sustained comparison of Mataja and Gross, followed by a brief, unfavorable assessment of Schröder.

Das Problem des Unternehmergewinnes ist bisher ein offenes.

English translation: The problem of entrepreneurial profit has hitherto remained an open one.

The opening leaves several classifications in contention: entrepreneurial profit might be remuneration for labor, a return on capital, a product of their combination, or a distinct income category. Mataja and Gross both reject previous theories in extensive critical histories and treat profit as an independent income arising from the difference between input prices and the selling prices of finished products. Their explanations of that difference, however, diverge.

Gross emphasizes entrepreneurs’ superior position in price bargaining. Their relatively small numbers and economic strength enable them to purchase productive services—especially labor—cheaply and sell products relatively dearly. Mataja seeks a deeper explanation in the relationship between a uniform market price and unequal individual valuations. Buyers whose use-value exceeds the market price obtain a gain. Applied to productive goods, this means that their price must remain compatible with the least advantageous economically admissible use, while entrepreneurs possessing better opportunities receive a surplus. Mataja treats this as profit’s specific foundation, allowing bargaining advantages and other contingent circumstances to explain additional components.

Böhm-Bawerk praises both studies, particularly Mataja’s theoretical ability and largely sound positive explanation, but insists that their causal analysis stops short of the decisive question.

Die Erklärungen Beider beziehen sich nämlich nur auf die entfernteren, primitivsten Ursachen der Erscheinung, während sie die Frage nach der unmittelbarsten Ursache des Unternehmergewinnes, und damit auch die nach seiner wirthschaftlichen Natur, ohne Antwort lassen.

English translation: For the explanations of both refer only to the more remote, most primitive causes of the phenomenon, while they leave without answer the question as to the most immediate cause of entrepreneurial profit, and thereby also the question as to its economic nature.

His criterion for distinguishing income categories is the recipient’s characteristic relationship to production. Land rent, wages, and capital income differ because their recipients supply land, labor, and capital respectively. A theory of entrepreneurial profit must likewise identify the contribution or relationship that mediates its receipt. If that relationship coincides with one already recognized, profit belongs within an existing category; only a genuinely different relationship warrants an independent category.

Jene eigenthümliche Gestaltung der Güterpreise ist nämlich zwar die Ursache, dass ein Ueberschuss entsteht, aber nicht die Ursache, dass der entstandene Ueberschuss gerade der Person des Unternehmers und Niemandem Anderen zufällt.

English translation: For that peculiar configuration of the prices of goods is indeed the cause that a surplus arises, but not the cause that the surplus which has arisen falls precisely to the person of the entrepreneur and to no one else.

This distinction between the formation and attribution of surplus is the review’s central conceptual move. Price configurations also underlie land rent and capital income, so invoking them cannot by itself differentiate entrepreneurial profit. They explain why productive contributions acquire economic value, not what makes those contributions different in kind. Böhm-Bawerk therefore represents the entrepreneur’s still-unidentified contribution as an x: the missing term that a complete theory must specify.

Und das dem Unternehmergewinn spezifische Element müsste Derjenige nennen, der das Problem dieses Einkommenszweiges lösen will.

English translation: And whoever wishes to solve the problem of this branch of income would have to name the element specific to entrepreneurial profit.

Mataja occasionally appeals to the entrepreneur’s position as the connecting element, but Böhm-Bawerk finds this circular: Mataja defines the entrepreneur as the person receiving entrepreneurial profit, then invokes that status to explain the receipt. The criticism identifies a gap without supplying a definitive alternative theory.

The concluding assessment preserves a sharp hierarchy among the three books. Detailed objections testify to Böhm-Bawerk’s respect for Mataja and Gross as serious theoretical contributions. Schröder receives only a short dismissal: despite occasional good ideas, his speculative reasoning fails to accomplish the intended combination of historical and exact methods. The review’s enduring analytical significance lies in its demand that a distribution theory explain both the economic conditions producing a surplus and the specific productive relationship through which someone receives it.