Roger W. Garrison: The Austrian Theory of Value and Capital [Review] (1998)

Roger W. Garrison’s review assesses Klaus Hennings’s posthumously published study of Eugen von Böhm-Bawerk as a recovery of capital theory’s macroeconomic importance. Appearing in The Quarterly Journal of Austrian Economics, the review moves from the study’s origins and historical interpretation to its technical criticisms, then develops Garrison’s own defense of Böhm-Bawerk’s account of structural change. Its governing concern is the neglect of production time in modern economics:

Production takes time, and the time that separates the formulation of multiperiod production plans and the satisfaction of consumer demands is bridged by capital.

Capital here means an intertemporal structure of intermediate goods, not merely an aggregate factor of production. Garrison values Hennings’s reconstruction because it shows how Böhm-Bawerk extended Menger’s value theory to connect consumers’ intertemporal preferences with the organization of production. The book brings together Hennings’s doctoral research, a preface by Heinz D. Kurz, and forty letters from Böhm-Bawerk to Knut Wicksell. Garrison particularly praises the chapter on the genesis of the theory: the question of whether capital owners’ receipt of interest is justified provides historical context, but does not exhaust Böhm-Bawerk’s achievement. Beyond answering socialist exploitation theory, his analysis addresses interest, capital accumulation, and technical progress within an economy-wide framework.

We have it, then, that Böhm-Bawerk was a macroeconomist—and a self-reflective one at that.

This characterization is methodological as well as retrospective. Garrison emphasizes Böhm-Bawerk’s insistence that understanding the economic whole requires studying individual economic activity. Austrian macroeconomics thus emerges as grounded in microeconomic relationships, rather than opposed to subjectivism.

Hennings’s respect for this project does not prevent substantial criticism. The average period of production and the subsistence fund cannot be measured independently of prices and the interest rate. Their endogenous character undermines Böhm-Bawerk’s simpler conclusions, but Hennings treats these defects as grounds for amendment rather than rejection. Garrison accepts that distinction while challenging the book’s treatment of dynamics.

The pivotal disagreement concerns Böhm-Bawerk’s concentric-ring diagram. Production proceeds from original inputs at the center toward consumption goods at the circumference; the rings also represent different maturity classes of capital existing simultaneously. Garrison connects this diagram to Hayek’s later triangle and faults Hennings for overlooking subsequent graphical developments. More importantly, Hennings’s criticism of the formal model’s inability to explain changing production organization neglects Böhm-Bawerk’s informal account of entrepreneurial adjustment.

Formal or informal, the message is clear: An increase in capital is not to be viewed as a simultaneous and equiproportional increase in capital in each of the maturity classes; it is to be viewed as a reallocation of capital among the maturity classes.

This is the review’s central corrective. Saving redirects resources away from consumption and outer-ring production toward earlier stages; entrepreneurs implement the adjustment in response to relative-price changes. Capital accumulation therefore entails structural reorganization, not uniform expansion. Garrison argues that this reasoning already approaches the Austrian business-cycle theory later developed by Mises and Hayek:

A change in intertemporal preferences in the direction of increased saving reallocates capital among the rings such that the economy experiences capital accumulation and sustainable growth; a money-induced change in credit conditions misallocates capital among the rings such that the economy experiences unsustainable growth and economic crisis.

The distinction between preference-induced and money-induced restructuring supplies the additional conceptual step. Garrison does not attribute that step to Böhm-Bawerk himself. The Wicksell correspondence instead documents his reluctance to pronounce on monetary theory without adequate study. These letters also complicate the biographical portrait: scholarly caution and immense politeness coexist with sharply dismissive judgments of contemporaries, including Schumpeter.

Garrison closes by contrasting Böhm-Bawerk’s approach with Schumpeter’s treatment of interest as a disequilibrium phenomenon, Keynes’s monetary account, and Knight’s rejection of production time as relevant to interest. These later disputes establish the continuing stakes of Hennings’s study. Its value lies in critically preserving a framework in which time, preferences, and heterogeneous capital remain indispensable to explaining economic coordination and change.