With all this talk about Austrians returning to their roots — C. Menger and E. Böhm-Bawerk — ushered in by people like Sandeep Jaitly and John Aziz, it strikes me that the same people advocating this oftentimes don’t really know what the “roots” actually are, apart from ‘spitting names.’ Jaitly, Aziz, et. al., claim that Mises disinherited the Mengerian subjectivist position, with both citing Mises’ methodological ideas. My intention is not to address this directly, as others have done the job superbly (and, it’s clear with anybody who has actually read any of Mises’ work that little of what Jaitly claims is true — like I’ve said before and elsewhere, it’s as if he made the stuff up), but to show just how little these people actually know the history, context, and content of their “roots.” Specifically, they are seemingly unaware how much Böhm-Bawerk, one of the two subjectivists they recommend, strayed from Menger, and precisely in the area of subjectivism.

I was reminded of one clear example of their differences while reading R. Murphy’s short essay on M. Rothbard’s Man, Economy, and State. Specifically, he writes, “Professor Joseph Salerno once told Rothbard that Rothbard had incorporated the capital theory of Eugen von Böhm-Bawerk into his exposition far more thoroughly than Mises had done in his own works.”

L.v. Mises, in some ways, found Böhm-Bawerk’s capital theory to be wrong. I get the feeling that Mises wanted to take a step back from the increasingly formal and strict Böhm-Bawerkian theory of the structure of production; Mises takes a far more subjectivist and backwards-looking approach to capital theory. But, he was not the only Böhm-Bawerk critic in these areas; Menger had thought his disciple’s theory of capital and interest to be “one of the greatest errors ever committed.” Menger’s differences with Böhm-Bawerk in capital theory were similar to Mises’ (Roger Garrison, “Austrian Capital Theory: The Early Controversies”, in Bruce J. Caldwell (ed.), Carl Menger and His Legacy in Economics [Durham: Duke University Press, 1990], p. 153).

In “The Origins of Böhm-Bawerk’s ‘Greates Error:’ Theoretical Points of Separation from Menger,” A.M. Endres looks at six major differences between the two Austrian economists. For starters, Böhm-Bawerk’s definition of a good took a more objective approach in two sense: first, in emphasizing the objectivity of command over a resource; second, whereas Menger abstracted from the physical properties of a good, Böhm-Bawerk considered the usefulness of these properties one of five key characteristics of an economic good. No less, Menger’s categorization of goods was less strict, less formal, and more open to interpretation by the market agent. The differences in the area of capital theory between the two men is, perhaps, the most interesting, because it reminds you of two next generation economists: Mises and F. Hayek.

In defining ‘capital,’ Böhm-Bawerk adopts a more technical approach, where ‘capital’ is the sum of the means of production. That is, ‘capital’ is the pool of physical goods that can be called ‘intermediate products’ — distinct from the original means of production (labor and land) and the final consumer good. In contrast, Menger left the exact definition of ‘capital’ to the economizing individual, considering ‘capital’ a “combination of economic goods of higher order (i.e. complementary quantities of these goods) whose services also have economic character and therefore yield income.” ‘Capital,’ for Menger, goes beyond the technical means of production and encompasses all economic goods that can be used with others to produce goods of lower order. No less, Menger rejected Böhm-Bawerk’s technical (objective) distinction between capital goods and the original means of production. Finally, we see a similarity between Menger and Mises in that both ended up defining ‘capital’ in a financial, or accounting, sense as a fund, rather than a stock (which doesn’t mean that either rejected the concept of heterogeneity of higher order goods).

In summing up the differences between the two economists, two authors put it this way, “One wonders … if … the roots of the disagreement with Böhm-Bawerk [was that] Böhm was too objective for his master” (Endres 1987, p. 291). Endres, somewhere in his piece, suggests that Menger was much more willing to leave interpretation to the economizing individual — methodological individualism (a method similar to Mises’). As such, when someone tells you that you ought to skip Mises for the “roots,” C. Menger and E. Böhm-Bawerk, because of a lack of subjectivism, you should be deeply suspicious. Not only did Menger heavily disagree with many of Böhm-Bawerk’s contributions, precisely for not being subjectivist enough, but Mises took Menger’s side when it came to presenting the same or similar ideas.