Basic Principles of Economic Value
A noted statesman and one of the greatest economists of the 19th century, Eugen von Böhm-Bawerk paved the way for a better understanding of capital and interest in economic production. His causa prima was economic value, its nature and origin. He elaborated the "law of marginal utility," which states that the value of an economic good always is determined by its marginal utility, that is, its least important use to which it can be put. This essay, which led the way, was published originally in Conrad's Jahrbücher (1886), the most important economic journal of its time. It provided a solid theoretical foundation for his Positive Theory of Capital (1889), which was the sequel of his earlier volume, Critique of Interest Theories (1884).
This composition presents his basic thesis that all economic knowledge must build on a thorough inquiry into the nature of subjective value. In his own words, "our science, instead of ignoring subjective sensations, wants, etc. and subjective value based thereon, must search among them for the beginning of an explanation of all economic phenomena. A theory that fails to develop the theory of subjective value is built on quicksand." He laid the foundation and then elaborated the important role played by the passage of time in production. His time-preference theory was used, expanded, and perfected by other economists such as Knut Wicksell, Frank A. Fetter, and Irving Fisher. But it was left to Ludwig von Mises to extend and apply the subjective value theory also to money and indirect exchange, thereby completing the value theory.