Is Equilibrium Enough and was Stigler Wrong?: Value Theory in the Bohm-Bawerk/Fisher Controversies

Avi J. Cohen
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The interest-rate controversies between Böhm-Bawerk and Fisher have attracted little attention and, in the  

opinion of most commentators, justifiably so. Böhm-Bawerk and Fisher argue over what appear to be two  

minor issues – Böhm-Bawerk's claims that his third cause of interest (productivity of roundabout  

production processes) is independent of his other two subjective causes of interest and that simultaneous  

equations models involve circular reasoning and fail to provide a "causal" explanation of interest. The  

issues not only appear unimportant, their resolution seems clear – Böhm-Bawerk was wrong in both  

cases. Subsequent commentators, including Stigler, have taken Fisher's side, arguing that Böhm-Bawerk 

“fails to understand some of the most essential elements of modern economic theory, the concepts of 

mutual determination and equilibrium (developed by the use of the theory of simultaneous equations)." I 

propose a radically different assessment, arguing that post-1870 debates over the extension of the 

subjective marginal utility theory of value to production and distribution, coupled with classical elements 

in Böhm-Bawerk’s theories and his “outsider” status as an Austrian, fuelled the Böhm-Bawerk-Fisher 

controversies. Böhm-Bawerk was reacting to Fisher’s gross exaggeration of subjective (versus objective) 

elements in his interest theory and wanted a causal explanation of prices in addition to well-understood 

simultaneous determination. Value theory debates explain both Fisher’s exaggerations and BöhmBawerk’s

refusal to be satisfied with equilibrium alone.