Frontispiece of Karl Marx and the close of his system
While studying to be a lawyer at the University of Vienna, Böhm-Bawerk read Carl Menger's Principles of Economics and became an adherent of his theories, although he never studied under him. Joseph Schumpeter saw Böhm-Bawerk as "so completely the enthusiastic disciple of Menger that it is hardly necessary to look for other influences." During his time at the Vienna University, he became good friends with Friedrich von Wieser, who later became his brother-in-law. After Vienna, he studied political economy and social science at the universities of Heidelberg, Leipzig and Jena, under Karl Knies, Wilhelm Roscher and Bruno Hildebrand.
After completing his studies in 1872, he entered the Austrian Ministry of Finance, holding various posts until 1880, when he became qualified as a Privatdozent of political economy at Vienna. The following year, however, he transferred his services to the University of Innsbruck, where he remained until 1889, becoming a professor in 1884. During this time, he published the first two out of the three volumes of his masterpiece, Capital and Interest.
In 1889 Böhm-Bawerk became a counsellor in the Ministry of Finance in Vienna and represented the government in the lower house on all questions of taxation. He drafted a proposal for direct-tax reform. The Austrian system at the time taxed production heavily, especially during wartime, which resulted in huge disincentives to investment. Böhm-Bawerk's proposal called for a modern income tax, which was soon approved and met with success in the next few years.
Böhm-Bawerk briefly became Austrian Minister of Finance in 1895. After a second brief period in the position, after his third appointment to the post he remained in it from 1900 to 1904. There he fought continually for strict maintenance of the legally fixed gold standard and a balanced budget. In 1902 he eliminated the sugar subsidy, which had been a feature of the Austrian economy for nearly two centuries. He finally resigned in 1904, when increased fiscal demands from the army threatened to unbalance the budget. The economic historian Alexander Gerschenkron criticized his "penny pinching, 'not-one-heller-more policies'," and lays much of the blame for Austria's economic backwardness on Böhm-Bawerk's unwillingness to spend heavily on public works. Joseph Schumpeter praised Böhm-Bawerk's efforts toward "the financial stability of the country." His image appeared on the one-hundred schilling banknote from 1984 until the euro was introduced in 2002.
In 1897, Böhm-Bawerk became Ambassador to the German court. In 1899, he was elevated to the upper chamber (House of Peers). In 1907 he became vice-president and in 1911 president of the Akademie der Wissenschaften (Academy of Sciences).
He wrote extensive critiques of Karl Marx's economics in the 1880s and 1890s, and several prominent Marxists — including Rudolf Hilferding — attended his seminar in 1905–06. He returned to teaching in 1904, with a chair at the University of Vienna. His many students there included Joseph Schumpeter, Ludwig von Mises and Henryk Grossman. He died in 1914.
George Reisman has called him the second most important Austrian economist "after Ludwig von Mises." And further:
[It's] entirely conceivable to me that Mises might have described Böhm Bawerk as the most important Austrian economist.