The Proto-Neoclassics

The reduction of human experience to “human nature” and the “mechanistic” interpretation of the Verstand/Vernunft go together with the “reduction” of science to “sufficiency” and therefore to the e-limination of “adventitious” or “unnecessary” aspects of ethical reflection in favour of “observable” behaviour (quod homines facere solent nec debeant) – whence the focus on “regularity of behaviour” beyond the “motivations”, historical and “moral”, that Schop. equates with “rationalizations” behind the primal “force” of “Egoism” derived from the Will. Here is the “mechanicism” and “utilitarianism” of Hobbes applied to human society, but now no longer in terms of “Power” which is a throwback to “labour” and the division of ‘social labour’, but rather to the “subjective” perception of Lust und Leid which springs from the primordial (ursprungliche, Simmel) “force” or Energie (Simmel) of the Will. That is why Schump will admire the “elegance” of Bohm-Bawerk, itself a remnant of Karl Knies’s “statistical” method.

(Wolowski, intro. to Roscher, deplores JB Say’s neglect of history and praises A.Smith’s tribute to “Moral Sciences” [c.p28]. The Intro seeks to counter the “rationalism” of “scientific” approaches to Political Economy. This is an illustration of the “emanationism” that Weber rejected in the GHS.

Brief biography of Roscher who taught at an agricultural college, p30. R. wrote on Socialism and Communism. Mention of Knies [p31] forced to exile at Schaffhausen – 1848 again; and Hildebrand [critic of Proudhon] and Rau. There follows argument contra Rossi’s mathematical approach in favour of unrestrained laissez faire and production against the interests of the polity. Defence of Smith, p42, against the charge of “egotism”, to which he joins “communism”, and in favour of “sympathy” contra Mandeville [this reminds us of Schop.’s ethics] and particularly for “free labour” [p43] with reference to Knies’s defence of Smith, and “social housekeeping” [Volkswirtschaft, p45].

Pp47ff show how Wolowski equates “progress” with production which, in turn, is the “free labour” of Quesnay and Smith that leads to “wealth”. This is the “equation” that the proto-neoclassics will begin to loosen in favour of a direct link between production and “consumption” that avoids “labour value” altogether [see above our comments on Weber].)

Gossen’s theorems or laws, initially aimed at “measuring” the “exchange” between labour power (Kraft) and “utility”, soon dropped the link with “effort” or Kraft to focus on “the utility derived from goods for consumption”. Kraft becomes “pain” (Schmerz/Leid) and every exchange is therefore a calculus of pleasure and pain. Thus, Gossen moved from the “Fundamental Theorem” to the “Two Laws”, which place the emphasis on “consumers”, that is, “the sphere of exchange”, away from “production” (see Hagenberg below).

Ekelund (‘Pre-History of Neocl Microecon’) highlights the role of “engineers and agrarians” as well as statisticians in the “evolution” (Jaffe’s preferred word to “Marginal Revolution”, see Fontaine on ‘Jaffe’, fn2) of neoclassical “microeconomics”. So the analysis shifts from “the value embodied in commodities” in the process of production, to the “subjective utility of goods in exchange” which obviously refers to “the individual”. Engineers close to the political standpoint of the bourgeoisie would be keen to develop a theory that would present economic analysis from the point of view of “the consumer” and justify the “universal social role” of “industry” against the “sectoral interests of workers”, especially the Gelernt clashing with capitalist restructuration in mass production (the second industrial revolution).

The Utilitarians still used “utility” as the foundation of a broad calculus of pleasure and pain that related to life experience in general. More important, consistently with labour value, they do not consider “labour as ‘dis-utility’”. This latter view is distinctly Gossenian and of clear Schopenhauerian derivation. So long as “labour” is seen as the “creator” of “value” as an “objective measure”, it is impossible to carry out “the Copernican revolution” claimed by Gossen. And this is an effect that Schop. may well have had on Roscher down to Knies in German university circles, perhaps in reaction to the “Prussian bureaucracy” after the failed 1848 uprising, given the intellectual proximity of “exchange values” or “goods” satisfying individual “wants” [Roscher] against the “political” demands of the “Volks- oder Nationaloekonomie” with particular regard to “the labour market” and the “egotistic-communist” Gelernt. See important section on “piece-wages”, p139 ff, where workers’ apparent “control” of their pro-duce yields higher productivity – but Roscher does not notice that “putting-out” lowers wages. Here is a clear example of the opposition between Gelernt and Ungelernt: skilled workers wish to control output to maintain wages and standards; the unskilled fall prey to “individualism” that reduces their control over production and wages in exchange for apparent “freedom”. Wonowski will make a similar “moral” point. Austro-German Sozialdemokratie will struggle to deal with this dilemma - championing the Gelernt’s “artisanal” leadership role (Vanguard) but unable to represent the interests of the new class composition - and therefore postponing the confrontation with capital until its “final collapse” (Zusammensbruck) whilst in the meantime “managing” reformistically the “transition to socialism” intended as “economic planning”.

Roscher stresses the role of “exchange” in furthering the division of labour. Like Knies with Marx (see Papadopoulos, “K.Knies”), he upbraids Ricardo for neglecting “use value” which hinges on the “utility of goods in satisfying wants”. He also senses the danger in the Smithian antithesis between the “Theory” and the “Wealth” and opts for the “historicist” reliance on “social institutions” (family, church, state) as the “convergent” forces in society (in which presumably the economy plays a balancing role, being confined to the sphere of satisfying individual “wants”).

With “the proto-neoclassicals” the emphasis shifts to “the individual” and to “goods for exchange”. Already, Roscher raises the problem of “legal rights” to use values and the “relativity” of wealth when “labour” is not freely available [“everyone would have to be their own tailor or baker” – thus annulling the division of labour]. He defines wealth as goods in excess of one’s personal needs – hence, wealth becomes “renunciation”. For nations, wealth becomes “resources”.

Weber wrote an important methodological piece on ‘Roscher and Knies’. Note that Roscher never understands “wealth” as accumulation as Weber already did (but retrospectively with regard to the work ethic) and seems to think that an “excess” of wealth beyond personal needs or “wants” is simply a “resource” similar to a nation’s. Wealth has a “leveling” effect and leads to independence, perhaps a reduction in the division of labour through rising living standards (reference to Smith). Roscher’s factors of production include “external natural” elements capable of “exchange” (where ownership is essential) and Arbeitskraft. The latter retains a “moral” character in Roscher: production can be its own goal (p130). He is ready to dismiss “the ideological method” for privileging reductive “personal interests” and seeking to describe them “in algebraic form”, and to dismiss Jevons’s theories as “curious” (p103, fn4).

Dupuit, in particular, says that the only utility worth considering is “that for which people are prepared to pay” (Ekelund)! So “rarete’” or “scarcity” needs to be taken into account as well given that people would not pay for goods that are freely available – which is what differentiates use values from exchange values since Smith. But at that stage we already have the “circularity” of equilibrium analysis whereby “legal ownership rights” have to be a component of the analysis –

against Menger’s and Jevons’s purely subjective stance -, whereupon we end up with Blaug’s “total equilibrium” (in Caldwell, ‘Menger’s Legacy’). Contra Myrdal, it must be said that the “analysis” is “meaningful” but “purpose-less” because at equilibrium we have “non-action” and before equilibrium we have “indeterminacy” given that we cannot “exchange” anything if “prices” can be fixed only at equilibrium! Equilibrium analysis is therefore “meaningful” as a language game, but “abulic” like one as well!

The most interesting and essential point of this line of reasoning, however, is that by necessarily “regressing” the problematic of “use values” and “exchange values” back to “endowments” and “scarcity”, which are blatantly “legal” categories, the whole question of the effectiveness of “the market and price mechanism” shifts onto the “political sphere”, although not solely on the “sphere of production”. (See discussion above in ‘Smith Weber Schop.’) And this opens the way to the various branches of “new institutional economics” (quem vides).

From Hagendorf, “Critique of Gossen’s Fund. Theorem”:

5 The general neglect of Gossens 'Entwickelung' in Germany is part of a well cultivated saga promulgated by the counter-revolutionaries of the 1870ies and later. However, Pantaleoni has accused Carl Menger of plagiarism of Gossen. Jevons’s claim not to have had any knowledge of Gossen's book is doubtful as the Library of the British Museum holds a copy since 1865 (Hayek, 1927, XII). In my research I found striking similarities in John Bates Clark's writings with those in Gossen. And this offers me the opportunity to add a further hypothesis to the explanation of the mystery surrounding Gossen's work. Robert Anderson, who apparently established the link between Gossen and Jevons, as well as John Bates Clark had studied at Heidelberg University in the 1870ies. This university is well-known for its hospitality and was certainly one of those places where students could practice Gossen's Theory of Pleasure. This not only because this university holds a copy of the first edition of Gossen but also the style of his theorems invited them to be published as decorations in the famous wine bars of the town. When Clark honours Karl Knies for having led him to seek to discover a unit of measurement of Wealth in 'Festgaben zu Karl Knies' (Clark, 1896, p. 3) this is only of secondary importance. Incidentally another one of the 'Festgaben zu Karl Knies' is Boehm-Bawerk's “The Close of the Marxian System”. Clark defines his unit of wealth as: “this commodity will promote me by one degree in the scale of happiness. It is worth one unit of my collective labor.”(ibid.) and more explicitly he demands “taking marginal labor as the test of cost”(ibid. p. 6) .

The first author who has quoted the Fundamental Theorem in the context of the discussion on the labour theory of value was Tugan-Baranovsky in his (Tugan-Baranowsky, 1905, p. 158):

“This relationship between the labour effort for the production of a good and its value was very clear to the founder of the marginal utility school, Hermann Gossen:

'In order to maximize his life pleasure, man must distribute his time and energy among the preparation of various pleasures in such a way that the value of the last atom yielding each pleasure shall be equal to the magnitude of discomfort experienced by him if this atom had been created in the very last moment of the employment of force.'” (Gossen, 1983, p. 53, translated by the editor)10 .

In Gossen this theorem is introduced with the following phrase: “If we take into account that the means of enjoyment must be produced by labour, the fundamental theorem of the theory of pleasure is that ...”(ibid, translated and emphasized by the editor).11

This shows clearly that we have here the core of the Theory of Pleasure. It is then very curious that the followers, in particular Hayek in his introduction to the 3 rd edition (Hayek, 1927), but also Recktenwald and Krelle (1987; 1988), don't mention this theorem at all and refer only to the so called 2 Laws of Gossen, terms created by the Austrian economist von Wieser 12. One must add that the so called Second Law of Gossen (Gossen, 1854, p. 93, 94, see below) is not even emphasized in Gossen13.

The reason for the banning of the Fundamental Theorem is clear: The bourgeois economists have done everything to keep the concept of “marginal labour” secret as it is the pendant to the concept of “marginal cost” and therefore it is the key to the correct understanding of the labour theory of value.14 Bourgeois economists since Jevons always speak of marginal productivity of labour instead as “labour value” is considered a “dangerous” concept. This point has also escaped Georgescu-Roegen when he wonders about the banning of the Fundamental Theorem

10 The translation differs from (Gossen, 1983) to emphasize the labour theoretical meaning.11 The original German text: „Mit Rücksicht auf die Nothwendigkeit der Beschaffung der verschiedenen Genüsse durch Arbeit lautet daher der oben gefundene Hauptgrundsatz der Genußlehre: Um ein Größtes von Lebensgenuß zu erhalten, hat der Mensch seine Zeit und Kräfte auf die Bereitung der verschiedenen Genüsse der Art zu vertheilen, daß der Werth des letzten bei jedem Genuß geschaffenen Atoms der Größe der Beschwerde gleich kommt, die es ihmverursachen würde, wenn er dieses Atom in dem letzten Moment der Kraftentwicklun schaffte.“ (Gossen, 1854, p. 45)12 It is particularly humiliating for Gossen how the bourgeois economists, beginning with Wieser (1893, p. 8), over Hayek (1927) and Krelle (1988) express their admiration towards Gossen and at the same time suppress Gossen's labour theory of value and his basic goal: “To Each According to His Work (Pain)”.13 Nicholas Georgescu-Roegen's remark in his very stimulating but controversial introduction to the English translation of Gossen's work on the non-italicizing of the Fundamental Theorem (Gossen, 1983, p. xcvii) is not correct. Apparently he was confusing it with the non-italicizing of Gossen's Second Law.14 An exception from this rule is John Bates Clark (for example (Clark, 1896) but his reasoning is not formulated in mathematical terms and somewhat contradictory

.(Georgescu-Roegen, 1983, p. xcvii).

“In order to easily equalize marginal utility and marginal pain, Gossen redefines pain as negative utility and so the marginal pain functions become upward sloping as we have defined them above,” (p15).

[It’s funny how Hagenberg and Tugan-Baranovski totally and blithely fail to see the lethal importance of the transformation of “labour” into “Kraft” and then into “pain” (Leid)! Worthy of true Stakhanovites!]

From Maneschi:

Georgescu–Roegen hailed Gossen as the first individual who broke with the concept ofvalue in terms of embodied labor espoused by the classical economists, including Karl Marx.The revolutionary alternative that Gossen presented had been adumbrated by Turgot and bywriters of the Italian Enlightenment such as Galiani. It postulated that value is measured bythe amount of pleasure an object or service provides. As Georgescu–Roegen stated, ‘Gossenwas the insurgent who achieved the fundamental rupture with the physicalist conception of

economic value held by the reigning classical school. [He] completed the mutation to the10psychological basis of economic value not because he elucidated the new concept (whichhe well did), but because he built the first extensive analytical system on it’ (1983, p. lxvi).Besides Galiani and Turgot, other anticipators of the marginal utility principle includeWilliam Lloyd and Jules Dupuit, whom George Stigler ([1950] 1965) once described as the‘unsuccessful discoverers’ of the principle of diminishing marginal utility.

In the preface to the Entwickelung, as Georgescu–Roegen referred to The Laws of HumanRelations, Gossen claimed: ‘I believe I have accomplished for the explanation of therelations among humans what a Copernicus was able to accomplish for the explanation ofthe relations of heavenly bodies’. Moreover, ‘my discoveries enable me to point out to manwith unfailing certainty the path that he must follow in order to accomplish the purpose ofhis life’ (1983, p. cxlvii). As regards his self-comparison to Copernicus, Georgescu–Roegendrily remarked that ‘because of that self-glorification, we have often smiled at Gossen andeven ridiculed him, but, given the exceptional value of his contribution, the persiflageshould turn against the ridiculers’ (1983, p. lxv). Gossen’s mission was to indicate the paths11that humans ought to follow to improve their lives. If they only took his advice, ‘then thereis nothing further wanting in the world to make it a perfect paradise’ (Gossen, 1983, p.298; bold in the original). Georgescu–Roegen aptly noted that ‘the Entwickelung isdominated by an unlimited optimism, highly surprising in view of how tormented Gossen’slife was’. Moreover, ‘his optimism about the future of humanity is matched only by thepresent dogma of the cornucopian economists: Nature has an unlimited power to generatewealth: hence the human species will never cease to progress through art and science’ (1983,p. lxiv).Part I of the Entwickelung contains the outline of consumer theory for which Gossen hasnow become justly famous. Georgescu–Roegen points out that ‘in the history of economicthought Gossen stands alone in many respects, but, strangely, one view that sets him aparthas been overlooked completely .... While all [economists] have identified scarcity withsome material shortage of some sort or another, Gossen alone saw that what is ultimatelyscarce is time alone. It was on that scarcity as a foundation that he erected the first pillar ofhis system: “Enjoyment must be so arranged that the total pleasure during one’s entire lifeshould be a maximum”’ (pp. lxv–lxvi). In his book Gossen enunciated many other theoremsand showed ‘mathematical acumen’ (p. lxx) by providing algebraic derivations of hisconsumer theory and illustrating his analytical findings with twenty-four diagrams. Heargued that time is needed not only to produce commodities but to enjoy their consumption.In producing them, discomfort is incurred that Gossen set against the enjoyment derived12from the commodities themselves.Gossen’s consideration of time allowed to him to formulate, and illustrate graphically,what is sometimes denoted as the ‘law of the recurrence of wants’. This was labeled ‘thesecond law’ by Georgescu–Roegen, who claims that ‘there can hardly be any doubt thatGossen was the true discoverer of this law’ (p. lxxxiv). It implies that after an interval oftime the desire to repeat a past enjoyment occurs again. The enjoyment of this repetition islower than before, unless a sufficient time interval has elapsed. Georgescu–Roegen’sadmiration for Gossen derives in part from the fact that Gossen’s treatment of time inconsumer welfare maximization is reminiscent of the importance of the time dimension inGeorgescu–Roegen’s own theories. Foster has argued that Mirowski (1988) was wrong inclaiming that Georgescu–Roegen’s utility theory was essentially neoclassical: in fact,‘Georgescu–Roegen’s [concept of utility] subscribes to a Gossenian, not a Jevonian, viewof utility maximisation. The latter neglects time, the former incorporates time and can deal,explicitly, with time irreversibility and evolutionary change’ (Foster, 1993, p. 984).7The term ‘Gossen’s second law’ has been used in the literature to denote the theorem forwhich he has received the greatest praise, namely that money should be allocated ‘betweenthe various pleasures ... in such a manner that the last atom of money spent for each pleasure

offers the same amount of pleasure’ (Gossen, 1983, pp. 108–109; theorem [7.11]; emphasisin the original). Georgescu–Roegen chooses instead to refer to the optimum allocation ofmoney as Gossen’s ‘first fundamental theorem’(1983, pp. xc–xciv), while the ‘second13fundamental theorem’ (pp. xcv–cv) outlines the optimum allocation of time. He wonders‘why both [Gossen’s] theorem about the optimal allocation of time and his ingeniousdiagram [Figure 2.4] have been ignored, although that theorem represents a far moreprofound finding than his other theorem [theorem 7.11], about the optimal budget’ (p. cv).In one of the imaginative diagrams (Figure 3, p. xcvii) with which he complementedGossen’s own diagrams, each day is divided into three parts, the time of production ofcommodities, that taken to enjoy their consumption, and that for pure leisure.Georgescu–Roegen remarks that, in his previous work on utility (1968), ‘I ignored theconsumption time, a serious error of which I have become aware while preparing the presentessay’ (pp. cxxxviii–cxxxix).Gossen’s dream to become a mathematician was thwarted by his father’s desire to turn himinto a bureaucrat in spite of himself. Thanks to his nephew Kortum, we know that ‘Gossenwould have not otherwise become interested in economics; it was his hatred of thebureaucratic environment that led him to fight its economic philosophy by formulating inopposition to it a new economic outlook’ (ibid.).(p15)

Nistico on Gossen’s Time Element in Consumer Theory:

A.1. The magnitude [intensity] of pleasure decreases continuously if wecontinue to satisfy one and the same enjoyment without interruption until satiety isultimately reached.A.2. A similar decrease of the magnitude [intensity] takes place if we repeat apreviously experienced pleasure. Not only does the initial magnitude [intensity] of thepleasure become smaller, but also the duration of the pleasure shortens, so that satiety isreached sooner. Moreover, the sooner the repetition, the smaller the initial magnitude[intensity] and the shorter the duration (Gossen 1983 [1854], p.6).11Gossen’s axioms on consumers’ behaviour, in that they emphasise the negativeeffects of reiterating the same enjoyment through time, express the idea that the mainobjective of mankind is not so much to enact defensive actions against needs but ratherto enforce pro-active choices intended to fill up life with pleasures. This is attested tofirst of all by Gossen’s didactic choice to start his explanation of the laws of pleasurewith reference to artistic and intellectual enjoyments:

“Who does not remember the pleasure he has derived from the discovery, real orfancied, of a new truth! Subsequently, some pleasure is derived from dwelling on thesubject for a while; but this diminishes more and more until in the end any furthercontemplation of the topic results in boredom (Gossen 1983 [1854], p.7, emphasisadded).Moreover, when extending his argument to the more typical case of materialgoods, Gossen does not even mention the physical satiation induced by an increase inconsumption. He rather emphasizes the mental satiation induced by repetition throughtime of the same enjoyment and hence the risk of being overwhelmed with boredomwhen satisfying a recurrent need:“To the man who allays his hunger with one single dish, the first mouthful tastesbest; the second does not taste quite as good; the third, even less; and so on until, whenhe has nearly reached satiety, he is almost indifferent as to whether he takes the last bite.Experience confirms beyond doubt that repeated satiation with the same fare causes adecrease of pleasure and a reduction in the quantity of the enjoyable consumptionsimilar to the contraction of the period of the intellectual pleasure” (ibidem, pp. 7-8,emphasis added)….

If one accepts that the total pleasure accruing to the consumer within a giventime span can be measured by the sum of the areas (or parts of them) below the curvesfalling within that time period,12 then the two diagrams show that the total pleasureenjoyed with a delayed repetition of consumption can be greater than that enjoyed witha frequent repetition. Together with his second law, Gossen’s connected principle of ‘optimalfrequency of consumption’ has also gone into oblivion. According to Gossen’sprinciple:“With each specific pleasure, there is one definite manner of enjoying it,determined chiefly by the frequency of the repetition of that enjoyment, that will lead toa maximum of pleasure. Once this maximum is attained, the total pleasure decreaseswith either more or less frequent repetition” (Gossen 1983 [1854], p.13).13

On Karl Knies: (Papadopoulos)

But if the facts of his life are straightforward, his ideas are rich and complex. On the one hand, Knies was one of the founders of the Older German Historical School. He was immensely influential upon Max Weber, and also educated some of the leading nineteenth century figures in both Austrian and American economics: Friedrich von Wieser, Eugen von Böhm-Bawerk, E.R.A. Seligman, RichardT. Ely, and John Bates Clark. He was highly influential on the work of Carl Menger and was also one of the only German economists who treated Marx’s work seriously (he was deeply critical of Marx’s theory of value for ignoring value in use). (p6-7)

In his elaborate explanation of marginalist thought in German economics, Streissler presents three significant citations of “Die nationaloekonomische Lehre vom Werth,” where Knies uses the concepts of subjective utility and diminishing marginal utility. He demonstrates how subjective utility plays a central role for Knies’ analysis by citing Knies’ precondition for exchange that “exchange takes place not because two quantities of two kinds of goods are equal, but because they are on both sides in opposite ways esteemed unequal” (Streissler, pp. 43-44/Knies, p.467). Secondly, he locates Knies’s use of diminishing marginal utility in the notion that Knies shared with Hildebrand about the process of production, namely that the further increase of a quantity of a good will result in the decrease of the individual’s marginal utility for the additional units produced (Streissler, p.44). Finally, Streissler mentions Knies’s work with regard to how German economists combined supply and demand when discussing utility and prices, as in the case where Knies argued that “value and price moved in the same direction, ‘value’ being identified by all Germans since Rau with utility” (Streissler, p.49). (pp8-9

In the quest to find Karl Knies’s contribution to the emergence of marginal utility theory, one can find a reliable source in the writings of Carl Menger himself, the founder of the Austrian branch of neoclassical economics. In Appendix C of his first and most famous publication, Principles of Economics13, Menger makes direct reference to Knies’s aforementioned “richly suggestive essay” on value, criticizing, nonetheless, several parts of his theory, which he evaluates as leading to “doubtful conclusions.” First, he alludes to Knies’s definition of value as “the degree of suitability of a good for serving human ends,” to which he objects because he says that it confuses the nature of value with the measurement of value: “the measurement of value belongs as little to the nature of value as the measure of space or time to the nature of space or time” (Menger 1950, p.293). Thus, Menger understands Knies to attribute inherent value to goods, which obviously cannot correspond to the psychology of the newly born (Austrian) neoclassical methodology14. (pp14-5)

The founder of the Austrian School does, however, give credit to Knies for “mak[ing] a penetrating attempt to solve the problem [of the measurement of value]” (ibid, p.299). He praises Knies’s efforts to formulate a principle for the estimation of value based on the “fundamental concepts of value itself,” but he considers some of the assumptions arising from this analysis mistaken, since they derive from Knies’s confused original definition of value. Menger specifically states his disagreement with Knies’s concept of “a classification and scale of human needs to which corresponds a classification and scale of species of goods,” since Knies’s concept cannot account for public goods such as water or air, which satisfy some of the most essential needs of mankind, but yet have no actual price-value in the market (ibid, p.299-300).

Menger, however, acknowledges the fact that Knies later differentiates between abstract value and concrete value, but he still does not seem satisfied with Knies’s treatment of the measurement of value because of the latter’s “[failure] in formulating a principle for determining the magnitude of use value in its concrete form, although he comes close to it at one point” (ibid, p.300 – italics in original, referring to Knies at p. 441). Thus, we see that Menger notices several unresolved ambiguities in Knies’s essay, especially regarding the definition of the measurement of value, which he perceives as unclear. His major problem with Knies’s theory, hence, deals with the fact that it lacks a precise way of calculating utility; a task, which the Austrian author himself undertakes in the main part of his work (ibid, p.127).) (pp15-6)

It appears that Knies put a lot of emphasis on subjective utility for the purpose of his analysis, as he focused on the individual consumer to draw more general inferences about economic behavior. Early in his analysis, in order to closely examine the several features of use-value, he marks a ‘transition […] from human needs in general to the needs of a certain individual” (ibid, p.429). This view of value – from the perspective of the individual with regard to the satisfaction of his own human needs – allowed Knies to reach great insights regarding utility theory that were later to become part of the foundations of neoclassical economics.At several instances in the essay, Knies denies use-value as an inherent quality of goods, since only “the property of usefulness for human ends is inherent to objects” (ibid, p.453)17. Hence, contrary to Menger’s criticism, the German economist viewed use-value as a result of people’s individual preferences for the satisfaction of human desires. This notion of use-value as a subjective conception reaches to the crux of neoclassical economics and Menger’s theory, and even relates to the most fundamental concept of subjective scarcity. The term subjective scarcity describes the condition according to which the value of goods depends neither on their costliness to produce, nor on their mere rarity, but on their availability relative to people’s desire for them – that is, relative to the demand in the market. Knies made extensive use of the concept in his attempt to describe the determination of concrete use-value and concrete exchange-value in the national economy. He explicitly states that “the concrete use-value of goods […] is not based […] on the quantity in circulation, but rather on the relation of this quantity to the quantum of the need that it must satisfy” (ibid, p.455). Furthermore, as Streissler (1990) has demonstrated, Knies understands that the value that goods gain in exchange depends on the variability of utility estimations that the exchanging parties make (Knies, p.467); thus, exchange will take place only if the good that A tries to sell has a greater use-value for B than the good that the latter is selling to A. In addition, Knies also mentions water as an ownerless good once it exists in great abundance (ibid, p.472) which answers Menger's questioning of Knies's definition of value. Hence, one can say that Knies had made a decisive step towards the clarification of the meaning of value and – perhaps unwittingly - towards the establishment of neoclassical economics, when he perceived of use-value and exchange-value of goods as dependent on the relationship between the available amount of those goods to the "quantum of the needs" which they satisfy. (pp20-1)

From Gordon, ‘Ph Or of Aust Sch’

The Historical School's view of economics differed not only from the Austrian school but fromclassical economics as well. The members of the group rejected laws of economics, even such basicprinciples as the law of supply and demand. They regarded economics as a historical and practicaldiscipline.

Somewhat in the manner of Aristotle, who characterized economics as the study of householdmanagement, they thought of economics as the science of state management. Here they continuedthe tradition of the German mercantilists of the seventeenth and eighteenth centuries, the so-calledCameralists. They were less interested in economic theory than in the advancement of the power ofthe state, particularly the Prussian state, or, after 1871, the German Empire of which Prussia was the principal constituent. P1

Hegel saw the state as the director of the economy. "Civil society," though not a part of the state, fell under its authority. To allow unrestricted scope to the supposed laws of classical economics was to subordinate a higher entity, the state, to a lower, the economy. Instead, the economy should be manipulated to enhance the state's power.

It is no accident, I suggest, that the Historical School favored precisely the same views. Mises in Omnipotent Government has described in detail the way in which German economists before World War I advocated the use of the economy as a means to advance the power of the state. Trade should not be free but controlled by the state for its own purposes. [6]The Austrian School stood diametrically opposed to the German Historical School. [7] In view of the vast divergence of the two schools in economics, one might expect substantial differences in philosophical background. This is indeed what one does find. The leading philosopher who influenced Carl Menger was Franz Brentano. He resolutely rejected the doctrine of internal relations, along with the remainder of the Hegelian system. (p4)

In view of the importance of intentionality, let us risk laboring the point. An intention is a mental going out or grasping an object: it can be diagrammed as an arrow going from mind to object. In speaking of "object," I have been guilty of an ambiguity. An object of an intention can be either a mental object, e.g., the ideas of the empiricists, or a physical object. Does the intentional act extend "out of" the mind to make direct contact with the actual world? This is a difficult issue to answer, as Brentano's system is rather murky on the point. [8] Menger applied the concept of intentionality to economic value. He did not take value to be a feeling of pleasure or pain that comes into one's mind automatically when one perceives an object. Quite the contrary, a preference in Menger's system is a judgment: I like X (or I dislike X). The judgment in question is an act of preference: as the intentionality of thought grasps an object, so does a judgment of preference "move" toward an end. In slightly different terms, to prefer something is to evaluate it: to rank it on one's scale of values. By contrast, William Stanley Jevons had an entirely different notion of value. He equated value with utility or pleasure, measurable in units. He thought that an object created a certain number of units of pleasure in a person's mind when he came into the appropriate form of contact with it. The person as such really has little to do in regard to evaluation. Whatever created more units of pleasure, a strictly objective matter, was ipso facto the more valuable. (p5)

From Keynes – ‘Essays in Biography’ on WS Jevons

Keynes traces the biography of an engineer who avidly sought “regularities” or econometric patterns as “causal links” in everything from trade cycles and sun spots to Malthusian coal-production indices of production to the effect of gold production on prices. Most of his economic ideas were conceived in long periods of solitude in Australia.Recall Keynes’s slingshot at Jevons’s passion for steam engines – jumping in joy like a child, whereas Marshall sat down and wrote a plan. (Keynes later reminds us, p343 on Mary Marshall) that the Marshalls spent time is Sudtirol with the VonWiesers and Bohm-Bawerk, with whom Marshall had corresponded on the theory of interest.) Again, this reminds us of the “engineering circles” that first promoted marginal utility and the “personal ties” that went into its spread.He had already written in his diary in 1852 about not believing in “moral sense” separate from “animal feelings”, and postulating the “origin of species” from one prototypical organism (p255).He approached economic statistics and fluctuations from the perspective of a “meteorologist” (p267). Jevons always organized his material in such a fashion to ensure “the discovery of regularities and tendencies” (p268). Price-indexing was his specialty (p269).He sought to locate the incidence of investment cycles with the turnover of large fixed capital assets (p272). Then came the theory of “solar valuations” (p274).Jevons’s idea was to explain prices by a series of mathematical axioms. He obviously worked backwards from “the Law of Supply and Demand” (pp280-1).“A hedonistic calculus [obviously based on Bentham’s utilitarian notions] allows us to balance the utility of consumption against the disutility of labour” (p282).

This would seem to be a “special case” because it still posits the “centrality” of labour, but in “negative” form – in terms of “dis-utility” – which then requires “non-produced” goods to have utility as well! This is where Walras came to the rescue! (See Keynes’s spiffy summary on pp284-5.)

Because labour is not “exchanged” with particular goods but rather with money wages, it follows that not “labour” but “prices” must provide the “subjective” index of exchange values. Taking “prices” as given, Jevons could then move to the “substance” that market agents were “exchanging”.It’s quite obvious that if we seek to compare the utilities derived from the consumption of disparate goods, this will be “quantitatively” impossible. But if we consider their “prices”, then we can isolate (illicitly, of course, because this is a petitio principii – see Stigler’s first article) the market price in terms of “money” from the “exchange” that it enables. The “price” is prima facie evidence of the “fact” that two goods are “equivalent” at the time of their exchange. So the “utility” of the purchased good must be equal to the utility of the quantity of money exchanged for it. But the reason why we do not exchange all of our money for one particular type of good is that we “compare” or “select” the goods we need to satisfy all of our “utilities”.It follows therefore that a point must be reached, theoretically, at which the utility to be derived from each purchased good must be calculated not “absolutely” but in terms of the effect of the purchase of one more unit on the corresponding “change” in the utility of one more unit of the other goods – until these “marginal utilities” are equalized: “until an increment… will be more painful…” (p282). So here we have “Arbeitskraft als Leid”, as with Gossen!!

But you cannot “equalize” even marginal utilities unless these are “represented” by prices. But at that stage “marginal utility” will become a “metaphysical” notion relying on the “unobservable preferences” of market agents – “observable” only in terms of “prices” – which defeats the purpose!Thus Jevons’s system still relies on the “wage fund” notion, a throwback to Ricardo-Mill (Robbins). Something that Walras cured by eliminating money and nominating a “numeraire”. (Again, Stigler.)

From 1861, date of Jevons’s first draft, to 1871, the delay in publication severely hurt Jevons’s claims to priority (see Hagendorf about possibility he took notes from Gossen!). (P.284)

Keynes then examines the differences that emerged between Marshall and Jevons over their “dissimilarities” of attitude toward Ricardo-Mill with the latter cited in two loci about his opposition to the labour theory of value (pp290-1) – “violence pursued to the point of morbidity” against Mill.Then Keynes refers briefly to Jevons’s work in Logic.Finally, he turns to his most negative views on charity – reminiscent of Mandeville’s (pp300-1). These are important because they help understand Jevons’s “individualist” frame of mind – not much Schopenhauerian “Mitleid” there! But he redeemed himself with more balanced views in “The State in relation to Labour” where he is cautious about state intervention in the economy (p303).

(b) The Austrian School and Machism

“Purpose-lessness” or “aimlessness” or “a-bulia” (Kant would call it ‘heteronomy’ as against ‘autonomy’ of ‘transcendent’ system that explains trans-crescence) of equilibrium as “Kreislauf” or “end-state” or “stagnation” or “non-action”. Meaninglessness of “co-ordination” or “efficient allocation of resources” because either achieved “teleologically” ex ante (ratio abscondita, invisible hand) or “tautologously” a posteriori (hindsight, petitio principii of intertemporal equilibrium).

Hayek-Robbins is “empiricist” because it sees growth as “immanent” and reducible to “information” because it is “heteronomous/empiric”data, a ‘given’ that can be determined or calculated or “discovered” (homo quaerens) ex ante. The “science of choice” is a “technique” that needs to be “applied” to heteronomous “processes” (means-ends) that preserve ‘autonomy’ (choice and transcendence) only in their evolutionary/processual/empirical “spontaneity” (hence antinomic with transcendence and autonomy as an immanent/empirical “order” and with

equilibrium as the rational/transcendent goal, wherein its “spontaneity” is eclipsed in the attainment, as Mises warned.). Worse, if “the science of choice” is a technique applied to allocation of resources, it then needs to define “resources” and “ends” which it is not possible to do in purely “technical” terms because both the “inputs” (resources including technologies) and the “outputs or ends” cannot be so defined without first making “explicit” the “choices” that apply to the determination of “inputs”.

Robbins mistakenly thought that equilibrium analysis did provide the basis for the “science of choice” by permitting the “value-neutral, hence scientific, pricing” of “resources” which could then be applied (scientifically) to achieving “chosen ends” (see revealing footnote in ch.2 of ‘Essay’). But given that equilibrium analysis itself can only “price resources” in a politically charged manner (through its “assumptions”), then “the science of choice” must forsake its claim to “scientificity” and return to the status of being itself an arbitrary or political “choice of technique” against its wishes! Hayek makes this same point against the Socialists! See our ‘Eq&MkPr’. In both cases, Hayek’s lucid analytical mind could see that ultimately the “economic choice” involved in “pricing” of “resources” can be defined satisfactorily only as “transcendent or political choice” that cannot be determined by instrumental means such as the market mechanism of equilibrium analysis on which Robbins’s “science of choice” must be founded in order to avoid having to specify “the ends” to which its supposedly “scientific” application of means to ends pertains.

Mises seeks to establish an autonomous/rational transcrescence by applying a “praxeology”(or “practical logic”, a contradictio in adjecto!) that is only “logico-mathematical” and therefore “apodictic-technical” or “applied” to a separate reality and can never be “practical” because devoid of “choice” or “action” in itself (Kant,KPV,I,I,4, p32 fn.1), thereby undermining the transcendent autonomy of “homo agens” reducing him to the “heteronomy” of equilibrium (Kant, ibid,I,7,8, p39ff) or to a decisionism/voluntarism without any “economic” foundation. - Hence Mises’s need to retain equilibrium as a technical foundation for his “logic”, which reduces his “praxeology” to empty technique devoid of “practice”.

Schumpeter instead elegantly and perceptively distinguishes between an immanent “transformation mechanism” that is “technical” and an exogenous transcendental “entrepreneurial spirit” that is evidently autonomous and thereby over-comes or sur-passes or sup-plants Machism, despite his atavistic reliance on equilibrium as a crutch.

We can conclude that equilibrium analysis was an antinomic necessity for Mises to found his “logic”, an antinomic “ideal end-state” to Hayek-Robbins to found “spontaneity”, and totally superfluous for Schumpeter who was careful to avoid equilibrium entirely.