Friedrich von Wieser | |
|---|---|
 | |
| Born | Friedrich Wieser (1851-07-10)10 July 1851 Vienna, Austrian Empire |
| Died | 22 July 1926(1926-07-22) (aged 75) St. Gilgen, Austria |
| Academic background | |
| Education | University of Vienna (Dr. jur., 1872) |
| Influences | Carl Menger Eugen von Böhm-Bawerk |
| Academic work | |
| School or tradition | Austrian School Lausanne School |
Friedrich von Wieser (German:[fɔnˈviːzɐ]; 10 July 1851 – 22 July 1926) was an early (so-called "first generation")economist of theAustrian School ofeconomics. Born inVienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry, he first trained in sociology and law. In 1872, the year he took his degree, he encountered Austrian-school founderCarl Menger'sGrundsätze and switched his interest to economic theory.[1] Wieser held posts at the universities of Vienna and Prague until succeeding Menger in Vienna in 1903, where along with his brother-in-lawEugen von Böhm-Bawerk he shaped the next generation of Austrian economists includingLudwig von Mises,Friedrich Hayek andJoseph Schumpeter in the late 1890s and early 20th century. He was the Austrian Minister of Commerce from August 30, 1917, to November 11, 1918.
Wieser is renowned for two main works,Natural Value,[2] which carefully details thealternative-cost doctrine and the theory ofimputation; and hisSocial Economics (1914), an ambitious attempt to apply it to the real world. His explanation ofmarginal utility theory was decisive, at least terminologically. It was his termGrenznutzen (building onvon Thünen'sGrenzkosten) that developed into the standard term "marginal utility", notWilliam Stanley Jevons's "final degree of utility" or Menger's "value". His use of the modifier "natural" indicates that he regardedvalue as a "natural category" that would pertain to any society, no matter what institutions of property had been established.[3]
Theeconomic calculation debate started with his notion of the paramount importance of accurate calculation to economic efficiency. Above all, to him prices represented information about market conditions and are thus necessary for any sort of economic activity. Therefore, a socialist economy would require a price system in order to operate. He also stressed the importance of theentrepreneur to economic change, which he saw as being brought about by "the heroic intervention of individual men who appear as leaders toward new economic shores". This idea of leadership was later taken up by Joseph Schumpeter in his treatment of economic innovation.
Unlike most other Austrian School economists, Wieser rejectedclassical liberalism, writing that "freedom has to be superseded by a system of order". This vision and his general solution to the role of the individual in history is best expressed in his final bookThe Law of Power, a sociological examination of political order published in his last year of life.
Born in Vienna on 10 July 1851, Wieser spent his childhood and adolescence in the same city. He was interested since youth inlaw,history andsociology.[4] He studied law at theUniversity of Vienna beginning in 1868.[5] His lifelong passion forpolitical economy was first ignited when he readHerbert Spencer'sEinleitung in das Studium der Soziologie (Introduction to the Study of Sociology).[5]
After ten years[4] of public service as a government employee, Wieser was awarded in 1875 a scholarship to theHeidelberg University in order to study political economy withEugen Böhm von Bawerk, a friend from his youth who later became his brother-in-law. Both men were disciples ofCarl Menger, Wieser's senior by 11 years. Although neither Wieser nor Böhm-Bawerk studied under Menger directly,[6] they were greatly influenced by readingMenger'sGrundsätze der Volkswirtschaftslehre (Principles of Economics) (1871),[6] which was the work that had initially inspired the two men to study political economy.[4] The three are considered the first generation of theAustrian School of economics.[6]
After a successful postdoctoralhabilitation in 1884,Über den Ursprung und die Hauptgesetze des wirthschaftlichen Werthes (On the Origin and the Main Laws of the Value of the Factors),[5] a prelude to his value theory, Wieser was named that same year as an associate professor atCharles University in Prague,[5] where he stayed until 1903 when he succeeded Menger at the University of Vienna.[7]
In 1889, Wieser was namedordentlicher Professor[5] (ordinary professor) at the Charles University. That same year, he also published hisDer natürliche Werth (Natural Value), with which he initiated the debate on the value offactors of production and from which are derived two of his major contributions: his value theory and the related imputation theory.
Motivated by introducing the innovations of the Austrian School, he publishedDie österreichische Schule und die Theorie Wert (The Austrian School and the Theory of Value) in 1891 andDie Wert Theorie (The Value Theory) in 1892. Later, he collaborated in other notable works, such asDie Wiederaufnahme Barzahlungen der in Österreich-Ungarn (Resumption of payments species in Austria-Hungary) in 1893 andDie Theorie der städtische Grundrente (Theory of urban land rents) in 1909. He also served as editor for two articles in thePalgrave Dictionary of Economics: "Die österreichische Schule der Wirtschaft" ("The Austrian School of Economics") and "Böhm-Bawerk", both in 1884.
In 1903, Wieser was awarded a chair as a full professor at hisalma mater, theUniversity of Vienna, where he taught a new generation of economists, includingLudwig von Mises,Joseph Schumpeter and his most faithful discipleFriedrich Hayek.[7] He developed a monetary theory inspired by the research of Carl Menger and he applied himself during the following years to the problems of thequantity theory of money. In his last 25 years, he dedicated himself to sociology, which he believed must go hand-in-hand with economics for the fullest understanding of human society. By combining these disciplines, he was able to forge a new vision of economic policy.
In 1911, he publishedDas Wesen und der Hauptinhalt der theoretischen Nationalokonomie (The Nature and Content of Theoretical Economics Major National) which preceded yet another major contribution, alternative cost (or opportunity cost) theory, which was drawn from his studyTheorie der gesellschaftlichen Wirtschaft (Theory of Social Economy), published in 1914. It was here that he first coined the term "opportunity cost".[7]
Also attributed to him is the creation of the term "marginal utility" (Grenznutzen)[8] due largely to the influence ofLéon Walras andVilfredo Pareto,[9] both of theLausanne School. This has led some scholars to not consider his later works as belonging to the Austrian School. Even his disciple Ludwig von Mises said in his autobiographyMemoirs (1978) that Wieser had misunderstood the gist of the subjectivism of the Austrian School and was actually a member of the Lausanne School.[9] However, in both he also presents a clearmethodological individualism and a rejection of historicism of theGerman School, so at first blush it is difficult to justify his exclusion from the Austrian School.
In 1914, Eugen Böhm von Bawerk died, thus marking the end of a lifelong friendship and striking a hard blow to Wieser.[9]
In 1917, Wieser was named a member of theAustrian House of Lords[10] and granted the title ofBaron. He was also appointed Minister of Commerce in the Austrian Cabinet,[11] which post he held until the end ofWorld War I in 1918. However, his activity was hindered byRichard Riedl, Energy Minister and clear proponent ofeconomic interventionism, leaving only matters of secondary importance to Wieser'sjurisdiction.[12]
His last works wereDas geschichtliche Werk der Gewalt (The History of State Power) in 1923 and a sociological study titledDas Gesetz der Macht (The Law of Power) in 1926.
Wieser died on 22 July 1926 in Salzburg, where he is buried. Two of his hitherto unpublished works were published posthumously, namelyGeld (Money) in 1927, which summarizes his monetary theory; andGesammelte Abhandlungen (Collected Papers) in 1929. This latter book included a tribute resulting from the collaboration of renowned economists likeKnut Wicksell,[13] but it was censored duringWorld War II.
Wieser's most famous contributions are theimputation theory drawn from his 1889 workDer natürliche Werth (Natural Value) and theAlternative Cost (or Opportunity Cost) Theory drawn from his 1914 workTheorie der gesellschaftlichen Wirtschaft (Social Economics) in which he coined the term "opportunity cost". He is credited with the economic distinction betweenpublic goods andprivate goods subsequently used by Friedrich August von Hayek and eight of his disciples, and with developing the concept ofmarginal utility (Grenznutzen).[8]
Wieser also stressed the importance of the entrepreneur to economic change, which he saw as being caused by "the heroic intervention of individual men who appear as leaders at new economic frontiers". This idea of management was later expounded upon by Joseph Alois Schumpeter in his treatment of economic innovation.[14] Value theory was revolutionary because it opened the debate on the question ofeconomic value, introducing an objective calculation to a subjective theory. It was one of the first mathematical solutions to the problem of determining prices for factors of production. Hisimputation theory amended possible errors in the theory of his teacherCarl Menger and is still used today inmicroeconomics in consumer research to calculate the systematic replacement of factors of production.[15]
Another of Wieser's fundamental contributions toeconomics is thealternative cost theory (now called the opportunity cost theory), which had been ignored byAlfred Marshall and British economists.[7] Based on the work ofVilfredo Pareto, Wieser created the concepts of marginal utility[8] and opportunity cost, which ledeconomists to the study and analysis ofscarcity and the allocation of scarce resources.[7]
Wieser thus perfected the theory of Carl Menger by introducing a definition of cost, the opportunity cost, compatible with the theory of marginal utility. He also usedCarl Menger's monetary theory from which he devisedhis own monetary theory presenting a study of possible influences on monetary value that can change the relationships between natural and monetary economics.[citation needed]
Wieser's most important contributions is that thanks to his familiarity with sociology he combined the Austrian theory ofutility with an evolutionary theory of institutions offering solutions to theparadox betweenprivate property and the maximization of utility. Wieser said that idealizedclassical andneoclassical models neglect basic concepts such as the possibility ofmonopolies and the existence ofeconomies of scale.[15] Wieser claimed that idealized refined and self-contained models may not be useful tools for economic policy, resulting therefore in a suboptimal solution. In his treatiseTheorie der Wirtschaft gesellschaftliche (Theory of Social Economy), he posited the concept of social economy (gesellschaftliche Wirtschaft) using theperformance ofintervention in certain cases as a benchmark to assess policy effectiveness.[citation needed]
From his bookDer natürliche Werth (Natural Value), published in Vienna in 1889, are extracted two of Wieser's three relevant theories, hisvalue theory and the imputation theory, although both had had their geneses in previous studies.[16] Adding to his contribution was also the theory originally known as thealternative cost theory (now called the opportunity cost theory), which was published in 1914 ingesellschaftliche Theorie der Wirtschaft (Theory of Social Economy). Finally, also worth mentioning is his monetary theory.
Wieser's value theory attempts to establish a method for calculatingeconomic value and states that the factors of production have a value due to the utility they have conferred on the final product, i.e. marginal utility, as opposed to the theory held by his teacherCarl Menger which states that the value factor is the value of the input when contributed to the final product. Wieser's value theory was presented along with his imputation theory in his workDer natürliche Werth (Natural Value), published in Vienna in 1889, although his examination of the subject begins in his 1884 postdoctoral studyÜber den Ursprung und die Hauptgesetze wirthschaftlichen des Werther (On the Origin and the Principal Laws of the Value of Factors).
Wieser asserts that natural value (natürliche Wert) is a neutral phenomenon, independent of the economic system. His idea of natural value tends to highlight how the value of property is continuously dependent on the distribution of income between different social classes, so that in the presence of a situation greatly lacking in equidistribution, goods or services provided with little social utility can be of great value and vice versa.
Theeconomy deals with a social process and therefore must be based on a concept ofsocial economics (gesellschaftliche Wirtschaft), which implies certain institutional actions. In the first part of his treatiseTheorie der gesellschaftlichen Wirtschaft (Theory of Social Economics), Wieser carefully explains his view of general economic equilibrium. Aware of the idealized assumptions of this economy, he seeks to define with pinpoint accuracy the conditions under which resources would be allocated to ensure the highest possible utility. Social economics should therefore serve as the benchmark for evaluating theefficacy of administrative intervention in the market economy:
Most theorists, especially those of theAustrian School, have tacitly made the same abstraction. In particular, the opinions that considerprice to be a social test of value [...]. Many theorists have written their own Communist theory of value without knowing it.
— Friedrich von Wieser,Der Natürliche Werth (Natural Value), 1914
This assertion is based on the fact that for Wieser natural value would exist in a perfect communist state due to the absence of inequalities of wealth and error. In this case, value would result only from the available quantity and from profits. However, he states that in the real world natural value is only one element in the formation of price. Other factors that influence prices are the distribution of purchasing power, errors, fraud and coercion.
His idea of natural value highlights how the economic value ofproperty changes depending on thedistribution of income between different social classes so that when income distribution is far from equal, goods or services provided with little social utility can be of great value and vice versa. Therefore, Wieser explicitly states his assumptions considering the cases in which the exchange value (price) differs from the real value (marginal utility):[15]
Instead of the things that would be more useful, there are things that pay better. The greater the difference inwealth, the more striking are the anomalies ofproduction. The economy provides luxury to the capricious and greedy, while it is deaf to the needs of the miserable and poor. It is therefore the distribution of wealth that decides what will be produced, and leads to aconsumer of a more anti-economic variety: a consumer wastes on unnecessary, guilty enjoyment that which could have served to heal the wounds of poverty.
— Friedrich von Wieser,Der Natürliche Werth (The Natural Value), 1914
Some economists of theAustrian School maintained that the value of the factors of production is not the individual contribution of each factor in the final product, but rather the value of the most valuable use that can be made of the last good (the marginal utility before reaching the Pareto optimal point). The opposing view held by theclassical economists such asAdam Smith is thelabor theory of value.
There are practical applications such as:
Wieser based histheory of imputation on the assumption that factors of production are combined in fixed proportions in each industry, but at different rates in different industries. It was one of the first mathematical solutions to the problem of determining the prices of factors of production.[15]
Previously, some economists such asCarl Menger and others of the Austrian School maintained that the value of factors of production is the individual contribution of each in the final product, but its value is the value of the last contributed to the final product (the marginal utility before reaching the pointPareto optimal). Thus, Wieser identified a flaw in the theory of imputation as expounded by his teacher Carl Menger as overvaluation may occur if one is confronted with economies where profits jump (maximums and minimums in his utility function, where its second derivative equals 0). Wieser suggested as an alternative the simultaneous solution of a system of industrial equations.
Given that a factor is used in the production of a range of first-order goods, its value is determined by the good that is worth the least among all the goods in the range. This value is determined at the margin, the marginal utility of the last unit of theleast valuable good produced by the factor. In connection with his opportunity cost, the value so derived represents an opportunity cost across all industries, and the values of the factors of production and goods are determined in the whole system. Thus, supply and demand do not develop into the determinants of value; the determinant of value is the marginal utility.
The following can be considered applications of Wieser's theory of imputation:
The alternative cost theory (or opportunity cost theory) is a theory of enormous importance that comes from hisTheorie der gesellschaftlichen Wirtschaft (Theory of Social Economy), published in 1914, although his arguments were foreshadowed in his workDas Wesen und der Hauptinhalt der theoretischen Nationalokonomie (The Nature and Main Content of Theoretical State Economics), published in 1911. Wieser coined the term "opportunity cost" and performed a detailed study of the subject.
Opportunity cost is associated with a famous controversy from the early 20th century, where disciples of English economistAlfred Marshall were opposed to the continental economists of the Austrian School, the head of which was Friedrich von Wieser, with his theory of alternative or opportunity cost.[19] The debate focused on the following points:[19]
The most notable feature of the concept is that opportunity cost would only make sense if the opportunity were fixed or reasonably limited. That is, if there is a conflict in performing multiple investments or actions, simultaneously or consecutively, it would not be feasible to have to choose among all the alternatives.[citation needed]
Thus, if a person has several options, you can calculate the opportunity cost of choosing one, but can we calculate a universal opportunity cost, which would include all the options? The prevailing opinion was that the opportunity cost could not be applied outside of cases of limited resources. This led some economists to limit the object of economics to "exceptional" resource situations (an idea still present in all economics textbooks). Still unknown are the consequences that might follow from an economic science that has no fixed limits outside of theeconomic system in terms of availability ofgoods.[citation needed]
There are practical applications such as:
Wieser also developed a monetary theory. It was inspired by the research ofCarl Menger, in particular by his study of currency, which discussed both the historical evolution of money and the theory of its value. Wieser used the theory of marginal utility as a basis for his monetary theory. It was initially rejected; in fact, some authors tried to prove thatmarginalism necessarily failed when used as a basis for building such theories. However, his discipleLudwig von Mises studied Wieser's theory and fleshed it out, creating the complex upon which he built the German concept ofGeld (money).[citation needed]
Wieser conducted a further study on the effects of change in a currency's value on the relationship between the natural economy and the monetary economy.[citation needed]
There are practical applications such as:
In his later years, Wieser ventured into the study of Sociology, and this resulted in his 1914 publication,Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economy), from which is derived his theory of alternative cost or opportunity.Das Gesetz der Macht (The Law of Power), published in 1926, was his latest publication, a great sociological study from which we draw the following conclusions.
Wieser tried to explain the relationships and social forces through the study of history, and he concluded that economic forces held a prominent role in social evolution. Despite his interest in collective goals, such as economic well-being, Wieser adopted anindividual approach, explicitly rejectingcollectivism, approaching a moreliberal stance and establishing the essential difference betweensocial economics in general and socialist economics.
Social economy (in the original German,Gesellschaftliche Wirtschaft) treats humanity as a whole as an ideal economic subject and contrasts it with nature, so that considerations of conflicting interests oreconomic justice become as irrelevant as they would to the economy ofRobinson Crusoe:[14]
But this broad economy is guided by a single mind. It answers its purpose in an unimpeachable manner because a systematic and penetrating mind guides it. This director foresees ends, weighs them without error or passion and maintains a discipline which ensures that all directions are executed with the utmost precision and skill and without loss of energy. We shall further assume that all requisite individual forces are placed at the disposal of this social management as cheerfully as though enlisted in their individual interest.[21]
— Friedrich von Wieser,Theorie der gesellschaftlichen Wirtschaft (Social Economics), 1914
For Wieser, the individual is the root of all decisions.[9] Decisions are made in the face of certain restrictions. Institutions are what define the restrictions on individual decisions. The reflection of these findings inpolitical economy is apparent in actions such as:[15]
These conditions, under which resources would be allocated to ensure the greatest value, describe his model of an ideal economy, which he callssocial economics in the first part of his treatise entitledTheorie der gesellschaftlichen Wirtschaft (Theory of Social Economics). He made idealized assumptions using his model as the benchmark standard for evaluating theeffectiveness of administrative intervention in the market economy.
Thus Wieser's Social Economics is, in effect, asocialist economy[9] in which, to achieve greater productivity,scarce resources are assigned by an omnipresent, benevolent planner with direct and accurate insight sufficient to know the intensities of satisfactions and needs experienced by individual members of society, which all have exactly the same tastes and the same scales of utility and receive the same incomes. Moreover, their directions are followed without question by a completely docile workforce.
When labeling Wieser a "neoliberal", particular emphasis is placed on the definition ofLudwig von Mises. The English edition of his 1927 book,Liberalismus, uses the term "neoliberalism" to translate what Mises called in Germanneuer Liberalismus (new liberalism). In this book, Mises uses the term to designate socialists posing as liberals (a term he later replaced with "pseudoliberals"), leaving in Mises's view Wieser under this definition for being aFabian socialist. Also in his later bookSocialism, he applies the neoliberal label to liberal supporters of the then new[clarification needed] subjective theory of value, includingCarl Menger and Wieser.[citation needed]
When Carl Menger,Eugen von Böhm-Bawerk and Wieser began their careers in science, they were not focused on economic policy issues, much less in the rejection of intervention promoted byclassical liberalism.[22] Their common vocation was to develop an economic theory on a firm basis. To do this, following the course initiated by Carl Menger, Wieser, along with his friend and brother-in-law Eugen von Böhm-Bawerk, disapproved of the policies of interventionism that the Austrian government, as all governments of the time, had adopted, arguing that only thefree market could allow moreefficient economic and social development.[22]
Wieser believed that he could contribute to a return to liberal policies, both by explaining his economic vision in his books and articles as well as by teaching it in his role as university professor at theUniversity of Prague and University of Vienna. In addition, his positions within the Austrian ministries allowed him to adopt more or less liberal economic policies. However, it was his liberal vision that separated him from the British economists of his era, discarding classical and neoclassical idealized models that did not contemplate the possibility of monopolies or the existence of economies of scale:[23]
Chaos [referring to classical liberalism] has to be replaced by a system oforder.
— Friedrich von Wieser,Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economy), 1914
Wieser did not acknowledgeessentialism or anyteleological version of causality.[24] As opposed to thehistorical method of the German historicist school, he developed alogical method, with both itsdeductive slope as well as itsinductive slope (seeinterpolation andextrapolation). Economics has, likeMathematics andLogic, ana priori character rather than theempirical character ofscience. Thus, empirical phenomena are considered continuously variable, meaning that social developments have no parameters or constants, only variables, which makes it very difficult, if not impossible, to extract historical laws or make predictions. This point is the epicenter of the methodological discussion between the Austrian School and theGerman School.In what little Wieser wrote about methodology, he stated that economics is a kind of appliedpsychology for which the procedure is introspection, claiming similarity between Economics and sociology in that both attempt to achieve a more successful social reality of man, promoting the idea of utility that reports on each good and each individual.[23] Aside from abandoning essentialism, both Eugen von Böhm-Bawerk and Wieser advocated objectively considering subjective factors, setting aside ideas that believe in the existence of an objective superhuman (essentialism) and theories of subjective elements that are incapable of objective measures (teleology of causality).[24]
Joseph Schumpeter stressed Wieser's originality, saying: "There is hardly another author who owes as little to other authors as Wieser, fundamentally to none except Menger and to him only a suggestion – with the result that for a long time many fellow economists did not know what to do with Wieser's work. Of his edifice, everything is his intellectual property, even where what he says has already been said before him".[25]
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