Austrian Economy

8/13/2019 Austrian Economy

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introduction to Austrian Economics February 2010 Erik Hansen-Hansen

IntroductionAustrian Economy - central planning - free market

Marx

Menger

Hayek

Tucker

Rothbard

Mises




ContentAgenda: marxism and commodity fetishism

Labour Theory of Value (LTV): Marx - SmithHaug: Commodity Aesthetics

Agenda: critique of marxism

State Socialism The invisible hand

Command economy: economic critique of Socialism

BREAK

Austrian Economics: Carl Menger




ContentAgenda: marxism and Commodity Fetishism

Labour Theory of Value (LTV): Marx - SmithHaug: Commodity Aesthetics


State Socialism The invisible hand


BREAK



http://slidepdf.com/reader/full/austrian-economy 4/56introduction to Austrian Economics February 2010 Erik Hansen-Hansen

AgendaMarxism



Agenda

David Brody: Introduction to section 3: Theorizing design and visibility (en antologi over

design)

“This subsection continues this dialog by including six readings that challenge

us to look at design as a response to social and economic situations producedby politics. Rather than only seeing design as a reaction to politics, several of

these excerpts also hint at design’s power to create change within the politi-

cal sphere...Karl Marx, Pierre Bourdieu, and Naomi Klein each assess our capi-

talist condition and explain how design reinforces our political economy. Dick

Hebdige and John Stones reveal that design can appear to subvert the political

order... Karl Marx helps us to understand the politicized dimension of design

within the framework of his critique of capitalist culture, in which owners (the

bourgeoisie) exploit workers (the proletariat).” (192)



Agenda

Stuart Hall (1981) ‘Notes on Deconstructing “the popular”’ in People’s history and Social-

ist theory, Ed. Raphael Samue

“Popular culture is one of the sites where this struggle for and against a culture

of the powerful is engaged: it is also the stake to be won or lost in that struggle.It is the areana of consent and resistance. It is partly where hegemony arises,

and where it is secured. It is not a sphere where socialism, a socialist culture - al-

ready fully formed - might be simply ‘expressed’. But it is one of the places where

socialism might be constituted. That is why ‘popular culture’ matters. Otherwise,

to tell you the truth, I don’t give a damn about it” (227-39).



Agenda

Jean Burgess & Joshua Green (2009) Youtube: Digital Media And Society

“Continuing this tradition, much work on popular culture online has focused on

fan communities and their creative practises (see, for example, Hellekson and-Busse, eds 2006), and fandom is frequently represented as a site of resistance to

capitalism that is always at the same time in danger of being captured or shut

down by corporate interests (Consalvo, 2003)” (12-13).



MarxCommodity fetishism

Karl Marx (1818 – 1883) German philosopher andeconomist, inventor (with Engels) of Communism

The Communist Manifesto (1848)

Das Kapital (1867)



In Capitalist societies

“The mystical character of commodities does not originate, therefore, intheir use-value. Just as little does it proceed from the nature of the deter-mining factors of value”

“The equality of all sorts of human labour is expressed objectively bytheir products all being equally values; the measure of the expenditure oflabour-power by the duration of that expenditure, takes the form of thequantity of value of the products of labour...”

(The fetishism of commodities and the secrets thereof in Marx, Karl, Capi-tal: A critique of political economy, transl. 1906: 81-87)




According to Marx,

Commodity fetishism is a special condition of social relations existing inCapitalist societies. Here it is believed that value exists in the productsthemselves; versus value as something that is transferred to the products

through labour.

The social relations (labor) disappears in the Capitalist system in favor ofsomething that appears to be objective relationships between productsexchanged on markets through money.


M



According to Marx value is in labor

’The labor theory of value’ (LTV) is essential in marxism: the

value of a prouct is defined through the necessary sociallabor required to produce it.


Ad S i h




e.g. Adam Smith (1723- 1790, Scottish economist and social scientist)Wealth of Nations (1776) a theory of the free market economy

‘Division of labor’: when work tasks was divided between different

people, more could be produced. Better than one person doing all steps

‘Natural price’: production costs + sellers normal profit

versus

‘Market price’: the price that is regulated of the relationship between the

quantities brougt to the market and the demand from those who arewilling to pay the ‘the natural price’

The value of a product = the necessary amount of labor needed to

produce it (inclusive of the labor needed to produce tools and machinery

and raw materials).

Adam SmithLabor theory of value (LTV)

H




HaugCommodity Aesthetics

Wolfgang Fritz Haug (f. 1936, German marxist philosopher)

Known for the term Commodity Aesthetics (Warenästhetik) in 1971

the book Critique of Commodity Aesthetics (Kritik der Warenäesthe-

tik)

Historical relation (European) to Branding / Corporate Branding and

consumer culture:

Commodity fetishism (Marx)

Commodity Aesthetics (Haug) - links to the Frankfurter School

The sign exchange value (Baudrillard)

Aesthetisization of everyday life (Featherstone)

H




HaugCommodity Aesthetics

For Haug Capitalist societies generate an artificial addition of stimulus to

commodities: ‘All manner of jewellery, fabrics, scents and

colours offer themselves as means of presenting beauty and desirability’ .

‘Thus, commodities borrow their aesthetic language from human

courtship’; but at the same time, this relationship is reversed and ‘people

borrow their aesthetic expression from the world of the commodity’

(Critique, 19).

“This indicatas an initial feedback from the stimulating use-form of

commodities, which is itself provoked by valorization motives, to human

sensuality. Not only does this alter the possibilities of expressing the

human instinctual structure, but the whole emphasis changes: powerful

aesthetic stimulation, exchange-value and libido cling to one another...”

(Critique, 19).

H




HaugLuxury

Emphasizes luxury production as an important ingredience in the

Capitalist system. To create new needs based on enjoyment/plea-

sures. Refers to Mandeville who wrote about luxury for the masses as

an important facilitator of the British economy.

Mandeville (1670 - 1733, Dutch philosopher and economist, living in

the UK).

Haug was likely inspired by Werner Sombart (1863-1941, German

marxistisk sociologist).

In ‘Luxus und Kapitalismus’, 1913, he asserted that the demand for

luxury products was important for the emergence of capitalism in

Europe.

H




HaugMass production of commodities

The Capitalist system leads to greater productivity that lead to surplus-val-

ue an this requires a mass demand.

“The capitalization of commodity production unleashes a powerful incen-

tive for the development of techniques for the manufacture of relative

surplus-value, i.e. to increase profits by increasing productivity, particularly

through the use of machinery and the establishment of large industries.

At the same time the tendency is to draw all members of society into dis-

tributing commodities through the market. Hence with the spread of massdemand, both technology and the productive forces of mass manufacture

are promoted. From now on it is no longer primarily expensive luxury com-

modities that determine big business but the relative cheap mass-pro-

duced articles.” (Critique, 22, my emphasis)

Haug




HaugStyling of commodities“The lust for money is the reason why, under capitalist production, the commodity is

created in the image of consumer’s desires. Later on this image, divorce from its

commodity, is the subject of advertising” (Critique, 24).

The capitalist must try to lift the commodity above the use-value (the true value): the

commodity is elevated to a higher status through a brand name.

“All available aesthetic devices are employed to further this end. The decisive factor,

however, is the concentration into one named character of all the aesthetic, visual and

verbal communications contained in the styling of the commodity”

(Critique, 25, my emphasis).

The use-value is pushed to the background in favour of an illusionary commodity

aesthetics that never fullfill what it promises (Critique, 35). It is or the benefit of the ex-

change value, the regeneration of demand (Critique, 41).

Content




Content

Agenda: marxism and Commodity Fetishism

Labour Theory of Value (LTV): Marx - Smith

Haug: Commodity Aesthetics


State SocialismThe invisible hand


BREAK


Agenda




AgendaCritique of marxism

Gulag in Soviet Russia Food lines in Soviet Russia

Agenda




AgendaCritique of marxism

Rome Januarysales 2010

G

State Socialisme




State SocialismePolitical critique of government regulation

Benjamin R. Tucker (1853-1939, Am. Anarchist): State Social-ism and Anarchism: How far they agree & wherein they differ(1888)

Three Socialist thinkers continued the work of Adam Smith -the dictum, that work is the true meassure for price (LTV):

Josiah Warren (1798-1874, Am. philosopher, individualistanarchist)

Pierre Proudhon (1809 - 1865, Fr. politician, philosopher,Socialist and anarchist)

Karl Marx (1818 – 1883, Ger. philosopher and economist)

State Socialisme





According to Tucker Warren, Proudhon and Marx all reached this conclusion:

“that the natural wage of labor is its product; that this wage, or product, is the

only just source of income... that all who derive income from any other source

abstract it directly or indirectly from the natural and just wage of labor; that

this abstracting process generally takes one of three forms, - interest, rent, and

profit; that these three constitute the trinity of usury, and are simply differ-ent methods of levying tribute for the use of capital; that capital being simply

stored-up labor which has already received its play in full, its use ought to be

gratuitous, on the principle that labour is the only basis of price... the only way

to secure to labour the enjoyment of its entire product, or natural wage, is to

strike down monopoly” (State socialism, 13).

How can we prevent monopoly? They took different roads:

Marx went to the right (authority, State Socialisme)

Proudhon and Warren went to the left (liberty, Anarchism)

State Socialisme




Tucker about State Socialism:

“the doctrine that all affairs of men should be managed by the government re-

gardless of individual choice...the only way to abolish the class monopolies was to

centralize and consolidate all industrial and commercial interests, all productive

and distributive agencies, in one vast monopoly in the hands of the State.The gov-

ernment must become banker, manufacturer, farmer, carrier, and merchant, and inthese capacities must suffer no competition. Land, tools, and all instruments of pro-

duction must be wrested from individual hands, and made the proporty of the col-

lective... Product and capital are essentially different things; the former belongs to

individuals, the latter to society. Society must seize the capital... Once in possession

of it, it must administer it on the majority principle, through its organ, the State, uti-

lize it in production and distribution, fix all prices by the amount of labor involved,and employ the people... The nation must be transformed into a vast bureaucracy,

and every individual into a State official... All freedom of trade must disappear.

Competition must be utterly wiped out. All industrial and commercial activity must

be centered in one vast, enormous all inclusive monopoly. The remedy for monop-

olies is MONOPOLY” (State socialism, 14).


State Socialisme




According to Tucker State Socialism will lead to:•

the right of the majority is absolute•

no constitutional guarantees•

individual rights will gradually disappear - government/State becomes all-in-all•

The State will prescribe health, wealth, and wisdom, and destroy individual independence,•

and individual responsibility

all must kneel to State religion•

State schools, State hospitals, State universities•

State nurseries must bring up children•

The State can decide whether people can have children•

•

“Thus will Authority achieve its acme and Monopoly will be carried to its highest power”

(State socialism, 16).


The invisible hand




Adam Smith:

‘The invisible hand of the market’: rational human beings acting inselfishness will be lead by an invisible hand and bring about a collec-

tive result that is positive for all of society.

Through private ownership and the rights for owners to trade theirbelongings freely, the market is able to rise the standard of living forall of society - through the individual selfishness of its actors.

The invisible hand

The invisible hand




“[Hayek] argued markets operated by makig efficient use of the

specific knowledge of time and place, which everyone in an econo-my had but which would be impossible to effectively communicate

to a central planning authority. The market was able to make use of

this information by allowing people to use resources at their dispos-

al to improve efficiency, to offer new or improved goods or services,

or to undertake other innovations. Profits and losses play the crucial

role of rewarding efficient allocations of resources and punishing in-

efficient allocations. The system works because the market economy

rewards those who make efficiency-enhancing decisions and penal-

izes those who squander resources, but that system depends crucial-ly on private ownership of economic resources” (Holcombe, Randall

2002: From Liberty to democracy: 31)

The invisible hand

Liberalist economy



2. GANG / DE IMPLICITTE IDEALER Designkultur: proces, historie, teori EF 2009 Erik Hansen-Hansen

The three classes of pioneers driving economic progress:

entrepreneurs, savers and devicers of new technologicalmethods [technologists].

“The characteristic feature of the market economy is the fact that it

allots the greater part of the improvements brought about by the en-

deavors of the three progressive classes - those saving, those invest-

ing the capital goods [producer goods/higher order goods] and those

elaborating new methods for the employment of capital goods - to the

nonprogressive majority of people. Capital accumulation exceeding

the increase in population raises, on the one hand, the marginal pro-

ductivity of labor and, on the other hand, cheapens the products. The

market process provides the common man with the opportunity to en-

joy the fruits of other people’s achievements. It forces the three pro-

gressive classes to serve the nonprogressive majority in the best pos-

sibly way”

(Mises, The anti-capitalistic mentality, 1956)

Liberalist economyLudwig von Mises: economic progress

Rothbard versus collectivism




Rothbard versus collectivismSocialist thinkers make antagonistic (mutually opposing) accu-sations against market economy:

1: 1930s/40s capitalism suffers from ‘secular stagnation’

2: 1950s economic growth not fast enough

3: 1958 John Kenneth Galbraith ‘The afuent Society’ too much afu-ence

4: 1962 Harrington ‘The other America’, increasing poverty

5: 1960s ‘automation hysteria’, superabundance but mass unemploy-ment

6: late 1960s falling productivity

7: 1970s too much afuence, Super-Galbraithian position + assaulton technology. “in the name of conservation, ecology, and the in-creasing scarcity of resources, free-market capitalism is growing toomuch’. State planning must step in to ‘abolish all growth and bringabout a zero-growth society and economy’.





“It is not at all unusual, in fact, to nd the same peo-

ple now holdig a contradictory blend of positions 5

and 7 and maintaining at one and the same time that(a) we are living in a ‘post-scarcity’ age where we no

longer need private property, capitalism, or material

incentives to production; and (b) that capitalist greed

is depleeting our resources and bringing about immi-

nent worldwide scarcity. The liberal answer to both, or

indeed to all, of these problems turns out, of course,

to be the same: socialism or state planning to replace

free-market capitalism”

(Rothbard, For a new liberty, 1973, pp. 303-304)






“Enjoying a material contentment and a living standard undreamt ofby even the wealthiest men of the past, it is easy for upper-class lib-

erals to sneer at ‘materilalism’, and to call for a freeze on all furthereconomic advance. For the mass of the world’s population still living insqualor such cry for the cessation of growth is truly obscene; but evenin the United States, there is little evidence of satiety and superabun-dance. Even the upper-class liberals themselves have not been con-spicuous for making a bonre of their salery checks as a contribution

to their war on ‘materialism’ and afuence.” (ibid: pp. 304-305)

“What we need is more economic growth, not less; more and bet-ter technlogy, and not the impossible and absurd attempt to scraptechnology and return to the primitive tribe. Improved technology andgreater capital investment will lead to higher living standards for all

and provide greater material comforts, as well as the leisure to pursueand enjoy the ‘spiritual’ side of life... The real problem is that produc-tive capital investment is being siphoned off by taxes, restrictions, andgovernment contracts for unproductive and wasteful government ex-penditures, including military and space boondogling.” (ibid: pp. 306-307)


Command economy




Ludwig von Mises (1881 -1973, Austrian economist and philosopher)Friedrich Hayek (1899 – 1992, Austrian economist and philosopher)

Murray N Rothbard (1926 – 1995, Am. Austrian economist and liber-tarian)

They all argue against command economy/central planning

Mises (1932): ‘Economic calculation’

Hayek (1948): ‘Socialist calculation’ as impossible

Rothbard (1973): Defence for private ownership and exchange

Public ownership prevents efficient allocation of ressources on manylevels (reward-penalty problem; socialist calculation as impossible; norational way to determine prices).Link to article Hayek, Friedrich. ‘The Use of Knowledge in Society’,American Economic Review, Vol. 35, No. 4, Sep. 1945 - an attack on

Socialist organization

Command economyEconomic critique of command economy

Content

http://www.indiapolicy.sabhlokcity.com/debate/Notes/hayek_jstor.pdf

http://www.indiapolicy.sabhlokcity.com/debate/Notes/hayek_jstor.pdf




Content

Agenda: marxism and Commodity Fetishism

Labour Theory of Value (LTV): Marx - Smith

Haug: Commodity Aesthetics


State Socialism

The invisible hand


BREAK


Break




Break

Carl Menger




Austrian economics

Carl Menger

Eugen von Böhm-Bawerk

Friedrich von Wieser

Ludwig von Mises

Friedrich Hayek (nobel laureate)

Murray N. Rothbard

Mises Institute

The Independent Institute (Randall G. Holcombe, Robert Higgs)

Ron Paul

Peter Schiff

Carl Menger

Carl Menger




Carl Menger (1840-1921), Austrian Economist, one of the founders of

‘Austrian Economics’.

‘Principles of Economics’ (‘Grundsätze der Volkwirthschaftslehre’,

1871)

1. part: general conditions that lead to economic activity: exchange

of value, price and money. A theory of subjective value.

2. part: Interest, wage, rent, income, credit and paper money

3. part: Production and trade

4. part : Critique of the economic system of his time and his recom-

mended solutions

Carl Menger

Carl Menger




Purpose

To create a uniform price theory but half of the book is about ‘value’as a background explanation.

Economic activity is essentially about planning for the future.

We must destinguish between ‘good’ og ‘economic good’. A non-economic ‘good’, i.e. sunshine cannot be owned and controlled byhumans.

Menger explains the conditions for economic goods and value: eco-nomic ‘goods’ can only have a value if they are perceived; and if they

can be privately owned/controlled by individuals.

g

Carl Menger




Value is introduced this way:

Value is the importance which concrete goods, or quantities ofgoods, receive for us from the fact that we are conscious of beingdependent on our disposal over them for the satisfaction of our

wants.

“To have value, a good must assure the satisfaction of needs thatwould not be provided for if we did not have it at our command”(Principles, 227)

“Value, we saw, is the importance a good acquires for us when weare aware of being dependant on command of it for the satisfactionof one of our needs – that is, when we are conscious that a satisfac-tion would not take place if we did not have command of the good

in question” (Principles, 227)

gValue

Carl Menger




Value

Value as measurable but not in absolute terms. Only that oneproduct can be compared with another product; a relative meaningof ‘needs’.

“Value is thus nothing inherent in goods, no property of them, noran independent thing existing by itself. It is a judgment economiz-ing men make about the importance of the goods at their disposalfor the maintenance of their lives and well-being. Hence value doesnot exist outside the consciousness of men… it is a judgment madeby economizing individuals” (Principles, 120-121)

g

Carl Menger




Value

Value as measurable but not in absolute terms. Only that oneproduct can be compared with another product; a relative meaningof ‘needs’.

“Value is thus nothing inherent in goods, no property of them, nor anindependent thing existing by itself. It is a judgment economizing menmake about the importance of the goods at their disposal for the main-tenance of their lives and well-being. Hence value does not exist out-side the consciousness of men… it is a judgment made by economiz-ing individuals” (Principles, 120-121)

Menger makes a fundamental attack on LTV (Labor theory of value), thebelief that the value of products has a relationship to the labour thatwas needed to produce them.

LTV is asociated with ‘classical economy’ (i.e. Adam Smith and David

Ricardo) and later with ‘marxist economy’.

g

Carl Menger




Value

“D. The subjective character of the measure of value. Labor and value. Error”

“value is nothing inherent in goods and that it is not a property of goods. But nei-

ther is value an independent thing… The measure of value is entirely subjective

in nature, and for this reason a good can have great value to one economizingindividual, little value to another, and no value at all to a third, depending upon

the differences in their requirements and available amounts… There is no neces-

sary and direct connection between the value of a good and whether, or in what

quantities, labor and other goods of higher economic order were applied to its

production… Comparison of the value of a good with the value of the means of

production employed in its production does, of course, show whether and to whatextent its production, an act of past human activity, was appropriate or economic.

But the quantities of goods employed in the production of a good have neither a

necessary nor a directly determining influence on its value” (Prnciples, 146-147)

g

Carl Menger




Orders of goods

Causal relationship between goods: goods of first, second,

third (etc.) order

they serve our needs directly; bread, clothing

used to produce ‘goods of first order’ and therefor they satisfyneeds indirectly; flour, fuel, the labour of the baker

grain mills, labor services applied to the production of flour,etc.

the fields, instruments necessary for their cultivation

g

Goods of first order:

Goods of second order:

Goods of third order:

Goods of fourth order:

etc.

Carl Menger




Use value versus exchange value

“To have value, a good must assure the satisfaction of needs that would not be

provided for if we did not have it at our command. But whether it does so in a di-

rect or in an indirect manner is quite irrelevant when the existence of value in the

general sense of the term is in question”. (Principles, 227)

“The skin of a bear that he has killed has value to an isolated hunter only to the

extent to which he would have to forgo the satisfaction of some need if he did

not have the skin at his disposal. After he enters into trading relations, the skin has

value to him for exactly the same reason… The value of the skin in the first case

[direct use] and its value in the second case [trading] are therefore only two differ-

ent forms of the same phenomenon of economic life. In both cases value is the im-portance that goods acquire for economizing individuals when these individuals

are aware of being dependent on command of them for the satisfaction of their

needs” (Principles, 227-228)

g

Carl Menger




Use value versus exchange value

Use value: “the importance that goods acquire for us because they

directly assure us the satisfaction of needs, that would not be pro-

vided for if we did not have the goods at our command”.

Exchange value: “the importance that good acquire for us because

their possession assures the same result indirectly” (Principles, 228)

g

Carl Menger




Relationship between the use value and exchange value

g

Exceptions:no exchange value only use value: a writers notes, family portraits•

no use value only exchange value: optical instruments in stock at an optical instruments deal-•

er, a book in a foreign language

Normally economic products have use value and exchange value for those who possess them

high exchange value but only low use value: gold cuv for a poor person•

high use value but only low exchange value: a pair of glasses adjusted for specific eyes•

Carl Menger




Relationen mellem objekters brugsværdi og bytteværdi

Exceptions:no exchange value only use value: a writers notes, family portraits•

no use value only exchange value: optical instruments in stock at an optical instruments deal-•

er, a book in a foreign language

Normally economic products have use value and exchange value for those who possess them

high exchange value but only low use value: gold cuv for a poor person•

high use value but only low exchange value: a pair of glasses adjusted for specific eyes•

g

“One of the most important tasks of economizing men is that of recognizing the economic valueof goods – that is, of being clear at all times whether their use value or their exchange value is

the economic value. The determination of which goods or what portions of them are to be re-

tained and which it is in one’s best economic interest to offer for sale depends on this knowl-

edge. But judging this relationship correctly is one of the most difficult tasks of practical econo-

my…” (p. 231)

Carl Menger




The chief causes of changes in the economic form of value are:

All equal,

changes that decrease the use value of an object lead to an in-•

crease of its exchange value

changes that increase the use value of an object lead to a decrease•

of its exchange value

changes that decrease the exchange value of an object lead to an•

increase of its use value

changes that increase the exchange value of an object lead to a•

decrease of its use value

Carl Menger





1) changes in the importance of the particular satisfaction that a good ren-

ders to the person who has it at his command

looses an interest in the enjoyment of tobacco -> increased exchange value of•

tobacco

natural age cycluses (older people loose interest in something they did earlier)•

-> increased exchange value

an owner of a forrest suddenly needs his wood in order to melt iron in his newly•

constructed blast furnace -> increased usevalue of wood

Carl Menger





2) mere changes in the properties of a good

negative in relation to use value: clothes, coaches usually loose use value

to wealthy people if they get a visible defect

negative in relation to exchange value: grocers usually employ foods hav-

ing some external defect for their own consumption

Carl Menger





3) increases/decreases in the quantities of goods at the disposal of a person (the most im-

portant cause of changes)

increased quantity -> usually means that the exchange value increases and the use value de-•

creases (one inherits a large amount of furntitures)

decreased quantity -> usually means that the use value increases and the exchange value de-•

creases (the owner of an apple field has only a few apples left at the end of the year)

Special case when one’s economic position is changed: a loss of one’s fortune usually means•

that one sells expensive objects in order to fulfill more important needs; increase of one’s for-

tune means that one sells the inadequate home who used to have a use value

Carl Menger




Every unit of a good satisfy individual needs for the person who

controls it

1st apple is used for personal consumption, to stay alive

2nd apple is given to the wife in order for her to stay alive

3rd apple is given to the kid4th apple is given to the second kid

5th apple is given to the grand mother

6th apple is sold on the market

7th apple is given to charity

Carl Menger




“Value, we saw, is the importance a good acquires for us when weare aware of being dependant on command of it for the satisfactionof one of our needs – that is, when we are conscious that a satisfac-tion would not take place if we did not have command of the goodin question” (Principles, 227)

the magnitude of this value is equal to the importance attached tothe least important satisfaction which is secured by a single unit ofthe available quantity of the commodity.

Value

Carl Menger




Another expression for ‘marginal utility’ : the utility gained (or lost)

from an increase (or decrease) in the amount available of that good

or service. - or the posited quantified change in utility obtained by

increasing or decreasing use of that good or service.

Menger 1871

William Stanley Jevons 1871

Marie-Esprit-Léon Walras 1874

Marginal utility

l i l i

Carl Menger




A praxeological view

A ‘demonstrated preference’ – a praxeological law

That I choose to use a good for a specific purpose - first I eat the ap-

ple, then I feed my wife - proves that these usages are the most im-

portant one’s for me.

I prove it through my action. I show that other usages are less impor-

tant for me, than those I choose.

Mises main work ‘Human action’

A l i l i

Carl Menger




A praxeological view

According to the praxeological view we get a decreased value when

the quantity increases.

Value is not a unit, it is not absolute, it cannot be expressed in a

mathematical formula.Value is a relation between various choices and it changes from con-

text to context.

V l l

Carl Menger




Value scales

Goods are always in a value relationship to other goods - bananas

versus potatoes

Anna (bananas) Mike (potatoes) potatoes bananas

Mike has one value scale: potatoes are more important than banan-

as

Anna has another value scale: bananas are more important than po-

tatoes

V l l

Carl Menger




Value scales

Market exchanges and market prices requires:

Private ownership and different value scales/rankings of the goods

in question.

If the parties involved in the transaction perceive the sitaution, a

market transaction can take place.

Perception: Market prices are always based on value differences not

equal value ( we do not exchange objects of equal value)! The values

must be different for the two market participants.

Market exchanges are not based on value equality they come about

because of differences in values. From Aristoteles to Karl Marx many

people held that value exchanges was a matter of equality.

Austrian Economy

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