Tuesday, 28 January 2014

Understanding "Austrian" Economics

By Henry Hazlitt

"Austrian" economics owes its name to the historical fact that it was founded and first elaborated by three Austrians: Carl Menger (1840–1921), Friedrich von Wieser (1851–1926), and Eugen von Böhm-Bawerk (1851-1914). The latter two built on Menger, though Böhm-Bawerk, in particular, made important additional contributions.

Menger's great work, translated into English (but not until 79 years later!) under the title of Principles of Economics, was published in 1871. In the same year, by coincidence, W. Stanley Jevons in England published his Theory of Political Economy. Both authors independently developed the concept now known as "marginal utility." (Menger never used the term. Jevons called it "final degree of utility." It was Wieser who first employed the German term Grenznutzen, which translates as "marginal utility.")

But as few American or British economists read German in the original, it was years before the real extent of the revolution begun by Menger was realized outside of German-speaking countries. For it was Menger, by recognizing most fully the implications of the marginal-utility concept, who opened up new paths and, so to speak, turned the old classical economics upside-down.

Menger insists throughout his work that value is essentially subjective, and that therefore economics must be in the main a subjective science. Goods have no inherent value in themselves. They are valued because they help to satisfy some human want or need. A given quantity or unit of a certain good will satisfy a man's most intense desire or need. He may also want a second, third, or fourth increment. But after each unit is consumed or employed, his desire or heed for a further unit of that good may be less intense, and may finally become completely satisfied.

Continue reading the article here.