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    The Austrian School and Its Oppnonents-Historicists, Socialists, Positivists

    Uploaded by

    Jesús María Alvarado Andrade

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    © All Rights Reserved
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    ‘The Austrian School and Its Opponents— Historicists, Socialists, and Positivists CHAPTER 1 Menger’s Principles of Economics Prelude—Carl Menger Gets a Chair ‘Becaise very tory must begin somevhere, tart my account ofthe origins ofthe Austrian schoo ats particular time and place, The time and pace Vien, s¢71—will ot surprise those who know something about the Aas tran schol but perhaps the choice of protagonist wl. In the spring of, Albert hile surrendered his professorship atthe University of Vienna to become the Austrian minister of wade in the cabinet ‘2 Count Hohenwart. This was not tobe the mos propitious of carer dees sions, Before the year was out the counts goverment had cllapsed, ead Shifle was out fb, Schile di not return tothe university and, need, ‘ss never again to holds poston in ether academe or the government ‘hough hisew months f servic to the tt did gin him atime pension, History has not tested Scie particulsrly wel He virtually enonng ‘smong sconomiss today, ad, when heis mentioned, he wsuallyis dims, ‘The conclusion of the brie entry nthe New Purves bot yal vad ‘uuboca: "Schaleinluence a theorist and teacher of econsmice wus his own dy rather limite, I seems tobe of litle importance for our tine” (Recktenwald 987,256)! ‘We ae interested in the now obscure Hert Doktor Scbife, not for his ides, but for his decision to accepts goverment potion, a dernion thet Ida diet efecton the fortunes ofthe founder ofthe Ausitan schol, Cast Sith nat not nt strap by vee The Anko alg Ai Sal hugh hi suficerymportastn inch abbott. og {onine sp) sition ofthe ible of ane of Sale soap eae ny st Gera Scio (Sul oor mnteon She nthe ‘Mutation o.208) Sir soy), and Heninger 46-0 oh tw Menger Itwas Menger who, flea somewhat dificult Habiiaton procs, was appointed to Scie chara the university ‘Menger had studi aw ecsiving hie degree in 1867, Ove the next four years, he worked briefly s journal forthe leading Viennese newspaper, the Wiener Zeitung, then entered the pres section ofthe prime minister’ office, where he was responsible fo epomting on economic news! Over the sme period, he wrote the Principles of Eaoamsis (Grunt der Volswith- ‘chaser and submited its his Habiavion pape. In Germaa speaking countries athe time, the atsinment ofan advanced Aegre was nly one step along along rad leading toa university appoint- ‘ment. Next ane was required to find a sponsor (labibtaionnete) among, the profsors. Then one could apply for one's Habla by submitting a orginal place of esearch, usualy book, for assessment by faulty al he uni serity where one wised ro teach. The Habitation defense followed a for ‘mal orl presentation before the professors during which one’s arguments were cross-examined, (Cro examined i an appropri term bee what ‘we now cll econ was, in the Austro-Hungarian Empire that time, taht within the fact of me) one research was deemed acceptable, then by faculty decree one was recommended the minister ofeduction, who was empowered to grant the ‘Vania gen, of “right to lecture” Right lecture i precise description, {or if no university postion wae availble, the best one could do was to Be- ‘on Privatdozent.APrvatdovent cold collec fees forletures a students, ‘otthe postion was not formal university appoitment and carried nosal- ary. One erveda salar only fone wasabeto fille vacant postion and ob tain the tile of Dosen or asrordentliche Profesor literally “extraordinary profesor," which sounds impressive but roughly equivalent tothe ark of soit professor)? Menger Prizpes was published in (ste Menger 90] 3978) he passe his Habitation in 82 and in 873he was appointed to Schafle chair as a Dozen. Tt was gute «coup tobe appointed at age thity-hre toa profsorhip in the university ofthe Austin imperial city, end afer this serendipitous 2 foe 68-69) repres Menger cncecommente ocho Wet siatheping ch oft cons forthe newpaper ll hin orca ot ean in reo. Par mare ke incase ofthe German yt of ihr ecm Ringe (en 39-38. awoan’s raiwcirut oF aconomics [19 stat, things only got bette In 875, the emperor chose Menger tobe the ‘eghlen year-old crow prince’ privat tutor For the next vo eas hee ‘companied Rodolfo a umber of European tours. Not surprisingly, by de ‘ad's end Menge had rien tothe rank of fall profesor atthe University of Vieana. {As the profesor af the chai of poll economy, Menger had consider- shle power He made recommendations othe fat forthe salaried Pr ‘ozent postions and smiley advised the emperor about whom 0 ap- point tothe sled chairs. He was let as the senioe academic in the eld when the venerable Lorenz von Stein, who occupied the other chain eo nomics, departedi.885.Andhealso motor less contelled who could er _anadvanced degre in economic, The public bares in Vienna wert put it gently es than complete, ano use chem one bad to adhere oa hos of ggravatingand time-consuming regulations (Seager 69, 36. To 30d ha: ing to deal with the bibliobureaueracy, favored stodens were permitted 19 ‘work inthe private libraries of their profeszors. Menger personal collection ‘of books on political economy was the most complet in Ausra If young ‘man wanted to pursue an academic cae in esonamics an nvitton to use Menger’ brary was very neatly a necessary step (Steer 1984 197) ‘Wisin the economics eld ofthe kw facutis ofthe Ausro Hungarian Em. ire, Carl Menger was, without question, heb enchilada (to use 3 phrase ade famous ducing the Watergate hearings) Let us now tuen to the book ‘hat earned him tht tat. Menge’ Principles of zonomic isthe founding document ofthe Avs tran schol of economics, yt, a its name impli, is basicaly textbook. ltmay seem strange today tat a textbook could serve to found a school of ‘thought, but, in contrast with current scholarly practice, professors inthe ‘Austro-Hungarian and German Empires typically wrote textbooks rather ‘than articles or monographs. The motivation was economic profesor ia- «comes largely depended on thee suces a eter, 0 the incentive to de> velop atertbook to accompany one's lectures was strong, Monographs were sometimes writen by young men applying for thei Habitation but oter- wise were produced ony by thase outside the academy, as was the cse with the famous outsiders H.H. Gosten and J. H. von Thinen (Steeler 19908, 62-64) Before we undertake a moe thorough explorton of themes in the Pin- Cis, it may help to provide a brief outline of te contets, The book has a preface and eight chapters. In chapter, four conditions that mst be present. fora thing tobe considered a good a listed. In chapter 2, Menge notes tha, ‘when human requirements fora good exceed the avaiable quantity, the good ‘becomes subjet to economizing activi tbecomesan conme ood, Value ‘theory is taken up in chapter the value of any nit of an economic good ‘sequal tothe value of the marginal unit tothe ecnomizing agent. In chap ter 4, Menger explains tat exchange aries when individuals place dif. nt valuations on the marginal unit. Chapter s concern price formation In it Menger contrasts the ranges of prices that merge under biaeral monop ‘ol, staght monopoly, and competition and offers a welfare comparison between the last two. In chapter 6, he discuses the venerable distinction be tween use and exchange value and describes when each wl dominate de termining the value of «good. Chapter 7 contains Menger theory ofthe commodity: commodities are goods intended forsale, and make is their most essential aspect. Menger utes the notion ofthe marketabity of commodity in chapter 8 on the theory of money, where he ages that the most marketable commodity gradually becomes scepted a ger me dium of exchange, or money. “These are the major threads of Menge’ argument. In the next seston, some important themes of the book ar highlighted. ‘Themes in the Principles of Economies ‘The Compostve Method in Menger Principles In the second paragraph of is preface, Menger sae; “Never was the need ‘ofa scienifc foundation for exnomic fairs felt more generally more acutely” (95) 1976, 45). Hs intent is clear the riper textbook that wil provide a ie and theoretical foundation for economics. And even ‘though his books beret ofthe mathematical formalisms that economists of ‘the twentieth century usual asociate wth the word theory it des possess ctsin other atrbutes of scene testis, (One is struck first of by how systematic the athoris—inded almost anf so. Hayek once remarked on the book’ "perntent low approach to ts main object (igs2b 100). Eewhere,inaless charitable mood, he said: “Menger exposition is genealy characterized more by painstaking deal and relents pursuit of the important points than by elegance orth wse of ‘raphe terms to expres his conclusions. Though vay lea, itis bored” figgan, 48). ‘Menger useshiss)stematie reasoning “ta contest the opinion of those who ‘question the exitenceof ls of economic behavior” (Menger [930] 1976, 49) His primary goal so discover the invariant principles o laws govern. ing conomic phenomena. Ad time and agai, he fal that he hasbeen sc ‘esful—which we sein the at tht his chaper sections carry such head ings as “The Laws Governing Goods-Charatr” "The Las Governing the Valu of Goods of Higher Onder," and “The Principles of Monopoly Ta ing” (The ist section discusses how things become goods when they ac publ of satisfying human needs, the second how the value of inputs what ‘Menger lls "goods of higher odes,” depends on thee ability to produce “lower order” consumer goods, andthe third how a monopolist can sete ‘her price or quantity but not bath and willchoote to seta aleve! ha wil allow him to reap he best return.) iow does Menger establish hit “priacipes” Many of them, afte all may seme imple common sesetoamodernrader—hardly the tf el science ts here that t becomes evident why Menger belived tht he was ‘making cient contribution everyone of his "ws" iui up (stp by ‘sinful step) fom a aalyithat begins with the lation between persons needsand those goods that are capabeofaisfying ther, When the quantity of such goods es than a person requites, economizing ati begins OF, in the jargon of modern economists, inatempting to maxiize aly i= ‘mans encounter scarcity, and scarcity requires that coe be made Al the other ls governing such things as the valuation of goods and their prices under various market strutaes a wellasthe emergence of ich insittions ‘trad and money, follow fom the logic of economicing atv. Labeling Menger porticular approach has posed problems for tr writ Ins preface Menger uses the term enpircal to describe ls methodol 0g But, because this term might better be applied vo the methods that were 4: Aug he nord sre ape i the ph tnition of te Prices oe Mango) sary nape ottobe edinerhe nplihotie ‘Geran wen (Haye ph 7) Thee Gra o "rin wy” ale beet Aled Marshal (luo) 0, 9) ela ht “re-n" wt ed by ‘Wien ais tention the Eg non Wim Sey Jor minal lity finale of i Magna ily aly ape in Engi in 88 In Ply Wiad The Alpha of amon, Weleda sg ane "ane! Wir em ey 19604 5-4 See (986,97) ts tht Wine ‘leappesto hae bee the it Assan athe ea Kop thine er ‘um tion of Natura Vee Wie), to be advocated by his vas inthe German historical chooks confusing ‘tomodern senile, Another candidates casa There i some support fortis inthe tera- ure In 1932 the Viennese economist Hans Majer wed the term cna sete o describe the Austin approsch to pric formation, wich be con trated with de functionalist theories of Wala, Pat, aa ober (ayer (oss] 994). Mayer denon get ata important dtinction, Austins Jae aways been more intrested in the (ea) proceses by which prices scl ge formed than with ensmerating conditions for cgiiuny The Phrase sta geetc cou thus, accurately be used in referee to Menger method. ‘There te dangers here to, however. The Princpes begins with the se fence “AI thing are subject fo the bw of case and ec," and Menger Wik fellows this with the assertion that goods re when “asf thingy" ae brought into casa elation with a persons needs (see Merc {95 1976, 50-52. This se ofthe term causal x quit liferent fom Mayer As rank Knight noted inhi introduction to the fist eiton of the Engh translation ofthe Principe, the relation been goods andthe satisfction of needs is not best vewed a ents one (Knight igo 23) aight was surely right tis better 1oconccve ofthe relation that Menger

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