The Philosophical Approach to Value

The Philosophical Approach to Value: The Austrian School

While Jevons was working on his utility theory of value in England a similar line of thought was developed by Carl Menger (1840-1921) in Austria. Menger is looked upon as the spiritual father of the Austrian School which presses the subjective analysis of economic causation to the extreme, and carries forward the original German criticism of the exchange theory of value. To Menger, value is really the utility which goods possess; exchange and disposal is merely the external evidence of what is inherent in the mind and in the nature of the good. Obviously value can be nothing more than a subjective phenomenon, so Menger completely ignored objective evaluations.

Friedrich von Wieser (1851-1926), one of the best known of Menger's followers, made all of economic theory the problem of value. He even went so far as to suggest that the purpose of economic investigation and the function of the state is the maximizing of values. Value, he believed, arose only from utility. Far from dismissing the cost of production as a factor in the value of any commodity, he acknowledged its importance but demonstrated—to his satisfaction, at least—that costs of production were in reality matters of utility. Cost of production was more than the payment necessary to attract productive forces into operation on a certain article; it was the payment necessary to make this use of available productive forces more desirable than some other alternative use. This did not mean that cost value superseded use value. The latter was still primary and it alone set the limits to cost value—and in so doing limited the supply of a commodity which would be produced. The proposition might be stated this way: Assuming that use value of article A equals a sum of money X for Y units, it is first necessary to assure the producers of A a return better than they would receive by using their powers to produce another article B; but under no circumstances can they be assured a return greater than X which is the sum of money representing the value of Y units.

The best known of the members of the Austrian School, at least among English-speaking peoples, is Eugen von Bohm-Bawerk (1851-1914), a university teacher and three times minister of finance of the Austro-Hungarian Empire. It was not alone in the field of value theory that Bohm-Bawerk made great contributions to economics. He subscribed to the marginal utility theory of value; that is, he believed value to be determined by the power of the least important want satisfied by the supply of goods available. He recognized and subscribed to the theory that the power of one good to satisfy wants influences its power to acquire other goods in exchange for itself. In a sense this was a substitution of a subjective exchange value for the older subjective use value and in a sense it drew closer to the value theory of the neo-classical thought of Alfred Marshall.