Hermann Heinrich Gossen

Hermann Heinrich Gossen

Hermann Heinrich Gossen (1810-1858) was one of those unfortunate geniuses whose work fell upon deaf ears and unseeing eyes. Yet, although his book was all but forgotten and unknown, so clear and important was his con­tribution to economic theory that a few pages should be devoted to him.

Gossen's book, Die Entwickelung der Gesetze des menschlichen Verkehrs (Development of the Laws of Exchange among Men) was published in 1854 at Brunswick. The author states that it is the result of twenty years of meditation; that what Coper­nicus had done in founding the physical laws of the universe, that he, Gossen, had done for human society, — though some metaphysical Kepler or Newton might be needed to fill in the outline and determine the precise application of his forces. The confusion which existed in economic doctrine, he conceived to lie in the absence of mathematical treatment: to deal scientif­ically with complicated forces requires mathematics. He even suggested that while it is not now possible to measure absolute quantities of satisfaction, comparisons may be made by geomet­rical principles, and measurements of unknown quantities arrived at, just as distances are computed in astronomy. It may be said that his book is an attempt to put economics on an exact, mathematical basis.

The philosophy is essentially utilitarian and hedonistic. But the broad goal of a greater sum total of human happiness is constantly kept in view.

Gossen at once proceeds to develop a law of decrease in amount of satisfaction, using the common geometrical figures with their ordinates, abscissae, and curves. From this law he derives the following principles: —
(1) "There is a manner of enjoying each satisfaction, chiefly dependent upon the frequency, according to which the sum of the man's satisfaction reaches a maximum. If this maximum is reached, the sum of the satisfaction will be decreased by a more frequent, as well as by a less frequent, repetition."

(2) "The man who has the choice of several satisfactions, but whose time is not sufficient to procure all completely, in order to attain the maximum of satisfaction must — however the absolute amounts of the satisfactions may differ — partly enjoy all, even before he has completely enjoyed the greatest one; and this [must be] in such proportions that at the moment his consumption ceases the amount of each satisfaction is the same."

(3) The possibility of increasing the sum of the satisfactions of life, even under present conditions, exists when a new satis­faction, be it in itself ever so small, is discovered, or when one already known is extended.
According to Gossen, things have value in proportion as they yield satisfactions or enjoyments. On this basis, commodities may be divided into three classes: first, those which have all the properties for yielding satisfactions, that is, consumers' goods, or Genussmittel, as he calls them. Next come "goods of the sec­ond class," comprising those in which the union of all the prop­erties for complete enjoyment is lacking, as, for example, pipes and ovens and other complementary goods. Finally, produc­tion goods are distinguished. These embrace land, machinery, etc., and have an indirect value due to their ability to produce goods of the other classes. (He develops a theory of im­putation.)

"With increase in quantity, the value of each added unit (Atom) must undergo a continuous decrease until it sinks to nil." Thus, goods which yield only one satisfaction have their consumption limited by time, or the number of units consumed. As to a complex of goods: "If his powers are not sufficient to produce all possible means of satisfaction, man must produce each one to such an extent that the last unit of each has equal value to him."

But, meanwhile, what of costs? Gossen here states that different goods require different degrees of exertion for their production, "and the value of the things produced thereby will naturally be diminished in the same degree with the estimation of the difficulty, as such." He draws a diagram like the ac­companying figure, and concludes that "the value reaches a maxi­mum when the quan­tity ad is produced, i.e., when the production is carried on so long that the difficulty and the value are equal." It follows that in order to obtain a maximum of satisfaction, men have to divide their time and energy spent in procuring different satisfactions, so that the last unit of any one satisfaction is equal to the amount of difficulty or disutility which would be caused if that unit were produced in the last moment of exertion, i.e., at the margin of disutility.

Nor does Gossen let wants or desires go without some analysis along the line of difference in elasticity, etc. He distinguishes "needs" (Bedurfnisse) from luxury or pleasure desires, the former being those which cannot be trenched upon without bringing economy in other satisfactions; and he notes some of the results which flow from the fact that men differ in their purchasing power.

The conclusion is that this obscure German anticipated much of recent development in economic theory. The sub­jective side of value, wants, is emphasized; the marginal utility idea of value determination is formulated; and this is brought into correlation with the margin of disutility. And his classifica­tion of goods into different orders or classes is suggestive of Menger's thought. All this he did, to say nothing concerning his development of mathematical methods of presentation. Perhaps the lack of elegance and clarity in exposition may account for a part of the neglect accorded him. The chief gen­eral criticisms seem to be his lack of system in presentation, and a failure to deal adequately with market price.