Friedrich von Wieser

Mises never studied under Wieser, though it is likely that Wieser, having come to occupy Carl Menger's chair at the University of Vienna in 1903, was one of Mises's examiners in government science. Wieser was born in 1851 in Vienna, the son of a high civil servant. He was a tall and handsome man, aristocratic in manners, with clear blue eyes and, in later years, with an impressive long beard. His thorough acquaintance with art and literature was legendary, and he was himself an accomplished piano player. A gentleman of the old world, his personal presence made him the undisputed leader of the Austrian School after Böhm-Bawerk's death in 1914.⁸⁵

His admirers forgave him certain character traits that are unusual in a great scholar and teacher. He never debated or discussed views other than his own and was an extremely slow reader and slow thinker. He rarely quoted anyone, preferring instead to acknowledge his intellectual debt to Menger and Jevons only broadly in the prefaces of his early works. While the combined presence of these traits would exclude any lesser man from the ranks of great intellectuals, in Wieser's case they further aroused the admiration of his followers.

Schumpeter praised Wieser's deficiencies in the following words:

With sovereign quietness, which we others soon learned to understand as his right, he puts aside the professional literature. He is not even able to read quickly or much. And almost never has he thoroughly dealt with the details of the systems of thought of other people. He has never engaged in polemics, never on a professional level and certainly not on a personal one.⁸⁶

Hayek added:

In his work he never dealt with the present state of the science. He has never tried to reconcile existing theorems with one another or to deduce new theorems from them through mere logical operations. Rarely has a theoretician been more different from the usual image of a theoretician than Wieser.... [His theoretical contemplations] entirely monopolized him and did not leave him any time to delve into, or systematically analyze, the systems of thought of others. He felt the necessity to do this hampered his own work on the conceptualization of reality and thus he avoided even oral discussions if they risked ending up in something other than the more perfect exposition of his own ideas.⁸⁷

Clearly, Wieser differed markedly from Böhm-Bawerk both in his persona and his scholarship. While his brother-in-law was widely read in economics, and displayed exhaustive and detailed knowledge of the literature concerning the theory of capital and interest, Wieser was exclusively concerned with refining his own purely contemplative activities. In contrast to Böhm-Bawerk, whose style was often tedious, Wieser knew how to turn a phrase; for example, he invented the term “marginal utility” which is still used in mainstream economics. And where Böhm-Bawerk would always delve into the technical details of an issue, Wieser cherished the more general features of the theory of value and prices, and preferred to keep his arguments on that level of abstraction. For Wieser's admirers, there were definitive advantages to this approach:

As a coherent body of thought, Böhm-Bawerk's system might seem to be the greater one in the eyes of those who appreciate a system's logical coherence above everything else. Wieser's work, however, presents far more starting points for further development, often precisely in those passages that have often been criticized as inconsistent.⁸⁸

While Böhm-Bawerk enjoyed the immediate support of Menger, Wieser ranked lower on Menger's list of gifted followers and had to wait longer to be placed in one of the empire's few full professorships. Menger had known Wieser's unpublished manuscripts on the theory of value for some years, but had great reservations about them and did not recommend them for publication. Eventually, however, a chair at the University of Prague became vacant, and he urged Wieser to submit his work to the University of Vienna to obtain his Habilitation, which he received in 1883, after Menger had written a highly favorable review of his work. Menger recommended him for the position in Prague, where Wieser became a professor extraordinarius in 1884. He became a full professor in 1889 and in 1903 he succeeded Menger at the University of Vienna.⁸⁹

Unlike Böhm-Bawerk and the bulk of contemporary German-language theorists, Wieser was inspired by the Gossen School of marginalist price theory, particularly Jevons's Theory of Political Economy.⁹⁰ He was the first German academic economist to place his stamp of approval on Gossen's work. In fact, in his Der natürliche Werth (Natural Value, 1889), Wieser presents the very core of the new marginalist price theory—what he calls the “elementary theory of value”—as based on Gossen's law of want-satiation.⁹¹ These explicit references bear special weight because Wieser's habit was never to cite anyone. Through his eloquent prose, Wieser rescued Gossen's indigestible book from the oblivion into which it had fallen.⁹²

Yet this distinct orientation went largely unnoticed or (to the extent that it was noticed) was considered unimportant. In the homogenizing wake of the Methodenstreit, mainstream economists in Germany and Austria thought in much broader categories; to them Wieser was an extreme case of Mengerian “theorist” where he was in fact as far removed from Mengerian theory as he was from German historicism. For example, Wieser's theory featured a strong focus on quantitative relationships where Menger focused on the qualitative relationships between quantities. Wieser's work also had a strong psychological orientation inspired by both the then-fashionable works of the Vienna philosopher Franz Brentano and John Stuart Mill's equally popular attempt to interpret epistemology and logic as psychological disciplines. Wieser also distinguished himself from Menger by his reliance on fictional postulates such as the assumption that value is psychological and measurable.

Friedrich von Wieser

These views were obvious from his first book, Über den Ursprung und die Hauptgesetze des ivirthschaftlichen Werthes, which was his Habilitation manuscript, published at the beginning of the Methodenstreit in 1884.⁹³ Although he used few mathematical expressions, he made frequent reference to “units of value” and to calculations in terms of these units, which could be aggregated and otherwise modified through arithmetic operations.⁹⁴ In an entry on “marginal utility” that he wrote for the standard German-language economic dictionary of the time, Wieser purported to “develop the rules according to which one scales and computes [rechnen] economic utility” or, in other words, to “develop the economic calculation of utility.”⁹⁵ In Wieser's view, value was a cardinal measure of utility. If an economic good X is not reproducible, then the value of X measures the marginal utility of X itself. But if X is a reproducible good, then the value of X measures the foregone utility of another good, Y, that cannot be enjoyed if the factors of production are used to make X rather than Y. In other words, the value of a reproducible good is a measure of the opportunity costs of producing it.

These fictions about value and the speculations that he based on them in Ursprung und Hauptgesetze gained Wieser a reputation as a “pure theorist” in precisely the sense that German mainstream economists disdained: someone who constructs theories without foundation in human experience. The historicist hotspurs must have loved Wieser, for he was living proof that they were not guilty of battling straw men. It had been very difficult to make a case against Menger, who rigorously tied theory to experience, but there could be no doubt that the work of this follower lacked empirical foundation and thus scientific integrity. Young Werner Sombart, to whom Schmoller had entrusted the job of reviewing Wieser's Natural Value, concluded that this work was “entirely unsound.”⁹⁶

Ironically, the heated atmosphere of the Methodenstreit considerably enhanced the significance of Wieser's work. His elegant prose and his highly developed sense for coining catch-phrases like “marginal utility”⁹⁷ and “imputation” gained him a widespread reputation as one of the leading representatives of “the Austrian School”—which meant, in the mind of contemporary German mainstream economists, an advocate of theoretical studies dissociated from historical research. Because of this publicity, Wieser was largely successful in promoting among German economists the notion that “the” new economic theory (advocated by Menger and his disciples) was a form of applied psychology.⁹⁸

Wieser's views also proved to be fateful in another important respect. As mentioned earlier, he was one of Menger's several followers who addressed the claims of Marxists and other socialist scholars. But while Böhm-Bawerk tried to refine Menger's theory of prices, thus clarifying and confirming Menger's insights about the operation of a capitalist economy, Wieser argued that Menger's theory had no specific political implications whatsoever. It was not a grand apology for the bourgeois class, as critics claimed, but neither could it serve as the basis for objections to socialism.

Wieser's view was rooted in his theory of the relationship between value and prices. Recall that Wieser believed that economic value is subject to arithmetic operations, just as money prices are used in the calculations of businessmen. Thus, there is in this respect no fundamental difference between value and price. Prices are merely “objective exchange value”—they are “subjective exchange value” made visible. Businessmen could theoretically do without money prices and perform their calculations directly in terms of value and so could a socialist planning board. This is still a widely held view among economic laymen. Wieser's achievement was to give a sophisticated presentation of this view and to develop it through the doctrine of his second book, with the telling title Der natürliche Werth (Natural Value).⁹⁹

According to this doctrine, there can be situations in which entrepreneurs produce certain goods in unnecessary quantities merely because they command the highest market prices. In these cases, when market prices do not indicate the rationally established or “natural” value, there is a “conflict between objective exchange value [market price] and social utility.”¹⁰⁰

The question then is how social utility is to be understood. Here Wieser refers to the concept of natural value. He asserts that the natural value of economic goods is the value that these goods have only in light of their available quantities and their utility.¹⁰¹ As soon as any other factors come into play, market prices can deviate from their natural values. Thus the “conflict” between market prices and social utility can be made intelligible by comparing the real world to a fictional state of affairs of ownerless quantities and of homogeneous psychological utilities dissociated from the specific biological and economic characteristics of the individual human being. According to Wieser, this fictional state of affairs obtained in a “communist state”—which he understood to be “a totally unified and utterly rational commonwealth.” It follows that real-world market prices give only an imperfect representation of natural value. Not only are they subject to the impact of abuses—individual egotism, error, and other frictions—but they are also subject to the distribution of resources. Thus only in a pure Wieserian “communist state” does the actual value of goods coincide with their natural value.

Wieser offered no proof for these assertions, apparently taking their plausibility for granted; neither did he encounter any objections on these grounds. It hardly needs to be stressed that his views were quite removed from Menger's views both on the conception of value and prices and on the nature of economic science. Menger believed the task of economic theory was to describe certain exact laws of the human economy. It did not deal with all aspects of human action, but it did treat the economy as it actually exists and is therefore subject to empirical analysis. From Wieser's point of view, economic science addressed only the laws of natural value, which cannot possibly exist in the real world.

Mises did not find Wieser's views appealing.¹⁰² Mises's historicist training had predisposed him to the notion that the essence of science was the discovery of relevant facts, not speculations without empirical foundation.

Because of Wieser's central position in the teaching of economic theory and the general confusion in post-Methodenstreit Germany about the various competing approaches to economic theory, he was able to redefine Austrian economics—in a departure from the original Mengerian project—as part of an emerging neoclassical synthesis built on the works of Gossen, Walras, and Jevons.

It is in this light that one has to see Wieser's personal impact on the education of the rising generations of Austrian economists. He held Menger's former position from 1903 to 1920 and continued to teach as an emeritus until his death in 1926. During this entire period, it was Wieser who taught the introductory courses in economic science at the University of Vienna. Until 1914, Böhm-Bawerk's presence provided some counterbalance, but after his death, Wieser's position was that of an unquestioned authority in all matters of general economic theory, a position reinforced by the publication that same year of his general treatise, Theorie der gesellschaftlichen Wirtschaft.¹⁰³The entire fourth generation of Austrian economists—brilliant young men like Hayek, Machlup, Haberler, Morgenstern, and Rosenstein-Rodan—were thus shaped by the Wieserian mold before they set off on their own intellectual paths. Largely ignorant of Menger's Principles (out of print since the 1880s), they were trained in the spirit of the neoclassical synthesis.

As a result of these circumstances, there was strictly speaking no fourth generation of “Austrian” economists in the Mengerian sense. All the young men who are commonly held to be fourth-generation members were in fact lost to the neoclassical school—with the possible exception of Hayek, who decades later rediscovered some Mengerian themes in his work on the Counterrevolution of Science (1954).¹⁰⁴

Third-generation Ludwig von Mises's personal and intellectual influence on these men was limited. He had virtually no impact on their basic training—admitting them to his private seminar only after they had obtained their doctoral degrees. And they probably did not see in him anything more than a reputed expert on monetary theory and a highly controversial political economist. Mises was known for his treatises on the theory of money and on socialism, but none of his students and few of his colleagues grasped the far-reaching implications of these works. He became a recognized authority on general economic theory only many years later, when he spelled out these implications in his general treatise on economic science, Nationalökonomie (1940); and it was only in its English-language translation and expansion, Human Action (1949), that he eventually had a lasting impact on the theoretical outlook of subsequent generations of students.¹⁰⁵