Friedrich von Wieser (; 10 July 1851 – 22 July 1926) was an early (so-called "first generation") economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry, he first trained in sociology and law. In 1872, the year he took his degree, he encountered Austrian-school founder Carl Menger's Grundsätze and switched his interest to economic theory. Wieser held posts at the universities of Vienna and Prague until succeeding Menger in Vienna in 1903, where along with his brother-in-law Eugen von Böhm-Bawerk he shaped the next generation of Austrian economists including Ludwig von Mises, Friedrich Hayek and Joseph Schumpeter in the late 1890s and early 20th century. He was the Austrian Minister of Commerce from August 30, 1917, to November 11, 1918.

Wieser is renowned for two main works, Natural Value, which carefully details the alternative-cost doctrine and the theory of imputation; and his Social Economics (1914), an ambitious attempt to apply it to the real world. His explanation of marginal utility theory was decisive, at least terminologically. It was his term (building on von Thünen's Grenzkosten) that developed into the standard term "marginal utility", not William Stanley Jevons's "final degree of utility" or Menger's "value". His use of the modifier "natural" indicates that he regarded value as a "natural category" that would pertain to any society, no matter what institutions of property had been established.

The economic calculation debate started with his notion of the paramount importance of accurate calculation to economic efficiency. Above all, to him prices represented information about market conditions and are thus necessary for any sort of economic activity. Therefore, a socialist economy would require a price system in order to operate. He also stressed the importance of the entrepreneur to economic change, which he saw as being brought about by "the heroic intervention of individual men who appear as leaders toward new economic shores". This idea of leadership was later taken up by Joseph Schumpeter in his treatment of economic innovation.

Unlike most other Austrian School economists, Wieser rejected classical liberalism, writing that "freedom has to be superseded by a system of order". This vision and his general solution to the role of the individual in history is best expressed in his final book The Law of Power, a sociological examination of political order published in his last year of life.

Biography

Born in Vienna on 10 July 1851, Wieser spent his childhood and adolescence in the same city. He was interested since youth in law, history and sociology. He studied law at the University of Vienna beginning in 1868. His lifelong passion for political economy was first ignited when he read Herbert Spencer's (Introduction to the Study of Sociology). they were greatly influenced by reading

Menger's (Principles of Economics) (1871),

In 1889, Wieser was named ordentlicher Professor due largely to the influence of Léon Walras and Vilfredo Pareto, both of the Lausanne School. This has led some scholars to not consider his later works as belonging to the Austrian School. Even his disciple Ludwig von Mises said in his autobiography Memoirs (1978) that Wieser had misunderstood the gist of the subjectivism of the Austrian School and was actually a member of the Lausanne School. and granted the title of Baron. He was also appointed Minister of Commerce in the Austrian Cabinet, which post he held until the end of World War I in 1918. However, his activity was hindered by Richard Riedl, Energy Minister and clear proponent of economic interventionism, leaving only matters of secondary importance to Wieser's jurisdiction.

His last works were (The History of State Power) in 1923 and a sociological study titled (The Law of Power) in 1926.

Wieser died on 22 July 1926 in Salzburg, where he is buried. Two of his hitherto unpublished works were published posthumously, namely (Money) in 1927, which summarizes his monetary theory; and (Collected Papers) in 1929. This latter book included a tribute resulting from the collaboration of renowned economists like Knut Wicksell, but it was censored during World War II.

Achievements

150px|thumb|right|Wieser coined the terms "[[marginal utility" and "opportunity cost"]]

Wieser's most famous contributions are the imputation theory drawn from his 1889 work (Natural Value) and the Alternative Cost (or Opportunity Cost) Theory drawn from his 1914 work (Social Economics) in which he coined the term "opportunity cost". He is credited with the economic distinction between public goods and private goods subsequently used by Friedrich August von Hayek and eight of his disciples, and with developing the concept of marginal utility (). Value theory was revolutionary because it opened the debate on the question of economic value, introducing an objective calculation to a subjective theory. It was one of the first mathematical solutions to the problem of determining prices for factors of production. His imputation theory amended possible errors in the theory of his teacher Carl Menger and is still used today in microeconomics in consumer research to calculate the systematic replacement of factors of production.

Another of Wieser's fundamental contributions to economics is the alternative cost theory (now called the opportunity cost theory), which had been ignored by Alfred Marshall and British economists. Adding to his contribution was also the theory originally known as the alternative cost theory (now called the opportunity cost theory), which was published in 1914 in (Theory of Social Economy). Finally, also worth mentioning is his monetary theory.

Value theory

Wieser's value theory attempts to establish a method for calculating economic value and states that the factors of production have a value due to the utility they have conferred on the final product, i.e. marginal utility, as opposed to the theory held by his teacher Carl Menger which states that the value factor is the value of the input when contributed to the final product. Wieser's value theory was presented along with his imputation theory in his work (Natural Value), published in Vienna in 1889, although his examination of the subject begins in his 1884 postdoctoral study (On the Origin and the Principal Laws of the Value of Factors).

Wieser asserts that natural value () is a neutral phenomenon, independent of the economic system. His idea of natural value tends to highlight how the value of property is continuously dependent on the distribution of income between different social classes, so that in the presence of a situation greatly lacking in equidistribution, goods or services provided with little social utility can be of great value and vice versa.

The economy deals with a social process and therefore must be based on a concept of social economics (), which implies certain institutional actions. In the first part of his treatise (Theory of Social Economics), Wieser carefully explains his view of general economic equilibrium. Aware of the idealized assumptions of this economy, he seeks to define with pinpoint accuracy the conditions under which resources would be allocated to ensure the highest possible utility. Social economics should therefore serve as the benchmark for evaluating the efficacy of administrative intervention in the market economy:

This assertion is based on the fact that for Wieser natural value would exist in a perfect communist state due to the absence of inequalities of wealth and error. In this case, value would result only from the available quantity and from profits. However, he states that in the real world natural value is only one element in the formation of price. Other factors that influence prices are the distribution of purchasing power, errors, fraud and coercion.

His idea of natural value highlights how the economic value of property changes depending on the distribution of income between different social classes so that when income distribution is far from equal, goods or services provided with little social utility can be of great value and vice versa. Therefore, Wieser explicitly states his assumptions considering the cases in which the exchange value (price) differs from the real value (marginal utility):

  • Disparity in the purchasing power of consumers leads to over-produced goods to meet the needs of persons with high ability to pay, and too few goods to meet the needs of poor people.

Some economists of the Austrian School maintained that the value of the factors of production is not the individual contribution of each factor in the final product, but rather the value of the most valuable use that can be made of the last good (the marginal utility before reaching the Pareto optimal point). The opposing view held by the classical economists such as Adam Smith is the labor theory of value.

There are practical applications such as:

  • Coined the term "marginal utility" and gave shape to the concept. This work states that prices provide key information on the conditions of the market and are necessary for any economic activity. A socialist system that purported to be effective would have to use a price system to operate.

Alternative cost theory

thumb|Wieser is remembered chiefly for the imputation theory, the alternative (or opportunity) cost theory and his [[#Monetary theory|monetary theory]]

The alternative cost theory (or opportunity cost theory) is a theory of enormous importance that comes from his (Theory of Social Economy), published in 1914, although his arguments were foreshadowed in his work (The Nature and Main Content of Theoretical State Economics), published in 1911. Wieser coined the term "opportunity cost" and performed a detailed study of the subject.

Opportunity cost is associated with a famous controversy from the early 20th century, where disciples of English economist Alfred Marshall were opposed to the continental economists of the Austrian School, the head of which was Friedrich von Wieser, with his theory of alternative or opportunity cost. The debate focused on the following points:

  • Wieser gave shape to the theory that marked the beginning of the distinction between accounting cost ("the cost of production") and economic cost ("the cost of production" + the opportunity cost of not being able to obtain alternative).

Monetary theory

Wieser also developed a monetary theory. It was inspired by the research of Carl Menger, in particular by his study of currency, which discussed both the historical evolution of money and the theory of its value. Wieser used the theory of marginal utility as a basis for his monetary theory. It was initially rejected; in fact, some authors tried to prove that marginalism necessarily failed when used as a basis for building such theories. However, his disciple Ludwig von Mises studied Wieser's theory and fleshed it out, creating the complex upon which he built the German concept of (money).

Wieser conducted a further study on the effects of change in a currency's value on the relationship between the natural economy and the monetary economy.

There are practical applications such as:

  • It was later applied to the problem of the quantity theory of money.
  • It provided a new monetary theory within the Austrian School and conducted a useful study on one specific type of possible influence on monetary value.
  • Provided a basis for a further and still relevant study of monetary theory by his pupil Ludwig von Mises.

Social economics

In his later years, Wieser ventured into the study of Sociology, and this resulted in his 1914 publication, (Theory of Social Economy), from which is derived his theory of alternative cost or opportunity. Das Gesetz der Macht (The Law of Power), published in 1926, was his latest publication, a great sociological study from which we draw the following conclusions.

Wieser tried to explain the relationships and social forces through the study of history, and he concluded that economic forces held a prominent role in social evolution. Despite his interest in collective goals, such as economic well-being, Wieser adopted an individual approach, explicitly rejecting collectivism, approaching a more liberal stance and establishing the essential difference between social economics in general and socialist economics.

Social economy (in the original German, ) treats humanity as a whole as an ideal economic subject and contrasts it with nature, so that considerations of conflicting interests or economic justice become as irrelevant as they would to the economy of Robinson Crusoe:|Friedrich von Wieser, (Social Economics), 1914

For Wieser, the individual is the root of all decisions. Their common vocation was to develop an economic theory on a firm basis. To do this, following the course initiated by Carl Menger, Wieser, along with his friend and brother-in-law Eugen von Böhm-Bawerk, disapproved of the policies of interventionism that the Austrian government, as all governments of the time, had adopted, arguing that only the free market could allow more efficient economic and social development.

Wieser did not acknowledge essentialism or any teleological version of causality. As opposed to the historical method of the German historicist school, he developed a logical method, with both its deductive slope as well as its inductive slope (see interpolation and extrapolation). Economics has, like Mathematics and Logic, an a priori character rather than the empirical character of science. Thus, empirical phenomena are considered continuously variable, meaning that social developments have no parameters or constants, only variables, which makes it very difficult, if not impossible, to extract historical laws or make predictions. This point is the epicenter of the methodological discussion between the Austrian School and the German School.

In what little Wieser wrote about methodology, he stated that economics is a kind of applied psychology for which the procedure is introspection, claiming similarity between Economics and sociology in that both attempt to achieve a more successful social reality of man, promoting the idea of utility that reports on each good and each individual.

Works

  • English Translation: ...
  • , 1914
  • English translation: Social Economics, 1927, translated by A. Ford Hinrichs, with a preface by Wesley Clair Mitchell. Full Text
  • , 1926;
  • English translation: The Law of Power, 1983, translated by W.E. Kuhn, edited with an introduction by Warren J. Samuels Full text
  • (The Austrian School and the Value Theory), 1891.
  • "The Austrian School and the Theory of Value", in The Economic Journal, Volume 1, 1891 (in 16x16px Wikisource).
  • (The Value Theory), 1892.
  • (The Theory of Urban Ground Rent), 1909.
  • (The essence and the main content of theoretical economics), 1911.
  • (The History of State Power), 1923.
  • (The National tax services and the state budget in the kingdom of Bohemia: Response to the considerations), 1923.

See also

  • List of Austrian scientists

Notes

  • Article on Wieser's political career
  • Biography in the History of Economic Thought
  • An Introduction to the Value Theory on the Lines of Menger, Wieser, and Böhm-Bawerk, William Smart (1891, 1910).