Bruno Hildebrand (1812-1878)
Hildebrand in his book Die Nationalokonomie der Gegenwart und Zukunft (1848) deals with the history of economic thought and via a critical scrutiny of earlier economists’ ideas on value elaborates his own view.
He holds Adam Smith in high esteem and actually calls him the “Immanuel Kant of economics” (1848: 285). In the same year in which the Communist Manifesto was published, Hildebrand puts forward an early criticism of socialist authors, especially Friedrich Engels and Pierre-Joseph Proudhon. On Hildebrand’s work, see Schefold (1998).Engels’s contention that the German economists had failed to contribute anything useful to the state of the art as it had been handed down by Smith, Hildebrand rebutted by stressing that the Germans had established the view “that value is always a relationship of a thing to a person and to human society, and depends upon human estimation” (1848: 168). Proudhon, in one of his numerical examples designed to discuss the relationship between “use value” and exchange value, had insisted that an exceptionally good harvest leads to the paradoxical result that the use value exceeds the exchange value. He arrived at this conclusion by assuming that the use value is independent of the amount produced, whereas the exchange value is inversely related to the quantity produced. As regards the relationship under consideration, Proudhon made the implicit assumption of a unitary price-elasticity of demand, implying a constant share of income allocated to the good under consideration. This assumption attracted Hildebrand’s attention. He stressed that “the more the quantity of a useful item is increased, the more, in a state of unchanged need, the use value [Nutzwerth] of each individual unit declines” (1848: 318). In this formulation we have, on the one hand, the concept of a declining marginal utility, which Rau had attempted to cover with his concept of “concrete value”.
On the other hand, Hildebrand speaks of “a state of unchanged need”, which may be interpreted as Rau’s “specie value”, which now is taken to be reflected by a constant share of total income spent on a particular good. Hildebrand thus improved upon the specification of what nowadays are called preferences by not only defining the movement of marginal utility as a function of the quantity consumed, but by also specifying the demand function that corresponds to constant shares of expenditures out of national income (see Chipman 2013: 24-7).Subsequent developments
Eberhard Friedlander (1799-1869) taught in Estonia, and in his book Die Theorie des Werths (1852) put forward a number of ideas that foreshadowed later developments. He insisted that “the true goal of economics is less the pursuit of wealth than that of the general welfare” (1852: 6). He rejected Jean-Baptiste Say’s idea of consumer sovereignty and with explicit reference to the Chinese government’s policy to curb the smoking of opium emphasised the role of the state in educating people and preventing them from consuming in ways that are detrimental to their well-being in the long run. Friedlander advocated the possibility of ranking human needs and was concerned with giving a more precise definition of “subsistence” in terms of the amounts of needs that have to be satisfied. He stressed that these needs may be met in terms of different bundles of consumption goods. The reason for this possibility is to be seen in the fact that each good typically represents a compositum mixtum of what Friedlander called Bedurfniβeinheiten (units of need), a concept that may be said to foreshadow Kevin Lancaster’s (1971) “characteristics”.
The arguments of Rau, Hildebrand and Roscher (1843) were taken a step further in a treatise by Karl Knies (1821-1898), published in 1855. (It deserves to be mentioned that the Austrian economists Bohm-Bawerk and Wieser studied with Knies in Heidelberg.) Knies distinguished sharply between use value (Gebrauchswerth) and usefulness (Brauchbarkeit) and developed the concept of species value to a hierarchy of wants, or species of wants, and took it to correspond closely to a species of goods.
In each species the goods are taken to be substitutes, whereas goods belonging to different species are complements. Thus wheat and rye, for example, are subspecies that can be substituted for one another because both are carriers of calories. If only calories happen to matter, the choice will be in terms of the grain that minimises costs per unit of calorie. In case other aspects, such as taste, also matter the choice is across all aspects considered. Knies was also keen to confront his theory with historical data. Interestingly, he rejected the view that the pursuit of individual self-interest was always beneficial to society at large, a view he wrongly ascribed to Adam Smith.The first edition of Wilhelm Roscher’s (1817-1894) Grundlagen (1854) reflects the influence of Rau and Hildebrand, but does not go beyond their contributions. In the second edition of the treatise (1857) he approved of Knies’s distinction between use value and usefulness. He applied the analyses of the aforementioned authors to the “paradox of value” (1857: 7-10), without, unfortunately, touching upon the all-important aspect of Smith’s reasoning that the use or consumption of certain goods cannot be understood in terms of a simple subject-object relationship: it involves other parties the individual wishes to impress. We may conclude, however, with Chipman (2013: 42), that “Rau (1847) and the three founding members of the older historical school, Hildebrand (1848), Knies (1855), and Roscher (1857), developed... the essential ideas of the marginal revolution later associated with the names of Gossen (1854), Menger (1871) and Jevons (1871).”
Herrmann Heinrich Gossen’s book Entwickelung der Gesetze des menschlichen Verkehrs und der daraus flieβenden Regeln fur menschliches Handeln (The Laws of Human Relations and the Rules of Human Action Derived Therefrom) (1854) reflects Rau’s overwhelming influence. Rau and other representatives of the school had not used mathematical formalisations to express their ideas.
What they said with words was only later translated into the language of mathematics, especially by Chipman (2013), occasionally not without the need to interpret vague formulations. Gossen was the first author who attempted to expose the new theory directly in mathematical terms. He did so by having recourse to a number of simplifying assumptions, such as the assumption that marginal utility is a linear function of the amount consumed of each commodity. It is important to note that Gossen emphasised the fact that consumption takes time, which is the reason why he presented the decision problem of consumers as consisting first and foremost of the allocation of scarce time to alternative uses, or rather human actions, and only secondly to the purchase of goods needed to carry out those actions. He was clear that while the time constraint is always binding and has to be met, the income constraint is not necessarily so. This aspect has totally fallen into oblivion in the literature and was only retrieved by Georgescu-Roegen (1983) and then developed further by Steedman (2001). Not least because of his tedious numerical examples and cumbersome mathematics Gossen’s work was entirely ignored and “discovered” more than 20 years after its publication by Leon Walras.The limited importance attributed to the findings of the use value theorists is well expressed by Adolph Wagner’s textbook (1876). Wagner was considered an important representative of classical economics. In his view marginal utility theory contributed to ascertaining the quantities produced of the various commodities, whose values however were determined by cost of production. His view in this regard resembles the views taken by authors such as Heinrich Dietzel and Karl Diehl (see Diehl 1908; see also Kurz 1995).
Several recent interpretations of the German use value school focused their attention almost exclusively on anticipations of marginal utility theory. However, in hardly any one of the German authors does this theory appear to have assumed the status of selfsufficiency: it improved our understanding of certain phenomena, but badly needed to be complemented. Several authors felt that the complement was provided by the classical labour or cost of production approach. The fact that the German authors generally did not fully embrace the outlook of marginal utility theory can also be inferred from the fact that they did not look at the economy through the lens of methodological individualism. Many of them upheld Smithian and Ricardian ideas and entertained a view of society as an object of study that exists independently of the single individual. Therefore, while the German use value school may be said to have laid the foundation of some of the ideas elaborated by the Austrians, in important respects Austrian economics involved a break with the German tradition.