Friedrich von Wieser (1851-1926)

Wieser coined the term “ Grenznutzen” (marginal utility) and contributed essentially two major works to economics: in 1884 his habilitation entitled Uber den Ursprung und die Hauptgesetze des wirthschaftlichen Werthes (On the Origin and the Main Laws of Economic Value) and in 1889 Der Naturliche Werth (The Natural Value [1893]).

Wieser’s starting point was the imputation problem, which Menger had left unsolved. Wieser saw quickly that it could not successfully be tackled in a purely causal-genetic way, but requested the use of mathematics (1889: 85-8). In the case of m = n the problem had to be approached in terms of n simultaneous equations. However, in modern indus­trialised economies production is not unidirectional (as Menger and Bohm-Bawerk had assumed) but circular: “Not even the most crude tool is made without some other tool” (Wieser 1884: 115). Yet this implied that Menger’s hierarchy of goods no longer applies and all values (including the values of consumption goods) are unknown and must be ascertained simultaneously. This threw doubt on the view that the values of commodities are exclusively determined by consumers’ estimations.

Interestingly, Wieser also contemplated the case in which all goods are (re-)produc- ible. He thus left the typical Austrian world of universal scarcity and entered a world of universal reproducibility. In it, he observed, a positive rate of interest presupposes a physical surplus of commodities produced above and beyond what is used up of them in the course of production. In this case, Wieser surmised, “the capital goods are to be attributed a net product, just as if they reproduced themselves with a surplus” (1889: 130). Having started from Menger’s imputation problem, Wieser thus arrived at a concept of profits that bears a close resemblance to the classical surplus-based one - as Ricardo had insisted: “profits come out of the surplus produce” (Ricardo 1951-73, Works, II: 128). Since the physical composition of the surplus and that of the capital invested typically differ from one another, the value of social capital and the interest rate can only be determined simultaneously. Wieser also insisted, contrary to his brother-in­law, that once there is a positive rate of interest, “discounting” becomes natural (1889: 134) - time preference is the effect and not the cause of interest.

These are remarkable findings, which implied a break with crucial Austrian dogmas from which Wieser had started his analysis. In his attempt to resolve open problems of Menger’s theory, Wieser gradually distanced himself from his subjectivist starting point and moved towards an increasingly more objectivist stance. It cannot therefore come as a surprise that ardent advocates of the subjectivist orientation in Austrian economics, such as Mises, saw in him “the most confused and eclectic” representative of the first generation of Austrian economists.