The Book
Gossen’s book contains a theodicy: it attempts to establish the fact that “this is the best of all possible worlds”, to use the famous phrase of the German philosopher Gottfried Wilhelm Leibniz (1646-1716) (see Kurz 2009; Steiner 2011).
In the conflict between the (Catholic) church and the natural sciences Gossen sides firmly with the latter. He prides himself on having shown for the first time in history beyond any doubt the “real purpose of man’s life, willed by his Creator” (Gossen 1983: 4). This, he is convinced, justifies a comparison with Copernicus: “I believe I have accomplished for the explanation of the relations among humans what a Copernicus was able to accomplish for the explanation of the relations of heavenly bodies” (ibid.: cxlvii). In fact, the sciences and his Entwickelung, he surmises, form the “true religion”, with him as one of its “priests” (ibid.: 208-9). Moral commandments enunciated by men frequently contradict the will of the Creator and thwart his intentions, engraved in “the laws of pleasure” or “laws of enjoyment”. The “denunciation” of pleasure and “egoism” by the Christian churches is based on an egregious misunderstanding of the Plan of Creation. God is accused of being “a dilettante by the standards of our intelligence and, hence, we have to hurry to correct His mistake... That is why the Creator was provided with Heaven, Purgatory, and Hell - so that he may keep order among the wayward human creatures!” (ibid.: 207-8) Yet Gossen insists: “The Creation is perfect.” (ibid.: 207, original emphasis) In order to see this, one simply has to follow the gospel of “true [that is, Gossen’s] economics”.True economics must use mathematics, because when creating the world, God is said to have made detailed calculations. More precisely, in economics the problems to be solved are typically problems of determining a minimum or a maximum: the condition humaine amounts to solving an optimization problem.
“Man! Investigate the laws of my creation and act according to these laws” (Gossen 1983: 4, original emphasis), he hears the Creator speak at the beginning of his book. If man obeys the command, he concludes at its end in bold letters, “Then there is nothing further wanting in the world to make it a perfect paradise” (ibid.: 298). Gossen is convinced that the self-seeking behaviour of man does not get him into conflict with his neighbours, because when maximizing utility he who respects the laws of pleasure will at the same time contribute to the well-being of all humans.Gossen’s construction is based on two axioms: (1) the law of the falling marginal utility until there is satiety together with the time constraint man faces to keep his egoism and passions in rein, and (2) because of the benefits accompanying the division of labour, exchange and trade, men enter into forms of mutually favourable cooperation and thus become dependent upon each other. The social good is not to be sought in socialism or communism, Gossen concludes, but in acting out one’s self-seeking traits. In the sequel Gossen is concerned with re-interpreting all behaviour that at first sight looks socially harmful as actually being socially beneficial. In fact, Gossen wishes to establish that a society that is exclusively based on the self-interest of people is (in modern parlance) statically and dynamically efficient. Gossen, Bernard de Mandeville and Voltaire’s Dr Pangloss may be said to be brothers in spirit. We now understand perhaps why Gossen (1983: v) prepends his book with parts of Friedrich Schiller’s poem ‘An die Freude’. It suffices to cite the text of the chorus:
O ye millions, now embrace ye
Boundless love for all his world.
Brothers, somehow there in Heaven
Must live a sweet Father.
(German original: “Seid umschlungen, Millionen! Diesen Kuβ der ganzen Welt! Bruder, uberm Sternenzelt - Muβ ein lieber Vater wohnen!”/The sweet father above the sky, other than Gossen’s own father, does not force anyone to do things they dislike and punish them for things they like, following their own nature).
Gossen intends to elaborate a general analysis of the economy and society, based on a few elementary premises. He begins with a discussion of the isolated individual, then turns to the problem of pure exchange between two and then several individuals, followed by a discussion of the division of labour, trade and the emergence of money, culminating in an analysis of the pattern of specialization across the entire globe. Productivity gains are said to result from specialization, a reallocation of resources and the worldwide diffusion of technical knowledge. Without too great a stretch of the imagination we may say that what Gossen had in mind was an optimal dynamical economic development emerging from the self-seeking behaviour of agents in competitive conditions.
The isolated individual Gossen discusses in terms of a Robinsonade (Gossen 1983: 54-5). This is based on two axioms, the first part of the first of which is well known in microeconomics as “Gossen’s First Law”: “The magnitude [intensity] of pleasure decreases continuously if we continue to satisfy one and the same enjoyment without interruption until satiety is ultimately reached” (ibid.: 6, original emphasis). The second part is less well known and draws attention even more explicitly to an aspect of Gossen’s argument that has been largely ignored in the history of the reception of his contribution: consumption occurs in time, it is a time-consuming process. He maintains:
A similar decrease of the magnitude [intensity] takes place if we repeat a previously experienced pleasure. Not only does the initial magnitude [intensity] of the pleasure become smaller, but also the duration of the pleasure shortens, so that satiety is reached sooner. Moreover, the sooner the repetition, the smaller the initial magnitude [intensity] and the shorter the duration of pleasure. (Gossen 1983: 6, original emphasis)
Hence, Gossen is first and foremost concerned with analysing a possibly complex time profile of enjoyment and thus with the dynamic properties of optimal consumption. It is truly remarkable that even Jevons and Walras missed the time dimension of Gossen’s argument.
All people indiscriminately face a time constraint, Gossen insists, and many of them in addition an income constraint. Even man in the land of plenty — the land of Cockaigne — would have to solve an economic problem, because consumption takes time, and time is limited. This is the reason why Gossen focuses attention essentially on the problem of utility maximization subject to a time constraint. He assumes an additive- separable utility function (that is, the different needs are independent of one another and the utilities can be aggregated):
where U is total utility and Ui and ti (i = 1, 2,..., n) designate the partial utility derived from and the time devoted to the enjoyment of good i; it is assumed that “the quantity consumed is proportional to time” (Gossen 1983: 33), that is, ti = τici, where τi is the amount of time needed to consume one unit of good i and ci is the total amount consumed. This utility function is to be maximized subject to:
with T as the total amount of time available to spend consuming goods. Notice that the time budget constraint is an equation and not a weak inequality. This expresses the fact that the time at one’s disposal one has to spend - it can neither be saved nor “killed”.
Gossen does not know yet the term “marginal utility” or Grenznutzen (a word invented by Friedrich von Wieser), but he knows the concept: he speaks of the last “atom” of enjoyment (Gossen 1983: 33-4). He assumes a linear marginal utility curve whose intersection with the abscissa gives the satiety level. He is optimistic that one day it will be possible to measure the level of enjoyment at each moment of time. Utility is assumed to be cardinally measurable and interpersonally comparable.
Interestingly he sees man’s needs and wants as hierarchically or lexicographically ordered (which precludes the existence of a utility function). His analysis foreshadows Carl Menger’s division of goods in goods of various orders.However, how should the optimizing agent proceed? First, he has to respect his satiety levels. Disregarding them makes man miserable (Gossen 1983: 14). Secondly:
In order to maximize his total pleasure, an individual free to choose between several pleasures but whose time [!] is not sufficient to enjoy all to satiety must proceed as follows: However different the absolute magnitudes of the various pleasures might be, before enjoying the greatest pleasure to satiety he must satisfy first all pleasures in part in such a manner that the magnitude [intensity] of each single pleasure at the moment when its enjoyment is broken off shall be the same for all pleasures. (Gossen 1983: 14, original emphasis)
This amounts to the maxim:
Here the consumption time “cost” per unit of good i, τi, is found in place of the price of the good in conventional representations of “Gossen’s Second Law”. Gossen is very clear that this is not a description of how people actually consume, but how they ought to consume.
In case a person is constrained by both time and income, the argument has to be modified. Gossen discusses in some detail the case in which man makes a living by working. He introduces the concept of disutility or “discomfort” of labour and states that maximizing life pleasure now amounts to equalizing the marginal disutility of labour
and the marginal utility of the pleasure obtained by the product of labour: “the intensity of pleasure of the last atom produced shall be equal to the magnitude [intensity] of the discomfort experienced by him at the very moment of his expenditure of effort” (Gossen 1983: 53; original emphasis).
Gossen then shows that pure exchange may increase the pleasure of all agents. He thus anticipates the discussion in Jevons and Walras. As regards production, Gossen points out labour-saving effects of the division of labour. He expresses the opinion that in competitive conditions each agent gets what he deserves, that is, the system is not only efficient, it is also just. He rejects the view that man, in order to maximize his life time pleasure, must not only be possessed of a full knowledge of all alternatives he faces over time and the effects associated with them, but must also be possessed of an infinite capacity to calculate pleasures and discomforts and weigh them against each other. Gossen speculates that the emergence of money as a means of exchange and market prices will solve this problem - after all, the Creation is perfect, as we have already heard. He contends that while single individuals may err, the market will not. Self-seeking is all that is needed to bring about a social optimum. If sentiments of compassion happened to interfere with the distribution of the product, they would hamper efficiency. Wherever Gossen looks, he sees the beneficent effects of an “overabundant horn of plenty” poured out over men.
In the rest of his book Gossen criticizes received views and applies his theory to problems of economic and social policy. Interestingly, he sees cases of market failure, for example, with regard to credit markets and child labour. There is especially one obstacle in the way of a paradise on earth: private ownership of land and its uneven distribution. This is said to prevent an efficient allocation of people across the globe. Gossen therefore elaborates a Plan for the Nationalization of Land, which is very similar to what Leon Walras was to propose (and before them, in the 1820s and 1830s, Auguste Walras and Antoine-Elisee Cherbuliez).