History of Economic Thought. Austrian School (lecture notes)

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History of Economic Thought. Austrian School (lecture notes)

Lecture notes, cheat sheets

Directory / Lecture notes, cheat sheets

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Table of contents (expand)

The emergence of economic thought in the ancient world (Backgrounds of economic thought in the Ancient East. Ancient Egypt and Babylonia. Ancient Egypt. Babylonia. Economic thought in Ancient India. Economic thought in Ancient China. Economic thought in Ancient Rome. The teachings of Cato. The teachings of Xenophon. The teachings of Plato. The teachings of Aristotle)
Economic thought in the Middle Ages (Medieval teachings of Western Europe. "Salic truth". Socio-economic views of Ibn Khaldun. Teachings of Thomas Aquinas. Social utopia of Thomas More. "Russian Truth")
Mercantilism (Mercantilism. Economic prerequisites of mercantilism. Features of mercantilism as an economic idea. French and English mercantilism. Features of Russian mercantilism. Late mercantilism)
Physiocracy (General characteristics of the physiocrats. The teachings of François Quesnay. The activities of Jacques Turgot)
Classical school of political economy (Classical school. Economic views of William Petty. Teachings of Adam Smith. Teachings of David Ricardo)
Classical school after Smith and Ricciardo (The teachings of Jean-Baptiste Say. The economic views of John Stuart Mill. The economic views of Pierre-Joseph Proudhon. The teachings of Thomas Malthus)
historical school (Contribution of the historical school to the development of economic theory. Historical school of Germany. New historical school of Germany)
Utopian socialists (Western European utopian socialism. Economic views of Simon de Sismondi. Utopian dreams of Robert Owen)
Marxism (The emergence of Marxism as an economic doctrine. “Capital” by Karl Marx. Karl Marx on the commodity and its properties. Money and its functions. Karl Marx on constant and variable capital and surplus value. Karl Marx’s views on land rent)
Austrian school (Austrian school: the theory of marginal utility as a theory of pricing. The economic views of Eugen Böhm-Bawerk. The teachings of Carl Menger. The economic views of Friedrich von Wieser)
Marginalism (The theory of marginalism. Methodological principles of marginalism. The marginalist theory of value and its advantages. The marginalist revolution. The causes and consequences of the marginalist revolution. The theory of utility of William Stanley Jevons. The theory of exchange of William Stanley Jevons. The theory of labor supply of William Stanley Jevons. The theory of exchange of Francis Isidro Edgeworth)
General economic equilibrium theory (General equilibrium model including production; the problem of the existence of a solution and the process of "tatonnement". General equilibrium theory in the 20th century: contributions of A. Wald, J. von Neumann, J. Hicks, C. Arrow and J. Debreu)
Alfred Marshall (A. Marshall - leader of the Cambridge school of marginalists. Alfred Marshall's partial equilibrium method. Alfred Marshall's analysis of utility and demand. Alfred Marshall's analysis of costs and supply. Alfred Marshall's equilibrium price and the influence of the time factor)
The beginning of the economic development of Rus' (Eastern Slavs in the pre-state period. Prerequisites for the formation of the Old Russian state. General characteristics of the socio-economic development of Kievan Rus. Features of early feudalization. Social division of labor among the Eastern Slavs. The emergence of cities, the development of trade in Ancient Rus'. Internal development of Rus'. The adoption of Christianity and the baptism of Rus' . Money and its role in Kievan Rus)
Economic development of Rus' in the Middle Ages (Causes and consequences of feudal fragmentation. The growth of feudal land ownership. Rus' under Mongol-Tatar rule. Socio-economic and political consequences of the Mongol-Tatar yoke. The main conditions and stages of the unification of Russian lands into a centralized state. Economic policy of Russia in the second half of the 15th-17th centuries . Formation of the all-Russian market. Socio-economic development of Russia after the Time of Troubles)
Economic development under Peter I and Catherine II (The essence of the reforms of Peter I. The results of the reforms of Peter I. The peasant question. Agriculture and land use under Catherine II. Industry, trade and finance under Catherine II. The socio-economic policy of Catherine II. The nobility and the system of local government in the second half of the 18th century. Social -economic development of Russia in the first half of the 19th century)
Economic development of Russia in the 19th century. (The Crimean War and its impact on the economic situation in the country. General characteristics of the economic development of Russia in the first half of the 1860th century. Economic prerequisites for the elimination of serfdom. Abolition of serfdom. Stratification of the Russian village. Main types of agricultural farms and their characteristics. Bourgeois reforms of Alexander II and their consequences. Zemstvo reform Urban reform Judicial reform Military reform Educational reforms Financial reform Basic provisions of the legislation on peasants The situation of agriculture in the 1870-XNUMXs Agrarian reform of P. A. Stolypin)
Economic thought in Russia (second half of the 1917th - beginning of the 1921th centuries) (The place of N. G. Chernyshevsky in the history of Russian and world economic thought. Economic views of V. I. Lenin. The first socialist transformations. War communism as a stage in the formation of the command-administrative system (XNUMX-XNUMX ). Increasing crisis phenomena in the economy and the beginning of the New Economic Policy. Changes in the monetary and financial spheres)
Economic development of the USSR (The economy of the USSR on the eve of the Great Patriotic War. The Soviet economy during the war. Post-war development of the national economy. The country on the eve of reforms. Reform of the Soviet economic system. Transformations in the social sphere. The economy of developed socialism. The search for new forms and methods of management. Reforms of the 1960-1970s years: essence, goals, methods and results)
Economic development of Russia during the period of perestroika (Background of perestroika. Preconditions for its emergence. Reform of the political system. Reform of the electoral system. Analysis of liberal and other movements. Economic reforms. Economic reform of 1987. The “500 days” program. The dialectic of “new thinking”. The beginning of disarmament. Unblocking regional conflicts. Collapse socialist system)
Economic development of Russia since the early 1990s. (Russia in the first half of the 1990s. Continuation of the course of reforms, shock therapy. Issues of maintaining the unity of Russia. New Constitution. Privatization)

LECTURE No. 10. The Austrian School

1. The Austrian school: the theory of marginal utility as a theory of pricing

The Austrian school appeared in the 70s. XIX century Its most prominent representatives are Carl Menger (1840-1921), Eugen (Eugene) Böhm-Bawerk (1851-1914) and Friedrich von Wieser (1851-1926). They were the founders of a completely new direction, which began to be called “marginalism,” i.e., “ultimate.” Later, marginalism was called a revolution in economic science and was given the name “marginalist revolution.”

Representatives of the classical school believed that the value of a product is the amount of labor that was spent on its production. Accordingly, the price - the cost in monetary terms.

Representatives of the Austrian school held a completely opposite opinion: the value of any product or service is the subjective attitude of a potential consumer towards them. The commodity itself is devoid of any economic properties.

Therefore, the main thing is the end result, which is evaluated by the consumer himself, based on his needs and tastes, and not on the amount of costs for the production of this product. In addition, according to the Austrians, the usefulness of each next unit does not remain in one place, but is constantly decreasing. (On a hot day, a person is very thirsty. He is ready to pay 10 or 20 rubles for a glass of mineral water, but he does not agree to pay the same amount for the second glass, because he does not want to drink so much. On a cold day, he will not agree to pay for even 2 rubles for this water, since he does not want to drink at all.)

Between "utility" and "value" can not put an equal sign. Not every good is valuable, although it can be useful. Only that which is limited in comparison with the demand for it has value. (Snow for children has utility, but no value, since its amount is almost limitless in winter.)

Marginalists divided all goods into economic (rare) and free. Basically, a person is surrounded by economic benefits.

The price of economic goods depends on the need for them, and not on the cost of their production.

The Austrians completely rejected the theory of labor value, which was put forward at the time by Karl Marx. They also believed that the price had no objective basis.

The theory of marginal utility has been constantly criticized. Perhaps the theory itself is wrong in many ways, but it became a strong impetus for further research in the economic field, for example, for the development of the concept of "marginal values" (marginal cost, marginal income, etc.).

Now this theory is used in microeconomics, showing the formation of costs and prices, consumer behavior, firm behavior in conditions of limited resources, etc.

2. Economic views of Eugen Böhm-Bawerk

Eugen (Eugene) Böhm-Bawerk (1851-1914) - nobleman and childhood friend of Friedrich von Wieser, student of Carl Menger. He graduated from the law department of the University of Vienna, where he studied with his friend, although he was a senior statesman (Minister of Finance, Chairman of the Supreme Court of Appeal). And he was a teacher for a relatively short time (1880-1889). He wrote his famous works only at the beginning of his career. Böhm-Bawerk received life membership in the upper house of parliament. His works had a huge influence on economic science. These include “Rights and Relations from the Point of View of the Doctrine of National Economic Goods” (1881), the two-volume “Capital and Interest” (the first volume is “Capital and Profit” (1884), and the second volume is “The Positive Theory of Capital” ( 1889)), “Fundamentals of the theory of values of economic goods” (1886), “Towards the completion of the Marxist system” (1890).

The main purpose of the book "Fundamentals of the Theory of Values of Economic Goods" is to prove the correctness of the "law of magnitude of the value of a thing." Böhm-Bawerk writes about this:

"The value of a thing is measured by the marginal utility of that thing."

Eugen Böhm-Bawerk, like Karl Menger, believed that the more homogeneous goods a person has at his disposal, the less each individual thing is valued, if all other conditions are the same. In his opinion, a person in practice realized the benefits of marginal utility faster than science derived this definition.

Böhm-Bawerk, not without reason, is considered one of the largest representatives of the "Austrian school". The theory of interest and capital is O. Böhm-Bawerk's main merit. He emphasized three reasons why interest appeared and exists:

1) people tend to expect that perhaps resources will be scarce and rise in price;

2) people tend to underestimate their needs in the future;

3) the use of capital increases the profit, as well as the time of receipt.

Bayem-Bawerk believed that the price is a subjective value, which relies only on the desires of buyers, and does not depend on the costs of producing this product. He also believed that an item is valuable only when it is useful and rare (for example, salt in places where it is not freely available, but only occasionally brought by merchants.). The process of acquiring value for a product can be divided into two stages: first, there is a need to purchase a product, and then it becomes scarce, there is a rush with a possible increase in price, if we consider the same example with salt. Thus, through supply and demand, an average price is created in the market.

3. The teachings of Carl Menger

Carl Menger (1840-1921) - a nobleman by birth, took up economic theory in 1867, before that he practiced jurisprudence. And yet this did not stop him from becoming the first head of the department of economic theory at the University of Vienna. Carl Menger is one of the brightest representatives of economists of his time. No wonder he became the head of the Austrian school. He is the author of the works "Foundation of the Doctrine of National Economy" ("Foundation of Political Economy") (1871)

and "An Inquiry into the Method of the Social Sciences and Political Economy in Particular" (1883), as well as the articles "Money" (1909). On the first book he worked hardest of all, and it was even reprinted, albeit after the death of the author. On a global scale, Karl Menger was not recognized for about half a century, because his first work was translated into English only fifty years after the death of the author. This became a stimulus for his followers, and they began to continue their research in the direction indicated by Karl Menger even more diligently.

He is rightfully considered the founder of the marginalist revolution, although there were other scientists who started with him. Perhaps this is due to the fact that Menger relies heavily on the works of representatives of the classical school and only expands and refines their research. On the other hand, it introduces many new things. For example, Carl Menger believes that price is a subjective property of a product and is completely independent of the cost of producing this product. Only supply and demand can regulate the price of a commodity.

In his first work, Karl Menger writes that the good is an object that satisfies some human need. When Karl Menger conducted his research, he relied only on a single economy, which was taken separately from others, that is, ideal theoretical conditions were created, but practice still goes beyond the scope of these studies.

Karl Menger and his followers divide all goods into orders: the first order satisfies the immediate desires of a person, and the rest (the second, etc.) are necessary to obtain the first.

Karl Menger also introduces the concept of economic goods. A person has two desires, but at the moment he can fulfill only one, so he will have to choose what is of great benefit, and it is advisable to use it (to save goods).

Carl Menger divides all goods into two types: economic and non-economic. He then describes the transition from one to the other. (If there is more of a good at the moment than it is required, then it ceases to be economic.) Thus, a good or good is valuable as long as it is rare.

He believes that the exchange should be beneficial to both parties, otherwise it turns out "an awl on soap and vice versa."

It is believed that it was Karl Menger who first developed the theory of the existence of complementary goods, that is, when one product is completely unnecessary without the other.

All his studies are considered a huge contribution to the development of economic thought of that time, and of our time too.

4. Economic views of Friedrich von Wieser

Friedrich von Wieser (1851-1926) - baron, representative of the Austrian school, friend and brother-in-law of Böhm-Bawerk, student and follower of K. Mengenra. He became the head of the department after him, and before that he worked at the University of Prague. Received life membership in the upper house of parliament. Known as the author of the works “On the Origin and Basic Laws of Economic Value” (1884), “Natural Value” (1889), “The Theory of Social Economy” (1914), “Sociology and the Law of Power” (1926).

Friedrich von Wieser believed that the state should not prohibit private property, otherwise everything would again gather in the hands of the state, or rather, its officials. This is unlikely to be useful, since the state will not be able to manage everything as mobilely as a private owner. In addition, officials themselves are likely to want to become owners of private property, which again will lead to careless management of this property. After all, officials already have enough to do, except for property management as such. This scholar criticizes those who oppose private ownership and private property. After all, private property is an impetus to the development of society as a whole. A person is selfish by nature in general and therefore will never work for someone as well as for himself. And a person has the opportunity to work for himself only if he owns private property.

He was the first to propose a way to determine the total utility.

Friedrich Wieser was also a practitioner, serving for a time as Minister of Commerce. He is remembered as the man who gave marginalists a lot of terms (marginal utility, Gossen's first law).

Wieser believed that an equilibrium approach should be applied (the value of productive goods cannot change, since all production combinations are optimal).

Friedrich Wieser improved on the theory of his teacher Karl Menger so that there would be no remainder that was not distributed, and called this theory "imputation". According to him, there were two types of imputation:

1) general;

2) specific.

Authors: Eliseeva E.L., Ronshina N.I.

<< Back: Marxism (The emergence of Marxism as an economic doctrine. “Capital” by Karl Marx. Karl Marx on the commodity and its properties. Money and its functions. Karl Marx on constant and variable capital and surplus value. Karl Marx’s views on land rent)

>> Forward: Marginalism (The theory of marginalism. Methodological principles of marginalism. The marginalist theory of value and its advantages. The marginalist revolution. The causes and consequences of the marginalist revolution. The theory of utility of William Stanley Jevons. The theory of exchange of William Stanley Jevons. The theory of labor supply of William Stanley Jevons. The theory of exchange of Francis Isidro Edgeworth)

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