Slide 1

- Jevons, Menger, von Wieser and Bohm-Bawerk Slide 2 Marginalist School The paradox of water and diamonds Value comes from peoples demand and scarceness of goods. Marginal utility should be the value of goods. Founders: Jevons in England, Menger in Austria, and Walras in Switzerland Second generation: Friedrich Freihere von Wieser, Bawerk Eugen Bhm von Bawerk in Austria. Slide 3 Presenter: Slide 4 William Stanley Jevons William Stanley Jevons 1835.9.11882.8.13 was born in Liverpool. He is a theorist dealing with the fundamental data of economic science, but as a brilliant writer on practical economic questions. Slide 5 William Stanley Jevons He expounded in his book The Theory of Political Economy the marginal utility theory of value. Jevons' work, along with similar discoveries made by Carl Menger and by Lon Walras,marked the opening of a new period in the history of economic thought. Slide 6 the Marginal Utility Theory the utility or value to a consumer of an additional unit of a product is inversely related to the number of units of that product he already owns Slide 7 the Marginal Utility Theory The theory of utility is that the degree of utility of a commodity is some continuous mathematical function of the quantity of the commodity available. 1871 Slide 8 The Coal Question His aforementioned the coming shortage of coal has gathered recent attention due to similarities to the peak oil concept. It was for The Coal Question (1865), in which he called attention to the gradual exhaustion of Britain's coal supplies, that he received public recognition. Slide 9 practical economic questions A Serious Fall in the Value of Gold (1863) The Coal Question (1865) Mechanism of Exchange (1875) a Primer on Political Economy (1878) The State in Relation to Labour (1882) Methods of Social Reform Investigations in Currency and Finance Slide 10 As a logician, Slide 11 John Maynard Keynes called Jevons's book "the first modern book on economics". His strength lay in his power as an original thinker rather than as a critic; and he will be remembered by his constructive work as logician, economist and statistician. Slide 12 Presenter: Slide 13 Carl Menger Austrian economist who contributed to the development of the marginal utility theory and to the formulation of a subjective theory of value. Began the modern period of economic thought. Widely known as the founder of the Austrian school of economics. Slide 14 Carl Menger Principles of Economics (1871) Theory of marginality: price is determined at the margin. Investigations into the Method of the Social Science with Special Reference to Economics (1883) Slide 15 Carl Menger Aristotelian philosophy was the root of Mengers framework. The laws governing phenomena of thought processes and the natural and social world were all related as parts of the natural order. For Menger, the German historicists main error was to confuse theory with history. Slide 16 Carl Menger Realist: We could know what the world is like through both common sense and scientific method. Based on the direct analysis of concrete phenomena that can be observed and characterized with precision. The advantages of verbal language over mathematical language Slide 17 Carl Menger Value theory: A theory of human action that involves a theory of human knowledge. He believed that men can understand the workings of the economy. Social development is constructed from individual action. Slide 18 Carl Menger Human beings have needs and wants embedded in their nature. These needs and wants are reflected in the actions of human agents to satisfy them. A given person's needs and wants are determined for each economic agent by his human nature and his individuality. Slide 19 Carl Menger The purpose of economic activity as the satisfaction of human needs. The foundations of economics were concerned with phenomena generated by the plans and actions of individuals in satisfying their material and other essential needs and wants. Economic phenomena are products of individual human action. Slide 20 Carl Menger Life is ultimate standard of value. Human life is a process in which a person, given his needs and the command of the means to satisfy them, is himself the specific point where human economic life both originates and ends. Slide 21 Carl Menger Goods acquire their value, not because of the amount of labor used in producing them, but because of their ability to satisfy peoples wants. The value of labour derives from the value of the goods it produces. Slide 22 Carl Menger Subjective theory of value In exchange, people will give up what they value less in return for what they value more, which is why both sides can gain from an exchange. Goods are valuable because they serve various uses whose importance differs. Slide 23 Carl Menger Development of money(transactional medium) : Barter Money Language developed for the same reason money developedto facilitate interactions between people. Neither language nor money was developed by government. Slide 24 Presenter: Slide 25 Friedrich Freihere von Wieser Born: July 10, 1851. Vienna, Austria. Died: July 22, 1926. Nationality: Austrian. Alma mater: University of Vienna. Influences: Carl Menger, Eugen Bhm von Bawerk Influenced: Ludwig von Mises, Friedrich von Hayek, Joseph Schumpeter. Slide 26 Main Contributions Value theory of marginal utility Exchange value and natural value Imputation theory Alternative cost theory Slide 27 Value theory of marginal utility Value originates from utility, not cost of production. Scarceness is the prerequisite of value. Gossens first law: the desire for food decreases as the want is gradually satisfied, until, finally, when what we may call the "satiation point" is reached. (Diminishing marginal utility) Marginal utility: The smallest utility obtainable in the scarce supply circumstances, assuming the most thorough possible utilization of the goods Slide 28 Exchange Value Exchange value: price or objective value. Subjective value is the basis of objective value. Objective value depends on marginal utility, which is decided by the quantity of the goods. Confusion of subjective value. Slide 29 Natural Value Natural value is the social relationship between demand and utility. The relationship between natural value and exchange value: exchange value is like a cartoon of natural value. Value is a neutral phenomenon. Land rent and capital interest are natural phenomena of value. Criticism on the Marxist socialist theory. Slide 30 Imputation Theory Theory on value distribution among production factors. Value theory of production factors is the same as the value theory of consumer goods Value of production goods can be estimated by the value of products they produce. Land, labor, and other factors jointly create a product and the value of the product should be distributed on to every factor. Slide 31 Alternative cost theory Cost was a result of demand, as this would determine the level of production, depending on the willingness of buyers to pay that cost. Demand is dependent upon the action of buyers, utility would determine a thing's cost rather than technology. The opportunity cost would be that which the purchaser would willingly forgo in agreeing to pay the cost of the option chosen Slide 32 Presenter: Slide 33 Biography 1872: study law at the Vienna university, interested in Economics Good friends with Friedrich von Wieser, who later became Boehm-Bawerks brother-in-law. 1884: professor of economics, published the first two (out of three) volumes of his magnum opus, Capital and Interest. 1895:Austrian minister of finance Slide 34 Three identities of him 1. Austrian economist 2. Critic of Marxism 3. The Austrian Minister of Finance Slide 35 Capital An independent part, theory premise of other parts methods of production: Without capital First produce capital capital: Production capital Interest-bearing capital Slide 36 Value theory of marginal utility Similar with Wieser: Desire and satisfaction are the essence of economic activities in human society Decrease as satisfaction increases Different levels Subjective Slide 37 Value theory of marginal utility Different from Wieser: Wieser obtain Bawerk - lose Slide 38 Example A pioneer farmer had five sacks of grain, with no way of selling them or buying more. He had five possible usesas basic feed for himself, food to build strength, food for his chickens for dietary variation, an ingredient for making whisky and feed for his parrots to amuse him. Then the farmer lost one sack of grain. Instead of reducing every activity by a fifth, the farmer simply starved the parrots as they were of less utility than the other four uses, in other words they were on the margin. And it is on the margin, and not with a view to the big picture, that we make economic decisions. Slide 39 Value theory of marginal utility marginal utility depends on value and the relationship between supply and demand. Example: Diamond and water Slide 40 Time preference theory Current products-more valuable Future products Three reason: 1. people in difficulties 2. people has limited life 3. people need tools to improve efficiency Slide 41 Time preference theory Explain: Loan interest Corporate profit Durable products All the interests are the value added when future products mature and become current products. Slide 42 Critic of Marxism He wrote extensive critiques of Karl Marx's economics in the 1880s and 1890s Capitalists do not exploit their workers; they actually help employees by providing them with an income well in advance of the revenue from the goods they produced, stating "Labor cannot increase its share at the expense of capital." Slide 43 Critic of Marxism From this criticism it follows that, according to Bhm- Bawerk, the whole value of a product is not produced by the worker, but that labor can only be paid at the present value of any foreseeable output. Slide 44 The Austrian Minister of Finance In 1889, councillor in the ministry of finance in Vienna, and represented the government in the lower house on all questions of taxation. Drafted a proposal for direct-tax reform, called for a modern income tax, which was soon approved and met with a great deal of success in the next few years. Slide 45 Comments Joseph Schumpeter praised his efforts toward "the financial stability of the country." His image was on the one- hundred schilling banknote between 1984 and 2002, when the euro was introduced.