AUSTRIAN SCHOOL OF ECONOMICS

body of economic theory developed in the late 19th century by Austrian economists who, in determining the value of a product, emphasized the importance of its utility to the final consumer. Carl Menger published the new theory of value in 1871, the same year in which William Stanley Jevons independently published a similar theory in England. Menger's concept of value was completely subjective: the source of a product's value was its ability to satisfy human wants. The actual value depended on the utility derived by the consumer from the product in its least important use (marginal utility). If the product existed in abundance, it could be used in relatively inessential ways; as it became scarcer, however, the inessential uses would be abandoned, and the utility derived from the new least-important use would increase. The theory of marginal utility was applied to production as well as to consumption. Friedrich von Wieser derived the value of productive resources from their contribution to the final product, recognizing that changes in the amount used of one productive factor would alter the productivity of other factors. He also introduced the concept of opportunity cost, viewing the cost of a factor of production as determined by its utility in some alternative usei.e., an opportunity foregone. It was in von Wieser's work that marginal-utility analysis was most fully presented. Eugen von Bhm-Bawerk developed marginal-utility analysis into a theory of price. He is best known, however, for his work on capital and interest, in which he emphasized the importance of the role of time in valuing goods. He viewed interest as the charge for the use of capital, a compensation to the owner for abstaining from present consumption. The rate of interest was determined by the size of the labour force, the amount of a community's capital, and the possibility of increasing productivity through more elaborate or roundabout methods of production.