Nietzsche’s Marginal Children: On Friedrich Hayek
Around the time—almost to the year—that Nietzsche was launching his revolution of metaphysics and morals, a trio of economists, working separately across three countries, were starting their own. It began with the publication in 1871 of Carl Menger’s Principles of Economics and William Stanley Jevons’s The Theory of Political Economy. Along with Léon Walras’s Elements of Pure Economics, which appeared three years later, these were the European faces—Austrian, English and French-Swiss—of what would come to be called the marginal revolution.
The marginalists focused less on supply and production than on the pulsing demand of consumption. The protagonist was not the landowner or the laborer, working his way through the farm, the factory or the firm; it was the universal man in the market whose signature act was to consume things. That’s how market man increased his utility: by consuming something until he reached the point where consuming one more increment of it gave him so little additional utility that he was better off consuming something else. Of such microscopic calculations at the periphery of our estate was the economy made.
Though the early marginalists helped transform economics from a humanistic branch of the moral sciences into a technical discipline of the social sciences, they were still able to command an audience and an influence all too rare in contemporary economics. Jevons spent his career as an independent scholar and professor in Manchester and London worrying about his lack of readers, but William Gladstone invited him over to discuss his work, and John Stuart Mill praised it on the floor of Parliament. Keynes tells us that “for a period of half a century, practically all elementary students both of Logic and of Political Economy in Great Britain and also in India and the Dominions were brought up on Jevons.”
According to Hayek, the “immediate reception” of Menger’s Principles “can hardly be called encouraging.” Reviewers seemed not to understand it. Two students at the University of Vienna, however, did. One was Friedrich von Wieser, the other Eugen von Böhm-Bawerk, and both became legendary educators and theoreticians. Their students included Hayek; Ludwig von Mises, who attracted a small but devoted following in the United States and elsewhere; and Joseph Schumpeter, dark poet of capitalism’s forces of “creative destruction.” Through Böhm-Bawerk and Wieser, Menger’s text became the groundwork of the Austrian school, whose reach, due in part to the efforts of Mises and Hayek, now extends across the globe.
The contributions of Jevons and Menger were multiple, yet each of them took aim at a central postulate of economics shared by everyone from Adam Smith to the socialist left: the notion that labor is a—if not the—source of value. Though adumbrated in the idiom of prices and exchange, the labor theory of value evinced an almost primitive faith in the metaphysical objectivity of the economic sphere—a faith made all the more surprising by the fact that the objectivity of the rest of the social world (politics, religion and morals) had been subject to increasing scrutiny since the Renaissance. Commodities may have come wrapped in the pretty paper of the market, but inside, many believed, were the brute facts of nature: raw materials from the earth and the physical labor that turned those materials into goods. Because those materials were made useful, hence valuable, only by labor, labor was the source of value. That, and the fact that labor could be measured in some way (usually time), lent the world of work a kind of ontological status—and political authority—that had been increasingly denied to the world of courts and kings, lands and lords, parishes and priests. As the rest of the world melted into air, labor was crystallizing as the one true solid.
By the time the marginalists came on the scene, the most politically threatening version of the labor theory of value was associated with the left. Though Marx would significantly revise and recast it in his mature writings, the simple notion that labor produces value remained associated with his name—and even more so with that of his competitor Ferdinand Lasalle, about whom Nietzsche read a fair amount—as well as with the larger socialist and trade union movements of which he was a part. That association helped set the stage for the marginalists’ critique.
Admittedly, the relationship between marginalism and anti-socialism is complex. On the one hand, there is little evidence to suggest that the first-generation marginalists had heard of, much less read, Marx, at least not at this early stage of their careers. Much more than the threat of socialism underpinned the emergence of marginalist economics, which was as opposed to traditional defenses of the market as it was to the market’s critics. By the twentieth century, moreover, many marginalists were on the left and used their ideas to help construct the institutions of social democracy; even Walras and Alfred Marshall, another early marginalist, were sympathetic to the claims of the left. And on some readings, the mature Marx shares more with the constructivist thrusts of marginalism than he does with the objectivism of the labor theory of value.
On the other hand, Jevons was a tireless polemicist against trade unions, which he identified as “the best example…of the evils and disasters” attending the democratic age. Jevons saw marginalism as a critical antidote to the labor movement and insisted that its teachings be widely transmitted to the working classes. “To avoid such a disaster,” he argued, “we must diffuse knowledge” to the workers—empowered as they were by the vote and the strike—“and the kind of knowledge required is mainly that comprehended in the science of political economy.”
Menger interrupted his abstract reflections on value to make the point that while it may “appear deplorable to a lover of mankind that possession of capital or a piece of land often provides the owner a higher income…than the income received by a laborer,” the “cause of this is not immoral.” It was “simply that the satisfaction of more important human needs depends upon the services of the given amount of capital or piece of land than upon the services of the laborer.” Any attempt to get around that truth, he warned, “would undoubtedly require a complete transformation of our social order.”
Finally, there is no doubt that the marginalists of the Austrian school, who would later prove so influential on the American right, saw their project as primarily anti-Marxist and anti-socialist. “The most momentous consequence of the theory,” declared Wieser in 1891, “is, I take it, that it is false, with the socialists, to impute to labor alone the entire productive return.”
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