German Heinrich Gossen (1810-1858) received a law degree, and at the age of 37 he retired and devoted himself entirely to economic science. He is the author of a single work, published in 1854, and in the same year withdrawn from sale due to a complete lack of demand.
The emergence of a new concept in the economy
Through the efforts of the French economist Walras and the English philosopher-logician Jevons, the book, which brought the author neither fame nor wealth, accidentally found in the library, was reprinted in 1927. This work was declared the beginning of the emergence of a completely new original approach to the foundations of political economy, in particular, to explain the usefulness of all consumed goods, their impact on demand. The author was recognized as the founder of the new concept. This theory completely rejected the basic concepts of
classical political economy, where the main engine of progress, which gave impetus to the development of society, was the capitalist producer, and the "vulgar" bourgeois political economy completely neglected production and placed consumption at the forefront. It was called vulgar by K. Marx because the approach of the representatives of this school to the basic laws of economics was dictated by the class limitations of their horizons. The change in concepts, approaches, interpretations, basic provisions of the economy was devastating. It deserves the definition of "revolution."
Gossen's Merits
Gossen developed and economically substantiated the theory of marginal utility and its main provisions. One of the main postulates was called by followers as follows: Gossen's law. The importance of the author in the world of economics has grown so much that in 1997, a prize of his name with a face value of 10,000 euros was established. She is awarded, like the Nobel Prize in economics, for discoveries or brilliant theories in this field, the ultimate goal of which is to improve the life of a society or humanity as a whole.
The content of the main postulates
Gossen's laws can be summarized as follows. The essence of the first: if the consumption of something is continuous for a certain period of time, then the value of each next portion will fall in relation to the already consumed. For example, food - the value of the last piece (if there is plenty of food) is zero.
The essence of the second law is reduced to the following - the best construction of demand (consumption) is obtained when the marginal degrees of expediency of all available goods are met. Again, on the example of food - the main course and side dish should be combined in such quantities and for such money that their consumption would bring maximum benefit.
The first and second Gossen laws contributed to the further development of economic thought, formed the basis of pricing, explained certain provisions of a market economy, they are used for mathematical calculations of capitalist demand and supply. There is such an opinion that the laws explained until then an incomprehensible provision on why a generally useless diamond is incomparably expensive compared to the water necessary for human life.
Marginal utility theory
Gossen's first law reflects the following position: if there are many benefits, then they are depreciated. He argues that if consumption of a
public good increases, overall utility grows, but marginal utility decreases. Gossen substantiated all his conclusions mathematically using algebraic calculations and schemes. Therefore, representatives of the mathematical school
(political economy) consider it their direct predecessor.
At first, Gossen's law was comprehensive, that is, all human feelings and needs fell under its influence. Then this absolutism was revised, since in certain cases the effect of the law of diminishing utility yielded completely opposite results. It was concluded that it is applicable only to a rather narrow circle of necessary consumer goods (affordable food), and pleasures do not fall under the scope of this law.
The interpretation of Gossen's theory
Representatives of various schools of "vulgar" bourgeois political economy argued that Gossen's law helps a competent leader to ensure the growth of industry. It happens as follows. If the marginal utility of any given good is higher than others, then the expansion of its production becomes profitable and necessary, the market is saturated, the value of the final utility falls in relation to other types of goods, and their production becomes necessary. Then, due to the lack of the first good in the market (since its production has been reduced), it is urgently needed. All this stimulates the growth of industrial production.
And here Gossen’s law comes into force, which is also justified by mathematical calculations, has its own equations and schemes, including the “indifference curve” scheme. It consists of two options. The first considers a self-sufficient unit of management (subsistence farming) placed in conditions of strict isolation. The purpose of the experiment is to establish the necessary reasonable production and consumption of goods.
The next option provides for the presence of a certain entity with a specific amount of money, and set prices in a commodity economy. That is, prices and a purse serve as limiters of the consumption of goods. The goal is, through trial, to find the optimal amount of benefits available in these conditions, capable of delivering maximum satisfaction to the individual.
Gossen's followers placed these laws in the basis of demand and pricing calculations. If we consider this postulate as an example of a weekly ration of a certain person, then with the total number of products purchased, the last servings will have equal marginal utility, whether it is a delicacy or bread. This law is called the second law of Gossen.
Criticism of the theory
The main criticism of the theory developed by Gossen and its main postulates emphasizes the subjective-idealistic approach to the distribution and consumption of goods, considering them the basis for the development of society. At the same time, production and its social essence are completely ignored. Concerning the "vulgarity" of the theory of marginal utility, K. Marx gave an example of the choice of utility between an apple and a violin. He considered the impossibility of even raising such a question within the bounds of common sense.