Bohmbawerks Appeal To Pure Psychology

Bohm-Bawerk's Positive Theory of Capital(1959a), first published in 1888, provided further evidence for not conflating 'founding' Austrian analysis of economizing with later, narrower logic-of-choice theories. Bohm-Bawerk rejected the notion of economics as an autonomous science of allocative behaviour. He opened his study by re-affirming the unity of all sciences, referring inter alia to the importance of conducting economic theorizing with the assistance of theorems established in contiguous disciplines, especially psychology (1959b: 3—4).

Value theory is the subject-matter of the first part of Book III of Positive Theory. There Bohm-Bawerk prefaced the discussion with a distinction between intrinsic value (Eigenwert) and extrinsic value (Wirkungswert).6 Some goods are valuable for their own sake and are therefore intrinsically valuable. Others are valuable as instruments for promoting ends—both material and psychic—lying outside themselves (extrinsic value). Economic values are extrinsic in that economizers' valuations of goods are 'a reflection of a more basic valuation which [they] accord to the life and welfare purposes which goods serve to attain' (1959b 121). Two issues arise from this statement. First, how much of a reflection of 'more basic valuations' are economic valuations? On this point Bohm-Bawerk remained silent. Evidently 'more basic' valuations do not come within the domain of economic analysis, in so far as they can be isolated at all. Economic value is not a perfect reflection of 'basic' valuation, otherwise Bohm-Bawerk's distinction between two different spheres of valuation— one relating to ultimate ends, and the other to means—would be unhelpful. As Bohm-Bawerk was obliged to concede, the value of all goods was intrinsic (ibid.: 121). It is not-crucial that he realized the transparency of a distinction borrowed from the fledgling literature of pure psychology (notably Ehrenfels's work). What matters is that Bohm-Bawerk believed that value and price theory could not be written without reference to psychology. Second, what role do economists have in evaluating how well economizing behaviour, following principles laid down in the theory of economic value, actually accords with intrinsic 'life and welfare purposes'? Must economists analyse intrinsic goals, or is such an endeavour already implicit in the theory of economic value? Affirmative answers to either part of the latter question require consideration of deeper philosophical issues that Bohm-Bawerk eventually found unavoidable.

As Bohm-Bawerk's treatise proceeded, the economic value of a good was said to be determined by the magnitude of its marginal utility (ibid.: 143). Marginal-utility calculations were apparent in many seemingly incomparable activities:

Everyone knows from his own experience that the fourth or fifth course of a banquet arouses far less appetite than did the first Similar sensations can arise in the course of a concert, a lecture, a walk or a game that continues for an unduly long period. This will apply, indeed, to virtually all physical and intellectual enjoyments, as well.

(1959b:139; emphasis added).

Selfish or altruistic actions also took marginal utility into account (ibid.: 424 n. 19). It was argued that marginal utility was the decisive point 'of every explanation of man's economic behavior'. The epithet

'economic' referred to any purposive activity that used scarce means to satisfy needs which, in turn, were ranked in order of precedence in the economizer's mind (ibid.: 140-3). Ranking may be in error. Economizing was affected not by the true importance attaching to goods, but by 'the opinion that we have formed of them whether right or wrong' (ibid.: 432 n. 93; his emphasis). While the possibility of Menger's imaginary goods was granted, Bohm-Bawerk noted that the intellectual demands of economizing without extensive error were reduced by memory and learning (ibid.: 200-4). However, he offered no formal theory of learning.

Chapter 10 of Capital and Interest, written on the occasion of the third edition (1912), is entitled: 'Some Psychological Considerations Supplementing Our Theory of Value' (1959b:184). In that chapter Bohm-Bawerk abjured adherence to 'antiquated philosophy', specifically referring to hedonistic approaches which maintained that there were no extrinsic values, and no intrinsic values other than pleasure and freedom from pain. Nevertheless he vigorously defended as part of his marginal utility theory the use of terms reminiscent of hedonism, such as 'pleasure', 'displeasure' and 'satisfaction,' to describe the economizer's maximand (ibid.: 184-5). For the economist:

it matters not whether it be only pleasure and pain, or whether it be in addition other things that are 'desirable' and 'worthy of being desired', 'odious' or 'worthy of odium'. The only thing that is important is that people do love and hate something.

This admonition is far from being persuasive in its attempt to remove all vestiges of hedonism from his analysis.7 Also, it did not obviate the necessity for Bohm-Bawerk to explain the scope and content of the economizer's maximand, viz. the 'life and welfare purposes' referred to indefatigably in Positive Theory.

If the tools of marginal utility theory described economizers' mental processes involved in 'striving after well-being' (ibid.: 189), what was the precise scope of marginalism? Usually, wrote Bohm-Bawerk, in contrast with his previous (1888) position (but consistent with Menger's earlier interdiction in the Investigations), marginal utility does not apply to activities concerning 'glowing enthusiasm for lofty ideas and elemental outbursts of the primal instincts'. It is not fit for analysing human behaviour in these domains. Further, it 'is not in the lofty and exalted strata of human endeavour, but rather in its low-lying regions, that marginal utility has its habitat and performs its function of determining the value of goods'. In short, marginal utility applies only to the satisfaction of 'banal and prosaic needs' (ibid.: 189).8

Eugen Slutsky (1927:545-7) attempted to expose two distinct value theories in Bohm-Bawerk's work: one based on the pain-pleasure calculus, which was formulated in the 1880s, and one incomplete theory based on 'higher values', written at the turn of the century. Slutsky's proposal was speculative and unconvincing. It attributed more to Bohm-Bawerk's 1912 additions to Positive Theory than is warranted by textual evidence. Bohm-Bawerk's position was not, however, as 'perplexing' as Kauder (1965:129) presented it. Bohm-Bawerk, like Wieser, prepared a response to criticism of hedonistic elements in his original value theory only to find in responding that he needed a substitute once hedonism was jettisoned.9 As we saw, Wieser resorted to asceticism. Bohm-Bawerk's dualism of higher and lower needs which conveniently corresponded with Ehrenfels's spurious distinction between intrinsic and extrinsic value, was constructed to appease the critics.10 It is therefore understandable why Bohm-Bawerk was so keen to 'carefully step over the boundary line' into the field of pure psychology for support. Bohm-Bawerk's appeals to a more practical, introspective psychology were substantially different from his use of pure psychological principles. (His use of introspection is discussed in the next section.) In his use of pure psychology we find his rationale for appealing to the authority of 'modern German psychologists' (1959b:121, 193). It gave him an excuse, however weak, to retain an unadulterated marginal utility theory in the face of criticism. In his estimation, dating from the 1912 edition of Positive Theory, 'economic phenomena...have their roots in psychological ground and it becomes the province of economic science to trace those roots far enough into that ground to make the explanation which it evolves.. .convincing' (1959b: 192).

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