Friedrich Von Wieser - Social Economics

Social Economics

In his later years, Wieser ventured into the study of Sociology, and this resulted in his 1914 publication, Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economy), from which is derived his theory of alternative cost or opportunity. Das Gesetz der Macht (The Law of Power), published in 1926, was his latest publication, a great sociological study from which we draw the following conclusions.

Wieser tried to explain the relationships and social forces through the study of history, and he concluded that economic forces held a prominent role in social evolution. Despite his interest in collective goals, such as economic well-being, Wieser adopted an individual approach, explicitly rejecting collectivism, approaching a more liberal stance, and establishing the essential difference between social economics in general and Socialist Economics.

Social Economy (in the original German, Gesellschaftliche Wirtschaft) treats humanity as a whole as an ideal economic subject, and contrasts it with nature, so that considerations of conflicting interests or economic justice become as irrelevant as they would to the economy of Robinson Crusoe".

But this broad economy is guided by a single mind. It answers its purpose in an unimpeachable manner because a systematic and penetrating mind guides it. This director foresees ends, weighs them without error or passion and maintains a discipline which ensures that all directions are executed with the utmost precision and skill and without loss of energy. We shall further assume that all requisite individual forces are placed at the disposal of this social management as cheerfully as though enlisted in their individual interest. —Friedrich von Wieser, Theorie der gesellschaftlichen Wirtschaft (Social Economics), 1914.

For Wieser, the individual is the root of all decisions. Decisions are made in the face of certain restrictions. Institutions are what define the restrictions on individual decisions. The reflection of these findings in political economy is apparent in actions such as:

• The regulation of imperfectly competitive firms whenever there are benefits of capital that are being lost.

• Progressive taxation based on decreasing marginal utility: The state should not try to offset all the inequalities of income and property by means of progressive taxation, but rather progressive taxation should be developed within the doctrine of diminishing marginal utility, i.e., every new tax adds a certain diminishing amount of utility. Thus, an unconscionable progressive tax, for example on the wealthy, would violate the spirit of privacy of Wieser's Social Economics.

• The duty of the state as producer of public goods: Wieser created the distinction between public goods and private goods that in the future would be seized upon by his disciple, Friedrich August von Hayek.

• Intervening in the balance of social power between companies and unions for the benefit of workers, who could otherwise only hope to earn their marginal productivity.

These conditions, under which resources would be allocated to ensure the greatest value, describe his model of an ideal economy, which he calls social economics in the first part of his treatise entitled Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economics). He made idealized assumptions using his model as the benchmark standard for evaluating the effectiveness of administritative intervention in the market economy.

Thus Wieser's Social Economics is, in effect, a Communist economy in which, to achieve greater productivity, scarce resources are assigned by an omnipresent, benevolent planner with direct and accurate insight sufficient to know the intensities of satisfactions and needs experienced by individual members of society, which all have exactly the same tastes and the same scales of utility and receive the same incomes. Moreover, their directions are followed without question by a completely docile workforce.