================ HES POSTING ======================= Irving Fisher was one of several innovative American economists who learned, and in some respect actively promoted, the Austrian subjective value theory, which was introduced by Carl Menger in 1861 and popularized by Eugen Bohm Bawerk and Friedrich Wieser beginning in the late 1880s. Other prominent Americans in this field and of this generation were Frank Fetter and Herbert Davenport. These writers took the Austrian lead in defining _value as price_. Thus, the subjective theory of value was not a theory about value or worth in some intrinsic sense but a theory of market prices and costs. The question they asked was: what causes the prices of final goods and the costs of the factors of production to be what they are? This is the same question asked by the classical economists. The difference is that whereas the classicals had separate theories of the price of wages, rent, interest, and profit, the latter sought what Menger called a _unified theory of price_. The most sophisticated answer given by the Austrians was that the prices of goods and factors are determined simultaneously by the consumer wants and entrepreneurs' knowledge of those wants along with their knowledge of the alternatives available for satisfying those wants. This famous doctrine of subjective opportunity costs (or subjective theory of value and costs) was expressed in writings by Wieser, Bohm Bawerk, Davenport, and David Green (another American) before the turn of the century. Bohm Bawerk was the first within this new framework to try to incorporate interest. But he was criticized for his notion that interest depends on the materialist idea of the physical productivity of production methods that involve different degrees of roundaboutness. I believe that Fetter was the first among the Americans to make this criticism. And he may have been the first, period. His criticism was followed by Fisher and Davenport, each of whom claimed to be "more subjectivist" than Bohm Bawerk on the matter. The argument made by Fetter and Fisher was that instead of physical productivity, it was value productivity that mattered. These writers benefitted, by the way, from the "great" capital controversy between Bohm Bawerk and John Bates Clark, who had independently produced his own version of what had come to be known as the Austrian theory (following Menger). I am not as clear on Fisher's contribution as I am on that of Fetter and Davenport. So I will mainly write about them. The subjectivist criticism of Bohm Bawerk by Fetter seems to have assumed that an interest rate already was in existence which reflected or which could be used to determine the value productivity of production methods of different degrees of roundaboutness. That is, it assumed the existence of a market which a more fundamental theory would presumably have had to explain. Thus, one could easily claim that even if Bohm Bawerk was incorrect, he had been concerned with a more fundamental question than that of Fetter. This was Davenport's view (a view, by the way, which Fetter did not seem to grasp). Davenport sought to construct the underpinnings of a market for loanable funds and therefore of interest. His theory was based partly on time preference and partly on entrepreneurship's knowledge of the methods of satisfying wants over time. He argued that these underpinnings enabled him to develop a much more general theory of the prices of goods and factors than had previously been produced. In other words, he believed that he solved the problem that Bohm Bawerk had set out to solve. To my knowledge, which I admit is incomplete on this issue, Fisher seems to have abandoned his concern with this more fundamental issue, preferring to deal with issues that were less in what we today call the microeconomic realm and more in what we call the macroeconomic realm. There is a lot of useful information on the history and theoretical issues in: Davenport, H. (1908). Value and Distribution. Chicago: University of Chicago Press. Davenport's more complete and sophisticated presentation of his own theory is in: Davenport, H. (1914). Economics of Enterprise. New York: Macmillan. As you probably know, Davenport has been very much neglected. Pat Gunning, Sultan Qaboos University, Oman http://www2.cybercities.com/g/gunning/welcome.htm ============ FOOTER TO HES POSTING ============ For information, send the message "info HES" to [log in to unmask]