The Austrian School (1926)

document 15 The Austrian School (1926)

Isaak Il’ich Rubin

Source: I.I. Rubin, ‘Avstriiskaya Shkola’, in Bol’shaya Sovetskaya Entsiklopediya (First edition), Vol. 1, Moscow, 1926, pp. 244–54.

Introduction by the Editors

The central theme of all of Isaak Rubin’s writings, as will become evident in the next section of this book, is that historically formed social relations between people are the proper subject matter of political economy. Accordingly, Marx- ism concentrates on the dialectical emergence of economic forms, with economic history and development of the means of production serving to inform that analysis. The Austrian theory of marginalism, with its ontological indi- vidualism and purely subjective theory of value, is therefore the antithesis of Rubin’s own convictions as a Marxist. In this essay, written for the first edition of the Great Soviet Encyclopaedia, Rubin provides a scientific critique of marginalism, concentrating upon logical contradictions inherent in the Austrian theory of subjective value as the conceptual basis of price determination. Whereas Marxism starts with the social whole, analyses it and then recon- structs it concretely in thought, the psychological theory of value looks for the ‘final causes’ of price changes in judgements of marginal utility by singular indi- viduals. The result, in Rubin’s account, is a series of problems involving: a) how to determine the summary value of a series of units, each of diminishing marginal utility; b) how to price means of production when their value is regarded as a derivative of the differing values of things they may be used to produce; c) how to impute discrete values to two or more means of production that may be used to produce a particular commodity; and d) how to explain exchange-value and profit. Like Conrad Schmidt in the previous article, Rubin emphasises the indi- vidualistic ontology and methodological subjectivism that distinguished the Austrian school. Reducing the whole of capitalist society to an aggregation of self-determining Robinson Crusoes, the Austrians, in Rubin’s judgement, dis- placed the German Historical school principally because they provided a theory that ‘corresponds with the ideology of the bourgeoisie in the epoch of capital-

© koninklijke brill nv, leiden, 2018 | doi: 10.1163/9789004352193_018 430 rubin ism’s decline’.Whereas the Historical school limited itself to history, and history objectively pointed to the replacement of capitalism by socialism, the ideolo- gical mystification of Austrian theory appeared to be a more ‘acute theoretical weapon for the struggle against Marxism’. ∵

Isaak I. Rubin on the Austrian School of Economic Theory

1 History The theory that the exchange-values1 and prices of commodities are determ- ined in the final analysis by their use-value, or subjective utility, is known as the Austrian or psychological school of political economy. The rudiments of such a theory are found in certain eighteenth-century economists, particularly Condillac. But up to the end of the nineteenth century these views had not spread. In science the objective theory of value continued to prevail as set out by the classics (Smith and Ricardo). The mid-nineteenth century work of Gos- sen, who was a predecessor of the Austrian school, went unnoticed. It was in the 1870s that works appeared almost simultaneously by Carl Menger, [William Stanley] Jevons and LéonWalras, the founders of the new school, among whom Menger developed most thoroughly the psychological foundation of the theory and Walras the mathematical. During the 1880s [Friedrich von] Wieser and [Eugen von] Böhm-Bawerk, students of Menger (all three of them lived in Aus- tria), worked out in detail the psychological theory that is also frequently called the Austrian theory.By the end of the nineteenth century it became widespread in bourgeois university science in almost all countries of the world. A critical attitude towards this theory has only recently grown up, and even among bourgeois scholars an effort can now be seen to return to the theory of the classics, although usually in a half-hearted and compromising manner. The mathematical theory was also developed at the same time as the psychological one, especially in England, America and Italy (with the result that it has come to be known as the Anglo-American theory). The focus of research

1 Since the Austrian school begins with the concept of subjective utility, for the sake of clarity in this presentation we use the term ценность [referring to something that is valuable] as distinct from стоимость [the ‘value’ of a commodity in terms of its economic cost of production or, more specifically, its labour cost in Marxist terms. Unless indicated otherwise, this translation will follow Rubin’s usage and render ценность in the former sense].