| Carl
Menger (1840-1921), and Eugen von Bohm-Bawerk (1851-1914),
working in Vienna in the late nineteenth century, rejected the
classical
and Marxian
ideas that value can be measured objectively. They insisted that
the subjective preferences of consumers determine value;
this shifted the attention of economic analysis from productive
power to consumer demand. This shift led to keen new insights,
including the idea that the marginal utility of goods,
i.e., the usefulness to a consumer of one more (or less) unit
of an item, determines its price.
Other
insights of the early Austrians include an explanation
of why interest is necessary; how the price system allocates
economic resources; how to determine cause vs. effect in economic
affairs; and how to distinguish between the means (activities)
and ends (goals) of economic activity.
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