Austrian Fiscal Doctrine: The Subjective Valuation Approach

Austrian fiscal doctrine stems directly from one of the three originators of the marginalist revolution, Carl Menger. His Grundsätze der Volkswirtschaftslehre, appearing in 1871 simultaneously with Jevons’s Theory of Political Economy and before Walras’s Éléments d’économie politique pure (1874), strongly challenged the existing Austrian economics curriculum that was based on the German historical tradition. In his characterization of the market process, Menger eschewed any aggregative patterns of economic activity. Instead, he represented economic exchange as an introspective, interpretive, as well as rationalistic cognitive process adopted by agents towards the attainment of optimal outcomes.1 Writing in uncomplicated prose and without resorting to mathematics, Menger demonstrated in Grundsätze (Elements) how the notion of utility provided the only causal connection between need and value in face of scarcity. He discussed at length the want-satisfying properties of goods as well as their complementary role in the enhancement of personal satisfactions showing that it did not matter whether these needs and satisfactions were real or imagined. Economic agents, thanks to their keen cognitive capabilities, would fully comprehend (verstehen) the exact nature of their needs and proceed toward their satisfaction regardless of whether the appropriate goods were situated in the private-or the public-economic sphere.