Ewald Schams, Der angebliche Zirkelschluß der Preisbildungstheorie (1949)

Ewald Schams’s journal article examines a methodological objection to Austrian price theory: if subjective valuations depend on purchasing power, income, and existing exchange ratios, how can they explain prices without presupposing prices? Organized into a diagnosis of the problem and a proposed solution, the article argues that this circularity becomes vicious only when price formation is isolated from economic circulation. Schams seeks to preserve the Austrian explanation of economic motivation while correcting its account of the logical setting in which prices arise.

The opening distinguishes Preisbestimmung, the determination of prices as mutually related magnitudes within an economic system, from Preisbildung, the explanation of how prices emerge and become operative in economic calculation. Schams concentrates on the latter’s explanatory logic rather than its substantive utility theory. He reconstructs the Austrian progression from diminishing utility through the equalization of marginal utilities to the marginal trading pairs whose valuations delimit the market price. This construction promises to derive prices from a wholly priceless starting point. Yet the monetary, division-of-labour economy used in its examples makes that promise problematic: buyers’ maximum bids depend on income received through sales, and therefore on prices.

Schams distinguishes this structural difficulty from the objection illustrated by Böhm-Bawerk’s winter-coat example. Valuing a coat at its expected replacement price need not produce circular reasoning, because an unsuccessful purchase can force the buyer back upon its direct marginal utility. The deeper objection concerns not anticipation of the particular price being explained, but the purchasing power already embodied in the buyer’s resources. Stolzmann exposes the reciprocal dependence of product prices and factor incomes; Amonn develops related objections concerning the marginal buyer, competing expenditures, money’s valuation, and income. Schams rejects Amonn’s first objection: identifying a valuation as that of the “last buyer” after exchange does not establish that the valuation itself arose only after price formation. The remaining objections converge upon the dependence of monetary demand on prices elsewhere.

The critical survey extends to money, imputation, interest, and wages, and then to earlier utility and production-cost theories. Its purpose is to show that the difficulty cannot discredit marginal utility alone. Zwiedineck’s appeal to continuity between successive market prices describes adjustment within an existing price system rather than its conceptual formation. Mises’s regression to money’s earlier commodity use receives a more sympathetic assessment: Schams questions whether a general developmental explanation of an institution should simply be rejected as historical reasoning. Nevertheless, neither defence settles the underlying methodological dispute.

Schams locates the error in an abstraction that treats price as an isolated substantive concept. A genetic definition must ordinarily avoid including its conclusion among its premises; income and purchasing power therefore appear inadmissible. Functional theory accommodates interdependence, but cannot simply replace the explanation of formation:

Eine funktionelle Abhängigkeit kann nur zwischen als gleichzeitig bestehenden Phänomenen oder Größen bestehen, eine kausale nur zwischen zeitlich aufeinanderfolgenden.

English translation: A functional dependence can exist only between phenomena or magnitudes existing simultaneously, a causal dependence only between temporally successive ones.

The solution begins with circulation as the organizational counterpart of the division of labour. Production and consumption become separated, while corresponding flows of goods, money, and income reconnect them. Drawing on Folkert Wilken, Schams distinguishes income advanced through capital expenditure from income realized and validated by final sale. Capital commitment, income formation, expenditure, and capital replacement constitute a recurrent process, not an explanatory chain with an absolute beginning.

A schematic example develops this argument through two complementary enterprises producing necessities for one another. Their capital-financed income advances purchase the other enterprise’s output and replace its capital. Continuous production requires two corresponding income circuits, rather than one stream completing its journey before activity resumes. In one-sided circulation, the enterprise subject to this requirement must supply additional capital itself. Schams also distinguishes the two circuits from the double significance of a single flow: what is expenditure for one enterprise is receipt for the other.

Prices occupy the exchange points within these circuits. Each circuit contains an expenditure price and a receipt price; corresponding circuits yield two price pairs of equal logical rank. Their systematic relation precedes any attempt to reconstruct a particular formation process:

Der Preis trägt die wirtschaftlichen Beziehungen, aber der Preis selber wird von der Zirkulation getragen. Die Zirkulation bildet den Preis, nicht der Preis die Zirkulation.

English translation: Price sustains economic relations, but price itself is sustained by circulation. Circulation forms price, not price circulation.

Causal explanation remains necessary because the established exchange boundary does not explain the process leading to it. To reconstruct that process, the theorist selects a starting point within circulation and temporarily treats the opposite side as an explanatory condition. This decomposition is legitimate only if the reciprocal system remains logically primary. It cannot uncover a first cause outside the circuit:

Nur — und darin erblicke ich die Lösung des Problems — ist dieser „Zirkel“ in der Sachlage begründet und kein vitioser.

English translation: But—and in this I see the solution to the problem—this “circle” is grounded in the actual situation and is not a vicious one.

The decisive move is thus to distinguish genuine antecedent conditions, such as needs and utility, from a price condition provisionally adopted when analysing part of a circuit. The latter is not an independently established earlier price explaining a later one. Its explanatory role derives from a reciprocal relationship that the causal reconstruction temporarily unfolds into succession.

Preis meint immer Preis unter Preisen zu sein. Der Preis ist begrifflich ein plurale tantum.

English translation: Price always means being a price among prices. Conceptually, price is a plural-only term.

Schams concludes that price must first be understood relationally, not singularly. Without its circulatory function, explaining prices through prices remains vicious; within that function, circularity expresses the object’s structure. He acknowledges extra-circulatory prices as marginal phenomena, although his closing assertion that there are no prices outside circulation states the claim more categorically. The article’s significance lies in this proposed reconciliation: Austrian causal explanation supplies the motivational account, while circulation establishes the systematic framework necessary to make that account logically defensible.