Friedrich August von Hayek: Review of Leo Schönfeld’s Grenznutzen und Wirtschaftsrechnung, Parts I and II (1925)

Hayek’s 1925 review situates Schönfeld’s work within a renewal of interest in the foundations of economic theory. Its opening registers cautious optimism after a period of theoretical neglect:

In dem im letzten Jahrzehnt stark vernachlässigten Bereich der ökonomischen Theorie scheint sich neues Leben zu regen.

English translation: In the domain of economic theory, greatly neglected in the last decade, new life seems to be stirring.

Schönfeld’s contribution matters because it reopens the relation between subjective valuation and economic action. Hayek nevertheless distinguishes the promise of the project from the achievement of its published parts. These establish an apparatus for an investigation whose full consequences remain unavailable:

Vorläufig nötigt allerdings die Unvollständigkeit des vorliegenden Teiles dem Rezensenten eine gewisse Zurückhaltung auf, da die Bedeutung mancher der vorliegenden Ausführungen abschließend erst im Zusammenhang mit dem Folgenden wird beurteilt werden können.

English translation: For the time being, however, the incompleteness of the part before us imposes a certain reserve upon the reviewer, since the significance of many of the arguments here presented will admit of conclusive judgment only in connection with what is to follow.

The review accordingly combines conceptual reconstruction with criticism of particular arguments, rather than offering a settled appraisal of the whole undertaking.

Hayek identifies Schönfeld’s starting point with a tendency already present in Wieser: subjective value theory must explain the reasons for economic dispositions, not merely derive valuations from an allocation already completed. This raises a difficulty for marginal utility. If its determination presupposes that goods have already been assigned to uses, how can it also explain the decisions producing that assignment? Schönfeld therefore turns to the reasoning underlying economic calculation.

His central distinction separates a theoretically complete procedure, which considers all possibilities implied by given data, from the abbreviated calculations used in practice. The meaning of practical shortcuts must be established through the complete procedure they replace. Hayek reads marginal utility as provisionally belonging to this abbreviated reasoning. The theoretical task is consequently to specify the relations between usefulness and allocation that such reasoning must respect.

Schönfeld begins with total utility for the individual economy and derives particular utilities from changes in that total, rejecting an independently given system of needs as the initial datum. Hayek questions this departure but recognizes its possible analytical value. An explicit commitment to total utility might clarify difficulties involving complementary goods, prices, and interest that conventional formulations leave obscure.

The difficulty is that total utility characterizes a combination of uses. Correct dispositions can no longer be deduced simply from a prior ordering of needs; they must be discovered through successive trials. Hayek finds Schönfeld’s assumption that total utility is directly recognizable insufficiently justified. More decisively, he doubts whether comparisons of individual utilities can identify the best overall allocation. Since the utility of each good depends on the uses of other goods, several reallocations undertaken together might improve the total even when each, considered separately, would reduce it.

The objection distinguishes improving one use from finding the optimal combination of uses. Direct comparison of every possible allocation does not straightforwardly resolve the explanatory problem either. On Hayek’s reading, it risks accepting dispositions as data instead of explaining them through utility. The review thus tests whether Schönfeld’s conceptual starting point can supply the reasoning required to reach the result it defines.

Despite this gap, Hayek credits the treatment of combinations of dispositions as units with making interdependent systems accessible to analysis. He also values the insistence that abandoning one use means employing the good elsewhere, contrasting this approach with Böhm-Bawerk’s reasoning from loss. Refinements of Gossen’s laws and a principle of economic relevance promise to clarify which utility comparisons actually need to be made, although the latter remains undeveloped:

Im vorliegenden Teil der Arbeit ist diese Problemstellung nur angedeutet.

English translation: In the present part of the work this formulation of the problem is only intimated.

Hayek closes by affirming the seriousness of Schönfeld’s demanding exposition while reserving final judgment. The review’s central contribution is its diagnosis of the distance between defining a maximum of total utility and explaining the comparisons and reallocations capable of attaining it. Its welcome for renewed theoretical ambition is inseparable from its demand that subjective value theory account for economic decisions, not merely characterize their completed outcome.