Carl Menger
(see 'Marginalists')

Eugen von Bohm-Bawerk
1851 - 1914. Disciple of Menger. His main achievement is in the theory of capital and interest in which he establishes a basis for later theoretical work. Grundzuge einer Theorie des Wirtschaflichen Guterwertes 1886, introduces formation of market prices by bidding and offering of market pairs. Positive Theorie des Kapitalzinses 1893, applies marginal utility theory in his analysis of interest. Anti-Marx.

Explains interest on the grounds that "present goods are, as a rule, worth more than future goods of like kind and number. This proposition is the kernel and the centre of the interest theory which I am now going to present" (from Positive Theorie des Kapitalzinses)

The reasons that people prefer present goods to future goods are three (the 'drei Grunde'): a) individuals overestimate future resources and underestimate future wants due to weakness of will and imagination; b) people who are in need now prefer wealth now to wealth later; c) present goods may be used for production immediately and hence produce wealth for their owner sooner rather than later (but this is a circular argument ... the question is 'why is wealth now better than wealth later?' and the answer is 'because wealth now can be used to produce wealth now'). According to Bohm-Bawerk these three reasons show that the marginal utility of the present is greater than the marginal utility of the future for any given good. Hence, interest.

For Bohm Bawerk, capital is a complex of intermediate products, products which are desired for what they can be used to produce not for what they are (in contrast to consumption goods). Hence capital is simply stored up labour, and land. Bohm Bawerk proposes that capitalistic production processes take time to work, producing a time lag between the employment of capital and the output of consumption goods, and that economic progress sees ever more roundabout means of production, i.e. more intermediary stages between capital and end product (consumption goods). Owners of factors of production require sustenance during this time lag and interest is the price to be offered to them to overcome their preference for present goods over future goods. The rate of interest paid to them is determined by the marginal productivity of capital in the capitalistic production process.

Two groups of followers are Knut Wicksel and Von Hayek (who eventually dismiss time preference theory and focus on the productive aspect of capital in their explanations of interest) and Frank Fetter and Irving Fisher (who adhere to the time preference theory).

Friedrich von Wieser
1851 - 1926. Disciple of Menger. Main achievement in the theory of cost and distribution. Ursprung und Hauptgesetze des wirtschaflichen Wertes 1884, introduces marginal utility. Utility and disutility are both sides of the same coin. Choosing A in preference to B denotes greater utility of A over B. Choosing work over leisure denotes greater preference for income rather than leisure. Thus disutility of labour is simply the mirror of the utility of income. Thus utility alone can be analysed as the sole source of value. He states the 'Law of Cost' (later referred to as the opportunity-cost principle) that capital goods (higher order goods) derive value from the goods they are anticipated to produce, thus capital goods will be bid for by entrepreneurs and then distributed among various productive processes in such a way that the values of the produce are equal for each alternative usage of capital. This theory abandons the search for real cost but seems to make the marginal utility analysis as a theory of choice comprehensive and consistent. Der Naturliche Wert 1889 and Theorie der Gesellschaftlichen Wirtschaft 1914 define 'natural value' as that obtaining in a 'communist' state where inequalities of wealth, selfishness, compulsion and errors are all absent from the economy. Value here would be determined by the interaction of quantity of available goods with the utilities of individuals.