Leo Schönfeld-Illy (1888-1952)
Die beim Wirtschaften über die Güter zu treffenden Verfügungen werden von dem subjektiven konkreten Nutzen dieser Güter regiert. The decisions to be made when managing goods are governed by the subjective, concrete utility of these goods.
Schönfeld-Illy studied under Eugen von Böhm-Bawerk and Friedrich von Wieser at the University of Vienna. Like his colleagues Marianne von Herzfeld (1893-1976), Ewald Schams (1899-1955), Richard von Strigl (1891-1942) or Helene Lieser (1898-1962) among others, he belonged to that small but important group of Austrians that F.A. von Hayek (1899-1992) called the ‘Zwischengeneration’, between the 3rd and 4th generation of the Austrian School. All of them were members of L.v. Mises’ Private Seminar in Vienna and mostly active in the interwar period. However most of their works are unjustifiably disregarded. Schönfeld-Illy’s main research focused on the analysis of value through the theory of marginalism and on the view of the market as a process. In his seminal book Grenznutzen and Wirtschaftsrechnung (1924/1982), he applied the marginal utility principle to the problems of business management and the overall economic benefit. His Gesetz des Grenznutzens. Untersuchungen über die Wirtschaftsrechnung des Konsumenten (1948) was the last textbook published in the pure Austrian tradition.
I
Born in 1888, Leo Schönfeld grew up in Fin-de-siecle Vienna and earned an advanced engineering degree at Vienna’s famed Universität für Bodenkultur (University of Natural Resources and Life Sciences Research) in 1908. In spite of his graduation he was displeased with his choice and thus enrolled at the University of Vienna to study economics with Eugen von Böhm-Bawerk (1851-1914) and Friedrich von Wieser (1862-1926) as his main teachers. It was especially von Wieser who early on recognized Schönfeld’s theoretical talent and tried actively to secure him an academic position.
However even with his Ph.D. and von Wieser’s recommendation he sadly failed to find work in academia and thus joined an agricultural estate in the kuk Crownland of Bohemia as a domain official. During his tenure of well over 10 years he gained extensive experience in practical economic matters that proved centrally important for his theoretical research. Soon after the catastrophe of WWI when the Austro-Hungarian Empire suffered some 5 million dead or wounded, was fragmented and cut off from its former Crown Lands, Schönfeld left Bohemia and moved back into a starving Vienna. Amid a raging hyperinflation that reached its peak in 1921, he joined Ludwig von Mises’ (1881-1973) famous Privat-Seminar in 1920 and published several articles on economic theory as well as his seminal monograph Grenznutzen und Wirtschaftsrechnung (1924/1982). In this book he explored the implications of the time dimension for utility theory and succeeded in reviving the abandoned discussion on the subject of marginal utility. In 1925 he was appointed director of the Austrian Trust Ltd., a position that proved helpful to find jobs as a professional bookkeeper and as a tax accountant. About 2 years later Schönfeld rejoined the Mises Seminar and continued to actively participate in the discussions until 1934 when Ludwig von Mises left Vienna for Geneva. In 1931 Schönfeld published his reforming book Landwirtschaftliche Buchführung and worked in Vienna up to the menacing days of the Anschluss, when Nazi Germany annexed the Federal State of Austria on March 12, 1938. As the new political situation rapidly deteriorated and turned life threatening for most of the remaining members of the Austrian school of economics, nearly all of them decided to leave Vienna. However, some were immediately imprisoned and later died in KZs, a small number went into hiding, changed their names or tried to adapt to the Nazi regime. A few committed suicide. Due to this tragic brain drain, Vienna ceased to be the stronghold of the Austrian School of Economics.
In the days and weeks after the Anschluss (Annexation), Leo Schönfeld too decided to leave Vienna and moved to Brno (Czechoslovakia) where he changed his last name to the one of his mother Illy. Like Richard von Strigl (1891-1942), his friend from the time when they attended Böhm- awerk’s seminar, he retreated into a total ‘inner emigration’. From time to time, however he sneaked to Vienna under his new last name in order to work as an independent accountant there.
Several months after the end of WWII, Illy returned to Vienna in order to find a decent job. Only in 1946 he was able to land a modest teaching position at the University of Natural Resources and Life Sciences in Vienna. And in 1949 he completed his Habilitation under the politically enigmatic Hans Mayer (1879-1955), Illy was able to lecture at the University of Vienna. His textbook, Gesetz des Grenznutzens. Untersuchungen über die Wirtschaftsrechnung des Konsumenten published in 1948, was an easily comprehensible and condensed version of the theory of marginal utility. It was the last German textbook on Austrian value theory. On December 17, 1952, he died unexpectedly in Vienna of a heart attack at the age of 64.
II
The important discussions about the measurability of utility among the leading scholars in the tradition of the Austrian School took place mostly in the pre-1914 period in Vienna. There were two main views on the quantifiability of utility that clashed. The first one insisted that the utility of goods can be measured and expressed as a multiple of a unit and was predominately defended by Eugen von Böhm-Bawerk and Joseph A. Schumpeter (1883-1950). According to the second view, utilities can only be compared and ranked but not measured. This position was advocated first by Franz Čuhel (1862-1914) in his major but widely neglected treatise Zur Lehre von den Bedürfnissen (1907) and somewhat later by Ludwig von Mises (1881-1973) in his Theory of Money and Credit (1912). It was Franz Cuhel who distinguished between ‘comparing’ and ‘measuring’ magnitudes. For him the comparing of two magnitudes is sufficient to state which of them is the larger, but the amount by which it is larger is not ascertained in the comparison. And for measuring the finding of a number which indicates how many times a magnitude accepted as a unit is contained in the magnitude to be measured. Cuhel’s only book is a painstaking study of the psychology of needs, combined with a criticism of the views of economists.
After WWI this theory, that is the ordinal understanding of utility, had become the dominant position among Austrian economists. All post-war scholars argued that utilities can be ranked but not measured, and did this without Wieser’s inconsistencies. It was Schönfeld who contributed to the rise of the ordinal approach to utility in Austrian economics. Although his work is relatively little known today, his seminal achievement certainly lies in the fundamental research on the economic theory of value and deserve a brief appreciation.
III
In 1924 Schönfeld published his seminal work Grenznutzen und Wirtschaftsrechnung (Marginal Utility and Economic Calculation). Here he took total utility (Gesamtwirtschaftsnutzen) as the basic concept of his analysis, rather than a given system of needs of decreasing marginal importance as in the traditional Austrian approach. Accordingly, he conceived the economic problem of the individual as one of maximizing total utility, rather than allocating the available resources to independent uses displaying decreasing marginal utility. Schönfeld took total utility (Gesamtwirtschaftsnutzen) as the basic concept of his analysis, rather than a given system of needs of decreasing marginal importance as in the traditional Austrian method. Accordingly, he conceived the economic problem of the individual as one of maximizing total utility, rather than allocating the available resources to independent uses displaying decreasing marginal utility. In other words, he argued that it is impossible to state that one good is two or three times more useful than another, and therefore denied that utility is measurable. For him, utilities can be compared, in the sense that it is only possible to state whether one utility is larger or smaller than, or equal to, another.
If in classical value theory, value was thought of as arising from physical elements, in the theory of the Austrian School of Economics, the nature and process of valuation by individuals became the focus of the theory of subjective value. Thus, value here becomes a judgment that acting people make about the importance of the goods at their disposal for maintaining their lives and well-being. The criterion for an economic evaluation is the utility of the evaluated object for the person making the assessment.
Building on Friedrich von Wieser’s theory, Schönfeld-Illy’s great achievement is that he has pursued the connection that arises from the function of supply and need beyond the work of most marginal utility theorists. What was clearly recognizable as an underlying basic tendency in Wieser’s work, is for Schönfeld-Illy the guiding principle of his theory. He criticizes his teacher as being inconsistent where he derives the definition of marginal utility from a state of the economy in which all the dispositions have already been made. Schönfeld-Illy now wants to find a way out of the dilemma of revising the concept of marginal utility by dealing with the role that marginal utility plays in economic arrangements. He examines in detail all the considerations that arise with regard to the availability of a supply of goods according to needs. Moreover he takes the individual benefit of a good from the overall economic benefit and therefore rejects the idea of a system of needs of an economic subject that is simply given and independent of economic decisions and dispositions. This approach caused some concerns among his fellow Austrians. However by introducing an overall economic benefit as the determining aspect of all economic activity from the outset, he attempts to solve the pseudo-problems that had already arisen with the works by von Wieser.
According to Schönfeld-Illy, economically correct dispositions cannot be found through logical deduction from a system of needs, but only through continued experimentation. As a matter of fact, individual needs are so closely linked to one another that some only appear when others have already been fully or partially satisfied. Moreover their satisfaction usually depends on the order in which others are satisfied. This means that the benefits that accrue to the various goods are interdependent or in other words, are complementary. Thus a good’s utility no longer is just a function of the quantity of the good in question, but rather a function of the entire supply of goods that an economic actor has at his disposal. The maximum level of welfare therefore depends on a specific structure of the supply of goods that harmonizes with the system of needs. Although the complementarity of benefits is psychological, there is also a physical complementarity of goods as the satisfaction of most needs requires the special technical interaction of several goods, which in turn may have multiple uses. The complementarity of benefits then makes it understandable that the intentions of an actor always focuse on the overall utility effect of his/her decisions.
Although marginal utility is the sole guideline and the exclusive measure of any economic behavior, for Schönfeld the intention of any economic operator is to maximize total utility. Thus the subjective welfare of each market participant is expressed in its total economic utility.
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