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History of Political Economy 33.3 (2001) 437-458
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Max Weber's Analysis of Marginal Utility Theory and Psychology Revisited:
Latent Propositions in Economic Sociology and the Sociology of Economics
Some twenty-five years ago, there appeared for the first time in English Max Weber's essay titled “Marginal Utility Theory and ‘the Fundamental Law of Psychophysics'” (originally published in 1908). The “fundamental law of psychophysics” was another name for the Weber-Fechner law, named after two German psychologists, Ernst Weber (no relation to Max) and Gustav Fechner. The law posits that any change in our level of sense perception is closely and proportionally related to any change in the intensity of the stimuli that were just acting on the senses. The extent to which our eyes detect that the light in a room has gotten brighter, for instance, depends on and is proportional to the previous level of brightness.
At the time of Weber's essay, a few economists—most notably F. Y. Edgeworth—were drawing analogies between the Weber-Fechner law and marginal utility theory.1 The principle of diminishing marginal utility, Edgeworth ( 1967, 62) explained, “may be confirmed by [End Page 437] ‘ratiocination' from simpler inductions, partly common to the followers of Fechner.” But Weber reached a different conclusion in his essay, arguing instead that marginal utility theory—as well as economic theory in general—had nothing to do with psychological principles, including the Weber-Fechner law.
Weber's essay was actually a review of a work by Lujo Brentano, a German historical economist, titled The Development of Value Theory. Weber addressed what was in his view the “sole point in Brentano's exposition that invites contradiction”: the purported relationship between “‘marginal utility theory'—indeed, of any ‘subjective' value theory—to certain general propositions of experimental psychology, especially to the so-called Weber-Fechner law” (24). According to Weber, Brentano erred in asserting that “‘the fundamental law of psychophysics' is the foundation of ‘marginal utility theory' and that the latter accordingly is an application of the former” (25). In Weber's estimation, applications of the “simple old Weberian formula” to economic phenomena are dubious: marginal utility theory is far from being a “special case of the application of the Weber-Fechner law or any basic psychological law” (36).
Many economists have regarded Weber's essay as a definitive statement on the relationship (or lack thereof) between the Weber-Fechner law and marginal utility theory. Eugen von Böhm-Bawerk and F. A. Hayek, for instance, considered Weber's essay as preeminent and of paramount importance. George Stigler, writing in 1950, was emphatic in pronouncing that Weber's “famous essay” demonstrated for once and for all that economists could safely “ignore” the Weber-Fechner law.
But should we be so certain and commendatory? No doubt, Weber believed that marginal utility theory stood on its own, independent from any psychological principle. A closer look at Weber's essay, however, reveals that marginal utility theory is not so freestanding. Lurking in Weber's article are latent propositions suggesting that marginal utility theory, as well as rational economic behavior, is bound up with definite social, historical, and cultural conditions, conditions that Weber associated with our modern capitalist society.2 [End Page 438]
The Context of Weber's Essay on Marginal Utility Theory
Weber's essay was influenced by the intellectual climate at Heidelberg University, where he was a professor from 1896 to 1898. The intellectual climate at Heidelberg was dominated by historical-institutional economics as the “fashionable type” of economics in Germany at the turn of the century (Swedberg 1998). The leading representative of this type of economics was Karl Knies, who was also Weber's teacher at Heidelberg (1892 to 1894). Knies and the historical school overall suggested that economists take a holistic and historical approach to the economy.
Weber's essay was also influenced by his tenure as one of three coeditors of a renewed and ambitious German journal in the social sciences...