Adam Smith defined economics as the study of how people choose to use resources. In this case, resources included the time, the talent that people have available, the land, buildings, equipment, other tools that they own, and the knowledge of how to combine them so as to create useful products and services (Daal & Jolink, 1993). Austrian economics is an economic approach where, according to Thomas Aquinas, the economic law has a large impact on the natural laws and is guided by the laws of demand and supply, inflation and foreign exchange rates. This law mostly advocates for freedom to contract and trade and, therefore, emphasizes the contribution of business to the society while opposing government intervention in taxation, price control, and any other regulation that had a negative impact on entrepreneurship. From this theory productivity theory of recourse pricing is derived, which stresses the role of capital in the division of labor and states that there can never be over-production or under-consumption (Hicks, 1973).
Socialist economy is an economic system based on central power of capital. In other words, it advocates government’s intervention in the regulation of income consumption by the individuals and deciding where the income will go. This implies that in a socialistic economy individuals’ needs are met from their useful contribution. This is different from capitalism, where a small group gains wealth from the society by exploitation. In socialism the state has the role to control people’s wages, compensation, and taxes which are usually high. The government uses tax revenues to pay for the needs of citizens e.g. health service, who in their turn get it for free (Peart, 1996).
William Stanley Jevons, a renowned economist was born in 1835 in Liverpool England. It is believed that he developed his interest in economics because of his father Thomas Jevon, who was a wealthy iron merchant also interested in natural sciences and economics. Jevon was initially involved in natural science but he later on switched to study economics with specialization in utility theory. He defined marginal utility as the value of an additional unit of product to a consumer and stated that it is inversely proportional to the number of units one already has (Ekelund, 2007).
Marie Esprit Leon Walras was born in 1934 in Switzerland. He was a French mathematician who had become famous for the creation of the general equilibrium theory. He was a son of an economist Augustine Walras from whom he also developed his interest in economics. Walras also gained recognition for the social reform by calling for nationalization of land with a belief that land value would increase and that rent alone, without taxes, would be enough to support the nation.
Carl Menger was born in 1840 in Austria. He was the founder of Austrian school of economics. He is known for his creation of value and price distribution theory, which in Austria is regarded as the Mengerian economics. Menger gained his recognition for his theories and was a classical economist who tried to explain market value of price according to the laws of demand and supply.
William Stanley Jevons, Leon Walras, Francis Edgeworth and Vilfredo Pareto are regarded as the fathers of the neoclassical economic theory, who were involved in transforming this science into a mathematical scientific discipline. Jevons used calculus to translate and justify various economic quantities. Walras is also known for posting an additive utility function, which allowed the utility of a bundle of goods to be expressed as a sum of single utility functions (Daal, 1993).
Many economic historians had initially tried to combine three economical theories of Menger, Walras, and Jevons to clearly outline both the similarities and differences in their mode of thinking. Among the three scientists Walras stood out for being the architect of the general equilibrium system (Hicks, 1973).
There has been a sharp difference between the Austrian neoclassical theories and the French (Walras) and English (Jevons) neoclassical theories. Walras was known for his deeper concentration on the marginal utility theory. On the other hand, Menger did not assume that competition could be perfect as well as he never admitted any analytical link between the marginal utility and market prices.
There also existed contrast between Walras’ and Menger’s theories. As far as the theory of competition and market is concerned, Walras wanted to change the notion from what was basically defined as the process to what he described as the situation. He turned away from institutional settings towards the conditions that may be fulfilled in order to yield equilibrium results. Contrary to Austrian view about market competition is the notion that different people search for different things and this, therefore, defined the market as a process. Information is assimilated and relayed among participants of the market and, therefore, is a useful device for mobilizing existing knowledge. The Menger’s Austrian theory also differs from the Walras’ theory of maximizing utility, where he argues that it is subject to tastes and prices and, therefore, is not enough to explain the search for new opportunities. With respect to price, Menger views it as an exchange ratio that represents incomplete discoveries and thus offers opportunity for pure profit.
On the other hand, although Menger is claimed to be one of the originators of neoclassical theory, he rejected the unifying principle of utility construct and hence ignored the new mathematical principles borrowed from the nineteenth century physics. He as well went ahead and disregarded Walras’ principle of utility (Hicks, 1973).
When creating the theory of value, both Jevons and Menger discussed the same concept but the major difference was that Jevons used the word ‘utility’. This term was rarely used by Menger, who instead used the term ‘satisfaction’. It is important to note that he is claimed by Friedrich Hayek to be the first to outline the difference between goods that are free and economic. Regarding the idea of scarcity, Menger does not use the word ‘scarcity’, instead he refers systematically to the ‘existence’ and ‘availability’ of goods, whereas Jevons, as well as his predecessors, focuses his attention and uses the word ‘scarcity’ or its equivalents (Ekelund, 2007). Jevons’ approach made this word very popular, irrespective of it being rarely used during his time. However, it is correct that the significance of the difference in the terminologies as explained by both Menger and Jevons should not be exaggerated. Indeed, a good has to be useful to at least one potential user for it to be referred to as economically scarce. If it is compared to other goods, ‘availability’ is not important unless referred explicitly to someone’s subjective capacity of using or consuming the good at his or her own will (Ekelund, 2007).
Menger never used the term ‘scarcity’ in the distinction between free economic goods. Jevons, on the other hand, in his research concentrated mostly on the authors who used the term ‘scarcity’ frequently.