Hermann Heinrich Gossen,  1810-1858.

Prussian civil servant, and forerunner of the Marginalist Revolution of 1871-74.

Hermann Heinrich Gossen was born in Duren (near Aachen, then part of the French-occupied Prussian Rhineland).  Raised in a devout Catholic family, his father was a civil servant and an authoritarian figure in Gossen's life.  Young Gossen had shown an early interest in mathematics in high school, but was compelled by his father to study law.  After completing his school-leaving examination in 1829, Gossen dutifully enrolled in the University of Bonn to study law and administration. He had a study year at Berlin, before returning to Bonn in 1931. Gossen read economics as part of the cameralist component of his studies.  This would have been introduced to Gossen by Johann Gottfried Hoffmann (an early Historicist) at Berlin and/or Peter Kaufmann (an Adam Smith enthusiast) at Bonn.  It was possibly in connection with his legal studies that Gossen first came across the utilitarianism of Jeremy Bentham (Bentham was translated into German in 1833).

To graduate from university and enter the civil service, students like Gossen had to submit an examination thesis (referendariat)  Gossen's submitted four essays  in February 1834 at Bonn, one historical (on the formation of the Prussian state), one juridical, one in political science (on the attributes of sovereignty) and one in cameralist economics (on the impact of fiscal structure on State credit).   The thesis questions were imposed in advance, and Gossen's answers, particularly on the last two, were somewhat heterodox, preferring to construct an elaborate logical-deductive argument than the commonly expected historicist answers.  Nonetheless, he passed, and entered the Prussian civil service as a law clerk in Cologne later that year. 

Gossen did not take to the life of a bureaucrat. His practical training years winding down in 1841, and a second examination looming, Gossen made up his mind to quit the civil service, return to university, and start an academic career.  But once again, Gossen was overruled by his father.  In 1841, while preparing for his second examination, Gossen moved from Cologne to Bonn, to take care of his elderly father (who had retired there).  Gossen took the opportunity to attend lectures on mathematical astronomy being given by Friedrich Argelander at the University of Bonn, an experience he would always recall with relish (and, it should be noted, the only mathematics he would have seen since high school).  This distraction may have led him to interrupt his second examination - he completed the main examination in 1842, but only got around to completing the rest of it a couple of years later.  Finally passing in 1844, Gossen was appointed as a government tax assessor dispatched to Magdeburg.  He was later transferred to Erfurt (possibly after a quarrel with his superiors).

Gossen's father died in October 1847.  One month later, Gossen quit the civil service, and moved to Berlin. He does not seem to have taken a job, but lived on his savings and his recent inheritance.  A political liberal, Gossen was excited by the 1848 revolution in Berlin, but it is unclear what activities (if any) he was involved in.  Later that same year, Gossen was talked into a business scheme with a Belgian associate to establish a universal insurance company.  The plan was to build a general company up piecemeal, division by division.  Gossen moved to Cologne to launch the divisions on livestock and hailstorm insurance.  But the business failed by 1850.  Gossen remained in Cologne, living with his widowed mother and a spinster sister, while preparing his grand economics treatise.   Finished by January 1853, he had a hard time finding a publisher.  It only came out in in late 1854, published by a Brunswick printer (largely at Gossen's expense, with a Cologne lawyer named Meyer underwriting the rest of the cost).

Gossen's economics treatise, in which he had rested great hopes to revolutionize the field, was met with silence.  Nobody took notice of it.  Gossen was crushed.  Already suffering from typhoid infection he caught in 1853, Gossen realized he had probably not long to live and his one bullet to immortality had misfired.  Embittered, Gossen did not touch economics again.  Instead, he turned to music (Gossen was a talented violinist), and set about constructing a mathematical theory of music.  It was never finished.  Gossen's health deteriorated, and he finally died on February 13, 1858.

Gossen died bitter and unknown. Just before his death, he ordered the destruction of all copies of his 1854 treatise (they were pulled from stores, but as we shall see, not destroyed).  The first known mention of Gossen treatise appeared later that year, in a footnote about a recent work of  a certain "Friedrich" Gossen, by Julius Kautz in his Theorie der geschichte der Nationalökonomie (1858, p.9), but it was not followed up.  The next mention would only come a dozen years later, in a footnote in the second edition of F. A. Lange's Die Arbeiterfrage (1870 2nd ed, p.124; 1875 3rd edition, p.124).

Gossen's work was finally uncovered when a single copy was found at the British Museum in 1878 by Robert Adamson, a professor of philosophy of Owens College, Manchester, who had been tracking down the Kautz footnote for years.  Adamson informed his colleague W. Stanley  Jevons, who realized its importance and promptly informed Léon Walras that they had both been anticipated by Gossen.  The priority of Gossen's contribution was acknowledged by Jevons in the second (1879) edition of TPE.  Walras composed an article on Gossen for the Journal des economistes in 1885 (p.68).  Gossen's book was reprinted in 1889 (actually, not a new printing run - just the undestroyed copies of the 1854 run under a new printer's cover).  Despite increased interest, dissemination was still limited.  Walras claimed to have undertaken a French translation of Gossen's book himself, but it never saw the light of day. An English translation was not available until 1983.

Gossen's 1854 treatise was divided into two parts - the first to pure theory, the second to applied economics.  Unlike many other proto-marginalists, Gossen was conscious of the revolutionary nature of his work, and immediately likened himself to Copernicus (p.v). He begins his book articulating a philosophical confession of faith in utilitarianism (p.1), and declares his assumption that man seeks to maximize pleasure and minimize pain, , before getting around to the task of determining the laws of value.  Gossen lays out the idea of diminishing marginal utility (p.4) and draws the now-familiar diagrams of diminishing marginal utility (p.8-9).  Gossen does not use the term "utility", but various euphemisms like "magnitude of satisfaction" (Größe der Genüsse), which needs to be interpreted from context whether he means total or marginal utility.  He eventually settles on the term  "value of the last atom" ("Werth der letzten Atom")  for marginal utility (e.g. p.29, p.84)

It is common to reduce Gossen's theoretical section to two "Gossen's Laws"

• (1) "Gossen's First Law" is the concept of diminishing marginal utility itself, namely that increasing consumption of a good yields a smaller additional satisfaction.
•  ("Die Größe eines und desselben Genusses nimmt, wenn wir mit Bereitung des Genusses ununterbrochen fortfahren, fortwährend ab, bis zuletzt Sättigung eintritt." p.4)
• (Trans: "The magnitude of a given pleasure decreases continuously if we continue to satisfy this pleasure without interruption until eventually satiety is reached")
This law, of course, is not a novelty.  It had been suggested by numerous writers before, e.g. Bentham himself, Daniel Bernoulli, Nassau William Senior, W.F. Lloyd, etc.

• (2) "Gossen's Second Law" is the equimarginal principle, that when faced with limited budget (Gossen uses time), a person maximizes his utility when he allocates his expenditure among various goods so that he obtains the same amount of satisfaction from the last unit of each good consumed (i.e. so that the "magnitude of of each single pleasure at the moment it is broken off" - i.e. marginal utility - "shall be the same for all pleasures")  
 
• ("Der Mensch, dem die Wahl zwischen mehren Genüssen frei steht, dessen Zeit aber nicht ausreicht, alle vollaus sich zu bereiten, muß, wie verschieden auch die absolute Größe der einzelnen Genüsse sein mag, um die Summe seines Genusses zum Größten zu bringen, bevor er auch nur den größten sich vollaus bereitet, sie alle teilweise bereiten, und zwar in einem solchen Verhältnis, daß die Größe eines jeden Genusses in dem Augenblick, in welchem seine Bereitung abgebrochen wird, bei allen noch die gleiche bleibt", p.12).
• ("For a person who is free to choose between several pleasures, but whose time is insufficient to satisfy them all", (however different the absolute magnitude of each pleasure may be), to bring "the sum of his pleasures to its greatest", he must pursue all pleasures partially until the relation [between them] is such, that the "magnitude of each single pleasure at the moment it is broken off" ( i.e. marginal utility) "shall be the same for all pleasures")
Gossen cleverly uses two side-by-side diagrams (Fig. 2) to illustrate it.   As Gossen uses time in this example (which has an exchange ratio of 1:1), Gossen's Second Law can be more generally stated that the consumer will equalize marginal utilities weighted by price, or, if money is being used, until he obtains the same amount of satisfaction from the last unit of money spent upon each commodity   i.e. equality of the ratio of marginal utilities to the ratio of prices, i.e. MU_i/p_i = MU_j/p_j for any two goods i, j. This statement is virtually unprecedented and anticipates the central contribution of the Marginalist Revolution.

 The labels "Gossen's First Law" and "Gossen's Second Law" were originally given by Wilhelm Lexis (1895, p.422).  Friedrich Hayek (1927) added a third Gossen's law, although its exact statement is looser

• (3) "Gossen's Third Law":  a good has value only when the demand for it exceeds supply (i.e. subjective scarcity is source of value). Or, to use Gossen's logic, since marginal utility declines with consumption, a good can only have positive marginal utility (i.e. "value") if the available supply is less than what is needed for satiation. Otherwise, desire for it will be satiated and the marginal utility (and thus value) will be zero.
  • e.g. (p.31)

Gossen endeavored to find these "laws" in all sorts of economic activities. He can be credited with a disutility theory of labor supply, anticipating William Stanley Jevons.  Gossen's attempt to apply the utilitarian philosophical calculus to his theory led him to argue that the market exchange outcome also maximized social utility -- a conclusion which later earned him a sharp rebuke from Léon Walras (1874 [4th ed.]: p.204-5).

Because of its abstract, universalist and mathematical nature, Gossen's work was utterly disparaged by scions of the all- powerful German Historical School (Schmoller dismissed Gossen as an "ingenious idiot").   The pretentious tone of his work, wherein he compared himself to Copernicus, probably did not help garner sympathy.  But all of this commentary came later, because no one was really aware of Gossen's work during his lifetime.

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