Who was Gossen?
Hermann Heinrich Gossen, a former Prussian civil servant, developed utility theory mathematically in a self-published 1854 book. It went almost unread until Jevons and Walras recognized him as a precursor in the 1870s.
First law: diminishing marginal utility
Additional units of the same good bring less and less satisfaction. See the law of diminishing marginal utility.
Second law: the equi-marginal principle
With a fixed budget, utility is maximized when MUx/Px = MUy/Py. If coffee yields more marginal utility per won than bread, shifting spending to coffee raises total satisfaction; as coffee consumption rises its marginal utility falls until the ratios equalize at consumer equilibrium.
Example
With coffee at 4,000 won and bread at 2,000 won, equilibrium requires coffee's marginal utility to be twice bread's, e.g. 8 and 4, so no reallocation adds satisfaction.
Evaluation
Gossen's laws assume cardinal utility. Modern theory reaches the same condition (MRS = price ratio) with ordinal utility and indifference curves, and the marginal principle also guides allocation of time and of inputs by firms.
References
- Gossen, H. H. (1854). Entwickelung der Gesetze des menschlichen Verkehrs, und der daraus fließenden Regeln für menschliches Handeln. Vieweg.
- Gossen, H. H. (1983). The Laws of Human Relations (R. C. Blitz, Trans.; intro. N. Georgescu-Roegen). MIT Press.
- Jevons, W. S. (1879). The Theory of Political Economy (2nd ed., preface). Macmillan.
- Varian, H. R. (2014). Intermediate Microeconomics (9th ed.). W. W. Norton.