He integrated a price theory based on subjective value, with the principle of marginal utility In my job today I still use Marginal Utility to explain a LOT of the phenomena Menger was the first in the world to do this He was the Godfather of the marginal revolution, or the subjectivist revolution I suppose that s WHY I read this book Not because some snippet of it would be relevant to current economics, but mostly just because the history of the thought intrigues me.
So Menger is a really clear thinker but the translation from German isn t always easy to read Lots of run on sentences and dated terminology He s also writing in the Austro Hungarian Empire pre WWI, and the field of economics is dominated by the German, or Historical schools of thought Because he s outside of mainline German economics he was derided with Oh, he s an Austrian This, in eventuality became a badge of honor at the time, because some economists of the historical school claimed, eventually, that they were gifting their knowledge from the divinity of Hitler Good time historically to be an outcastMenger wasn t really a revolutionary, in fact praising historical economics when it came to day to day price changesBUT he saw a human being striving to fulfill his wants He SAW subjectivism, when all in his field were screaming no He was looking to find REAL prices, in reality Not theoretical prices, and not the cost of production Between him, Jevons, and Walras, you have the marginalist revolution Theof a good you possess, the less you value each individual unit In order to try and quantify such a vast and complex economic subject, you have to look at human wants, which are unlimited This is NOT behavioral economics or psychology It s simply the ranking utility of the goodthere is no measuring utilityordinal nor cardinal.
Today the marginal revolution is widely accepted, but doesn t get the credit it deserves They solved the value paradox that Adam Smith so struggled withThere is no Mises without Menger, and I ve been avoiding Mises 1,100 page book like the plague Menger gave me a little bit of a push to maybe just go for it.
Land, labor, capitalwhich we ALL learn in collegemeans NOTHING without individuals, and their actions In many ways I suspect that Menger laid the groundwork for Mises praxeology There s no MACRO flavor to this bookthis is just economics.
Tough to read, but worthwhile for students of economics.
One of the best economics texts I ve ever read For a book over 100 years old and translated from German, it s surprisingly easy to read Menger clearly explains value, marginal utility Menger is the economist who first posited this concept , prices, and money I have this up there with Man, Economy and State as my favorite Econ books, only this one is much shorter.
La Historia De La Econom A Pol Tica Es Rica En Ejemplos De Precursores Olvidados, Cuya Obra No Despert Ning N Eco En Su Tiempo Y Que S Lo Fueron Redescubiertos Cuando Sus Ideas M S Importantes Hab An Sido Ya Difundidas Por Otros Es Tambi N Rica En Notables Coincidencias De Descubrimientos Simult Neos Y De Singulares Peripecias De Algunos Libros Pero Dif Cilmente Se Encontrar En Esta Historia, Ni En La De Ninguna Otra Rama Del Saber, El Ejemplo De Un Autor Que Haya Revolucionado Los Fundamentos De Una Ciencia Ya Bien Establecida Y Haya Conseguido Por Ello General Reconocimiento Y Que, A Pesar De Todo, Haya Sido Tan Desconocido Como Carl Menger Apenas Si Existen Casos Paralelos Al De Los Principios, Que Tras Haber Ejercido Un Influjo Firme Y Permanente Hayan Tenido Debido A Causas Totalmente Accidentales Tan Limitada Difusi N A truly revolutionary book This is Economic s Copernicus setting the foundations of Economics anew Such a copernican turn that it sets the foundations for value, capital and institutional evolution theory for all other continental aka Austrian economists to follow The most important economic book of the XIXth century.
The knowledge in this book may not be anything new for many people who knew why they wanted to read Menger This book is a foundation of the Austrian School of Economics but it also is relevant for economy in general.
The relevance of it is that it was a change of methodology that imposed itself on all the field of economy in different degrees It is the starting point of the so called subjective revolution, a trend that gave much insight on the main economical problems from that time and introduced is to the importance of the micro economical analysis Because I read later Austrian School economists before finally exploring, Menger, much of the content here is very familiar to me Still, this here is the work that really transformed the study of economics, with ideas such as the subjective source of value, marginal utility, and the origins commodities, and keeping that perspective added a lot of interest when reading this book Knowing that Ludwig von Mises was highly influenced by Menger, it s fascinating to see small but important insights here that were later expounded by him, such as the origins of money and the concept of acting man I d say that this would make an excellent companion to modern day economics texts.
This by the founder of the Austrian School of economics so called by Murray Rothbard, so it works for me.
As with any treatise on economics especially those written in the 19th century , this is dry The gist of Austrian economics is that economies are the accumulation of individual human actions praxeology from the Ancient Greek praxis from which we get practice , i.
e to do , see Human Action by Ludwig von Mises, to be read and reviewed at a later time Menger introduces the concept of Subjective Marginal Utility He starts with defining what a good is, then to what an economy is and what constitutes economic goods scarcity He then moves on to value and how and why certain economic goods derive their relative values value is thus the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs p.
115 , which then dovetails nicely into his exposition on his theory of exchange.
He then moves on to the theory of price, describing the hows and whys of price formation It is imperative to realize that until the late 19th century, economics had no good explanation of how prices were formed, relying on the flawed theory that prices were set by landlords or producers nominally to recover costs and fund further investment which led to evenflawed and asinine theories like Marx s surplus value of labor It is also important to note that most people today still have no idea how prices are formed and often feel victimized and then fall into the idea that government can and should do something about prices, the unintended consequences of such always create further market distortions and often createharm than good The preceding is not opinion but has been borne out by centuries of human experience, usually under the misguided trope that this time we ll get it right No, we won t.
Pardon the digression.
Menger then moves on to delineate the difference between use value and exchange value, also very important to economic thought and something people do just about every waking moment without realizing it differentiate and then act upon that differentiation, that is.
After defining what a commodity is and how they fit into the general principles a little too boring for this space he moves on to money, the nature and origin of it and how it came to what it is today a store of value, a unit of measure and a medium of exchange.
Intermittently he touches upon time preference, but this is gotten into further by his student and ideological heir, Eugen von Bohm Bawerk in his Positive Theory of Capital and also his Capital and Interest which is next on my list of Austrian Economics texts to tackle.
Great book, but very dry It took me entirely too long to get through, but it was worthwhile.
If interested in economics at all, I highly recommend.
The fundamentals of economics from the perspective of the Austrian school of economics A great book and mostly easy to read This book changed economic theory.
Outstanding accomplishment in Economic Theory Finally I experienced the same feeling as Wieser, Bohm Bawerk and Mises, who openly admitted this was the book that made them economists If you approach this with the right state of mind and not too early in your studies, I venture to add , Menger s mix of eloquence and polemics will make you see things not truly seen before it will put the economics pieces together in your head.
That is all I want to say about the book s accomplishments Its profound influence across the whole spectrum economic theory and the Austrian School in particular is widely acknowledged and you can easily find nice summaries and complete essays on its influence, for example at the Mises Institute website In this short note I just want to mention some particulars of my reading experience and some points I think are not widely recognized.
I read an old Brazilian edition, but it was the complete version, with the updated Hayek introduction No lack of content, compared to the typical English version.
Now, for some thoughts 1 The book is not perfect not a big surprise, I know It basically serves as the groundwork for a massive system of thought, but as such there are many things left to explore Menger himself intended this to be a much wider treatise, but never managed to finish it You can specially notice that when you compare his super detailed discussion of money which includes a whole subsection on its historical development across different nations with his very short discussion of interest and capital, and no isolated treatment of credit So the book ends up feeling a bit unbalanced Also, his discussion of bilateral competition is somewhat lacking compared to the level of detail he poured into monopoly power and pricing fundamentals in general.
In the end, though, I think this incompleteness ironically contributes to Menger s stature as a mythical God of Economics It motivated a sort of treasure hunting for Menger s lost perspective in a series of topics.
2 The initial discussion on the theory of the goods was perhaps a bit too extensive And his discussion of the concept of wealth did not feel very satisfying in its conclusions Even though the distinction between wealth and property seems valuable, his conclusion that in Eden there would be no wealth as such sounds a bit far fetched to my ears In any case, it should be noted that, for Menger, it is also the economic character of goods that brings forward the need for the institution of property property is needed because there are not enough goods to satisfy the existent demand, and so Nature imposes upon us the only feasible solution property One is left wondering if, based on this, Menger would be opposed to intellectual property3 The book is massively filled with references to authors of previous epochs, from Aristotle and Roman Law to Galiani and Smith, John Law, Turgot, Ricardo, and many obscure ones in between, including i assume the most relevant German authors, which were not always embedded in the so called Historical tradition Rau, Hermann, etc Menger s reputation as a book collector is widely aknowledged However, one is left in astonishment how the author could then have missed A Cournot, J Dupuit, the Germans H H Gossen and von Thunen, S Bailey, Lloyd, Jennings Hard to explain.
4 Now, for something which not many people seem to mention when reviewing this book, I think it s very interesting how the German School still finds its way into Menger s exposition This book is FULL of historical examples, and even conjectures about the stages of civilization , borrowed from Roscher and Schmoller himself, his later enemy So the book s dedication to Roscher was not just lip service Menger was actually influenced and borrowed heavily from the historical approach It s just that he felt that that was not the end of it, that Economics should aim at somethingessential Of course, it could always be the case that he was inserting some of that historical perspective in order to seemin touch with the rising German tradition, but we ll never know.
On the other hand, he did not pull any punches from Adam Smith, for instance He takes issue with the Smithian very simplistic focus on the division of labor as the main catalyst of prosperity, saying that such organizational paradigm is not even the most important factor in bringing about the abundance of consumer goods rather, it is the production and availability of higher order goods machines, tools, etc that should take primacy in the causes of the wealth of nations Thus, Menger in a sense anticipates the Bohm Bawerkian focus on the higher productivity of a roundabout structure of production and one of Mises s main driving points that the standard of living can only be substantially enhanced by an increase in the amount of capital invested per capita Obviously, for Mises, the division of labor is also of utmost importance for the maintenance of the current living standards, but this goes to show that Menger was already very nuanced for a founder of a tradition and that many subsequent developments which are considered the hallmarks of the Austrian approach were already quite hinted at in Menger s Grundsatze As a final note on this regard, and just to clarify Menger s position with respect to the classics, the above should not be read as if Menger was trying to ridicule Smith Want some proof As you may know, some years after publishing this book, Menger was invited and began serving as the tutor for the Austro Hungarian Crown Prince Rudolf It happens that most of his lecture materials were published some 20 years ago Carl Menger s Lectures to Crown Prince Rudolf of Austria and in fact Menger seems to have followed, in large part, the classical Smithian approach when teaching political economy to the future Emperor who unfortunately died before that happened So, once again a very nuanced thinker and teacher 5 His discussion of money is very interesting, with a special note for his etymological investigations On this topic, Menger is also controversial, since he rejects the notion that the function of store of value and measure of value are inherent in money, being merely incidental However, I was disappointed that he merely attributed gold and silver s use value for their decoration vanity purposes, and did not mention the much wider appraisal of gold and silver as religious symbols In my opinion, this accounts for the early accumulation of gold, which ended up promoting its giant supply production ratio see Dawn of Gold Menger also did not mention this last point I will have to check if he covers it in his later article Geld.
6 It s also interesting how Menger tries to make clear that the concept of merchandise commodity in the English translation, I believe is also not inherent to the good in itself just like its value , but on the intention of the owner, who is currently holding it for sale Thus, for Menger, while the popular meaning of merchandise is those goods that are held in stock, such as inventories , the scientific meaning of the concept should be all economic goods that are held with the intention of being sold and, thus, those should include money I find this very reminiscent of modern accounting theories and standards the classification of an asset depends on how you intend to put it to economic use and not on the asset itself.
7 His discussion a whole chapter of the old dichotomy of value in use and value in exchange is actually very coherent, in my opinion He explains that a good may have value, given the direct use you can take from it, or it can have value, indirectly, because it may be exchanged for other things, which are themselves able to be directly used for valuable purposes, in your subjective view Thus, we see that at any point in time, it s the highest between these two values that binds the economic decision of the agent if the value in use of a given unit is relatively high, you don t care about the market if the value in exchange is high, you hold it as a merchandise If the price on the market falls, you start using it for your purposes burning paper notes in the winter, anyone if the market price rises, we can draw gold from the moon , as the old saying goes.
So, in the end, what s Menger s main contribution, arrived at from his causal realist approach Value is a mental spiritual psychological phenomenon, arising from the differences in importance of each individual s subjective needs Such importance is then imputed into the goods upon which the satisfaction of that need depends Value is not objective, in the sense that it is not something contained within the goods, not even provided by them.
Menger s focus is on the importance of different human needs, the satiation of which happens to require goods and services, which will then be appraised as such, and not based on the utility that supposedly those goods themselves provide units of utils , in the anglo saxon tradition Thus, it becomes much easier to understand that valuation and economizing is always an ordinal process, preferring one satisfaction over the other, and not a game of maximizing the amount of utility collected from goods.
Is value, then, independent from the objective realm No.
Value is still inexorably dependent on the quantities of goods available, because that quantity will determine the importance of the need the satiation of which you must forego if you have to give away one unit of such good If you have many units, the importance of a single one of them is low, because only those needs you value less will depend on that unit if you give one unit away, the most valued needs are not affected, because you still have other units to satisfy them it is the least valued needs that will now be left without being satiated.
As such it is always of crucial importance to note that what is being appraised is the value of a single unit and not of the whole batch if it were the case, its value would be much higher, because now all the satisfaction would be called into question In a sense, the equivalent of appraising the whole batch is appraising the value of a good of which you have only one unit in that case, all satisfaction will also be called into question, so its value will correspond to the importance of the most urgent need that depends on having the good at all.
Now go and be an economist
The theory of value is the core to economics, and marginal utility is the source to value, for economizing individuals must decide what ends to satisfy most from the available means Menger states, value is thus nothing inherent in goods, no property of them, nor an independent thing existing by itself It is a judgement economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well being Hence, value does not exist outside the consciousness of men Value can t be objective, it is rooted in subjective means.
The differences in the marketability of commodities is a necessary prerequisite for the origin of money because it must be the most marketable and saleable good without having exchange limitations and sustain its marketability over time Money is not the invention of the state nor the byproduct of legislation as well as not even necessary to be sanctioned by a political authority for its existence Money is a natural phenomenon of economic relationships established over time through the exchange of commodities, and eventually one or two commodities reigns supreme as money Even though this wasn t my first economics book, this book is very good to introducing not only economics in general but Austrian Economics Menger is simply brilliant, for he saved economics of the flawed existing structures of economic thought and legitimately established economics as a theoretical science, for marginal utility changed economics as to solving the water diamond paradox.