Carl Menger

By Kaveh Hosseini

Carl Menger founded a school of economics almost by accident, in a book written largely to get himself a university chair. Born in 1840 in Neu-Sandez, Galicia, in the Austrian Empire, the son of a lawyer, Menger studied law, worked as a journalist, and began writing market reports — the daily contact with prices, he later said, taught him more economics than any textbook. His Principles of Economics (Grundsätze der Volkswirtschaftslehre, 1871) appeared in the same year as Jevons's Theory, and made the same revolutionary move from a different direction. Value, Menger argued, is not a property of things at all. It is a judgment: the importance a person attaches to a good for the satisfaction of his wants. A diamond found on a desert island has no value, however much labor it cost to find, if no one wants it; value exists only in the mind of the valuer, and only at the margin of the stock he holds. From this subjective foundation Menger built, with unusual care, the whole edifice: goods of higher order (capital goods) derive their value by imputation from the consumer goods they help produce; money emerges not by state decree but spontaneously, as the most saleable commodity is gradually adopted by traders seeking to overcome barter — the first great theory of the spontaneous order that would become the Austrian School's signature theme. The book won him the chair at Vienna in 1873, and then the students came: Eugen von Böhm-Bawerk and Friedrich von Wieser, who would carry the doctrine into the twentieth century. Menger spent his later years in the Methodenstreit — the battle of methods — against Gustav von Schmoller and the German Historical School, who insisted economics should be inductive history, not deductive theory. Menger's Investigations into the Method of the Social Sciences (1883) defended theoretical economics with a ferocity that made the dispute personal and permanent; Schmoller declared Menger's school unscientific, Menger called Schmoller an ignoramus, and the German-speaking world split for a generation. He retired in 1903, spent his last years building a vast library, and died in Vienna in 1921, just as his intellectual grandchildren — Mises, Hayek — were beginning the work that would make his school world-famous. He never used a single equation in the Principles, a deliberate choice: economics, for Menger, was about human purposes and plans, not mechanics. That insistence — that the economy is made of acting, valuing individuals, and that theory must start there — is the permanent Austrian contribution, and it begins with him.

Impact on civilization

Menger's impact runs through everything the Austrian School became. The subjective theory of value completed the marginal revolution and settled the question the classical economists had fumbled for a century: prices reflect human valuations, not embodied labor. His account of the spontaneous emergence of money — order without design — became the template for a whole research program: language, law, markets, and institutions as undesigned orders, later developed by Hayek into one of the twentieth century's most influential ideas. His students Böhm-Bawerk and Wieser built the Austrian theory of capital and cost on his foundations; a century later, his method — methodological individualism, the insistence on starting from the acting person — underwrites everything from public-choice theory to modern microeconomics. The Methodenstreit he fought defined the terms of the debate over economic method for fifty years. Every economist who says value is subjective is, knowingly or not, speaking Menger's language.