Carl Menger and The Marginalist Revolution–Videos

Posted on May 16, 2011. Filed under: Blogroll, Communications, Economics, Microeconomics | Tags: , , , , , , , , , , |


The Marginalist Revolution | Joseph T. Salerno


Menger and the Early Austrians


History of Austrian Economics


Principles of Economics by Carl Menger (read online)

“The reading of this book made an economist of me.”

~Ludwig von Mises


Background Articles and Videos


Biography of Carl Menger: The Founder of the Austrian School (1840-1921)

Joseph T. Salerno

Biography of Carl Menger: The Founder of the Austrian School (1840-1921)

by Joseph T. Salerno

“…Despite the many illustrious forerunners in its six-hundred year prehistory, Carl Menger (1840-1921) was the true and sole founder of the Austrian school of economics proper. He merits this title if for no other reason than that he created the system of value and price theory that constitutes the core of Austrian economic theory. But Menger did more than this: he also originated and consistently applied the correct, praxeological method for pursuing theoretical research in economics. Thus in its method and core theory, Austrian economics always was and will forever remain Mengerian economics.

Menger’s position as the originator of the fundamental doctrines of Austrian economics has been recognized and hailed by all eminent authorities on the history of Austrian economics. In his eulogy of Menger written upon the latter’s death in 1921, Joseph Schumpeter averred that “Menger is nobody’s pupil and what he created stands . . . . Menger’s theory of value, price, and distribution is the best we have up to now.” Ludwig von Mises wrote that “What is known as the Austrian School of Economics started in 1871 when Carl Menger published a slender volume under the title Grundsätze der Volkswirtschaftslehre [Principles of Economics]…. Until the end of the Seventies there was no `Austrian School.’ There was only Carl Menger.” For F. A. Hayek (1992, p. 62), the Austrian school’s “fundamental ideas belong fully and wholly to Carl Menger. . . . [W]hat is common to the members of the Austrian school, what constitutes their peculiarity and provided the foundations for their later contributions, is their acceptance of the teaching of Carl Menger.”

While there is no dispute regarding Menger’s role as creator of the defining principles of Austrian economics, there does exist some confusion regarding the precise nature of his contribution. It is not always fully recognized that Menger’s endeavor to radically reconstruct the theory of price on the basis of the law of marginal utility was not inspired by a vague subjectivism in outlook. Rather, Menger was motivated by the specific and overarching aim of establishing a causal link between the subjective values underlying the choices of consumers and the objective market prices used in the economic calculations of businessmen. The Classical economists had formulated a theory attempting to explain market prices as the outcome of the operation of the law of supply and demand. Yet, these economists were compelled to restrict their analysis to the monetary calculations and choices of businessmen while neglecting consumer choice for the lack of a satisfactory theory of value. Their theory of “calculated action” was correct as far as it went, and was used in demolishing the protectionist and interventionist schemes of sixteenth- and seventeenth-century mercantilists and the statist fantasies of nineteenth-century Utopian socialists. Thus, Menger’s ultimate goal was not to destroy Classical economics, as has sometimes been suggested, but to complete and firm up the Classical project by grounding the theory of price determination and monetary calculation in a general theory of human action. …”

The Concise Encyclopedia of Economics

Carl Menger



“… Carl Menger has the twin distinctions of being the founder of Austrian economics and a cofounder of the marginal utility revolution. Menger worked separately from William Jevons and Leon Walras and reached similar conclusions by a different method. Unlike Jevons, Menger did not believe that goods provide “utils,” or units of utility. Rather, he wrote, goods are valuable because they serve various uses whose importance differs. For example, the first pails of water are used to satisfy the most important uses, and successive pails are used for less and less important purposes.

Menger used this insight to resolve the diamond-water paradox that had baffled Adam Smith (see marginalism). He also used it to refute the labor theory of value. Goods acquire their value, he showed, not because of the amount of labor used in producing them, but because of their ability to satisfy people’s wants. Indeed, Menger turned the labor theory of value on its head. If the value of goods is determined by the importance of the wants they satisfy, then the value of labor and other inputs of production (he called them “goods of a higher order”) derive from their ability to produce these goods. Mainstream economists still accept this theory, which they call the theory of “derived demand.”

Menger used his “subjective theory of value” to arrive at one of the most powerful insights in economics: both sides gain from exchange. People will exchange something they value less for something they value more. Because both trading partners do this, both gain. This insight led him to see that middlemen are highly productive: they facilitate transactions that benefit those they buy from and those they sell to. Without the middlemen, these transactions either would not have taken place or would have been more costly.

Menger also came up with an explanation of how money develops that is still accepted today. If people barter, he pointed out, then they can rarely get what they want in one or two transactions. If they have lamps and want chairs, for example, they will not necessarily be able to trade lamps for chairs but may instead have to make a few intermediate trades. This is a hassle. But people notice that the hassle is much less when they trade what they have for some good that is widely accepted, and then use this good to buy what they want. The good that is widely accepted eventually becomes money. Modern economists describe this function of money as “avoiding the need for the double coincidence of wants.” Indeed, the word “pecuniary” derives from the Latin pecus, meaning “cattle,” which in some societies served as money. Other societies have used cigarettes, cognac, salt, furs, or stones as money. As economies became more complex and wealthier, they began to use precious metals (gold, silver, and so on) as money.

Menger extended his analysis to other institutions. He argued that language, for example, developed for the same reason money developed—to facilitate interactions between people. He called such developments “organic.” Neither language nor money was developed by government. …”

Carl Menger

“…Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.


Menger was born in Nowy Sącz in Austrian Galicia, (now in Poland). He was the son of a wealthy family of minor nobility; his father, Anton, was a lawyer. His mother, Caroline, was the daughter of a wealthy Bohemian merchant. He had two brothers, Anton and Max, both prominent as lawyers. After attending Gymnasium he studied law at the Universities of Prague and Vienna and later received a doctorate in jurisprudence from the Jagiellonian University in Kraków. In the 1860s Menger left school and enjoyed a stint as a journalist reporting and analyzing market news, first at the Lemberger Zeitung in Lwów, Ukraine and later at the Wiener Zeitung in Vienna.

During the course of his newspaper work he noticed a discrepancy between what the classical economics he was taught in school said about price determination and what real world market participants believed. In 1867 Menger began a study of political economy which culminated in 1871 with the publication of his Principles of Economics (Grundsätze der Volkswirtschaftslehre), thus becoming the father of the Austrian School of economic thought. It was in this work that he challenged classical cost-based theories of value with his theory of marginality.

In 1872 Menger was enrolled into the law faculty at the University of Vienna and spent the next several years teaching finance and political economy both in seminars and lectures to a growing number of students. In 1873 he received the university’s chair of economic theory at the very young age of 33.

In 1876 Menger began tutoring Archduke Rudolf von Habsburg, the Crown Prince of Austria in political economy and statistics. For three years Menger accompanied the prince in his travels, first through continental Europe and then later through the British Isles.[1] He is also thought to have assisted the crown prince in the composition of a pamphlet, published anonymously in 1878, which was highly critical of the higher Austrian aristocracy. His association with the prince would last until Rudolf’s suicide in 1889 (see the Mayerling Affair).

In 1878 Rudolf’s father, Emperor Franz Josef, appointed Menger to the chair of political economy at Vienna. The title of Hofrat was conferred on him, and he was appointed to the Austrian Herrenhaus in 1900.

Ensconced in his professorship he set about refining and defending the positions he took and methods he utilized in Principles, the result of which was the 1883 publication of Investigations into the Method of the Social Sciences with Special Reference to Economics (Untersuchungen über die Methode der Socialwissenschaften und der politischen Oekonomie insbesondere). The book caused a firestorm of debate, during which members of the Historical school of economics began to derisively call Menger and his students the “Austrian School” to emphasize their departure from mainstream economic thought in Germany – the term was specifically used in an unfavorable review by Gustav von Schmoller. In 1884 Menger responded with the pamphlet The Errors of Historicism in German Economics and launched the infamous Methodenstreit, or methodological debate, between the Historical School and the Austrian School. During this time Menger began to attract like-minded disciples who would go on to make their own mark on the field of economics, most notably Eugen von Böhm-Bawerk, and Friedrich von Wieser.

In the late 1880s Menger was appointed to head a commission to reform the Austrian monetary system. Over the course of the next decade he authored a plethora of articles which would revolutionize monetary theory, including “The Theory of Capital” (1888) and “Money” (1892).[2] Largely due to his pessimism about the state of German scholarship, Menger resigned his professorship in 1903 to concentrate on study.


  1. ^ The History of Economic Thought: A Reader
  2. ^ “On the Origin of Money” (English translation by Caroline A. Foley), Economic Journal, Volume 2 (1892), pp. 239-55.

External links

  • Biography of Carl Menger The Founder of the Austrian School by Joseph T. Salerno
  • Biography of Carl Menger The Concise Encyclopedia of Economics: Library of Economics and Liberty
  • The Epistemological Import of Carl Menger’s Theory of the Origin of Money Ludwig von Mises in Human Action on Menger’s Theory of the Origins of Money
  • Profile on Carl Menger at the History of Economic Thought Website
  • Principles of Economics, online version provided by the Ludwig von Mises Institute.
  • Grundsätze der Volkswirtschaftslehre (Principles of Economics)
  • Principles of Economics (PDF Spanish)
  • On the Origin of Money (English Translation), online version provided by the Monadnock Press …”

Carl Menger still woth reading

It’s the 171st birthday of the founder of the Austrian School of Economics, and his work is still relevant.

By Mario Rizzo, Guest blogger / February 24, 2011

“…Today is the birthday of Carl Menger, born February 23, 1840. Menger was, of course, the founder of the Austrian School of Economics. His Principles of Economics, a great achievement for its time, is still well worth reading. It conveys like no other book at the time (and unlike most basic texts today) the importance of mind, knowledge, ignorance, causal relationships between goods and wants, and of course marginal utility. I think we can still learn from Menger’s book today, especially about the importance of knowledge in economic development. Austrians should be pleased to have such a great mind as the founder of their school.

Menger’s work has garnered respect from even those who have not considered themselves Austrians. George Stigler, for example, wrote a very appreciative essay on Menger in his Production and Distribution Theories.For a long time Menger’s contributions were not clearly distinguished from those of Jevons and Walras, the other leaders of the “marginalist revolution.” We have William Jaffe to thank for his de-homogenization of the three great economists. But, really, a moment’s perusal of the three books should make the differences obvious. Walras is concerned about mathematical elegance and Jevons is so enamored of hedonistic psychology that he gives the appearance, at least, of casting marginalism as an application of Jeremy Bentham’s philosophy – thus unduly limiting it.

Menger also made contributions to the Scottish Enlightenment project of spontaneous order, especially with respect to the evolution of money and of common law. In this he shows himself a worthy successor to Adam Smith in a way that Walras and Jevons are not. …”

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