Galtland Index

Principles of Economics (Menger)

4 min read

Principles of Economics (Menger)

Principles of Economics (Grundsätze der Volkswirtschaftslehre, 1871) is Carl Menger’s founding work of Austrian Economics and one of the three independent launches of the marginal revolution. Its theory of value is the cornerstone of the subjective theory of value: value is not in goods but is a judgment economizing individuals make about how important a good is for satisfying their needs.

The Theory of Value

Menger builds value from need-satisfaction outward. Goods are things we recognize as causally connected to the satisfaction of a need and can command for that purpose; goods that directly satisfy needs are goods of lower order, and the means that produce them are goods of higher order. Value enters only because goods are scarce relative to the needs they serve: when command of a concrete quantity of a good determines whether some satisfaction is had or foregone, that good acquires importance for the valuer.

That importance is what value is. Menger states the point unmistakably: “value is something fundamentally different from the things themselves; it is a judgment made by economizing individuals about the importance their command of the things has for the maintenance of their lives and well-being.” And so value cannot be a property deposited in the object: “Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs,” and then carry over to the goods we recognize as the causes of that satisfaction.

Because it is rooted in the valuer’s wants and circumstances, the measure of value is not objective or uniform across people: “The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts.” Successive units of a good serve ever-less-urgent wants, so the value of any one unit is set at the margin — the importance of the least urgent satisfaction that the available supply provides for. From this Menger derives exchange (each party gives up what is worth less to him for what is worth more) and price (the outcome of that mutually beneficial trade), making cost a consequence of the value of the product rather than its source.

Why It Matters in This Wiki

This is the founding text of the subjective theory of value that the wiki’s economics rests on. Menger’s reversal — value flows from subjective want-satisfaction to the good, not from labour or cost into the good — is the direct alternative to Marx’s labor theory of value, and the foundation Böhm-Bawerk and Mises built the school’s capital, interest, and money theory upon. Menger’s later origin-of-money essay extends the same subjectivist, spontaneous-order method to money itself.

See Also

Sources

Graph View

Backlinks