Carl Menger

Economist

• Born: February 28, 1840
• Place of Birth: Galicia, Austro-Hungarian Empire
• Died: February 28, 1921
• Place of Death: Vienna, Austria

• Education: University of Prague; University of Vienna; University of Krakow
• Significance: Carl Menger was an Austrian economist and the founder of the Austrian School of economic thought in the late nineteenth century. Menger's defining work, Principles of Economics, revolutionized economic theory.

Background

Carl Menger was born on February 28, 1840, in Galicia, Austro-Hungary, now a part of Poland. His father, Anton, was a lawyer, and his mother, Caroline, was the daughter of a rich merchant. He had two brothers: Anton, a law professor at the University of Vienna, and Max, a lawyer who served as a deputy in Austria's Parliament.

From 1856 to 1863, Menger studied economics at the Universities of Prague and Vienna. Afterward, he started a career as a journalist and advanced quickly. His stories were published as serials in newspapers.

In 1866, Menger left his job as a market analyst for the newspaper Wiener Zeitung to pursue a doctorate in law. He worked as an apprentice lawyer in 1867 before receiving his law degree that year from the University of Krakow. He returned to journalism as an economic reporter and started a daily newspaper.

After attaining his doctorate, Menger focused his efforts on rethinking economic theory. While reporting on stocks and securities, Menger realized that the factors of production to which classical economists pointed as the most important in determining market prices differed from those that market watchers believed were key. Menger then took four years to write the book that would cement his place in economics.

Life's Work

In 1871, Menger published his economic insights in Principles of Economics. The book formed the backbone of the Austrian School of economics.

Menger gained prominence as a founder of the marginal revolution, the introduction of marginal utility into economic study as a crucial principle to explain relative prices. Menger and economists William Jevons and Léon Walras worked to develop marginal utility, the additional satisfaction a consumer receives from using one more unit of a good.

In Principles of Economics, Menger reconstructed the concept of marginal utility through the subjective theory of value. Menger believed the value of a good depends on what the person wants to use it for. The person will use the good for the most important reasons first and then use the remaining units for less urgent purposes. When an individual has more of an item, the good's subjective value decreases. Menger's observations underlie the principle of diminishing marginal utility: a person derives less satisfaction from a good with each additional unit he or she uses.

Menger used the subjective theory of value to upend another theory, the labor theory of value. He demonstrated that goods accumulate value not through the amount of labor used to make them but through their capacity to satisfy people's wants. Menger then theorized that labor and other factors of production are valued based on their capacity to make goods that people want.

In Principles of Economics, Menger established a new foundation for price theory. Classical economists believed the costs of the factors of production determined the price of goods. Their theory explained the supply of goods but not the demand. Menger rooted price theory in the importance of human action—consumer choice—in establishing price, such as whether an individual decides to purchase a good and the marginal utility he or she gets from it.

Menger also devised an explanation for the origins of money. He suggested that if people trade one good for another, they likely will not get the good they want in one or two bartered exchanges. If people trade what they have for an item that everyone wants, however, then they can use the universally accepted item to buy what they want. The universally accepted item is money.

Upon the publication of Principles of Economics, the economic community embraced Menger's theories. Menger received an associate professorship at the University of Vienna in 1873. As Menger's reputation grew, he became a tutor for Crown Prince Rudolf of Austria from 1876 to 1878. He traveled with the young aristocrat throughout Europe. His economic lectures were published posthumously as Carl Menger's Lectures to Crown Prince Rudolf of Austria (1994).

In 1879, Emperor Franz Joseph approved Menger's prestigious appointment as the chair of law and political economy at the University of Vienna. As a full professor, Menger defended the methodology he employed in Principles of Economics in his next work, Investigations into the Method of the Social Sciences with Special Reference to Economics (1883). This spurred a war of words between Menger's Austrian School and his rivals in the German School of economics. The Methodenstreit, or methodological debate, started with Menger's pamphlet The Errors of Historicism in German Economics in 1884 and lasted into the late 1880s.

During the next decade, Menger served on a commission tasked with reforming the Austrian monetary system. His thoughts on monetary theory were published in the influential article "Geld" ("Money") in 1892.

Menger retired from the University of Vienna in 1903. He sought to update Principles of Economics, but he was unhappy with his revisions, and the work was never published.

Menger died on February 28, 1921, in Vienna, Austria.

Impact

Menger's Principles of Economics rewrote key concepts in economic theory, including marginal utility, value theory, and price theory. The law of marginal utility became a key principle of microeconomics. The subjective value of money became widely accepted among economists. Modern economists still look to Menger's explanation of the origins of money. ThroughPrinciples of Economics, Menger's ideas gained a devoted following that formed the Austrian School of economics. Menger's most prominent students included Austrian economists Eugen von Böhm-Bawerk and Friedrich von Wieser. His writings influenced the work of twentieth-century economists Ludwig von Mises and Friedrich Hayek.

Personal Life

Menger retired from the University of Vienna a year after the birth of his son, Karl, in 1902. Menger had a long-term relationship with Karl's mother, Hermine Andermann. The two never married, possibly because Menger was Roman Catholic and Andermann was Jewish. Menger eventually had his son declared legitimate by Emperor Franz Joseph. Karl Menger grew up to become a famous mathematician and died in 1985.

Bibliography

"Carl Menger." The Oxford Handbook of Austrian Economics, edited by Peter J. Boettke and Christopher J. Coyne, Oxford UP, 2015, pp. 15–17.

Ebeling, Richard. "The Rebirth of the Austrian School and the South Royalton Conference: Marking the Fifty-Year Anniversary (June 2024)." Libery Fund, 2024, oll.libertyfund.org/publications/liberty-matters/2024-06-04-the-rebirth-of-the-austrian-school-and-the-south-royalton-conference-marking-the-fifty-year-anniversary-june-2024. Accessed 9 Oct. 2024.

Salerno, Joseph T. "Biography of Carl Menger: The Founder of the Austrian School (1840–1921)." Mises Institute, 16 Aug. 2000, mises.org/library/biography-carl-menger-founder-austrian-school-1840-1921. Accessed 9 Oct. 2024.

Singh, Manoj. "The Austrian School of Economics." Investopedia, www.investopedia.com/articles/economics/09/austrian-school-of-economics.asp. Accessed 9 Oct. 2024.

Skousen, Mark. The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. 2nd ed., M. E. Sharpe, 2009.

White, Lawrence. "Menger, Carl (1840–1921)." Libertarianism.org, 15 Aug. 2008, www.libertarianism.org/encyclopedia/menger-carl-1840-1921. Accessed 9 Oct. 2024.