Carl Menger von Wolfensgrün (; ; 28 February 1840 – 26 February 1921) was an Austrian economist who contributed to the marginal theory of value. Menger is considered the founder of the Austrian school of economics. In building his marginalist approach, Menger rejected many established views of

classical economics Classical economics, also known as the classical school of economics, or classical political economy, is a school of thought in political economy that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. It includ ...

. He directly disputed the view of the "German school" that economic theory could be derived from history. Departing from the cost-of-production theory of value—the prevailing theory of

Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...

, David Ricardo, and

Karl Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

—Menger's

subjective theory of value The subjective theory of value (STV) is an theory of value (economics), economic theory for explaining how the value of goods and services are not only set but also how they can fluctuate over time. The contrasting system is typically known as the ...

emphasized role of mutual agreement in deriving prices. Although he had few readers outside Vienna until late in his career, disciples including Eugen von Böhm-Bawerk and Friedrich von Wieser brought his theories into wider readership. Friedrich Hayek wrote that the Austrian school's "fundamental ideas belong fully and wholly to Carl Menger." Menger began his career as a lawyer and business journalist, during which he saw inconsistencies between existing economic theory and how buyers reasoned. After formal training in economics, he taught at the

University of Vienna The University of Vienna (, ) is a public university, public research university in Vienna, Austria. Founded by Rudolf IV, Duke of Austria, Duke Rudolph IV in 1365, it is the oldest university in the German-speaking world and among the largest ...

from 1872 to 1903. He became a private tutor and confidant to Rudolf von Habsburg, the crown prince of Austria.

Biography

Family and education

Carl Menger von Wolfensgrün was born in the city of Neu-Sandez in the Kingdom of Galicia and Lodomeria,

Austrian Empire The Austrian Empire, officially known as the Empire of Austria, was a Multinational state, multinational European Great Powers, great power from 1804 to 1867, created by proclamation out of the Habsburg monarchy, realms of the Habsburgs. Duri ...

, which is now Nowy Sącz in Poland. He was the son of a wealthy family of minor nobility; his father, Anton Menger, was a lawyer. His mother, Caroline Gerżabek, was the daughter of a wealthy

Bohemia Bohemia ( ; ; ) is the westernmost and largest historical region of the Czech Republic. In a narrow, geographic sense, it roughly encompasses the territories of present-day Czechia that fall within the Elbe River's drainage basin, but historic ...

n merchant. He had two brothers, Anton and Max, both prominent as lawyers. His son, Karl Menger, was a mathematician who taught for many years at

Illinois Institute of Technology The Illinois Institute of Technology, commonly referred to as Illinois Tech and IIT, is a Private university, private research university in Chicago, Illinois, United States. Tracing its history to 1890, the present name was adopted upon the m ...

. After attending Gymnasium, he studied law at the universities of

Prague Prague ( ; ) is the capital and List of cities and towns in the Czech Republic, largest city of the Czech Republic and the historical capital of Bohemia. Prague, located on the Vltava River, has a population of about 1.4 million, while its P ...

and

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and later received a doctorate in jurisprudence from the

Jagiellonian University The Jagiellonian University (, UJ) is a public research university in Kraków, Poland. Founded in 1364 by Casimir III the Great, King Casimir III the Great, it is the oldest university in Poland and one of the List of oldest universities in con ...

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 Lemberg, Austrian Galicia (now

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, Ukraine) and later at the in Vienna.

Career

During the course of his newspaper work, he noticed a discrepancy between what the classical economics he was taught in school said about

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

determination and what real world market participants believed. In 1867, Menger began a study of

political economy Political or comparative economy is a branch of political science and economics studying economic systems (e.g. Marketplace, markets and national economies) and their governance by political systems (e.g. law, institutions, and government). Wi ...

which culminated in 1871 with the publication of his '' Principles of Economics'' (), thus becoming the father of the Austrian school of economics. It was in this work that he challenged classical cost-based theories of value with his theory of marginality – that price is determined at the margin. In 1872 Menger was enrolled into the law faculty at the

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 two years, Menger accompanied the prince during his travels, first through continental Europe and then later through the British Isles. 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. In 1878 Rudolf's father, Emperor Franz Joseph, 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 in 1900.

Dispute with the historical school

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'' ('). 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 German economic thought – the term was specifically used in an unfavourable review by Gustav von Schmoller. In 1884 Menger responded with the pamphlet ''The Errors of Historicism in German Economics'' and launched the infamous , 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). Largely due to his pessimism about the state of German scholarship, Menger resigned his professorship in 1903 to concentrate on study.

Economics

Menger used his

to arrive at what he considered one of the most powerful insights in economics: "both sides gain from exchange." Unlike William 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. Menger also came up with an explanation of how money develops that is still accepted by some schools of thought today.

Money

Menger believed that gold and silver were the precious metals that were adopted as money for their unique attributes like costliness, durability, and easy preservation, making them the "most popular vehicle for hoarding as well as the goods most highly favoured in commerce." Menger showed that "their special saleableness" tended to make their bid-ask spread tighter than any other market good, which led to their adoption as a general medium of exchange and evolution in many societies as

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

Works

* 1871 – ; Translated as * 1883 – ; Translated as * 1884 – ''The Errors of Historicism in German Economics'' * 1888 – ''The Theory of Capital'' * 1892 –

References

External links

* * * *
Profile on Carl Menger
at the History of Economic Thought Website
Carl Menger Papers, 1857–1985
Rubenstein Library, Duke University {{DEFAULTSORT:Menger, Carl 1840 births 1921 deaths Economists from Austria-Hungary 20th-century Austrian economists 19th-century Austrian economists 19th-century Austrian writers Austrian School economists Charles University alumni University of Vienna alumni Jagiellonian University alumni Edlers of Austria German Bohemian people Austrian people of German Bohemian descent People from the Kingdom of Galicia and Lodomeria People from Nowy Sącz Neoclassical economists Burials at the Vienna Central Cemetery