Menger’s Early Life and Education
Carl Menger (1840–1921) was born in Neu-Sandez, a small town in the Crown Land of Galicia, in the Austro-Hungarian Empire.
Now known as Nowy Sącz, the town is today located in southern Poland, just a few miles north of the border with Slovakia.
Menger’s father, a lawyer by profession, was a wealthy member of the minor nobility. His two brothers were prominent lawyers, as well. His son, Karl Menger, became a distinguished mathematician.
After attending Gymnasium (secondary school), Menger studied law in Prague and Vienna, but left school without finishing to go to work as a journalist.
Menger worked as a journalist and analyst for several years during the 1860s, reporting market news for the Lemberger Zeitung in Lemberg, Galicia (now Lviv, Ukraine), and later for the Wiener Zeitung in Vienna.
Eventually, Menger decided to return to graduate school, receiving his doctorate in jurisprudence from the Jagiellonian University in Kraków in 1867.
Upon obtaining his doctorate, Menger went to work for the Austrian imperial civil service.
While working as a journalist, Menger noticed that the classical economics he had been taught in school neither explained the actual movement of real-world prices nor agreed with the understanding of market participants.
This experience stimulated Menger’s own thinking and led him to write his first, and most-influential, book, Grundsätze der Volkswirthschaftslehre [Principles of Economics], which was published in 1871.
In 1873, Menger was appointed a professor of political economy at the University of Vienna. He remained in that position, with brief interruptions, until 1903.
One of those interruptions occurred in 1876, when Menger accepted the post of tutor to the Austrian imperial Crown Prince, Archduke Rudolf. Menger accompanied the Archduke on the “grand tour” of the European continent traditionally undertaken by young aristocrats as a part of their education.
Menger and Rudolf traveled together for two years, visiting through Germany, Switzerland, France, and England. More importantly, the tutor kept a journal of the economics lectures he delivered to his pupil, which were only discovered and published in the twentieth century (see “Menger’s Principal Works,” below).
Menger is known above all as the father of Austrian School of economics.
More specifically, he is especially known for two enormous contributions to the history of economic thought.
First was his contribution to mainstream classical economic theory through the concept of “marginal utility.” This is the idea that prices are determined not so much by the value of a commodity on some absolute scale as by the relative value of an additional increment of the commodity.
Menger’s contribution to the development of the theory of marginal utility helped to resolve the so-called “paradox of value” (AKA the “diamond-water paradox”), which was given its classical formulation, but never solved, by Adam Smith.
The paradox of value refers to the fact that in an absolute sense water is far more necessary to human life—and hence more valuable—than diamonds. For example, a man dying of thirst in the desert might happily trade a diamond for a bottle of water. And yet, in ordinary life, diamonds are far more expensive than bottles of water.
Menger explained this paradox by showing that once the basic need for water has been met, the value of each additional bottle of water declines very steeply, while the value of diamonds increases commensurately, before eventually leveling off at a much higher level relative to the value of water. Thus, the value of a commodity is not absolute, but relative to its marginal utility.
Menger’s second—and perhaps even-more-important—contribution was the subjective theory of value, which in a sense is already implied by the concept of marginal utility, but had never before been as clearly articulated.
In short, Menger’s insight was that the value of anything has little or nothing to do with the value of the commodities and the labor that went into its production. Rather, the value of a thing is determined primarily or solely by the preferences of buyers.
Thus, I might be a highly industrious but talentless author laboring mightily over my novel in my garret. However, the fact that a great deal of labor went into the production of my novel has no bearing whatever on the market value of my book, which may well be nil.
Two other economists, William Stanley Jevons and Léon Walras, came to similar conclusions independently around the same time. However, Menger’s formulation of the subjective theory of value in the Principles of Economics is usually considered to be the most cogent one with the most general application.
During the 1880s, Menger became involved in a major public controversy with mainstream German economists, known as the “Historical School,” who were more interested in compiling histories of the development of the economy than in the abstract analysis of economic activity as a general phenomenon. This controversy came to be known as the Methodenstreit [methodology controversy].
The Methodenstreit was sparked by the publication, in 1883, of Menger’s second book, Investigations into the Method of the Social Sciences, with Special Reference to Economics (for details, see “Menger’s Principal Works,” below), attacking the German Historical School.
Menger’s book was, in turn, savagely attacked by the Historical School economist, Gustav von Schmoller.
Then, in 1884, Menger published a highly polemical rebuttal aimed directly at Schmoller and his colleagues: The Errors of Historicism in German Economics (see below).
In this sense, Menger played an important role in the importation of theoretical economics—already practiced in France and England—into the German-speaking lands.
It is interesting to note that the phrase “Austrian School” was first used by Schmoller as an insult (on the assumption of the intellectual superiority of Germany over provincial Austria-Hungary).
Menger chose to embrace the label and wear it as a badge of honor.
Menger’s Principal Works
Principles of Economics (1871).
Carl Menger’s Lectures to Crown Prince Rudolf of Austria, edited by Erich W. Streissler and Monika Streissler (1876).
Investigations into the Method of the Social Sciences, with Special Reference to Economics (1883).
The Errors of Historicism in German Economics [English translation: Econ Journal Watch, 2020, 17: 461–506] (1884).
Zur Theorie des Kapitals [A Contribution to the Theory of Capital] (1888).
On the Origin of Money (1892).
Selected Works on Menger and Austrian Economics
Adair-Toteff, Christopher, The Early Austrian School of Economics: Money, Value, Capital (2022).
Alter, Max, Carl Menger and The Origins of Austrian Economics (1990).
Blaug, Mark, Carl Menger (1840–1921) (1992).
Caldwell, Bruce J., Carl Menger and His Legacy in Economics (1990).
Campagnolo, Gilles, Carl Menger—Entre Aristote et Hayek: aux sources de l’économie moderne [Carl Menger—Between Aristotle and Hayek: At the Origins of the Modern Economy] (2008).
Fekete, Antal E., Critique of Mainstream Austrian Economics, in the Spirit of Carl Menger (2019).
Florito, Luca, Scott Scheall, and Carlos Eduardo Suprinyak, eds., Research in the History of Economic Thought and Methodology, Including a Symposium on Carl Menger at the Centenary of His Death (2021).
Gloria-Palermo, Sandye, Evolution of Austrian Economics: From Menger to Lachmann (1999).
Hagemann, Harald, Tamotsu Nishizawa, and Yukihiro Ikeda, eds., Austrian Economics in Transition: From Carl Menger to Friedrich Hayek (2010).
Hicks, John, Carl Menger and the Austrian School of Economics(1973).
Latzer, Michael and Stefan W. Schmitz, eds., Carl Menger and the Evolution of Payments Systems: From Barter to Electronic Money [out of print] (1992).
Oakley, Allen, The Foundations of Austrian Economics from Menger to Mises: A Critico-Historical Retrospective of Subjectivism (1998).
Shearmur, Jeremy, Menger, Mises, Hayek: Subjectivism, Needs and Biology [out of print] (1989).
Smith, Barry, “Aristotle, Menger, Mises: An Essay in the Metaphysics of Economics,” History of Political Economy, Supplement, 22: 263–288 (1990).
Streissler, Erich W., The Influence of German Economics on the Work of Menger and Marshall [out of print] (1989).
Wasserman, Janek, The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas (2019).