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Carl Menger von Wolfensgrün | |
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 Carl Menger von Wolfensgrün, founder of the Austrian school | |
| Born | (1840-02-28)28 February 1840 |
| Died | 26 February 1921(1921-02-26) (aged 80) |
| Resting place | Vienna Central Cemetery[1] |
| Academic background | |
| Alma mater | Charles University University of Vienna Jagiellonian University |
| Influences | |
| Academic work | |
| Discipline | Political economy |
| School or tradition | Austrian school |
| Notable students | Prince Rudolf |
| Notable ideas | Marginal utility,subjective theory of value |
Carl Menger von Wolfensgrün[3] (/ˈmɛŋɡər/;German:[ˈmɛŋɐ]; 28 February 1840[4] – 26 February 1921) was an Austrian economist who contributed to themarginal theory of value.[5] Menger is considered the founder of theAustrian school of economics.[6]
In building his marginalist approach, Menger rejected many established views ofclassical economics. He directly disputed the view of the "German school" that economic theory could be derived from history. Departing from thecost-of-production theory of value—the prevailing theory ofAdam Smith,David Ricardo, andKarl Marx—Menger'ssubjective theory of value emphasized role of mutual agreement in deriving prices.[7] Although he had few readers outside Vienna until late in his career, disciples includingEugen von Böhm-Bawerk andFriedrich 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."[8]
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 theUniversity of Vienna from 1872 to 1903. He became a private tutor and confidant toRudolf von Habsburg, the crown prince of Austria.
Carl Menger von Wolfensgrün[3] was born in the city ofNeu-Sandez in theKingdom of Galicia and Lodomeria,Austrian Empire, which is nowNowy Sącz in Poland.[9] 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 wealthyBohemian merchant. He had two brothers,Anton and Max, both prominent as lawyers. His son,Karl Menger, was a mathematician who taught for many years atIllinois Institute of Technology.[10]
After attendingGymnasium, he studied law at the universities ofPrague[11] andVienna and later received a doctorate in jurisprudence from theJagiellonian University in Kraków. In the 1860s Menger left school and enjoyed a stint as a journalist reporting and analyzing market news, first at theLemberger Zeitung in Lemberg, Austrian Galicia (nowLviv, Ukraine) and later at theWiener Zeitung in Vienna.[citation needed]
During the course of his newspaper work, he noticed a discrepancy between what the classical economics he was taught in school said aboutprice determination and what real world market participants believed. In 1867, Menger began a study ofpolitical economy which culminated in 1871 with the publication of hisPrinciples of Economics (Grundsätze der Volkswirtschaftslehre), thus becoming the father of theAustrian school of economics.[12][13] 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 theUniversity 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 ArchdukeRudolf 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.[14] 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 untilRudolf's suicide in 1889.
In 1878 Rudolf's father, EmperorFranz Joseph, appointed Menger to the chair of political economy at Vienna. The title ofHofrat was conferred on him, and he was appointed to the AustrianHerrenhaus in 1900.
Ensconced in his professorship, he set about refining and defending the positions he took and methods he utilized inPrinciples, the result of which was the 1883 publication ofInvestigations 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 thehistorical 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 byGustav von Schmoller.
In 1884 Menger responded with the pamphletThe Errors of Historicism in German Economics and launched the infamousMethodenstreit, 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 notablyEugen von Böhm-Bawerk, andFriedrich 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 revolutionizemonetary theory, including "The Theory of Capital" (1888) and "Money" (1892).[15] Largely due to his pessimism about the state of German scholarship, Menger resigned his professorship in 1903 to concentrate on study.
Menger used hissubjective theory of value to arrive at what he considered one of the most powerful insights in economics: "both sides gain from exchange." UnlikeWilliam 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.[16]
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."[17] Menger showed that "their special saleableness" tended to make the difference betweensupply and demand tighter than any other market good, which led to their adoption as a generalmedium of exchange and evolution in many societies asmoney.
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