Carl Menger, founder of the Austrian School
|Died||26 February 1921 81) (aged|
|Alma mater|| University of Prague |
University of Vienna
|Influences|| Étienne Bonnot de Condillac |
Carl Menger ( // ; German: [ˈmɛŋɐ] ; 28 February 1840 – 26 February 1921) was an Austrian economist and the founder of the Austrian School of economics. Menger contributed to the development of the theory of marginalism (marginal utility), which rejected the cost-of-production theories of value, such as were developed by the classical economists such as Adam Smith and David Ricardo. As a departure from such, he would go on to call his resultant perspective, the "Subjective Theory of Value".
Menger was born in the city of Neu-Sandez in Galicia, Austrian Empire, which is now Nowy Sącz in Poland. He was the son of a wealthy family of minor nobility; his father, Anton, was a lawyer. His mother, Caroline, was the daughter of a wealthy Bohemian 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.
After attending Gymnasium he studied law at the Universities of Prague and Vienna and later received a doctorate in jurisprudence from the Jagiellonian University 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 Lviv, Ukraine) and later at the Wiener Zeitung in Vienna.
During the course of his newspaper work he noticed a discrepancy between what the classical economics he was taught in school said about price determination and what real world market participants believed. In 1867 Menger began a study of political economy which culminated in 1871 with the publication of his Principles of Economics (Grundsätze der Volkswirtschaftslehre), thus becoming the father of the Austrian School of economic thought. 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 University 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 Archduke Rudolf von Habsburg, the Crown Prince of Austria in political economy and statistics. For two years Menger accompanied the prince in 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 (see the Mayerling Affair).
In 1878 Rudolf's father, Emperor Franz Josef, 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 Herrenhaus in 1900.
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 (Untersuchungen über die Methode der Socialwissenschaften und der politischen Oekonomie insbesondere). 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 economic thought in (Germany) – the term was specifically used in an unfavorable review by Gustav von Schmoller.
In 1884 Menger responded with the pamphlet The Errors of Historicism in German Economics and launched the infamous Methodenstreit, 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.
There are different opinions on the philosophical influences. But it is without discussion that there is a rudimentary dispute of Menger with Plato and a very meticulous one with Aristotle, especially with his ethics.
“Plato holds that money is an agreed sign for change and Aristotle says, that money came into being as an agreement, not by nature, but by law.” <ref> see: Carl Menger, Investigationsinto the Method of the Social Sciences with Special Reference to Economics</ref>
Also the influence of Kant is provable. Many authors emphasize also Rationalism and Idealism, as is represented by Christian Wolff. Looking at the literature, most writers think that Menger represents an essential Aristotelian position. This is surprisingly a position that is contrary to his theory of the subjective value and his individualistic methodological position.
Another entry is the use of deduction or induction. With his pricetheory can be shown that Menger is nominalistic and, stronger,
anti-essentialistic. That is to say that his approach is inductionalistic. <ref> Text of “philosophical influences” is mainly a translation of the German Wikipedia on Carl Menger </ref>
Menger used his subjective theory of value 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.
The Austrian School is a heterodox school of economic thought that is based on methodological individualism—the concept that social phenomena result exclusively from the motivations and actions of individuals.
Eugen Ritter von Böhm-Bawerk was an Austrian economist who made important contributions to the development of the Austrian School of Economics and neoclassical economics. He served intermittently as the Austrian Minister of Finance between 1895 and 1904. He also wrote a series of extensive critiques of Marxism.
Principles of Economics is a book by economist Carl Menger which is credited with the founding of the Austrian School of economics. It was one of the first modern treatises to advance the theory of marginal utility.
Methodenstreit, in intellectual history beyond German-language discourse, was an economics controversy commenced in the 1880s and persisting for more than a decade, between that field's Austrian School and the (German) Historical School. The debate concerned the place of general theory in social science and the use of history in explaining the dynamics of human action. It also touched on policy and political issues, including the roles of the individual and state. Nevertheless, methodological concerns were uppermost and some early members of the Austrian School also defended a form of welfare state, as prominently advocated by the Historical School.
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Ludwig Maurits Lachmann was a German economist who became a member of and important contributor to the Austrian School of economics.
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. The reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
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The subjective theory of value is a theory of value which advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor necessary to produce the good, but instead value is determined by the importance an acting individual places on a good for the achievement of his desired ends. The modern version of this theory was created independently and nearly simultaneously by William Stanley Jevons, Léon Walras, and Carl Menger in the late 19th century.
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The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics, from the ancient world to the present day in the 21st Century. This field encompasses many disparate schools of economic thought. Ancient Greek writers such as the philosopher Aristotle examined ideas about the art of wealth acquisition, and questioned whether property is best left in private or public hands. In the Middle Ages, scholasticists such as Thomas Aquinas argued that it was a moral obligation of businesses to sell goods at a just price.
In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work. While economists do not always fit into particular schools, particularly in modern times, classifying economists into schools of thought is common. Economic thought may be roughly divided into three phases: premodern, early modern and modern. Systematic economic theory has been developed mainly since the beginning of what is termed the modern era.
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In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a good or service is the change in the utility from an increase in the consumption of that good or service.
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