Carl Menger, founder of the Austrian School
|Died||February 26, 1921 81) (aged|
|Alma mater|| University of Prague |
University of Vienna
|Influences|| Étienne Bonnot de Condillac |
Carl Menger ( // ; German: [ˈmɛŋɐ] ; February 23, 1840 – February 26, 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”.
In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a goods or service is the change in the utility from an increase in the consumption of that good or service.
Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. These economists produced a theory of market economies as largely self-regulating systems, governed by natural laws of production and exchange.
Adam Smith was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment, also known as ''The Father of Economics'' or ''The Father of Capitalism''. Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, often abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage.
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.
The Austrian Empire was a Central European multinational great power from 1804 to 1867, created by proclamation out of the realms of the Habsburgs. During its existence, it was the third most populous empire after the Russian Empire and the United Kingdom in Europe. Along with Prussia, it was one of the two major powers of the German Confederation. Geographically, it was the third largest empire in Europe after the Russian Empire and the First French Empire. Proclaimed in response to the First French Empire, it partially overlapped with the Holy Roman Empire until the latter's dissolution in 1806.
Nowy Sącz is a city in the Lesser Poland Voivodeship of southern Poland. It is the district capital of Nowy Sącz County as a separate administrative unit. Founded by the Duke of Cracow on 8 November 1292, New Sacz is one of the oldest cities in the Lesser Poland region, with a population of around 83,896 as of 2018.
Poland, officially the Republic of Poland, is a country located in Central Europe. It is divided into 16 administrative subdivisions, covering an area of 312,696 square kilometres (120,733 sq mi), and has a largely temperate seasonal climate. With a population of approximately 38.5 million people, Poland is the sixth most populous member state of the European Union. Poland's capital and largest metropolis is Warsaw. Other major cities include Kraków, Łódź, Wrocław, Poznań, Gdańsk, and Szczecin.
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.
A gymnasium is a type of school with a strong emphasis on academic learning, and providing advanced secondary education in some parts of Europe comparable to British grammar schools, sixth form colleges and US preparatory high schools. In its current meaning, it usually refers to secondary schools focused on preparing students to enter a university for advanced academic study. Before the 20th century, the system of gymnasiums was a widespread feature of educational system throughout many countries of central, north, eastern and southern Europe.
The University of Vienna is a public university located in Vienna, Austria. It was founded by Duke Rudolph IV in 1365 and is the oldest university in the German-speaking world. With its long and rich history, the University of Vienna has developed into one of the largest universities in Europe, and also one of the most renowned, especially in the Humanities. It is associated with 20 Nobel prize winners and has been the academic home to many scholars of historical as well as of academic importance.
The Jagiellonian University is a research university in Kraków, Poland.
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.
A price is the quantity of payment or compensation given by one party to another in return for one unit of goods or services. A price is influenced by both production costs and demand for the product. A price may be determined by a monopolist or may be imposed on the firm by market conditions.
Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie". The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).
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.
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.
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 Böhm Ritter von Bawerk was an Austrian economist who made important contributions to the development of the Austrian School of Economics. He served intermittently as the Austrian Minister of Finance between 1895 and 1904. He also wrote a series of extensive critiques of Marxism.
The historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The professors involved compiled massive economic histories of Germany and Europe. Numerous Americans were their students. The school was opposed by theoretical economists. Prominent leaders included Gustav von Schmoller (1838–1917), and Max Weber (1864–1920) in Germany, and Joseph Schumpeter (1883–1950) in the United States.
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.
Friedrich Freiherr von Wieser was an early economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry, he first trained in sociology and law. In 1872, the year he took his degree, he encountered Austrian-school founder Carl Menger's Grundsätze and switched his interest to economic theory. Wieser held posts at the universities of Vienna and Prague until succeeding Menger in Vienna in 1903, where along with his brother-in-law Eugen von Böhm-Bawerk he shaped the next generation of Austrian economists including Ludwig von Mises, Friedrich Hayek and Joseph Schumpeter in the late 1890s and early 20th century. He was the Austrian Minister of Commerce from August 30, 1917 to November 11, 1918.
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.
Capital and Interest is a three-volume work on finance published by Austrian economist Eugen Böhm von Bawerk (1851–1914).
Gustav FriedrichSchmoller was the leader of the "younger" German historical school of economics.
Johan Gustaf Knut Wicksell was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to the noted feminist Anna Bugge.
The Theory of Money and Credit is a 1912 economics book written by Ludwig von Mises, originally published in German as Theorie des Geldes und der Umlaufsmittel. In it Mises expounds on his theory of the origins of money through his "regression theorem", which is based on logical argumentation, not historic explanations. It is one of the foundational works of the Misean branch of the Austrian School of economic thought.
Ludwig Heinrich Edler von Mises was an Austrian School economist, historian, and sociologist. Mises wrote and lectured extensively on behalf of classical liberalism. He is best known for his work on praxeology, a study of human choice and action.
Emil Lederer was a Bohemian-born German economist and sociologist. Purged from his position at Humboldt University of Berlin in 1933 for being Jewish, Lederer fled into exile. He helped establish the "University in Exile" at the New School in New York City.
Frank Albert Fetter was an American economist of the Austrian School. Fetter's treatise, The Principles of Economics, contributed to an increased American interest in the Austrian School, including the theories of Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises and Friedrich Hayek.
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.
Throughout modern history, a variety of perspectives on capitalism have evolved based on different schools of thought.
Berthold Frank Hoselitz (1913–1995) taught Economics and Social Science at the University of Chicago between 1945 and 1978. His analysis of the role of cultural and sociological factors in economic development was influential and contrasted to Chicago School models of self-interested maximizing behavior. Hoselitz was the founding editor of Economic Development and Cultural Change, a prominent journal in the new research field of economic development. At the Carnegie Institute of Technology Hoselitz taught a course in international economics in 1947–48 that was the only economics course that future Nobel Laureate John Nash took before Nash wrote his pathbreaking thesis on game theory and bargaining.
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