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Carl Menger is the founder of the Austrian school of economics and cofounder of the marginalist revolution (along with William Jevons and Leon Walras). Unlike 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. For example, the first pails of water are used to satisfy the most important uses, and successive pails are used for less and less important purposes.
Menger used this insight to resolve the diamond-water paradox that had baffled Adam Smith (see marginalism). He also used it to refute the labor theory of value. Goods acquire their value, he showed, not because of the amount of labor used in producing them, but because of their ability to satisfy people’s wants.
Menger used his “subjective theory of value” to arrive at one of the most powerful insights in economics: both sides gain from exchange. People will exchange something they value less for something they value more. Because both trading partners do this, both gain. This insight led him to see that middlemen are highly productive: they facilitate transactions that benefit those they buy from and those they sell to.
Menger also came up with an explanation of how money develops that is still accepted today. If people barter, he pointed out, then they can rarely get what they want in one or two transactions. If they have lamps and want chairs, for example, they will not necessarily be able to trade lamps for chairs but may instead have to make a few intermediate trades. This is a hassle. But people notice that the hassle is much less when they trade what they have for some good that is widely accepted, and then use this good to buy what they want. The good that is widely accepted eventually becomes money.
Menger extended his analysis to other institutions. He argued that language, for example, developed for the same reason money developed—to facilitate interactions between people. He called such developments “organic.” Neither language nor money was developed by government.
The austrian school of economic thought first coalesced from Menger’s of two young disciples, Eugen von Böhm-Bawerk and Friedrich von Wieser. economists Ludwig von Mises and Friedrich Hayek used Menger’s point, Mises with his work on money and Hayek with his idea of “spontaneous order.”
Carl earned his doctorate in law from the University of Kraków in 1867. As a result of publishing his Principles of Economics in 1871, he was given a lectureship and then a professorship at the University of Vienna, which he held until 1903. In 1876 he took a post as tutor for Crown Prince Rudolf of Austria. In that capacity he traveled throughout Germany, France, Switzerland, and England.
Full Bio: http://econlib.org/library/Enc/bios/Menger.html
Principles of Economics: http://mises.org/books/mengerprinciples.pdf
Investigations into the Method of the Social Sciences: http://mises.org/books/investigations.pdf