by Menger
[Title Page and Publication Information]: Title page and copyright information for the 1981 edition of Carl Menger's Principles of Economics, including credits for translators James Dingwall and Bert F. Hoselitz, and introductions by F.A. Hayek and Frank H. Knight. [Table of Contents]: Detailed table of contents covering the eight primary chapters of the work, including the general theory of the good, economy and economic goods, value, exchange, price, commodities, and money, along with various appendices. [Editor's Note and Selected Bibliography]: An editor's note by Louis M. Spadaro regarding the reprinting of Menger's work, followed by a selected bibliography of literature on Menger and the Austrian School by authors such as Hayek, Mises, and Schumpeter. [Introduction by F.A. Hayek]: A comprehensive biographical and theoretical introduction by F.A. Hayek. Hayek situates Menger as the primary founder of the Austrian School, contrasting his approach with Jevons and Walras. He discusses Menger's education, his reaction against the German Historical School, and the development of his theories on marginal utility, goods of higher order, time, and the subjective nature of value. The essay also details the 'Methodenstreit' controversy with Schmoller and Menger's later work on monetary reform and the theory of money. [Translator's Preface]: The translators' preface explaining the challenges of translating Menger's cumbersome Austrian 'officialse' style and his pioneering terminology. They justify the choice of the first edition for translation and describe their approach to footnotes and citations. [Author's Preface]: Menger's original preface where he argues for the application of the empirical method to economics to discover the definite laws governing economic phenomena. He defends the existence of economic laws against the objection of human free will and outlines his goal of a unified price theory based on the causal connections between goods and needs. [Chapter I: The General Theory of the Good]: The opening of Chapter I, establishing the law of cause and effect as the basis for economic activity. Menger defines 'useful things' and 'goods' based on their causal connection to the satisfaction of human needs and begins to list the prerequisites for a thing to possess 'goods-character'. [Prerequisites of Goods-Character and Imaginary Goods]: Menger outlines the four simultaneous prerequisites for a thing to acquire 'goods-character': a human need, capable properties, human knowledge of the causal connection, and command over the thing. He introduces the concept of 'imaginary goods,' which are things treated as goods based on erroneously ascribed properties or non-existent needs, noting that as civilization and knowledge progress, the number of true goods increases while imaginary goods decrease. [Relationships and Useful Actions as Goods]: The author examines 'relationships' (such as firms, monopolies, and copyrights) as a category of goods. He argues that these are essentially useful human actions or inactions that have economic value and can be disposed of. Menger proposes a division of all goods into two classes: material goods (including natural forces) and useful human actions (including labor services), thereby integrating 'relationships' into a broader economic framework. [The Causal Connections Between Goods: Orders of Goods]: Menger introduces the classification of goods based on their position in the causal nexus of satisfying human needs. Goods of the 'first order' satisfy needs directly (e.g., bread). Goods of higher orders (second, third, etc.) are those used to produce lower-order goods (e.g., flour, grain, land). He emphasizes that goods-character is not inherent but depends on this causal relationship, whether direct or indirect. [The Laws Governing Goods-Character: Complementary Goods]: This section establishes that the goods-character of higher-order goods is dependent on the availability of 'complementary goods' required for production. If a necessary component (like fuel for baking or cotton for a mill) is missing, the other higher-order goods lose their goods-character because they can no longer be directed toward satisfying a need. Menger illustrates this with the impact of the American Civil War on the European cotton industry and labor. [Derivation of Goods-Character from Lower Orders]: Menger argues that the goods-character of higher-order goods is derived from the goods-character of the lower-order goods they produce. If the need for a final consumption good (like tobacco or quinine) disappears, all specialized higher-order goods exclusively tied to its production also lose their goods-character. However, non-specialized goods (like land) may retain goods-character if they can serve other needs. [Time, Error, and Uncertainty in Production]: Menger discusses the essential role of time in the transformation of higher-order goods into consumption goods. This temporal gap introduces uncertainty regarding the quantity and quality of the final product. Uncertainty is influenced by human knowledge of causal elements and the degree of control over them (e.g., weather or soil chemistry). Progress in civilization tends to reduce but never fully eliminates this economic uncertainty. [Causes of Progress in Human Welfare]: Menger critiques Adam Smith's focus on the division of labor as the primary cause of wealth. He argues that the increasing employment of goods of higher order (tools, machines, and complex production processes) is a more fundamental cause of progress. Economic welfare increases as man gains greater understanding of causal connections and control over the natural processes that produce consumption goods. [Property and the Interdependence of Goods]: Menger defines 'property' as the entire sum of goods at an individual's command for the satisfaction of their needs. He emphasizes that goods are mutually interdependent; they serve the preservation of life and well-being not in isolation, but as an integrated whole. This harmony of needs is reflected in the structure of an individual's property. [Economy and Economic Goods: Human Requirements]: Menger begins Chapter II by defining 'requirements' as the quantities of goods necessary to satisfy needs within a planned time period. He argues that civilization is characterized by large-scale advance provision for the future. Successful economic activity requires knowledge of both one's requirements and the quantities of goods available to meet them. He notes that even uncertain or growing needs are accounted for by provident individuals and governments. [Requirements for Goods of Higher Order (Means of Production)]: Menger explains that requirements for higher-order goods (means of production) are derived from the unmet requirements for first-order goods. He introduces the critical principle of complementarity, arguing that a higher-order good can only satisfy needs if the necessary complementary goods are simultaneously available. Using examples like the American Civil War's impact on cotton and the production of opera glasses, he distinguishes between effective requirements (where complements exist) and latent requirements (where missing complements halt production). [The Time Limits Within Which Human Needs are Felt]: This section examines the temporal dimension of human requirements. Menger defines sequential time periods (I, II, III, etc.) based on the time required to transform higher-order goods into first-order goods. He emphasizes that planning must occur within specific time limits; for instance, grain requirements for the current year cannot be met by planting in the autumn of that same year. He concludes that humans continually improve their ability to estimate the quantities and timing of future needs. [The Available Quantities and Economic Information]: Menger discusses the second prerequisite for economic activity: knowledge of available quantities of goods. He describes how individuals, particularly merchants and industrialists, take inventory and classify goods to plan for the future. As division of labor increases, a specialized class of intermediaries emerges to track stocks and market data. Menger critiques the limitations of government censuses and highlights the role of private business reports (e.g., grain and cotton reports) in providing the necessary data for price formation and economic planning. [The Origin of Human Economy and Economic Goods]: Menger defines economic goods as those where requirements exceed the available quantity. This scarcity necessitates 'economizing'—the activities of preserving goods, choosing between competing needs, and maximizing efficiency. He argues that the institution of property and the legal order are not arbitrary inventions but the only practical solution to the conflict of interests arising from scarcity. Consequently, property cannot be abolished without first eliminating scarcity itself. [Non-Economic Goods and the Nature of Economy]: Menger defines non-economic goods as those available in quantities exceeding requirements (e.g., air, water in some regions). These goods do not require economizing or property rights, leading to a natural state of 'communism' regarding their use. He argues that economic character is not inherent in a good but depends entirely on the quantitative relationship between requirements and supply. He refutes the idea that labor is the criterion for economic character, noting that unlabored goods (like land) can be economic, while labored products can be non-economic if they are superabundant. [The Laws Governing the Economic Character of Goods]: Menger explores the relationship between goods of different orders, arguing that the economic character of higher-order goods is strictly dependent on the economic character of the lower-order goods they produce. He refutes the idea that a good's value is derived from the cost of its inputs, asserting instead that economic life begins and ends with human needs and the command of means to satisfy them. [Wealth and the Paradox of Abundance]: Menger defines wealth as the sum of economic goods at an individual's command and addresses the paradox where an increase in the quantity of goods might lead to a diminution of wealth if those goods lose their economic character. He distinguishes between individual wealth, public wealth (state/municipal), and the complex composite concept of 'national wealth,' cautioning against treating society as a single economizing unit under current social arrangements. [The Theory of Value: Nature and Origin]: This section introduces the subjective nature of value, defining it as the importance attributed to goods because of our dependence on them for need satisfaction. Menger distinguishes value from utility, noting that while all goods have utility (the capacity to satisfy needs), only economic goods possess value. He argues that value is not inherent in objects but is a judgment made by economizing individuals based on their consciousness of dependence. [The Original Measure of Value: Subjective and Objective Factors]: Menger develops the core of his value theory by analyzing how the magnitude of value is determined. He identifies two factors: the subjective importance of different satisfactions (ranging from life-sustaining to minor pleasures) and the objective dependence of these satisfactions on specific quantities of goods. Through numerical scales and the example of an isolated farmer, he demonstrates that the value of any unit of a good is determined by the least important satisfaction (marginal utility) that the total available quantity can provide. [Applications of the Theory of Value: Scarcity and Context]: Menger applies his theory to the classic water-diamond paradox and scenarios of extreme scarcity (e.g., a ship with limited food). He concludes that value is imputed from the importance of the satisfaction dependent on a good. He summarizes five key principles of value, emphasizing that the value of a particular portion of a good equals the importance of the least important satisfaction assured by the total quantity. [The Influence of Differences in the Quality of Goods on Their Value]: Menger examines how qualitative differences in goods affect their economic value. He distinguishes between goods that satisfy needs in a quantitatively different manner (where larger quantities of inferior goods can compensate for quality) and those that satisfy needs in a qualitatively different manner (where substitution is limited). He concludes that the value of a specific quality is determined by the importance of the least significant satisfaction dependent on that specific quality within the context of available substitutes. [The Subjective Character of the Measure of Value]: This section asserts that value is entirely subjective and resides in the mind of the economizing individual rather than in the goods themselves. Menger critiques the labor theory of value and the cost-of-production theory, arguing that the history of a good's origin or the labor expended on it is irrelevant to its current value. He also discusses how human error and defective knowledge regarding needs and available quantities can lead to fluctuations and inaccuracies in subjective valuation. [The Laws Governing the Value of Goods of Higher Order]: Menger establishes the principle that the value of goods of higher order (factors of production) is derived from the prospective value of the goods of lower order they serve to produce. He rejects the notion that products derive value from the goods used to make them, arguing instead that value is imputed backward from consumption goods to the original factors. This relationship is based on expected future value rather than current values of similar lower-order goods. [The Productivity of Capital and Time Preference]: Menger discusses the role of time and capital in production, noting that higher-order production processes require longer periods of provident activity. He defines the 'productivity of capital' as the ability to achieve more complete need satisfaction through time-consuming processes, provided one has the means to survive the interval. He critiques the 'abstinence' theory of interest, arguing that interest is an exchange for the economic service of capital use, which is itself a scarce good. [The Value of Complementary Quantities and Entrepreneurial Activity]: Menger explains that the aggregate value of complementary goods of higher order equals the prospective value of the product only if the value of capital services and entrepreneurial activity are included. He defines entrepreneurship through four functions: information gathering, calculation, the act of will in resource allocation, and supervision. He argues that the present value of technical factors is always lower than the prospective product value to allow for the value of capital and entrepreneurial services. [The Value of Individual Goods of Higher Order]: Menger addresses how to value a single unit of a higher-order good when it must be used in combination with others. He argues that because factors can often be used in varying proportions or substituted, the value of a specific quantity of a higher-order good is the difference in the importance of the satisfactions attainable with it versus without it. This provides the foundation for the theory of marginal productivity and the imputation of value to individual factors of production. [The Value of the Services of Land, Capital, and Labor]: Menger argues that land, capital, and labor are subject to the same general laws of value as all other goods, rejecting the 'exceptional' status often granted to land by classical economists. He critiques Ricardo's theory of rent and the 'minimum of subsistence' theory of wages, asserting that the value of these services is determined by the importance of the satisfactions they provide as goods of higher order. He also addresses the ethical debates surrounding rent and interest, concluding that these returns are necessary economic consequences of value rather than arbitrary or immoral social constructs. [The Theory of Exchange: Foundations and Limits]: This section explores the nature and origin of economic exchange, moving beyond Adam Smith's 'propensity to truck and barter' to identify the objective economic conditions that make trade beneficial. Menger demonstrates that exchange occurs when two individuals value quantities of goods in reverse fashion, such that a transfer increases the total satisfaction for both. He establishes the 'limits of exchange,' showing that trade continues only until the point where no further mutual gain can be achieved, and notes that economic sacrifices (transaction costs) like transport and commissions can limit or prevent otherwise beneficial trades. [The Theory of Price: Isolated Exchange and Monopoly]: Menger introduces his theory of price, defining prices as symptoms of economic equilibrium rather than as objective equivalents of value. He analyzes price formation starting with 'isolated exchange' between two individuals, where the price is determined within limits set by their subjective evaluations. He then expands this to monopoly scenarios, explaining how competition among buyers for a single indivisible good or multiple units of a monopolized good narrows the price range and determines the final distribution of goods based on the relative eagerness and purchasing power of the competitors. [The Influence of Fixed Prices on Monopolized Goods]: Menger examines how a monopolist's decision to set a fixed per-unit price, rather than auctioning a fixed quantity, affects market distribution. He explains that the price level determines which competitors are economically excluded and how much the remaining participants will consume based on their individual scales of equivalence. The analysis demonstrates that higher prices lead to fewer sales and more excluded classes, while lower prices increase both the provisioning of the population and the total quantity sold. [The Principles of Monopoly Trading and Policy]: This section explores the strategic choices available to a monopolist, who can regulate either price or quantity to maximize profit. Menger notes that a monopolist may even destroy a portion of their stock or production factors if selling the full amount would lower the price to a point that reduces total profit. He uses historical examples, such as the Dutch East-India Company and the guild system, to illustrate how monopolistic entities historically regulated supply to maintain high prices and how these systems collapsed under the weight of large-scale industrial production. [Price Formation and Distribution Under Bilateral Competition]: Menger discusses the transition from monopoly to competition as a natural result of economic progress and population growth. He argues that the fundamental laws of price formation and distribution remain the same whether a quantity is sold by a monopolist or by several competitors; however, competition prevents the socially injurious practices of destroying goods or stepwise exploitation of social classes. Competition forces sellers to consider the total quantity available in the market, leading to lower prices, increased supply, and the provisioning of lower social classes. [The Advantages of Competition and Large-Scale Production]: Menger concludes his comparison of monopoly and competition by highlighting how competition drives efficiency. Unlike the monopolist who seeks large profits on small quantities, competitors seek even small profits, leading to large-scale production and the elimination of uneconomic waste. This drive for profit at all levels ensures that goods reach the lowest social classes possible under the current economic situation. [Chapter VI: Use Value and Exchange Value]: Menger defines the two forms of value: use value (direct satisfaction of needs) and exchange value (indirect satisfaction through trade). He argues that value is not inherent in the good but is the importance an individual attaches to a good for satisfying a need. In a developed economy, a good's 'economic value' is determined by whichever of these two forms is greater in a given situation. He also explores how changes in an individual's life stage, wealth, or the properties of the good can shift the 'center of gravity' between use and exchange value. [Chapter VII: The Theory of Commodity]: Menger provides a scientific definition of a 'commodity' as an economic good intended for sale, distinguishing it from the popular usage that limits the term to tangible, movable goods in the hands of traders. He traces the evolution of production from isolated households to artisans working on order, and finally to mass production for uncertain future sale. He emphasizes that 'commodity-character' is a transitory relationship between a good and its owner, ending once the good reaches the final consumer. He also addresses the commodity-character of money, refuting arguments that its lack of direct consumption use disqualifies it. [The Outer Limits of the Marketability of Commodities]: Menger introduces the concept of 'marketability' (Absatzfähigkeit) as a neglected but crucial phenomenon in economic theory. He argues that commodities are not equally exchangeable and identifies four primary dimensions that limit their marketability: the specific circle of persons who have a requirement for the good, the geographical area accessible via transportation, the quantitative limits of existing requirements, and the time periods in which the good remains viable for sale. He uses these factors to explain why certain goods, like precious metals, have historically become more liquid than others, like heavy building stones or perishable foods. [The Different Degrees of Marketability of Commodities]: This section examines the internal factors determining the facility with which goods are sold within their market limits. Menger argues that the existence of organized markets, such as exchanges and auctions, ensures that goods can be sold at 'economic prices' (prices reflecting the general economic situation) rather than ruinous ones. He identifies four causes for varying degrees of marketability: the organization of trading centers, the density of trading points within a geographical area, the presence of active speculation that absorbs excess supply, and the continuity of the market over time. Goods like grain or securities are highly marketable because they possess these institutional and economic advantages. [The Facility with which Commodities Circulate]: Menger distinguishes between a good's marketability in a single transaction and its ability to circulate through multiple hands. He identifies several barriers to free circulation: loss of value due to suspected prior use (e.g., clothing), the need for specialized knowledge or licenses (e.g., pharmaceuticals), the requirement for custom fitting (e.g., shoes), and high price volatility or uncertainty. He concludes that for a commodity to circulate freely, it must maintain high marketability across all four previously discussed dimensions for every individual in the exchange chain. [The Nature and Origin of Money]: In this seminal chapter, Menger provides his evolutionary theory of the origin of money. He rejects the idea that money was created by state decree or social contract. Instead, he argues it emerged spontaneously as economizing individuals, seeking to overcome the difficulties of barter (the 'double coincidence of wants'), began to exchange their less saleable goods for more saleable ones. Over time, through the observation of economic success and the power of custom, certain highly marketable goods became universally accepted media of exchange. While the state can improve money's character through legal sanction, money itself is a natural product of economic relationships. [The Kinds of Money Appropriate to Particular Peoples and Periods]: Menger surveys the historical variety of money, demonstrating that the choice of money depends on a people's specific economic situation. He discusses the prevalence of cattle-money in nomadic and early agricultural societies (Greeks, Romans, Germans, Arabs) due to its durability and low transport costs. He then explains the transition to metallic currency as civilization advanced, cities formed, and the division of labor increased, making cattle less marketable and metals more so. He also examines alternative forms of money like cocoa beans in ancient Mexico, furs among hunters, and salt in Africa, showing that the most exportable or generally used goods naturally assume the money-character. [Money as a Measure of Price and Store of Value]: Menger critiques the common view that money is a 'measure of exchange value.' He argues that since value is subjective and objective equivalents do not exist in exchange, money cannot be a measure in the mathematical sense. Instead, money serves as a convenient 'measure of price' because it is the commodity in which all others are evaluated in a developed market. Similarly, he argues that while money is a highly effective 'store of value' due to its low storage costs and high marketability, this is an accidental rather than essential property of money. He reviews and critiques various thinkers (Turgot, Hildebrand, Knies, Schäffle, Stein) on their definitions of value and its measurement. [Coinage and Subsidiary Currency]: This section addresses the technical evolution of money into coins. Menger explains that raw precious metals present difficulties in determining fineness and weight, requiring expensive assaying and division. Coinage solves this by providing a reliable, state-guaranteed stamp of quality and quantity, thereby increasing marketability. He also discusses the necessity of 'subsidiary' or token coins (made of copper or brass) for small retail transactions where the cost of minting full-weight precious metal would be prohibitive. He warns that while the state facilitates trade through minting, it has historically misused this power through debasement. [Appendices A-H: Historical and Critical Notes on Economic Concepts]: A series of scholarly appendices providing a comprehensive review of the literature on core economic concepts. Menger traces the definitions of 'goods,' 'wealth,' 'value,' 'capital,' and 'commodities' through the works of classical and continental economists. He critiques the tendency to define these concepts through technical or legal lenses rather than purely economic ones. Key discussions include the distinction between economic and non-economic goods, the subjective nature of value versus the 'equivalence' error in exchange, and the specific economic definition of capital as goods available for future production processes. He cites dozens of thinkers including Smith, Say, Ricardo, Malthus, Turgot, and various German scholars. [Historical Conceptions of the Commodity and Money]: Menger concludes his historical survey of the term 'commodity,' noting a return among scholars like Hildebrand and Schäffle to popular usage while maintaining a scientific distinction for exchangeable material goods. He also critiques Schmalz's doctrine for confusing commodities with consumption goods due to an erroneous conception of money. [Appendix I: Designations for Money]: An etymological and historical investigation into the various names for money across different cultures and languages. Menger traces the linguistic links between money and cattle (such as 'pecunia' from 'pecus'), arguing that terms for livestock were transferred to metallic currency as societies transitioned from a cattle standard to a metallic standard. [Etymology of Money in Arabic and Appendix J: History of Theories of the Origin of Money]: Menger explores the history of monetary theory, contrasting the 'contractual' or 'legal' theories of antiquity (Plato, Aristotle, Paulus) with the 'natural' theory of money's origin. He credits John Law as the founder of the correct theory, which derives the money character of precious metals from their specific economic characteristics and marketability rather than state decree. [Index of Subjects and Authors]: A comprehensive alphabetical index of the subjects, concepts, and authors discussed throughout the 'Principles of Economics,' ranging from 'Abstinence' to 'Zachariä.'
Title page and copyright information for the 1981 edition of Carl Menger's Principles of Economics, including credits for translators James Dingwall and Bert F. Hoselitz, and introductions by F.A. Hayek and Frank H. Knight.
Read full textDetailed table of contents covering the eight primary chapters of the work, including the general theory of the good, economy and economic goods, value, exchange, price, commodities, and money, along with various appendices.
Read full textAn editor's note by Louis M. Spadaro regarding the reprinting of Menger's work, followed by a selected bibliography of literature on Menger and the Austrian School by authors such as Hayek, Mises, and Schumpeter.
Read full textA comprehensive biographical and theoretical introduction by F.A. Hayek. Hayek situates Menger as the primary founder of the Austrian School, contrasting his approach with Jevons and Walras. He discusses Menger's education, his reaction against the German Historical School, and the development of his theories on marginal utility, goods of higher order, time, and the subjective nature of value. The essay also details the 'Methodenstreit' controversy with Schmoller and Menger's later work on monetary reform and the theory of money.
Read full textThe translators' preface explaining the challenges of translating Menger's cumbersome Austrian 'officialse' style and his pioneering terminology. They justify the choice of the first edition for translation and describe their approach to footnotes and citations.
Read full textMenger's original preface where he argues for the application of the empirical method to economics to discover the definite laws governing economic phenomena. He defends the existence of economic laws against the objection of human free will and outlines his goal of a unified price theory based on the causal connections between goods and needs.
Read full textThe opening of Chapter I, establishing the law of cause and effect as the basis for economic activity. Menger defines 'useful things' and 'goods' based on their causal connection to the satisfaction of human needs and begins to list the prerequisites for a thing to possess 'goods-character'.
Read full textMenger outlines the four simultaneous prerequisites for a thing to acquire 'goods-character': a human need, capable properties, human knowledge of the causal connection, and command over the thing. He introduces the concept of 'imaginary goods,' which are things treated as goods based on erroneously ascribed properties or non-existent needs, noting that as civilization and knowledge progress, the number of true goods increases while imaginary goods decrease.
Read full textThe author examines 'relationships' (such as firms, monopolies, and copyrights) as a category of goods. He argues that these are essentially useful human actions or inactions that have economic value and can be disposed of. Menger proposes a division of all goods into two classes: material goods (including natural forces) and useful human actions (including labor services), thereby integrating 'relationships' into a broader economic framework.
Read full textMenger introduces the classification of goods based on their position in the causal nexus of satisfying human needs. Goods of the 'first order' satisfy needs directly (e.g., bread). Goods of higher orders (second, third, etc.) are those used to produce lower-order goods (e.g., flour, grain, land). He emphasizes that goods-character is not inherent but depends on this causal relationship, whether direct or indirect.
Read full textThis section establishes that the goods-character of higher-order goods is dependent on the availability of 'complementary goods' required for production. If a necessary component (like fuel for baking or cotton for a mill) is missing, the other higher-order goods lose their goods-character because they can no longer be directed toward satisfying a need. Menger illustrates this with the impact of the American Civil War on the European cotton industry and labor.
Read full textMenger argues that the goods-character of higher-order goods is derived from the goods-character of the lower-order goods they produce. If the need for a final consumption good (like tobacco or quinine) disappears, all specialized higher-order goods exclusively tied to its production also lose their goods-character. However, non-specialized goods (like land) may retain goods-character if they can serve other needs.
Read full textMenger discusses the essential role of time in the transformation of higher-order goods into consumption goods. This temporal gap introduces uncertainty regarding the quantity and quality of the final product. Uncertainty is influenced by human knowledge of causal elements and the degree of control over them (e.g., weather or soil chemistry). Progress in civilization tends to reduce but never fully eliminates this economic uncertainty.
Read full textMenger critiques Adam Smith's focus on the division of labor as the primary cause of wealth. He argues that the increasing employment of goods of higher order (tools, machines, and complex production processes) is a more fundamental cause of progress. Economic welfare increases as man gains greater understanding of causal connections and control over the natural processes that produce consumption goods.
Read full textMenger defines 'property' as the entire sum of goods at an individual's command for the satisfaction of their needs. He emphasizes that goods are mutually interdependent; they serve the preservation of life and well-being not in isolation, but as an integrated whole. This harmony of needs is reflected in the structure of an individual's property.
Read full textMenger begins Chapter II by defining 'requirements' as the quantities of goods necessary to satisfy needs within a planned time period. He argues that civilization is characterized by large-scale advance provision for the future. Successful economic activity requires knowledge of both one's requirements and the quantities of goods available to meet them. He notes that even uncertain or growing needs are accounted for by provident individuals and governments.
Read full textMenger explains that requirements for higher-order goods (means of production) are derived from the unmet requirements for first-order goods. He introduces the critical principle of complementarity, arguing that a higher-order good can only satisfy needs if the necessary complementary goods are simultaneously available. Using examples like the American Civil War's impact on cotton and the production of opera glasses, he distinguishes between effective requirements (where complements exist) and latent requirements (where missing complements halt production).
Read full textThis section examines the temporal dimension of human requirements. Menger defines sequential time periods (I, II, III, etc.) based on the time required to transform higher-order goods into first-order goods. He emphasizes that planning must occur within specific time limits; for instance, grain requirements for the current year cannot be met by planting in the autumn of that same year. He concludes that humans continually improve their ability to estimate the quantities and timing of future needs.
Read full textMenger discusses the second prerequisite for economic activity: knowledge of available quantities of goods. He describes how individuals, particularly merchants and industrialists, take inventory and classify goods to plan for the future. As division of labor increases, a specialized class of intermediaries emerges to track stocks and market data. Menger critiques the limitations of government censuses and highlights the role of private business reports (e.g., grain and cotton reports) in providing the necessary data for price formation and economic planning.
Read full textMenger defines economic goods as those where requirements exceed the available quantity. This scarcity necessitates 'economizing'—the activities of preserving goods, choosing between competing needs, and maximizing efficiency. He argues that the institution of property and the legal order are not arbitrary inventions but the only practical solution to the conflict of interests arising from scarcity. Consequently, property cannot be abolished without first eliminating scarcity itself.
Read full textMenger defines non-economic goods as those available in quantities exceeding requirements (e.g., air, water in some regions). These goods do not require economizing or property rights, leading to a natural state of 'communism' regarding their use. He argues that economic character is not inherent in a good but depends entirely on the quantitative relationship between requirements and supply. He refutes the idea that labor is the criterion for economic character, noting that unlabored goods (like land) can be economic, while labored products can be non-economic if they are superabundant.
Read full textMenger explores the relationship between goods of different orders, arguing that the economic character of higher-order goods is strictly dependent on the economic character of the lower-order goods they produce. He refutes the idea that a good's value is derived from the cost of its inputs, asserting instead that economic life begins and ends with human needs and the command of means to satisfy them.
Read full textMenger defines wealth as the sum of economic goods at an individual's command and addresses the paradox where an increase in the quantity of goods might lead to a diminution of wealth if those goods lose their economic character. He distinguishes between individual wealth, public wealth (state/municipal), and the complex composite concept of 'national wealth,' cautioning against treating society as a single economizing unit under current social arrangements.
Read full textThis section introduces the subjective nature of value, defining it as the importance attributed to goods because of our dependence on them for need satisfaction. Menger distinguishes value from utility, noting that while all goods have utility (the capacity to satisfy needs), only economic goods possess value. He argues that value is not inherent in objects but is a judgment made by economizing individuals based on their consciousness of dependence.
Read full textMenger develops the core of his value theory by analyzing how the magnitude of value is determined. He identifies two factors: the subjective importance of different satisfactions (ranging from life-sustaining to minor pleasures) and the objective dependence of these satisfactions on specific quantities of goods. Through numerical scales and the example of an isolated farmer, he demonstrates that the value of any unit of a good is determined by the least important satisfaction (marginal utility) that the total available quantity can provide.
Read full textMenger applies his theory to the classic water-diamond paradox and scenarios of extreme scarcity (e.g., a ship with limited food). He concludes that value is imputed from the importance of the satisfaction dependent on a good. He summarizes five key principles of value, emphasizing that the value of a particular portion of a good equals the importance of the least important satisfaction assured by the total quantity.
Read full textMenger examines how qualitative differences in goods affect their economic value. He distinguishes between goods that satisfy needs in a quantitatively different manner (where larger quantities of inferior goods can compensate for quality) and those that satisfy needs in a qualitatively different manner (where substitution is limited). He concludes that the value of a specific quality is determined by the importance of the least significant satisfaction dependent on that specific quality within the context of available substitutes.
Read full textThis section asserts that value is entirely subjective and resides in the mind of the economizing individual rather than in the goods themselves. Menger critiques the labor theory of value and the cost-of-production theory, arguing that the history of a good's origin or the labor expended on it is irrelevant to its current value. He also discusses how human error and defective knowledge regarding needs and available quantities can lead to fluctuations and inaccuracies in subjective valuation.
Read full textMenger establishes the principle that the value of goods of higher order (factors of production) is derived from the prospective value of the goods of lower order they serve to produce. He rejects the notion that products derive value from the goods used to make them, arguing instead that value is imputed backward from consumption goods to the original factors. This relationship is based on expected future value rather than current values of similar lower-order goods.
Read full textMenger discusses the role of time and capital in production, noting that higher-order production processes require longer periods of provident activity. He defines the 'productivity of capital' as the ability to achieve more complete need satisfaction through time-consuming processes, provided one has the means to survive the interval. He critiques the 'abstinence' theory of interest, arguing that interest is an exchange for the economic service of capital use, which is itself a scarce good.
Read full textMenger explains that the aggregate value of complementary goods of higher order equals the prospective value of the product only if the value of capital services and entrepreneurial activity are included. He defines entrepreneurship through four functions: information gathering, calculation, the act of will in resource allocation, and supervision. He argues that the present value of technical factors is always lower than the prospective product value to allow for the value of capital and entrepreneurial services.
Read full textMenger addresses how to value a single unit of a higher-order good when it must be used in combination with others. He argues that because factors can often be used in varying proportions or substituted, the value of a specific quantity of a higher-order good is the difference in the importance of the satisfactions attainable with it versus without it. This provides the foundation for the theory of marginal productivity and the imputation of value to individual factors of production.
Read full textMenger argues that land, capital, and labor are subject to the same general laws of value as all other goods, rejecting the 'exceptional' status often granted to land by classical economists. He critiques Ricardo's theory of rent and the 'minimum of subsistence' theory of wages, asserting that the value of these services is determined by the importance of the satisfactions they provide as goods of higher order. He also addresses the ethical debates surrounding rent and interest, concluding that these returns are necessary economic consequences of value rather than arbitrary or immoral social constructs.
Read full textThis section explores the nature and origin of economic exchange, moving beyond Adam Smith's 'propensity to truck and barter' to identify the objective economic conditions that make trade beneficial. Menger demonstrates that exchange occurs when two individuals value quantities of goods in reverse fashion, such that a transfer increases the total satisfaction for both. He establishes the 'limits of exchange,' showing that trade continues only until the point where no further mutual gain can be achieved, and notes that economic sacrifices (transaction costs) like transport and commissions can limit or prevent otherwise beneficial trades.
Read full textMenger introduces his theory of price, defining prices as symptoms of economic equilibrium rather than as objective equivalents of value. He analyzes price formation starting with 'isolated exchange' between two individuals, where the price is determined within limits set by their subjective evaluations. He then expands this to monopoly scenarios, explaining how competition among buyers for a single indivisible good or multiple units of a monopolized good narrows the price range and determines the final distribution of goods based on the relative eagerness and purchasing power of the competitors.
Read full textMenger examines how a monopolist's decision to set a fixed per-unit price, rather than auctioning a fixed quantity, affects market distribution. He explains that the price level determines which competitors are economically excluded and how much the remaining participants will consume based on their individual scales of equivalence. The analysis demonstrates that higher prices lead to fewer sales and more excluded classes, while lower prices increase both the provisioning of the population and the total quantity sold.
Read full textThis section explores the strategic choices available to a monopolist, who can regulate either price or quantity to maximize profit. Menger notes that a monopolist may even destroy a portion of their stock or production factors if selling the full amount would lower the price to a point that reduces total profit. He uses historical examples, such as the Dutch East-India Company and the guild system, to illustrate how monopolistic entities historically regulated supply to maintain high prices and how these systems collapsed under the weight of large-scale industrial production.
Read full textMenger discusses the transition from monopoly to competition as a natural result of economic progress and population growth. He argues that the fundamental laws of price formation and distribution remain the same whether a quantity is sold by a monopolist or by several competitors; however, competition prevents the socially injurious practices of destroying goods or stepwise exploitation of social classes. Competition forces sellers to consider the total quantity available in the market, leading to lower prices, increased supply, and the provisioning of lower social classes.
Read full textMenger concludes his comparison of monopoly and competition by highlighting how competition drives efficiency. Unlike the monopolist who seeks large profits on small quantities, competitors seek even small profits, leading to large-scale production and the elimination of uneconomic waste. This drive for profit at all levels ensures that goods reach the lowest social classes possible under the current economic situation.
Read full textMenger defines the two forms of value: use value (direct satisfaction of needs) and exchange value (indirect satisfaction through trade). He argues that value is not inherent in the good but is the importance an individual attaches to a good for satisfying a need. In a developed economy, a good's 'economic value' is determined by whichever of these two forms is greater in a given situation. He also explores how changes in an individual's life stage, wealth, or the properties of the good can shift the 'center of gravity' between use and exchange value.
Read full textMenger provides a scientific definition of a 'commodity' as an economic good intended for sale, distinguishing it from the popular usage that limits the term to tangible, movable goods in the hands of traders. He traces the evolution of production from isolated households to artisans working on order, and finally to mass production for uncertain future sale. He emphasizes that 'commodity-character' is a transitory relationship between a good and its owner, ending once the good reaches the final consumer. He also addresses the commodity-character of money, refuting arguments that its lack of direct consumption use disqualifies it.
Read full textMenger introduces the concept of 'marketability' (Absatzfähigkeit) as a neglected but crucial phenomenon in economic theory. He argues that commodities are not equally exchangeable and identifies four primary dimensions that limit their marketability: the specific circle of persons who have a requirement for the good, the geographical area accessible via transportation, the quantitative limits of existing requirements, and the time periods in which the good remains viable for sale. He uses these factors to explain why certain goods, like precious metals, have historically become more liquid than others, like heavy building stones or perishable foods.
Read full textThis section examines the internal factors determining the facility with which goods are sold within their market limits. Menger argues that the existence of organized markets, such as exchanges and auctions, ensures that goods can be sold at 'economic prices' (prices reflecting the general economic situation) rather than ruinous ones. He identifies four causes for varying degrees of marketability: the organization of trading centers, the density of trading points within a geographical area, the presence of active speculation that absorbs excess supply, and the continuity of the market over time. Goods like grain or securities are highly marketable because they possess these institutional and economic advantages.
Read full textMenger distinguishes between a good's marketability in a single transaction and its ability to circulate through multiple hands. He identifies several barriers to free circulation: loss of value due to suspected prior use (e.g., clothing), the need for specialized knowledge or licenses (e.g., pharmaceuticals), the requirement for custom fitting (e.g., shoes), and high price volatility or uncertainty. He concludes that for a commodity to circulate freely, it must maintain high marketability across all four previously discussed dimensions for every individual in the exchange chain.
Read full textIn this seminal chapter, Menger provides his evolutionary theory of the origin of money. He rejects the idea that money was created by state decree or social contract. Instead, he argues it emerged spontaneously as economizing individuals, seeking to overcome the difficulties of barter (the 'double coincidence of wants'), began to exchange their less saleable goods for more saleable ones. Over time, through the observation of economic success and the power of custom, certain highly marketable goods became universally accepted media of exchange. While the state can improve money's character through legal sanction, money itself is a natural product of economic relationships.
Read full textMenger surveys the historical variety of money, demonstrating that the choice of money depends on a people's specific economic situation. He discusses the prevalence of cattle-money in nomadic and early agricultural societies (Greeks, Romans, Germans, Arabs) due to its durability and low transport costs. He then explains the transition to metallic currency as civilization advanced, cities formed, and the division of labor increased, making cattle less marketable and metals more so. He also examines alternative forms of money like cocoa beans in ancient Mexico, furs among hunters, and salt in Africa, showing that the most exportable or generally used goods naturally assume the money-character.
Read full textMenger critiques the common view that money is a 'measure of exchange value.' He argues that since value is subjective and objective equivalents do not exist in exchange, money cannot be a measure in the mathematical sense. Instead, money serves as a convenient 'measure of price' because it is the commodity in which all others are evaluated in a developed market. Similarly, he argues that while money is a highly effective 'store of value' due to its low storage costs and high marketability, this is an accidental rather than essential property of money. He reviews and critiques various thinkers (Turgot, Hildebrand, Knies, Schäffle, Stein) on their definitions of value and its measurement.
Read full textThis section addresses the technical evolution of money into coins. Menger explains that raw precious metals present difficulties in determining fineness and weight, requiring expensive assaying and division. Coinage solves this by providing a reliable, state-guaranteed stamp of quality and quantity, thereby increasing marketability. He also discusses the necessity of 'subsidiary' or token coins (made of copper or brass) for small retail transactions where the cost of minting full-weight precious metal would be prohibitive. He warns that while the state facilitates trade through minting, it has historically misused this power through debasement.
Read full textA series of scholarly appendices providing a comprehensive review of the literature on core economic concepts. Menger traces the definitions of 'goods,' 'wealth,' 'value,' 'capital,' and 'commodities' through the works of classical and continental economists. He critiques the tendency to define these concepts through technical or legal lenses rather than purely economic ones. Key discussions include the distinction between economic and non-economic goods, the subjective nature of value versus the 'equivalence' error in exchange, and the specific economic definition of capital as goods available for future production processes. He cites dozens of thinkers including Smith, Say, Ricardo, Malthus, Turgot, and various German scholars.
Read full textMenger concludes his historical survey of the term 'commodity,' noting a return among scholars like Hildebrand and Schäffle to popular usage while maintaining a scientific distinction for exchangeable material goods. He also critiques Schmalz's doctrine for confusing commodities with consumption goods due to an erroneous conception of money.
Read full textAn etymological and historical investigation into the various names for money across different cultures and languages. Menger traces the linguistic links between money and cattle (such as 'pecunia' from 'pecus'), arguing that terms for livestock were transferred to metallic currency as societies transitioned from a cattle standard to a metallic standard.
Read full textMenger explores the history of monetary theory, contrasting the 'contractual' or 'legal' theories of antiquity (Plato, Aristotle, Paulus) with the 'natural' theory of money's origin. He credits John Law as the founder of the correct theory, which derives the money character of precious metals from their specific economic characteristics and marketability rather than state decree.
Read full textA comprehensive alphabetical index of the subjects, concepts, and authors discussed throughout the 'Principles of Economics,' ranging from 'Abstinence' to 'Zachariä.'
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