February 23 is the 161st anniversary of the birth of Carl Menger, founder of the Austrian school of economics. As the economist Joseph Salerno has written, “[I]n its method and core theory, Austrian economics always was and will forever remain Mengerian economics.”
It would be hard to overstate how important Menger was in the development of economic science and, indirectly, the freedom philosophy. He valiantly defended economic theory per se against those (the socialist German historical school) who insisted there is no such thing. Menger, who died in 1921, patiently demonstrated that indeed there are economic regularities—laws—defiance of which would have undesirable consequences.
Beginning with his Principles of Economics (1871), Menger outlined a new kind of economics, one that, for instance, rejected the labor theory of value. Israel Kirzner, dean of the modern Austrian school, points out that Menger radically undermined the prevailing Ricardian approach to economics. In David Ricardo’s influential system, Kirzner writes, economic phenomena are determined by “objective, physical realities. . . . In the explanation of such determination there is no place for any roles for human resourcefulness, human valuation, human expectations, human discoveries.
“Menger, on the other hand, glimpsed a way to understand economic history in diametrically opposed terms,” Kirzner continued. “[I]t is the impact of the actions of human beings that alone actively determines the course of human events. . . . It was Menger . . . who recognized that it is the consumer valuation of output that tends to be reflected in the market prices of the relevant inputs. . . . Every act of production, every market transaction, is set in motion and wholly governed by consumer preferences.”
Menger’s insight is intimately related to his other contributions: subjective value, methodological individualism, and marginal utility (which he is credited with originating independently, along with two other economists, Léon Walras and William Stanley Jevons).
It was Menger’s vision that inspired the great economists who followed him: Böhm?Bawerk (see below), Wieser, Mises, Hayek, Kirzner, Rothbard, and the later generations of Austrian economists who are today making their marks.
“What is common to the members of the Austrian School,” wrote F. A. Hayek, “what constitutes their peculiarity and provided the foundations for their later contributions is their acceptance of the teaching of Carl Menger.”
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