Menger's Work in the German Context

The ancient subjectivist theory of value had survived in fragmentary form in nineteenth-century German economic writings.²⁵ In this context, the young economist from Vienna was seen as a reformer rather than a revolutionary, thus avoiding the fate of Condillac.

Before Menger, various German economists had criticized the labor theory of value specifically and rejected the doctrine of inherent value in general. Menger's view that value was subjective (personal, individual) in nature was not exceptional among German authors of the first half of the nineteenth century. Indeed, some of them even knew the principle of marginal subjective value.²⁶ But their insights were merely disconnected observations. None of Menger's German predecessors recognized the central importance of marginal value and none had produced a unified subjectivist theory.

In the 1860s, two unconnected layers of analysis subsisted in the German textbooks. Their price theories typically featured cost-of-production explanations as a dominant component and allowed for an incoherent coexistence with the traditional subjective-value explanations.²⁷ Karl Marx heaped scorn and ridicule on this blatant display of eclecticism. He was right to do so.

Menger took what was no more than hinted at in the writings of his predecessors and presented it in a systematic treatise that revolutionized the profession's view on the relations between human needs, value, and prices. Through the systematic attempt to look for the causes of these relations in the simplest facts open to empirical inquiry (the “elements of the human economy”), Menger put the discussion of needs, goods, economic systems, production, prices, income, consumption, etc., on completely new ground.

The contrast to his eclectic German predecessors could not have been greater. Their eclecticism was reinforced by tendencies Menger avoided. In particular, German economists tended to engage in excessive and often pointless record keeping and classification of economic phenomena, an inclination that reflected the political climate of the time. The restoration of monarchy and the concomitant fight against liberalism between 1815 and 1848 made it imprudent to delve too deeply into theoretical considerations, which might lead to a critical appraisal of the limits of government. As William Johnston said: “At a time when it was forbidden to debate matters of fundamental principle, scholars retreated into collecting data.”²⁸ The record-keeping approach to economic analysis reached its climax by the end of the century with the ascension of the Younger Historical School. As did many other academic employees of the new German central state, they saw themselves as “the intellectual bodyguards of the House of Hohenzollern.”²⁹

A related German shortcoming that Menger scrupulously avoided was historicism—the tendency to regard regularities in economic phenomena as “historical laws”—that is, as conditioned by the particular circumstances of time and place. Though the German economists of those days would have agreed with Menger that all economic phenomena were somehow related to one another and that one of the purposes of economic science was to find out what that relationship was, Menger's analysis revealed that these relationships were laws that held true at all times and places; moreover, he showed that they could be studied without reference to the concrete historical context. His book featured many concrete illustrations of the general laws under discussion, but in essence Menger's Principles was an exercise in pure theory.