3. The Analysis Developed: Menger

C H A P T E R 3

The Analysis Developed: Menger

WE HAVE SEEN THAT THE common law was the fi rst social phenomenon to be recognised as the unintended historical outcome of the actions of many generations of men. Customs and skills, and language were next seen to share these characteristics. Menger was the fi rst to develop systematically and explicitly the two insights: a. economic phenomena too belonged with law and language, b. all these social formations in fact formed a distinct analytical category of their own. Menger developed this realisation in his controversy with the Younger German Historical School.

Now, neoclassical economics of the mid to late-twentieth century is pure theory — i.e. it requires a total ignorance of, and complete isolation from, the data studied by the professional historian and his particular approach to those data. Consequently, neoclassical economists and historians of economic thought can only see the Methodenstreit as a dispute over the methodology of pure economics, or over the relative merits and importance of pure economics and history. It is the ordinary historian’s job to recognise that Schmoller and the other members of the Younger Historical School were historians, not economists. Consequently, the controversy related to the nature of historical data and hence to the relationship between these data and economic theory; and so, fi nally, to the nature of economic theory per se. In short, the dispute was over the relationship between theory and history — i.e. the historical data: from the historian’s standpoint.

Since Menger was essentially responding to the stand already taken by the

Younger Historical School, we need to begin with Schmoller’s position. This

107

may be described as analytical collectivism. The following is taken from an authorised translation1.

Schmoller’s Collectivism

Schmoller rejects as “Utopian” and highly unrealistic, the “literary-ideological” view that economic activity is concerned “merely with... satisfying individual needs”, so it is “mainly dependent on individual action”. Rather, he says, economic activity is determined and dominated by the successive evolution of “certain defi nite economic organisms”2 — ever-larger collective bodies: tribe or clan, village, manor, town, territory, national state, confederation.

In each, a political centre of gravity guides and controls dependent economic institutions. These larger social bodies, consciously acting and thinking in common, as independent units, create society’s economic arrangements. Thus village-, town-, territorial-and national economies each successively place their peculiar stamp on economic activity: — it is within them that all economic phenomena proceed — the division of labour, monetary and technical advance, production and consumption, the formation of social classes. It is within the tribe, village, manor, territory, nation-state — that the individual and family — work, produce, trade, consume. It was the tribe or clan, in earliest periods, which fi rst settled an area — not the individual.

As Schmoller sees it, each successive — and larger — economic organism contains successively higher, more progressive forms of economic phenomena. As later and larger politico-economic bodies grow, earlier and smaller units are broken up, or absorbed or controlled. Historical progress is always with the successively larger policy unit. The most brilliant historical achievements occurred when the political and the economic unit were one. Thus each historical epoch is to be understood by its place in this greater evolutionary scheme. Such an epoch is what the economist assesses and examines. Thus our object of study is the historical growth of the politico-economic entity of the nation-state, starting from kin-group or tribe and progressing through ever-larger organisms with an ever-higher degree of development. To comprehend such an object requires an equally spacious and all-embracing theory.

Finally, Schmoller emphatically rejects the “[English] doctrine” which justifi es individual egotism only, never national egotism, and which dreams of “a stateless competition” 3 among all individuals everywhere, because of the economic harmony of all nations’ interests. Schmoller thus clearly belongs to the

Anglophobe tradition in the German-speaking world.

History is Complex

As against this historicist holism, Menger 4 emphasizes the nature of the data awaiting explanation. Real-world phenomena, whether natural or social, are the complex outcomes of many diff erent and discrete chains of infl uences.

In explaining any specifi c natural occurrence in the real world, we do not try to develop a single unifi ed “law” or one all embracing scientifi c theory, to cover every aspect — the totality — of such a real-world phenomenon. Indeed, no single discipline could be adequate to this task and none attempts it. Every scientifi c discipline seeks rather to isolate one aspect of the complex reality as its object of — general — explanation. So in analysing real occurrences in the natural world, we call on several diff erent natural sciences as appropriate — whether chemistry, physics, mechanics, etc. 5

Because such real occurrences are the mixed outcomes of a number of different infl uences (chemical, physical etc) there appear to be many irregularities in the operation of any single infl uence, taken in isolation. This sort of apparent real-world irregularity does not invalidate the general theoretical explanation off ered by each of these sciences. 6

Such sciences as chemistry, mathematics, etc make a number of “unrealistic” assumptions about their objects of inquiry — eg the chemical identity of all chemical substances at all times and places; or the mathematical defi nition of a point; or the assumption in mechanics that bodies move in a vacuum;

etc. Indeed in any real instance, the natural sciences do not inquire whether

“pure” elements are actually found; they assume — quite “unrealistically” — that pure elements do operate, in complete isolation from all other infl uences, in an exactly measurable fashion (which scientists know is not achievable). On the basis of such “unrealistic” assumptions, the natural sciences establish exact scientifi c laws. 7

With social phenomena, too, the same general situation prevails: All history is the complex result of many diff erent chains of causation: innumerable factors acting together to produce the complicated historical outcome. The

(good) historian seeks to relate the particular developments he studies to their historical context and to identify the various infl uences shaping them. Economic history, too, is part of such an historical complex; here too the historian relates economic developments to the various infl uences producing them.

When studying any aspect of history, to emphasise one single causative element alone is one-sided, and therefore poor historical analysis. And with social as with natural phenomena, it is equally chimerical to expect this entire historical complex to be explained by a single social theory: economics cannot be turned

“into the phantom of a universal theory of social phenomena”; it can explain 110 Early Modern England | Sudha Shenoy

only the economic aspect. This is perhaps the most important such aspect but it is only a part of the work. As with the natural sciences, the diff erent social theories each study only one particular aspect of human activity, abstracting from all other aspects. We combine their various insights to grasp real-world social phenomena in their many-sidedness. 8

It follows that we cannot simplistically and mechanically apply economic theory directly to historical materials. Economic theory abstracts from all non-economic infl uences (specifi cally: ignorance, ethical motives, external compulsion). Thus theory deals with economic phenomena in their “pure” form — i.e. “unrealistically”, ignoring many actual infl uences; it assumes that only economic forces aff ect economic interrelationships. But both economic and non-economic infl uences aff ect real-world prices (and other real economic phenomena). So the regularities perceived in the historical reality diff er from those postulated in economic theory. Thus in theory, a defi nite rise in economic demand is — under defi nite assumptions — always followed by the same defi - nite increase in price. This appears wherever there is exchange, irrespective of historical circumstances. But in actual fact, such a rise in price is seen only as a general rule, not as such a certain and defi nite relationship — the actual changes would depend on specifi c circumstances in diff erent markets. Real-world prices, rent, etc. are infl uenced by ethics, law, custom, an incomplete attention to strict economic interests, etc; so they deviate to a greater or lesser degree from the “pure” forms postulated in theory. 9

It follows from all the above that attempting to test economic theory against the complex historical reality is like testing geometrical theorems by measuring real things. The latter are not pure geometrical magnitudes; moreover, real measurements are always inaccurate to an irreducible degree. 10

Two Aspects of Human Action

So as against the Younger Historical School, Menger insisted that human phenomena had both an individual (concrete) and a general aspect. Thus (he emphasised) both theoretical and historical investigations deal not with diff erent but the same social and economic phenomena. Both approaches give us an understanding of these same phenomena: “However, this is in each case ...

something essentially diff erent...” 11

Historical inquiry deals with the concrete and the specifi c aspects of social phenomena. It is concerned with individual concrete phenomena and their interrelationships at a particular time and place. It deals with concrete and specifi c social units and particular developments (eg the history of particular states and districts; price history; the history of ground-rent in a particular territory; the Early Modern England | Sudha Shenoy 111

development of specifi c cultural conditions, or of economic activity in a specifi c nation or group of nations, etc.). Historical inquiry gives us the individual history of some specifi c historical object; it tells us under what concrete conditions it developed and how it became what it uniquely is. The value of such inquiry is quite clear in the study of such concrete phenomena as particular legal systems or particular languages: we gain immensely in an understanding of them by learning how they developed historically, the processes and infl uences at work.

Our grasp of economic phenomena is likewise advanced by examining their historical development. These individual and concrete historical instances are to be understood from a basis in theory, as particular instances of more general regularities — eg as specifi c examples of such general phenomena as ground-rent, interest etc. Thus we grasp historical phenomena with the aid of theory: the historian uses the social sciences as auxiliary tools for studying history. Such use of theory to elucidate historical phenomena, however, is quite distinct from the development of that theory itself. This last is a separate task and a specialism in its own right. 12

Menger points out: an individual, concrete—historical—phenomenon, taken in all its complexity and uniqueness, cannot be a general type, for just that reason. So too the observed and specifi c course of development of such an individual historical phenomenon is not the same thing as the typical or gen-eral interrelationships or interconnexions, found amongst many similar phenomena. Now experience does show that all the various economic phenomena are not utterly unique — we do recognise certain recurring general types: eg money, prices, exchange, supply and demand, capital, interest, ground-rents, etc. We also recognise certain typical interrelationships amongst phenomena, recurring with a greater or lesser regularity: such as the eff ect of a change in supply or demand on a commodity’s price; the eff ect of a higher money supply on money prices generally; or the eff ect of capital accumulation on interest rates, or of population growth on ground-rents, etc. It is this general and typical aspect of social phenomena and their typical interrelationships and interconnections that we grasp through theory. General theoretical categories enable us to group and classify these myriad economic phenomena. We thus go beyond what we observe immediately, to further factual observations. Theory thus gives us a deeper understanding; it is the basis of prediction and control. 13

Menger sums up the diff erence between historical and theoretical aspects:

“... history ... has the task of making us understand all sides of certain phenomena ... theories have the task of making us understand only certain sides of all phenomena ...” 14 The historian, that is, analyses the various and manifold 112 Early Modern England | Sudha Shenoy

infl uences acting within and upon a particular historical context. The theorist seeks for general explanations, going beyond any single historical context.

Complicated phenomena (found in the historical reality) develop from simpler elements. So in analysing such phenomena, we reduce them to their simplest components, taken in isolation. We then investigate how the more complicated types are formed and built up from these fundamental constitu— ents, looking to the processes and regularities involved. The more complicated the phenomena, the more diffi 15 cult and extensive is this task.

Economic phenomena are human phenomena — so their elements are human attempts to satisfy material needs. These ultimate factors — “human individuals and their eff orts” — are known directly to be real, unlike atoms and other postulated natural forces. Thus the theoretical social sciences have a definite advantage over the natural sciences .16

Two Types of Order

Economic and social phenomena may be divided into two categories: one sort are established by deliberate intent, i.e. through concerted agreement or positive legislation. Such social phenomena are “the result of a common will”.

We explain these phenomena “pragmatically” — i.e. in terms of the aims and purposes of those involved, the obstacles they sought to overcome, the various means they used to attain specifi c (often pre-determined) ends. 17

No such deliberate or concerted origin can be detected for the second group of social phenomena: they are not produced by legislation or common agreement. Although never invented for the purpose, these phenomena are vital to society’s welfare, which indeed they serve to a very high degree. They appear as the “unintended results of historical development.” They are “unintentionally created” by “individual human eff orts” aimed at individual goals and interests. — So too, only some of the changes in social phenomena are brought about deliberately, by agreement or legislation; there are other social changes that are the unintentional outcome of social (inter-individual) development. 18

Menger points out that Burke recognised the common law and the British constitution as the unintended result of historical development. Burke’s recognition was followed in Germany by Hugo’s historical studies, and then by Savigny and Niebuhr. They too saw that law was not created by the fi at of public authorities; it was an historical formation, like language. They further realised that even if legislation were introduced, law continued to develop “organically”

— ie historically, as language did. W. von Humboldt systematically developed the same insight in general linguistics 19.

Unintended Orders — The Category Widens

Menger now explicitly assimilates into this category, all social phenomena generally and economic phenomena in particular. Together with law and language he includes religion, morals, communities and other social units, as well as markets, the division of labour, specialisation, competition, trade customs, money, the prices of goods, interest rates, ground rents, speculative profi ts, wages, the location of economic activity, etc. All these, he says, “exhibit exactly the same peculiarity” — they are all “social structures” that “in their constant change are ... the unintended result of social [inter-individual] development.”

He explicitly characterises economic phenomena in exactly the same terms. 20

In trying to grasp these social phenomena we initially apprehend them all in the most immediate and obvious fashion: as the product of calculated intent, whether agreement or legislation. But this approach is both unrealistic and unhistorical. Equally, mystical allusions to the primeval origins of these institutions or their organic nature likewise evade the analytical issue. Any complicated social phenomenon cannot always have been there, from the very beginning: it must have developed at some point — from simpler, individual elements. Menger emphasises just how diff erent Burke’s insight is, from these two approaches. Burke saw that the common law and similar institutions were neither invented nor were they divinely-established, as Le Maistre held, for example. Burke’s view was objectively-based: all such formations were historical developments, that had survived the test of time. 21

Thus Menger arrives at the key analytical issue: such social phenomena as law, language, religion, money, markets, competition, etc. occur historically where neither the populace collectively nor their rulers have established such social structures by purpose. So as Menger realises: “It is here that we meet a noteworthy, perhaps the most noteworthy, problem of the social sciences: “How can it be that institutions which serve the common welfare and are extremely signifi cant for its development come into being without a common will directed towards establishing them22 ?”

All such phenomena — whether social or economic — “have come into being in exactly the same way”: as the unintended outcome of inter-individual interaction. So they cannot be understood to be intentionally-created

(“pragmatic”). Thus for both social theory in general and economic theory in particular, the analytical problem is identical: in both cases we seek to grasp the emergence and development of exactly the same type of phenomena — “organically-created” social structures. So in explaining the latter, as in tackling the “main problem of theoretical economics”, our “methods of understanding... are by nature identical”. Thus Menger explicitly subsumes 114 Early Modern England | Sudha Shenoy

economic phenomena and their theoretical explanation as a particular case of a more general category: “unintentionally-created social institutions” and their general explanation. 23

Now, complicated social and economic phenomena “developed ... from simpler elements”. So we reduce the complicated to its simpler components — its individual causative elements. We then investigate the regularities through which the more complex economic (and social) structures “are built up from these elements”. The latter are the “innumerable eff orts “of economising individuals ”pursuing individual interests.” Such economic phenomena as markets, wages, interest rates, and the like are the “unintended result.” 24

To demonstrate the inter-individual processes involved, and their similarity, Menger analyses: the formation of the common law; the emergence of money; and the nature of the overall economic order — the “national economy”, as distinct from its component economic units (eg firms) which are formed on a completely diff erent principle.

Separately from these three Menger also analyses the capital structure — not his term — for the fi rst time. He recognises that the process of producing consumption goods is a sequence of productive relationships: between these fi nal goods and the chain of investment goods that lead eventually to fi nal consumption outputs. Hence Menger distinguishes amongst goods according to where they stand in this investment chain. Consumer goods belong to the “fi rst order”. Those investment goods directly producing fi nal goods are

“second-order” goods. These are produced, in turn, by “third-order” goods, and so on. To produce the various fi nal goods, all the requisite “higher-order”

goods have to be available: in all the diff erent orders needed, in the right proportions.25 Menger does not explicitly include this overall production structure with the other unintentionally-developed social institutions, but is clearly a social formation of the same type, as I shall argue later in more detail. Mean— while, I turn to the fi rst such formation which Menger analysed explicitly as such — the common law.

The Common Law

Menger sees that the common law is the unintended product of inter-individual (social) development. It moulds the general welfare and promotes it to an outstanding degree — perhaps more than any deliberately-established institution. But the common law was never developed intentionally to this end:

“...the explanation of this remarkable phenomenon is the diffi cult problem which social science has to solve.” We have to examine the processes through which law appeared without legislation. This process originated in periods Early Modern England | Sudha Shenoy 115

long before documents, so we can only explain it in general terms — the human tendencies and the general conditions involved. 26

Menger analyses this general process: in very early periods, people felt continuously threatened by others’ violence: i.e. that of the few who were strong as against the weaker majority. But even the strong felt the need of protecting their acquisitions. Thus at fi rst the far-sighted and then others saw gradually that in their own long-term interest, “individual despotism” had to be restrained: “What benefi ts all, or at least the far greater majority, gradually is realised by all”. Thus law fi rst arose as “rules for action” — customs

— that were “fi xed in the minds of the population without contract or particular agreement”. At this early stage of society, everyone could see that not only did he — individually — gain from keeping these rules, he gained even more if everyone else also adhered to them: any violation threatened his own interests.

Thus, to follow these rules was recognised to be in everyone’s interest. So it was further realised that adherence to the law in specifi c cases could not be left to individual discretion: adherence had to be enforced. Thus common law — custom — developed: supported by general opinion, its rules apply equally to all; they are enforced especially on those who fail to keep them. Such enforcement is initially also a matter of custom: “everyone feels the impulse to defend the threatened law”. 27

In short, Menger sees that law always begins as custom. He goes on: as groups of people come to live under a common set of customary rules, a feeling of unity arises. Diff erent such sets of customary rules emerge, according to the particular historical environments in which they evolved over time: law is always shaped by specifi c circumstances. Only after a body of customary law has emerged, do there also appear coercive authorities — government offi cials

— to enforce the law when needed. 28

The common law is shaped over centuries of practical development: by the people’s needs and convictions, by specifi c and changing circumstances.

But as these customary rules are further extended, developed and articulated, the division of labour leads to a specialised class of legal experts. The authority of government offi cials also grows. The law now appears more as “something objective”, an external authority.

Initially, this professionalisation and government enforcement merely reinforced the common law. But it had technical faults — gaps, contradictions, uncertain points. Moreover, it was unsuited to governmental purposes, the

“momentary views of the rulers”. Nor could it be altered rapidly to meet political (and social) changes 29. Thus legislation is added to the body of legal rules. 116 Early Modern England | Sudha Shenoy

But legislation is “pragmatic” — it expresses the legislator’s intentions and the specifi c conditions aimed at.

Thus it is imposed even at an early date, “by authority”, by “the man in power” or by the victor on the vanquished. These “statutes of power” are not law proper, but those in power have an interest in assimilating them to the common law in the minds of the people. So legislation “to serve the rulers”

has often replaced many common law rules. Further, the eff ect of legislation is often perverse, when it is based on the “pragmatic” view of the state, society and social institutions: viz., that all these were purposefully created by the people or their rulers. From the rulers’ standpoint, “organically” created social institutions are “abuses and social evils”. So with no comprehension of the

“unintended wisdom” of such institutions and the common law, immature legislative reform has produced the opposite of the common good. It has “spoilt the law” instead of “bettering it.” 30

Menger emphasises that referring to the “organic” or “primeval” nature of the common law explains nothing: such phrases, “partly fi gurative, partly meaningless”, give no theoretical understanding of how that law was formed.

The common law is not a natural organism but the “outcome of individual human eff orts ”. Menger points out that in fact, on many occasions, common law has been proved harmful, while legislation has changed the law to the good.

The jurist’s task, therefore, is to explain clearly the general advantages for everyone of the organically-grown common law. With the insight gained from

“thoughtful consideration” of the common law’s specifi c value, legislation can be “purifi ed” [Menger’s term]. Thus the legislator, in relation to the common law, is then akin to the farmer or physician, in relation to their understanding and application of natural laws 31.

Money as an Unintended Order

Amongst economic phenomena, Menger twice outlines the historical logic of the emergence of money — i.e. the general use of particular commodities as media of exchange. Menger points out barter can proceed only within very narrow limits — what older economists termed “a double coincidence of wants” [not Menger’s term]. An individual can obtain what he wants through barter only if he can supply his potential supplier with what he, in turn, needs, and this cuts both ways, of course. This means that people barter only those goods surplus to their own requirements and accept only such goods as they can directly use themselves. But when particular commodities are used as exchange media, we see people accepting goods they cannot use immediately Early Modern England | Sudha Shenoy 117

or even already have suffi cient of. At the same time, they reject other goods on just these very grounds 32.

What has happened? — Some goods are more marketable — far more widely and readily accepted, because they fi ll a more general need than others. The specifi c such goods vary greatly, according to historical circumstance.

Certain individuals, more perspicacious than others, begin to customarily barter their goods for these more widely-demanded commodities. Such individuals then use the latter to obtain the goods they actually need. This practice spreads gradually, as others become aware of the greater ease in securing their requirements, via this indirect method. Thus the use of money emerges as the development of a custom, a particular way of doing things. So money — a medium of exchange — appears via a social process, as “the unintended result, the unplanned outcome of specifi cally individual eff orts of members of a society”. Only after such media of exchange are widely used, do coins appear:

“coin... is only one variety of money”. Coins are merely convenient methods of using particular weights of the precious metal as exchange media 33.

The ‘National Economy’ — An Unintended Order

Menger now notes the existence of a distinctive economic order — the fi rst time it has been recognised. In this social formation, the component elements are the individual economic units — fi rms, households, etc. These units obviously organise themselves in a variety of ways to achieve their several aims.

They are economies proper; but “the nation as such is not a large subject that has needs, that works, practises economy, and consumes, and what is called

‘national economy’ is therefore not the economy of a nation in the true sense of the word.” Nor is this social structure separate from, or opposed to, the economic units composing it. “Those complicated human phenomena” we term

“the national economy” are the “results of...... innumerable individual eff orts”.

Theoretical understanding means “reducing complicated phenomena to their elements.” So we have to begin with such individual economic eff orts and see how they systematically result in an overall economic order 34.

Menger repeatedly emphasises that we cannot understand this order by analogy with an individual economy, such as a fi rm or household. To do this is to create a “thoroughly inadmissible fi ction”. Material means are used, not by a fi ctitious entity, but by actual people, to provide for their own needs and those of other, equally real, people. The resulting social structure is a “complex of individual economies” — a multiplicity of units tied together by commercial interrelationships. The (false) analogy with an individual economy is an analogy to something which is familiar and so clearly understood, which is 118 Early Modern England | Sudha Shenoy

why it is used. The Historical School rely on this fi ction, as do “Adam Smith and his school.” But what we are confronted with is a phenomenon far more complicated and diffi cult of interpretation. Economic theory has to explain how these “complicated phenomena of human economy” developed through the activities of individual economic units and their commercial interactions 35.

Analysing Such Orders

Menger also mentions that certain other social and economic phenomena

— language; morals; the location and development of commercial centres;

specialisation and the emergence of professions; the division of labour; trade customs — can all be analysed as the “unintended result” of individual eff orts pursuing other ends altogether 36.

Menger is well aware that “legislative compulsion” has also shaped the various social phenomena in their later development, often to an increasing degree.

Price formation is infl uenced by taxes and wage regulations. Legal systems are a mixture of “unintentionally created common law” and legislation. Monetary developments and the development of markets also represent a combination of the “organic” and the “positive” — i.e. both the unintended results of individual action and deliberate policy. In short, both “organic” and intentionally established institutions co-exist and interact in the historical reality 37.

As noted earlier, Menger sees that many social and economic phenomena are formed ”in exactly the same way” as the common law and language.

As we saw, Menger builds explicitly on Burke and Savigny amongst common-law thinkers, and on Wilhelm von Humboldt in linguistics. Menger sees further that Burke’s analysis diff ers sharply from three other approaches to social phenomena. Firstly, the mystical view (Menger’s characterisation). This view simply alludes to the primeval (or divine) origins of these phenomena and to their higher — i.e. superhuman — wisdom, especially that of the law. It makes no attempt at explanation. Secondly, the “pragmatic” outlook which links together the various members of the Anglo-French enlightenment. Menger includes here the Physiocrats, other French writers, and “Adam Smith and his closest followers”. For these thinkers, all economic phenomena are produced intentionally, whether by explicit agreement amongst people or by legislation. Thus “unintentionally-created social structures” remain to them a closed book. Burke (says Menger) was the fi rst to oppose this Anglo-French

“rationalism and pragmatism.” And so because Menger lumps Adam Smith in with the French rationalists, whom Burke opposes, we get this intriguing Mengerian contrast between Burke and Smith. Lastly, the Historical School. Here Early Modern England | Sudha Shenoy 119

Menger underlines its “essential” diff erence from Burke’s approach: the former is historical “in an entirely diff erent sense.” 38

Menger shows how Burke is at variance with all three approaches: In opposition to the Anglo-French Enlightenment, Burke recognised that there did exist social phenomena that were the unintended results of historical development. As against the mystical viewpoint, he definitely aimed to explain such phenomena. This he did, as the unintended outcome of a long historical process of selection and development; these institutions had “proved [their]

worth” through “the test of time”. And when Menger contrasts Burke with the Historical School, his point (though not spelt out) is clear: the Historical

School postulated various overarching superhuman “historical” organisms that succeeded each other through time, whereas Burke saw that history was a human process. Menger feels, however, that Burke and Savigny were “one-sided”. They combined their analysis with the defence of “what already exists”

against reform (Burke) and the assumption the “organically created social structures” were “without proof, higher than human wisdom” (Savigny)39.

Menger is widely described as an Aristotelian in his methodology. Thus

Hutchison says that Menger quotes most frequently and approvingly from

Aristotle, in the Problems. But these references are generally at the start of a chronological review of the various opinions expressed on some topic; and

Aristotle is quoted on several occasions to be refuted.

Investment Chains

Now to the last social formation: the production structure. As mentioned earlier, Menger does not explicitly refer to this in these terms, but he is clearly describing an inter-individual social process of exactly the same type as the other historically-developed institutions he has analysed (the common law, the general economic order, etc.)

Menger begins his Principles with an exposition of the structure of production (not his term). From the very outset he recognises that the process of producing fi nal goods consists in a chain of productive interrelationships.

Production of fi nal outputs is an interlinked sequence of operations proceeding through time. This sequence is analysed by starting from the various fi nal outputs and then continuing link by link through the succession of heterogenous investment goods used in the investment chain which precedes and lies behind the appearance of these fi nal goods and services.

Menger begins his analysis at the fi nal consumption stage because these outputs satisfy human wants directly; so he terms them “goods of the first order”. As individuals have a range of wants to satisfy, they always aim at 120 Early Modern England | Sudha Shenoy

obtaining not just one or two, but a range of such fi nal goods. Many of the latter are versatile, in that they can satisfy more than one human want. 40

But there are other goods that are not directly useful but which human beings value nonetheless, because these goods help to produce first-order goods. Thus such instrumental goods contribute indirectly to the satisfaction of human wants and are valued in accordance with their capability in doing this. Those investment goods that directly produce fi nal outputs are “second-order” goods. These latter are in turn produced by other types of investment goods: belonging to the “third order” — and so on, to that order of investment good which is furthest removed from fi nal consumption (in whichever case is being examined). 41

Thus in Menger’s example, bread is a fi rst-order good. Flour, fuel, salt, ovens, the services of a skilled baker — these are second-order goods, as they directly help to produce the bread; while the fl our mills, grain, labour (etc)

needed to produce the fl our (etc.) are third-order goods. In the fourth order, we place farmers’ services, fi elds, agricultural implements and the like. The fi fth order would contain the investment goods needed to produce agricultural implements, fertilisers, etc; and so the sequence continues to that investment link in the chain which is furthest removed from the anchoring stage of fi nal consumption. 42

Thus it is only from consumers’ subjective evaluations of fi rst-order goods and services, that all other outputs can be evaluated. This evaluation is in terms of their contribution to the production of those fi nal outputs that consumers in fact treat as valuable. Over time, consumers change their relative evaluations of the various fi nal outputs — whose composition also changes as new goods and services appear. So the evaluation of the various higher-order goods and services changes correspondingly, in accordance with the latter’s contributions to providing the altered range of fi rst-order goods and services 43. Menger takes the example of tobacco. If people no longer want to smoke, this changed evaluation of the fi nal good (tobacco products) means that existing stocks are no longer useful in satisfying a human want and are therefore valueless. In turn, the following higher-order goods are also rendered valueless because they are specifi c to tobacco consumption. Firstly, complementary items such as cigar— boxes, humidors and the like. Then, at the next higher stage, raw tobacco, processing tools and machinery and the specialised purchasing and manufacturing skills specifi c to tobacco products. But the agricultural land and implements that can contribute to the production of other fi nal outputs, have their contribution evaluated in terms of the relative signifi cance that consumers attach to these other fi rst-order outputs. Most higher-order goods are versatile in that Early Modern England | Sudha Shenoy 121

they can be used in helping to produce many diff erent fi rst-order items; only some higher-order goods are specifi c to one or a few items. 44

Menger emphasises that to classify goods into various orders is only to position them somewhere in the chain of production leading to fi nal consumption. This classifi cation is not something which is inherent in the goods themselves. Rather, such classifi cation refers to the various ways in which human beings employ these goods to satisfy their wants, according to circumstances.

Some goods and services are used directly to do this. Other goods and services are used indirectly, at various removes, for the same ends. 45

Thus to reach the stage of becoming fi nal output, goods pass through a chain of production stages. At each stage, the inputs from the next preceding stage are worked on and then passed on to the next stage succeeding. Thus higher order goods are gradually converted into lower order goods: wheat becomes fl our which becomes bread, — to continue with Menger’s example.

But this transformation requires time: higher order goods cannot become lower order goods” by a mere wave of the hand”. The production processes that turn wheat in the fi elds into bread at home take time to proceed through the successive intervening stages. It follows that the goods in each successive stage are complements to one another — they cannot be substitutes. Thus wheat, fl our, and bread in a retail shop, are the successive stages of production of the fi rst-order good, bread at home — which is why these higher-order goods cannot be substitutes for one another: a bakery needs fl our not wheat; while for direct consumption, people need bread at home, not wheat or fl our. 46

But that is not all. At each stage, the input from the next preceding stage has to be combined with other capital goods and services. The resulting changed output is then passed into the next succeeding stage and there combined with yet other capital inputs — and so on, until the fi nal consumption stage is reached.

Thus to produce any fi nal output, all the specifi c combinations of higher-order goods have to be in place in each link in the investment chain leading to that output. A single higher-order good in isolation, cannot do the job. Thus (to develop Menger’s example), when wheat proceeds into the next succeeding production stage, it has to be put through a fl our mill. In the next stage following, the fl our needs to be combined with yeast, water, other ingredients, ovens, bakers’ services to become bread. The next link in the chain puts bread into a retail shop from where it moves into the fi nal consumption stage in the home. At each stage the various complementary capital goods and services must be available in the requisite quantities and in the appropriate combinations, if fi nal outputs are to be produced. Thus wheat cannot be mixed directly with yeast, etc:

a fl our mill is also needed, and needed fi rst. Then, at the bread-making stage, 122 Early Modern England | Sudha Shenoy

the various ingredients and services have all to be available in certain quantities and proportions, although these two can vary within some range, of course. 47

In other words, in most investment chains there is some scope in many of the links for varying the proportions amongst the various capital goods and services making up the capital combinations forming those investment links.

Menger gives the example of agricultural production, in which diff erent proportions of land, fertilisers, implements and labour can be combined to produce agricultural outputs. But this is only one stage in the interlinked series of production stages leading to fi rst-order goods. So far as the overall production chain is concerned, capital goods and services have value only when they can form a completed chain leading to the output of one or more fi nal consumption goods or services. If the available capital inputs cannot form the appropriate combinations to produce the most desired fi nal outputs, then these heterogenous capital inputs will have to be used in other combinations — where possible — to provide other, less desired, fi rst-order goods. For example (to extend Menger’s own instance), if the fl our mills, ovens, and all the other investments needed to produce (wheaten) bread are not all available in the appropriate quantities and proportions, then some land otherwise best suited to wheat, will have to be used for other crops, where there exists some chain of investments which can use these crops to ultimately produce some other fi nal consumption good. But any higher-order good which cannot be so used becomes valueless.48

Thus the analytical unit which Menger develops here consists of the entire chain of production — the complete set of linked investments — which yields the entire range of fi nal outputs being produced: “The objective of … investigation [is] the whole causal chain up to the last link, the satisfaction of human needs.” All these heterogenous capital goods and services — goods of successively higher orders — have to be treated and analysed as a unit because they are tied together by their joint contribution to the production of some fi rst-order good or goods: all together form “… the entire range of goods causally connected with the satisfaction of a human want.” Menger now systematically works out the implications of continuously extending this capital structure — using goods of successively higher orders to “lengthen” the production chain which will produce fi rst-order goods.

Provision for the Future

Menger emphasises that people wish to provide for their future consumption, even if they are hunter-gatherers and therefore dependent on nature’s providence. Even so, they search for food before hunger sets in and put up Early Modern England | Sudha Shenoy 123

shelters in anticipation of bad weather. And so, to provide fi rst-order goods in future time-periods, people gradually begin to produce goods of successively higher orders. Such goods are valued precisely on account of the fi nal goods they will provide in the future at the time when the production process is complete.50

Thus when people produce goods of successively higher orders and when they move goods from lower to higher orders, they extend the production chain. In so doing, they establish production processes that will take more time to turn out fi nal outputs: the fi rst-order goods will be supplied at successively later periods in the future. Initially, of course, people wish to ensure that their consumption needs are met in the nearest future. Only after these are met will they use any remaining resources to provide for the next following time-period, and so on. And so the investment chain is gradually lengthened: goods of successively higher orders are gradually produced in succession.

Other Features

But such longer investment chains are also more productive: they not only produce larger quantities of fi rst-order goods, these fi nal goods are now more varied in range. Therefore the range of occupations becomes just as varied;

and because of these outcomes, civilisation develops, population grows, and human well-being increases. In sum, Menger realised that it was because men had consistently lengthened the production chain — systematically extending it to goods of ever-higher orders — that people’s material conditions improved:

fi nal output increased in quantity and range and hence a variety of employment also became possible. 51

Menger analysed the historical development of the production chain over time. Initially, when they are hunter-gatherers, men can only obtain such fi rst-order goods as nature provides fortuitously. Then, as people deliberately produce goods of the second or even the third order, the role of fortune in obtaining first-order goods is gradually reduced. Instead, deliberate production grows in importance. Then, as investment chains are lengthened, production dominates: men now use “causal connections between things” to produce fi nal outputs. Thus, from gathering wild plants, men begin to cultivate them.

Then people begin to practice intensive agriculture. Similarly, in hunting, men replace clubs with bows and nets. Then pastoralism begins and it, too, is intensifi ed. Goods now increasingly come to be manufactured, at fi rst by craft tools.

These tools are then improved and fi nally machinery is produced. Thus men gradually produce goods of higher and higher orders, lengthening the investment chain leading from the highest order goods down to fi rst-order goods. 52124 Early Modern England | Sudha Shenoy

Now, in the output of second and higher-order goods, the division of labour progresses by subdividing the production of each good amongst a number of production units. Each unit turns out only a part of each good, so that the various individuals and fi rms turn out complementary outputs. Each individual is aware of only the component (or part thereof) that he produces; he does not realise that this is only one small piece of the whole — that others elsewhere are producing all the complementary parts that will make up a complete product.

Furthermore, this product is itself only one part of one link in an investment chain: still other individuals somewhere else are each producing component parts of all the various higher-order goods forming all the links in this investment chain. As this production chain is lengthened — as goods of higher and higher orders are produced — the output of all goods becomes more and more subdivided in this fashion amongst diff erent production units. 53

Concomitantly, the time periods for which consumer goods are provided, are pushed further and further into the future. In hunting-gathering, men can provide for only a few days ahead. But a nomadic pastoralist, by increasing the size of his herds, uses investment processes that produce fi nal goods after several months. And in the late nineteenth century, men engage in production processes that turn out fi rst-order goods after several years or even decades.

Moreover, men can now also provide for their future descendants. 54

Menger emphasised that because men had extended the production chain over time, they were able to convert “vast regions inhabited by a few misera— ble, excessively poor men into densely-populated civilised countries.” Menger underlines Adam Smith’s restricted vision here. Smith saw the advantages of the division of labour only in the direct production of consumer goods. He failed altogether to recognise that the bulk of production activities went into the output of higher-order goods, so he could not see the real signifi cance of subdividing labour: the production of complementary goods of higher and higher orders, resulting in an increase in the quantity and range of fi rst-order goods and an expanding range of employments. For example, in a hunting-gathering tribe, suppose diff erent individuals specialise — in Smithian fashion — in particular tasks such as gathering plants, hunting, fi shing, food preparation, making clothing. Certainly labour productivity would increase, but compare this with the results of producing higher-order goods: fi rst bows and nets, then moving into both sedentary agriculture and pastoralism, going on to produce improved craft tools and machinery. 55 The diff erences in the output and range of fi rst-order goods are dramatic.

Menger’s analysis was extended and build on by Mises, Hayek and especially Lachmann. Menger here was clearly analysing an actual historical process with analytical tools developed for the purpose. Menger’s analysis may Early Modern England | Sudha Shenoy 125

be contrasted with the neoclassical approach: in Mengerian terms, the latter treats all higher-order goods as homogenous and perfect substitutes for one another; concomitantly, production is instantaneous.

Comments and Criticisms

Before going on to Mises and Hayek and their development of Menger’s insights, we may examine some critics and commentators on Menger. This examination will emphasise the centrality of both subjectivism and the capital structure to Menger’s analysis, and also bring out more clearly the features of the latter. (Given the unfamiliarity of the analysis, some reiteration may be helpful.)

Stigler

Stigler objects to the subdivision of higher-order goods into classes according to how far they are from fi rst-order goods: “The classifi cation of goods into ranks [is] … of dubious value. The same good, say coal, might be used both as a good of the fi rst order (in domestic heating) and… as a good of ninth order (in smelting ore) in even a simple economy.” 56 But this is precisely why Menger emphatically insists that these categories do not refer to any characteristics inherent in the goods themselves. Rather, the classifi cations help to identify the particular use that people make of the goods available to them. And so Menger pointed out that (versatile) production goods can be moved from lower to higher orders — which is how the investment chain is lengthened.

For Menger, the analysis is of the various ways in which people make use of goods, i.e. the subjective assessments made by human beings and manifested in their actions towards these goods. But Stigler confi rms that for the neoclassical economist goods are things-in-themselves and so the central objects of concern.

Thus the insight that coal is usable in very diff erent stages of production is of the greatest value to the historian: he is led to inquire into the relative quantities used for direct domestic purposes and for smelting ore, in the historical context he is investigating. This means he looks into the other complementary capital goods being produced, the various capital combinations present. Thus the historian is guided to inquire into the “length” of the production chain in that historical context. In a relatively short investment chain, rather more coal is used for domestic purposes and in production stages closer to fi nal consumption. The quantities used in stages further removed, e.g. smelting, are much smaller in comparison. But as the production chain is “lengthened” — as goods of successively higher orders are produced — larger quantities of coal 126 Early Modern England | Sudha Shenoy

go into smelting and other investment links further from fi nal consumption, as compared with domestic use; total production of coal also increases. This happened in England from the sixteenth to the nineteenth century, for example. Stigler recognises that “even a simple economy” may have production chains extending some distance from the fi rst-order goods turned out. Exactly so: this gives the historian an insight into the complexities of the various production chains — particularly the more extensive ones — found in the diff erent historical contexts he studies. Thus the very classifi cation which Stigler fi nds “of dubious value” — to a neoclassical economist — provides indispensable and profoundly penetrating insights in historical study. In short, precisely because Menger is developing analytical tools for the historian, his analysis has to lie outside the limits of neoclassical economics.

Stigler goes on: “Menger himself makes no use of the concept of ranks other than to distinguish consumption goods from production goods.” But

Menger nowhere refers to “production goods” tout court, all of which are homogenous and perfect substitutes for one another. Indeed he devotes the fi rst three chapters of his Principles almost entirely to analysing heterogenous investment chains. In these, the successive higher order goods are complementary to one another and so have to be used in the appropriate combinations;

substitutability is only possible within a link and within limits, as in crop cultivation. Stigler also protests: “… to attempt to trace in detail the stages in the production of even a simple commodity — a common pin, for instance — would amount to nothing less than a detailed description of economic life and its history.” 57 Precisely: that is why Menger sees in the increasing use of goods of ever-higher orders the explanation for humanity’s growth from a small population of hunter-gatherers, almost entirely dependent on nature, to a densely-settled population with a wide range of employments, producing a vast range and quantity of fi rst-order goods, in a global trading network.

Stigler says, “the greatest hiatus [in Menger]… is unquestionably the virtual absence of any theory of capital.” He refers to Menger’s “vague and unsatisfactory defi nition of capital”. Stigler goes on, “it is asserted both that increases in capital can take place only through extensions of the (undefi ned)

period of production and that all such extensions increase the productivity of a given amount of capital.” 58

But Menger nowhere refers to the neoclassical notion of a homogenous stock called “capital”, in which any separate goods are perfectly homogenous and perfect substitutes for each other. Nor is Menger concerned anywhere with a “period of production”. What Menger investigates are the production chains formed by sequential and heterogenous higher-order goods, whose fi nal links consist of the various fi rst-order goods yielded by these investment chains. Early Modern England | Sudha Shenoy 127

Because they must form a chain in order to reach this fi nal link, the sequence of higher-order goods are complements; they cannot be substitutes (except, on occasion, within each link.) So in eff ect Stigler complains that Menger does not hold the neoclassical view of what it terms “capital”.

Now to what Stigler calls “the (undefi ned) period of production” and the

“productivity” of an “amount of capital”. In Menger’s analysis, it is from the investigation of investment chains that there follows the implications regarding both the quantity and range of fi rst-order goods produced and so also the time-periods involved. I summarise Menger’s analysis and then consider some practical examples, for reinforcement.

As we saw earlier, Menger recognised that it is as goods of successively higher orders are utilised — the production chain is extended — that the range and quantity of fi rst-order goods both increase. We saw that Menger traced this process of extending investment chains and their eff ects through time.

When people were hunter-gatherers and so produced virtually no higher-order goods, there was a small, poverty-stricken population. Then people began producing goods of successively higher orders, developing better hunting tools, then pastoralism, sedentary agriculture, craft production and fi nally machinery.

Thus population grew, became densely-settled, fi nal goods increased in range and quantity, and hence the range of occupations also grew. And as investment chains were extended, so also were the time intervals between the highest order good actually used and the fi rst-order goods being turned out. In Menger’s examples, this time period was a few months in the short production structure of a nomadic pastoralist, but years or even decades in the vastly-extended production chains found in the international trading order of the late nineteenth century. Menger also recognised that within the investment chain, the time interval in each ‘link’ also varied — this being the time needed to convert inputs from the previous stage into inputs for the next stage following. 59

Investment Chains In Reality

We may take two examples to illustrate how diff erences in the “length”

of investment chains produce diff erences in the “mix” and quantities of fi rst-order goods and in the production time involved. Taking the nomadic pastoralist again, consider the time taken for a lamb to be born and then mature;

the sheep’s wool to be shorn, prepared, spun and woven into cloth, then sold or traded and turned into clothing. In this relatively “short” production structure, the successive higher-order goods are relatively simple and coarse in quality: unimproved sheep, spindles, simple looms, etc. So too are all the fi rst-order goods produced in a society where such pastoralism is prominent and 128 Early Modern England | Sudha Shenoy

where therefore the other members are subsistence agriculturalists and part-time craftsmen. These fi rst-order goods would include grain, clothing, pottery, baskets; etc. In sum: the production chain here is far “shorter”: from the highest order goods used to the fi rst-order goods turned out. Concomitantly, the range of such goods and of available occupations is very meagre; and the time taken in the overall production process is also much shorter.

Turning now to a highly-simplifi ed and incomplete example from a twentieth-century context: consider the time needed to mine iron ore and coal and transport them to steel mills — possibly in other countries; then to convert the ore, coal and other inputs into steel products, transport those products to different factories and ship yards and turn them into ships, lorries, cars, electrical goods, etc.; then transport these various goods (except the ships) to dealers and retailers; and fi nally, the time taken before fi nal sale and transport to the purchaser’s house (or fi rm, in the case of lorries). These are merely the more obvious links in these investment chains. A slightly more comprehensive picture would include, inter alia, the production and uses of such higher order goods as the following (in the appropriate production stage); mining machinery; bricks to build factories; the various sorts of machinery used in the ship— yards and in the various factories that turn out (for example): lorry and car engines; electrical motors; and the lorries, cars, electrical goods, etc. — In this example the investment chains are clearly immensely “lengthier” and more complex, from the highest order good utilised to the huge variety of fi rst order goods ultimately turned out. Not only is there an incomparably wider range in the latter, there is an even greater range in the various higher-order goods used as also in lines of employment. So too an immensely greater amount of time is needed for the entire production process, from the stage furthest removed to the fi nal consumption stage. Furthermore, within each production structure

— whatever its “length” — each segment of the production process requires diff erent amounts of time to be completed. That is, the time taken in each stage varies according to the product, the particular process and the particular link in that investment chain. In short, Menger is concerned to analyse the production chain. In any such chain, fi rst-order goods constitute the fi nal link.

So its “length” determines the kind and quantity of fi rst-order goods that are ultimately produced. So too the overall time taken to reach this fi nal stage, depends on the “distance” between the highest order good used and the fi rst order goods turned out. Thus the “length” of the investment chain considered determines both the fi nal outputs and the time needed to produce them. Early Modern England | Sudha Shenoy 129

Back to Stigler

But Stigler concentrates solely on something which he calls “the period of production”. According to Stigler, if this period is extended, the “quantity” of capital is increased as is the “productivity” of a given amount of the stuff . Thus

Stigler doesn’t just get the cart before the horse, he doesn’t realise it is a cart and that a horse is pulling it.

According to Stigler, Menger fi nds that one “limitation” to “extending the period of production” is “an irrational preference for present over future satisfaction.” 60 But Menger says explicitly that scarcity determines how far into the future people can provide for. With a very much smaller stock of resources, people can build up only those interconnected investment chains that yield fi rst-order goods in the nearest future period. Only as resources increase does it become possible to extend these investment chains with goods of successively higher orders, thus to provide fi rst-order goods in successively more distant time periods. Because resources are scarce, people can build up investment chains only link by link. It is scarcity which limits how far people can extend these chains — i.e. how far into the future they can provide for.

This point is worth pursuing further: to emphasize Menger’s analysis of subjectivism in opposition to Stigler’s neoclassical objectivism. To use

Menger’s own example: Suppose people built up investment chains that yield fi nal goods only in far distant time periods. Resources, however, are scarce:

so people do this only by sacrifi cing those shorter investment chains that turn out fi rst-order goods in the nearer future. This means that when these nearer time periods are reached, supplies of fi rst-order goods dry up: Since all or most of the needed resources are tied up in the form of goods of much higher orders in investment chains that can yield fi nal goods only in far later periods.

Menger recognised that people did not deliberately starve themselves thus in the near future in order to obtain fi nal goods much later on. Rather, they sought to make what they (subjectively) regarded as adequate provision for such contiguous time periods into the future as they felt (subjectively) their resources allowed. As their resources increased, people extended their “provident activities” to time periods that extended correspondingly further into the future. Menger emphasized that even in hunting-gathering societies, where resources were scarcest, eff orts were still made to provide fi rst-order goods in the next contiguous time-period. In short, Menger analysed how people used their scarce resources to gradually extend investment chains and thus provide fi rst-order goods in successively later time-periods into the future. 62 But as Stigler’s exposition demonstrates, since Menger’s analysis is entirely subjectivist, it lies outside the scope of neoclassical economics.

Stigler refers to “[Menger’s] failure to recognise the increasing mobility of resources through time…” In particular, says Stigler, Menger concentrates on the “spatial immobility” of land, whereas for price theory “the mobility of land as between diff erent uses… is much more important.” 63

We may deal fi rst with land. Contra Stigler, Menger does say plainly that land can be used for diff erent human purposes. Used as a fi rst-order good, it directly serves “consumption purposes”; e.g. as “ornamental gardens” or for hunting. Used as a higher-order good, it grows crops — i.e. it helps to produce other goods closer to fi nal consumption. In analysing the eff ects of a drop in tobacco demand, Menger clearly states that the land and agricultural implements can be turned to other crops, — they can help to produce other fi rst-order goods. 64 For Menger, human purpose is the prime mover behind economic phenomena. Such subjectivism lies outside Stigler’s neoclassical objectivism, where goods move themselves.

Turning now to the general issue of resource mobility: — Again contra

Stigler, Menger emphasizes that many, if not most, higher-order goods are ver-satile : they can be and are used in various investment chains to produce a wide range and variety of fi rst-order goods. Further, Menger points out that higher-order goods can be used in production processes of “very diff erent durations”.

To elucidate: the extending of production chains is a process which can only occur through time. In this process, not only are goods of successively higher orders produced, but goods are shifted from lower to higher orders. And since in each link of the production chain diff erent capital combinations are used, this means 65new such combinations are formed. In short, the development of production chains not only requires and presupposes versatility in higher-order goods, the whole is inevitably a process through time. But these facts are apprehended only within a subjectivist framework. Hence Stigler naturally cannot see that Menger is analysing the versatility of higher-order goods as a process through time.

More Examples

Concrete illustration will be helpful here. Many examples of such versatility are possible, taking a twentieth-century context and looking only to some of the more obvious interconnections. Steel mills for instance, turn out many diff erent types of steel products, in changing proportions according to circumstances. Many of these products go to make a huge range of machinery, not only for producing ships, lorries, cars, electrical goods, etc. (as mentioned earlier) but also for woodworking, diff erent sorts of textiles, various food products and so on. The fi rst group of metal products also use a range of other steel Early Modern England | Sudha Shenoy 131

products in their manufacture. Then, at a number of stages in the production chain, ships and/or lorries transport virtually all higher-order and fi rst-order goods (railways, too, are used in many cases). The category “electrical goods”

covers goods for commercial use — e.g. commercial freezers, cold cabinets, washers and the like — that are several stages removed from fi nal consumption, as well as domestic goods that directly provide fi rst-order goods and services.

Diff erent types of timber are worked up with woodworking machinery into goods of various higher orders — e.g. doors, windows, fl oors for factory and offi ce buildings, or offi ce furniture — and also fi rst-order goods: housing and domestic furniture. The offi ce furniture, in turn, is used in offi ces ranging from those of iron and steel companies to retail establishments; and such furniture is also made of steel. Diff erent sorts of textile machinery use wool, cotton, silk, linen and various synthetic fi bres to produce a huge range of fabrics — for furnishing, household purposes and clothing. Furnishing fabrics, in turn, go into offi ces, shops, restaurants etc. as higher order goods closer to or further from, the fi nal consumption stage, as also into houses as fi rst-order goods.

All these are inevitably oversimplifi ed instances. But we see how various higher-order goods can enter into diff erent investment chains, thus forming an enormous variety of capital combinations. These various production chains yield a vast range of diff erent fi rst-order goods (and services).

Comparing this type of situation with one in which nomadic pastoralism it the norm: in the latter, such higher-order goods as sheep and wool are only a few links away from the fi rst-order goods of clothing, rugs, etc. But in the twentieth century example, both sheep and wool are not only incomparably improved in quality, they are now goods of far higher orders and so very far removed indeed from such fi rst-order goods as clothing, blankets, furnishings etc. The intervening links in the production chain now contain a huge variety of other, new, higher-order goods, impossible to produce under nomadic pastoralism. And correspondingly wool now contributes to immensely more varieties of fi nal outputs.

Similarly with timber: under nomadic pastoralism, it was used for such items as simple looms, saddles etc. But in the twentieth-century example, it is not only very far removed along the production chain from the fi rst-order goods it helps to produce, these goods are almost all entirely new and are now produced with the help of a vast range of new higher-order goods. Thus as the production chain is extended: i. many more varieties of higher-order goods contribute to the fi nal output of a much vaster range of fi rst-order goods; ii. higher-order goods are moved from lower to higher orders — further up the investment chain; iii. new capital combinations are formed. — So contra Stigler, Menger demonstrates an acute penetration into the versatility of higher-order goods.

Stigler Again

Stigler further charges that Menger “fails to establish the fundamental economic identity of land and other forms of capital…” Stigler sees Menger as off ering only a failed criticism of classical rent theory.66 But Menger does integrate land completely into his discussion of higher-order goods, according to where it is used in the production chain. He demonstrates that diff erent par— cels of land are valued exactly as are other higher-order goods: in line with their contribution to the ultimate turn-out of fi rst-order goods. 67

Stigler feels that “under Menger’s implicit static assumptions, capital and labour are fixed in quantity”; however, “historically all three ‘factors’ have experienced enormous increases.” 68 But Menger is not only perfectly aware of all this, he penetrates far beyond the immediately obvious: simple quantities.

He recognises explicitly the immense growth in population, in both numbers and density, since the days of hunting-gathering. And he emphasises the even greater growth in the quantity and range of fi rst-order goods since then — the latter resulting from the systematic use of goods of “ever higher orders”. This vast extension of the investment chain enabled an ever-increasing population to go from hunting-gathering through settled agriculture and pastoralism to craft production and the use of machinery — which means the fi nal output of fi rst-order goods now came after years or decades. This picture is historically dynamic. Furthermore, Menger sees that higher-order goods are incipient fi rst-order goods: i.e. it is because higher-order goods increased that greater and greater quantities of fi rst-order goods could be turned out. He also brings out clearly the implications for land and natural resources: to utilise these, complementary higher order goods are needed. So as investment chains are extended through time, both land and natural resources eventually become scarce goods:

as has happened historically in countries such as Germany and even in the new world. But again — this development entails prior increases in the various higher-order goods as also new capital combinations. Thus Menger’s analysis followed from his recognition that the labour force had grown substantially through time, as had the range and quantities of higher-order goods. 69

Stigler says Menger’s “failure to realize the continuity of production, i.e.,

… the price of a good must … repay its costs” and his “preoccupation with directly consumable goods” account for “the fundamental defect in his theory — the complete neglect of costs…” But Menger nowhere confi nes himself solely to fi rst-order goods — indeed, he devotes virtually all of the fi rst three chapters of the Principles to a systematic analysis of higher-order goods:

their classifi cation into successive orders; the need for capital combinations in each order; the time required by the various production processes leading to fi rst-order goods, etc. etc. To a neoclassical economist, costs are physical and Early Modern England | Sudha Shenoy 133

objective: the various physical goods that go into producing another physical good. Stigler confi rms this: “[Menger] fails to consider … that although costs never have a direct eff ect on value, yet they are — ‘in the long run’ — of at least coordinate importance in its determination …” 70 But for Menger, scarcity is the pivotal category — it derives from human purposes and the goods that are treated as means to achieve these purposes.

Thus (to take one instance) Menger distinguishes between scarce and free goods and analyses their diff erences. He also outlines the process whereby formerly free goods — e.g. agricultural land and resources like timber, sand and limestone — become scarce: with the growth of investment chains and thus of complementary higher order goods. 71 In short, Menger analyses the implications of scarcity as a human condition whereas Stigler sees goods as purely physical things. Hence Stigler is concerned with the physical ‘inputs’ needed for their objective, physical replacement and so he stresses the ‘coordinate’

role of costs in determining long-run value. For Menger, however, value is what is imputed by human beings to those goods that they regard as useful, whether directly (fi rst-order goods) or indirectly (higher-order goods). In Menger’s own illustration, when men no longer wish to smoke, tobacco products and smoking accessories become valueless, but not such higher-order goods as land, which can contribute to the output of other fi rst-order goods. For Stigler, goods are produced so long as their physical costs of production are covered. But for Menger, the range of goods and services produced refl ect the relative rankings of diff erent uses made by human beings faced with a scarcity of resources. Thus Stigler is concerned with physical goods and their physical replacement. Menger is concerned with the changing evaluations made by human beings and how these changes result in the expansion of some fi rst-order goods and services, and the contraction or disappearance of others.

Streissler

Turning now to two other commentators: Both — crucially — omit investment chains. According to Streissler, Menger believes that welfare is increased not by the division of labour, but through “changes in … productive output”

— i.e. a “constant widening” in range and “improvement in quality” of goods.

As a consequence the division of labour becomes ever more necessary (Streissler sees Menger as saying.) Streissler also feels that Menger is centrally concerned with information: both technical and commercial. Thus when Menger refers to “increased understanding of the causal connections between things and human welfare”, Streissler glosses this to mean “technical progress” and

“product innovation”, [italics in original] as also changes in information. So

Streissler interprets Menger to say that “advances in agricultural chemistry 134 Early Modern England | Sudha Shenoy

make agricultural produce much less scarce…” 72 — Investment chains are left out but they are central (as we shall see).

Taking these points in order: Streissler’s account assumes that Menger believes that fi rst-order goods simply drop from Heaven. But Menger explicitly recognised that it was only as people used goods of successively-higher orders that they could increase the quantities and range of fi nal goods (as also the range of employments). Hence the bulk of the fi rst three chapters of the

Principles consists of a systematic exposition of investment chains — “the causal connections between goods”. Menger always used this term to mean investment chains — leading from fi rst-order goods to the highest-order goods used in these production chains, and he always discussed fi rst-order goods as fi nal links in such chains. Menger explicitly traces in outline how, as people utilised goods of higher and higher orders, they moved from hunting-gathering through settled agriculture and pastoralism to manufacturing with machinery.

He emphasizes that this historical process is not a simple linear growth in the division of labour. Rather it consists in the increasing use, over time, of goods of progressively higher orders. As a consequence of thus extending investment chains, fi nal outputs grow in both quantity and range and so the division of labour is also extended. In referring only to fi nal outputs and the division of labour, while omitting production chains, Streissler in eff ect describes a grin without a cat — and doesn’t even realise it.

Now to “advances in agricultural chemistry” and their eff ect on agricultural output: Here, Menger is still systematically setting out various aspects of investment chains — the production structure. In so doing, he raises the following questions: does the availability of all the requisite combinations of higher-order goods by itself determine the turn-out of fi rst-order goods? His answer: there are some types of goods where additional infl uences are also important. Menger compares the production of an industrial good — shoes, with that of an agricultural commodity — grain. With shoes, a knowledge of the available combinations of higher-order goods — their quantities and qualities

— provides a fairly certain estimate of the quantities (and types) of shoes that will be turned out at the end of the production process. But in agriculture, it is not just the diff erent types of higher order goods that alone determine output:

soil chemistry and the weather also contribute signifi cantly. It is in this con-text that Menger refers to the applied study of soil chemistry — as a means of reducing the uncertainty attaching to this additional infl uence on agricultural output. 73 So to omit the relevant investment chains while referring to “agricultural chemistry” is to omit the Prince of Denmark from Hamlet while pushing

Rosencrantz and Guildenstern to centre stage.

Karen Vaughn

Dr. Karen Vaughn concurs “fully” with Professor Streissler that Menger, in his Principles, is “fundamentally providing a theory of economic development.” As Dr. Vaughn sees it, this theory is founded in Menger’s belief that goods have an objective want-satisfying capability. It follows, says Dr. Vaughn, that what Menger terms this “causal relationship” — between good and need

— has to be learnt: through trial and error. Dr. Vaughn feels that this is why

Menger devised his notion of “imaginary” goods: so that improved knowledge

— economic progress — could be defi ned. As they acquire “better information”, people correct such of their — subjective — assessments as they now realise were erroneous. Thus Menger extends subjectivism to knowledge (says Dr.

Vaughn.) He does this zealously and with “repeated examples” all through the

Principles . Dr. Vaughn takes one such instance:- at one time, people believed in the prowess of witch-doctors. But as knowledge advanced, this error was recognised; people then substituted “better forms of medicine”.74 In sum, according to Dr. Vaughn, Menger holds that “Seeking to satisfy human needs leads to both greater knowledge and greater command over resources.” And so, says

Dr. Vaughn, Menger identifi es “economic progress” with “widespread knowledge of the casual connection between goods and the satisfaction of needs as well as widespread knowledge about available supplies”. 75

Dr. Vaughn points to Menger’s explicit criticism of Adam Smith, for too narrowly seeing in the division of labour “the source of wealth”. Here she quotes from Menger [I omit some inessential words]:

“ The quantities of consumer goods at human disposal are limited only by the extent of human knowledge of the casual connections between things and… the extent of human control over these things… the degree of economic progress of mankind will….be commensurate with the degree of progress of human knowledge” (says Menger).76

Dr. Vaughn’s interpretation omits investment chains. It makes Menger concentrate exclusively on fi rst-order goods — that apparently simply dropped from heaven. This view gives Menger a “theory of economic development”

which says in eff ect: Cave-dwelling humans, having learned of the shelter— giving properties of mud huts, realised their erroneous assessment of cave housing and sought more information on the availability of mud huts, which led to greater supplies. Then, having learned about air-conditioned houses with swimming pools, people rejected their previous evaluation of mud huts, searched for information on the available supplies of air-conditioned houses, and moved into such houses. Or, in other words, the masses in the LDCs

(in the twentieth century) live as they do because they have not yet obtained information about better goods and services and about the supplies actually 136 Early Modern England | Sudha Shenoy

available. In the DCs, on the other hand, people live better because they have far better knowledge about which goods and services will satisfy their requirements as also regarding the availability of these vastly-improved outputs. — But none of this is an explanation of how these fi rst-order goods came into existence in the fi rst place.

As opposed to this interpretation, Menger does in fact raise and answer the real question: how are such fi rst-order goods produced? How in fact have people increased and improved their supplies?

As Menger realised, fi rst-order goods are the fi nal links in a production chain whose other links are formed from goods of successively higher orders.

As these chains are extended with goods of higher and higher orders, the quantities and range of fi rst-order goods both increase, as does the range of occupations together with population size and density. Hence from the very outset and through the fi rst three chapters of the Principles, Menger analyses production chains — later termed the “capital structure”. As we shall see, people’s learning to use higher-order goods is pivotal to Menger’s analysis. But there is nothing in his analysis about people’s learning the characteristics of fi rst-order goods.

As regards “imaginary” goods: According to Dr. Vaughn, the notion is integral to Menger’s defi nition of economic progress as learning from mistakes: “imaginary” goods are then the mistaken evaluations left behind by the advance of knowledge. But Menger discusses these goods once and once only; and, contra Vaughn, they play no role in his analysis. Menger defi nes

“imaginary” goods as a “special situation”, [italics added] which occurs with goods that either cannot satisfy a human need or else fulfi ll only an imaginary need. Those “peoples who are poorest in true goods” have the largest numbers of “imaginary” goods. As people learn more about themselves, “imaginary” goods decline while “true” goods expand; thus “accurate knowledge and human welfare” are connected. But Menger nowhere again refers to this special case of “imaginary” goods. 77

Menger begins by defi ning a “good”. Contra Vaughn, he says explicitly that a good is “a relationship between certain things and men”. This relationship is composed of four strands, all essential — if even one is absent or disappears, the goods-relationship cannot hold, and the thing ceases to be a good (or cannot be one). The second of these strands is a capability of “being brought into a causal connection” with a human need; the third strand is “human knowledge of this… connection.78 Dr. Vaughn’s gloss suggests that Menger stops here with these bare statements. But in fact Menger systematically goes far, far beyond.

A direct causal connection puts a good into the “fi rst order”. First-order goods, however, are produced through the help of “thousands of other things.” Early Modern England | Sudha Shenoy 137

Such higher-order goods have thus an indirect connection with human needs.

But neither are higher-order goods a jumble of “unrelated occurrences.”

Rather, such goods are linked together in a defi nite sequence; fi rst-order goods are produced by second-order goods that in turn are produced by third-order goods and so on to the highest-order good in the production chains examined.79 (Expanding on Menger’s example: bread in the home is transported there from a retail shop which gets it from a bakery where the baker uses fl our and other ingredients, an oven, trays, etc. The fl our is milled in a fl ourmill from wheat produced by a farmer using the appropriate type of land, seeds, implements, fertilisers, etc. The baker’s oven, the fl our mill’s machinery, and agricultural machinery are produced by their respective manufacturers using steel products and other inputs. The steel products come from a steel mill which uses various grades of coal, iron ore, skilled labour, etc… and so on, not forgetting insurance, legal, commercial and transport services throughout.

And all fi rst-order goods are likewise the fi nal links in many such production chains.) Thus Menger begins by analysing “The causal connections between goods” — the title of Section 2 of Chapter 1, where he sets out the production chain for the fi rst time ever. He then develops this analysis comprehensively.

It is on this basis that Menger criticizes Adam Smith. The latter, says

Menger, examines “a single cause of progress in human welfare” while overlooking others, “no less effi cient”. The division of labour, Menger points out, cannot by itself “increase… the consumption goods at human disposal”; it can only increase specialisation and effi ciency in whatever tasks are already available. Thus a hunting-gathering tribe is “confi ned to… those goods of lowest order that happen to be off ered by nature”. The concomitant activities are hunting, fi shing, food-gathering, cooking, making clothes, etc. But even with increased specialisation and greater effi ciency in these activities, “economizing individuals” still “exert no infl uence on the production of [fi rst order] goods”;

the latter remain “the product of an accidental concurrence…” To increase supplies of final goods requires that people “abandon” hunting-gathering,

“investigate the ways in which things may be combined in a causal process for the production of consumption goods, take possession [of such things] and treat them as goods of higher order”. And so it is only as people use “goods of third, fourth and higher orders” with an associated division of labour that their welfare progresses. From hunting-gathering, people move on to better hunting weapons, then to improved and intensive agriculture and pastoralism, craft production, then improved tools and machinery. Their welfare increases

“in the closest connection with these developments”: people now obtain larger quantities and more varieties of fi nal goods; their occupations are more varied;

and “vast regions” that once had a few, miserably poor inhabitants are now 138 Early Modern England | Sudha Shenoy

“densely populated civilised countries.” Thus it is through using “goods of ever higher orders” that people move from “deepest misery to civilisation and well-being.” Such “improvement” is what “we can observe in actual cases of economically progressive peoples”.80

Thus Menger demonstrates that it is because the investment chain is extended that the division of labour, too, can proceed: the former leads, the latter can only follow. And so he sums up: the division of labour is “only one factor” — and a lesser one at that — “among the great infl uences that lead mankind from barbarism and misery to civilisation and wealth”.81

Now Menger does not stop at recognising that only as the investment chain is built up, can supplies of fi rst-order goods expand. He sees deeper, that this expansion of fi nal outputs is the outcome of productive processes that are as “natural” — subject to regularities — as those on which hunter-gatherers relied. But unlike the latter, the productive processes set going when investment chains are extended, are controllable by human purposes — within the limits of these investment processes’ own regularities. 82 Thus Menger sees that the production structure with its consequences is as real and “natural” as anything found in Nature, so people can and do make use of the investment chains’

“causal processes”, exactly as with other “natural” phenomena.

And so it is from his analysis of investment chains that Menger concludes that fi nal output can grow and diversify only with “increasing understanding of the causal connections between things” — ie investment chains and the immense potentialities created by their extension. He repeats this conclusion quite explicitly at a later point: “… thought and experience lead men to even deeper insights into the causal connections between things, and especially into the causal connections between things and their welfare. They learn to use goods of second, third, and higher orders” 83 [italics supplied]

Thus Menger is quite clear: as people use goods of ever-higher orders, they experience the resulting growth and diversity in fi nal outputs. As people recognise and apply these “casual connections” — ie. as they utilise the expanding productive potential of extending investment chains — they fi nd their welfare growing pari passu. Furthermore, as goods of all orders increase in quantities and range, two new functions appear in the associated division of labour: the holding of stocks by wholesalers and the supply of commercial information about the fl ow of goods. Again, Menger is quite explicit: it is when investment chains have been built up quite extensively with interregional and international fl ows of goods, that it becomes necessary to obtain and supply information about the availabilities of 84all sorts of goods.

Menger forged this analytical tool — the investment chain — to investigate actual historical developments: humanity’s journey from hunting-gathering to the global trading network of the later nineteenth century. He recognised the analytical problem involved; his solution provides illuminating and penetrating insights, only available through this tool.

Dr. Streissler, as noted, omits the production structure altogether in his review of Menger; Dr. Vaughn mentions it only once: as “an important fore-runner to the Austrian theory of the business cycle”.85 The issue of the trade cycle is, of course, a major branch of neoclassical economics. But the production structure is not found there — neoclassical economics has no concern with analytical tools for historians. So only when the boundaries of neoclassical economics are left behind can we recognise the central signifi cance of the production chain to Menger’s analysis.

F O O T N O T E S C H A P T E R 3

1. The following three paragraphs are taken from: Gustav Schmoller, The Mercantile

System and its Historical Signifi cance (1883; New York: Macmillan 1895) pp 1-6,

14-15, 77, 79-80. — See p. vii: “The Essay on the Mercantile System here translated[,] with the author’s sanction…”

2. Quotations from ibid, pp 79-80, 3-4. The reference to “organisms” also occurs onpp 5,6,14,15, etc.

3. Quotations from ibid, p 80.

4. Carl Menger, Problems of Economics and Sociology, trans. F. J. Nock (1883; Urbana:University of Illinois Press 1963).

5. ibid., pp 57, 62, 75-78, 80.

6. ibid., pp 56, 58, 61.

7. ibid., pp 58, 60-61, 85-86.

8. ibid., pp 62-63, 75-76, 78-79, 85-88. Quote from p 78.9. ibid., pp 71, 72, 77, 80.

10. ibid., pp 61, 69-70.

11. ibid., pp 43, 55, 68. Quote from p 45.12. ibid., pp 42-46, 55-56.

13. ibid., pp 36-37, 39, 42, 44-45, 51-52, 55-56, 57.14. ibid., p 79.

15. ibid., pp 62, 63, 68.

16. ibid., p 142, fn 51.

17. ibid., pp 132-133, 145-146. Quote from p 133.18. ibid., pp 130, 133, 147, 148, 150, 152, 158. Quotes from pp 130 (italics in original), 147, 133. Also see p 133: “... social phenomena come about as the unintendedresult of individual human eff orts (pursuing individual interests) without a commonwill directed toward their establishment”. And earlier: “... some social phenomena

... are the unintended result of human eff orts aimed at attaining essentially individualgoals (the unintended result of these).”

19. ibid., pp 173-75.

20. ibid., pp 130, 146, 147, 152, 157. Quotes from pp 147, 146.21. ibid., pp 148, 149, 173, 174 fn.

22. ibid., p 146. Italics in original.

23. ibid., pp 146, 147. Quotes from pp 158, 159, 147.24. ibid., pp 149, 159. Also see pp 93, 196.25. Carl Menger, Principles of Economics, trans. B. Hoselitz and J. Dingwall (1871; NewYork: New York University Press 1976). Menger deals with the production structure on pp. 56-89, 106-109 and 149-71.

26. Menger, Problems, op. cit., App. VIII, “The ‘Organic’ Origin of Law and the Exact

Understanding Thereof ”, pp 223-224. Quote from p 223.27. ibid., pp 225-227. Quotes from pp 225, 226, 227. Italics in original.28. ibid., pp 227, 229, 226.

29. ibid., p 231.

30. ibid., pp 229, 232, 234. Quotes from pp 229, 232, 234. Italics in original.31. ibid., pp 223, 232-34. Quotes from pp 232, 233, 234. Italics in original.32. ibid., pp 152-155; Principles, pp 247-271, 280-85.33. Problems, pp 154-55; Principles, pp 259-61, 263-71, 280-85. Quotes from Problems,p 155; Principles, p 261.

34. Problems, p 93 and App. I, “The Nature of National Economy”, p 194. Q u o t e s from p 93. Italics in original.

35. ibid., pp 194-196. Quotes from pp 196, 195.36. ibid., pp 155-157. Quote from p 156.37. ibid., pp 157-158, 146, 229. Quotes from pp 157, 233, 158.38. ibid., pp 172-176, 175 fn, 149, 182, 233, 174 fn. Quotes from pp 158, 172, 173,177.

39. ibid., pp 173, 177. Quotes from pp 177, 173, 181, 182.40. ibid., pp. 74-76; also see pp. 66, 80, 163, 164.41. ibid., pp. 56-58.

42. ibid., p. 57. Also see pp. 152, 157.43. ibid., pp. 80, 107; and esp. p. 66.

44. ibid., pp. 63-67, 163, 164.

45. ibid., p. 58.

46. ibid., pp. 67-71, 88-89, 159. Quote from p. 68.47. ibid., pp. 58-63, 157 (fn. 18), 85.

48. ibid., pp. 163-65, 66, 107, 80, 150.49. ibid., pp. 67 (quote), 63 (quote).

50. ibid., pp. 78, 68; also see pp. 149-52.51. ibid., pp. 71-74, 152-54, 159 (including fn. 21).52. ibid., pp. 71-74, 109. For the “length” of the production structure, see pp. 78, 152,157.

53. ibid., pp. 63, 86-87, 73.

54. ibid., pp. 152-53, 155, 78-79.

55. ibid., pp. 71-74.

56. G. J. Stigler, “Carl Menger”, ch VI in his Production and Distribution Theories (New

York: Macmillan 1941) p. 138.

57. ibid, p. 138 (both quotes).

58. ibid, p. 156 (all quotes).

59. Menger, Principles, op. cit., pp. 70-74 (capital structure); pp. 153, 78 (time periods).60. Stigler, Production…op.cit, p.156.61. Menger, Principles, p. 154 (eff ect of scarcity on provision for the future).62. ibid, pp 153-45 (availability of resources determines time periods that can be provided for); pp 78-79 (provision for the future even in hunting-gathering); “providentactivities: p.152.

63. Stigler, Production…,p.149 (mobility of resources through time); p.155 (land).64. Menger, Prinicples, p.165 (different uses for land); p66 (land etc. used for othercrops.)

65. ibid, pp 60,163,164 (investment chains and fi rst order goods ); p.159 fn.21 (“very diff erent durations”); p. 155 (goods shifted from lower to higher orders).66. Stigler, Production…, p.154.

67. Menger, Principles, pp. 165-69.

68. Stigler, Production…, p 155.

69. Menger, Principles, pp. 71-74 (population growth); p.153 (fi nal output after years/or decades); pp 68-69 (higher order goods are incipient fi nal goods); p.103 (land, natural resources, and investment chains.)

70. Stigler, Production…, p.148 (fi rst quote); pp. 148-49 (second quote.)71. Menger, Principles, pp.98-101, 155.72. Erich Streissler, “To what extent was the Austrian School marginalist?”, History of

Political Economy 4(1972) pp. 430-431.73. Menger, Principles, pp. 69-71.

74. Karen Vaughn, “The Mengerian roots of the Austrian revival” in Bruce Caldwell (ed)

Carl Menger and his Legacy in Economics (Durham, N.C.: Duke University Press

1990) p 384 (theory of economic development); p.386 (other points and quotes).

75. Karen Vaughn, Austrian Economics in America (New York: Cambridge UniversityPress 1994) pp. 33,27.

76. Vaughn, “Mengerian…”, op.cit., p. 385. Quote from Menger, Principles, p.74 (recte).77. Menger, Principles, p. 53 (“special situation”); pp. 53-45 (“peoples who are poorest…”); p.53 (“accurate knowledge…’)78. ibid, p52 fn.4 (“a relationship”); p.52, text (other points and quotes).79. ibid, p.56; p.57 (“thousands of other things”); p.56 (“unrelated occurrences”);pp.55-58 (investment chains from fi rst-order goods to highest-order goods used.)80. ibid, pp.72,73,74.

81. ibid, p.73

82. ibid, p.74

83. ibid, pp.74,109.

84. ibid, pp. 90-94, 239.

85. Vaughn, Austrian Economics…, p.14