Carl Menger Economic Goods

Carl Menger Economic Goods and the Valuation Process

After a very detailed analysis of a good, Menger set out to show how humans, on the basis of a knowledge of available supply and demand, direct the available quan­tities of goods to the greatest possible satisfaction. In Menger's view, the origins of human economy were coincident with the origins of economic goods. Economic goods are defined as those whose requirements are greater than the available sup­ply. Noneconomic goods, conversely, are those, such as air or water, whose supply exceeds requirements. And here Menger makes an interesting point—that the basis for property is the protection of ownership of economic goods. (Communism, by con­trast, is founded upon noneconomic relations.) Of course, there is nothing inherent in goods that makes them economic or noneconomic; their character can change with changes in supply or requirements.

According to Menger, a good is said to have value if economizing humans per­ceive that the satisfaction of one of their needs (or the greater or lesser completeness of its satisfaction) depends on their command over the good. Utility is the capacity of a thing to satisfy human needs, and—provided the utility is recognized—it is a prerequisite of goods character. Menger carefully pointed out that noneconomic goods may also possess utility since the subjective valuation between use and need (one's need for air or water, for instance) relates to a specific quantity; use value is a characteristic of only economic goods since it presupposes scarcity.

Menger's distinctions call to mind Smith's water-diamond dilemma. Smith, it will be recalled, was puzzled by the fact that water, which has so much value in use, has no value in exchange, while diamonds, which have practically no value in use, are exchanged at high prices. Menger argued that both water and diamonds undisput-edly possess utility, the difference being that diamonds are scarce relative to the de­mand for them. Further, the subjective valuation between use of, and need for, water could not be related to a specific quantity, and water therefore cannot possess use value. Use value presupposes scarcity, and economic goods alone possess use value.