Carl Menger Economics Definition

Menger and Economizing Man, Carl Menger Economics

Menger began his investigation into value theory with a lengthy and systematic dis­cussion of goods. He distinguished goods from what he called "useful things." In order for a thing to possess goods character, four conditions had to be met simulta­neously: (1) the thing must fulfill a human need, (2) it must have properties that would render it capable of being brought into a causal connection with the satisfaction of the need, (3) there must be a recognition of this causal connection, and (4) there must be command of the thing sufficient to direct it to the satisfaction of the need. If one of these conditions was missing, all a person would have was a useful thing.

Menger also distinguished goods by order. Goods of the first order are capable of satisfying human needs directly, while higher-order goods (capital, production goods) derive goods character from their ability to produce lower-order goods. Higher-order goods can satisfy human needs only indirectly, for as Menger pointed out with reference to the production of bread, "What human need could be satisfied by a spe­cific labor service of a journeyman baker, by a baking utensil, or even by a quantity of ordinary flour?" (Principles, pp. 56-57).

In further setting out laws governing goods character, Menger emphasized the com­plementarity of higher-order goods. Higher-order goods' satisfaction of needs requires command over complementary goods of higher order. An individual, for example, may have everything he or she needs to make bread except yeast. In consequence, other higher-order things lose goods character. (If these items are involved in the production of a number of goods, they do not lose goods character because of the absence of yeast.)

An interesting passage in which Menger related the causal connection between first-order goods and higher-order goods relates to tobacco. Suppose, with Menger, that because of a change in tastes, the demand for tobacco disappeared (much to the delight of the American Cancer Society). What would be the consequence? Ac­cording to Menger:

If, as the result of a change in tastes, the need for tobacco should disappear completely, the first consequence would be that all stocks of finished tobacco products on hand would be deprived of their goods-character. A further consequence would be that the raw tobacco leaves, the ma­chines, tools, and implements applicable exclusively to the processing of tobacco, the special­ized labor services employed in the production of tobacco products, the available stocks of to­bacco seeds, etc., would lose their goods-character. The services, presently so well paid, of the agents who have so much skill in the grading and merchandising of tobaccos in such places as Cuba, Manila, Puerto Rico, and Havana, as well as the specialized labor services of the many people both in Europe and in those distant countries, who ate employed in the manufacture of cigars, would cease to be goods (Principles, p. 65).

It is the causal sequence, i.e., the notion that the value (and goods character) of first-order goods is transmitted or imputed to higher-order goods, that so typifies Austrian economics. Menger also emphasized a basic complementarity and interdependence of all goods we consume, and he formed the basis for constrained utility maximization by his statement, "The most complete satisfaction of a single need cannot maintain life and welfare." This complementarity, which Menger so belabored with respect to con­sumption, was also, as we shall see, carried over to production by the Austrians.