Today marks the 175th birthday of the founder of Austrian economics, Carl Menger. Born to a wealthy Austrian family in 1840, Menger studied at the Gymnasium in Austria and went on to Prague and Vienna to study law. After school, he worked as a journalist, analyzing the market economy. It was through this work that Menger noticed a discrepancy between the classical Smithian economic doctrine and real-world conditions.
Menger became noted in the field of economics when he published Principles of Economics, by which he was noted as the first economist to identify marginal utility, a concept which is now widely acknowledged by mainstream economists as a fundamental aspect of the workings of supply and demand. Instead of Adam Smith’s and David Ricardo’s classical view that prices are determined by the cost of production, the marginal utility theory stated that the value of a good or service decreases as more units of the good or service are provided. For example, as a person eats more, one’s desire for additional units of food diminishes, so it may follow that one devalues food more than if one is hungry. In this scenario, even assuming the cost of production is constant for all units, the value placed on each unit by each consumer may vary, based on personal preference, price, and other, innumerable factors.
Shortly after publishing Principles of Economics, Menger returned to the University of Vienna, where he joined the law faculty and became their chair of economic theory at 33 years of age. He even worked with Austrian nobility, tutoring Archduke Habsburg on political economy and statistics, and later advising the nation on monetary policy.
Menger’s work paved the way for other well-known Austrian economists such as Ludwig von Mises and Friedrich Hayek. Although the latter two economists and many other, more contemporary, Austrian economists are better-known and more frequently read than Menger, he nonetheless deserves credit for laying the foundation for those who followed in the Austrian School of economics.
I had the fortune of visiting the University of Vienna myself in July 2012 during my summer abroad; there, Menger is immortalized on a wall in the campus square. The University was a great place to visit, and continues to be renowned for its quality academics. I was excited to pay tribute to his academic homeland. Even after nearly a century of circulation, Menger’s work continues to influence economists of all types around the world.