Carl Menger: Austrian Economics vs. Objectivism
I am giving a talk with Will Thomas at Atlas Summit 2016 on Austrian Economics. I have been assigned to discuss the Austrian economists Carl Menger and F A. Hayek. I will have about eight minutes for each Menger and Hayek. This post presents the basic ideas I will present on Carl Menger.
Carl Menger is commonly considered the founder of Austrian economics. Menger wrote his first book Principles of Economics in 1871. It is very difficult to nail down Menger’s position on a number of issues. For instance, he is known for developing the subjective theory of value in Austrian economics, which was in response to the labor theory of value of classical economics. The labor theory of value is that value of an item is equal to the value of all the labor that went into making the item. This is an intrinsic theory of value and rejected by almost all economists today. However, many people including some Objectivists argue that Menger really was advocating an objective theory of value instead of a subjective theory of value.
For instance, consider these two quotes by Menger from Principles of Economics:
Value is thus the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs. p. 115 (objective?)
The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts. What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another. P. 146 (subjective?)
Modern Austrians and most economists today have accepted the subjective theory of values. The logical result of accepting the subjective theory of values is that no rational theory of ethics is possible, which is exactly what Mises, Hayek, modern Austrians and modern economists, such as Milton Friedman, have concluded. This means that Natural Rights and Rand’s ethics are inconsistent with the subjective theory of values. This has important implications particularly for property rights, but in fact makes all of law subjective.
Despite the contradictory statements by Menger I think it is fair to say that he was advocating a subjective theory of values. Menger was most influenced by philosopher Franz Brentano who also was highly influential of Freud. Franz Brentano maintained that our senses were invalid and could not tell us anything about the world. In addition, the Austrians who follow and praised Menger have adopted the subjective theory of value.
Another question that arises is whether Menger’s epistemology was reason or consistent with science and Objectivism. Again you can find contradictory interpretations, even among Objectivist. However, in his book Principles of Economics he is clear that the techniques of the physical sciences at the time were not the ones he was applying in his study of economics. Menger described his epistemology in more detail in his book Investigations into the Method of Social Sciences, where he suggests that all science has a theoretical, non-empirical side and an empirical side. The theoretical side creates universal truths that cannot be subject to empirical proof or disproof. That is not science. It appears to me that Mises’ praxeology follows Menger’s theoretical side, which is philosophical rationalism. While Hayek follows the empirical side of Menger, which rejects the efficacy of reason.
Menger’s Principles of Economics provides almost no empirical evidence for his positions. In addition, he shows no interest in the most interesting economic phenomena in history, the Industrial Revolution. This is inconsistent with a scientific approach to economics.
Menger shows only a passing interest in what causes economic growth, particularly per capita increases in wealth. He argues that economic growth is the result of creating more second or high order goods. His explanation appears to be the basis of the Austrian Business Cycle Theory. This is just a long winded way of saying increasing capital goods causes economic growth, which had already been said by many other economists. Not only has this already been said by other economists, but it is wrong.
In conclusion, Menger seems to commonly make contradictory statements, which makes him difficult to pin down, however it appears clear to me that Menger is not consistent with Objectvism on metaphysic, epistemology, or ethics. Menger’s support for “free markets” or capitalism is coincidental with Objectivism, not fundamental.
 p. xi https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf, INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS
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