Menger’s precursors in the German subjective-value tradition and his advancements in the theory of wants and goods

The Review of Austrian Economics https://doi.org/10.1007/s11138-022-00598-5 Menger’s precursors in the German subjective-value tradition and his advancements in the theory of wants and goods David A. Harper1 · Anthony M. Endres2 Accepted: 31 August 2022 © The Author(s) 2022 Abstract Menger made wants and goods the center of economic analysis. This paper locates his theory of wants and goods in the history of economic ideas, identifying major influences from the German subjective-value tradition of the 19th century. Our survey of select German economists prior to 1871 – Hufeland, Storch, Rau, Hermann, Mischler, Stein and Schäffle – discovers insights that highlight the subjective and processual nature of the wants-goods nexus, as does Menger’s approach. Menger’s process approach to economics had several precursors – the historical record is much more nuanced than previously recognized. Menger combined existing ideas on wants and goods into a novel, more coherent and productive framework. He portrayed human wants and the desire to satisfy them as the driving force propelling economic processes. Menger’s theory about wants and goods provided the foundations for his theory of subjective value. He showed how the simple idea that people value goods in light of their wants is the key to the most fundamental problems of economic theory, including value, price formation, production, distribution and economic development, and he applied this insight to explain complex economic processes in modern market economies. Menger’s work constitutes a major synthesis that advances earlier ideas (especially of Hermann, Mischler and Schäffle) on wants, goods and their interplay, and his focus upon complementarities of consumer goods constitutes yet a further advancement on German economics. Keywords Menger · Consumer wants · Goods · German subjective-value theory JEL classification B13 · B53 · D01 · D11 · M3 · 010 David A. Harper 1 Department of Economics, New York University, New York, NY, USA 2 Department of Economics, University of Auckland, Auckland, New Zealand 13 D. A. Harper, A. M. Endres It must be stressed, as it was stressed by Menger and most of his followers, that the central and ever-present categories of economic analysis are “goods” (Güter) and “needs” (Bedürfnisse). These are the key terms of causal-genetic analysis. (Silverman, 1990: 71) 1 Introduction Menger’s theory of wants1 and goods is central to his theoretical construction of the economic system as a whole and the foundation for his theory of subjective consumer valuations in particular. This paper investigates the analytical frameworks articulated by German academic economists in the years before 1871 in order to identify the prevailing paradigm of economic inquiry in which Menger was trained and the surrounding intellectual atmosphere from which he drew inspiration in developing his theory of wants and goods. In a comprehensive survey, Streissler (1990) finds that many of the key ideas in Menger’s Principles are “foreshadowed” (p.33) in standard German economics textbooks in the first half of the nineteenth century, from which Menger “amply borrowed” (p. 32). Indeed, a scan of the works cited in Menger’s Principles shows that he cited predominantly German economists, such as Wilhelm Roscher (Leipzig), Friedrich Hermann (Munich), Albert Schäffle (Vienna) and Karl Heinrich Rau (Heidelberg).2 German economics in the nineteenth century was a tradition that maintained a rich body of fundamental principles and doctrines, but it was also open to innovation.3 Indeed, it was a “primordial brew” (Streissler and Milford 1993/94: 59) bubbling with original ideas, and it became a seedbed for several new developments in economic theory—one of which is the subject of this paper, Menger’s wants-goods 1 Menger uses the term “Bedürfnisse,” which can be translated as needs or wants. If forced to choose, we favor “wants” as the translation of “Bedürfnisse,” as do Hayek (1976) and Streissler (1990: 60). It is clear that Menger uses the word Bedürfnis to cover both senses of the term, sometimes in the same paragraph. See, for example, his discussion of how the economizing individual’s attempt to satisfy their needs and wants as fully as possible leads them to undertake the first acts of satisfying their desire for tobacco once the need for food has been satisfied to a certain degree (Menger, 1871: 93–94; 1976: 127). The end result of economizing for the individual in question is that all their needs and wants (regardless of whether their origin is biological or not, and no matter whether they serve to maintain life, preserve health or pacify a passing whim) are “satisfied up to an equal degree of importance of the separate acts of satisfaction” (Menger 1976: 131; see too 1871: 98). Hence, the distinction between needs and wants makes no substantive difference to the overarching subjective value analysis that pervades Menger’s work. 2 See Chipman (2014) for a selection of important writings of these German authors, newly translated into English. Streissler was the pre-eminent scholar on the German subjective-value tradition: see Streissler (1990; 1994; 2001), Streissler and Milford (1993/94). Chipman (2005) provides a comprehensive overview. Brandt (1992), Roscher (1924) and Tribe (1988) are histories of German economic thought that give attention to the German subjectivist economic tradition. 3 The German subjective-value theorists were expanding on the earlier “cameral sciences” (“Kameralwissenschaften”), which constituted a comprehensive approach to public administration taught at German and Austrian universities during the eighteenth century. See Silverman (1990), Tribe (1988) and Wakefield (2019). 13 Menger’s precursors in the German subjective-value tradition and his… approach to consumer behavior. As part of his study of law at the University of Prague (1860–1863), Menger received an extensive education in German subjectivist economic thought which figured prominently in economics teaching of the time (Milford, 2012: 416). From 1867 onwards, Menger then embarked upon self-directed study of economics as preparation for his Principles by reading and critically examining classic works of his German predecessors (including Rau’s textbook) (Yagi, 1993). The German subjective-value tradition molded Menger’s worldview, his vision of economic processes, his fundamental existential postulates about the make-up of economic reality and his normative ideas on how to do economics.4 He inherited their “prescientific vision” of economic reality that affected his perception of which phenomena are worthy of scientific inquiry and his recognition of the character of those human activities and patterns that render them economic.5 In particular, this vision led Menger, like the German subjective-value theorists before him, to focus upon wants and goods as two fundamental and interrelated categories of economic theorizing that (...truncated)