Summary of Principles of Economics by Carl Meger

Source citation

Gomez, B.(2019) Principles of Economics - Carl Menger. Academia.edu [Online]. Available

at http://www.academia.edu/38208277/Principles_of_Economics_-_Carl_Menger. Accessed
on 13 Nov. 2019.

Main ideas

Carl Menger is known to be the father of the Austrian School of economics, especially
appreciated for his marginal utility theory. This theory is still used and has never been proven
wrong. He advances the theory that equal amount of utility one gives to a unit of the good at
hand is the cause of its value, rather than equal amount of labour or equal amount of quantity.
Marginal utility is the satisfaction one hopes to get when consuming one unit of a good. As
total utility reaches its maximum(total fulfillment of the need) , marginal utility will decrease
until it reaches zero. When marginal utility reaches zero and another unit of the good won’t
bring any more satisfaction, the rational consumer will stop consuming the good. Until that
point any value, may it be money or effort or even time, that we give to a good is subjective.
Carl Menger also posed the problem of imaginary goods, that have value only in our mind
because of our subjective view.
“As a people attains higher levels of civilization, and as men
penetrate more deeply into the true constitution of things and
of their own nature, the number of true goods becomes con-
stantly larger, and as can easily be understood, the number of
imaginary goods becomes progressively smaller.” (Manger, 1976, p53)
Menger suggests that different people will give different values to the same good. He thinks
that this is a consequence of the labour division phenomenon that allowed people to be
producers and consumers at the same time and that allowed trade. At first this trade may have
been between things, like apples and sheeps and in time developed into money and what we
call today the market. Each of the economizing individuals engaged in the exchange will try
to get as much revenue or product as he can from this.
The author also explains price formation under monopoly and in free trade markets. He says
that if there are many buyers and only one seller with a limited amount of product, the one
who will buy it is the one who will offer the most money/product in exchange.No matter the
price or quantity of a product, the buyer will still need the same amount for his needs, so if
the quantity of a product is bigger, the seller needs to set lower prices so more people buy it,
so he could sell all of it. But still sometimes is better to sell lower quantities at a higher price
than bigger quantities at a lower price. Let's say someone want to sell all his goods, for that to
be possible many people have to afford it, as the lower price doesn’t make me need more of
it. If you are the only seller of a good on the market you can set the quantity or the price on
the market, when there is competition in order to sell you must set the prices lower and bring
more quantity because if you don't do so you will love buyers.
Although Menger agreed on some points with other economic scientists he rejected the usage
of mathematical approaches, thinking that the key to understanding economics lays rather in
the essence.

Additional sources for further reading

1. Hayek A. (1976), “Introduction” to Carl Menger, Principles of Economics, Auburn‌,

Ludwig von Mises Institute.

2. Bornemann, A. (1951), Principles of Economics, Southern Economic Journal, 18(2),

p. 248 [Online]. Available at https://www.jstor.org. Accessed on 13 Nov. 2019.

3. Carl, M. (1985), Investigations into the Method of the Social Sciences, with Special
Reference to Economics, New York, New York University Press.

4. Karen, I., V. (1994), Austrian Economics in America: The Migration of a Tradition,

Cambridge, Cambridge University Press.

5. Wikipedia, Wikipedia Foundation. (2018) Principles of Economics (Menger). Wiki

[Online]. Available at en.wikipedia.org/wiki/Principles_of_Economics_(Menger).

Accessed on 13. Nov 2019

Ilie-Baluta Ioana-Antonia, group 1719, series D, 1st year

Marketing Faculty