Mahmoud Danaf Bukner

The Austrian School of Thought (with emphasis on Carl Menger)

Carl Menger (1840-1921)

First,Biographical information: y y Carl Mengerwas born in NowySacz in Austrian Galicia, (Poland) in February 28, 1840. Mengerwas the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists, such as Adam Smith and David Ricardo. He made important contributions to the pure theory of economics by developing a utility analysis culminating in the subjective theory of value. He was the son of a wealthy family of minor nobility; his father, Anton, was a lawyer. His mother, Caroline, was the daughter of a wealthy Bohemian merchant. He had two brothers, Anton and Max, both prominent as lawyers. After attending Gymnasium, he studied law at the Universities of Prague and Vienna and later received a doctorate in jurisprudence from theJagiellonian University in Krakow. In the 1860s Menger left school and enjoyed a stint as a Journalist reporting and analyzing market news, first at the LembergerZeitung in Lww, Ukraine and later at the Wiener Zeitung in Vienna. During the course of his newspaper work he noticed a discrepancy between what the classical economics he was taught in school said about Price determination and what real world market participants believed. In 1867 Menger began a study of political economy which culminated in 1871 with the publication of his Principles of Economics(Grundstze der Volkswirtschaftslehre), thus becoming the father of the Austrian School of economic thought. It was in this work that he challenged classical cost-based theories of value with his theory of marginality. In 1872 Menger was enrolled into the law faculty at the University of Vienna and spent the next several years teaching finance and political economy both in seminars and lectures to a growing number of students. In 1873 he received the university's chair of economic theory at the very young age of 33. In 1876 Menger began tutoring Archduke Rudolf von Habsburg, the Crown Prince of Austria in political economy and statistics. For three years Menger accompanied the prince in his travels, first through continental Europe and then later through the British Isles.[1] He is also thought to have assisted the crown prince in the composition of a pamphlet, published anonymously in 1878, which was highly critical of the higher Austrian aristocracy. His association with the prince would last until Rudolf's suicide in 1889 (see the Mayerling Affair).

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In 1878 Rudolf's father, Emperor Franz Josef, appointed Menger to the chair of political economy at Vienna. The title of Hofrat was conferred on him, and he was appointed to the Austrian Herrenhaus in 1900. In 1884 Menger responded with the pamphlet The Errors of Historicism in German Economics and launched the infamous Methodenstreit, or methodological debate, between the Historical School and the Austrian School. During this time Menger began to attract like-minded disciples who would go on to make their own mark on the field of economics, most notably Eugen von Bhm-Bawerk, and Friedrich von Wieser. In the late 1880s Menger was appointed to head a commission to reform the Austrian monetary system. Over the course of the next decade he authored a plethora of articles which would revolutionize monetary theory, including "The Theory of Capital" (1888) and "Money" (1892) [2]. Largely due to his pessimism about the state of German scholarship, Menger resigned his professorship in 1903 to concentrate on study. He died in Februry, 26, 1921.

Main Ideas: 1-The Monetary theory: y In his analysis of money, included in the Grundsatzeand in an encyclopedia article published in 1892, Menger applied the subjective theory of value to money. The origin of money, he held, is not to be sought in an explicit convention or in the action of public authorities. Instead, it was the interest of economizing individuals which led them to exchange their goods for other, more saleable, goods. y Money is the most marketable, or saleable, good, and its value is determined in the same manner as that of other goods that are objects of exchange transaction. y In his interpretation, money was not introduced by design and in consequence of a plan but as an unintended result of the unconcertedacions of a multitude of individuals pursuing their own interests. Notes from book. Spiegel Menger on the Methods of Social Science Problems iof Economics and Sociology Published in 1883 Denunciation of german historical economics Having sponsored a subjective theory of value which interpreted value in terms of the state of mind of an individual, menger declared it to be the principal task of economic theory to investigate the behavior of economizing individuals. The economic life of a nation, he held, is the result of innumerable economic efforts undertaken by individual agents. These are the true elements that constitute the national economy, and they form the proper subject matter of economic theory. Considered his Methodological individualism confirmed by such nonpurposive social formations such as the rise of towns, of fairs and markets, and of the division of labor, interpreted by him as social structures that are the unintended outcome of the pursuit of individual interests.

Menger had no use for mathematical economics. Considered symbols and figures inadequate tools for the exploration of the essence of things. That is inadequate for what to him appeared too profound, lasting and rife with ramifications and qualitative attributes to allow for expression in the form of symbols with no empirical content or in that of figures of fleeting relevance.

References

1. The History of Economic Thought: A Reader 2. "On the Origin of Money" (English translation by Caroline A. Foley), Economic Journal, Volume 2 (1892), pp. 239-55 3. Spiegel, Henry William. The Growth of Economic Thought (third edition). 1991. pp530 - 536. 4. http://en.wikipedia.org/wiki/Carl_Menger 5.