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

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.