Principles
of Economics- Karl Menger
THE
GENERAL THEORY OF THE GOOD
Things that can
be placed in a causal connection with the satisfaction
of human needs
we term useful things.1 If, however, we both
recognize this
causal connection, and have the power actually to
direct the
useful things to the satisfaction of our needs, we call
them goods.2
If a thing is to
become a good, or in other words, if it is to
acquire
goods-character, all four of the following prerequisites
must be
simultaneously present:
1. A human need.
2. Such
properties as render the thing capable of being brought
into a causal
connection with the satisfaction of this need.
3. Human
knowledge of this causal connection.
4. Command of
the thing sufficient to direct it to the satisfaction of the good.
The
Causal Connections between Goods-
In our own, as
in all other sciences, true and lasting progress will be made only
when we no
longer regard the objects of our scientific observations
merely as
unrelated occurrences, but attempt to discover their
causal
connections and the laws to which they are subject. The bread
we eat, the
flour from which we bake the bread, the grain that we
mill into flour,
and the field on which the grain is grown—all these
things are
goods. But knowledge of this fact is not sufficient for our
purposes. On the
contrary, it is necessary in the manner of all other
empirical
sciences, to attempt to classify the various goods according
to their
inherent characteristics, to learn the place that each
good occupies in
the causal nexus of goods, and finally, to discover the economic laws to which
they are subject.
If we designate
the whole sum of goods that are
required to
utilize a good of higher order for the production of a good
of first order
as its complementary goods in the wider sense of the
term, we obtain
the general principle that the goods-character of goods
The General
Theory of the Good 61
of higher order
depends on our being able to command their complement
goods in this
wider sense of the term.
ECONOMY
AND ECONOMIC GOODS
The quantities
of consumption
goods a person
must have to satisfy his needs may be termed his
requirements. The
concern of men for the satisfaction of theirs needs thus
becomes an
attempt to provide in advance for meeting their requirements
in the future,
and we shall therefore call a person’s requirements
those quantities
of goods that are necessary to satisfy his
needs within the
time period covered by his plans. There are two kinds of knowledge that men
must possess as a
prerequisite for
any successful attempt to provide in advance for
the satisfaction
of their needs. They must become clear: (a) about
their
requirements—that is, about the quantities of goods they will
need to satisfy
their needs during the time period over which their
plans extend,
and (b) about the quantities of goods at their disposal
for the purpose of meeting these
requirements. We can
bring quantities of goods of higher
order to the production of given quantities
of goods of lower order, and thus
finally to the meeting of our
requirements, only if we are in the
position of having the complementary
quantities of the other goods of higher
order simultaneously at our disposal.
If economizing
men
become aware of
this circumstance (that is, if they perceive that the
satisfaction of
one of their needs, or the greater or less completeness
of its
satisfaction, is dependent on their command of each portion
of a quantity of
goods or on each individual good subject to
the above
quantitative relationship) these goods attain for them
the significance
we call value. 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.
Regarding this knowledge,
however, men can be in error about
the value of
goods just as they can be in error with respect to all
other objects of
human knowledge. Hence they may attribute
value to things
that do not, according to economic considerations,
possess it in
reality, if they mistakenly assume that the
more or less
complete satisfaction of their needs depends on a
good, or
quantity of goods, when this relationship is really nonexistent.
In cases of this
sort we observe the phenomenon of imaginary
value.
The case just
presented, in which the needs of two persons
could be better
satisfied than before by a mutual transfer of goods
having no value
to either of them prior to the exchange, and hence
without economic
sacrifice on either side, was especially suitable
for impressing
upon us in the most enlightening manner the
nature of the
economic relationship leading to trade. But we would
construe this
relationship too narrowly if we were to confine our
attention to
cases in which a person who has command of a quantity
of one good
larger than even his full requirements suffers a
deficiency of a
second good, while another person has a comparable
surplus of this
second good and a deficiency of the first. For the
relationship in
question can also be observed in less obvious cases
in which one
person possesses goods of which certain quantities
have less value
to him than quantities of another good owned by a
second person who is in the reverse
situation.
The two
economizing individuals (a) recognize
the situation,
and (b) have the power actually to perform the transfer
of the goods, a
relationship exists that makes it possible for
them, by a mere
agreement, to provide better, or more completely,
for the
satisfaction of their needs than would be the case if the relationship
were not exploited.
If the locks
between two still bodies of water at different levels
are opened, the
surface will become ruffled with waves that will
gradually
subside until the water is still once more. The waves are
only symptoms of
the operation of the forces we call gravity and
friction. The prices
of goods, which are symptoms of an economic
equilibrium in
the distribution of possessions between the
economies of
individuals, resemble these waves. The force that
drives them to
the surface is the ultimate and general cause of all
economic
activity, the endeavor of men to satisfy their needs as
completely as
possible, to better their economic positions. But
since prices are
the only phenomena of the process that are directly
perceptible,
since their magnitudes can be measured exactly, and
since daily
living brings them unceasingly before our eyes, it was
easy to commit
the error of regarding the magnitude of price as the
essential
feature of an exchange, and as a result of this mistake, to
commit the
further error of regarding the quantities of goods in an
exchange as equivalents.
The result was incalculable damage to our
science since
writers in the field of price theory lost themselves in
attempts to
solve the problem of discovering the causes of an
alleged equality
between two quantities of goods.1 Some found the
cause in equal
quantities of labor expended on the goods. Others
found it in
equal costs of production. And a dispute even arose as
to whether the
goods are given for each other because they are
equivalents, or
whether they are equivalents because they are
exchanged. But
such an equality of the values of two quantities of
goods (an
equality in the objective sense) nowhere has any real
existence.
The solution to
this question arises from reflection upon the
nature of human
economy and upon the nature of value. The
leading idea in
all the economic activity of men is the fullest
possible
satisfaction of their needs. If more important satisfactions
of an
economizing individual are assured by the direct use
of a good than
by its indirect use, it follows that more important
needs of the
individual would remain unsatisfied if he were to
employ the good
in an indirect fashion for the satisfaction of his
needs than if he
were to employ it directly. There can be no
doubt that in
this case the use value of the good will be determining
in the economic
calculations and actions of the economizing
individual
concerned, and that in the reverse case it will
be the exchange
value. In the first case, it is the satisfactions that
are assured by a
direct employment of the good that the economizing
individual would
choose if he had command of it; in the
second case, it
is the satisfactions that are assured by an indirect
employment of
the good that he would choose if he had command
of it; hence in
each case it is the satisfactions that would
otherwise have
taken place that he would be compelled to
forgo if he did not have command of the
good in question.
A further step
in the path of economic development to higher
levels of
well-being can be regarded as having been taken when
the artisans
themselves begin to procure the raw materials for their
products, even
though they still produce these products for the
consumers only
on order. This state of affairs can still, with few
exceptions, be
observed in small towns, and to some extent even in
larger places in
some trades. The artisan does not yet manufacture
products for
later, and hence uncertain, sale. But he is already, to
the extent of
his labor power, in a position to meet the needs of his
customers by
making it unnecessary for them to expend efforts on
purchasing or
producing raw materials in a frequently highly
uneconomic manner.
But in
scientific discourse a need was felt for a term designating
all economic
goods held ready for sale without regard to their tangibility,
mobility, or
character as products of labour, and without
regard to the
persons offering them for sale. A large number of
economists,
especially German economists, therefore defined commodities
as (economic)
goods of any kind that are intended for sale.
The commodity
concept in the popular sense is nevertheless of
importance not
only because law-givers3 and a large number of
economists
employ the term in the popular sense, but also because
some of those
who are aware of the wider, scientific, sense of the
term sometimes
employ this or that element of the narrower, popular,
meaning in their definitions.
Money is not the
product of an agreement on the part of economizing
men nor the
product of legislative acts. No one invented
it. As
economizing individuals in social situations became
increasingly
aware of their economic interest, they everywhere
attained the
simple knowledge that surrendering less saleable
commodities for
others of greater saleability brings them substantially
closer to the
attainment of their specific economic
purposes. Thus,
with the progressive development of social
economy, money
came to exist in numerous centers of civilization
independently.
But precisely because money is a natural
product of human
economy, the specific forms in which it has appeared were everywhere and at all
times the result of specific
and changing
economic situations. Among the same people at different
times, and among
different peoples at the same time, different
goods have
attained the special position in trade described
above.
As the price of a
commodity is the average cost of production, it includes the fact that a tiny
proportion of commodities may be found, although finding goods is hardly
typical of modern manufacturing processes.
Marginal utility
as the source of value meant that the perceived need for an object was seen to
be dictating the value, on an individual rather than a general level. The
implication was that the individual mind is the source of economic value.
Although Menger
accepted the marginal utility theory, he made deviations from the work of other neoclassical pioneers. Most importantly he fundamentally rejected the use of
mathematical methods insisting that the function of economics was to
investigate the essences rather than the specific quantities of economic
phenomena.
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