Carl Menger Flashcards
What was the Second Industrial Revolution?
Also known as the Technological Revolution, the second wave of industrial improvement in the late 19th century saw the rapid expansion of railway and telegraph lines. This caused a significant movement of people and ideas and brought on a new wave of globalisation. As a result, the global market significantly expanded as new demand grew alongside increased production power.
Explain what led to ideas of global economic pluralism
At the beginning of the 20th century, the British economic hegemon began to decline as new global powers emerged. Germany expanded its naval force, improving its manufacturing industry, and the US became a rising industrial power.
What are Menger’s views on the division of labour?
Increased societal development is associated with greater division of labour
Increased cultivation of first order goods in order to secure future stability
Leads to greater production of higher order goods, which requires greater specialisation (e.g. different parts of opera glasses)
Why does Menger believe the stock market has been created?
Extent of data collection and organisation dependent on a government census
Accuracy of government census is confined to quantities subject to:
Little change (e.g. land, buildings)
Degree of public control
Business attempt to circumvent the government’s inefficiencies by providing independent and frequent information
Creation of specialists on the ‘stock exchange’ - DOL beyond manufacturing
What is the importance of the information conveyed by stocks?
Stock information carries significant influence in both the public and private sector
Price calculation (Private) and economic policy proposals (Public)
How does Menger define economic goods?
Economic goods are defined by their scarcity in relation to their demand and thus requires special consideration in their use and distribution – causes a unique set of behaviours
What are the objectives of ‘economising’ activity?
Maintain quantity at their disposal
Conserve a good’s useful properties
Satisfy needs based on importance – requires sacrifice
Maximize results with given quantity
How does Menger critique socialism?
Scarcity of economizing goods forms a relationship between the human economy and property
Government involving in the protection of individual’s property
Cannot abolish property without ridding its cause – making greater quantities of goods available (criticism of socialism/communism)
Why does Menger place the individual at the centre of economic activity?
Menger places the individual (‘economizing man’) at the center of economic study
When quantities of a good are lower than necessities of a collective (society), it is impossible to fairly analyse behavior/distribute goods at a state level
Necessity of property rights regarding scarce goods makes it a uniquely individual relationship (exclusionary to others)
What new theory of value does Menger introduce?
Despite being influenced by the work of classical economists in regards to progressing society through increased specialisation and DOL, Menger strongly disagrees with Ricardo and Smith’s model of value (based in production cost/labour)
Menger proposed that a good’s value is connected to the individual’s needs and their abilities to satisfy their needs (Subjective Theory of Value)
Connect to ideas of individual utility (Jevons & Walrus) and is carried on through the discipline following the mathematical revolution (Edgeworth)
His theory explains how economic and non-economic goods may differ between societies (based on resources) and between individuals (personal needs/capabilities)
How does a non-economic good become an economic good?
Menger explains the process of how non-economic goods may become economic goods as human requirements change
As conditions improve as society develops the needs of people will change, transforming non-economic goods to economic as they become increasingly in demand or increases the scarcity of economic goods
What was Menger’s relationship to the Austrian school of economics?
Menger founded the Austrian School, which emphasised the role of the individual and marginalism in economic study. The school was directly opposed to the German Historical School and heavily influenced by French liberalism.
What is marginalism, and how did Menger contribute to it?
Marginalism is the economic principle that economic decisions are made and economic behavior occurs in terms of incremental units, rather than categorically. Menger used the statistical-based analysis of the Historical School and applied it to his abstract models of economic behaviour. He also diverted from historicism by centring economic theory around the individual (‘economising man’) rather than the state (‘volkspolitik’). His work inspired the long-held marginal tradition and the mathematical revolution in economics (Edgeworth).
