menger Flashcards
what was carl mengers definition of a good?
he defined a good as an item involved in supply and demand. he states that if a thing is to be a good it must acquire goods character which has 4 prerequisites that must be present simultaneously :
1) it must be 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)there is human knowledge of this connection
4) command of the thing sufficient to direct it to the satisfaction of the need
if even one of these is absent the thing cannot acquire goods character and a thing already possessing goods character would lose it at once if one prerequisite ceased to be present
what was Mengers view on first order and second order goods?
he is clearly trying to distingusih between consumption goods that satisfy needs directly and capital goods which satisfy needs indirectly. he defines goods of multiple orders with goods of higher order getting transformed into goods of lower order until they become goods of first order which can satisfy needs directly. first order goods can be directly used for the satisfaction of our needs but with corresponding goods of higher order we have it at our disposal to transform them into goods of first order and therefore it is indirect way to satisfy our needs. the transformation of goods from high to low order takes place in time. the times at which people obtain command of first order goods from higher order will be greater the higher the order is.
what are the critiques of Mengers view of first and second order goods?
there is no indication with how far the sequence goes back ( ie the highest order of goods), it is also difficult to identify the order into which some goods fall
what was mengers view on the theory of value?
he does not use the word utility or equivalent but sees value as subjective satisfaction received from consumption of goods of first order. goods are ranked in order of importance with so food has higher value than tobacco. there is the concept of diminishing marginal utility by statement that identifies diminishing scale resulting from additional goods consumed.
he argues value is a judgement of economising men about the importance of goods at their disposal for their wellbeing. he provides a table with the roman numerals along the top representing different goods in declining order of significance for example with I for food and V for tobacco. there are then declining numbers in the columns which represent the diminishing satisfaction from additional units. this means there will come time where food will give less satisfaction then first unit of tobacco so will choose tobacco. therefore not only nature of value but also the measure of value is subjective as they are both determined by the individual. the value of good is determined by the magnitude of importance of the satisfactions. his table doesn’t take us very far however as he has just wrote a utility function in crude form. modern function would be U =f(q1,q2,q3..qn).
what are the critisms of mengers theory of value?
the utility function has little use of its own since no equilibrium can be obtained ( no utility maximisation point as there is no budget constaint - no indication of income and price of goods). all that is given are the valuations of a single person. menger tells us nothing of how valuations of the total populations are aggregated. all menger does is provide us with a string of definitions of value.
what is mengers theory of price?
menger tells us that price is not the fundamental feature of exchange claiming that prices are only incidental manifestations of the activities of maximising values. he presents a number of cases of price determination some with more competitive elements and others with monopolistic elements
assuming that there are 8 buyers and the monopolist has horses to sell. the most ardent buyer will be willing to give 80 bushels of wheat for first, 70 for second and so on and the less ardent buyers are only willing to give less. therefore if the monopolist only brings one horse to market, then by bidding price over the 70 bushels that Buyer 2 can offer then Buyer 1 will get horse for somewhere between 70 and 80 brushels
what are the problems with mengers approach?
menger creates difficulties for himself by his inability to give a good working definition of the economies capital stock but instead resort to vague goods of higher order. without this definition it is impossible to put down an adequate model of the production process and how to get these produced output from land, labour and produced inputs. it is impossible aswell to satisfactorily anaylse the costs of productions as without model of production there can be no model of costs. therefore there cannot be an adequate analysis of wages, rent and profits without production process that includes labour, land and capital.
this means the theory of distribution is very weak.
isolated markets are presented in which buyers value goods in units of other goods and some sort of bargaining ensues
