Menger’s contribution in economic thought
Carl Menger’s ‘ Principle of Economics’ (1871) claim to the invention of Marginal principle. Menger is sometimes regarded as the marginal economist. Some of the contribution of Menger in the different areas of economics may be examined as follows.
1. Method of economics: Menger criticized the German historical school for neglecting altogether deductive method of study. Menger was in favour deductive method and the theoretical analysis of economics. Menger reverted to the classical deductive method of analysis with some modification.
2. Goods: Menger classified goods according to the nature with which they satisfy human wants. ‘Goods the first order’ satisfied human wants immediately consumption goods. Goods of the 2nd and higher orders capital and production goods satisfied human want indirectly. Again, Menger opines that goods which are scarce in supply in relation to demand is called economic goods. However, when the goods are supply in relation to demand, they are called non-economic or free goods.
3. Menger's theory of value or Menger’s contribution to marginal principle: Menger observes that the value of goods arises from their relationship to our needs and it is not inherent in the goods themselves. Value is, according to Menger, basically an individual phenomenon and it is independent of laws and the state. In Menger’s view, value is the measure of satisfaction which will have to be sacrificed, if that portion were deducted from the total quantity. This means that value depends on the marginal utility of goods.
Menger explains in his own way the law of equi-marginal utility which can be explained from the following chart.
I
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9
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II
9
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III
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IV
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V
6
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VI
5
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VII
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VIII
3
2
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IX
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X
1
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In the above chart 10 goods ae arranged in descending order of importance to the consumer such that good I is having the highest utility and good X has low utility. Every column of the chart shows the unit of satisfaction from the successive unit of consumption. The consumer spends his money in such a way that the marginal utilities derived from the purchase of different goods will be equal. Thus, if the consumer has three rupees to spend, he will purchase two unit of good I and one unit of good II. In this case, the marginal utilities will be 9 from both the goods. This equalization of marginal utilities is the way of attaining consumer equilibrium. Thus, Menger’s law reveals that given the scarce means, the individual will arrange his various consumptions in such a way that at he margine, satisfaction are all equal.
Menger’s theory of Imputation: Menger’s theory of distribution is based on imputation. Imputation is a term which makes the value of the productive agents( factor inputs) rest on the value of the products. Thus, the value of flour depends on the value of the bread it produces. In the same way the value of labour depends on the goods it produces. From this observation, Menger develops the marginal productivity theory of distribution. This theory states that value of a factor of production depends on the marginal value of productivity of that factor. Thus, Menger was firm supporter of marginal analysis.
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