PRINCIPLES OF
ECONOMICS
Carl Menger
FOREWORD BY PETER G. KLEIN
INTRODUCTION BY F.A. HAYEK
TRANSLATED BY
JAMES DINGWALL AND BERT F. HOSELITZ
Ludwig
von Mises
Institute
AUBURN, ALABAMA

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Cover: Carl Menger portrait is courtesy of The Warren J. Samuels Portrait
Collection at Duke University.
Copyright © 1976 by the Institute for Humane Studies
Foreword Copyright © 2007 by the Ludwig von Mises Institute
Reprinted in 2007 by the Ludwig von Mises Institute
Ludwig von Mises Institute
518 West Magnolia Avenue
Auburn, Ala. 36832 U.S.A.
www.mises.org
ISBN: 978-1-933550-12-1

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CONTENTS
FOREWORD BY PETER G. KLEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INTRODUCTION BY F.A. HAYEK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TRANSLATOR’S PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AUTHOR’S PREFACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
I. THE GENERAL THEORY OF THE GOOD. . . . . . . . . . . . . . . . . . . . . . . . . 51
1. The Nature of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
2. The Causal Connections between Goods . . . . . . . . . . . . . . . . . . . . . . . . . 55
3. The Laws Governing Goods-Character . . . . . . . . . . . . . . . . . . . . . . . . . . 58
A. The Goods-Character of Goods of Higher
Order is Dependent on Command of
Corresponding Complementary Goods . . . . . . . . . . . . . . . . . . . . . . . 58
B. The Goods-Character of Goods of Higher
Order is Derived from that of the
Corresponding Goods of Lower Order . . . . . . . . . . . . . . . . . . . . . . . 63
4. Time and Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5. The Causes of Progress in Human Welfare . . . . . . . . . . . . . . . . . . . . . . . 71
6. Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
II. ECONOMY AND ECONOMIC GOODS . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
1. Human Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
A. Requirements for Goods of First Order
(Consumption Goods) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
B. Requirements for Goods of Higher Order
(Means of Production) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
C. The Time Limits within Which Human Needs are Felt . . . . . . . . . . 87
2. The Available Quantities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3. The Origin of Human Economy and Economic Goods . . . . . . . . . . . . . . 94
A. Economic Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
B. Non-Economic Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
C. The Relationship between Economic and
Non-Economic Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
D. The Laws Governing the Economic
Character of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
4. Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3

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4
PRINCIPLES OF ECONOMICS
III. THE THEORY OF VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
1. The Nature and Origin of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
2. The Original Measure of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
A. Differences in the Magnitude of Importance
of Different Satisfactions (Subjective Factor) . . . . . . . . . . . . . . . . . . 122
B. The Dependence of Separate Satisfactions
on Particular Goods (Objective Factor) . . . . . . . . . . . . . . . . . . . . . . . 128
C. The Influence of Differences in the Quality
of Goods on Their Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
D. The Subjective Character of the Measure
of Value. Labor and Value. Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
3. The Laws Governing the Value of Goods of Higher Order . . . . . . . . . . . 149
A. The Principle Determining the Value of
Goods of Higher Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
B. The Productivity of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
C. The Value of Complementary Quantities
of Goods of Higher Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
D. The Value of Individual Goods of Higher Order. . . . . . . . . . . . . . . . 162
E. The Value of the Services of Land, Capital,
and Labor in Particular. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
IV. THE THEORY OF EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
1. The Foundations of Economic Exchange. . . . . . . . . . . . . . . . . . . . . . . . . 175
2. The Limits of Economic Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
V. THE THEORY OF PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
1. Price Formation in an Isolated Exchange. . . . . . . . . . . . . . . . . . . . . . . . . 194
2. Price Formation under Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
A. Price Formation and the Distribution of Goods When
There is Competition Between Several Persons
for a Single Indivisible Monopolized Good. . . . . . . . . . . . . . . . . . . . 199
B. Price Formation and the Distribution of Goods
When There is Competition for Several Units
of a Monopolized Good . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
C. The Influence of the Price Fixed by a Monopolist
on the Quantity of a Monopolized Good that Can
be Sold and on the Distribution of the Good
Among the Competitors For It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
D. The Principles of Monopoly Trading (The Policy
of a Monopolist) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
3. Price Formation and the Distribution of Goods
under Bilateral Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
A. The Origin of Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
B. The Effect of the Quantities of a Commodity
Supplied by Competitors on Price Formation;

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CONTENTS
5
the Effect of Given Prices Set by Them on Sales;
and in Both Cases the Effect on the Distribution
of the Commodity Among the Competing Buyers . . . . . . . . . . . . . . 218
C. The Effect of Competition in the Supply of a
Good on the Quantity Sold and on the Price
at which it is Offered (the Policies
of Competitors) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
VI. USE VALUE AND EXCHANGE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 226
A. The Nature of Use Value and Exchange Value . . . . . . . . . . . . . . . . . 226
B. The Relationship Between the Use Value
and the Exchange Value of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . 228
C. Changes in the Economic Center of Gravity
of the Value of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
VII. THE THEORY OF THE COMMODITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
1. The Concept of the Commodity in its Popular
and Scientific Meanings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
2. The Marketability of Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
A. The Outer Limits of the Marketability
of Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
B. The Different Degrees of Marketability
of Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
C. The Facility with which Commodities Circulate. . . . . . . . . . . . . . . . 254
VIII. THE THEORY OF MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
1. The Nature and Origin of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
2. The Kinds of Money Appropriate to Particular Peoples
and to Particular Historical Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
3. Money as a “Measure of Price” and as the Most
Economic Form for Storing Exchangeable Wealth. . . . . . . . . . . . . . . . . 272
4. Coinage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
A. Goods and “Relationships” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
B. Wealth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
C. The Nature of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
D. The Measure of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
E. The Concept of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
F. Equivalence in Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
G. Use Value and Exchange Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
H. The Commodity Concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
I. Designations for Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
J. History of Theories of the Origin of Money . . . . . . . . . . . . . . . . . . . 315
INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

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FOREWORD BY PETER G. KLEIN
“There never lived at the same time,” wrote Ludwig von Mises, “more than
a score of men whose work contributed anything essential to economics.”1
One of those men was Carl Menger (1840–1921), professor of political
economy at the University of Vienna and founder of the Austrian School of
economics. Menger’s pathbreaking Grundsätze der Volkswirtschaftslehre
(Principles of economics), published in 1871, not only introduced the con-
cept of marginal analysis, it presented a radically new approach to economic
analysis, an approach that still forms the core of the Austrian theory of value
and price.
Unlike his contemporaries William Stanley Jevons and Léon Walras, who
independently developed their own concepts of marginal utility during the
1870s, Menger favored an approach that was deductive, teleological, and, in a
primary sense, humanistic. While Menger shared his contemporaries’ prefer-
ence for abstract reasoning, he was primarily interested in explaining the real-
world actions of real people, not in creating artificial, stylized representations
of reality. Economics, for Menger, is the study of purposeful human choice,
the relationship between means and ends. “All things are subject to the law of
cause and effect,” he begins his treatise. “This great principle knows no excep-
tion.”2 Jevons and Walras rejected cause and effect in favor of simultaneous
determination, the technique of modeling complex relations as systems of
simultaneous equations in which no variable “causes” another. Theirs has
become the standard approach in contemporary economics, accepted by nearly
all economists but the followers of Carl Menger.
Menger sought to explain prices as the outcome of the purposeful, volun-
tary interactions of buyers and sellers, each guided by their own subjective
evaluations of the usefulness of various goods and services (what we now call
marginal utility, a term later coined by Friedrich von Wieser). Trade is thus the
result of people’s deliberate attempts to improve their well-being, not an innate
1. Ludwig von Mises, Human Action: A Treatise on Economics, Scholar’s Edition (Auburn,
Ala.: Mises Institute, 1998), p. 869.
2. This volume, p. 51.
7

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8
PRINCIPLES OF ECONOMICS
“propensity to truck, barter, and exchange,” as suggested by Adam Smith.3 The
exact quantities of goods exchanged—their prices, in other words—are deter-
mined by the values individuals attach to marginal units of these goods. With a
single buyer and seller, goods are exchanged as long as participants can agree
on an exchange ratio that leaves each better off than he was before. In a mar-
ket with many buyers and sellers, the price reflects the valuations of the buyer
least willing to buy and the seller least willing to sell, what Böhm-Bawerk
would call the “marginal pairs.” Regardless of the exact structure of the mar-
ket, then, voluntary exchange takes place until the gains from trade are momen-
tarily exhausted. Menger’s highly general explanation of price formation con-
tinues to form the core of Austrian microeconomics.
Menger’s approach has been labeled “causal-realistic,” partly to empha-
size its differences with the mainstream, neoclassical approach. Besides its
focus on causal relations, Menger’s analysis is realistic in the sense that he
sought not to develop formal models of hypothetical economic relationships,
but to explain the actual prices paid every day in real markets. The classical
economists had explained that prices are the result of supply and demand, but
they lacked a satisfactory theory of valuation to explain buyers’ willingness
to pay for goods and services. Rejecting value subjectivism, the classical
economists tended to treat demand as relatively unimportant and concen-
trated on hypothetical “long-run” conditions, in which “objective” character-
istics of goods—most importantly, their costs of production—would deter-
mine their prices. The classical economists also tended to group factors of
production into broad categories—land, labor, and capital—leaving them
unable to explain the prices of discrete, heterogeneous units of these factors.
Menger realized that the actual prices paid for goods and services reflect not
some objective, “intrinsic” characteristics, but rather the uses to which dis-
crete units of goods and services can be put, as perceived, subjectively, by
individual buyers and sellers.
The Principles was written as an introductory volume in a proposed mul-
tivolume work. Unfortunately, those later volumes were never written.
Menger did not explicitly develop the concept of opportunity cost, he did not
extend his analysis to explain the prices of the factors of production, and he
did not develop a theory of monetary calculation. Those advances would
come later from his students and disciples Eugen von Böhm-Bawerk,
Friedrich von Wieser, J.B. Clark, Philip Wicksteed, Frank A. Fetter, Herbert
3. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations [1776], R.H.
Campbell, A.S. Skinner, and W.B. Todd, eds. (Indianapolis: LibertyClassics, 1981), book 1,
p. 24.

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FOREWORD
9
J. Davenport, Ludwig von Mises, and F.A. Hayek. Many of the most impor-
tant ideas are implicit in Menger’s analysis, however. For example, his dis-
tinction among goods of lower and higher “orders,” referring to their place in
the temporal sequence of production, forms the heart of Austrian capital the-
ory, one of its most distinctive and important elements. Indeed, Menger
emphasizes the passage of time throughout his analysis, an emphasis that has
not yet made its way into mainstream economic theorizing.
While most contemporary economics treatises are turgid and dull,
Menger’s book is remarkably easy to read, even today. His prose is lucid, his
analysis is logical and systematic, his examples clear and informative. The
Principles remains an excellent introduction to economic reasoning and, for
the specialist, the classic statement of the core principles of the Austrian
School.
As Hayek writes in his Introduction below, the significance of the Austrian
School is “entirely due to the foundations laid by this one man.”4 However,
while Menger is universally recognized as the Austrian School’s founder, his
causal-realistic approach to price formation is not always appreciated, even
among contemporary Austrian economists. Karen Vaughn, for example, char-
acterizes Menger’s price theory as essentially neoclassical, arguing that his dis-
tinctive Austrian contribution is “his many references to problems of knowl-
edge and ignorance, his discussions of the emergence and function of institu-
tions, the importance of articulating processes of adjustment, and his many ref-
erences to the progress of mankind.”5 These issues, which attracted consider-
able attention during the “Austrian revival” of the 1970s, appear in Menger’s
1883 book Untersuchungen über die Methode der Socialwissenschaften und
der politischen Oekonomie insbesondere (Investigations into the method of the
social sciences with special reference to economics).6 They are largely absent
from the Principles, however. The book that established the Austrian School
focuses on the essence of value, exchange, and price, not disequilibrium, tacit
knowledge, or radical subjectivism.
Another remarkable feature of Menger’s contribution is that it appeared
in German, while the approach then dominant in the German-speaking world
4. F.A. Hayek, “Introduction” to Carl Menger, Principles of Economics (1976;
Auburn, Ala.: Ludwig von Mises Institute), p. 12; and this volume.
5. Karen I. Vaughn, Austrian Economics in America: The Migration of a Tradition
(Cambridge: Cambridge University Press, 1994), pp. 18–19.
6. Carl Menger, Investigations into the Method of the Social Sciences, with Special
Reference to Economics, Louis Schneider, ed., Francis J. Nock, trans. (New York:
New York University Press, 1985).

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10
PRINCIPLES OF ECONOMICS
was that of the “younger” German Historical School, which eschewed theo-
retical analysis altogether in favor of inductive, ideologically driven, histor-
ical case studies. The most accomplished theoretical economists, the British
classicals such as J.S. Mill, were largely unknown to German-speaking writ-
ers. As Hayek notes below,
In England the progress of economic theory only stagnated. In Ger-
many a second generation of historical economists grew up who had
not only never become really acquainted with the one well-developed
system of theory that existed, but had also learnt to regard theoretical
speculations of any sort as useless if not positively harmful.7
Menger’s approach—haughtily dismissed by the leader of the German
Historical School, Gustav Schmoller, as merely “Austrian,” the origin of that
label—led to a renaissance of theoretical economics in Europe and, later, in
the United States.
In short, the core concepts of contemporary Austrian economics—human
action, means and ends, subjective value, marginal analysis, methodological
individualism, the time structure of production, and so on—along with the
Austrian theory of value and price, which forms the heart of Austrian analy-
sis, all flow from Menger’s pathbreaking work. As Joseph Salerno has writ-
ten, “Austrian economics always was and will forever remain Mengerian
economics.”8
Peter G. Klein
University of Missouri
7. Hayek, “Introduction,” p. 13; and this volume.
8. Joseph T. Salerno, “Carl Menger: The Founder of the Austrian School,” in Randall G.
Holcombe, ed., Fifteen Great Austrian Economists (Auburn, Ala.: Ludwig von Mises
Institute, 1999), p. 71.

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Document Outline

• mengerprinciples.pdf
  • Title Page
  • Instide Title Page
  • Copyright
  • Contents
  • Foreword by Klein
  • Introduction by F.A. Hayek
  • Translator's Preface
  • Dedication
  • Preface
  • CHAPTER 1: THE GENERAL THEORY OF THE GOOD
    • 1. The General Theory of the Good
    • 2. The Causal Connections Between Goods
    • 3. The Laws Governing Goods-Character
    • 4. Time and Error
  • CHAPTER 2: ECONOMY AND ECONOMIC GOODS
    • 1. Human Requirements
    • 2. The Available Quantities
    • 3. The Origin of Human Economy and Economic Goods
    • Wealth
  • CHAPTER 3: THE THEORY OF VALUE
    • 1. The Nature and Origin of Value
    • 2. The Original Measure of Value
    • 3. The Laws Governing the Value of Goods of Higher Order
  • CHAPTER 4: THE THEORY OF EXCHANGE
    • 1. The Foundations of Economic Exchange
    • 2. The Limits of Economic Exchange
  • CHAPTER 5: THE THEORY OF PRICE
    • 1. Price Formation in an Isolated Exchange
    • 2. Price Formation Under Monopoly
    • 3. Price Formation and the Distribution of Goods Under Bilateral Competition
  • CHAPTER 6: USE VALUE AND EXCHANGE VALUE
    • 1. The Nature of Use Value and Exchange Value
    • 2. The Relationship Between the Use Value and the Exchange Value of Goods
    • 3. Changes in the Economic Center of Gravity of the Value of Goods
  • CHAPTER 7: THE THEORY OF COMMODITY
    • 1. The Concept of the Commodity in Its Popular and Scientific Meanings
    • 2. The Marketability of Commodities
  • CHAPTER 8: THE THEORY OF MONEY
    • 1. The Nature and Origin of Money
    • 2. The Kinds of Money Appropriate to Particular Peoples and to Particular Historical Periods
    • 3. Money as a "Measure of Price" and as the Most Economic Form for Storing Exchangeable Wealth
    • 4. Coinage
  • APPENDICES
    • A. Goods and "Relationships"
    • B. Wealth
    • C. The Nature of Value
    • D. The Measure of Value
    • E. The Concept of Capital
    • F. Equivalence in Exchange
    • G. Use Value and Exchange Value
    • H. The Commodity Concept
    • I. Designations for Money
    • J. History of Theories of the Origin of Money
  • Index

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