- Paperback: 328 pages
- Publisher: CreateSpace Independent Publishing Platform; Lrg edition (1 Jan. 2007)
- Language: English
- ISBN-10: 1479210218
- ISBN-13: 978-1479210213
- Product Dimensions: 21.6 x 1.9 x 27.9 cm
- Average Customer Review: 4.7 out of 5 stars See all reviews (3 customer reviews)
- Amazon Bestsellers Rank: 384,120 in Books (See Top 100 in Books)
Principles of Economics (Large Print Edition) Paperback – Large Print, 1 Jan 2007
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Top Customer Reviews
Because at that time (1860-1870)it had become apparent that the system of classical economic theory suffered from fundamental flaws, making further progress and a coherent understanding of human action in the economic sphere of life impossible. Much classical theory was descriptively correct (and some not), but it all lacked a coherent theoretical platform to stand on.
Menger covered only the fundamental part of economic theory because a fundamentally new and different approach needed to be developed before further theoretical economic investigation could continue, indeed if economics was to become a coherent theory at all. Essentially, it is the shift from the belief that an objective approach to economics was possible (or natural), towards a fundamentally subjective approach, starting from human material need and human action based on this need (but still without ending "totally up in subjectivity"). The most important part of that paradigm shift is the displacement of the Labour theory of Value developed by Adam Smith and David Ricardo with the Marginal Theory of Value.
In contrast to the English and the French (Swiss, really) approach (made by Jevons and Walras respectively), Menger's approach is non-mathematical. The focus is on concepts and explaining how they apply to basic economic theory. That is why the book is relatively easy to read, especially for non-economists.
Even today, this book is radical!Read more ›
Most Helpful Customer Reviews on Amazon.com (beta)
Writing in an age of science, Menger sets a very scientific tone from the beginning. His suggestion in the preface that `Principles' is an empirical study seems to be the mistake of an overzealous fan of the scientific method, since the book is anything but empirical. `Principles' is outright a theoretical work. This fact does not prevent it from being scientific, however, and Menger sets forth on his task in a very meticulous, one might say Aristotelian fashion.
It is a good thing that the book is theoretical too because, as such, `Principles' is perhaps the most useful and timeless work in all of the discipline. Once Menger explores the character of goods and economic goods (and, by extension, property and wealth), the author arrives at the meat of the work--his Marginal Utility Theory of Value. Though he never uses the term `marginal,' Menger's explanation is the most lucid and practical out there (Jevins and Walras developed similar theories independently around the same time period).
The idea behind marginal utility is rather intuitive. A good's value is based on two relevant factors: the good's usefulness to a person and its availability. In short, if a good is very useful and not widely available, it has a high value to that person; if a good is not very useful and widely available, it has low value. Despite this very logical conclusion, the theory was seen as revolutionary at the time because it dispelled the popular concept of value established by Smith and extended by Ricardo and Marx. Those classical economists held that the value of a given good was based on the labor put into it. The Marginal Theory sufficiently corrected the Labor Theory's faults and offered a definitive framework for the science of economics.
In the second half of the book, Menger's analysis of exchange, price, commodities, and money follows naturally from his theory of value, thus establishing a complete economic theory from goods to money. Menger's work was the basis for the Austrian School of Economics, which was added to subsequently by noted economists Ludwig von Mises and F.A. Hayek.
Altogether, `Principles' is an absolute masterpiece of economic theory that must be studied by anyone who hopes to make a sound judgment on today's economic and political climate or economics in general.
He starts off by explaining how a good comes into play and the requirements needed for an item to be considered a good. He also takes time to explain the idea of goods of a first order, which is the consumption good, and goods of a higher order, which are intermediate goods, and how prices for goods of a higher order are set by the goods of a first order, and not the other way around, as many mistakenly think. Menger quickly touches up on how property and economy have a joint economic origin, and thus a mutually exclusive relationship. Next Menger talks about the differences between economic goods, and non-economic good, and how in some places economic goods can be considered non-economic, and also in the same place at different times, the same relationship can be present. He also talks about the relationship between economic and non economic goods. Menger then talks about the nature and the origin of value and shows how value is purely a subjective notion. He distinguishes the difference between use-value and exchange-value, and also talks about the concept of the labor theory of value, and also speaks of the value of capital, land, as well as the relationships they have with interest. Next is the theory of exchange, as well as the theory of prices, The theory of commodity, and finishes it off with a theory into the origins of money.
This is a very easy to read, introductory text to the Austrian school of economics.
Menger looks at everything in terms of cause and effect. He identifies the four conditions that make any commodity an economic good. He then extrapolates out to show how the interdependence of complementary inputs in production means that their value depends both upon the existence of final goods as well as other inputs. Trade depends upon `reverse valuation' up to the point of indifference. Menger also understood how transaction costs (the economic sacrifices that exchange operations demand, p 189) limit trade.
The early chapters stress two points. First, the importance of goods being compliments to each other. Second, men must possess correct foresight and knowledge concerning the means available to them for the attainment of the desired ends (p89). We must have knowledge of the causal connections between goods with the characteristics that satisfy our wants and our future wants in order to carry out effective economic planning. These insights point to crucial issues in economics.
Menger's references to the division of knowledge concerning causal connections between goods and wants led directly to a devastating critique of Socialism. Mises and Hayek used the ideas of this book to prove that communal ownership of resources precludes rational economic planning. Socialism prevents the effective use of knowledge concerning consumer demand and the means of production. Without real property rights we lack the communications network known as the price system. Menger's stress on knowledge is especially clear on pages 89-92.
As the book progresses, he switches emphasis from goods being complements to their being substitutes and stresses scarcity and the control of resources. Here Menger goes beyond the complexity issue that he raised with goods being numerous, complementary, and with production taking place in many stages across time. The elements of substitutability and scarcity begin to paint a picture of intense and possible ruinous rivalry. Here he shows briefly how property rights emerge as a natural consequence of economizing behavior. Menger claims that property is not an arbitrary arrangement but "the only possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for, and available quantities of, all economic goods". He also has a brief discussion of public goods, which he terms quasi-economic goods. Menger understood the public goods issue, but he also anticipated the absurdity of collective welfare. His definition of national wealth as a complex composite of individual wealths anticipated absurdities of modern welfare economics.
Menger showed how money emerges from barter. This is a vital principle. Vital social institutions like money emerge from self-serving behavior by individuals. This kind of thinking is present throughout this book. While Menger stresses conscious rational choice, he also understood the unconscious and spontaneous order that emerges out of and beyond conscious individual choice. We are largely unaware of the social order of markets, property, and money while it is functioning normally. Only the interruption of commerce turns our attention to the functioning of the system as a whole (this is most clearly stated on p63).
Menger's theory allowed for real errors. Some hold irrational beliefs and therefore `imaginary goods' exist. Some people imagine that `snake oil' goods deliver results that they do not. Others imagine needs that do not really exist. So progress in learning more about real causal connections between commodities and real wants leads to a higher proportion of real goods to imaginary goods. Menger's emphasis on learning and gradual progress and learning is important because it allows for a middle ground where the world can be imperfect, but not hopelessly so. Scholars who focus rational choice and equilibrium end states can easily conclude that the world is as good as it can be. Scholars who assume away rationality and all equilibrating processes end up seeing voluntary social interaction as hopelessly chaotic. By focusing on evolution and learning Menger opens doors to real progress, and allows for the possibility that we have not yet passed through every one of them just yet. To Menger real progress comes with greater correct knowledge concerning the causal connections between commodities and wants. Anyone familiar with the empirical work of Julian Simon will see the importance of Menger's insight immediately.
The contributions of this book are monumental, especially when one considers its relative brevity. It resolves several vital issues and points the way to others- and in only a few hundred pages. This is a book that everyone who studies economics or any other social science should read first. Mises, Hayek, Coase and Buchanan should come soon after. I assign it in my introductory price theory class, and so should all economists. Economists and other social theorists themselves should read this book, as all too few have. This is a foundational book in economics, but even the most advanced experts in economics need to be careful about their understanding of foundational concepts. This book should be read and periodically re-read by all those interested in social theory. The concepts in this book are indispensable to those who want to understand the workings of complex social orders.
Menger's 'Principles of Economics' is a primer in value theory. Value theory is the foundation of economics, because it describes the nature of economic decisions.
Classical economists (from Smith to Marx) claimed that labour content is the key to explaining relative prices. The basis for their argument was that equivalence of value is a necessary condition for exchange and therefore - in order to make comparisons possible - the value of objects has to be reduced to a common denominator. According to Adam Smith the value of an object to someone is the effort required to obtain it and because an hour's toil is just as irksome to one man as it is anyone else, Ricardo -building on Adam Smith's incomplete value theory - claimed labour to be the origin of all value and labour content its measure. Labour was seemed to be the unit to which all value can be reduced.
The next logical step in this line of thinking was the appearance of the invidious marxist fallacy that, since labour is necessary to maintain labour, the price of labour is equivalent to the labour necessary to its reproduction - to house, feed and clothe it. If 10 hours of labour are offered daily to an employer, these 10 hours spent by his worker on his product should fetch the capitalist the equivalent of 10 hours of work spent on another product in the market. When only 5 hours of his labour time are necessary to maintain the worker, then the capitalist "exploits" the worker by not compensating him for the full value of his work.
Menger showed that valuation of goods is a subjective process. No matter how much labour is spent on a good it wouldn't be exchanged for any other product unless it were able to satisfy some need which is higher than the need satisfied by the product given in exchange. Because value is subjective exchange of goods can take place even when their labour content differs. Commerce enhances welfare by offering goods which have relatively little value to the one party in exchange for goods which have a relatively higher value and vice versa. Commerce is therefore not a sterile process, but a highly productive one.