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Menger’s precursors in the German subjective-value tradition and his advancements in the theory of wants and goods


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Menger made wants and goods the center of economic analysis. This paper locates his theory of wants and goods in the history of economic ideas, identifying major influences from the German subjective-value tradition of the 19th century. Our sur- vey of select German economists prior to 1871 – Hufeland, Storch, Rau, Hermann, Mischler, Stein and Schäffle – discovers insights that highlight the subjective and processual nature of the wants-goods nexus, as does Menger’s approach. Menger’s process approach to economics had several precursors – the historical record is much more nuanced than previously recognized. Menger combined existing ideas on wants and goods into a novel, more coherent and productive framework. He portrayed human wants and the desire to satisfy them as the driving force propelling economic processes. Menger’s theory about wants and goods provided the founda- tions for his theory of subjective value. He showed how the simple idea that people value goods in light of their wants is the key to the most fundamental problems of economic theory, including value, price formation, production, distribution and economic development, and he applied this insight to explain complex economic processes in modern market economies. Menger’s work constitutes a major synthe- sis that advances earlier ideas (especially of Hermann, Mischler and Schäffle) on wants, goods and their interplay, and his focus upon complementarities of consumer goods constitutes yet a further advancement on German economics.

Keywords Menger · Consumer wants · Goods · German subjective-value theory JEL classification B13 · B53 · D01 · D11 · M3 · 010

Accepted: 31 August 2022

© The Author(s) 2022

Menger’s precursors in the German subjective-value tradition and his advancements in the theory of wants and goods

David A. Harper1  · Anthony M. Endres2

David A. Harper [email protected]

1 Department of Economics, New York University, New York, NY, USA

2 Department of Economics, University of Auckland, Auckland, New Zealand


It must be stressed, as it was stressed by Menger and most of his followers, that the central and ever-present categories of economic analysis are “goods”

(Güter) and “needs” (Bedürfnisse). These are the key terms of causal-genetic analysis.

(Silverman, 1990: 71)

1 Introduction

Menger’s theory of wants1 and goods is central to his theoretical construction of the economic system as a whole and the foundation for his theory of subjective consumer valuations in particular. This paper investigates the analytical frameworks articulated by German academic economists in the years before 1871 in order to identify the prevailing paradigm of economic inquiry in which Menger was trained and the sur- rounding intellectual atmosphere from which he drew inspiration in developing his theory of wants and goods. In a comprehensive survey, Streissler (1990) finds that many of the key ideas in Menger’s Principles are “foreshadowed” (p.33) in standard German economics textbooks in the first half of the nineteenth century, from which Menger “amply borrowed” (p. 32). Indeed, a scan of the works cited in Menger’s Principles shows that he cited predominantly German economists, such as Wilhelm Roscher (Leipzig), Friedrich Hermann (Munich), Albert Schäffle (Vienna) and Karl Heinrich Rau (Heidelberg).2

German economics in the nineteenth century was a tradition that maintained a rich body of fundamental principles and doctrines, but it was also open to innova- tion.3 Indeed, it was a “primordial brew” (Streissler and Milford 1993/94: 59) bub- bling with original ideas, and it became a seedbed for several new developments in economic theory—one of which is the subject of this paper, Menger’s wants-goods

1 Menger uses the term “Bedürfnisse,” which can be translated as needs or wants. If forced to choose, we favor “wants” as the translation of “Bedürfnisse,” as do Hayek (1976) and Streissler (1990: 60). It is clear that Menger uses the word Bedürfnis to cover both senses of the term, sometimes in the same paragraph.

See, for example, his discussion of how the economizing individual’s attempt to satisfy their needs and wants as fully as possible leads them to undertake the first acts of satisfying their desire for tobacco once the need for food has been satisfied to a certain degree (Menger, 1871: 93–94; 1976: 127). The end result of economizing for the individual in question is that all their needs and wants (regardless of whether their origin is biological or not, and no matter whether they serve to maintain life, preserve health or pacify a passing whim) are “satisfied up to an equal degree of importance of the separate acts of satisfaction”

(Menger 1976: 131; see too 1871: 98). Hence, the distinction between needs and wants makes no sub- stantive difference to the overarching subjective value analysis that pervades Menger’s work.

2 See Chipman (2014) for a selection of important writings of these German authors, newly translated into English. Streissler was the pre-eminent scholar on the German subjective-value tradition: see Streissler (1990; 1994; 2001), Streissler and Milford (1993/94). Chipman (2005) provides a comprehensive over- view. Brandt (1992), Roscher (1924) and Tribe (1988) are histories of German economic thought that give attention to the German subjectivist economic tradition.

3 The German subjective-value theorists were expanding on the earlier “cameral sciences” (“Kameralwis- senschaften”), which constituted a comprehensive approach to public administration taught at German and Austrian universities during the eighteenth century. See Silverman (1990), Tribe (1988) and Wake- field (2019).


approach to consumer behavior. As part of his study of law at the University of Prague (1860–1863), Menger received an extensive education in German subjectiv- ist economic thought which figured prominently in economics teaching of the time (Milford, 2012: 416). From 1867 onwards, Menger then embarked upon self-directed study of economics as preparation for his Principles by reading and critically exam- ining classic works of his German predecessors (including Rau’s textbook) (Yagi, 1993).

The German subjective-value tradition molded Menger’s worldview, his vision of economic processes, his fundamental existential postulates about the make-up of economic reality and his normative ideas on how to do economics.4 He inherited their “prescientific vision” of economic reality that affected his perception of which phenomena are worthy of scientific inquiry and his recognition of the character of those human activities and patterns that render them economic.5 In particular, this vision led Menger, like the German subjective-value theorists before him, to focus upon wants and goods as two fundamental and interrelated categories of economic theorizing that play a real and significant role in everyday economic affairs. “Human needs, their variety, and the means for their satisfaction had become the starting-point from which the principles of economic life were built up” (Tribe, 1988: 149). German economics in the mid-nineteenth century concerned itself with the basic principles of economic analysis that governed how wants emerge and are satisfied (Tribe, 1988:

174). At a very general level, the essential novelty of this tradition was the unequivo- cal grounding of all economic phenomena in human wants. Wants and goods were conceived not in isolation but in their relation to human actors whose activities initi- ate and bring about change. At the core of this vision were the “man-in-relation-to- nature” conception of the economic problem and ontological presuppositions about how human beings are related to the external world. The general idea is that human beings act on the external physical world, they reconfigure it, transforming resources given by raw nature into goods, in order to satisfy their wants and to acquire material wealth (Kirzner, 1960: 41–43). Among the German subjective-value economists, Rau provided one of the clearest statements of this general stance emphasizing human mastery over nature as a defining criterion of the nature of the economic: “Economic activities form a distinct field of human endeavor, which sets itself the goal of the appropriation and the conquest of the external natural order, and it achieves ever greater success with advances in our knowledge of the natural world” (Rau, 1863:

2).6 Hermann’s (1832: 1–2) distinction between different types of external goods, according to the degree to which they depend upon natural or human energies for

4 “Any theory of value necessarily constitutes an implicit definition of the general shape and character of the terrain which it has decided to call ‘economic’” (Dobb, 1937: 19).

5 Schumpeter ([1954] 2006: 41) emphasized how vision, the “preanalytic cognitive act,” provides the inputs for scientists’ analytical endeavors: “In practice, … we hardly ever start from scratch so that the prescientific act of vision is not entirely our own. We start from the work of our predecessors or contem- poraries or else from the ideas that float around us in the public mind. In this case our vision will also contain at least some of the results of previous scientific analysis. However, this compound is still given to us and exists before we start scientific work ourselves” (Schumpeter, 1949: 350; emphasis added).

6 This and all subsequent translations are by David Harper, unless stated otherwise.


their particular form and spatio-temporal location, is another example of the “man vis-á-vis nature” outlook.

Accordingly, Menger’s conception of the wants-goods relationship is also grounded on fundamental ideas about the interaction of human beings and nature:

“his focus is on how the general dependence of human beings on the external world is instantiated in a series of narrower dependencies [i.e. in each causal relation] in which specific needs can only be satisfied by particular goods” (Yagi, 1993: 705).

The very notion of “goods-character” reflects a relationship between acting individu- als and particular segments of the external world (“things”) that are suited to their ends (Menger 1976: 52n). Furthermore, this worldview is also evinced by Menger’s notion of the orders of goods (and the transformation of higher- into lower-order goods) and his discussion of the causes of economic progress (Menger, 1871: 7–9, 28–29; 1976: 56–57, 73–74). Menger explains economic development as a process of ever-increasing control of human consciousness over the production of consumption goods. In the course of economic development, consumption goods shift from being the product of the fortuitous confluence of states of nature to increasingly becoming the intended results of human willpower and knowledge.

The fundamental idea of Menger’s theory is that “people value goods because they need them” (Schumpeter, 1952: 83). Alternatively stated, it is the simple proposition that “the value of goods is measured by the importance of the want whose satisfaction is dependent upon the possession of the goods” (Böhm-Bawerk, 1891: 363). Now, as we shall see in our historical survey, this fundamental insight was nothing new; the German economic tradition from Hufeland (1807) onwards had long maintained that people value goods from the perspective of the satisfaction of their personal wants.

A distinctive feature shared by all the German textbooks is that they contained extensive conceptual analyses of goods, and to a lesser extent of wants, as well as analyses of other fundamental subjective-value notions, such as use-value, exchange- value, prices, and wealth. This analytical method attempts to examine, clarify and sharpen economic concepts and to specify the conditions for their application.

Menger himself referred to this abstract conceptual analysis as “the German ten- dency toward philosophical penetration of economics” (1976: 307; emphasis added).

According to Hayek (1976), these speculations of German economists must have seemed “useless excursions into philosophy” (p.14) to British classical economists of the time who had a much more practical and policy-oriented mindset. But there can be no doubt that these conceptual analyses provided a framework for inquiry by highlighting the classes of scientific problems and the research questions to be inves- tigated. The newly minted subjective-value concepts served as “cognitive anchors”

(Jackendoff, 1996) that directed the attention and efforts of German academic econo- mists.7 A better grasp of these subjective-value concepts is a crucial step towards a better understanding of the basic entities and processes of the economic system.

Given the significance of their contribution, one wonders why the German subjec- tivists were in general neglected by political economists outside the German-speak-

7 By positing these fundamental concepts, “one staked out claims, one showed up the questions which had to be elucidated if one was to achieve clear insight. The insights reached were determined by these claims to a not inconsiderable extent” (Wieser, 1922: 245–246; quoted in and translated by Streissler 1990: 40).


ing world. We suspect that there are several factors to account for this. First, the German subjective-value economists wrote almost exclusively in German and their main academic output comprised neither monographs nor articles but voluminous textbooks targeted at future politicians, lawmakers and bureaucrats rather than eco- nomics scholars. Second, the German economists did not put all the pieces together into a coherent economic theory. Third, some Austrian scholars (e.g. Schumpeter and Mises) had political motives of their own to distance themselves from German economics (see Streissler 1990: 40–41). Finally, although the Historical School (led by Schmoller) co-existed for a time with the German subjective-value tradition, it eventually gained ascendancy in Germany, obtaining control over major academic appointments in economics in German universities and displacing the subjectivist tradition.8

2 Menger’s predecessors in the German subjective-value tradition In the following thumbnail sketch, we limit ourselves exclusively to those German authors whose works Menger was familiar with at the time of writing the first edi- tion of his Principles. This constraint thereby excludes von Thünen (1826), Kudler (1846), Gossen (1854) and the second edition of Hermann (1870).9 We also exclude Roscher (1864), not because, as Ikeda (1995: 31–32) mistakenly argued, his influ- ence on Menger’s subjective theory of goods was mainly negative, but because Roscher’s statement on the theory of goods was not particularly original or nuanced, providing only a broad-brush and derivative summary of prior and more subjectivist work on goods by economists in the German tradition (Hufeland, Hermann, Mis- chler, Schäffle). In addition, given the focus of our interest, we limit ourselves to their conceptions of wants and goods rather than with broader aspects of their frameworks of analysis. Finally, we focus mainly upon the German academic textbooks writ- ten by the authors in our survey, since these textbooks (rather than monographs and articles) were the main publication vehicle used to disseminate their ideas. In many cases, individual textbooks ran into several successive editions—we limit our atten- tion to the edition that Menger is most likely to have known rather than the evolution

8 Perhaps no scholar better exemplifies the short-lived co-existence of the German Historical School and the German subjective-value tradition than Wilhelm Roscher (Leipzig), himself one of the founders of the older German Historical School. Roscher’s textbook (1864) evinced a broad knowledge of German subjective economic theory up to that point. Though not really offering new subjectivist insights, Roscher did define a good in a subjectivist manner, citing Mischler as a source of inspiration, and he adopted a subjectivist stance in his own definition of economy. Moreover, as is well known, Menger dedicated his Principles to Roscher, and Roscher is also the text (not just the German text) that Menger cited most often to support the points that he himself was making.

9 Menger did not know, and hence did not cite, Kudler’s and von Thünen’s work in his own textbook.

According to Streissler (1990: 36, 48), Menger had not read Kudler’s work before laying down his Prin- ciples. (See Kauder (1965: 84) for an alternative view.) In his (1976) introduction, Hayek also expressed surprise that Menger did not appear familiar with the work of von Thünen at the time of writing his first and only book on economic theory proper. It should be noted too that neither Kudler’s work nor Thünen’s (nor Gossen’s for that matter) would be mentioned in, or make a difference to, the second edition of Menger’s Principles.


of thinking of each author over time. We focus on the texts themselves rather than on the commentaries of other scholars about these texts.

Hufeland, Gottlieb (1760–1817) The first German economist to provide a thor- oughly subjectivist economic conception of goods and Menger’s “pet authority”

(Streissler, 2001: 318).10 Hufeland (1807: 20–24) devotes four pages of his textbook to “the dependence of all value, and thus of all goods, on people’s mental images and ideas” [“Vorstellung und Meinung der Menschen”].11 These passages bring subjec- tivism to the fore: “All goods are only goods by dint of the mental images and ideas which people … themselves form of these things. They would never be, and could never be, goods without this deep relationship to people’s mental representations” (p.

20). It is these mental ideas that hold sway in the realm of goods (p. 23). Hufeland’s use of the term “mental images” evokes relational connections—the human mind transforms things into goods through a mental process. Human knowledge is impli- cated in goods formation. Hufeland also recognized that this analytical result was of upmost wide-ranging importance for economic science in general and the develop- ment of the entire argument presented in his treatise. It is “the basis for the possibility of all goods, all wealth, all national and political economy” (p. 20). Moreover, he rec- ognized that this relatively simple idea, seemingly so easy to grasp, had nevertheless been overlooked by previous scholars. In addition to their subjectivity, Hufeland also explained goods in teleological terms which stressed their connection to the human purposes that they serve: “The concepts of good and value are mutually dependent and only exist through their relationship to ends and means” (p.21). “Without the idea of a purpose, no good is possible” (p. 24). Longing for purposes and yearning to sat- isfy our needs are required (p. 26). This emerging concept of “purposes” is not reduc- ible to utility. A good is defined as a means to an end. The transformation of things into goods depends only on people’s ideas of their suitability to serve as means to an end (p. 39). It should also be noted that Hufeland also included services in his defini- tion of goods. Hufeland distinguished purposes (and wants) according to whether they are arbitrarily chosen or necessary needs (“die ganz willkürlich gewählten oder notwendigen Bedürfnisse”). Necessary needs are set by nature or by custom: those set by nature comprise our basic needs (“Grundbedürfnisse”), including the need for air, water, food, clothing and shelter; those set by custom comprise our secondary needs (“Nebenbedürfnisse”) (pp. 24–25), which depend more on opinion and habit.

Hufeland recognized that there are degrees of necessity for both basic and secondary

10 Hufeland’s penchant for conceptual analysis is revealed by the prolix title of his (1807) book: New Foundations for the Study of the Economy of the State, through an Examination and Correction of Basic Ideas of Good, Value, Price, Money and National Wealth with Continuous Consideration Given to Pre- vious Systems [“Neue Grundlegung Der Staastwirthschaftskunst durch Prüfung und Berichtigung ihrer Hauptbegriffe von Gut, Werth, Preis, Geld und Volksvermögen mit ununtergebrochener Rücksicht auf die bisherigen Systeme”].

11 More than a century and a half later, Shackle would continue this subjectivist theme along the lines that the valuation of goods “depends in the nature of things upon expectation, and expectation is a structure cantilevered out from the present over a void” (1972: 179). Similarly, he defines “a good” in subjectivist terms that emphasize its future-oriented nature and its dependence on interpretation and expectation: “A good is an object or an organization that promises performance. Its essence is the belief entertained by some person that it is capable of doing specific things, of providing some class of services. A good is a skein of potentiae, of things hoped for” (p.178; emphasis added).


needs. Even so, some basic purposes, whose necessity is determined by nature, are not universal: clothing and shelter are not required in some climates and geographical regions. Hufeland also recognized that human desires are without limit and can be expanded endlessly by our imaginations (pp. 25–26).

Storch, Heinrich von (1766–1835) He was a Russian economist of German descent who had studied at the University of Jena and that of Heidelberg. His main work is Cours d’Économie Politique (Storch, 1815) which was based on instruc- tion in political economy that he gave to the grandchildren of Tsarina Catherina II, one of whom became Tsar Nicholas I. (The German translation of 1819 is entitled Handbuch der Nationalwirthschaftslehre and was translated by Rau.) A want is the desire for a thing that spares us uneasiness or gives us pleasure (Storch, 1819a: 21).

Wants are both natural and artificial. Every natural want (e.g. for food) arouses a host of artificial wants in us (e.g. for tasty delicacies that look appetizing) (p. 21).

The progressive growth in wants can only take place in a social setting; only through our dealings and associations with other people can our wants develop (p. 22). In his textbook, Storch presented a conception of subjective value that specified three con- ditions that must be jointly fulfilled for a thing to have value and be a good: “(i) that the person senses or envisages a need; (ii) that a thing exists which can satisfy that need; and (iii) that the individual’s judgment comes down in favor of the usefulness of the thing. Thus, the value of things is their relative usefulness, provided that this usefulness is recognized by those who employ these things to satisfy their wants”

(1815: 57–58; 1819a: 25). Hence, subjective human judgment about the usefulness of a thing is what turns it into a good.

Storch embraced a very broad notion of goods that included both material “outer goods” (“äußere Güter”) and intangible “inner goods” (“innere Güter”), the latter being defined as all the immaterial fruits of nature and of human labor which people find useful and which are conducive to the development of their intellectual and moral capacities (Storch, 1815: 108–110; 1819a: 49–50). Inner goods make up a part of our being. The primary inner goods (“innere Hauptgüter”) are directly related to human development and are of several kinds: health, skill (dexterity), knowledge (wisdom, insight), aesthetic sense, and moral and religious sentiments (1815: 110;

1819a: 51; 1819b: 342). The formation of inner goods is what we today would call a co-creative act: it requires not only the supply of relevant services (e.g. instructors able to teach a craft) but also cooperative users (e.g. willing apprentices) ready to demand and accept the flow of services and to participate in the development of their capabilities (Schumann, 1999: 14). Auxiliary inner goods (“innere Hilfsgüter”) are also required to support and cultivate our aptitudes—without them the primary inner goods are not possible (Storch, 1819b: 342). The two types of auxiliary “inner goods”

are security and leisure. Both of them are indispensable conditions for demanding the services that contribute to the formation of primary inner goods. The production of immaterial goods was included in Storch’s concept of economic development.

Rau, Karl Heinrich (1792–1870) He held the chair in political economy at the University of Heidelberg and was a major figure in German subjective-value theory.

Menger started with the seventh edition of Rau’s (1863) standard textbook, long considered the classic work of German economics, as he began to undertake eco- nomic research: “Rau was … effectively the first economics text he read thoroughly


(Streissler, 1990: 48; original emphasis).12 Although Rau used a general definition of goods, according to which a good is that which is suitable for the satisfaction of human wants and serves as the means for human purposes, he still followed the Brit- ish classical economists by excluding intangible goods and the human body from his definition, limiting goods to only physical, external goods (Rau, 1863: 1). For Rau, the existence of a material good depends upon two conditions, the first, objective and external, the second, subjective and internal. The first condition is the availability of a material object in a particular physical state, such that it can be used for human purposes; the second is recognition of this usefulness on the part of a judgmental decision-maker (Rau, 1863: 99). Only human judgment can elevate an object to the level of goods, regardless of whether the object had been around for a long time in the appropriate state. Rau recognized the vital role of human knowledge in goods cre- ation: advances in intellectual culture and scientific investigation can generate new knowledge about the connection between the characteristics of material objects and economic purposes, thereby leading to the discovery of higher degrees of usefulness of existing goods and the creation of new kinds of goods (p. 100). Rau also asserts that command over a material good can be of different kinds. It does not necessarily consist in physical possession or a complete bundle of property rights over the object because other rights (such as use-rights) can give rights-holders the power to utilize the material good for their own purposes, within certain limits (pp. 119–120).

Rau also recognizes a hierarchical taxonomy of goods according to which mate- rial goods are organized into types (“Arten”) or subtypes (“Sorten”) (Rau, 1863: 76n ). In his nomenclature, these terms also correspond to “species” (“Gattungen”) and

“subspecies”, respectively. A type or species of goods is a general class of goods (e.g. cereal grains), which contains several subtypes or subspecies of goods (such as wheat, oats, barley, rye). Rau’s taxonomy is analogous to the biological classi- fication of living organisms in that “species of goods” (“Gattung von Gütern” or

Art von Gütern” (Rau, 1863: 188)) is the fundamental taxonomic rank of goods, which contains a group of closely related subspecies of goods.13 Each subtype or subspecies is a specific category of goods whose tokens or concrete units have similar morphological characteristics, such as similar material composition, form and struc- ture. The reliance upon a biological analogy (rather than upon a mechanical analogy from physics) betrays Rau’s ontological commitment to the existence of levels and hierarchies of goods as a fundamental organic feature of economic reality. Rau sees human activity aimed at satisfying needs (including consumption) as taking place within a stratified structure which is subject to economists’ attempts at classifica- tion. The relation between species and subspecies of goods forms a nested ecological hierarchy that stratifies goods into discrete and uniform levels of organization – the

12 Indeed, the Menger archives at Hitotsubashi University, Tokyo, show that he made extensive notes in his copy of Rau’s book, which served as a foil for his own ideas (Kauder, 1962; Yagi, 1993). These hand- written annotations were transcribed and published as Menger (1963).

13 In biology, the German word “Gattung” actually corresponds to the English word “genus,” the taxo- nomic level above species, but English translations of both Rau and Menger normally translate “Gattung

as “species.” Consequently, Menger’s use of the German word “Species” (nowadays spelt “Spezies”) in the original German edition is consequently translated as “subspecies” in the English translation of the Principles in order to maintain the correct subordination of levels.


lower-level subspecies of goods are completely contained in the higher-level species of goods, and the higher level consists of an aggregate of entities at the lower level, that is, the species of goods is composed of (and only of) the subspecies of goods.

(On levels of organization in biology, see Eronen & Brooks (2018) and Rosser (1995:

165).) Rau’s approach thus manifests an incipient morphological orientation that is subordinated to the explanatory aims of economic theory. In Rau, we see the seeds of a morphological investigation into economic phenomena appearing in the German subjective-value tradition at an early date, well before Menger examined economic phenomena (including the biological foundations of human wants) more fully along morphological lines.

For Rau, types or species of goods stand in a one-to-one relationship to general classes of human wants, such as needs for food, clothing and shelter.14 Each type or species of goods possesses a degree of suitability for promoting human purposes in general, considered from an abstract point of view. Rau calls this abstract relational property of a goods-type its “species value”15 – it is the abstract value of the species of the good from an objective bird’s-eye view rather than the agent level. It is as if the type has goods-character itself, though Rau does not state the matter quite this way.

The degree of usefulness (utility) of the goods-type is abstract in that it relates to its capacity to satisfy human needs on the whole and not to the concrete needs or specific purposes of an individual economizing agent at a particular time and place. Although he did not employ the terms “substitutes” and “complements,” Rau’s approach laid the groundwork for a theory of substitutable and complementary goods (Chipman, 2014: 3). Goods belonging to the same type (or species) are considered to be potential substitutes. More precisely, a good of one subtype can be substituted by a good of another subtype (though such a substitution may require a different quantity or num- ber of units of that good). For example, a given quantity of wheat can be substituted by another quantity of rye to meet the human need for food. The implication is that goods from different species are considered potential complements.

Rau moves on to wants only after dealing with goods. Wants arise from doing or being without goods. He recognized that there is a rank ordering of wants (and human purposes) which is partly determined by the physical nature of human beings, so that the ranking is partly grounded on biological foundations (1863: 73, 435).

“Some material goods are so necessary for human life or well-being that we cannot

14 Each class of wants is simply a need for a certain species of goods. For example, Rau refers to the need for wood (“Holzbedürfnis”) (1863: 500, 504). This class of wants does not pertain to the wants of a par- ticular person but to the human need for wood in general, abstractly considered.

15 Menger’s trenchantly criticized Rau’s approach to “species value” (“Gattungswerth”). See Menger (1871: 81, 108–111; 1976: 116, 297–300). According to Menger, species of goods (“Güttergattungen” in the German original (Menger, 1871: 111) cannot have value: “A species [“eine Gattung” (1871: 81)] can have useful properties that make its concrete units suitable for the satisfaction of human needs. Different species [“verschiedene Gattungen”] can have different degrees of utility in a given use (beechwood and willow wood as fuel, etc.). But neither the utility of a species [“Gattung”] nor the varying degree of utility of different species or subspecies [“Gattungen oder Species”] can be called ‘value’. Not species as such, but only concrete things are available to economizing individuals. Only the latter, therefore, are goods, and only goods are objects of our economizing and of our valuation” (p. 116 fn 3; original emphasis). Mises (1940: 91) also considered the differentiation of “species of wants” (“Bedürfnisgattungen”), an innovation of Knies, as superfluous, arbitrary, misleading and outside the scope of economics.


be deprived of them without considerable detriment and, consequently, we are depen- dent to a certain degree on possessing and using them (that is, they constitute human needs for us). Some others prove to be at least useful or pleasant and also afford the opportunity to provide other people with support” (1863: 1). Rau recognized the heterogeneity of consumers’ wants: individuals differ in their wants. For most human purposes (or needs), a particular quantity of goods of a certain type will be required to satisfy them. But some wants, such as for certain luxury goods, are insatiable. In particular, there seems to be no limit to how many items a person devoted to a par- ticular hobby wants to add to his or her personal collection (Rau 1837, 60; 1847: 81).

Rau’s approach to goods and value was to have a major influence upon another teacher at the University of Heidelberg, Karl G.A. Knies, one of the founders of the older German Historical School, who taught both Böhm-Bawerk and Wieser.

Knies complemented Rau’s concept of “species of goods” with his own concept of hierarchical “species of wants” (“Bedürfnissgattungen”) (1855: 430). Knies’s (1855:

423-5, 436) concept of “goods-quality” (“Gutsqualität”, “Gutseigenschaft”) was also taken up by Menger (1871: 3) as “Güterqualität,” which Dingwall and Hoselitz translated as “goods-character” to maintain consistency with related terms used by Menger, such as “commodity-character” (“Waarencharakter”) and “economic char- acter” (“ökonomischer Charakter”) (Menger 1976: 52 fn 3).

Hermann, Friedrich Benedikt Wilhelm (1795–1868). Menger’s contemporaries regarded him as an intellectual successor to Hermann, a professor at the University of Munich. He was one of the most subjectivist German economists of the time, stressing the subjectivity of the fundamental concepts in German economics (wants, goods, use-value). The opening sentence of Hermann’s textbook shines the spotlight on wants and goods: “whatever satisfies some or other human need is called a good”

(1832: 1; see too 1870: 103).16 The maximization of want-satisfaction was the hall- mark of economic activity. Hermann provides a rich classification of goods. For the individual, goods fall into one of two classes: internal and external goods. Whatever intellectual qualities and physical capabilities we find in ourselves as innate talents or bring about through our own actions are internal goods to us. Whatever support we produce or receive by means of support from the outer world to satisfy our desires is an external good. Hermann includes not only material goods, but also intangible goods, services and relationships within his definition of goods (p.2). Relationships are a special category of external goods that is distinguished from material goods and personal services. The concept covers a broad range of relationships, including customer goodwill, family connections and relationships of hospitality (1832: 2, 3,

16 The first edition (Hermann, 1832) contains very little discussion of wants. In the second edition (which Menger never cited and did not read before finishing his Principles in 1871), Hermann (1870: 78–103) added an entire chapter of 25 pages devoted to examining wants and their categorization before moving on to the chapter on goods. A want is defined as the sense or consciousness of lacking something, which asserts itself and impedes or threatens the course of one’s life, combined with the striving to remedy this deficit (1870: 5). Hermann argues that wants are arranged in separate spheres or clusters which correspond to an economic subject’s efforts to ensure their ongoing existence and support their activities. (Note that an “economic subject” in the German literature is not limited to an individual person but can also refer to different social formations of various scales.) The scope of these “want clusters” (“Bedürfnißkreise”) depends upon the level of physical and intellectual development of individuals and families as well as the range of operations of corporations and the state itself (Hermann, 1870: 6).


7, 289; 1870, 103ff). Hermann originated the concept of free goods in economics and distinguished them from economic goods (p.3); the latter are distinguished from the former in that they require a sacrifice of some sort. Free goods, such as air and light, are supplied by nature or other people and their acquisition requires no eco- nomic sacrifice. “Economizing can take place on the wants side or the goods side [of the wants-goods relationship], that is, consumption can be constrained by suppress- ing needs or by satisfying existing needs with fewer goods… Rational economizing seeks to satisfy each need completely, but with the least possible consumption of goods” (1832: 348).

Wants are satiable, but to varying degrees, with a person’s need for table salt given as an example of where there is very limited scope for increasing consumption beyond the point of satiation (Hermann, 1870: 402). Hermann implicitly assumes that a hierarchy or scale of wants conditions such economizing: wants can be ordered according to the hardship generated by not satisfying them. We can gauge the degree of hardship by assessing the difficulty we experience in trying to suppress that need—

the more difficult the need-suppression, the greater the hardship from not satisfying the need (1832: 68). His hierarchy of wants is implicit in his hierarchy of goods. Just as wants can be more or less urgent, the corresponding goods can be more or less essential. Hermann (1832: 68–69) recognizes a hierarchy of categories of goods that comprises four levels, starting with the most essential: (i) necessities of life (food, clothing, shelter); (ii) goods for rest and recreation (including a large number of per- sonal services); (iii) education (including a host of services and social relationships, diverse buildings, equipment and collections of various kinds); (iv) goods that “spar- kle” (what we would now call conspicuous goods, which can belong to the first three categories, but instead almost exclusively serve the need for ostentatious display and social recognition). Goods differ in the range and number of needs they satisfy, some having general use, others only limited use. They differ in their suitability (the degree of their capability) for satisfying any given need. The one-way causal link from wants and their structure to the order of all goods in production seems to be well-signaled in Hermann. He recognizes that some goods differ in their proximity to want satis- faction: some satisfy consumer wants directly and immediately, whereas others only serve for the production of other goods (p. 69). Hermann provides significant com- mentary about substitutability, but it seems nothing explicitly about complementari- ties of goods. It should be noted that Hermann’s analysis often sets aside the manifold qualitative differences of goods, instead choosing to consider them as homogeneous quantities. For him, economics was the quantitative study of goods (“die Größen- lehre der Güter”) (1870: 68).

Mischler, Peter (1821–1864) He was a German-born professor who taught politi- cal economy at the University of Prague where Menger did his undergraduate stud- ies from 1860 to 1863. Although Mischler was one of Menger’s teachers and had a significant impact on him, Menger never cited him in his Principles. (For some speculations as to why, see Streissler 1990: 37.) The bulk (pp. 163–240) of the second

“book” of Mischler’s 1857 text is devoted to the concepts of wants, goods, use-value and exchange-value. He devotes ten sections (§ 56-§ 65, pp. 163–184) to an exami- nation of human wants before moving on to discuss goods and value. Wants are the

“immutable foundations of all economic endeavor” (p. 167). Wants cause people


to act and to develop their aptitudes and talents. They develop the powers which lie dormant in people (pp. 167–168). Wants result from the nature and purpose of human beings. He characterized people as material, moral and spiritual-intellectual beings, and accordingly, he divided human wants into three classes: material (i.e.

physical, bodily) wants, moral wants and intellectual-spiritual wants.17 People have a hierarchy of needs and wants, with material wants at the lower level and moral and intellectual wants at the higher levels. People have both individual physical wants as well as social and cultural wants that result from their being simultaneously located in the external natural world and civil society (p.168). Accordingly, some wants are innate, others are acquired. We order wants according to their urgency – ranking them as absolutely necessary for human survival, useful, pleasant or dispensable (p. 168, 209).

Mischler recognized that things generally have no value in and of themselves, but “only acquire value through recognition of their suitability to satisfy needs and desires” (1857: 203). Not all needs and desires qualify, only those that arise from the true nature of human beings. Hence, not everything that is a means to a human end is a good. To be a good, it must be in harmony with the attainment of rational, moral and legitimate purposes (1857: 187). Mischler identified the prerequisites for a thing to have economic value, rather than the conditions for something to be a good, but the two concepts of value and of a good were closely interrelated in German economic thought, as made clear by Kudler in his standard textbook, in that “as soon as we attri- bute value to a thing, we recognize it as a good, and as soon as we call something a good, we recognize that it has value” (Kudler, 1846: 54).18 For a thing to have value, for it to be a good, three conditions must be fulfilled:

(i) The existence of a need. Where this is lacking, there is no value…. The value that one attributes to a thing stems from the use that one makes of it. What serves no use, has no value.

(ii) The suitability of a thing to be used for an existing need.

(iii) The discovery and recognition – the appreciation – of this suitability.

(Mischler, 1857: 203)

The reader will recognize at once the striking similarity between Mischler’s item- ization above and Menger’s (1871: 2–3; 1976: 52) list of the conditions for a thing to become a good (or to acquire “goods-character”). Mischler describes these condi- tions in terms of the discovery and recognition of the relation between a need and a good that is suitable for satisfying it, whereas Menger (1871, 1976) writes in terms of

17 Lower-level material needs are the domain of political economy, which Mischler prefers to call the

“science of wealth” (“die Wohlstandswissenschaft”). Moral philosophy and cultural theory deal with our higher-level moral and intellectual concerns (Mischler, 1857: 168).

18 It should be noted that this is not Menger’s position. For Menger (1976: 115, 119), only economic goods are objects of our valuation. “The value of goods … is a phenomenon that springs from the same source as the economic character of goods—that is, from the relationship … between requirements for and available quantities of goods” (p. 115; emphasis added). Even though they are capable of satisfying our wants, non- economic goods (i.e. goods that are not scarce) do not have value for us. Only economic goods (i.e. scarce goods) possess “that significance for us that we call value” (p. 119).


human knowledge of this causal connection between need and good.19 To Mischler’s list, Menger (1871: 3; 1923: 11; ) added a fourth condition: “command over the thing” (“Verfügung über dieses Ding”) so that it can in actual fact be used to satisfy the need. This condition requires human agency and presupposes planning—a pur- posive economic subject who plans future actions must actively intervene to obtain control over those things that are to be directed to want-satisfaction. Mischler too recognized the importance of a person’s having control over the actual uses of a thing but subsumed it under one of the conditions for a thing to be useful (Mischler, 1857:

204). His treatment of planning was left implicit in his discussion of the precondi- tions for usefulness.

Having determined that value (and goods-character) stem from usefulness, Mis- chler then asks what are the prerequisites for usefulness, and he identifies two condi- tions that concern the form of a thing and its spatio-temporal location (i.e. its position or situation). First, for it to be useful, a thing must be in a form, and its elements arranged in a manner, that makes it possible to use it for a definite purpose (p. 204).

Second, a thing must be available at the right time(s) and place(s) such that there is no impediment that stands in the way of it being employed when and where it is actu- ally needed. The second condition requires that the thing be positioned relative to the particular person and to other goods in such a way that the person’s use of the thing is both physically possible and socially permitted—the person must have property rights over the thing, be able to exercise control rights (pp. 204–205). Although Mis- chler does not say so explicitly, the implication is that the thing’s required position concerns not only its spatio-temporal location but also its position in the network of social relationships. A thing’s spatio-temporal location concerns an object’s relation to other goods, whereas its position in the social nexus concerns its relation to par- ticular agents in the web of property rights. If a thing cannot be brought within the scope of human decision-making control and made subject to property rights, it has no value (p. 205). Hence, Mischler (1857) broached the question of the social aspects of goods well before Menger’s (1923) investigation of the defining features of social needs and economic goods embedded in social relations, which appeared in the first chapter of the second edition of the Principles (see Becchio 2014).

Following Hermann, Mischler distinguished between internal and external goods (1857: 7). Internal goods include virtue as well as knowledge that is the product of thought and reflection. On the other hand, external goods are those things in the external world that we use to satisfy our wants (p. 7). He also distinguished free goods and economic goods as did Hermann before him. Benevolence, affection and trust are free goods (p. 8). “Everything that has exchange value, and to the extent that they have it, is an object of economy” (Mischler, 1857: 9). Again in line with Hermann, he included intangible and immaterial goods, such as personal services and relationships (especially goodwill), in his definition of goods (p.9).

19 In the second edition, Menger (1923) further emphasizes the subjective character of the wants-goods nexus and the subjective purposiveness of want-satisfying activity by switching terminology and referring instead to the teleological relationship between a need and a good.


Mischler distinguished between real and imaginary wants (wirkliche und einge- bildete Bedürfnisse) (pp. 168–169).20 Real wants are either innate (“naturally nec- essary”) or acquired (“artificially necessary”). Imaginary wants are those whose unfulfillment results only in a lessening of pleasant sensations or feelings. Objects of imaginary wants include jewelry, decoration of all kinds, fragrances, and works of fine art, as well as those things that are connected to feelings of piety, remembrance and religious worship (p. 169). Over time, more and more imaginary wants take their place next to real wants (p. 180).

Mischler (1857: 194) provided embryonic ideas on the orders of goods and the causal connections among goods. His tripartite classification of goods focuses upon the purposes of their use and arranges goods according to their proximity to final consumption and the satisfaction of wants. The first class of goods can be used as a basis for the production of other goods, the second for the acquisition of already available goods through exchange, and the third are used to directly and immediately satisfy consumer wants.

Wants are not constant, they are always changing and developing, in terms of their number, kind and urgency (Mischler, 1857: 165). They are intimately connected to human progress and human development (p.165). Even the most basic and regular of needs, the need for food, progresses with increasing economic development, and changes with age, gender, level of education, climate and social custom (p. 178). The more we develop our skills and faculties, the more numerous and more urgent our physical, moral and intellectual wants become (p. 167). Just as there is no limit to the development of human talents, so too our wants never stand still and are “infinitely increasing” (p.181). Mischler (1857: 166) speaks of this “immeasurable expand- ability of needs and wants” (“diese unmeßbare Dehnbarkeit der Bedürfnisse” (p.

166)): “the development of wants has no limit, while at the same time its source, desire, is immeasurable.“21 The growth of wants outstrips that of goods (p. 181).

Mischler (1857: § 63, pp. 178–182) speculated about the role of habituation in the ongoing expansion of wants, and suggested that the constant satisfaction of the same need with the same line of goods produces aversion and even dissatisfaction, which explains why people like to try out different types and varieties of goods. In contem- porary language, we can interpret Mischler’s insight as a recognition of endogenous change in the wants-goods relationship brought about by learning by doing: agents try out and consume goods and then reshuffle or discard them on the basis of their

20 Mischler’s distinction between real and imaginary wants has some parallels with Rau’s (1863: 435) distinction between true wants and extravagant wants (for articles of luxury). Note that Menger’s (1871:

4; 1976: 53) distinction between true and imaginary goods does not correspond to Mischler’s use of these terms. For Menger, imaginary wants are wants that do not really exist and imaginary goods are goods that do not in fact have the required properties that people attribute to them for satisfying their needs. In addition, whereas for Mischler imaginary wants (in his sense of the term) can be expected to increase over time, for Menger imaginary wants (in his sense of the term) will disappear over time with the growth of human knowledge and the development of civilization.

21 Menger (1976: 82) too recognized the “capacity of human needs and wants to grow” (“die Entwick- lungsfähigkeit der menschlichen Bedürfnisse” (1871: 3)) and he may possibly be alluding to Mischler when he writes that from time to time it is claimed that wants are capable of infinite growth (Menger, 1871: 38; 1976: 82).


interpretation of past consumption experiences and their expectations about future patterns of want-satisfaction.

Stein, Lorenz von (1815–1890) He was a German economist and a senior col- league of Menger at the University of Vienna, who held the chair in economic policy, and it was he who ended up evaluating Menger’s habilitation thesis (i.e. the Prin- ciples). Although Streissler pays almost no attention to Stein, Stein seems to be the most process-oriented economist amongst Menger’s predecessors and his analysis explicitly recognizes the role of time. Stein’s work fleshes out the first extended onto- logical treatment of goods in the history of economic thought. It offers a process- based conception of economic goods, in which active agents drive the motion of organic consumption and production processes. Stein regards wants as the starting point of the whole realm of goods (Stein, 1858: 28); they are “organic elements”

(“organische Momente”) (p. 30) in the lifecycle of goods. Wants and goods are pro- cessually integrated from the start, and goods are embedded in human activities.

Wants are the expression of personal purpose in our physical and mental sensibili- ties (p. 28). Needs are physical or mental, natural or free (pp. 28–29). The relation- ship of mental and physical needs is not one of external juxtaposition, but one of dynamic (“lebendig”) connection, in which the mental always strives to dominate and control the physical. So-called “natural needs” are such that the same means of wants-satisfaction still afford constant pleasure, while “free needs” are those which require change in the means of wants-satisfaction (and corresponding changes in production to create these means) because repetition in satisfying these needs by the same means finally leads to dissatisfaction. Stein acknowledges reciprocity (mutual influence) between needs and production, and considers that social progress resides in the two-way interaction between its intellectual development (namely, the advance of art and science) and its material development (i.e. the increasing quantity and vari- ety in the physical means for satisfying natural needs) (p. 29). According to Stein, economic and social progress arises from the dynamic expansion of wants and the increase in the range of consumable goods available to people in a society, an outlook that may have influenced Menger’s views (1871: 26–29; 1976: 71–74) on the causes of economic development.

Following other German economists, Stein suggests that the economic theory of goods should begin with conceptual analysis. Several aspects of Stein’s conception of a good strike us as very combinatorial and process-oriented, and therefore remark- ably modern. He says that the concept of a good in economic science consists in “the representation of its individual elements and their recombination into a living whole”

(1858: 18). A real good is “the unity of these elements combined into an external whole” (p. 18), it is “the living unity of all of its elements” (pp.34–35). He stresses that a good is a continuous process: a good in general is not “a simple and station- ary idea, but a living and continual process,” in which all its individual elements

“continually, mutually, and simultaneously engender and depend upon one another”

(Stein, 1858: 34 − 5). The elements making up the goods-concept are engaged in a

“lively interaction” (“Wechselwirkung”) (p. 18). There is no first and last element;

rather they all come into being at the same time, as soon as the idea of the good is formed (pp. 34–35).


What is less clear from reading Stein (1858) is the nature of the elements that make up a good. He writes that the elements of the goods-formation process can be organized into the three categories of “production, consumption and reproduction”

(p.18).22 Production is the act by which human energies shift natural elements from their original context into the human realm of goods (p. 12). Consumption is the act by which natural forces convert the human-made good back into a natural thing (p.

12). Each act of consumption contains within itself an element of new production (p.

32). Reproduction is the act which creates new goods from the material remains of past cycles of production and consumption – it applies the “surplus” materials left over from satisfying previous wants to the satisfaction of new wants, including new kinds of wants (p. 33). All of these elements of a good are purely economic processes rather than entities. Different goods contain different degrees of each of these ele- ments. Stein also noted that if one of the process-elements disappears from the mix, the object in question ceases to be a good: “the good stops being a good as soon as it loses one of these elements” (1858: 34–35), a point that was later taken up by Menger (1871: 3; 1976: 52–53). When an object loses goods-character, the object in question remains as “mere matter” (pp.34–35) that can be used for the formation of another good. To put it in modern terms, Stein recognizes that the formation of an economic good is an emergent process and that every good depends on the composition and structure of the elements that form it. Goods have a lifecycle—they come into being and go out of existence, but the cycle is not one of continual repetition but rather an extended sequence that generates new wants and new means to satisfy them (p. 33).

Stein (1858: 18–19) claimed that the slow evolution of the economic concept of a good in the history of German economic thought is a testament to how difficult it is to distill fundamental organic ideas from our observations of complex real-world phe- nomena. He maintained that the German word for “a good” (“das Gut”) could not be precisely translated into English or French, and for that reason the concept was miss- ing from the work of the French physiocrats and the British classical economists.23 He finds previous conceptions of goods in German economic theory inadequate because they have not broken it down into its constitutive elements. Although he commends Hufeland for being the first to give a separate conceptual treatment of the nature of goods, he still criticizes his teleological definition of a good as inadequate;

to define a good as “every means to a purpose of a person” is too static. Stein chooses to focus on the process-aspects of a good’s relationship to human ends. For an object to be a good, it is not enough that it stand in a relationship to a person’s ends. In other words, it is not enough that it be a potential means to wants-satisfaction. For

22 Here Stein is departing from his earlier publication, System der Staatswissenschaft (Stein, 1852: 169), where he wrote that real goods arise from six constitutive elements: matter, labor, production, need, useful- ness, and true consumability.

23 Indeed, from Smith to Ricardo, the term “commodity” (and not “goods”) was used to refer to things produced and exchanged in a market economy. Marshall (1920: 54) noted the lack of a short term in com- mon use in the English language to denote “all desirable things, or things that satisfy human wants” and proposed using the word “goods” for this purpose. Hence, the use of the term “goods” in the technical jar- gon of British economics appears to be an innovation of Marshall, who drew upon his reading of German economics: “The appearance of the term goods in the formal literature of economics is inextricably linked with the rise of neoclassical theory of exchange and demand” (Milgate, 2008: 708).


an object to actually be a good, it must actually be used for some human purpose. It is the process by which the means fulfills this purpose that is decisive (Stein, 1858:

18). Similarly, he criticizes the general characterization of goods put forward by other German economists which describe them as “anything that is suitable for the satisfac- tion of human needs and wants”. This “suitability”, he argues, already subsumes the ideas of “purpose, labor, and consumption”. “Suitability” only exists when human purposes can really be served and fulfilled. For an object to really be a good, it must actually be used and consumed.

Schäffle, Albert (1831–1903) He was a German professor of economics at the University of Vienna, and the immediate predecessor to occupy the chair Menger later held. In his epic history of German economic thought, Roscher (1924: 1042) described him as “certainly by far one of the most important economists of our time.”

Schäffle (1861) emphasized the role of active human subjects in economic phenom- ena, placing their role higher than that of goods, and in particular called attention to human action directed at want-satisfaction (Kirzner, 1960: 42, 44). Along with Her- mann, he was a major subjectivist German economist, who emphasized the subjec- tive character of the concept of value and the power of the human mind in the sphere of goods. Schäffle recognized the interconnections among external goods brought about by subjective valuation: “the things that are interlinked in the economic world are thus dependent in their fate on the significance which the subject engaged in eco- nomic activity assigns to them” (1862: 11; 2014: 338). These relationships among goods exist in human consciousness (Schäffle, 1867: 52): “Value … is the significance a good possesses by dint of its usefulness to the economic individual’s consciousness of economic purpose” (Schäffle, 1862: 10; 2014: 337). Thus, the mind transforms things into goods. While wants are not mentioned explicitly here, Schäffle clearly recognizes that the economic subject’s wants assign significance to interlinked things (goods) in the world; the economic subject creates and structures causal connections between wants and things, thus creating goods. The value of a particular good in the network of goods depends upon the subjective estimations and localized perceptions of a particular person in a particular place at a particular time (1873: 168). Value is subjective, whereas the usefulness of a good is objective – usefulness (utility) is the suitability of a thing for serving a human purpose in general. (Schäffle’s concept of usefulness corresponds loosely to Rau’s concept of the “species value” of a good.) It is noteworthy that Menger’s (1871: 84; 1976: 119) definition of utility is almost identical to Schäffle’s (1862: 10) definition of usefulness, and Menger too considered utility (in his sense of the term) to be an objective concept.

Schäffle recognized the tight coupling between purposes (wants) and goods (means) in the mind of the economic agent: when an economic agent assigns a human purpose to an external object, that purpose becomes an economic want, and the external object is elevated to an economic good (i.e. to a means serving a human purpose) (Schäffle, 1862: 10; 2014: 337). Schäffle provides a rich taxonomy of wants that almost perfectly mirrors Hermann’s (1870: 80–90): wants are classified as real (physical) and ideal (intellectual-spiritual), necessary (absolute) and dispensable (relative), changeable and invariant (constant, steady), continuous and intermittent, long-lasting and temporary, negative and positive, urgent and exclusive, general and particular, private and collective, and they are also classified according to their timing


(past, present and future) (Schäffle, 1873: § 55, pp. 103–106). Schäffle (1862, 1867) excluded things which satisfy only irrational or immoral wants (i.e. not true wants) from the domain of real goods.

In the widest sense of the term, a good is anything that is beneficial for a person in his or her natural and moral life (Schäffle, 1873: 66). Economic goods are external things that are elevated to the status of means dedicated to human purposes (Schäffle, 1862: 10). Schäffle provides an example to illustrate the preconditions for an “exter- nal substrate” (“aüsseres Substrat” 1862: 10) to have value and be promoted to an economic good: “A slice of bread possesses its particular significance (value) …, on the one hand, through an absolute existing need of the sensate individual, and on the other, through the naturally existing nutritive power of the thing ‘bread’; and thirdly, through the act by which need and satisfaction have to be mediated” (Schäffle, 1862:

12; 2014: 339). This act is conscious, mental, subjective and an expression of free will. Human consciousness brings value and economic goods into existence even if the object of our valuation had a prior physical existence. (Note it is the economic consciousness of the acting agent engaged in producing, exchanging and consuming activities.) The mediation of needs and satisfaction presupposes the acting subject’s rational consciousness of purpose in economic affairs (“das ökonomische Zweck- bewusstsein”) and their powers of economic calculation (“wirtschaftliche Berech- nung des Menschen”) (Schäffle, 1862: 10; 1867: 51; 2014: 337). To economize is to become aware of an economic good and to create value (1862: 10). This conscious- ness is directed at the all-round fulfillment of morally rational purposes of life (1862:

7; 2014: 335). Schäffle adopted Hermann’s terminology of goods (e.g. the distinc- tions between goods that are internal and external, free and economic) and included material goods, personal services, relationships and symbols, such as trademarks, among economic goods (1873: 70, 143–144). Individuals acquire, assimilate and consume external goods for the formation and growth of their inner goods (their per- sonal qualities and talents) (1873: § 5, § 43, § 161). Indeed, inner goods are described as the “fruits of consumption” of other goods (§ 81, p.146).

The third edition of Schäffle’s (1873) textbook is full of process-related ideas but contains little by way of process-analysis as such. Schäffle highlights mental pro- cesses involved in ascertaining value (§ 93–94), economic processes of consumption (§ 5, § 340) and the inner psychological and physiological processes involved in the acquisition of internal goods (i.e. skills and human capital) (§ 80). In addition, there are references to processes of other kinds, both biological and social: the general process of all organic life ((§ 7); the process of economic life underpinning civilized modes of behaviour in human society (§ 239); income processes and social processes in the formation of wealth (§ 282, § 285, § 316, (§ 320, § 326); cultural processes (§ 321); the main stages of the economic process in human society and its results (Vol. II, Book 3, § 186ff, (§ 346ff); processes of production and their technical and economic organization (§ 243–246, § 282); and processes of exchange, and processes of renewal and reproduction (§ 4, § 12, § 249).


3 Taking stock

The upshot of our brief review of German economic thought in the nineteenth cen- tury is that Menger was not a revolutionary scholar upending the German brand of subjective-value economics. He was “no maverick,” to use Streissler’s (1990: 44) turn of phrase, but nor did he engage in blind ancestor-worship. Menger saw himself as “a perfecter of received German doctrine” (Streissler, 2001: 327), and he “was not self-consciously aware … of being a revolutionary” (Blaug, 1972: 275). He did not start from scratch; he built upon the work of his German predecessors, while at the same time subjecting their ideas to careful examination and severe criticism. As we have seen, Menger’s analysis of the wants-goods nexus in particular was heav- ily indebted to the German mode of handling wants and goods. In his preface to the Principles, he himself acknowledges its intellectual provenance when he states that his own ideas derive from and build upon new developments in German econom- ics: “the reform of the most important principles of our science here attempted is … built upon a foundation laid by previous work that was produced almost entirely by the industry of German scholars” (Menger 1976: 49). In addition, his book contains numerous citations to German subjective-value theorists, now mostly relegated to the various appendices in the English-language edition. To describe their insights as just

“hints,” as Schumpeter (1952: 86–87) does, is to belittle the contribution of the Ger- man subjective-value economists to Menger’s theory of wants and goods. Schum- peter even goes so far as to claim that “Menger was nobody’s pupil” (1952: 86), that he had no forerunners apart from Gossen and that Menger and his first generation of followers emerged “as if out of another world—unexplained and uncaused” (1915:

9), thereby stoking the myth that Menger’s ideas emerged full-blown independently of the German economics of his day.

Table 1 summarizes the results of our review of Menger’s predecessors and the insights that they contributed to a dynamic, subjective conception of wants and goods and their interplay.

By way of an overview, in developing his theory of wants and goods, Menger inherited the following ideas from the German subjective-value tradition:

1. A deep-seated concern for abstract conceptual analysis and the proper charac- terization of economic phenomena. Economic theory-building proceeds in the following sequence in a bottom-up manner, starting with an analysis of goods, then wants, then value, then the economy.

2. Subjective character of wants and goods (and other economic phenomena): the dependence of economic phenomena upon the minds of human actors and the ideas and knowledge that they possess. The knowledge of agents plays a cru- cial role in goods formation. Needs or wants are a teleological concept in that they always presuppose consciousness of some human end or purpose (Fitzger- ald, 1977: 204). This teleological approach portrays goods as means to human ends: the things that become goods do so through the mental images of their suitability as means to human purposes, which an active, choosing individual seeks to achieve (Hufeland). This approach leads to a very broad definition of goods that encompasses anything recognized as practically useful (as a means)


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