Carl Menger Explains the Nature of Goods
With the publication of his Principles of Economics in 1871, Carl Menger (1840–1921) laid the groundwork for the Austrian school. His contribution is famous beyond Austrian economics, because it was one of the fundamental works of the subjective value theory and of marginal analysis. Yet the content of Menger’s book goes much further. It has lost none of its appeal, as it is still one of the best books to learn how the market economy works. The present article is the first in a series that covers Menger’s seminal contribution. Following the German original closely, the following text provides interpretations and newly translated quotes that make the work accessible to the modern reader. The first installment of the series treats the concept of “goods.”
What Is a “Good”?
The totality of goods falls into two categories: material goods (including natural forces, insofar as they are goods) and useful human actions (or omissions), the most important of which is labor. In order to qualify as a good, a thing under consideration must be able to satisfy a human need but also be available and the connection between the properties of this thing and the satisfaction of human needs must be known. “Good” in this sense also includes useful actions and omissions. To qualify as a “good,” things and actions must relate to human beings. “The quality of a good is not something that adheres to the goods, it is not their property, but only presents itself to us as a relationship in which certain things are for humans, and with the disappearance from this relationship, things cease to be goods” (p. 3n).
Yet this relationship is not free of errors. In fact, a peculiar relationship can be observed where things that have no causal connection with the satisfaction of human needs are treated as goods. “This result occurs when properties, and therefore effects, are mistakenly assigned to things that don’t really belong to them, or human needs are mistakenly assumed and are not really there” (p. 4).
Menger calls those goods “imaginary goods” that are causal by valuation, but not in reality. These are things, which derive their quality as a good only from their imagined properties, or from people’s imagined needs. Examples of this are drugs that do not cure existing diseases and drugs for diseases that do not exist.
In any case, it is our judgment or rather opinion that establishes the quality of a good in a thing.
First- and Second-Order Goods
Menger defines as “first-order goods” those goods that can immediately satisfy our desires. These are goods which are capable of increasing our well-being and whose properties have a known causality with our well-being.
Article from Mises Wire