Friday, January 30, 2009

Menger on Goods

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 1.

Previously in this series: Menger's Axioms

According to Menger, a good is a thing which can lead to the satisfaction of a need of a human, which is recognized as such by the desiring human, and which the desiring human is capable of utilizing. As Menger wrote:

If a thing is to become a good, or in other words, if it is to acquire goods-character, all four of the following prerequisites must be simultaneously present:

1. A human need.

2. Such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need.

3. Human knowledge of this causal connection.

4. Command of the thing sufficient to direct it to the satisfaction of the need.

This theory is an advance from some previous theories for which a thing's "goods-character" (that which makes the thing a good) is an inherent property of the thing itself, without regard to those who desire, need, or use it. According to Menger, however, a thing's goods-character is based on its relationship with people; if that relationship changes, the thing ceases to be a good. Thus, while the other theories placed "goods-character" in the Aristotelean category of "quality", Menger placed it in the category of "relation". While Menger is typically credited with establishing subjective value theory, his theory of goods is not entirely subjective. For him a thing, to be a good, must be capable of satisfying an objective "need", not a subjective "desire". Thus he terms things like cosmetics and ineffective traditional medicine as "imagined goods." This is dangerous territory, because it leads the economist towards the chimerical goal of scientifically determining what objectively is in the best interests of other people in order to distinguish between "true goods" and "imaginary goods". Such a feat is impossible without omniscience or without imposing the economist's value judgments on others. The only criterion for whether a thing is a good that can actually be discovered is the fact that it is desired, which is evidenced by the choices people make.

Next in this series: Menger on Orders of Goods

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