On February 23, 1898, Émile Zola was imprisoned in France after writing “J’accuse,” a letter accusing the French government of anti-Semitism and wrongfully imprisoning Captain Alfred Dreyfus.
Fifty-eight years earlier, Austrian economist Carl Menger was born.
Menger would go on to contribute to the development of the theory of marginal utility, which supplanted cost-of-production theories of value in economics, in his first book, translated into English as “Principles of Economics.” Though expert in mathematics (he served as tutor in economics and statistics to Archduke Rudolf von Habsburg, the Crown Prince of Austria not long after the publication of the Principles), his approach to marginal theory was the least mathematical of his famous “co-discovers” of the principle, William Stanley Jevons and Leon Walras. Rooted in a subjective theory of value, it was the most realistic and least model-based of the marginalist revolutionaries, and he was most interested in price formation, not “price determination,” which focused almost exclusively on equilibrium conditions. He developed an evolutionary theory of money, as well.
Menger’s second book was a defense of a particular kind of general theory in social science, and an explanation of the importance of “invisible hand” processes in the social world. The first theme caused a firestorm of debate in the German-speaking world, where “socialists of the chair” and other opponents of laissez faire went ballistic regarding the possibility of permanence of finding laws in the social world that were not of their own constructing. The second theme developed ideas found in Adam Smith, and extended them.
Menger inspired two major followers, Friedrich Freiherr von Wieser and Eugen von Böhm-Bawerk. The former named “marginal utility” and developed the first rigorous view of cost as opportunities foregone; the second advanced a time-preference theory of interest and theory of the structure of production. Later followers of this “Austrian School” included Ludwig von Mises and F.A. Hayek.