Carl Menger Develops Economic Thought

During his years, from 1873 to 1903, as a professor of economics at the University of Vienna, Carl Menger developed both the ‘marginal utility theory’ and the ‘subjective theory of value.’

What are these concepts, and how do they affect our daily economic activities and experiences?

The ‘subjective theory of value’ tells us that it is in the mind of the individual buyer that a relative value is established for anything that might be purchased. If one person really likes coffee, he’ll be willing to pay more for it than a person who doesn’t care that much for the coffee.

This shows that the ‘value’ of the coffee is not located in the coffee, but rather in the mind. It’s the same coffee, but one person might be willing to pay $1 for it, while another person is willing to pay $2 for it.

The ‘value’ is also not determined by relative scarcity or abundance. Two goods which are equally rare, or equally common, may yet fetch two different prices.

The ‘marginal utility theory’ tells us that the amount of practical use or please we obtain from each unit of a good varies. If I’m a student getting ready for a new academic year, the first pencil I buy is probably of great value to me: the second pencil less so. I might buy a package of ten pencils, but I probably won’t buy a package of 1,000 pencils. Why?

The difference between the first pencil and the second pencil is that the second pencil has less value to me, but only slightly less. The second pencil still adds significantly to my perceived utility, so I buy it.

At some point the value of an additional pencil is very small. The difference between having one pencil or having two is significant. The difference between having 999 pencils or having 1,000 pencils is not significant.

Carl Menger developed these ideas within the history of economics. As the Encyclopedia Britannica notes,

Goods are valuable because they serve various uses whose importance differs. Menger used this insight to resolve the diamond-water paradox that Adam Smith posed but never solved.

The ‘diamond-water paradox’ refers to the fact that, although water is necessary to life and diamonds are not, we usually pay much more for diamonds. But a man dying of thirst in the desert will reverse the relative prices, and pay more for a glass of water than for a diamond.

The notion of marginal utility applies not only to goods, but also to labor:

Menger also used it to refute the view, popularized by David Ricardo and Karl Marx, that the value of goods derives from the value of labour used to produce them. Menger proved just the opposite: that the value of labour derives from the value of the goods it produces, which is why, for example, the best professional basketball players or most popular actors are paid so much.

Before Menger, much of ‘classical’ economics focused on impersonal concepts such as aggregate supply and aggregate demand, relative scarcity and relative abundance, and the cost of labor and material required to produce a given good.

The work of Carl Menger supersedes the thought of Ricardo, Marx, and even Adam Smith, first because it offers an insight into the ‘diamond-water paradox,’ but also because, as Joseph Salerno writes, it transforms economic thought by introducing, and focusing upon, the psychology of the individual buyer or seller.

This brings us to the question of value which so vexed, and ultimately defeated, the Classical economists. Because they were tragically unable to grasp that specific quantities and not entire classes of goods were the object of human action, the Classical economists dropped ‘use value’ from their analysis. But Menger, with his unblinking focus on individual action, easily recognized the profound significance of the concept of the marginal unit - the quantity of a good relevant to choice - for the whole of economic theory.

Marginal utility theory also explains how and why marginal price changes: usually downward - after paying for one slice of cake, I’m full and I’m likely to offer a lower price for the second or third slice. It is important to note cases in which the marginal price goes up: I’m likely to offer a higher price for 32 chess figures than for 31 of them. I’m likely to offer a much higher price for 52 playing cards than for 51 of them.

Carl Menger’s economic writings have played a major role in the twentieth and twenty-first centuries.

The Berlin Conference: Avoiding War in Africa

In the late 1800s, various European nations were eager to explore Africa. To prevent these expeditions from getting out of control, a major international gathering was held in Berlin.

Many different countries sent representatives to this meeting. They made agreements so that the competition between the European nations remained moderate.

This ended the fear that rivalry between different groups of European settlers could turn into war. (Four centuries earlier, in 1494, an agreement between Spain and Portugal prevented war in South America, where both of those nations had settlers.)

Beyond preventing war, the Berlin Conference help establish some other regulations for Africa. The treaty which contained these agreements was called the “General Act” of the Berlin Conference. As historian Andrew Zimmerman writes,

The General Act guaranteed a free flow of commerce along the African coast and in the Congo and Niger Rivers and their tributaries. The signatories also vowed to fight slavery in Africa; “watch over the preservation of the native tribes, and to care for the improvement of the conditions of their moral and material well-being”; guarantee “freedom of conscience and religious toleration” for foreigners and Africans alike; and protect “Christian missionaries, scientists and explorers.”

While the treaty avoided a war between the European nations, and ensured the welfare of the Africans, it created tensions with the Ottoman Empire. Egypt and the Sudan, along with other regions of northern and eastern Africa, were still part of the Ottoman Empire.

The Ottomans operated a thriving slave trade in the late 1800s and early 1900s. Although slavery had been eliminated in Europe and North America, it still existed in many areas in the Middle East.

The slave traders from the Ottoman Empire were concerned that the Europeans in Africa would prevent them from capturing Africans and sending them to be sold in the slave markets of Istanbul or Arabia. This led to frictions between Ottoman representatives and European governments.

The Berlin Conference: Fighting Slavery

What was the net effect of European colonization in Africa? Was this activity merely the expression of greed for power and greed for materials? That is the story often presented. Is there another side to this narrative?

The documentation of the Berlin Conference, at which the various European powers organized territory in Africa, offers a glimpse into a different set of motives.

The agreements made in Berlin committed the Europeans to reducing and eventually eliminating slavery and the slave trade in Africa. Although slavery had ended in the United States in 1863, it continued in Brazil until 1888, and in the Ottoman Empire, slaves were publicly bought and sold until 1908.

At the time of the Berlin Conference, then, slavery was still a very real problem in the world. As historian Andrew Zimmerman writes,

The European partition of Africa, given formal sanction at the Berlin West Africa Conference of 1884-1885, is often treated as an expression of exuberant nationalism in which each nation, vying for what Germans would come to call a “place in the sun,” sought to outdo the others in sticking their flags in far-flung territories. In fact, it was an expression of exuberant humanitarianism, guaranteed by such state power as the signatories of the General Act of the Berlin Conference were willing to provide.

Not only did the Berlin Conference seek to end slavery and the slave trade in Africa, it worked also to promote religious freedom, and to preserve the native cultures of the tribes in its territories.

This led to increased tension and conflict with Muslim lands, because Saudi Arabia and Qatar were still importing African slaves well into the twentieth century. Saudi Arabia, along with Yemen, didn’t formally make slavery illegal until 1962. In Qatar, slavery is still legal, as recently as 2017.

After the Berlin Conference, in the early 1890s, caravans of slaves were still transported through Ethiopia on their way to the Ottoman Empire. Eventually, the signatories to the Berlin Conference were able to largely reduce, but not entirely eliminate, slavery and the slave trade in Africa.

Britain’s Bronze Age: Massive Non-Anthropogenic Climate Change

Traditional textbooks explain that the Neolithic Age was followed by the Bronze Age, which in turn was succeeded by the Iron Age. Because, however, these phases of technological development emerged at substantially different times in various places, it was possible that Neolithic societies, Bronze Age societies, and Iron Age societies lived simultaneously, albeit in separate locations.

This situation prevents simple definitions of these three ages as beginning, even approximately, at some stated time, or ending at some stated time. In some locations, the Bronze Age was ending at the same time that it was beginning in other places. As historian Jason Urbanus writes,

Some 3,000 years ago, throughout Britain, broad changes in settlement patterns, society, and technology were slowly bringing an end to what archeologists call the British Bronze Age (2500 - 800 B.C.). In the coming centuries, the Iron Age would emerge.

Greece and China, among others, had already ended their Bronze Ages at the time when Britain was beginning its Bronze Age. But other types of change were happening in England contemporaneously with that region’s Bronze Age: climate change.

Paleontologists, archeologists, and historians document several massive non-anthropogenic climate swings throughout history. A “Roman Warm Period” (250 B.C. to 400 A.D.) and a “Medieval Warm Period” (950 A.D. to 1250 A.D.) represent temperature outliers much warmer than those observed at the end of the twentieth century or the beginning of the twenty-first century.

Likewise, a “Dark Ages Cold Period” (450 A.D. to 950 A.D.) and a “Little Ice Age” (1300 A.D. to 1870 A.D.) were the greatest global coolings recorded during historical times (as opposed to the even colder Ice Ages of prehistoric times). As its Bronze Age was ending, Britain experienced another climate change.

The key feature of these historic climate trends was that they were both massive and non-anthropogenic.

But in the wetlands of East Anglia, referred to as the Fenland, a transformation of another sort, both more conspicuous and tangible, was taking place. Climate change was gradually causing water levels to rise, and, as marshland increased, vital dry land became scarcer. The solution for one small settlement was to build its homes on pylons directly above the water.

The hypothesis that these “stilt houses” were built to maximize arable land is questionable. Many early societies built houses on pylons over water, swamps, or other types of land.

In most cases, the purpose for the stilts was not to preserve agricultural land. Often, it was to escape flooding, or to protect the houses from rodent infestation.

The Zhou Dynasty Emerges

Chinese history usually begins with the Xia dynasty as the first royal family. This dynasty ruled approximately from 2070 B.C. to 1600 B.C., but texts and archeology are scant, giving little concrete information.

The sixteenth emperor in the Xia lineage seems to have married a queen who treated the people cruelly. Zi Lu, who was known as ‘Tang’ and who founded the Shang dynasty, overthrew this sixteenth and last Xia emperor.

The Shang era lasted from around 1500 B.C. to 1045 B.C. and ended when the Shang were overthrown. One possible hypotheses concerning this dethroning was that the Shang had grown complacent, depending upon the services of smaller allied kingdoms in matters of defense.

If this hypothesis is true, a reasonable comparison could be made to the way in which the Carolingians supplanted the Merovingians. As one history book explains:

Outside the Shang domains were the domains of allied and rival polities. To the west were the fierce Qiang, who probably spoke an early form of Tibetan. Between the Shang capital and the Qiang was a frontier state called Zhou, which shared most of the material culture of the Shang.

The date of 1045 B.C. or 1046 B.C. for the establishment of the Zhou as successors to the Shang is relatively precise, unlike the somewhat more generalized dates for earlier events among China’s imperial dynasties.

Once established, the earlier phase of Zhou history is referred to as the ‘Western Zhou’ due to the location of the imperial capital:

This state rose against the Shang and defeated it. The first part of the Zhou Dynasty is called the Western Zhou period.

The ‘Western Zhou’ phase lasted from 1045 B.C. to 771 B.C., when the capital was relocated. A new capital was established in the East after a Zhou king was assassinated.

Its capital was in the west near modern Xi’an in Shaanxi province (to distinguish it from the Eastern Zhou, after the capital was moved to near modern Luoyang in Henan province.)

While the ‘Eastern Zhou’ manifested increased literacy and cultural advancements, it never attained the military and political strength which the Western Zhou had.

What gave the Western Zhou empire its brawn? One hypothesis is its internal political structure; a competing hypothesis points to its being closer in time to its founding as a tenacious frontier monarchy.

At the center of the Western Zhou political structure was the Zhou king, who was simultaneously ritual head of the royal lineage and supreme lord of the nobility. Rather than attempt to rule all of their territories directly, the early Zhou rulers sent out relatives and trusted subordinates to establish walled garrisons in the conquered territories, creating a decentralized, quasi-feudal system. The king’s authority was maintained by rituals of ancestor worship and court visits.

Perhaps as the decades and centuries went by, the Zhou monarchs forgot their rough origins and the doggedness which came from them. One incident, around 806 B.C., illustrates how political systems worked:

A younger son of King You was made a duke and sent east to establish the state of Zheng in a swampy area that needed to be drained. This duke and his successors nevertheless spent much of their time at the Zhou court, serving as high ministers.

This would have been a mere thirty or forty years prior to the assassination which ended the Western Zhou period. The duke’s presence at court, instead of out supervising work, may be a telling example of the dynasty’s softening. Again, comparisons to the Merovingian-Carolingian succession are invited.

It is not always clear whether to refer to Zhou monarchs are kings or emperors. In either case, a system of delegating oversight of provinces can be compared to Rome’s imperial system.

The texts above are quoted from Pre-Modern East Asia: to 1800 (A Cultural, Social, and Political History), written by Patricia Ebrey, Anne Walthall, and James Palais.

Canada Fails to Confront

In July 2012, Brian Lilley, reporting for the Toronto Sun, brought to Canada’s attention the fact that an internal document, produced for the Royal Canadian Mounted Police (RCMP), failed to take seriously Islam’s threats to peace, safety, and security.

The early months of 2011 were filled with news of the ‘Arab Spring,’ a brief and ill-fated movement toward the establishment of constitutional republics in several Muslim majority states in the mid-East and in northern Africa.

Although idealistic, the movement failed, and in the end, succeeded in merely replacing cruel secular dictators with cruel Islamic governments. Egypt and Libya now organized their states around words like Qur’an, Jihad, Hadith, and Shari’a.

The political leaders within the RCMP, hoping to appease or mollify activist Muslims in Canada, issued instructions in booklet for RCMP officers dealing with the public. In addition, as Brian Lilley writes, the booklet attempted to affirm the oppressive governments taking root in the Near East:

The document also makes a defense of the Muslim Brotherhood, the Islamist group that now controls much of Egypt. During his campaign for the Egyptian presidency, Mohammed Morsi, a man closely tied to the Brotherhood, told a crowd, “The Qur’an is our constitution. The Prophet Mohammed is our leader. Jihad is our path and death for the sake of Allah is our most lofty aspiration.”

Islamic terror attacks, both in North America and around the world, during the years following the internal publication of this RCMP text reveal that it is somewhat naive.

Soviet Aggression Against Poland

Toward the end of WW2, the brutality of the Soviet Army became more and more visible to the world. Beyond what was militarily necessary to win battles, the Soviet Socialist forces committed war crimes of horrifying cruelty.

Early in the war, prior to mid-1941, the USSR had made at least a few attempts to hide its savagery. When a million Poles were taken to work camps inside the Soviet Union, where they were enslaved, and when an estimated 15,000 to 22,000 Polish officers were murdered in a mass execution in Katyn Forest, Soviet authorities made an effort to prevent the news media from reporting about these events.

Also in 1941, the USSR rounded up and executed Polish labor leaders: an ironic crime, because the Soviet Union presented itself as a worker’s paradise.

By August 1944, the Soviets took little effort to hide their actions. The advancing Soviet Army paused its attack on Warsaw in order to give the Nazis time to finish butchering thousands of Jews in the Warsaw uprising. The Soviet Socialists were entirely complicit in the murdering of these Holocaust victims.

The USSR continued this pattern up to the very end of the war, as historians Stan Evans and Herbert Romerstein write:

A fourth atrocity occurred in the spring of 1945. With the war winding down and the defeat of Hitler certain, sixteen Polish leaders were summoned to Moscow to negotiate postwar arrangements for their country. A promise of safe passage was given, but in the familiar Soviet manner broken, as all sixteen were arrested and imprisoned. Again, the common feature, beyond the usual treachery and deception, was the meaning of such episodes for postwar Poland. By these actions, the Soviets were systematically liquidating Polish leaders who could have resisted the Red takeover of their country.

Joseph Stalin seemed more intent on killing people than on winning the war. Soviet troops spent time and energy murdering and raping civilian populations - efforts which could have been used to defeat the enemy on the battlefield.

By war’s end, millions of Poles were dead at the hands of the USSR. Weakened, Poland was in no position to resist the postwar occupational dictatorship.