Carl Menger’s Economics

I have studied economics for eight years, through school and college; it was one among many, and not a particularly interesting one. I actually hated it because it was either so abstract as to be utterly useless and had nothing to do with practical life, or it served as a propaganda device for the government to proclaim how central planning benefited India, and how capitalism was bad, and mixed economy was good, or it simply served up page after page of mind numbing statistics on everything from food grain production to the acreage of arable farm land. Over the years, classical economists made an appearance – I remember Ricardo, and Marshall, and Malthus – only the names, though; then aggregate demand and supply, and curves that made no sense at all. Then polemic mixed with models – on monopoly, cartels, oligopoly without mentioning what part government played in creating monopolies. Economics then split into three-four separate subjects, and none of them had one good word to say about capitalism. They always dealt with preconceived notions about money, and banks, and businesses, and entrepreneurs, and markets. I could probably go on a bit further; thankfully, however, I barely remember anything of the “economics” that I was taught. Somehow I managed to erase all of it, concentrating instead on the couple of subjects I did love. Its been a long time, and I managed to develop my own understanding of how things worked in the real world, particularly through the business newspapers that I have been reading for the past so many years. But if the sub prime crisis of 2007 had not happened, I probably would not have become so interested in the basics of the subject. It was during this that I discovered the Austrians, early 2008, and their approach to economics was refreshing to say the least.

Carl Menger was the founder of the school, and the book that started it all is his “Principles of Economics”; it was published in 1871, when he was 31. And this is the book you should probably read first if you want to understand economics. George Reisman’s “Capitalism: A Treatise on Economics” is there too, but that book is three times the size of Menger’s. What separates the Austrians from the other schools of economic thought is their:

  • theory of the business cycle – why booms and busts happen.
  • theory of money and credit.
  • tendency to stay away from abstract mathematical models.
  • belief in the law of causality.
  • subjective theory of value, and hence the adoption of marginal utility analysis and measurements in terms of ordinals.

Most of my knowledge of their views comes from third party commentaries and monographs that can be read at a single sitting rather than books by Mises and Co. Reading – understanding – their texts, or any text for that matter, requires a commitment in terms of time, and so is not something that one can attempt to accomplish in a month or three or six. Hopefully, in a few years time, I will have a better understanding of their ideas compared to the position I find myself in at present.

Menger is the place to start however. The first sentence of the book – “All things are subject to the law of cause and effect,” is not something that I read in any book on economics I have laid my hands on. I never thought someone would dare to write that, particularly in the first line of a tome on economics. No wonder he started a whole new school of economic thought.

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Comments

  • chandra  On February 18, 2009 at 5:35 pm

    Thanks good post but yes your story goes closely with my own experience also, in fact it is true that the whole moral of teaching in Indian school of economics become “ither so abstract as to be utterly useless and had nothing to do with practical life”

  • Aristotle The Geek  On February 18, 2009 at 9:25 pm

    That is true not just for economics, but for most other subjects. Barring very few exceptions, the Indian education system is geared towards producing illiterate graduates. If most of them didn’t take initiative and learn outside the formal education system, through apprenticeships, traineeships or doing stuff on their own, the situation would have been far worse. To hell with Nehru and his socialism; the man has managed to destroy millions of lives.

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