 This is Jeff Deist and you're listening to the Human Action Podcast. In many ways Carl Manger is the forgotten man of Austrian economics, but without him and his work we wouldn't have the Ludwig von Mises and Friedrich Hayek we know today. In fact, when Manger published his Principles of Economics in 1871, it caused an absolute earthquake of our knowledge of economics at the time. Not only did he give us a whole new theory of value, which we termed the marginal revolution, but he also gave us a new method for economic theorizing that Ludwig von Mises would later build into the science of praxeology. He also gave us an explanation for the origins of money as the most marketable commodity in any economy. Manger is a giant. He's often overlooked, but his Principles of Economics is not only one of the seminal Austrian texts. It's one of the most important economics books ever written and here to explain why Manger matters and how important his work is is our own Dr. Joe Salerno. Dr. Joe Salerno, thank you for joining us this morning. I'm happy to be here, Jeff. Thank you for asking me. Well, I'm just noticing it's just almost a hundred years since Manger died. He was born in 1840 died in 1921 in February, both dates. Yes. And you know in some ways he's almost the forgotten man of the Austrian school. It's strange. Yeah, I agree. Given that he was really the the founder of the Austrian school. Well, we have to first and foremost, I suppose, talk about his book Principles of Economics in the context in which he wrote it and in which he was published. I mean, first of all, this is a remarkable book for his time. He's he's creating a theory of value. He's creating a methodology. He's creating these things out of whole cloth. Yes. He in fact brought to the world something that was new under the sun that is an integrated theory of economics based on subjective value with the principle of marginal utility as one as one of the keys. Well, and there's obviously several editions in English of Manger's Principles written in his original German. A couple of things really strike me. First of all, there was almost 70 years before this book was ever translated in English, which means a lot of British economists labored without its use for many, many decades. And also that it's just so clear as someone who doesn't speak much German whatsoever. I find this book very, very readable in English. It's a very good translation, but also Manger himself was a very, very clear thinker, because if you look at some of his other translated works, they're also very clear. I don't think the next Austrian economist that that was had the same degree of clarity was Mises. They both wrote extremely clearly and their thoughts were just unfolded in a very natural way. So the first English edition, I'm fortunate to have a copy in my possession that belonged to Bettina Graves. Many of you will know her as a longtime bibliographer and assistant to Lydig von Mises. She was an expert in Austrian economics. So I'm able to enjoy her notes in the margins of this book, which has really been fun for me over the weekend. And the first English version has an introduction by Frank Knight, which is not particularly kind to Manger in some ways. Can you talk a little bit about Frank Knight? Yeah, Frank Knight was the leader of the first Chicago school. And he was one of Friedman's teachers. And he disliked intensely the Austrian emphasis on the element of time in economics. And that pervades Manger's book. And so he was in a debate with Hayek and with Maklop and Mises over the notion of time in capital. He didn't believe that it was a useful concept time in capital. So he is really attacking Manger, but in the background, of course, this is all being aimed at Hayek, Mises, and others Austrian capital theorists. Of course, he's writing this 1950 or thereabouts long after Manger's gone. And he is attacking actually openly Mises and Federer. He talks about how the outright time preference theory of interest has been achieved. And he questions whether it's of any use. But he also questions Manger's overall framework. In other words, how does Frank Knight end up writing the introduction of this book at all? I don't know the background of that. I know James Dingwall was the translator, but that's something we should look into. It would be very interesting to find out who requested that Knight write the introduction. It seems like someone wants to sabotage the book. It almost reads that way. It's very strange in that sense. And if you can find an original first English edition of this book, try to do so because you'll get to see Frank Knight's introduction. And maybe we'll PDF it and put it online so that people can just find that. That's a good idea. We also have a paperback of it that the Mises Institute published with an introduction by Friedrich Hayek and a little forward by our own Peter Klein. So talk about Hayek's introduction and talk about a little bit about Manger's influence on both Mises and Hayek. Hayek's introduction to the book points out that the fundamental ideas of the Austrian school were called Manger's and called Manger's alone. And so Hayek was a big fan of Manger as was Mises. They both drew different things from him. They didn't take the same thing, but they both absorbed the basic lessons of price and value theory. So overall, I think not only Hayek and Mises, but also, as I mentioned in a little article I wrote on this, Schumpeter, they all see Manger as the founder. In fact, I think at some point Mises says before the 1880s, when some of Manger's students began to write, there was no Austrian school. There was only Karl Manger who wrote his book in 1871. And Schumpeter actually eulogized him and said he was nobody's pupil, which is a really, I think, an interesting quote. But let's talk about that where he's writing in the Austro-Hungarian Empire in the late 1800s, which is really dominated by the German historical school. And as a matter of fact, they didn't much think economics was a separate field or a separate discipline at all. And they derided him with this term. He's an Austrian meaning he was outside of the parameters of what they thought economics was, which wasn't much. Yeah. They thought Austria was sort of an academic backwater outside of German economics and German thought. And so it was, as you said, a term of derision. But the Austrians then adopted it as a badge of honor. And it still remains so today. The historical school is completely forgotten, including Schmoller, including one of its last members, Zombart, who at the end of his life claim that Hitler got his orders directly from God. So that's what we think of the historical school. So he's writing the book against this backdrop, but he is actually arguing for a holistic economics, that economics has its own universal laws and that it exists independently as a field, apart from sociology or history or psychology or behavior. Yeah. Yeah. And one thing that's absolutely true. He talks about laws of economics. He says that in the first line, all phenomena are subject to the law of cause and effect, including economic phenomena. So it is a real science. So looking at the introduction to the first German edition, the author of the book blurb, anyway, says that this book, Manger's Principles, ought to rank up there with, for example, Adam Smith's Wells Nations, Karl Marx's Das Kapital, anything by Ricardo or Keynes or Marshall. Do you agree? Is this one of the five or 10 most important economics texts of history? Oh, yeah, I put in a top 10 and in the top five. For the Austrians, it may be the most important text. I mean, it did result in the founding of the Austrian School of Economics. So it's an extremely important text. One thing I do want to mention is that Manger was a bibliophile. So he read outside of the German historical school. He knew all the, he knew the Classicals through and through. And he knew also the continental economists, the German subjective value tradition, which had had a long tradition going back to the early 1800s. And he was familiar with all of this. So although he was completely original, in a sense, his work was also a synthesis of the best that had been written in theoretical economics from the time of Adam Smith and before Adam Smith. So even though he is an originator, he's not making this stuff up without context or without being a deeply read guy on the literature of his day. Right. I think this is extremely important. He was deeply read in everything that was written, not just in his day, but before that, and that these thoughts all came together as he was a journalist, actually. And he was looking at markets. So he had all this theoretical knowledge. He had his practical experience as a market analyst for newspapers for a number of years. And he came to the conclusion that what the classical school had said were the determinants of price, the cost of production. That just didn't explain what he was observing on markets. And so he saw that prices could change from day to day from moment to moment. But if you're talking about commodities markets, and he saw that it had to do with subjective value, which he also knew from a theoretical sense, from a theoretical point of view, what was the foundation of action, of price. But as you point out, he wasn't trying to upend the classical school in any way. He was trying to advance it. He was trying to help us understand better where the idea of value and price comes from. Did he consider himself a classical or did he consider himself forging new territory? Two things on that. One, it's a misconception to think that he was a revolutionary in a sense that he wanted to overturn the classical school. He liked their explanation of day to day prices in terms of supply and demand. But they found that because they focused on cost of production, they found that supply and demand on the businessman's decision to buy in the cheapest markets and sell in the dearest markets. Whereas he said, no, no, we want to found this in the human being striving to satisfy his or her wants. So that was an important insight that he had. Well, I noticed there's a couple almost snarky comments by Frank Knight in his introduction about real supply and demand in the real world. Both Mises and Manger get tagged as theorists. But what's interesting to me is there's this parallel where both of them were trained as lawyers. And both of them end up working in government functions, actually dealing with numbers in Vienna or for the Austrian government. So they sort of straddled academia and government and politics and teaching. And so they were very much not these ivory tower theorists in that sense. That's a great point. And that was true of all the Austrian economies. Bon Bavarck was a minister of finance three different times. Visa was it was a minister of finance in the Austrian government. Manger worked as a journalist. They were all in contact with the real world. And that's why in the thinks the preface to the book where Manger says that he's looking to explain real prices, the prices that are found in reality. And Mises always emphasized that about the Austrian school. He said the undying, the Austrian school will have immortal fame because it explained real action and not just the nonaction of equilibrium. So these guys were looking at prices as they were being determined moment to moment. And they came up with a theoretical explanation based on Manger's original insights of these prices. Is part of the reason that these economists wore so many hats is that just the discipline wasn't as developed. Then you might not be able to make a living full time as an academic economist. You had it wasn't seen as as much as a standalone discipline as it is today. Right. It was an avocation to many of these people. It wasn't a professionalized science at that point, though it was a science. And there were very few economics chairs and they were part of the law school. So you wrote an introduction really to his work and to his book that will publish online for people to read. Although I do recommend again part of the reason behind this podcast is we're trying to get people interested in and send them to original sources. As I mentioned earlier, principles of economics in English, a very easy read. We have a cheap paperback available to make it very much worth your while. But in that introduction, you talk a lot about his personal life, how he ended up being a consultant to the Prince of the Austro-Hungarian Empire. Talk a little bit about Manger the Man. Manger became the tutor of the Crown Prince from and traveled through Europe. And it was very interesting when the lectures were finally published back in the 1980s or 1990s, his lectures to the Prince, they were based on on Adam Smith. So he did not believe that that that the classical school was worthless. He was not trying to overthrow the classical school. He thought a lot of the lessons that were drawn from the classical school were useful in everyday life. And he liked the fact that the classical school saw prices as not something random, but as something determined by law. And they also had a preference, an inclination toward laissez-faire policies, which he was very sympathetic with. Now, do you think in part his legacy has been outshined by Mises and Hayek? And perhaps in part because he just didn't write as much. He didn't have as long a career. I mean, we think of principles, but he actually wrote a book on method. He wrote a book attacking the German historical school. He's got more publications than we might recall. Yes, he's written a number of books, two main books, his book on method, as you mentioned, and then there was the small pamphlet attacking the errors of the historical school. And he's got two fabulous articles, one on the fear of capital, a theoretical article that came out in 1888, and then another one on just called Money, Geld, which came out in 1891 and was revised and is now in English and is very, very long. And I think that was published in 1909. And then it's been translated into English. And I highly recommend the article on Money. Now, has he been overshadowed by Hayek and Mises? Well, I don't think he's been overshadowed by them. They're just more recent writers and they've applied a lot of these lessons and, of course, developed the theory that he had first set out. And it's obvious that since they're more recent, the problems they're dealing with are something that people are more interested in. And, of course, academic publishing didn't really exist back then. You wrote books of big theory. You didn't write articles focused on very narrow ideas. That's true. And we might want to point out that this book, this Principles, is really just an introduction. It was supposed to be a three-volume work on economic theory and policy that was to follow. And then that menger never followed up on. He got sidetracked, unfortunately, with this really turned out to be a real sterile debate with the historical school. Of course, he was right and he made some great points against them. But he didn't quite understand praxeology at that point. So his work on methodology, though some Austrians think it's outstanding, is not quite up to the same standard as his work on economic theory on proper. Okay. So the book is published in 1871 and we fast forward to today. Menger is known as one of the godfathers of the marginal revolution. Sort of set the stage for us. What was the classical and neoclassical understanding of value and price at the time? Well, the classical economists, being with Adam Smith and being carried on through Ricardo and John Stuart Mill, they believe that or they analyze goods. In terms of classes, there was iron, there was water, there were diamonds, and these things were of different usefulness to human beings. Water was much more useful than diamonds, diamonds, for ostentatious display, whereas water was absolutely necessary to human life. And they came to a problem. They had a problem. They confronted a problem. And we call that problem the paradox of value. They said to themselves, wait a minute now, even though water is much more useful to humans than diamonds, the fact is that diamonds have a much higher exchange value than water does. That is a higher price on the market. So they split value into two. They said on the one hand, there's use value, which is the usefulness of the good to human beings. And we all know that water is much more useful than diamonds. But on the other hand, there's exchange value price and diamonds have the higher price. Economics only deals, therefore, with exchange value. We take use value for granted. We'll say, yes, anything that has exchange value that is sold on the market is useful to human beings, but we don't analyze it any further than that. When you get to that point and you just focus on price and not on the underlying consumer wants and values that indirectly bring about the price, you then shift your focus to the business decision maker. So prices are determined by the cost of production. There's the cost of various things. And if their explanation was that, look, diamonds cost more to produce. And as a result, their price on the market was higher. If you add in a margin for profit, it's higher than, let's say, the production of bread, even though bread might be more useful, because it costs less to produce, let's say, a pound of bread than it does one cart of diamonds. And that was their explanation. And on a day-to-day basis, their explanation a little bit better. They said, well, yes, supply and demand change from day to day, but in the long run, the price tended toward its cost of production. So they're looking at all these inputs on the producer's side, but it never really dawned on them to say this exchange value versus use value dichotomy is silly. What really happens is humans are subjective and based on circumstances, their wants and needs change. Right. The wants and needs change, the quantities of the goods change, and each want should be looked at individually. It's not a want for iron or it's not a want for water. It's a want for a ton of iron or a want for a quart of water or a half a carat of a diamond. And at any given point in time, there are other wants that are competing with these different ones for different goods and also for the same good, but for different uses within that want. In the instant. Yeah. In the instant. Right. Right. But if we're looking at inputs on the supply side, that starts to sound an awful lot like a cousin to the labor theory of value. We're looking at what went into producing a good or service and that's to understand its value. Yeah. So I mean, there were two sort of cost of production theories of value. One was the pure labor theory of value, which was really Ricardo's. They both the cost of production theory and the labor theory appeared in Adam Smith, but Ricardo focused on the pure labor theory. And that's what Marx picked up. Whereas other class economists focused on the money cost of producing the good. And that was the that formed the long run tendency of the price to settle out about the cost of production. Do you think it's a coincidence that Manger's book appears just a few years after Das Kapital, or do you think it influenced what he wrote? You know, I'm not sure. He doesn't write much about Marx at all. He doesn't mention Marx at all in the principles. And I haven't really seen any academic articles that deal with the influence of Marx on Manger. So I'm kind of. But it's interesting. Today, we just assume everyone's reading everyone. Whereas back then the logistics of knowing what was going on in another part of the world, even in your own field, were not so simple. Yeah, that's true. Right. And Marx hadn't, his, his Das Kapital hadn't come out yet in 1871 yet. He was a pamphleteer. He was a revolutionary. He had written some things in economics, but I think Manger would have ignored him because the historical school was so dominant in German academia at the time. Okay. So that's really the shadow under which he's writing. Yes. At the time. So explain to us in lay terms, what is the marginal revolution? Why is it so important that we also look at the consumer side of things to understand value? So the marginal revolution really is a term that refers to the simultaneous discovery of this, of the principle of marginal utility, which I'll talk about, by three different economists. Manger and the British economist, William Stanley Jevins wrote their works in 1871. Then a few years later, a very highly mathematical work was written by the French Swiss economist, Valras, Leon Valras. All three of them struck upon the idea that in order to understand value, you have to look at the individual units of the goods that are being valued and the concrete wants, the things that they are being valued for, that people wanted water for different uses. They wanted bread for different uses. They wanted the various kinds of other consumer goods. They had numerous uses for these different things. In other words, wants were basically unlimited and they were in different categories, but they were ranked together on one value scale where people would compare and contrast the different goods and how important they were to serving their ends. So what does the marginal revolution mean with respect to more or less of a good? You used an example of bushels of wheat in your Articon Manger and if a farmer has one or two, that he views those differently than if he has 10 or 20. Yeah, so the law of marginal utility basically states that the greater the quantity than anyone possesses of a good, the lower the marginal utility of the good and the lower the value. Now, what that means is this. Margin utility simply means the last satisfaction that can be served from that quantity of a good. So if you have five bushels of wheat and let's say you use the last bushel to feed chickens and some other livestock so that you can get milk and eggs and so on, then that is the value of that bushel. That is the marginal utility. The most important use of a bushel of wheat may be using it just to keep yourself alive for the year, the first bushel of wheat. So if there's five different uses, Manger asks the question and all five of these bushels are identical and they can all serve the same uses. How do you determine their value? Is it the average of the value of the five different uses, some more important than others or is it the value attached to the highest unit? He said, no. He says, think of the following. Think if your barn catches on fire and you need to and you can only say four of those five bushels, what end or what one is not served? And he said, well, the one that satisfies the least important one, that's the margin utility. So if you subtract one unit, then what's given up is the satisfaction you expect to get from the milk and the eggs that you could have had for the year. And so that determines the value of all five bushels, of each of those five bushels, because no matter which one you lose, what you want that you do not satisfy, the satisfaction that you give up is the lowest valued satisfaction that that quantity could serve. And of course, all of this goes to the subjective mindset and also the circumstances of the consumer. So what is it about this that economics had missed up until then by looking at just the costs or the factors that it went into production and not looking at the subjective mindset of the consumer? I think one of the problems was even though many of the economists, especially French and Italian economists and some German economists, they saw that it was really value is rooted in people's subjective wants and how they value different things. But they did not have this principle of margin utility that that that menger hit upon. Okay. And margin utility refers to the relevant unit, the unit you're deciding upon. And that's what was missing, even though some of some of the German economists actually had this notion of margin utility, they never put it together with subjective value and created a whole theory of economics from it, whole theory of price and value as as menger did. But it seems that if we're not careful, it starts to sound a little bit or bleed over a little bit into psychology and behavior. Almost if we're talking about people's subjective mindsets, for example, a heroin user, a junkie, you know, that next game of heroin might be worth just an infinite amount to alleviate the horrific pain and withdrawal, let's say. And so how do we stop from going down that slippery slope into what I don't like, for instance, behavioral economics and psychology? Yeah, well, even though menger and Bonbar had slight there was slight psychological connotations in their discussions of margin utility and subjective value, they pretty much got got rid of most of it. They looked on it as simply when they talked about subjective, they just looked at it on it as a ranking of the different uses of the good. They did not try to measure utility. Menger had, you know, didn't spend any time measuring utility had a number in the numerical index for the wants. It's not clear if it was ordinal or cardinal, if he was just saying first, second, third, fourth, fifth. But for the most part, if you read them sympathetically, they believe that utility or satisfaction was ordinal that you liked one thing better than another, that it was more important for you to to bake bread with that than to make whiskey out of that that bushel wheat, let's say. And they acted accordingly. They never really got into this whole idea that you could measure utility. One of the students of menger visor believe that that you could. But for the most part, the early Austrians avoided that trap. So today, the marginal revolution is widely accepted in so-called mainstream economics. I mean, most people would understand that as you have more of something, each additional unit is worth less. Are people still challenging this idea? Well, no, they accept the marginal revolution. They interpreted a little bit differently. They see marginal utility as the change sort of mathematical change in total utility, though they claim that they're not cardinal. They don't believe in cardinal utility. They believe in ordinal utility. So they would pay lip service to the marginal revolution, but yet they still use ratios of utility to goods, which are cardinal. So in effect, they've lapsed back into a sort of cardinal interpretation of utility. Well, it seems some understanding of marginal utility can be shown in example, when Alexandria Ocasio-Cortez calls for 70% marginal tax rates at the highest levels. I mean, I think people instinctively understand that if you've got, you know, the first million dollars you make means more to you than the 10th million you make. Yes, but that's true. And Austrians, you know, point out that that's true. But what is not true is that you can interpersonally compare these things, that a dollar to one person does not necessarily have the same value as a dollar to a second person and a dollar to a rich person compared to a dollar to a poor person. You can't compare the value of the two because there is no unit of comparison. Menger never talked about a subjective unit of comparison, nor did Bon Bavoc. In some of today's textbooks, you hear when they do talk about cardinal utility, they talk about a Udall. But really, what the heck is a Udall? I mean, it doesn't exist. In the same sense as an inch or a foot or a pound exists. Well, maybe there's some insatiable billionaire out there who burns for that next million more than he burned for the first, it used to say. Let me ask you this. Walter Block had some back and forth with his dissertation advisor, Gary Becker, the late Gary Becker was a Nobel Laureate. And one interesting thing Professor Becker said to Walter Block was, you know, a lot of the most important or best elements of what we now call Austrian economics have been absorbed into the mainstream. So you guys are always acting like you're sort of outside, but we've actually absorbed that. Does Menger, does the Austrian school get the credit it deserves for understanding marginal utility? It's so important value. I don't think they have. Their theory, the Austrian theory, and it wasn't Menger's Day continues to be consistently subjectivist. That is, that it is the wants of consumers from which you impute the value to consumer goods, which in turn then impute value to the higher order goods. That is, goods that are the capital goods and labor that are combined to make consumer goods. In other words, prices determine values, prices determine costs from the point of view of Austrian economists. Without something being valid, if diamonds suddenly were not valued, if we all adopted the values of the Amish, let's say, who as shoe avoid any sort of ostentatious display, don't even have buttons on their clothing. And so they put no value on diamonds as jewelry. So what would happen if all Americans did that or if everyone in the world did that, then diamonds would have no value whatsoever. But then the salaries of these jewelers and the value of diamonds themselves and of diamond mines, they would all fall to zero because they would have no value in serving consumers ultimately. So subjective preferences and marginal utility help us very much understand an individual's value that he or she places on something. But now help us draw the connection between value theory and price theory, two different things, but closely related. Yeah. So what we should do is simply as mentioned before we get into that, is how Menger solved the value paradox. So the classical school could not explain and ignored the reasons why diamonds had a higher exchange value than did water. Whereas Menger was able to simply point out that, look, in the case of diamonds, the quantity is so scarce in relation to human wants that the value of the marginal diamond is very high. It serves a very high value. Whereas water is so abundant that if you lose a glass of water, you don't serve a want of very little value. You lose very little satisfaction from that. So therefore, water has a much lower price on the market than does diamonds. However, if you change the situation, you change the quantities of goods in the wants, you put someone in the desert with a 46 carat diamond, which was worth $46 million recently at auction, and someone had a gallon of water and the person, the owner of the diamond, had not had water for three days and was on the verge of dying of thirst, he would certainly make that exchange. Because the gallon of water in that situation serves a want of much more importance than does the diamond that he has in his pocket. So help us understand price formation as it relates to value. So price formation stems from the fact that people have different goods and different wants. So whenever any good is exchanged, Menger pointed out that the good that you were receiving would have to have a higher value to you than the good that you were giving up. So that in terms of an example that Menger may have given, if someone has 100 bushels of wheat and another person has a horse, and the person with the bushels of wheat would pay no more than 60 bushels of wheat, and the person with the horse would not let the horse go for less than 30 bushels. Well, then we know the price would settle between 30 and 60 bushels of wheat. And so as more competitors came in on each side of the market, the range in which the price would settle would be much less. So if you're standing, for example, observing people walking up to a vending machine and buying a bottle of water for $2, some people purchase the water, others pass it by. Those people and only those people who purchase the water value the water more than the $2 or anything else that they could purchase with that $2 at that moment in time. Whereas the vending machine company values the $2 above the value of the water. And so what price does is to set the margin between those who value the good above the price and those who value below the price. And it's at the point where supply equals demand so that everyone who values the good the most receives that good. And all the people who value it less do not receive it. So when the market is working or is allowed to work, the goods go to all of those people who value it most highly. But if everyone is an individual, everyone has subjective preferences. Everyone has different cardinal utilities for things or for services. Does that mean that what we ought to draw from manger is that supply and demand moving towards equilibrium based on prices isn't all that helpful to us that equilibrium is not a very useful construct for economics? Well, that's a very good question. Manger had a different concept of equilibrium than we have today. Manger's concept of equilibrium was that exchange would take place up to the point where the last unit that the person purchased was no longer or if that person was just above the price paid and that that person purchased one more unit it would lower his utility, lower his welfare because the good would be less in value than the price. So if you go to Walmart and stand there and you watch people coming out with carts filled with different items from Walmart, three pounds of meat, two brooms, whatever that might be, they purchase up to the point where there are no more gains from exchange and Walmart likewise is in the same position. So in that sense, that's a realistic equilibrium. That's an equilibrium that occurs at every moment in time that all gains from exchange, all exchanges that make both parties better off are completely exhausted at every moment on the market. So that's the kind of equilibrium that Austrians think is not only important, but is a true reflection of reality. I think Manger calls this a state of rest. Yeah, I think he calls it a point of rest. Yes, exactly. Has this ever happened with my wife on Amazon? Has this ever reached? I'm not entirely sure of that. Now, I want to move a little bit away from value, but before we do, one last point. I want to read a sentence to you from Manger where he talks about economic goods. He says, value does not exist outside of the consciousness of men. The value of goods is entirely subjective in nature. Before we leave this discussion, how radical is that sentence or that statement at the time? I think it was very radical. There are other people that did have that idea, but the fact that Manger had used that idea to come up with the whole entire theory of economics, an integrated price and value theory, that is extremely radical, that it's extremely original. It was something completely new introduced into the world. Okay. Let's move to method. Mesa says that Manger gave us a whole new method of economic theorizing. Mesa's later termed it praxeology. Manger uses the term economizing man. How radical was this? What was his method and what was the method of economics at the time in which he was writing this? Well, the method of the classical school was deduction, but they deduced their so-called laws of economics from axioms or from what they would say are hypothetical constructs. Res Manger used a deductive method and deduced it from something that was real, something that was observable in the real world, and that was people striving to satisfy their wants in the most economical way. Step by step, Manger deduced his value theory and his price theory, and then the theory of the price of capital, goods and wages and so on from a true fact. In some sense, this was praxeology because human striving to satisfy their wants is the core of human nature. Every moment where we were continually using resources in a way that we believe will bring us the most satisfaction. And this was radical for the time? Was this denounced at the time? No, it was a radical idea for the time. The historical school, of course, denounced it and vigorously denounced it because they believed that economics wasn't really a science that was separate from history, that there were no laws of economics as there were in the case of natural sciences. And so, yeah, it was something original and it was not accepted, for the most part, in German academia. Well, there's this great quote from Mises, where he said that, I became an economist upon reading Manger's principles, and he reads it over Christmas time in 1903. How much of an effect did this have on what we think of as the Massessian edifice of praxeology? I mean, would we have Mises as we know him today without Manger? No, I don't think we'd have Mises as we know him today without Manger. He was under the influence of the historical school. He was a social democrat. He didn't understand how the market worked. He didn't understand that there were laws of economics before he read Manger. I think this is what really just changed his whole mindset. So without laws of economics, what do we have? It's pure history. It's pure data collection. It's almost public and private finance. Right. It's collecting all these statistics and then pouring over them and trying to divine some laws or regularities in these that are given to us by these statistics. But of course, we know there are no human laws or there are no laws that you can derive just by looking at past actions and categories of actions and so on. It's something that you must derive or deduce from a true fact or an axiom. So even in Manger's time, we have an illusion to this split between hard and soft sciences and what's the proper method? Do we look at data and form a hypothesis and test it? Or do we know certain things deductively axiomatically? Nobody was talking about economics as a social science in Manger's day, though. Right. I mean, as we said, as I mentioned before, economics was part of the law faculty in France, in Germany, in Austria. So you did have the split between empirical sciences. Manger talks about it in his book on methodology. He called economics an exact science and he called economic history was an empirical science. He believed that there was definitely a use for statistics and empirical observations in economics but not in the department of economics that we know is economic theory. So Manger talks about higher and lower order goods and production processes in principles. He gets a little bit of grief for Frank Knight in the introduction for doing so, but it also presages to an extent, Hayek's work, Roger Garrison's work talking about lower and higher order goods and implicitly at least the temporal element of all that give us Manger's perspective on lower and higher order goods, the importance of them and how we go about imputing value to various stages of production. Manger focused on the law of cause and effect. So he brought this into close connection to the idea of production and consumption. So what Manger pointed out was that consumer goods, which he called goods of the lowest order or of the first order, directly caused the satisfaction. He used the term cause the satisfaction of the want. But what caused the production of the consumer good? And that was, if you're talking about bread, well then that was the flour, the ovens and the baker's labor that was combined to produce the bread. And that only had value because it led to the production of the consumer good, which had value because in turn it caused the satisfaction of the want. So let me distress that Manger looked at production as going from the highest order goods from land and labor and mineral deposits and so on down through capital goods and factories and so on down to the satisfaction of the final want of the consumer. So production proceeded from the higher to the lower, but satisfaction and value proceeded from the lower to the higher. So consumer goods only had value because they satisfied wants. But then again, why did the goods that led to the production of consumer goods only have value? Only because they caused the production of the of the consumer goods. And so Manger pointed out that the classical school looked on values coming from the higher orders. But he said, if that were the case, all you're doing is pushing back the explanation further and further back that the diamonds were valuable because the diamond mind was valuable. But the point is, why was the diamond mind valuable? And or what you know, why was the original factors, the land delay, why were they valuable? And the classical school could not answer that. Okay, you have to switch the causality of value back to the consumer. You put you put, as he said, man at the center of economics and his wants and then the satisfaction of wants then cause value to be imputed backwards all the way up to the diamond mind. So the diamond mind was only valuable because the diamonds, which eventually was a product of that mind through many stages of production, were valuable in satisfying human wants. But doesn't all this presage the idea of time preference, the capital entrepreneur or investors taking a risk? And he or she is foregoing current consumption and inherent in all of this is time Manger doesn't talk about time preference or he doesn't talk about the temporal elements around aboutness much. But again, we have the benefit of hindsight. This is an incredible insight for the time. He does say that he does say in one section that production does take time and that there as a result is uncertainty in the production of goods. We don't know if any particular production process will will be successful. And he does talk about the entrepreneur. So he brings uncertainty in and implicit in the idea that there's time and production is time preference, although he does not talk about an interest theory in his book on principles. No, he right. He doesn't give us an interest theory, but it's interesting that you point out he does give a nod to the entrepreneur because uncertainty doesn't just go to the production process. It goes to the entrepreneur's life. He or she could die here. She could could suffer some sort of loss. So in your article about Manger, you lay out the four elements or the four functions of entrepreneurship that this guy is is again very prescient in pointing out anticipating future wants, engaging in economic calculation, the active will and then supervision of at least some sort of processor employees. I mean, this is all pretty heady stuff. Yeah, I think what's important here too is to realize that Manger was talking about a real flesh and blood entrepreneur. So it wasn't just somebody who forecast the futures. Mises has two sorts of entrepreneur in his book on human action, where he talks about a pure entrepreneur who's simply a forecaster. But then he talks about what he calls a promoter entrepreneur who performs all of these functions, well, though, which include property ownership and property supervision. Unfortunately, many Austrians have interpreted Mises as only dealing with entrepreneurship as the forecasting of the future and not as someone who calculates, as someone who supervises the production process and who cannot, you cannot divest yourself of that function. You are a property owner and as a capitalist entrepreneur, you have to invest capital. Entrepreneurs have to have some capital that's pointed out by Mises, pointed out by Manger. And as a result, there are these other ancillary functions in addition to forecasting the future. And I think Manger gives a very good short explanation of this in his book. So the entrepreneur is also a steward of existing property trying to make sure it's not dissolved and that it grows. And of course, Manger is writing all this without the benefit of, let's say, a lot of the legal theory of the late 19th and early 20th century Mises is liberalism, which really posits property as a key element of liberalism. Again, Manger is having to find his way in the dark, even about property. Yes. He makes a great statement about property there. He has a good insight into property that property does not just consist of things, random things that consist of a structure of different goods which are put together by the individual. We can call them the entrepreneur if you wish in a way that will satisfy his wants. So property is an integrated structure of things and it's continually changing from moment to moment. And the purpose of the changing is to improve people's welfare. And he understood that property had to exist in order to bring about the satisfaction of wants. Well, and by talking about production and higher order order and lower order goods, and even the entrepreneur, the individual economizing man, in a sense, he's animating this old dreary land labor capital idea. He's giving it some framework for us so we have to understand that individuals have to animate all of this. Yeah, I think he's actually getting rid of just this whole idea of the classical economists that you had these three categories of factors of production, land, labor, and capital. In fact, in fact, the classical economists did not even try to explain the prices, the prices of these individual units of things. Their distribution theory was terrible. It wasn't even as good as their price theory. Rismenger, in the preface to his book, says he wants to explain real prices, but not only that, he wants to integrate under price theory, all wages, interest rates, and so on. So he's talking about getting rid of this idea that distribution is something different. Distributing incomes is something different from pricing. Once you price everything, then the owners of those things, the property owners, then have incomes. Incomes are secondary. Okay, it's the pricing process that must be explained. Then incomes are naturally fall out of all that. That's a very important insight. I was talking to Peter Klein about a week or so ago about how nobody really does a lot of economic theory anymore. Nobody writes treatises. As I'm listening to you right now, it strikes me that this shows the danger of these narrow specializations. The idea that Mengehr has, that everything has to be understood in terms of relationship, in terms of the whole economy, and in terms of time, and it strikes me that economics today has gotten small, as Peter says, that economists don't focus on the big picture. Yes. In fact, Mises says there can be no such thing as agricultural economics, resource economics, labor economics. You have to understand the overall theory, and that was Mengehr's point. Mengehr really did unify and integrate economic theory in a way that even his fellow-marginalist revolutionaries like Jevons and Valras did not do. This, I think, was a very important contribution of Mengehr, and one that Austrians are still indebted to, what can be called general interdependence. Everything in the economy is interdependent. No sector of the economy can be isolated and explained alone. Now, you might want to focus on one sector, but you have to keep in mind the laws of economics that apply to all sectors and how these sectors interact with one another in order to explain a particular phenomenon. But even with that interdependence, there's no macro flavor to this book. It always comes back to the individual. He doesn't talk about aggregates at all, for example. He never does. I don't want to even use the word microeconomics. It's economics, because economics is focused on the individual. It's general economics, where a micro macro is sort of an artificial splitting of economics into certain problems which are like macro that affect the overall economy. But still, the individual units, the individuals who are in the economy, their actions are accounting for these outcomes. Mengehr realized all of that, and I think that's one of the most important lessons that he's, as I'm repeating myself, imported to contemporary Austrians. Well, I want to talk about the end of the book. He finishes with a section on money. Yes. It's a little unsatisfying compared to the zestier parts of the book about price and value, and it almost seems like it was an afterthought for him. He does talk about the origins of money, but he doesn't go much farther than that. He doesn't seem radical in his expedition of money's role in the economy. Yes. In fact, money doesn't really play a role in the book. I mean, he's really talking, in his price theory, pretty much about a barter economy. He's explaining everything in barter terms. Money's sort of a shadow in the background. I think in his planned three treatises, money would have come in and been integrated. Now, he did write a very important article, as I mentioned, on money later on, in which he's one of the first people to fully understand that the demand for money is not simply the fact that there are goods that need to be sold, but the demand for money is a demand by the individual to hold cash balances, to hold sums of money in order to make certain payments, certain investments, and so on. And that that is also dependent on how a person values various units of money. But that comes later on, as you said. So in this book, in the book that we're talking about, Principles, he is only talking about how money originates. And he does make an extremely important point. And that is that money cannot originate as pure paper money that that the state issues and stamps that money must be accepted in business uses in uses, you know, by consumers and so on. Now implicit in that is that people have to hold money, but he doesn't really come out and say so there is not a monetary theory in any sense outside of just how did money originate. Does his paper on money, which I have not read, does that give us a Hungarian monetary theory, or is it too short? It's a fairly long paper, but it really focuses on the side of the demand for money and how that is rooted in individual choices. So he doesn't come out with a full blown theory of the value of money that that was left to Mises and Mises based his theory of the demand for money, which is one side of the monetary equation, supply and demand. He based his demand for money theory on on on Manger explicitly. And of course, Mises is first full length book, the theory of money and credit applies the marginal revolution or the insights of it to money. Right. Does that mean that Manger had a blind spot that that he failed to discover what Mises would discover a couple decades later? Well, he never he never completed his his theory of money. I mean, he may have intended to. He only got as far as talking about the demand for money. He never really applied the margin utility theory to the value or the purchasing power of money, which is what Mises did. It's not clear whether he accepted the old style quantity theory. He didn't really seem to say that he did. Bombovac Mises says when he gave his chapters of his book in Bombovac seminar, Bombovac was Manger student, rejected what Mises had to say. So yeah, you're right, but it's just sort of, you know, enhancement of the basic quantity theory. So maybe Manger did not fully understand the implications of the marginal revolution for money. We really don't know. So, you know, but his explication of money as originating as a commodity as the most saleable commodity in society, was that a radical insight for its time? Yes, I think I think it was a radical insight for its time. I think for the most part, you can see some statements by classical economists and some earlier French and Italian economists saying things like money comes from acceptance of a commodity in exchange, but they didn't explain it in the step-by-step fashion that Manger did. So once again, though people had insights into value, into margin utility and so on, and into the origination of money, they didn't tell us the full story. I mean, Manger was a genius in being able to do that. But most people in his environment would have said money comes from the Habsburgs or money comes from the Kaiser. Well, some of them did say those types of things. The German Historical School, Knopp, who was the monetary theorist or non-theorist, claimed that money was simply, the value of money was simply determined by the state. Okay, and wrapping up, I just want to get back to the book itself, Principles of Economics. Oftentimes, people ask us what to read. Human actions are tough, first go. People recommend man economy and state sometimes as an easy read. Oftentimes, we recommend economics in one lesson by Henry Haslett. It seems like we almost forget sometimes. Principles of Economics, because it was translated, maybe people think it's old and therefore ought to read something 20th century, but this is really a great introductory book for anybody and an easy punchy read. Yeah, I agree. I think it's right up there with Haslett's Economics in one lesson with Rothbard's What Is the Government Done to a Money? I think it should be one of the first five books that you read. It's very clear, it's very well written, and the arguments are very easy to follow. Well, again, Principles of Economics by Karl Manger published in 1871. It's only a portion of what he wrote, but it's perhaps the most important part of it. We have this book available free on our website, just go to mises.org and Google Manger. You'll come up with this really quickly. You can read it in a PDF format. And of course, there's the original English version with the introduction by Frank Knight. If you can find that, you will see what I'm talking about, that Knight was perhaps not his biggest fan. But our version of it, which is a very cheap paperback, I think we sell it for seven or eight dollars, has an introduction by Hayek and a forward by our own Peter Klein. We'll link to all this with some of the podcast links. And if you'd like to copy the book, find me on Twitter or just go to our website. And that said, Joe Salerno, I want to thank you for your time. You're welcome. I'm happy to be here. Ladies and gentlemen, check out Manger. I think this is the kind of thing where the Mises Institute can really provide you with the literature you need to understand first principles. And you're going to benefit highly from reading this book. I absolutely recommend it. That said, thanks very much.