effectively displaced the German historical method on the
continent and which survives today as an alternative to
mainstream Neoclassical economics.
Menger was one of three economists in the 1870s who
independently put forward a theory of value based on marginal
utility. Prior to what economists now call the “marginal
revolution,” value was thought to be derived solely from the
inputs of labour and capital. Menger developed the marginal
utility theory of value, in which the value of any good is
determined by individuals’ subjective evaluations of that good.
According to Menger, a good has some value if it has the ability
to satisfy some human want or desire, and utility is the capacity
of the good to do so. Menger went on to develop the idea that
the individual will maximize total utility at the point where the
last unit of each good consumed provides equal utility—that is,
where marginal utilities are equal.
Menger’s emphasis on the marginal utility theory of value led
him to focus on consumption rather than production as the
determinant of price. Menger focused only on the demand for
goods and largely ignored the supply. It would remain for Alfred
Marshall and Leon Walras to combine demand and supply for a
more complete picture of price determination.