Have you ever wondered why a bottle of water costs less than a cup of coffee, even though water is essential for life?
More than a hundred years ago, an economist named Carl Menger asked the same question — and his answer changed how we understand prices and value.
Let’s look at his ideas in simple terms, with real-world examples.
1. Value Comes from People, Not Things
Before Menger, many economists believed that value came from how much work or material went into making something.
Menger disagreed. He said that value is not inside the object itself, but in the minds of people who use or desire it.
Example:
If you are in a desert, a bottle of water might be worth more to you than a gold ring.
But in a jewelry store, the gold ring is more valuable.
The objects are the same, but their value changes depending on people’s needs and situations.
2. The More You Have, the Less You Want (Marginal Utility)
Menger explained that the value of one more unit of something depends on how much you already have.
Each additional unit gives less satisfaction than the previous one. This is called diminishing marginal utility.
Example:
The first slice of pizza when you are hungry is very satisfying.
The fifth slice is less enjoyable.
The tenth slice might not be wanted at all.
That’s why people will not pay the same price for the tenth slice as for the first.
3. Prices Happen When Values Meet
Prices are not fixed by producers or governments. They appear naturally when people exchange things based on what they personally value.
Example:
Suppose you are selling your used phone.
You will sell it only if the money you receive is more useful to you than keeping the phone.
The buyer will purchase it only if the phone is more useful to them than keeping their money.
When both agree, the exchange takes place, and the price is formed.
So, prices come from the meeting of personal values — not from production costs alone.
4. Everything Starts from the Consumer
Menger also showed that even things used to make other goods (like machines, tools, or raw materials) only have value because people want the final products they help create.
Example:
We value flour because it is used to make bread.
We value bread because it satisfies hunger.
So, the value flows backward from the consumer’s need to the producer’s materials.
This idea became the foundation for modern theories of production and supply chains.
5. Economics Is About People, Not Equations
Menger believed that economics should begin with real human actions and choices, not just mathematical models.
He focused on finding the causes and effects behind decisions — what makes people buy, sell, or save.
This is why his method is called causal-realistic economics: it studies real human behavior, not abstract formulas.
Summary of Menger’s Rules
| Rule | What It Means | Simple Example |
|---|---|---|
| Subjective Value | Value depends on personal needs | Water in a desert vs. jewelry store |
| Marginal Utility | The more you have, the less you value the next one | First vs. tenth slice of pizza |
| Price Formation | Prices arise when people exchange based on personal value | Selling a used phone |
| Consumer Value Flow | Production goods are valuable because consumers want the end goods | Flour → Bread → Hunger |
| Causal Realism | Economics studies real human behavior, not only numbers | Everyday decisions drive markets |
Final Thought
Carl Menger’s insight is simple but powerful:
Things don’t have value because they cost money. They cost money because they have value to someone.
Every price in the world — from bread to technology — begins with human desire and choice.