Development and Underdevelopment in the History of Economic Thought

The third subjectification that failed in Menger’s Grundsätze

Tomo Shigeki, Independent Scholar (ex-Professor of an University in Kyoto)

This paper tries to clarify the reason why Menger could not go through with his subjectivism especially in the last two chapters on Commodity and Money. He appears to forget his subjectivism introducing the notion of marketability of a commodity for his elucidating the origin of money. There should have been the third subjectification for Menger to construct the modern demand theory of money like Keynes’s liquidity preference theory. The opening chapter on Goods of Menger’s Grundsätze has no place for his first original subjectification, because the first three conditions for a thing to be a good are in Roscher and the fourth (the fact of command) itself is new, but not subjective. It is in Ch. 2 where Menger’s original subjectification of the notion of command can be found: the amount of an individual’s commanding goods is subjectively known by each individual (Hayek’s subjectivism based on knowledge). In Ch. 5 on Prices Menger subjectifies the notion of market price by his horse-fair model. It shows that even in a competitive market some participants are excluded from transaction due to their limit prices. With the established market price not all the market participants can realise their transaction and one can neither resell nor redeem the goods at the same market price at will. This means that market price is subjective (Menger as non-Walrasian against perfect competition). The incompleteness of Menger’s subjectivism can be attributed to his philosophical attitude towards the existence of immaterial properties, like marketability (liquidity) or command of a commodity. In 1932 Keynes left the notion of liquidity to reach that of liquidity preference, which allowed him to develop the new demand theory of money. Menger could not discard his supporsition for the existence of command of money in his use theory of interest, though it was strongly criticized by Böhm-Bauwerk on the side of Hume's Scepticism, to which Keynes committed in his fellowship dissertation.

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Keywords: subjectivism Menger marketability Böhm-Bauwerk Keynes liquidity preference Humean Scepticism