Commentary on Political Economy

Saturday 9 January 2016

Carl Menger and the Institution of Private Property

The paramount and overriding aim of bourgeois economic science is to present itself – precisely – as “science”, that is to say, as a system of universally valid “laws” based on some causally binding physical “necessity”. Of course, bourgeois science accepts that it is possible for human beings to choose to act in a manner that diverges significantly from these “necessary laws” of economic reality, just as it is possible for humans to choose not to follow the path dictated by physical laws to achieve a stated goal. But in both cases, choosing such a divergent path, far from negating the validity of scientific laws, will only result in the non-attainment of those stated goals, at least not in an “optimal” sense.

Thus, scientific laws are seen not as the result of human practices or techniques but rather as an “objective” framework that must be followed because it is ineluctable. Science is no longer seen as a human practice, as praxis, as one of many and indefinite paths to action – just as the causal “chains” that lead to a particular outcome are indefinite (cf. M. Weber, The Methodology of the Social Sciences) -, but rather as objective and unchangeable, hence “physical”, laws. The difficulty with the assumption of scientific necessity of physical laws lies in the expression itself – because there is nothing “physical” about “laws” and there is nothing “legal” about the supposedly “physical”. The pursuit of science (Nietzsche’s “will to truth”) is just that: – a “pursuit”, a particular modus operandi or praxis that has nothing to do with physical necessity. The necessity implied in the word “physical” or “natural” can only be “legal” and therefore not “necessary” at all! Scientific laws do not and cannot prescribe “necessity” – because to do so they would have to have the “irresistibility” of logic (H. Arendt, The Life of the Mind). Yet, even and especially in the case of logic we know that nothing is “irresistible” at all. For this reason, Leibniz and Kant spoke of the intuitus originarius. Kant in particular, having first sought to establish the a priori status of scientific findings – though synthetic rather than analytic -, was forced finally to concede the failure of his enterprise in the Opus Postumum.

The path followed by Menger to establish the scientificity of his economic theory starts appositely with the bare assertion of causal necessity. As we have seen, Menger prudently distinguishes between the necessity of causal relations known to us and the merely probable connection of causal relations we have not yet been able to establish. Human “freedom” – or rather, the illusion of “freedom” - can be only “provisional”; it can apply only to the realm of the unknown or of uncertainty – because all events must be causally determined regardless of whether we know or do not know such a con-nection. That is the point of all determinisms (cf. Hobbes, Of Liberty and Necessity) – that all events are causally related even though there are many whose causal relation is as yet not known to us. This is the presumption of scientific progress to which Menger staunchly adheres:

All things are subject to the law of cause and effect. This

great principle knows no exception, and we would

search in vain in the realm of experience for an example

to the contrary. Human progress has no tendency to cast it in

doubt, but rather the effect of confirming it and of always further

widening knowledge of the scope of its validity. Its continued and

growing recognition is therefore closely linked to human progress.

The problem with this position is, of course, that the assertion that every event must be causally related is a simple and unprovable presumption – and we know only too well that events we think at present are causally related may well not be so because their causal relation – the physical law that con-nects them – must be empirically falsifiable to be valid (K. Popper, The Logic of Scientific Discovery) – whence we can conclude that every physical law is only “legally”, that is, conventionally, valid and not at all ab-solutely. In other words, no physical law is a legibus soluta (literally, absolute, free from all laws) – that is to say, no physical necessity is immune from “law”, from a conventional or normative assumption or rule: there is no ordo et connexio rerum et idearum.

Menger seeks to extend the necessity of scientific laws from physical events to the realm of human needs – starting from the most basic individual needs for the provision of physical sustenance or survival. Yet we know that, first, no such basic needs are definable at an “individual” level, and indeed all needs are not definable at a physical level, in terms of calories or in any other way, that is not culturally or “legally” defined in terms of scientific laws. Menger seeks to establish such a scientific necessity starting with the most basic needs of the human individual, consisting of “goods of lower order”, and then ascend to “goods of higher order” which, because of their complementarity and relatedness (Verhaltnisse), lead to and result in the division of social labour - which Menger, like Adam Smith, mistakes for the division of “labour” or “individual labours”.

But each time it is evident that even the most basic goods, those of lower order, are indefinable not just because they are not “goods” in terms of their objective physical properties – a proposition with which Menger agrees -, but also because they are indefinable in terms of human needs understood other than “culturally”, that is to say, in terms of the “higher order” from which Menger arbitrarily distinguishes them. There are no elemental “needs” because human beings are aspects of being human so that all human being presupposes the existence of social labour. Consequently, contra Adam Smith, it is not “exchange” that leads to the division of “labour”, because there is no such thing as “labour” in the abstract: but it is instead the division of social labour that makes exchange possible. And this is so essentially because it is impossible to define needs in “individual” terms – because all human needs are essentially “social” and therefore cultural – for they are never “biological” in any sense at all. Use values do not become “goods” because of biological needs: – they become “goods” because a historically specific division of social labour allows for their “exchange” – but it is not their “exchange” that gives rise to the division of social labour in the first place, as Adam Smith incorrectly believed!

Menger unjustifiably assumes that use values are necessarily “goods” or exchange values – he assumes what he needs to prove. Thus, he tries to establish a causal connection between “indirect” goods and “direct” goods – but must settle for the reality that such a causal chain between “need” and “relations” is categorically and scientifically impossible: categorically, because needs – which are presumably served by the direct goods of lower order - cannot be understood separately from “indirect goods” of higher order; and scientifically because therefore there cannot be any “necessary causal relation or link” leading from direct to indirect goods, that is, from goods that satisfy human needs immediately and goods that do so mediately.

The goods-character of a thing is, as we have seen, dependent

on its being capable of being placed in a causal connection with the

satisfaction of human needs. But we have also seen that a direct

causal connection between a thing and the satisfaction of a need is

by no means a necessary prerequisite of its goods-character. On the

contrary, a large number of things derive their goods-character

from the fact that they stand only in a more or less indirect causal

relationship to the satisfaction of human needs. P.64

And because needs are not biological but social, Menger is never able to establish a strictly economic nexus between the various “order” of goods that is not tied to their “possession” so that each time Menger tries to link causally one good with one of higher order in terms of “value” the value can no longer be attributed to the “order” or nature of the good but rather to its “possession”. In other words, Menger is simply unable to separate causally the biological usefulness of goods from the fact (a very human and cultural fact in a Vichian political sense) of their constituting “property”. The indissolubility of use value and property so as to fix scientifically a science of exchange value or of economics is the insurmountable obstacle that condemns Menger’s entire scientific enterprise to failure ab initio! Given that a “good” cannot be defined independently in a biological sense and therefore independently of human social relations, it is obvious that the “science” of economics cannot stand on “necessary laws of cause and effect” as Menger pretended to show.

Menger’s fallacious attempt to establish a scientific link between use values and “goods” or exchange values falters because use values are not necessarily “goods” for exchange for the simple reason that exchange is a historically specific form of the division of social labour – it is not exchange that causes the division of social labour because social labour is not dissectible into individual labours. But because Menger wrongly assimilates use values to exchange values he then needs to pursue this mistaken “physical” assimilation to include the “temporal” dimension of production.

The process by which goods of higher order are progressively

transformed into goods of lower order and by which these are

directed finally to the satisfaction of human needs is, as we have

seen in the preceding sections, not irregular but subject, like all

other processes of change, to the law of causality. The idea of

causality, however, is inseparable from the idea of time. A process

of change involves a beginning and a becoming, and these are only

conceivable as processes in time. Hence it is certain that we can

never fully understand the causal interconnections of the various

occurrences in a process, or the process itself, unless we view it in

time and apply the measure of time to it. Thus, in the process of

change by which goods of higher order are gradually transformed

into goods of first order, until the latter finally bring about the state

called the satisfaction of human needs, time is an essential feature

of our observations. P.67

Time is central to Menger’s division of goods of different orders because those of lower order are for immediate consumption or need, and those of higher order are for delayed consumption or “relations” or “wants” (Bedarf), requirements).

After what has been said, it is evident that command of

goods of higher order and command of the corresponding

goods of first order differ, with respect to a particular kind of

consumption, in that the latter can be consumed immediately

whereas the former represent an earlier stage in the formation of

consumption goods and hence can be utilized for direct consump-

tion only after the passage of an appreciable period of time, which

is longer or shorter according to the nature of the case. P.68

Here is the first intimation of that “renunciation” of immediate consumption that leads to “interest” or the accumulation of capital through the “roundaboutness” of production that is central to Bohm-Bawerk’s economic theory. It is entirely evident, however, that these “physical-natural” attributes of use values only become relevant to the process of production if we consider human products as exchange values, as “goods”, that therefore necessarily “belong” to separated producers, to individual labours. From the viewpoint of social labour, of associated producers, time simply cannot be a factor in the production of exchange values (“goods”) either as sacrifice or as uncertainty.

But another exceedingly important difference between immediate

command of a consumption good and indirect command of it (through

possession of goods of higher order) demands our consideration. A

person with consumption goods directly at his disposal is certain of their

quantity and quality. But a person who has only indirect command of

them, through possession of the corresponding goods of higher order,

cannot determine with the same certainty the quantity and quality of the

goods of first order that will be at his disposal at the end of the production

process. Pp.68-9

Leaving uncertainty to one side for the moment, the delay or postponement of consumption – this ascetic renunciation (cf. Schopenhauer’s Entsagung) – is rewarded by the greater productivity of goods of higher order. But here Menger and Bohm-Bawerk fail to explain why producers would wish to delay consumption in exchange for higher productivity given that delay and uncertainty cannot be the aim of production. Menger himself contradicts this “natural” progress of production with this example:

Conversely, goods often lose their goods-character because men

do not have command of the necessary labor services, complementary

to them. In sparsely populated countries, particularly in

countries raising one predominant crop such as wheat, a very serious

shortage of labor services frequently occurs after especially

good harvests, both because agricultural workers, few in numbers

and living separately, find few incentives for hard work in times of

abundance, and because the harvesting work, as a result of the

exclusive cultivation of wheat, is concentrated into a very brief

period of time. Under such conditions (on the fertile plains of Hungary,

for instance), where the requirements for labor services,

within a short interval of time, are very great but where the available

labor services are not sufficient, large quantities of grain often

spoil on the fields. The reason for this is that the goods complementary

to the crops standing on the fields (the labor services necessary

for harvesting them) are missing, with the result that the

crops themselves lose their goods-character. P.62

Here the “natural progression” of human production from the satisfaction of basic needs to less basic wants and requirements (Bedarf) is clearly called into question: not only do the producers in Menger’s example choose not to produce in excess of their immediate needs, not only do they not postpone consumption, but they also seek to produce those use values that can be obtained with the least amount of effort intended as sacrifice (Kraft als Leid als Opfer)! (This link between effort and sacrifice will be made explicit by the co-founder, with Menger and Jevons, of neoclassical economics, Gossen.) Therefore, the willingness of some workers to delay consumption can never turn them into capitalists and result in their accumulating wealth-as-capital (or Menger’s “goods of higher order” or Bohm-Bawerk’s “roundabout tools”) unless these “ascetics” can use their “command” over “goods” to force others to work for them – that is to say, unless they use their possession of dead labour to command politically and violently the living labour of other workers!

Clearly then, the ability of intermediate or indirect goods to command immediate or direct goods depends on the ability of the owners of the former to deny the consumption of the latter by other producers! As Menger asseverates, where workers are “few in numbers and living separately, [they] find few incentives for hard work” – whence we infer that the causal connection between direct and indirect goods in terms of “command” breaks down – unless those few workers are made “many” – that is, there is an excess of population caused by the violent denial to some workers of access to the harvest through expropriation! Conversely, the reason why “the crops themselves lose their goods-character” is precisely that workers are not forcibly excluded from access to them as use values. Thus, the creation of exchange values, of “goods”, is not a “natural” or “physical” attribute of overall “command” over use values by all human beings and producers, but rather it requires the parcelisation of social labour through the proprietary exclusion of some producers by others from the products of human labour, from use values. This is the key to the accumulation of social wealth as capital.

Menger’s utter misconception of the human basis of production he makes utterly evident in these passages…

Assume a people

which extends its attention to goods of third, fourth, and higher

orders, instead of confining its activity merely to the tasks of a

primitive collecting economy—that is, to the acquisition of naturally

available goods of lowest order (ordinarily goods of first, and

possibly second, order). If such a people progressively directs

goods of ever higher orders to the satisfaction of its needs, and

especially if each step in this direction is accompanied by an

appropriate division of labor, we shall doubtless observe that

progress in welfare which Adam Smith was disposed to attribute

exclusively to the latter factor. We shall see the hunter, who initially

pursues game with a club, turning to hunting with bow and

hunting net, to stock farming of the simplest kind, and in

sequence, to ever more intensive forms of stock farming. We shall

see men, living initially on wild plants, turning to ever more intensive

forms of agriculture. We shall see the rise of manufactures,

and their improvement by means of tools and machines. And in

the closest connection with these developments, we shall see the

welfare of this people increase.

The further mankind progresses in this direction, the more varied

become the kinds of goods, the more varied consequently the

occupations, and the more necessary and economic also the progressive

division of labor. But it is evident that the increase in the

consumption goods at human disposal is not the exclusive effect of

the division of labor. Indeed, the division of labor cannot even be designated as the most important cause of the economic progress of mankind. Correctly, it should be regarded only as one factor among the great influences that lead mankind from barbarism and misery to civilization and wealth. P.73

Obviously, here Menger reduces Smith’s observations on the division of labour to a purely “technical” factor – which is simply wrong because Smith made civilisation and the division of labour one and the same thing – with the mistake that he attributed the division of “labour” to the need for exchange rather than the existence of exchange as a historically specific form of the division – not of “labour”! - but of “social labour”. For Smith, quite rightly, it is impossible to dissect the division of labour from the expansion of human needs. But these needs and their satisfaction through new production and the division of social labour cannot be linked “naturally” to exchange and therefore to property rights – though this is what Smith does by assuming (a) the existence of “individual labours” and therefore, (b), the necessity for exchange, for “goods”.

Menger’s vain attempt to link the provision (Bedarf) of use values to the production of exchange values (“goods”) – his attempt to identify use values with “goods” and thus to link two categorically different entities – is evinced in the last two sections of Chapter One of the Principles of Economics: the first on the division of labour and the command over production, and the second on property. Now, the division of social labour has nothing to do with the command over production, as every anthropologist can attest. But it is this emphasis on the “quantity” of use values, and therefore their transformation into exchange values that can be “commanded” that truly concerns Menger. It is not sufficient that human beings divide up social labour, as they must to be “human” in any sense. Because for Menger, and for Smith, the division of social labour is only the division of “individual labours” which is made “social” only by the need “to exchange” the products of individual labours, then it is clear that the mere division of “labour” is not sufficient to drive economic growth – because Menger, unlike Smith, understands economic growth “scientifically” or “physically-naturally” as the ultimate need to satisfy what he thinks are clearly identifiable “basic human needs”. Therefore, this greater command over the production of lower order goods can be achieved only through the renunciation of immediate consumption, which is paid for with abstinence (from immediate consumption) and uncertainty (of eventual production). And these two “sacrifices” are what gives rise to “property”.

The explanation of the effect of the increasing employment of

goods of higher order upon the growing quantity of goods available

for human consumption (goods of first order) is a matter of little


In its most primitive form, a collecting economy is confined

to gathering those goods of lowest order that happen to be

offered by nature. Since economizing individuals exert no

influence on the production of these goods, their origin is independent

of the wishes and needs of men, and hence, so far as they are concerned,

accidental. But if men abandon this most primitive and treat them as goods

of higher order, they will obtain consumption

goods that are as truly the results of natural processes as

the consumption goods of a primitive collecting economy, but the

available quantities of these goods will no longer be independent

of the wishes and needs of men. Instead, the quantities of consumption

goods will be determined by a process that is in the

power of men and is regulated by human purposes within the limits

set by natural laws. Consumption goods, which before were the

product of an accidental concurrence of the circumstances of their

origin, become products of human will, within the limits set by

natural laws, as soon as men have recognized these circumstances

and have achieved control of them. The quantities of consumption

goods at human disposal are limited only by the extent of human

knowledge of the causal connections between things, and by the

extent of human control over these things. Increasing understanding

of the causal connections between things and human welfare,

and increasing control of the less proximate conditions responsible

for human welfare, have led mankind, therefore, from a state of

barbarism and the deepest misery to its present stage of civilization

and well-being, and have changed vast regions inhabited by a

few miserable, excessively poor, men into densely populated civilized

countries. Nothing is more certain than that the degree of

economic progress of mankind will still, in future epochs, be commensurate

with the degree of progress of human knowledge. Pp.73-4

Just as Menger mistakenly sought to distinguish between basic needs and wants or requirements (Bedarf), satisfied respectively by goods of lower and higher order, so now he seeks also to distinguish between basic needs and less basic ones by means of the amount of control or command that human beings have over the production of “goods” for their satisfaction. In both cases, Menger seeks to trace a causal link or chain in the “progress” from the satisfaction of basic to less basic needs or requirements or wants. Yet we know that no such distinction can be made, nor can any such link be traced. Furthermore, there can be no question of making the leap from “command” over use values on the part of human beings as a species -  through social labour – and command over “goods” for exchange between individual human beings – because command over use values by the human species will never be able to be reduced to command over “goods” or exchange values as if use values naturally or physically or “scientifically” belonged to individual producers!

In the quotation below, Menger fully displays his inability to distinguish between the division of social labour, which is not the product of individual decisions but rather the result of specific historical forms of social organisation, and one such specific historical form whereby the division of social labour hinges entirely on the politically violent institution of private property over “individual labours”, that is to say, on the fictitious parcelisation of social labour into alienable individual labours (wage labour).

When the economy of a people is highly developed, the various

complementary goods are generally in the hands of different persons.

The producers of each individual article usually carry on

their business in a mechanical way, while the producers of the

complementary goods realize just as little that the goods-character

of the things they produce or manufacture depends on the existence

of other goods that are not in their possession. The error that

goods of higher order possess goods-character by themselves, and

without regard to the availability of complementary goods, arises

most easily in countries where, owing to active commerce and a

highly developed economy, almost every product comes into existence

under the tacit, and as a rule quite unconscious, supposition

of the producer that other persons, linked to him by trade, will

provide the complementary goods at the right time. Only when

this tacit assumption is disappointed by such a change of conditions

that the laws governing goods make their operation manifestly

apparent, are the usual mechanical business transactions

interrupted, and only then does public attention turn to these manifestations

and to their underlying causes. P.63

Use values can belong to individual producers and be available for exchange as “goods” only through the political establishment of property rights over “individual” use values. Menger simply cannot see that property rights can in no guise arise from “natural” relations of cause and effect. No amount of causal links between basic needs, at one end of the causal chain, and wants or requirements at the other can ever explain what is the necessarily political origin of property rights. And only property rights can beget more property rights – because no amount of “physical-natural command over use values” will turn use values – which refer to humans as a species with its division of social labour - into “goods” or exchange values subject to property rights that are necessarily “individual” – the essential ingredient for the “exchange” of use values and therefore for the existence of “goods”!

The colossal non sequitur involved in Menger’s reasoning; his entirely fallacious “leap” from social labour to alienable individual labours based on the institution of private property is made entirely evident in his reckless explanation of the nature of property rights:

We see everywhere that not single goods but combinations of

goods of different kinds serve the purposes of economizing men.

These combinations of goods are at the command of individuals

either directly, as is the case in the isolated household economy,

or in part directly and in part indirectly, as is the case in our

developed exchange economy. Only in their entirety do these

goods bring about the effect that we call the satisfaction of our

requirements, and in consequence, the assurance of our lives and

welfare. [75]

The entire sum of goods at an economizing individual’s command

for the satisfaction of his needs, we call his property. His

property is not, however, an arbitrarily combined quantity of

goods, but a direct reflection of his needs, an integrated whole, no

essential part of which can be diminished or increased without

affecting realization of the end it serves. [76]

Menger here leaps from stating correctly that “only in their entirety[!] do these goods [use values] bring about…the satisfaction of our requirements”, to the inadmissible conclusion that “the entire sum of goods[!] at an…. individual’s command[!]… we call his property”. The entire sum of use values, belonging to the human division of social labour, can never suddenly become “the entire sum of [individually owned] goods [exchange values]” without the violent institution of alienated labour, wage labour on which private property is based!

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