Carl Menger (b. 1840) dared to create something he called the Austrian School of Economics. His was a new way of doing economic analysis. He sided with Aristotle’s realism.
Menger studied human needs and saw discreet units of need – the essence of his marginal approach. Value is subjective dependent upon individuals. His theory of marginal utility rejected the cost-of-production theories of value that had been developed by Smith and Ricardo.
To Menger, human economy included the passage of time, control of property, value, prices, and a theory of money. He stood for realistic empirical theory.
Two schools - the historical school and the mathematical approach- competed with the new Austrian school. The breakthrough came when Menger was appointed tutor to the Crown Prince of Austria in 1875. He enjoyed the protection of the Royal house. The Austrian School started strong and then weakened. Menger left the university in 1902 due to scandal, love affairs, and health problems. Economic realism lost its voice. Wieser was the next strongest economist, although he never understood subjective value. Wieser was followed by Schumpeter.
Lecture 2 of 10 from The Life, Times, and Work of Ludwig von Mises, a George and Joele Eddy Seminar.