ABSTRACT

This second chapter presents a new translation of one of the most important chapters of Investigations into the Method of the Social Sciences with Special Reference to Economics, written by the founder of the Austrian School of Economics, Carl Menger. It deals with the question of the analytical decomposition of social wholes into basic units. This decomposition makes it possible to model social phenomena theoretically and to explain how complex phenomena arise from the “coworking of the factors responsible for its origin.” Menger illustrates these ideas by explaining the emergence of social institutions (especially money, but also localities and states) as unintended effects of historical development involving the aspirations of individuals and their interactions. For example, he shows how, in barter-based economies, individuals gradually begin to accept goods that are not useful to them as such in exchange for the goods they bring to the market, because these goods have the best qualities for exchange: These are the ancestors of money.