The 12 Economists of Christmas: Carl Menger

The holidays would not be the holidays without tacky gifts, including quite possibly the tackiest of all presents: the Christmas sweater. These tinselly textiles may be ill fitting and garish, but every holiday season hundreds of thousands, if not millions, of these sweaters are manufactured and sold around the world.

But the Christmas sweater is not just an example of how one person’s fashion nightmare can be another’s source of holiday haute couture. The production and sale of these sweaters also is an excellent illustration of Austrian economist Carl Menger’s groundbreaking theory of how individuals value goods and services.

Menger, who lived from 1861 to 1921, is considered a founder of the Austrian School of Economics. He is probably best known for his “subjective theory of value,” which in a nutshell states that market products have no inherent value, whether owing to labor, materials or something else, but rather obtain value from the usefulness or amusement that buyers derive from them.

Before diving any deeper into Menger’s theory, let’s return to the Christmas sweater. Like so many products, Christmas sweaters involve the work of untold hundreds or even thousands of people. There are the designers who conceived the sweater; the laborers who sweated to manufacture the wool and dye and then knit these materials into the fibrous monstrosity you see before you; the financiers and managers who provided the capital and supply-chain expertise to deliver this product to market; and finally, the retail buyers, managers and workers who chose and stocked the sweater at their stores.

For a long time, economists believed that the value of goods and services derived from the labor that produced them. This was called the “labor theory of value,” and it underlay not only Marxist theories of economics, but also the classical school of Adam Smith and David Ricardo.

On its face, the labor theory of value seems to provide a sound scientific basis for understanding why the market values some things more highly than others. And is it not an entirely wrong way of looking at market value: there are indeed times when things that are more labor intensive (such as handmade furniture) generally are more valuable on the market than things that take less labor to create (such as furniture made in a factory.)

But as the woven Christmas monstrosity demonstrates, labor alone does not determine market value. As Menger, The Bridge’s third economist of Christmas, wrote,

There is no reason why a good may not have value to one economizing individual but no value to another individual under different circumstances. The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts.

Maybe he was thinking of Christmas sweaters when he added, “What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another.”

And so, in this way, the Christmas sweater that may be so offensive to your tastes may appear to be a grand bargain for someone else’s Aunt Susie, who absolutely adores the holiday wear and promptly adds it to her collection. And who knows? Sometimes yesterday’s eyeroll-worthy apparel for middle-aged women becomes tomorrow’s ironic sweater of choice for hipsters. So next time you puzzle over such unlikely and perhaps unsightly swings in fashion taste, just remember Carl Menger’s subjective theory of value.