Carl Menger: The Copernicus of Economics and Discoverer of Win-Win Games

Carl Menger

The Discovery That Changed Everything

In 1871, a 31-year-old economist from Neu-Sandec published Principles of Economics. Carl Menger probably did't want to start a revolution. He sought to solve an old puzzle that bothered British classical economics: why is water, which we need to live, cheaper than diamonds, which we do not need? His answer — value is subjective and depends on the last unit (marginal) — started the Marginal Revolution and birthed the Austrian School. But Menger did something even bigger: he was the first to prove clearly that voluntary trade is win-win (positive-sum), not zero-sum.

This idea — trade creates new value, it does not just move it around — is like Copernicus’s change in astronomy: it moved the centre of the economic universe. Copernicus moved the centre from Earth to the Sun. Menger moved value from objective things (hours of work put in) to subjective opinions of people. If we really accepted this, it would change governments, policies, and the whole story of civilization. This article explains why Menger is the world’s first thinker on win-win games, a true Copernicus of Economics for giving the big turn that re-oriented the whole subject, and how understanding him deeply is necessary for lasting human prosperity.

I. The Discovery: Subjective and Marginal Value

A. The water-diamond paradox (classic problem)  

British classical economists (Adam Smith, David Ricardo):  

They separated “use value” (how useful somethwsing is) from “exchange value” (market price).  

Paradox: Water has huge use value (you die without it) but low price. Diamonds have low use value (just pretty) but high price.  

Their explanation failed: they tried to base value on production cost or labour put in (labour theory of value), but this did not solve the paradox.

B. Menger’s solution: Decreasing marginal utility  

Big new idea (Principles, 1871):  

1. Value is subjective:  

“Value does not exist outside the minds of people. To speak of value inside things is a mistake.”  

There is no objective value from labour or cost. Value is a personal judgement about how important a good is to satisfy a need at a particular moment.  

2. Marginal (not total) utility sets value:  

Water: The first glass is worth everything (you would die without it). The tenth glass is worth almost nothing (you are no longer thirsty).  

Diamonds: The first diamond is worth a lot (rare luxury). The tenth diamond is still worth a lot (still rare).  

Key point: Nobody chooses between ALL water and ALL diamonds in the world. People care about the last unit they can get — the marginal unit.  

Solution to the paradox:  

Water is usually abundant → the marginal unit has low extra usefulness → low price.  

Diamonds are usually scarce → the marginal unit still has high usefulness → high price.  

Result: Menger solved a 2,000-year-old puzzle (since Plato and Aristotle) with perfect logic based on subjectivity and marginality (we choose on units, at "the margin").

II. The Transformative Idea: Trade Is Win-Win

A. Strict logical proof (the Copernican moment)  

Menger in his Principles (Chapter IV, “On Exchange”):  

Person A values good X more than good Y.  

Person B values good Y more than good X.  

A has Y, B has X.  

If they trade voluntarily:  

A gives Y and gets X → A is better off.  

B gives X and gets Y → B is better off.  

Both gain, nobody loses. Trade creates value by moving goods to the people who value them most.

Comparison with astronomy:  

Ptolemy: Earth in centre, planets move in complicated loops.  

Copernicus: Sun in centre, simple orbits.  

Classical British economics: Value is in things (labour put in); trade just moves fixed wealth (zero-sum).  

Menger: Value is in people (subjective); trade creates new value (positive-sum).  

Perfect match: Copernicus moved the centre from the observer (Earth) to the observed (Sun). Menger moved the source of value from objects (labour) to people (subjective valuation).

B. Why Menger is the world pioneer of game theory  

Formal game theory (von Neumann & Morgenstern, 1944) separates zero-sum games (one wins, the other loses) from positive-sum games (both win).  

But in 1871 — 73 years earlier — Menger already proved voluntary exchange is positive-sum.  

His clear concepts do the same job as Pareto optimality (formalised 35 years later in 1906).

III. Menger as Copernicus: The Turn That Re-Oriented Economics

A. Copernicus in astronomy: Moving the centre  

Rejected Earth-centred model. Put Sun in centre. Made everything simpler. Kepler, Galileo, Newton built on it.  

Essence: Change what is centre and what is periphery → huge conceptual shift.

B. Menger in economics: Moving the source of value  

1. Rejected labour theory of value (Smith, Ricardo, Marx).  

2. Put value in people’s subjective marginal utility.  

3. Foundation of modern economics:  

Neoclassical microeconomics (Marshall, Jevons, Walras) uses marginal utility (though with some important mistakes).  

The Austrian School (Mises, Hayek, Rothbard) develops the full implications.  

Essence: Value no longer lives “objectively” in things; it lives subjectively in people. This shift makes economics much clearer — just as heliocentrism removed complicated loops and made orbits simple.

Conclusion: Copernicus founded modern astronomy with one big conceptual turn. Menger did the same for modern economics: from objective value (in things) to subjective value (in people).

IV. Huge Implications Still Not Accepted

A. Politics: From zero-sum to positive-sum  

Old story still common: Wealth is fixed; one side must lose for the other to win (mercantilism, Marxism, economic nationalism).  

Mengerian truth: Every voluntary trade helps both sides. International trade makes everyone richer. Entrepreneurs create value, they do not steal it.  

If accepted: End of tariffs, end of anti-business populism, end of trade wars. Global growth could be 2–3 times faster.

B. Ethics: From forced redistribution to value creation  

Old ethics: Justice = take from rich, give to poor.  

Menger-based ethics: Creating new value (inventions, companies) is morally superior to moving existing value. Forced redistribution often destroys incentives.  

If accepted: Admiring creators and risk-taking builders, not politicians who only redistribute. Voluntary charity beats forced taxes.

C. Education: From “dismal science” to a science of cooperation  

Old view: Economics = endless conflict over scarce resources.  

Mengerian view: Economics = how people cooperate through voluntary exchange to make everyone richer. Growth has no fixed limit.  

If accepted: Children and youth learning rational optimism and cooperation, not fear and class war.

D. International relations: From zero-sum power to win-win globalisation  

Old realism: One country’s gain is another’s loss.  

Mengerian truth: Trade between nations makes both richer. Rich trading partners buy more from you.  

Historical proof: Europe after 1945 (EU) = peace. East Asia since 1979 = peace despite old hatreds.  

If accepted: No more trade wars, faster globalisation, more peace.

V. Why Menger Is Still Ignored: Political Calculation Problem

A. Politicians win votes with zero-sum stories  

Taking from the rich and giving to the poor is visible → votes.  

Value creation by entrepreneurs is invisible → no votes.  

Example: Politicians say “billionaires are bad”. Truth: Bezos created $1.5 trillion of value for customers and kept only around 10 %.

B. Media sell conflict, not cooperation  

“Rich vs poor” gets clicks. “Trade helps everyone” is boring.  

Result: Win-win stories lose against conflict stories.

Final Conclusion  

In 1871 Menger did what Copernicus did in 1543: he moved the centre of a science. Copernicus put the Sun, not Earth, at the centre. Menger put subjective human valuation, not objective labour, at the centre. His discovery — voluntary trade is win-win because value is subjective and marginal — is as important for social science as heliocentrism was for astronomy.

If we fully accepted Menger's monumental contributions:  

- End of protectionism and trade wars  

- End of forced redistribution ethics  

- Economics taught as cooperation, not conflict  

- Global peace through trade  

World growth would speed up 2-3X, conflicts would fall (between groups, not only countries), innovation would explode.  

Menger is the Copernicus of economics and the first true win-win thinker. The ideas are solved — the only battle left is political: to beat the zero-sum stories that still win elections and headlines. That is the real challenge of the 21st century.