Principles of Economics by Carl Menger Chapter 5.0 - The Theory of Price

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Most people think prices are the heart of economics—but Carl Menger disagrees. In this video, we explore Chapter 5.0 of Principles of Economics, where Menger reveals that prices are not the cause of trade, but the result of it.
Prices—measurable and ever-present—seem like the main thing economists should focus on. But Menger argues that the real reason people trade isn’t about numbers. It’s about needs. Every trade happens because two people each believe they’re better off after the exchange. Prices simply reflect this balancing act between people’s wants and what they can give up to satisfy them.
He compares prices to waves that appear when a dam between two lakes is removed. The waves are visible, but the real force is the difference in water levels—just like real economic activity is driven by the difference in personal valuations, not by any supposed equality of goods exchanged.
Menger criticizes older price theories that try to find objective “equivalents” in goods—like labor time or production cost. He shows this doesn’t match reality: if two goods had equal value, people would be fine trading them back. But trades rarely reverse, proving that goods are not exchanged because they’re equal—they’re exchanged because they are unequal in value to each person.
In this video, you’ll learn why a proper theory of price starts with subjective value and human needs—not with numbers or costs.

❓ Questions This Video Answers:
-Are prices the most important part of economics?
-What causes prices to exist in the first place?
-Why do people trade if the goods are unequal in value?
-Are exchanged goods ever truly equal in value?
-Why don’t people reverse trades if they’re “equal”?
-What’s wrong with labor or cost-based price theories?
-What are prices actually measuring?
-How is value different from price?
-Why do prices act like signals in the economy?
-What is the true foundation of price theory?

00:00 - Introduction to the Theory of Price
00:10 - The Role of Prices in Economic Exchange
00:43 - Prices as Temporary Disturbances
01:30 - Questioning the Assumption of Equal Value
02:02 - The Logic Behind Trade
02:35 - Conclusion

#PriceTheory #SubjectiveValue #CarlMenger