Milei and Menger's principle of imputation

In 1871, Carl Menger published Principles of Political Economy, a work that gave rise to the Austrian School and revolutionized classical economic thought by laying the foundations of the subjective theory of value. In contrast to the prevailing objective theories—such as Ricardo's and Marx's labor theory of value—Menger introduced a radically different approach: the value of goods is not determined by their intrinsic characteristics or by the labor embodied in them, but by the utility that individuals subjectively assign to them according to their purposes.

This paradigm shift had deep theoretical and practical implications, especially regarding price formation and the role of consumers in the economic process. In contrast to the classical approach where costs determined prices, Menger argued that it is the value consumers attribute to consumer goods that determines, by imputation, the value of capital goods and, therefore, costs. This causal inversion, now taken up by President Javier Milei, is key to understanding market phenomena in inflationary contexts such as Argentina.

Value is subjective, not objective

Menger starts from an individualistic and marginalist conception of value. For him, a good only has value if it contributes to satisfying a human need. This value doesn't derive from an objective essence, but from marginal utility, that is, the importance of the least urgent use that can be satisfied with an additional unit of the good. Thus, value is not in the good, but in the mind of the person who values it.

This view is in direct opposition to theories that assigned value based on embodied labor. Menger showed that even goods produced with the same amount of labor can have radically different market values, simply because the ends they satisfy differ in importance for consumers. Value, then, is born in consumption, not in production.

The principle of imputation: prices are not explained by costs

One of Menger's most revolutionary contributions was the principle of imputation, according to which the value of higher-order goods (capital goods or factors of production) is derived from the value of consumer goods (lower-order goods). In other words, capital goods have value insofar as they make it possible to produce goods that consumers value.

This principle implies that it is not costs that determine prices, but rather the expected prices of final goods that determine how much can be paid for inputs and productive factors. For example, a producer is willing to pay for flour, labor, and electricity based on the price at which he believes he can sell the bread. If the consumer doesn't value that bread at the final price, the entrepreneur will incur losses, regardless of his costs.

The consumer is sovereign in the market

The market economy described by Menger and his successors (Mises, Hayek, Böhm-Bawerk) is based on the principle of consumer sovereignty. In this system, consumers, through their purchasing decisions, determine which goods are produced, in what quantity, with what quality, and by what methods. Entrepreneurs are not all-powerful planners, but intermediaries who risk capital to meet consumer needs.

In this framework, prices function as signals that transmit dispersed information about subjective valuations. When the price of a good rises, it is not because the entrepreneur "decided" to charge more, but because the consumer values it more than before, or because the available quantity of the good has decreased and consumers are willing to pay more to obtain it. If no consumer is willing to pay the new price, the good doesn't sell. It is that simple.

Milei and the Mengerian vindication

Javier Milei has forcefully revived these ideas in his crusade against statism and structural inflation. His criticism of the notion that "entrepreneurs raise prices" is based precisely on the theory of subjective value and the principle of imputation. When he states that "prices are determined by the market" or that "consumers validate prices," he is simply applying Mengerian logic to the Argentine context.

In an economy with high inflation, the temptation to blame the merchant or the supermarket for price increases is high. However, meanwhile, from an Austrian perspective, the structural cause of inflation is always monetary, while relative prices adjust according to subjective valuations and scarcity signals. Attempting to control prices or regulate margins without addressing the monetary causes only generates shortages and distortions.

Milei has been clear in pointing out that if an entrepreneur tries to raise the price of a good, he will only succeed if the consumer is willing to pay more for it. If not, that product will remain on the shelf. In that case, the entrepreneur will lose. It is the consumer who has the final say.