Menger's exact laws, the role of knowledge, and welfare economics.

Menger's distinction between "true" and "imaginary" goods and his attempt to relate the account of goods back to human needs invites a discussion of whether his work constitutes a fruitful basis for modern welfare economics. In this paper, we show that Menger's system contains indeed a form of welfare economics, but only in a limited sense. For Menger, individuality and individual processes of needs-discovery are central to human welfare. Beyond this abstract point, Menger's welfare economics is institutional. The economist can study the framework that is conducive to economic prosperity and the growth of knowledge, which are in turn conducive to agent-relative needs-discovery and satisfaction. To develop our argument, we examine the epistemic and ontological status of Menger's "exact laws" and their connection with his emphasis on true needs, true goods, and economic action. Overall, Menger's system gives economists good reasons why they might want to show humility and shy away from paternalistic policies that reduce the "countervailing" or "distorting" factors on economic behavior. [ABSTRACT FROM AUTHOR]