He emphasizes that the heterogeneity of the prevailing price theory is most unsatisfactory because it explains prices of factors and inputs and of final goods. In order to solve this problem, he develops a special framework which consists of two major elements: methodological individualism and a theory of subjectivist evaluations.
According to this theory, individuals evaluate objects and actions as goods and services according to their subjective preferences only. Menger's analy sis shows that the combination of methodological individualism and the theory of subjective evaluation is especially fruitful for economic analysis.
He also shows that methodological individualism and the theory of subjective evaluations are incompatible with any essentialist approach in economics.
According to him, essentialist doctrines com in three different forms: as a methodological position in the form of methodological inductivist essentialism; in a derivative form of that position as an organic explanation of social phenomena; and in the form of labour cost theoretical explanations of exchange and relative prices.
Smith. In contrast to these essentialist doctrines, Menger intends to develop a nominalist and relational behavioural theory which explains the economie behaviour of individuals under different conditions.
The social sciences is to uncover laws of historical development on the basis of inductive procedures. He aims at clarifying the epistemological status of the social sciences and provides a naturalistic account of the methods of the social and natural sciences developing a satisfactory price theory. That genuine new scientific knowledge can be obtained by inductive procedures only. The results of intellectual activities are the products of this process. He proposes a very rudimentary correspondence theory of truth. In order to solve exchange and relative prices as an unintended outcome of the interplay of individual intended actions, Menger starts his analysis by explaining individual intended actions In order to solve exchange and relative prices as an unintended outcome of the interplay of individual intended actions.
Menger, however, shows that satisfactory theoretical explanations require statements or laws or as he says strict or exact typical relations which are universal and empirical. aim of uncovering laws of historical development by Roscher's inductive procedures cannot be attained for principal logical reasons unless the problem however, since Roscher and other authors of the German Historical School simply disregard this logical and epistemological situation, their position is to be rejected. Moreover, on the basis of their position, the social sciences cannot be demarcated as empirical science and the problem of the epistemological status of the theoretical social sciences still awaits a satisfactory resolution
In Menger's view, however, the task of the theoretical social sciences is explaining the origin of a phenomenon is by no means explained by the assertion that it was present from the very beginning and that it developed originally
According to Menger, the labour cost theories explaining exchange and relative prices constitute a third form of essentialism in economics