At the end of the 19th century, German-speaking economic thought was dominated by two currents sharing a fundamental characteristic: the rejection of any possibility of universal economic laws. Marxist materialism and German historicism were the two intellectual pillars against which Carl Menger would develop his marginalist revolution in 1871, giving rise to the Austrian school of economics.

Marxist materialism postulates that material conditions determine the social and political superstructures of a society. In economic terms, Marxism adopts the labor theory of value inherited from Adam Smith and David Ricardo. According to this conception, labor constitutes the origin of the total value of a good, independently of supply and demand. Wages would represent only the part necessary for the worker's survival, while the rest, surplus value, would be labor value stolen for the benefit of capital.

This approach has several major theoretical flaws. Firstly, the assertion that only surplus-value generated on labor forms the basis of profits leads to a paradox: this logic would have us believe that small, highly labor-intensive companies are more efficient than large, highly capitalized groups, which never corresponds to observable reality. Secondly, if the value of a good is directly linked to the amount of labor required to produce it, how can we explain the fact that goods that require the same amount of labor can have radically different prices?

Another major weakness is historical determinism. This teleological vision postulates a linear progression of history leading inevitably to communism. By focusing on supposed finality rather than understanding actual economic phenomena, Marxism distances itself from any rigorous scientific analysis.

The second dominant trend was the German historical school, led by Gustav von Schmoller. This school defended the view that economics could only be understood through a historical analysis and contextualization of the phenomena specific to each society. Based on an empirical method in which the accumulation of data plays a predominant role, this approach denies the existence of any universal economic theory.

This methodological quarrel took place in a particular political context. The German Empire, born of the Franco-Prussian War of 1870, was characterized by nationalism and statism. The collective took precedence over the individual, and the administrative body was the main organizing force in German society. The historicist approach thus aims to legitimize the organizational superiority of the German empire in the face of the supposed disorder of British liberalism.

It was against this backdrop that the Methodenstreit, the quarrel between Carl Menger and Gustav von Schmoller, broke out. In his Principles of Political Economy (1871), then in his Recherches sur la méthode (1883), Menger firmly opposed historicism. For him, economics should not limit itself to chronicling facts, but seek to identify the general principles that guide human action. The task of economic science is to seek out the laws by which phenomena occur, and to discover the causal links between them.

Menger also criticizes the statistical approach of the historicist school, believing that these balance sheets represent mere snapshots of a bygone past, incapable of revealing the timeless principles that guide the economy. Furthermore, by adopting a contextualist approach, historicists lock themselves into a reading influenced by their own era, creating an insurmountable circularity of thought.

The marginalist revolution of 1871 also saw the emergence of William Stanley Jevons in England and Léon Walras in Switzerland. However, where the latter developed mathematical approaches, Menger took a different path. His marginalism is resolutely subjectivist and verbal rather than mathematical. For him, value is not an objective property of goods that can be measured, but emerges from the subjective evaluations of individuals. These evaluations are ordinal, not cardinal: we may prefer one good to another without being able to measure the difference between them. Finally, this approach resolves the diamond-and-water paradox, by showing that value depends on the utility of the last available unit, and not on total utility or embodied labor.