Theory and methods TheÂorie etmeÂthodes Markus Haller Carl Menger's theory of invisible-hand Carl Menger's theory of invisible-hand explanations explanations Abstract. Carl Menger's theory of invisible-hand explanations is rooted in his methodology of the social sciences. Contrary to his 18th-century Scottish forerunners he explains both the emergence and the persistence of unplanned social institutions exclusively by the individual pursuit of perceived self-interest. Contrary to Hayek's evolutionary functionalism, Menger's theory is not con®ned to the explanation of ef®cient or bene®cial institutions. And contrary to Buchanan and Vanberg's constitutional contractualism, it does not require that people form stable preferences over rules. Key words. Carl Menger ± Constitutional choice ± Institutions ± Invisible-hand explanations ± Social evolution Carl Menger (1840±1921) owes his place in the social sciences mainly to two works. In his Grundsa Ètze der Volkswirtschaftslehre of 1871 (Principles of Economics, 1981) he developed a subjectivist theory of economic value which eventually led him to formulate the prin- ciple of marginal utility. Together with William Stanley Jevons's Theory of Political Economy (1871) and LeÂon Walras's EleÂments d'eÂconomie politique pure (1874), Menger's Grundsa Ètze is responsible for the paradigm shift in economic science known as the ``margin- alist revolution'' (cf. Kauder, 1965; Jaffe , 1976). But when Menger's book ®rst came out, the academic reception was unenthusiastic. In Germany, the study of economics was dominated by the historical Social Science Information & 2000 SAGE Publications (London, Thousand Oaks, CA and New Delhi), 39(4), pp. 529±565. 0539-0184[200012]39:4;529±565;015181