Menger was born in Neu Sandec, Galicia, a part of present day Poland that was at the time part of Austria. He was the son of a wealthy family of minor nobility, his father was a lawyer. After attending Gymnasium he studied law at the Universities of Prague and Vienna and later received a doctorate in jurisprudence from the University of Krakow. In the 1860's Menger left school and enjoyed a stint as a journalist reporting and analyzing market news, first at the Lemberger Zeitung and later at the Wiener Zeitung.
During the course of his newspaper work he noticed a discrepancy between what the classical economics he was taught in school said about price determination and what real world market participants believed. In 1867 Menger began a study of political economy which culminated in 1871 with the publication of his Principles of Economics ("Grundsaetze der Volkswirtschaftslehre"), thus becoming the father of the Austrian School of economic thought. At the time Principles was largely ignored, although they were later credited as a contribution to the Neoclassical Revolution.
In 1872 Menger was enrolled into the law faculty at the University of Vienna and spent the next several years teaching finance and political economy both in seminars and lectures to a growing number of students. In 1873 he received the university's chair of economic theory at the very young age of 33.
In 1876 Menger began tutoring Archduke Rudolf von Hapsburg, the Crown Prince of Austria in political economy and statistics. For two years Menger accompanied the Prince in his travels, first through Europe and then later through the British Isles. He is also thought to have assisted the crown prince in the composition of a pamphlet, published anonymously in 1878, which was highly critical of the higher Austrian aristocracy. His association with the Prince would last until Rudolph's suicide in 1889 (see the Mayerling Affair).
In 1878 the Emperor (Rudolph's father) appointed him to the Chair of Political Economy in Vienna. The title of Hofrat was conferred on him and was appointed to the Austrian Herrenhaus in 1900.
Ensconced in his professorship he set about refining and defending the positions he took and methods he utilized in Principles, the result of which was the 1883 publication of Investigations into the Method of the Social Sciences with Special Reference to Economics. The book caused a firestorm of debate, members of the Historical School of economics began to derisively call Menger and his students the "Austrian School" to emphasize their departure from mainstream economic thought in Germany. In 1884 Menger responded with the pamphlet The Errors of Historicism in German Economics and launched the infamous Methodenstreit, or methodological debate, between the Historical school and the Austrian School. During this time Menger began to attract like-minded disciples who would go on to make their own mark on the field of economics, most notably Eugen von Böhm-Bawerk and Friedrich von Wieser.
In the late 1880's Menger was appointed to head a commission to reform the Austrian monetary system. Over the course of the next decade he authored a plethora of articles which would revolutionize monetary theory including The Theory of Capital(1888) and Money(1892). Largely due to his pessimism about the state of German scholarship Menger resigned his professorship in 1903 to concentrate on study. He died in 1921.
Menger's son Karl Menger was born in 1902 and went on to become a respected mathematician.