CONCLUSION
Thus we have found that what determines the value of productive goods
where the product is one single good directly connected with them, and
what determines it in the most complicated cases, where the conduction
of value is, first, to means of production, and, then, back again to
product, is always the marginal utility, the utility of the marginal
product. As the vineyards of Tokay get their value from the wine of
their grapes, and as cotton gets its value from the bare backs it
covers, so do iron, coal, and labour get their value in the last
resort—far as may be the course from post to finish—from the last
employment into which they enter.
It has already been said that the law developed in the previous
chapters is not a rival to that which makes value determined by the
relations of Supply and Demand, but a more adequate expression of it.
So, in the last three chapters, the emphasis necessary to prove a
difficult proposition may have given the impression that the present
law is put forward in contradiction of the determination of price, in
the great majority of cases, by costs of production. It may, then, be
as well to remember that the work of the Austrian school is a quest
for the _fundamental_ law of value. In the complicated circumstances
of modern industry, it is not easy to see the real nexus of cause
and effect. In a developed market, where production speculates on
demand, value naturally assumes the appearance of being determined
beforehand. Human wants are tempted, as it were, instead of giving the
initiative. Thus the impression is easily got, and with difficulty got
rid of, that human want will pay the price which production dictates,
the fact being that production must, in the long run, conform to the
nature and measure of human want. And thus also, I am afraid, comes
the idea, certainly common among the employing classes, that wages
are dictated by them from above, instead of being produced by the
labourers themselves—an idea degenerating in many cases into the belief
that combinations of workers to secure their share in the product are
illegitimate interferences with capital.
What is contended is that the Law of Cost is a good working secondary
law as regards articles reproducible at will under large and organised
production; that is, of course, as regards the vast majority of goods
produced. But it has always been taught by economists that it did
not hold outside these cases. On the other hand, the Law of Marginal
Utility is claimed as the universal and fundamental law of value. It
has not been difficult to prove its validity in the simpler cases; and
if now, in the later chapters, our law has been shown to be the real
background of the empirical Law of Cost, the contention is justified.
And thus, as representing, however humbly, the modern Austrian school,
I may close with the words written by our own Jevons twenty years
ago. “Repeated reflection and inquiry have led me to the somewhat
novel opinion, that _value depends entirely upon utility_. Prevailing
opinions make labour rather than utility the origin of value; and
there are even those who distinctly assert that labour is the _cause_
of value. I show, on the contrary, that we have only to trace out
carefully the natural laws of the variation of utility, as depending
upon the quantity of commodity in our possession, in order to arrive at
a satisfactory theory of exchange, of which the ordinary laws of supply
and demand are a necessary consequence. This theory is in harmony with
facts; and, whenever there is any apparent reason for the belief that
labour is the cause of value, we obtain an explanation of the reason.
Labour is found often to determine value, but only in an indirect
manner, by varying the degree of utility of the commodity through an
increase or limitation of the supply.”
APPENDIX I
Wieser’s chapter on the paradox of value (_Natürlicher Werth_, i. §§
7 and 10) deserves more space than could appropriately be given it
in the text. I therefore give the substance of it here. Suppose, he
says, that I have a certain good the employment of which yields me
a utility represented by 10, and that I add successively 10 similar
goods to my stock, the marginal utility, at each addition diminishing
by 1. The value of the stock will stand successively at 10, 18 (9 ×
2), 24 (8 × 3), 28 (7 × 4), 30 (6 × 5), 30 (5 × 6), 28 (4 × 7), 24 (3
× 8), 18 (2 × 9), 10 (1 × 10), 0 (0 × 11). Here, obviously, each added
good brings a smaller utility than the last, and at each addition the
marginal utility, and with it the value, of the unit of goods falls.
But while the value of the single good thus steadily falls, the value
of the whole stock describes a peculiar course: it rises from 10
to 30, pauses there a moment, and then falls from 30 to zero. This
phenomenon of increasing wealth accompanied by decreasing value is a
paradox from which we shall not escape so long as we consider value
a simple and positive amount. Value arises in the combination of two
elements, a positive and a negative. It is a combined amount, or, more
accurately, a residual amount. The positive element in value is the
gratification from the use of goods. This gratification is subject to
a natural law of “diminishing returns”: as the first draught of any
pleasure is the most grateful, and as the gratification weakens at
every repetition, so a single good stands highest in our estimation,
and each addition to the stock occupies a lower place. The value of the
stock successively may be represented thus—
When the stock consists of 1 2 3 4 5 6 7 8 9 10 11 goods,
—— —— —— —— —— —— —— —— —— —— ——
the total gratification is 10 19 27 34 40 45 49 52 54 55 55 units.
This would be the movement of value if value were simply positive:
beyond a certain point, additions to the stock would _add_ no value,
but they would not cause any _loss_ of value, and the highest point
would come last in the series. But there is another, and a negative
element in value.
It arises from the indifference which we naturally feel towards goods.
To man only the human is really important: by nature his thought, his
sympathy is for himself; for _things_ he only cares, in the first
instance, as he finds in them any relation to human interests. This
interest may take the form of sympathy with pain or pleasure in the
animal world; or that of religious and poetic feeling suggesting the
unity of all life; or, lastly, that of economic valuation finding in
things the auxiliaries and conditions of human wellbeing. This natural
indifference is so great that it requires a peculiar compulsion before
we look at anything outside us as having importance or value. Simple
utility is not enough: if useful things are present in superfluity,
we think no more of them than we do of the sand on the sea shore. It
is only when our wellbeing is not assured that an interest awakens in
the things on which it is seen to depend, and that we exert ourselves
to acquire these things. The overcoming of this natural resistance,
then, is something with which we have to reckon. The greater our need,
the less the resistance: in cases of extreme need, it disappears
altogether, and we identify our fate with the fate of the goods which
“are life or death to us.” The resistance is at its height when we
have everything in excess, and feel no thanks due to goods which
cannot help ministering to our enjoyment—for there is no reason why we
should value additional goods unless they give us additional wellbeing.
Between these two extremes, the interest we transfer to goods is
proportioned to the interest we take in what they do for us. But we
do not attach to them the whole of the interest they really have for
us: we do not require to do so, for goods of a stock are not estimated
according to their actual importance, but according to the marginal
utility they afford. All utility over the marginal utility is kept
back from the value of the goods, and this gives us the figures for
the strength of the resistance: the negative element is equal to the
surplus value deducted. Thus, when the stock consists of two goods,
the actual gratification is 10 + 9 = 19, while the calculation of the
value is 9 × 2 = 18, leaving a surplus of 1: when the stock consists of
4 the actual gratification is 10 + 9 + 8 + 7 = 34, but the value is 7
× 4 = 28, leaving a surplus of 6, and so on. Putting these two scales
together we have the following—
1 2 3 4 5 6 7 8 9 10 11
-------------------------------------------------------
Positive (+) 10 19 27 34 40 45 49 52 54 55 55
Negative (-) 0 1 3 6 10 15 21 28 36 45 55
--------------------------------------------------------
Residual (+) 10 18 24 28 30 30 28 24 18 10 0
That is to say, combining the positive and the negative elements, we
get Residual Amounts corresponding to the marginal scale. Thus we see
that the value of a stock increases with the increase of its units so
long as the positive element is in the ascendant: _i.e._ so long as the
increment of value obtained from the newly-acquired good is greater
than the decrement of value which its addition causes to every good
already in the stock. We may call this the “Up-Grade” of the movement
of value. On the other hand, the value of a stock falls in the converse
circumstances, and this marks the “Down-Grade” of value. Twice, then,
in the development of value is zero touched—when we have nothing and
when we have all: in the former case, because value has no object to
which to attach; in the latter, because there is no subjective motive
to attach it to anything. In practical life, we have mostly to do with
the up-grade of value. In most of our possessions, we are so far from
superfluity that increase of quantity involves increase of value;
while the individual value of the single good sinks, that of the stock
rises. And this is the reason why we usually measure wealth and riches
by the sum of the values of their elements, and count it hard if the
value of our property and our returns goes down. And this, again, is
why it seems paradoxical when we find that the amount of goods and
enjoyment of wealth and welfare has increased while their “value” has
gone down. It does on rare occasions happen that individual branches of
economy are for the moment forced on to the down-grade—as in the case
of phenomenal weather producing a miraculous crop, or the discovery of
new mineral strata of unsuspected richness, or great discoveries in
machinery and processes, or, perhaps, the fact of producers extending
too fast from overreaching greed or foolish overestimate of demand.
But it is probable that the conditions of industry, as a whole, will
never be favourable enough to bring production so near excess that
the down-grade of value will be permanently entered on. All the same,
the existence of what we call the “free gifts of nature” allows us no
room to doubt that value disappears whenever superfluity is reached,
and this gives us the best confirmation of the statement that it must
decrease as we come near it.
APPENDIX II
THEORY OF VALUE: THE DEMAND SIDE
Many of the difficulties in the Theory of Value arise from not keeping
clearly before us that it is a Theory of Human Valuation; of the
values which men do—not of what they should—put on things. The idea of
“intrinsic value” dies hard.
=Connection with Wealth.=—“Wealth consists of useful things.” “Wealth
consists of valuable things.” Both statements reflect current views,
and both are true, the one suggesting an Inventory, the other a
Calculation of the same things.
=The Problem stated.=—Twenty goods, different in substance, size,
shape, quality, use, are equal in this, that a twenty-first good, say
a shilling, will purchase any of them. What is it that puts them in a
balance, and pronounces all the twenty-one goods equal in value?
=An Indication.=—It has been suggested that Value is the order of our
Preferences. But can one thing, strictly speaking, be “preferred” to
another unless the two are at equal price? At any rate, it cannot
be said _simpliciter_ that the ordinary man “prefers” diamonds to
his dinner. The suggestion, however, reminds us that we never value
anything by itself; we always value it by reference to something else.
Thus, in the last resort, Value expresses an order—a more or less.
=Comparison with other Measures.=—Measures do not hang in the air;
they are based on something—a unit proclaimed by Governments, either
quite arbitrarily or as corresponding to some presumably fixed natural
phenomenon, _e.g._, the yard and the metre. So, in ancient times, the
gold talent _weighed_ 120 to 140 food-grains, and was equated, by
convention, to the ox, which was the primitive unit of value. But this
throws no light on the _value_ measurement which equated the ox to
the talent. (It is submitted, in passing, that the equation was only
an ideal one—a convenient point of departure; that the ox generally
exchanged for the talent with a plus or a minus, just as the point
of departure for a lawyer’s fee is “six and eightpence,” or as the
30 acres presumed necessary for the support of a manorial family was
the point of departure for a “virgate.”) The grain basis of the gold
talent, however, suggests that the value measurement also has a natural
basis;—that Value is the comparison and expression of things in a
Common Third. What is this Common Third?
=Labour as the Common Third.=—A famous theory says that value expresses
and measures the more or less of labour “embodied” in goods—the labour
involved in the getting or making of goods. This, however, involves
the idea of a Unit of Labour, _i.e._, it assumes the possibility
of bringing all labour to a common expression—a previous equation.
This difficulty seems insuperable, even when we look only at one
side of the primitive equation: can any labour be more different in
amount, intensity, and quality than that which gets gold? Suppose
this overcome, and suppose the similar difficulty of equating the
various labours involved in getting oxen overcome, what common quality
measures these two sets of labours? When, finally, one tries to weigh
head labour against hand labour, _except by the price paid for their
results_, the full impossibility stands revealed. But, of course, to
bring different labours to an equality by referring to the price paid
for their results, is to beg the whole question. Assume that things
are valuable and variously valuable, and one may pronounce that the
labour spent on them will be correspondingly valuable; but the previous
question is—Why are the products so variously valued? The hold which
the Labour Theory took in last century can be explained only by its
introduction of a moral idea making results (prices) depend on that
which makes and elevates man, namely, Labour. But it certainly would
make Value something very different from Human Valuation. (Note in
passing that this theory is not to be confounded with the Cost of
Production theory, which, indeed, is the other—the Supply—side of the
true theory.)
=Life as the Common Third.=—When Adam Smith said that water had great
value in use, and diamonds scarcely any, he suggested life as the
common third. It might, indeed, be possible to draw out a “natural
order” of values—a hierarchy of things according to their power of
sustaining an average human life. An animal or a Crusoe might value
things in this way. It is evident that in prehistoric times the ox was
adopted as the standard because of its measurable potentiality in this
respect. But, in any community that we know, “life” is too complex to
afford a basis; not only does “living” become intellectual, moral,
æsthetic, but goods naturally availing to life, becoming plentiful,
notoriously lose their value. This, however, suggests the true answer.
=Utility as the Common Third.=—The common third is Utility. Jevons’
words, in his introduction to the _Theory of Political Economy_ (1871)
put this succinctly. “Repeated reflection and inquiry have led me to
the somewhat novel opinion that _Value depends entirely upon Utility_.
Prevailing opinions make Labour rather than Utility the origin of
value; and there are even those who distinctly assert that Labour
is the _cause_ of Value. I show, on the contrary, that we have only
to trace out carefully the natural laws of the variation of Utility,
as depending upon the quantity of commodity in our possession, to
arrive at a satisfactory theory of exchange, of which the ordinary
laws of supply and demand are a necessary consequence. This theory is
in harmony with facts; and, whenever there is any apparent reason for
the belief that Labour is the cause of Value, we obtain an explanation
of the reason. Labour is found often to determine Value, but only in
an indirect manner, by varying the degree of Utility of the commodity
through an increase or limitation of the supply.” Here, however, we
must hark back to first principles, and see what we mean by Utility.
The question is pertinent, not only because of the misleading meaning
given to the word by current opinion, but because of its association
with the supposed materialist tendencies of Utilitarianism—an
association, indeed, from which economic science still suffers.
=The Boundary Line in Economics.=—Every science, as expressing the
division of labour which rules in thought as in industry, must limit
itself and specialise. Granting in the fullest way that men never
escape the obligation to ethical conduct in the industrial as in the
political life, there can be nothing but confusion if we do not draw a
line, however arbitrary, between ethical science and economic science,
just as we draw a line between ethical science and political science.
Let us drop, so far as possible, the word Wellbeing, which is generally
taken as explaining “Wealth,” and has, in current language and in
cruder economics, become confused with it. Take it from Aristotle that
Happiness is the “end in itself”—the Good for which we desire all other
things. Men, blindly seeking Happiness, aim, not indeed at Money,
but at the things which Money can buy, and these they call Wealth. It
is true that many of these things are as aptly called Illth (Ruskin’s
word), still the “Illth” is not in themselves, but in the uses men
make of them. They are, at any rate, “goods,” and they often prove
themselves “good” by finding their other uses. What remains beyond
doubt is that men buy goods—that is, express and measure the value they
attach to them in a money price—because they _want_ them. Why do they
want them? We may avoid the ethical connotation of the word Happiness
by taking a word which has been hypothecated by economics, and saying
that they seek Satisfaction. Here “Wealth” becomes marked out, both
currently and scientifically, as the “collection of instruments” which
aims, rightly or wrongly, at this Satisfaction. We take Satisfaction,
then, as the boundary line of Economics—although a limit always
suggests something on the further side. But what is Satisfaction?
=Satisfaction.=—Satisfaction is found in men and animals alike, in
the filling of physical wants and the forth-putting of activities. To
these man adds infinite desires—less urgent, perhaps, but hungrier
and more far-reaching than physical wants. Mark, however, that wants,
desires, and activities merge into one another—human hunger, _e.g._, is
appetite; the best life is one long purposed activity, subordinating,
but necessitating, the satisfaction of wants and desires incidental to
it.
=Goods.=—This satisfaction gives us the meaning of Goods. The
reason—and the sole reason—why we want goods is that by our
constitution we cannot get satisfaction without them. Wealth, then, is
the complex of goods on which satisfaction is presumed to be dependent.
=Law of Satiable Wants.=—All wants and desires weaken with
satisfaction, and, if satisfaction is carried far enough, they, for
the moment, disappear. Generally, however, as our wants and desires
are many and various, and as one satisfaction limits another, we leave
off in the satisfaction of any want at a margin far short of satiation.
This is purely a physiological and psychological phenomenon, not an
economic law.
=Law of Diminishing Utility.=—Satisfactions being dependent on Goods,
we easily reflect the satisfaction on to the goods, and use the
relative word Utility as if it were a quality of goods. Transferring,
by the same process, the weakening satisfactions to goods successively
presented to a want (or to similar goods in our possession), we get
a statement of a fundamental tendency of human nature, the Law of
Diminishing Utility; namely, that the additional utility which a person
attaches to a given increase of his stock of anything diminishes as
the stock increases. This is purely an Economic Law; for, physically
considered, the goods themselves retain their material content
unchanged, and are not in the abstract less capable of satisfying want,
_if there be want_. Thus is explained Jevons’ “variation of Utility,
depending on the quantity of commodity in our possession,” which, in
developed exchange, gives us the law that Demand, _ceteris paribus_,
decreases as Supply increases, and _vice versa_.
=A Caveat.=—The above analysis corresponds with, and would be
recognised by, current ways of thinking and speaking; and, since
Jevons, it seems to be accepted by economists. But it may be granted
that Utility might be, and has been, defined differently—as the
potentiality of satisfying human want; in which case we might speak
of Intrinsic Utility. Here Utility would not rise and fall, but be
measured by the properties useful to man which things contain; it
would correspond, then, with certain fixed physical elements. But such
nomenclature leads us into the same difficulties as “intrinsic value”
does; and we should in any case require another word to designate
Utility in Jevons’ sense. It might be advisable, however, where
clearness is required, to speak of Economic Utility.
=Total Utility.=—On these lines there is suggested one way of measuring
Utility. Taking ten successive increments of a similar good, the whole
stock may be figured as a sum in addition of Diminishing Utilities,
say, 10, 9, 8, 7, 6, 5, 4, 3, 2, 1—a total of 55 units of Utility.
=Total Value.=—Though it may be suspected that Value is somehow
connected with Utility, it is clear that the Total Value of such
a stock is not the same as its Total Utility, but something much
less. Water, _e.g._, in spite of the fact that successive increments
generally give utilities (though diminishing utilities), is valued at
nothing. Supposing the units in the above sum were gallons of water,
and an 11th gallon were to be added—representing superfluity as regards
wants—the Total Utility would still be 55, as the final utility of 0
does not alter the sum in addition. And yet the Total Value, as men
call value or as measured by any canon of purchase or exchange, would
be 0. This suggests the solution.
=Final Utility and Value.=—The value of a stock of goods is measured by
the Least or Final Utility—the utility of the last increment. The value
of the single good is the Final Utility, and the Total Value is the sum
of the Final Utilities. In the above illustrations, the value of each
of the ten goods is 1, and the Total Value is 10; the value of each of
the eleven goods, on the other hand, is 0, and the Total Value likewise
is 0. The test always is: If you lose one item, how much value do you
lose? You lose only the least utility, and, seeing that value cannot be
greater than utility, and that all the items are equal, the utility you
lose expresses the value.
=Two Objections.=—(1) It may be objected that there is an assumption
here, namely, that Value is not differential like Utility. We need to
be reminded that we are dealing with human valuations, and that, in
such valuation, Value is not differential. When men speak of things
having “different values but one price,” what they mean is “different
utilities but one value”; things of the one objective value or price
have different subjective utilities. We certainly find differential
values in this sense, that sometimes one man is charged more than
another if his pocket can be forced by necessity or his ability to pay
is known. But this is exceptional, and, in any case, it does not apply
to one and the same man buying successive items of the same goods. (2)
It may be objected, in the case of the eleven gallons of water, that it
would not generally be acknowledged that the total value was nothing
although the loss of one gallon involved no loss of utility, the proof
being that, if the total stock is lost, a considerable value is lost.
But this is to value the eleven gallons together, considering them as a
_single_ good, whereas we are considering them as eleven separate goods
with diminishing utilities attached to each. The absence of value in
the eleven gallons, in short, depends on them being considered not as
one stock of water, but as eleven separate gallons.
=The Paradox of Value.=—From this measurement of value by Final
Utility, comes the paradox that the addition of items of goods is an
addition of value only up to a certain point: if carried beyond, the
Total Value falls; and, if superfluity is reached, it disappears.
Taking the former figures; as the items successively increase from 1 to
11, the Total Value describes this course—10, 18, 24, 28, 30, 30, 28,
24, 18, 10, 0; that is to say, an up-grade till the stock consists of
five goods, equality between a stock of five and a stock of six, then a
down-grade to zero. Thus one may have less Total Value with many goods
than with few. The explanation is, as before, that, as goods increase,
wants diminish; the satisfaction dependent on the last added increment
is always less than that dependent on the earlier increments—that is,
the Final Utility falls; till, in superfluity, no satisfaction is
dependent on one item, and the Value of the single item has disappeared
because its Utility has disappeared.
=Illustration.=—Take the wheat crop in France in 1817, 1818, 1819.
The harvest was successively 48, 53, and 64 millions of hectolitres
(and presumably the Total Utility increased), while the Total Value
was successively 2,046,000,000, 1,442,000,000, and 1,117,000,000
francs. This should remind us that the effort of the industrial world,
as distinguished from that of the individual, is always towards the
increase of Utility, not necessarily of Value. The total disappearance
of Value, however, is almost never seen, because, at the worst,
articles however useless subjectively, have always the use of exchange.
=The Course of Total Value.=—As a rule, Total Value increases with
Total Utility, though not in the same proportion: the reason being that
there are very few things of which the community, as distinguished from
the individual, ever has more than enough to satisfy its most urgent
wants. As goods increase, the dependence of the richer classes on them
indeed diminishes, but they then come within reach of poorer people,
whose want has hitherto been entirely unsatisfied. Thus an abundant
crop, although the Final Utility may be low, is _generally_ of much
greater Total Value than a short one.
=Marginal Utility.=—As there are many closely related wants, and as
the satiation of one would prevent the emergence of others, it is
seldom that we completely satisfy any single want. As one want is
being satisfied, it diminishes in urgency till there comes a point
when another want, not originally so urgent, becomes more urgent; and
having satisfied one want partially, we pass on to the satisfaction
of another, and so on successively from want to want, describing a
marginal line in the satisfaction of each. This is generally—though
perhaps doubtfully—described by saying that, on this line, the marginal
utilities are equal. For this reason we replace the expression Final
or Least Utility—which is apt to suggest satiation or zero—by the
expression, Marginal Utility—the margin at which we stop in the
circumstances.
=Exchange.=—Hitherto Value has been presented as a relation between
Satisfactions and Goods. It remains to say that this subjective
valuation becomes objective and explicit in exchange; we have, in fact,
a definite expression of this valuation in the thing surrendered in
exchange. In other words, we need not measure Value by the subjective
satisfaction we should lose in losing the marginal item—we actually
do lose the utility we part with in purchasing, and this—generally
money—names the value. If exchange were by barter, it would be clear
that the exchanger surrendered a utility as well as gained one. Take a
shepherd and goatherd bartering successive items of their flocks; the
gain and loss of sheep-utility and goat-utility are quite evident—as
is also the diminishing marginal utility of the items successively
acquired and the increasing marginal utility of the items successively
parted with. When money forms the one side of the exchange, it is not
essentially different; the motive always is that the thing purchased
is considered of greater utility than the money parted with: that is
to say, of greater utility than all the things that might, in the
circumstances, have been purchased with the money. But, in this case,
the money parted with expresses universally the value of the goods
bought, and gets the name of Price. Thus Price, in this point of view,
is the money expression of Marginal Utility.
=Marginal Utility of Money.=—Money, like all other goods, diminishes in
utility with increase in the amount of it possessed. But the diminution
is much less marked, and never comes near zero, because money is not
one commodity, satisfying one want, but is potentially, everything that
money can buy, _i.e._, a complex of things satisfying almost the whole
complex of wants. Till we have no need for anything which money can
buy, the marginal utility of money will not sink to zero.
=Demand Price.=—What we have in actual life is not, of course,
individual bargains between two persons, where the exchange would be
determined by the marginal utility on each side, and Demand Price and
Supply Price would be convertible terms. Still what we have, on the
one side, is multitudes of people—each with different valuations based
on different subjective marginal utilities depending on different
circumstances of want and provision—offering Demand Prices. That they
are confronted, in the market, with another distinct set of prices
brings us to the other side of the total theory of value.
=Summing Up.=—We have, then, passed from Happiness to Satisfaction of
Wants and Desires, and from Satisfaction to the Goods which condition
it. From this emerges Utility, and the analysis of Utility yields up
Total Utility and Marginal Utility. With Marginal Utility we identify
Value. Then we found Value naming itself in something given up; that
something, in developed civilisations, is Money, and Price becomes the
universal expression of Value. When we conceive of Price as the sum of
money seeking after goods, it is Demand or Demand Price.
=Demand and Supply.=—The above is the Theory of Value from one side,
that of Demand, _i.e._, of Utility expressed and measured in money
figures, and offering itself as demand for other utilities. It accounts
for our willingness to pay certain prices. But although the tap root
of value is Utility—for there can be no value in the absence of
Utility—there is another side. The sum we are willing to offer—our
Demand Price—is confronted with, and at all times affected by, another
sum, which seems independent—Supply Price, and this latter sum seems
determined by Cost of Production. These two sides and their mutual
relations are necessary for any complete Theory of Value. Hence
Marshall’s words: “There has been a long controversy as to whether
Cost of Production or Utility governs Value. It might as reasonably
be disputed whether it is the upper or the lower blade of a pair of
scissors that cuts a piece of paper.”
INDEX
Adam Smith, 1, 8, 18, 20.
Aristotle, 3, 47.
Austrian School, 5, 27, 30, 55, 85.
Böhm-Bawerk, 7, 32, 37, 40, 45, 47, 55, 60, 61.
Complementary goods, 42.
Consumption goods, 68.
Cost of production, 67;
conduction of value from marginal products to, 74;
from, to products, 78.
Demand Side of the Theory of Value, Appendix II., 91.
Desirable and desired, 10, 11.
Exchange, 56;
motives of, 56;
isolated, 57;
no one-sided competition, 58;
ordinary, 58.
Goods, 11, 16;
economic, 17;
classification of, 21;
complementary, 42;
stand midway between production and consumption, 68.
Illustrations: sailor and his dog, 30;
Crusoe and his sacks, 32;
housewife and her butter, 39;
silk substitute, 76.
Jevons, 6, 8, 11, 32, 85.
Life, 4, 10.
Marginal buyer, 64;
marginal pair, 60, 64.
Marginal products, conduction of value to productive goods, 74.
Marginal utility, 29;
level of, 40.
Menger, 11, 15, 17, 42, 45, 68.
Mill, 2.
Neumann, 7.
Political Economy, based on economic conduct, 9.
Price, 55;
assumptions of the law, 56;
based on subjective valuations, 61;
determined by the marginal buyer, 64.
Ricardo, 12, 18.
Roscher, 68.
Ruskin, 4.
Satisfaction, the diminishing scale (_Sättigungscala_), 27;
Appendix I., 87.
Scarcity, 10, 11, 16, 40.
Schäffle’s objection, 36.
Subjective exchange value, 47;
money the typical example, 50.
Supply and Demand, relation of the Austrian law to the law of, 65, 84.
Sydney Smith, 2, 3.
Useful and valuable, the distinction emerging, 11.
Utility, 8, 12;
the supreme principle, 13, 14, 24;
marginal, 29;
the foreign, 39.
Value, looseness of the term, 1;
in use and in exchange, 2;
not an inherent property, 3;
always a relation, 5;
subjective and objective, 5;
depends entirely on utility, 8;
analysis of common usage, 9;
the common element, 10;
difference from utility, 11, 12;
attaches to a felt condition, 14;
the centre within us, 16;
a relation of dependence, 17;
scale of, 18;
Adam Smith’s scale, 20;
where nearly true, 24;
the true scale, 26;
determined by marginal utility, 32;
paradox of, 34;
necessity of defining what one is valuing, 35;
capitalised, 37;
the lowest use, 37;
the foreign utility, 39;
of complementary goods, 42;
subjective exchange, 47;
transition to objective, 52;
and price, 55;
price based on subjective valuations, 61;
supply and demand, 65;
cost of production, 67;
from the past or the future of goods, 67;
the conduction of, 70;
shown by silver, 72;
conducted from marginal products to cost, 74;
and from cost to product, 78, 84;
the fundamental law, 84.
Walker, 4.
Wants, a demand for satisfaction, 15;
classification of, 19;
scale of, 20.
Wieser, 13, 28, 32, 45, 46, 47, 51, 62, 87.
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