[1] The division is as old as Aristotle. “Of everything which we possess there are two uses both belonging to the thing as such, but not in the same manner; for one is the proper and the other the improper or secondary use of it. For example, the shoe is used for wear, and it is used for exchange; both are uses of the shoe.”—Politics (Jowett), § 9.

[2] “Value is the life-giving power of anything; cost, the quantity of labour required to produce it; price, the quantity of labour which its possessor will take in exchange for it. ‘Value’ signifies the strength, or ‘availing’ of anything towards the sustaining of life, and is always twofold; that is to say, primarily, intrinsic, and secondarily, effectual. Intrinsic value is the absolute power of anything to support life. A sheaf of wheat of given quality and weight has in it a measurable power of sustaining the substance of the body; a cubic foot of pure air, a fixed power of sustaining its warmth; and a cluster of flowers of given beauty, a fixed power of enlivening or animating the senses and heart. It does not in the least affect the intrinsic value of the wheat, the air, or the flowers, that men refuse or despise them. Used or not, their own power is in them, and that particular power is in nothing else. But in order that this value of theirs may become effectual, a certain state is necessary in the recipient of it. The digesting, breathing, and perceiving functions must be perfect in the human creature before the food, air, or flowers can become of their full value to it. The production of effectual value, therefore, always involves two needs: first, the production of a thing essentially useful; then the production of the capacity to use it.”—Munera Pulveris, i. § 12.

I quote this passage, partly on account of its suggestiveness, partly to show how impossible it would be to reconcile any such definition of value either with ordinary language or with economic science.

[3] For instance—to say nothing of the fact that all economic ends must be subjective—of the four ways indicated above in which Wellbeing may be conceived, the three first may be considered objective as compared with the subjective fourth, while the wellbeing of man generally—particularly the ideal good—may very well be called the only objective end in contrast to the accident of a technical result. But, as it is impossible to keep the economic vocabulary clear of the philosophical, we may be satisfied if these names are definite enough to keep before our minds the broad lines of the division indicated above.

[4] Böhm-Bawerk, like Neumann, while acknowledging that the two conceptions have many internal and external relations, and that both spring undoubtedly from one common root, thinks that any more universal conception, which should embrace them both, would be ganz leer und schattenhaft.

[5] “Anything which an individual is found to desire and to labour for must be assumed to possess for him utility. In the science of Economics we treat men, not as they ought to be, but as they are.”—Jevons, Theory, 2d Edition, p. 41.

[6] It is one of the difficulties of our economic vocabulary that, where we wish to express the singular of “goods,” we have to use “commodity” or some such word. In my translations, I have made no scruple of rendering the honest German Gut by its literal equivalent, and it is in this sense that the word is used above and throughout this book. It will be noted in what follows that there is a difference between simple goods and “economic goods.”

[7] It is perhaps a pity on two grounds that the word “utility” should have been adopted by economic science:—(1) that the word seems to suggest things really useful, when it means no more than things desired, bought, and sold; (2) that it has so often suggested to shallow thinkers that Political Economy is a “sordid science” whose investigations do not go beyond mere material considerations.

[8] Menger’s definition is “Die Bedeutung, welche concrete Güter oder Güterquantitäten für uns dadurch erlangen, das wir in der Befriedigung unserer Bedürfnisse von der Verfügung über dieselben abhängig zu sein uns bewusst sind.”—Grundzüge, p. 78.

[9] In view of the loose way in which we use “economic” and “economise,” Menger’s definitions are worth remembering. When men recognise that their wellbeing is bound up with the command over certain goods within certain periods of time, and that such goods are likely to be insufficient for their demand, their impulse is (1) to get such goods into their possession or disposal; (2) to preserve the useful properties of the same; (3) to decide which are their more important and which their less important wants, and to satisfy the former only; and (4) to so dispose of the goods as to get the greatest possible result or satisfaction on the whole, and to obtain every individual result with the smallest possible expenditure. “The activity men direct to those ends, in its totality, we call their ‘economy,’ and the goods which stand in these quantitative relations, as the exclusive objects of that economy, we call ‘economic goods.’”—Grundsätze, chap. ii. § 3.

[10] There are two typical cases where valuations are made:—where a man values something he has, with the view of parting with it (in selling, giving, lending, etc.), and where he values something he has not, with the view of acquiring it. As will be seen from above, the two methods of valuation come practically to the same result.

[11] The difficult subjects of capital value and of interest on durable goods are fully treated in Böhm-Bawerk’s Positive Theory of Capital. See particularly p. 339.

[12] Just as the nutritive value of the horse competed with its draught value during the siege of Paris.

[13] How far the theory of Complementary Goods admits of being applied directly to the problem of distribution of product among the various factors is matter of controversy. Böhm-Bawerk considers that it is the key which will lead to its solution. The line which this suggests would be something like the following. Labour and Capital enter into the composition of all productive groups: in proportion as they are abundant and mobile do they enter into competition with all labour and all capital, and become perfectly replaceable. In entering into products, then, they can never secure more than their outside value—that fixed by all their employments or uses. The surplus in the price of each product goes to the monopolist factor, whether that monopoly be caused by natural and site advantages of land, mental and technical qualities of undertakers and workers, peculiar conditions of process, or the like. And in proportion as these factors lose their monopoly, does the value of the group shrink; if all the members were to become replaceable, as when first-class land in other countries becomes available through rapid and cheap carriage, or when education makes unskilled labour the exception, the group value, as distinct from the combined isolated values, would disappear.

Wieser, again, considers that this is no more than a valuable suggestion. What guidance, he asks, will this law give where there are several irreplaceable members, and how is the outside value of replaceable members given if not in other combinations of complementary goods which in turn require to be split up into their factors? He points out acutely, in reply to Menger, that, to estimate the proportion contributed by any factor by the loss which would accrue if that factor were absent, is to reckon too much to it, as the loss of a factor from a co-operation will generally disorganise the group and cause more damage than its presence would cause gain. Instead of using the doctrine of Complementary Goods in this way, he proposes to find, by a series of equations, what each factor positively contributes; not, of course, the physical share, but the proportion of value which may be economically “imputed” to it. A great part of the Natürlicher Werth is taken up with this doctrine of the “Zurechnung,” which is treated in Wieser’s usual strong and graphic manner.

[14] As might be expected of a reaction against the old position claimed for value in exchange as the sole economic value, the Austrian economists have devoted their energies mainly to the neglected branch, Subjective Value. Böhm-Bawerk alone has followed out the marginal theory of value in detail into the theory of price.

[15] In justice to that large class of economists who strive to suit the stubborn fingers of the economic man to the lute of social life, it may be said that their dislike of the egoistic motive is due simply to its being egoistic. If struggle and fight is the necessary and healthy condition of industry and commerce, then the utmost demand of the reformer must be a fair field for every one and no favour; if the ethics of commerce are necessarily the ethics of war, we may weep over the fallen but we shall not waste our time crying mercy. But a great many people—and these not the worst economists—think that the economic field may justly be regarded, not as a battle, but as a harvest field, where the greatest results are to be had, not by fighting against, but by working with each other. For the last hundred years, they would say, men have been dazzled by the new possibilities of life which the great increase of wealth has opened up, and the solidarity of mankind has been broken up by the eagerness of each to get hold of an advantage which, obviously, could only be had by the few. Now that the world is passably rich, should we not draw breath, and try to organise the industrial life with an end to the character and conduct of the workers? Ideas like these have a way of making the egoistic motive seem a little contemptible. But, in justice also to the practical man, it must be said that he ridicules all this mainly because he does not understand that it is a new point of view—the subordination of the economic to the higher life—and because his spiritual advisers have long allowed him to think that the business life has canons of its own, with which “theoretic” morality may not intermeddle.

[16] To be exact, this limit may be more closely drawn. Böhm-Bawerk’s law is that the price is determined between the valuation of the last buyer and that of the first excluded seller as Higher Limit, and the valuations of the last seller and first excluded buyer as Lower Limit, viz. between the valuations of the Marginal Pairs. But, for reasons which will shortly be evident, it is scarcely worth while adding to the difficulty of the subject by too great exactness.

[17] In connection with this, the following passage is worth attention. “Goods which can only be obtained in very small quantities and which only the rich are likely to demand, will obtain the highest prices. Goods, again, of common quality, suited to the wants of the poor, obtain very low prices, along with those goods of better quality which are so numerous that the poorer classes are able, to a considerable extent, to purchase them. Medium prices, lastly, will rule in the case of goods of which the middle classes are the principal buyers, while poorer people either do not compete or compete only so far as compelled by their most urgent feelings of want. It will readily be understood that changes in the economical provision and power of great classes must be followed by changes in the prices of goods. The greater the inequalities of wealth, the greater will be the differences in price. Luxuries will rise in price as great fortunes increase and fall as they diminish.... Thus it is that diamonds and gold stand so very high; they are luxuries of the rich and richest, and are valued and paid for in the measure of the purchasing power of these classes. Food and iron are at the other end of the scale because they are goods for the people, their value being decided by the valuation and purchasing power of poor men.”—Wieser, Der Natürlicher Werth, pp. 44, 45.

[18] This is not quite true. They have subjective exchange value just as money has. The product of labour which has been paid by 20/ of wage has the same sort of subjective value to the wage-payer as the 20/ had. But as the professional producer anticipates demand the subjective value is not so calculable.

[19] It need scarcely be said that it is anticipated product; in modern circumstances it is of course impossible for the fore producers to wait on final sales, even if makers and merchants did not regularly anticipate demand; but this does not affect the logical connection.