Chapter V: the fundamental law of collective valuation

If the burden of taxation is distributed among the citizens in the manner just described, a very remarkable contrast emerges between the law which regulates public imposts, and that law of price (under free exchange on a market uncontrolled by the state) which regulates the burden that must be borne by all individuals when they wish to acquire goods produced or offered for sale by private industry. As return for the services of the state, or as contribution towards meeting the costs of these services, each individual gives the maximum which he is able to give, the full equivalent. In free exchange, on the other hand, the (approximate) maximum is paid only by the marginal purchaser; the other purchasers get off more cheaply, as the one price is established for all, and no one requires to pay more than the equivalent of the marginal purchaser, even although his own valuation may be much higher. The state, accordingly, takes advantage of the purchasing power of every one in a much more thorough way; and, more especially, the purchasing power of the wealthier citizens. It does not suffer the rich to pay according to the standard of the poor, but insists that every one shall be taxed in accordance with the full measure of his own personal estimate of the value which the services of the state have for him.

Hence is derived a peculiar law of national economic valuation—as of collective valuation generally. In every self-contained economy equal quantities of goods have an equal value; similar items, or fractions, or units, of a stock have for their owner the same value. This law holds also in all free economies, and for the economic bodies created by it; similar goods have on the same market the same price, the same exchange value. But it is different in the case of the national economic body, as, generally, in that of every collective economy which binds together several otherwise independent economic subjects to carry out distinct purposes. Here the goods which belong to the individual economic subjects, and from which the taxes are to be drawn, are valued as unequal,—equal taxes have unequal value, the same value is expressed by unequal taxes. The valuation of individual wealth and income on the part of a government agrees exactly with the individual degree of valuation for purposes of taxation; a government estimates the property of each person exactly as he estimates it himself, and in so far the collective economy is not like a self-contained economy. Not until the government comes to the spending of the taxes does it act in accordance with the universal law; not till then do sums, which were valued as unequal so long as the government had to collect them, come to be equal in value.

Not only, then, does the levying of taxes rest on valuation, but in the levying of taxes is directly expressed a distinct valuation; a valuation which—as regards the wants of the public housekeeping—estimates every good at a lower figure in proportion to the number of other goods which are bound up with it in one individual's wealth, or in proportion to the limited character of the private wants to which it is devoted. In other words, the theory of taxation, in its economic foundations, belongs not to the applications of the theory of value, but to the theory of value itself.

The fact that, when levying taxes, a government, in contrast to the general law of ordinary economic life, rates economic property differently according to the individual circumstances of those who are taxed, has, economically speaking, undoubtedly beneficial results. It allows that the public burdens of the poorer classes be put at a lower figure; it allows the ability of the wealthier to bear taxation to be more fully utilised; and it thus places the taxes where they will cause least injury to the satisfaction of private needs. Were the state to act otherwise; were it to impose equal contributions, like poll taxes, on every citizen; it would inflict on the poorer classes privations in no way compensated by the extended indulgence in luxury that would now be possible to the richer.

To this extent it might be desirable that the same principle should also apply in free economic life; that there also each should pay according to the amount of his purchasing power. In this way a universal equalisation of satisfaction might be attained; if every person were obliged to pay a dearer price according as he possessed more means, riches would offer no advantage, poverty no privation; all would have in the long run the same satisfactions. It need scarcely be said that, so long as our economy remains free, this cannot be. For so long as it is so, every one will strive to buy as cheaply as possible, and sellers will meet buyers in the same spirit—inasmuch as they will make the slightest advance in price an occasion to give the preference to the buyer who offers it, and will not in the least insist on adapting the objective amounts of price to the subjective purchasing power of the buyers. And just because this law of the free economy is so closely united with the freedom of that economy, it would be useless to condemn it for the undoubted evil effects which it directly has upon the distribution of the satisfaction of wants. In order to judge adequately, one must in any case take into consideration as well the effects of economic freedom—or, to put it differently, of private economies and private property — on all other economic relations, and particularly as regards the formation of productive returns. It may very well be that private property gives rise to great inequalities in the satisfaction of wants, while it, nevertheless, secures, even to those who receive the smallest share in the general distribution, an enormously increased satisfaction of want on the whole— the reason being the enormous increase in productive return which it allows and brings with it. And here, perhaps, may be found a reason for the remarkable phenomenon that one and the same community should contain at the same time two such diverse organisations as a free economy and a collective economy. In the former of these it diverges from the natural measure of value in that it over-estimates the goods reserved for acquisition by the rich, while, in the latter, it diverges from it in that it puts all goods possessed by the rich at a low figure so far as the public housekeeping is concerned. In the former the community is governed by a law which spares the rich, except where they come into competition with each other; while in the latter it lays down a law for itself which utilises their purchasing power to a quite unlimited extent. In the former it favours the unequal distribution of satisfactions: in the latter, it helps to equalise them. Such deeply-rooted divergences can only be explained by showing that the two organisations serve different purposes,—purposes in which personal freedom demands different scope.

We could not follow out this line of thought without leaving the sphere of the theory of value, and trespassing into the wide sphere of economic justice and economic philosophy. The explanation of the social organisation within which the valuations take place, is a task with which the theory of value, with its limited means, is not capable of dealing. And it is not only the theory of value which is unequal to this task; only a theory of society, which took into consideration other than merely economic facts, could adequately undertake it.

If now, in closing, there is one thing which, more than another, I wish to repeat with special emphasis, it is the intention which has dominated me throughout the whole work, and in every part of it,—the intention to be, in the best sense of the word, empirical. I may perhaps hope that the attainment of this object has not been disturbed by the fiction—undoubtedly unempirical—of a natural value and of the utopian state of communism. So far as I can judge of my own work, I have nowhere pointed to any foreign non-empirical power in the actuality of economic life. The only liberty I have taken has been to leave out of consideration facts of whose activity there could be no doubt:—the actual imperfections of valuation, the individualism of our economy, and, finally, the inequality of wealth. At the same time, however, I have not neglected to indicate, at all events in a general way, the directions in which these circumstances must of necessity cause value, both in the private economy and in the economy of the state, to deviate from the natural standard. I hope that my statement has not by this means become untrue, though I know very well that it must of necessity be imperfect. But what is incompletely stated is certainly not, on that account alone, non-empirical—if it were so, what statement would be empirical, seeing that we are unable ever to do more than investigate mere fragments of the great organic structure of our world? All judgment as regards any attempt at investigation must depend on whether the fragment, with which the inquiry is concerned, be large enough and solid enough to have a coherence of its own, and to deserve consideration by itself. If the imperfect description of the phenomena of value, which I have attempted to give, is justified in this sense, it is empirical.

The form of the fiction cannot have misled any one. I might, of course, have stated drily that I intended to abstain from the consideration of certain facts. But like one who wishes to look at certain things undisturbed by the impressions of other things, and aids his senses by spreading a veil over the disturbing objects, I thought to aid imagination by making use of the easily comprehended figure of a communistic society, concerned to abolish in actuality all that I wished to disregard in thought. The fiction which I have employed must be regarded in that light alone, and I trust that the veil has been transparent enough to allow the complete body of phenomena to be clearly outlined at every turn under its slight disguise.

Rau, too, with his “concert Gebrauchwerth” may be included. There is a notable treatise of the mathematician Daniel Bernoulli: Specimen theories novas ds mensura sortis (Commentarii Academiae Scieutiarum imperialis Petro-politanae, tomus V. Ad annoe 1730 et 1731. Petropoli, 1738). Bernoulli maintains that it is valde probabils, lucrulum quodvis afferre summae bonorum raciproce proportionals. He is folly acquainted with the subjective character of value, as well as with the most important law of the change of value. His work is referred to by Jevons in an extract from another of his books. By the kindness of Prof. Menger I hare seen the original. Dupuit's De Iinfluence des peages, 1849, mentioned by Jevons, I hare not been able to consult.

Entwicklung der Gesetze des menschlichen and daraus fliessenden Regeln für das menschliche Handeln. Braunschweig, 1854.

First in a paper before the British Association 1862, them fully in the Theory of Political Economy, London, 1871; 2nd edit 1879.

Grundsätes der Volknoirthchaflslehre, Visnna, 1871.

Elements d¨economic politique pure on Théotis de la richessa social. Lausanne, 1874-77.—Théoris mathematiqus de la richessa socials. Lausanns, 1888.—Théoris da la Monnaie. Lausanne, 1836.

Leerboek der stathushoudkunde. Haarlem, 1884.

Principes d'economic political. Paris, 1884.

Mathematiches Begründnng der Volknoirthschaftslehre. Laipzig, 1885.

Grundzüge der Theorie des wirthschafilichen. Güteruerths. Conrad's jahrbücher, N.F. vol xiii. Jens, 1886.

Grundlegungder theorstischen Staatsucirthschaft. Vienna, 1887.

See Ursprung Werthes, p. 146, and Sax, p. 371.

Many economists would explain interest, particularly the interest on productive capital, by the difference in value between present and future feeling. This seems to me an error. Interest derived from productive capital is a phenomenon of the very best ordered economic transactions, of those managed with the highest possible degree of foresight. It is not in the least a sign of a defective economy. See, however, Book IV.

The amount of supply depends chiefly on the result of production, and thus the elements of production come into relation with value. The nature of this relation we shall first discuss, however, in Book V., under the head of “Costs.” Meantime we shall assume that supplies exist without production.

We have here reached a decisive point in our examination. Experience shows us daily that similar goods obtain similar prices; and the majority of theorists (although they may use different names for the same thing) are agreed that these prices are fixed by a marginal law. In this is involved that exchange value, which rests on prices, is the same for all similar goods, and obeys a marginal law. We, however, have gone still further, and say that Value generally and in every form, even in that of use, and even where there is no exchange—as e.g. in a community organised on a socialist basis—must be the same for all similar goods, and must obey a marginal law. Jevons, Gossen, and Walras have not gone so far as to assert this. To these writers the utility of the separate portions or items of one supply is different, according to the amount of use which each actually gives. I can scarcely hope to have brought home to the reader, and still less to have converted him all at once to such an unfamiliar aspect of the question. But I trust that the following presentation of the theory of value, which is founded on the foregoing, and which examines, and—so far as my judgment goes—explains all the different relations of value, will be found convincing.

There is just one more point to which I should like now to draw special attention. Price not only regulates the amount paid by buyers, but also the amount of production by sellers: it gives to the latter its level. All goods produced for the market are produced under a valuation which considers similar goods as equal to one another, and which subjects them to a marginal law, and it is with reference to this valuation that the costs permissible are calculated, that all stocks are inventoried, that all undertakings make up their balance-sheets, and that all profit and loss is reckoned. If a socialist community were to give up exchange—the payment of buyer to seller—it would not on that account require to give up this measuring scale for the valuation of goods. It could continue to value similar goods at the same figure, and to bring them all under a marginal law. And might we not have some right to ask, what reasons it would have to discontinue this? Certainly it would require weighty ones to justify a change in a method of valuation which has been followed ever since, if not before, human economics began to be enlarged through trade. And, finally, we have still to ask whether it would ever be possible to cease valuing goods in this way. Is it possible to value equal things unequally? Can we ever regard the useful but unimportant as important?

Menger's theory of value differs essentially from its rivals on this point. He asserts that the law of equality and the marginal law refer not only to price but to value. In my opinion this places his theory in advance of all the others, and wins for him the fame of being the first to lay a perfect foundation for the theory of value. The other authors we have named examine only the laws of want and the laws of price. Menger alone includes the laws of value. His view of the question is the most wide-reaching, in as much as it not only aids us to the clearest comprehension of the present economy, but also enables us to think out possible future forms of economy.

The value formula is an abridged utility formula. Only that part is left out which, on the one hand, renders calculation more difficult, and, on the other hand, is really unnecessary as an adequate motive to economic actions; viz. that surplus utility which is above the marginal utility. Economic actions which have value (in the up grade) for their motive, are not only approximately, but completely and exactly weighed and limited. The greater utility is always reached when the greater value is aimed at.

It may be interesting to go more into detail regarding this. There are two occasions on which economic goods become objects of valuetion; first, when we wish to acquire goods, and to measure the amount of the acquisition; and, second, when we wish to part with goods in order to devote them to some given end, and to measure the amount of the service which they thus will render. On the one aide, then, we have to measure results in goods, and, on the other, outlays in goods It may be remarked in passing that, without some such end in view, goods are never valued: they are never valued for valuing's sake. At most, goods are valued in advance to be ready for any contingency; but value never plays the rôle so readily ascribed to it by theory;—it never acts simply as the means of valuing wealth. Wealth may be valued in all sorts of ways, according to the purpose which it is intended to serve. The rules of valuetion which are actually followed have their origin in the fact that they serve towards the ends of economic life, whatever these may be. Value is adapted to its economic environment, and can only be understood through it.

First, as to the measurement of results in goods All acquisitions of goods which increase value are profitable. Of two acquisitions, between which one may choose, that one will be chosen which gives the greater amount of value, because it also gives the greater utility. Augmentations of value arising from intentional destruction of goods are unprofitable, and, in consideration of utility—which is the stronger consideration wherever there is a collision between it and value—are forbidden. Acquisitions of goods which, inasmuch as they follow the “down grade” of value, diminish the amount of value, are nevertheless profitable.

An increase of value occasioned by increased necessity, and unaccompanied by any change in the amount of goods, must not be described as an economical result. It is not created by any economical act. Once created, however, it naturally influences economic action, etc., through the fact that it changes the value of goods used as outlay.

Second, as to the measurement of “outlay” in goods—whether in purchase of other goods, or in production, or in mere satisfaction of personal want. In every appropriation of goods to a particular purpose the value of the sacrifice involved must be estimated and compared with the expected result. The greater the sacrifice of value,—-if we disregard the circumstances of the “down grade,”—the greater the sacrifice of utility, and it must be justified and made good by the obtaining of a higher result. It is difficult to show this as regards consumption. The employment of goods towards the satisfaction of personal wants must also be guided by the value of goods. But how can marginal value serve this end? Would not that require that only marginal wants be satisfied ? The difficulty solves itself whenever we give up the old and deep-rooted but erroneous belief that consumption as such is an economical act. Consumption as such does not arise from any economical considerations. It is only economising in consumption that is economical (see Ursprung des Werthes, p. 133). The demands of economising are, however, exactly met when we keep to the marginal utility. In other words, value does not control consumption: it only forbids uneconomical consumption; that, namely, which would not assure uninterrupted satisfaction down to the lowest attainable utility. This prohibition and nothing else is expressed in marginal value; no employment of goods which goes below the margin drawn can be allowed. Through the fact that want on its side is active and demands satisfaction, economic satisfaction is reached by a combination of claims and refusals. Whoever possesses 1000 items of the value of 10, may permit himself every enjoyment which has an intensity of 10 or more. Whoever possesses 2000 items of the value of 8 may go further, and allow himself all enjoyments which have at least the intensity of 8. The first may have his enjoyment, at an intensity of at least 10 degrees, a thousand times; the second, at the intensity of 8, two thousand times. This is the true meaning of that estimate of the value of supplies of consumption goods, to which we generally give the more material formulation, that the first possesses 1000 × 10 = 10,000, and the second possesses 2000 × 8=16,000 units of value.

See, upon the calculation of value, my Ursprung des Werthes, p. 180, and Böhm-Bawerk's Werth, p. 46; further, on the service of value, Book II. chaps iv. and v. and Book V. chap. xiii. below.

Here we have a proof from experience for our statement in Book I. chap. ix. that (for the same owner) the separate items of a stock, so far as they are equal to each other, have the same use value, and are all valued according to the amount of the marginal utility. One and the same buyer will not consent to pay other than one price for the similar items which are all bought at the same time: he will not pay more for one than for another, and for none will he pay a higher sum than the marginal equivalent. This shows that he values them all equally, and all according to the same marginal amount. Otherwise there would be nothing to prevent his paying different prices for them, and possibly paying mere than the marginal equivalent for a great many of them— indeed for all except one, the marginal item.

It is as result of the recognition of this principle that we first arrive at a complete understanding of the remarkable phenomenon which has occupied the attention of so many theorists; that the value of goods which can quite well be done without, such as diamonds, may be so much greater than that of the indispensable necessaries of life; the value of gold, for instance, so much higher than that of iron. It has already been shown, in the elementary theory of value, that the value in use of an entirely insignificant good must be greater than that of a much more useful one when the marginal utility of the former is, owing to its scarcity, comparatively high, while that of the latter, by reason of its superfluity, has fallen very low down on the-scale. Even greater differences are found, under certain circumstances, in prices, and consequently in the estimates of exchange value, than are shown in the different estimates of use value. Diamonds and gold stand exceptionally high in price because they are luxuries, valued and paid for according to the purchasing power of the richest classes; while the coarser food stuffs and iron are low in price, because they are common goods, in regard to which the decisive factor is the purchasing power and the valuation of the poor.

Or, as we say simply, in purchase of good— money and goods being generally thought of as in opposition to each other.

For instance, the value of a shilling to me depends (1) on the number of shillings I have to spend; (2) on what and how much I can buy in the shope for a shilling; (3) on what use I can make of the shilling's worth of goods when I get them—which, again, depends (a) on how much I have of similar goods already; and (b) on my natural or acquired capacity of consuming or employing stich goods.—W. S.

See Jevons, p. 152.

Of course the author does not mean that the consideration of possible personal use of his goods ever comes into the mind of the maker or merchant who supplies the market. Their“use”to him is their“exchange.”Wieser is only making out the logical point that even goods made for sale would not be estimated at their exchange value if it were not that the personal use is less than the exchange use.— W. S.

On the change of motive which results from this in the conflict of price see Böhm-Bawerk's Werth (p. 515). I may perhaps be allowed to point out that in my Ursprung des Werthes (p. 185) I alluded briefly to the case described above.

The ordinary conception, which makes price the social estimate put upon goods, has to the superficial judgment the attraction of simplicity. A good A whose market price is £100 is not only ten times as dear as B whose market price is £10, but it is also absolutely and for every one ten times as valuable. In our conception the matter is much more complicated, and according to it we obtain the following propositions. 1. A is paid for with ten times as much money as B: its price is ten times greater. 2. Its objective exchange value is also ten times greater—the weightiest consequence of which is that ten times the cost may, and, if practicable, will be expended upon its production. 3. But these relations of price and of objective value do not in the least degree correspond with the relative position of the two goods in regard to their economic importance or subjective valuation. Price alone forms no basis whatever for an estimate of the economic importance of the goods. We must go further and find out their relation to wants. But this relation to want can only be realised and measured individually. Suppose both goods are owned by the same person (or by people under exactly similar conditions of want and provision), A will, of course, have ten times the importance of B. But it may just as well happen that A has exactly the same importance for one owner as B has for another; it may indeed happen that A, in spite of its greater exchange value, has for its owner, supposing him to be a rich man, even less value than B has to its owner, supposing him to be a poor man. If there are many goods of the class A and many of the clans B, the individual valuetions of the various owners will be widely diverse, and a unanimous judgment is not to be expected. And the question how it is possible to unite those divergent individual valuetions into one social valuetion, is one that cannot be answered quite so easily as those imagine who are rash enough to conclude that price represents the social estimate of value.

See further, on the relation of objective to subjective exchange value, my Ursprung des Werthes (pp. 10 and 21; also Böhm-Bawerk's Werth, introd., etc.), and Sax (chapters xlviii, and xlix.).

Exchange value is, so far as concerns its application, without doubt the most important form of value, inasmuch as it governs the largest sphere;—that of industrial economy generally. Political economy, outside that chapter where the theory of value is given, is almost exclusively concerned with it. No wonder, then, that theoretical treatises have taken it as their end. But application is one thing and explanation another. To explanation subjective value is chief in importance, for only through it can exchange value be reached. Subjective value is the original and perfect form of value; exchange value taken by itself and unrelated to subjective value is imperfect and unintelligible. What does it signify to say that one article costs this and another that price in money, if we cannot say how money and prices are themselves valued? Theorists who have confined themselves to the examination of exchange value, or, what comes to the same thing, of price, may have succeeded in discovering certain empirical laws of changes in amounts of value, but they could never unfold the real nature of value, and discover its true measure. As regards these questions, so long as examination was confined to exchange value, it was impossible to get beyond the formula that value lies in the relation of exchange;—that everything is so much more valueble the more of other things it can be exchanged for. Why the exchanged things had value; why things generally were worth anything to us; and how this value was to be measured;-—these theories could never explain nor hope to explain. Value was conceived of relatively, by referring one thing to another;—as the ratio of valueble things. Absolutely and by itself value was not to be understood. It is significant of this conception to state that one thing cannot be an object of value in itself; that a second must be present before the first can be valued.

Theory has only very gradually shaken itself free from this misconception, this circle. Where an absolute theory was attempted—-such as the labour theory, or that which explained value as usefulness—some logical leap generally reconnected it with the relative conception. It was forced into this by the overestimate of exchange value from which it seemed impossible to get free. A striking example of this is Ricardo'e theory of value. As a matter of fact value is still chiefly regarded relatively. German literature has for long had the great advantage of much penetrating criticism of exchange value, and of manifold attempt to supplement it, but it has nevertheless failed in any final solution. Among the later reformers of the theory of value, Jevons is distinguished for the strictness and accuracy with which he separates the two conceptions of value from one another, but he fails to construct a theory of subjective value (see second note to Book I. chap. ix.), and to determine the functions of both kinds of value. Menger, on the other hand, has a complete theory of subjective value, but makes no attempt to develop objective value.

My own investigations in the Ursprung des Werthes are almost entirely occupied with subjective value. And even favourable critics have concluded from this that I do not recognise objective value The reproach is the less merited that (on page 38) I have especially acknowledged the necessity for an objective conception of value. The relation of subjective and objective value has been best described by Böhm-Bawerk, and—particularly as regards the distinction of their separate functions in economic life—by Sax.

On the effect of exchange value on distribution see Böhm-Bawerk's Werth, p. 510.

What I propose to call“Natural Value”has been hitherto called social use value. With the word“value in use”(Gebrauchswerth) are connected too many misunderstandings to permit of our using it without danger. Use value is commonly understood as usefulness, or something closely related to that, and not as actual value. It is, moreover, rarely used in connection with production, and I wish to speak as much of the value of production goods and of costs, as of the direct use value of consumption goods.

The question whether such a community can or ever will exist is one which does not in the least concern us. We shall content ourselves with imagining it, and it will be an excellent aid in realising what would remain of our present economy if we could think away private property, as well as all the troubles which are a consequence of human imperfection. Most theorists, particularly those of the classical school, have tacitly made similar abstractions. In particular, that point of view from which price becomes a social judgment of value, really amounts to a disregard of all the individual differences which emerge in purchasing power, and which separate price from natural value. A great many theorists have thus written the value theory of communism without being aware of it, and in doing so have omitted to give the value theory of the present state. By making our assumptions quite clear, and guarding against a similar error, we may do more for value as we find it than they have.

The value of the productive unit again is decided according to the marginal law—i.e. by the least among these returns. See below, Book III. chap. viii.

The classical political economy really examines only the value of products, or, more exactly, of produced consumption goods. So far as the factors of production are concerned, it looks upon them, on the one side, as sources of income (rent, interest, wage, and, perhaps, also undertaker's income); on the other side, as the elements which go to form the costs of production, and are considered to decide, principally, the value of the products.

But when one compares with this the endeavours which, explicitly or implicitly, guide the new writers on the theory of value, we find the circle of the phenomena to which the idea of value is applied extraordinarily widened. Factors of production—better expressed by the later writers as “production goods”—are conceived of all through as objects of value; costs are directly phenomena of value; and even income must be so conceived. Further than this, the relations between the value of utilities and the value of production goods is turned just the other way about—the former being considered as determining, the latter as determined. On the present occasion we have first to do with the proposition which may serve as starting-point for the whole theory;—that production goods receive their value from the value of the products which they serve to create. Gossen, Jevons, Menger, and Walras are all agreed on this point. In my opinion it is again Menger who gives the most clear and comprehensive statement of the matter. He divides (as does also Gossen, though much less perfectly) the entire goods which stand in the productive nexus into Ranks, and value is conducted from rank to rank. The first and lowest rank is formed by those utilities which receive their value direct from wants. The value thus received passes over first to goods of the second rank, those, namely, which serve directly towards the producing of goods of the first rank; as e.g. the meal and the labour of the baker in the preparation of bread. From these value passes on to goods of the third rank (e.g. wheat and the labour of the miller); and so on, step by step, till it reaches the highest, or, as Böhm-Bawerk calls them, the most remote ranks.

We shall find further on (Book V. chap. x.), in the socialist theory itself, a much clearer confession that labour is not the only factor in the formation of value. See also Book III. chap. xvii.

Menger reckons this undivided residue to each separate factor instead of charging it to the entire amount, and thus the value comes out too high. In our example the surplus equals 1 (10-9). Menger calculates it three times instead of only once; thus calculating two units too many, and showing a value of 12 where there is only a return of 10.

The other attempts at solution of the problem do not go beyond suggestions. In Böhm-Bawerk alone (Werth, p. 56) is there a more detailed statement,—and it professes only to point out the direction in which probably the solution of the problem might be sought—“To measure the share which each one of several co-operating factors takes in producing the common product.” Böhm - Bawerk, speaking first of some less important cases of “ complementariness,” establishes firmly the fundamental maxim that no element in a group which admits, firstly, of a separate employment outside the group, and which, secondly, may be replaced at the same time in the group by other goods of the same nature—obtained from some outside source—can receive a value higher than its “substitution value.” By substitution value he means “that which is derived from the decrease of utility in those branches of production from which the substituted goods are procured.” Of such a nature are, e.g., the bricks destined for housebuilding. If some cartloads of these are destroyed, it will not hinder the building, as they are simply replaced by others. This proposition Böhm-Bawerk applies to the cases of productive complementariness, dividing the total amount of complementary production goods into two categories. Of these, one—which includes the overwhelming majority—contains those goods which, as marketable wares, are “replaceable at will”; e.g., “the services of hired labourers, raw materials, fuel, tools, and so on.” The other category—which contains the minority—includes those productive elements which “ cannot be replaced, or are difficult to replace; e.g. the piece of land which the peasant cultivates, mines, railway plant, factories, tho activity of the undertaker himself with his high personal qualities.” The value of those goods which belong to the first group is decided, in every case, through the other employments possible to them; it is, so far, fixed. This value is first deducted from the total return, and the residue then falls “ to the member or members which cannot be replaced”; thus the “peasant ascribes it to his land, the mine-owner to his mine, the manufacturer to his factory, the merchant to his capacity.”

Similar ideas may be found more or less clearly stated by various writers; in the ursprung des Werthes I have myself pointed to a similar solution. Probably we should not be far wrong were we to assume that the reason why so many writers have neglected to take up this problem of distribution, is that they supposed distribution in this sense to be as easily solved in theory as it is in practice. How is it,. however, when several “ unreplaceable” goods come together ? Do not the mine and the activity of its owner, as employer, go together? And are not many—indeed very many—replaceable goods often combined ? The value of these, which, practically, can always be ascertained by referring to their secondary employment and valuation, must, theoretically, be first separated from the combination, as again the secondary employment itself always requires combination with complementary goods,—but how can this be done unless the rules of distribution are known ?

If these observations of Böhm.Bawerk can give no solution of the problem of imputation, they none the less contain an important and notable contribution towards its theory, for that could never be complete without recognising the distinction to which he has drawn attention. On this point see, in Book Ill. chap. xii, the examination of “ cost goods and monopoly goods.”

If we are to succeed in our calculation of the productive contributions there must be a sufficiently large number of equations. There must be at least as many equations as there are unknown quantities. Now this condition is certainly fulfilled. How many unknown quantities are there? Just as many as there are classes of production goods distinguishable in exchange. Without doubt these are very numerous. When theorists speak simply of land, capital, and labour, they include within each of these groups an enormous number of classes of goods which in exchange are us far as possible from being homogeneous. The value of labour is not to he calculated as one thing; there must be separate calculations for every kind and quality of labour between which must one can distinguish. In calculating the value of agricultural land there will be, in one and the same district, as many different and distinguishable types of land, as would be distinguished in the register of a perfectly exact land tax imposed both on the cultivating and propertied agricultural classes. As to capital and its incalculable variety of forms we need not speak. But however far exchange may be specialised, the classes of productive combinations are undoubtedly even more numerous than the classes of production goods. The classes of combinations into which a good like iron or coal (even of one distinct origin or quality) may be introduced, are incalculable, and the same may be said of unskilled or day's labour. One and the same field is planted in rotation with the most various crops. And thus it comes that a mere change in the quantity of the same kind of goods in a group is sufficient to produce a new equation. Among all the many kinds of goods employed in production, it would be difficult to find one which, either as regards quantity or kind, would always be combined with others according to the same unalterably fixed formula. Different degrees of wealth, of knowledge, of skill of local conditions, involve that even those kinds of goods which only admit of one single kind of employment,—that is to say, which are only suited to produce one single kind of product—must, at the same time and for the same purpose, go into a manifold variety of combinations. If there are exceptions to this rule they are only isolated ones. The contribution of such goods can, however, still be calculated—always supposing that there are not two such elements in one and the same group. In this case, indeed, the principle we have established would not work, because we should have two unknown quantities and only one equation.

Medium, that is between the greater and the lesser shares just mentioned, The share of labour, for instance, is not determined by the (socialist) consideration that capital without labour is dead, nor by the (opposite) consideration that labour without capital is crippled. In becoming organic every element gains in importance by becoming arbiter of others, but loses as it puts itself into the same position of dependence upon others.—W. S.

This is one of the most pregnant applications of the marginal law; we shall return to it again and again later on, particularly in the fifth book, where we consider the subject of costs. To assist our comprehension of the law of costs, we may here anticipate so much as to say, that the productive marginal value on its part has a levelling effect upon the value of products. In the above example the value of the marginal utilities 10 and 9, in kinds A and B respectively, will be alike pressed down to the the productive marginal amount of 8.

It may be of use to the English reader to note how our representative English economist expresses similar ideas:—“Other things being equal, the larger the supply of any agent of production, the farther will it have to push its way into uses for which it is not specially fitted, and the lower will be the demand price with which it will have to be contented in those uses in which its employment is on the verge or margin of not being found profitable; and, in so far as competition equalises the price which it gets in all uses, this price will be its price for all uses. The extra production resulting from the increase in that agent of production will go to swell the national dividend, and other agents of production will benefit thereby; but that agent itself will have to submit to a lower rate of pay.”— Marshall, Principles of Economics, 2nd edit., p. 565.— W.S.

See on this point Menger, p. 39.

Compare with this Marshall's Principles, p. 563:— “In the account given of the demand for the several agents of production, it was indicated that the ultimate demand for each depended on the co-operation of the others in raising the joint product of their labour; or, to state the case even more broadly, that the demand for each is in a great measure governed by the supply of the others.”— W. S.

See below, Book V.

In the second note to Book III. chap. iv. reference was made to the present chapter, stating that it would there be shown that, without taking into account the distinction to which Böhm-Bawerk has drawn special attention, and which deals with the opposition between monopoly goods and cost goods, the subject could not be finally settled. The importance of the distinction ought by this time to have become dear. The reader will remember that, in distribution as Menger would have it, there is an “undivided residue.” Now, in every combination, this “undivided residue” falls, for the greater part, to that good which possesses most strongly the character of a monopoly. Consequently, where a pronounced monopoly good is combined with pronounced cost goods, the “undivided residue” is imputed to the monopoly good; where cost goods alone are combined it is imputed to that good which most nearly resembles the monopoly goods; and, lastly, where several monopoly goods are combined it is imputed to that one which most distinctly bears the monopoly character.

It must be noted, however, that only the greater part, not the whole, of the “undivided residue” is to be imputed to the good in question. Some part of it —although often a most trifling and indeed practically indistinguishable part— must always be ascribed to the other co-operating goods, as all of these experience a certain increased utility from the maintenance of the combination, while the dispersing of it would destroy that plan of production which is regarded as best. The share to be ascribed to the other co-operating goods will be the greater, the more the maintenance of the above-mentioned combination is dependent upon them—i.e, the more they themselves possess the character of monopoly goods, and the less they possess that of cost goods. A scarce good will, as a rule, be more seriously affected by a trifling change of productive destination than one that is less scarce; as was explained in the text, there must be considerable alterations in demand and supply before the value of goods which are most distinctively cost goods, shows a corresponding change.

The difference, therefore, between “contribution” and “Co-operation” remains fundamentally clear for all cases, although practically it does not come to much, and, so long as only units of goods are concerned, need for the most part scarcely be taken into account. So much the more important is it when we are examining the influence that larger quantities of production goods have upon the amount of productive return.

In this sense I had, in the Ursprung des Werthes, although only by way of suggestion, already disposed of the problem of “complementarity.” There I stated that to production goods must be imputed their “marginal productive contribution,” while, to the “specific productive factors belonging to individual productions” falls the residue of return, after deducting the quotas of all supplementary goods. The only matters omitted were: what would happen were several monopoly goods combined together, and an exact formulation of the law for calculating the contributions.

If £ 600 were sunk a total of £600 would indeed be received in return, but none the less would there be a loss of £40 on the third two hundred. If only £400 were sunk, and the surplus of £40 were imputed not to the land, but to the capital or to the labour, we should make two mistakes, each contradicting the other. Firstly, the land, as such, would be declared to yield no return. The practical conclusion would be that it ought not to be cultivated, and that the capital and labour should be otherwise employed, in which case the whole £40 would be lost. Seoondly, this application of capital and labour would be shown to be peculiarly profitable— the practical conclusion of which would be that it would appear permissible to sink even more capital in the land. But this ought not to be done, as £400 is the highest expenditure economically permissible. The land rent of £40 is, therefore, the rational expression of the most advantageous disposition of production.

Among the trees of a primeval forest which have, as a rule, no value, because they are available in superfluity, there are nevertheless some which may receive value; all those, namely, which have peculiar advantages as regards felling and carrying to market-—say, e.g., that they stand in the near neighbourhood of a natural watercourse. Their value is exactly represented by the saving in costs-—saving of labour and transit—which they assure as compared with the trees less favourably situated, to which no value is attached. Here is a capital which bears a perfect analogy to Ricardo's differential rent from lands of preferable quality. Even to the pure “intensity” rent there are analogies in capital. The sheep on the plains of South America do not receive value in their entire useful content-—-I mean a value corresponding to the entire usefulness of similar sheep in Europe, or any other district of great demand—-but only in that portion of the same— say, perhaps, the hides—-which repays the cost of transport to the sphere of the greater demand. The remaining part is meantime valueless, but may also receive value through an increase in demand. It is easy to infer from these examples the condition for a purely differential rent.

A further fundamental defect in Ricardo's theory may be pointed out;—that he has omitted to notice the reaction of land rent upon the return to capital and labour. Rent is certainly dependent upon the current valuations of cost, but, on the other hand, the valuations of cost are dependent upon rent, if not in the same degree. The return reckoned to capital and labour is essentially influenced by the amount of capital and labour which is required for working the land, and by the returns which they yield in so doing.

In what follows I understand by the term capital the perishable or (with the extended meaning explained in the text) the movable means of production. This conception is adapted to the conditions of a communistic state, in which the national income is obtained solely through production. To take note of those forms of capital which serve in the formation of income outside of production, seemed to me out of place, these being too closely connected with the specific conditions of the existing economic order of things. For the same reason I also refrain from taking into consideration those constituent parts of an undertaker's capital which do not belong to the technical means of production. I have, however, appended, in Book IV. chap. viii., a discussion of the interest on consumption loans and house rent, and, at the end of Book V. chap. xi., I have looked at the interest which comes from the undertaker's wage fund.

To avoid misunderstanding, I wish once more to emphasise the fact that, among the technical means of production, I do not include the means of subsistence which must be held ready at hand for the labourers. These are conditions of production, but not its causes. The cause is here the labourer alone. And this is no contradiction to our previous statement in Book III. chap. iii. The things on which the labourer employs his strength, and the things which maintain his strength, stand in totally different relations to the productive return. The former have a direct influence upon return; the latter influence it only through the medium of the labour power into which they must first transform themselves. If we wish to make the latter factors of production, it can only be done by regarding the labourer as their first product (compare Book V. chap. vii., on the “costs of production “of labour). So far as regards his conception of the means of subsistence for labourers I am thoroughly at one with Sax (in particular p. 324), although I explain otherwise the emergence of interest from this part of an undertaker's capital

Immediately before these pages went to press, Menger's treatise Zur Theorie des Capitals appeared in Conrad's Jahrbūcher. In this treatise he defends in animated fashion the popular as against the scientific conceptions of capital, and interprets the popular conception as embracing all the parent wealth of an acquisitive economy existing in or calculated in money, without respect to the technical nature of the instruments of acquisition. As a matter of fact, the circumstance that acquisitive instruments are calculated in money is of decisive importance for their valuation. To calculate in money means-—leaving the form out of consideration-—first, to calculate exactly, and second, to calculate with reference to exchange and the unit of all exchange goods which it creates. We also look at valuation entirely under these two assumptions, although we substitute the internal exchange of goods in a state economy for the exchange of private individuals. The natural laws we have deduced hold only as regards industries on a large scale and under a highly developed economy.

Among such cases I should include also those where the use of capital in-creases the previous productiveness of production. Here we see with particular clearness that the additional net return must be credited to the capital. It would, however, be an error to believe that capital can receive a share of net return only when its use has directly increased the previous productiveness of production, or that it would be deprived of this share as soon as the world became accustomed to the increased effects. Experience shows us the productivity of capital even in a stationary economy. On this account all theories are inadequate which derive the productivity of capital solely from its capacity to promote the development of economic life.

The theory of interest, like that of rent, has always been discussed very much by itself; discussed. I mean to say, without any previous examination of the general laws of imputation. The result, however, as regards interest, has been immensely less satisfactory than as regards rent. It is easy to understand that in the case of interest we have to deal with the essential point in the problem of imputation, while in the case of rent we have to deal substantially with a detail capable of being conceived by itself,—that, namely, of the differential imputation. Bö hm-Bawerk's great work Geschichte und Kritik der Capitalzins-theorien (Innsbruck, 1884), translated as Capital and Interest (Macmillan), has clearly shown to the scientific world how unsatisfactory all previous attempts at explanation have been.

Ties of family and of friendship bind me too closely to the author to allow of any praise of his work from my lips being counted of value by outsiders. I there-fore confine myself to remarking that everything contained in the following pages on the subject of the return to capital and the value of capital, was written under the influence of his penetrating criticism, and that, if there is aught of value to be found in it, it could never have originated without that influence. It is not inconsistent with this that I should, nevertheless, arrive at other conclusions than those towards which Bö ohm-Bawerk—so far at least as may be recognised from the critical and preparatory work already published— appears to point.

Note.— Since writing the above, Böhm-Bawerk has published the second part of his work, Dis Positive Theoris des Capitals (Innsbruck, 1888), translated by me as. The Positive Theory of Capital (Macmillan, 1891).— W. S.

In the exchanges necessary to procure the goods which are to replace the capital, in lieu of the directly obtained goods which form the gross return, goods are, of course, estimated according to their value. Capital goods, are, therefore, estimated at their capital value. To this extent it appears that the knowledge of the value of capital and of the laws which regulate it, must precede the imputation of net return. Only in such a simple instance as that given by Thünen can an imputation of net return be made without a previous knowledge of the value of capital, and this destroys our proof that the imputation of net return is fundamentally independent of the valuation of capital. It is, of course, practically impossible to employ this fundamental principle so soon as production becomes complicated. But whenever production becomes complicated every new calculation must practically be laid on the lines of the old ones; otherwise no conclusion could be come to. Every new determination of value practically presupposes old ones (compare Book III. chap. v. at end). As little, then, as the conclusion can be drawn from this, that theory requires value in order to explain value, so little can it be concluded that, theoretically, the value of capital conditions the imputation of net return.

Compare Menger, p. 135.

In the above example I assume (1) circulating capital, and (2) circulating capital whose value is not depressed to a lower level by cheaper costs of production;-—say, a scarce raw material. Suppose there is an increased demand for articles made from amber, while amber cannot be obtained in greater quantities; it will rise in value. Those undertakings which work with amber certainly obtain thereby a rise in their gross returns; but there is, on the other hand, a similar rise in the amount deducted for consumption of capital, and this must be taken into consideration in their estimate of gain. In the long run there remains a higher net return, but it is only relatively to the increased outlay of capital.

A much more complicated calculation has to be made as regards fixed capital as also as regards capital whose value is influenced by the costs of production. I must leave the reader to think out for himself—in the light of the principles now to be discussed-—the corresponding modifications in the valuation of fixed capital and in the influence of costs.

Calculated on the figures given above, and assuming a 5 % rate of interest, the value of the machine, on putting into present value the five expected annual returns of 1000, with interest and compound interest, may be reckoned at 4329· 48. The first return of 1000 pays 216· 47, as 5 % interest on the capital, while the residue of 783· 53 goes to repayment of capital, thus leaving a remaining capital sum of 3545· 95. From the second return 177· 80 falls to interest, and 822· 70 to the sinking fund; from the third, in the same manner, to interest 136· 16, and, to replacement, 863· 84; from the fourth, 92· 97 to interest, 907· 03 to capital; and, finally, from the fifth, 47· 62 to interest, and 952· 38 to repayment, whereby the entire capital is replaced.

All the separate principles here deduced for the calculating of capital value and interest are followed in practical life and are practically familiar to us. The theory of them, too, is often given. But they are always followed and taught under the assumption that the fact of interest and a fixed rate of interest are given. Nothing is simpler, under such an assumption, than to capitalise a rent, or to show the method of capitalisation. But the duty of the theorist is to discover these laws, and, at the same time, to explain why such assumptions may be made. Whence comes interest! whence the rate of interest! These are our fundamental questions. All the single laws which we have laid down are confirmed theoretically only if we have succeeded in explaining also the assumption on which they are based, i.e. the existence of interest and the rate of interest.

The analysis of the value of land which follows will once more give the reader occasion to notice how difficult it is with the matter in hand to escape arguing in a circle, and to prevent the entrance of any assumption which is itself in need of explanation.

A further form of interest will be discussed in Book V. chap. ii.

That is to say:—In the present state the due provision of houses for the people is guaranteed by the consideration that capitalist, investing their money in house property, will get the ordinary return ot interest on capital generally. Rent must cover replacement as well as interest. In a communistic state, where the government provided everything, the building of house would be controlled by considerations of wants and satisfactions which placed the demand for houses very much in the same relative position to other satisfactions is now. No socialist state, for instances, could provide houses in such quantities that their value was reduced to the mere expenses of building, without disturbing the marginal plane, and diminishing the total sum of satisfaction obtainable by the employment of the national capital. — W. S.

I have formulated the law of costs only with relation to the so-called costs of production. Besides this we speak sometimes of costs, when we refer to expenses of purchase. By this is meant the sums of money a buyer has to expend to obtain possession of good. An exactly analogous law obtains as regards these costs. All sums of money of equal amount destined for the purchase of goods have equal value to the one owner, and all goods purchased for money—under certain assumptions entirely analogous to those conditions which hold as regards the law of costs in production—have to the one owner a value in proportion to their costs of purchase (see Book II. chap. ii.). The law of costs of production has, however, a more far-reaching importance than the law of costs of purchase, inasmuch as it is not, like the latter, limited subjectively, but also holds as regards objective exchange value. In consideration of these more far-reaching effects it is entitled to a special statement.

Sax has stated the conception of costs still more comprehensively (see chap. 56 in his Grundlegung der Staatswirthschaft). Nevertheless, important though the results thus obtained may be, it appears to me that, for the reason just stated, it is right to hold by the narrower conception of the costs of production, as against this wider one.

In connection with the present book, see Ursprung des Werthes, pp. 97, 103, and 146; further, in Böhm-Bawerk's Werth, pp. 61 and 534; as also Sax, p. 327; and, finally, the parts referring to this subject in Jevons and Walras. Menger does not treat of costs.

If, for instance, the price of cotton thread is reduced, thread manufacturers will not pay the former price for cotton yarns. But if cotton spinners are compelled to quote a lower price to thread manufacturers they cannot ask a higher price from cloth weavers. Thus the weavers get their raw material cheaper because of the fall in the price of the cognate product, thread, and this tends to an extension of the cloth manufacture.—W. S.

This definition requires a slight readjustment only in so far as interest and land rent (see below, Book V. chaps, xi. and xii.) are reckoned among costs. Interest and rent—or the goods which constitute them—are not production goods; they are simply elements of the production calculus, as production goods are.

The foundation of the law of costs given in the text appears to be applicable only to natural value, and not to exchange value or price. But it is also applicable to them. The proximate explanation of the validity of the law of costs, in the case of price, is that producers are not willing to sell under cost, and—where there is free competition—are not able to sell over cost. But why is it that they will not sell in the former case, and why does competition make it impossible to sell in the latter ! In the last resort it is because every one applies for himself, as well as he is able, the natural laws of valuation, and those laws bring him to that amount of product, or that valuation of what is produced, from which the law of costs results. Competition—i.e. the efforts of others who apply the same natural laws—then forces him to give expression, in the price which he asks from the consumers, to the valuation which he has made for himself. The actual position of price depends, therefore, essentially upon the actual position of competition, particularly on how far the efforts of competition are limited by the “hindrances to equalisation.” These “hindrances” are peculiarly strong in international trade, in which, accordingly, the law of costs holds only very slightly.

Thus in the cotton thread trade neither changes in wages nor in the price of raw material seem to affect prices; they only increase or decrease profits.— W.S.

Up to a certain point costs do—-even in such cases as these— directly determine value. All goods that can be supplemented from stocks in warehouses and the like, which stocks again can be renewed through production, thereby appear to us directly as mere combinations of their productive elements. And to this extent it may be said that, on the whole, the cases where costs directly determine value predominate.

As labour is not the product of the labourer's means of subsistence, so, conversely, the means of subsistence cannot be regarded as the productive factors of labour. In other words, the labourer's means of subsistence are not capital. If labour be a good of the second rank, producing any kind of good of the first rank—a consumption good—the labourer's fund of subsistence is in no way a good of the third rank, producing the labourer; it is again merely a good of the first rank, a consumption good for the labourer. This has a result of great importance as regards value. Value is communicated, as we have seen, first from the want for goods of the first rank, and then from these to the goods of second rank, and so on through all the ranks. If means of subsistence were capital, they would receive their value from the value of the service rendered by the labourer. But as they are simply means of subsistence, they receive their value from the wants which they provide for.

In his Werththsorien und Werthgesetz, in Conrad's Jahrbūcher for 1888, W. Scharling, one of the latest writers upon the theory of value, has again traced it to the fundamental motive of the labour theory, although with considerable amplification and modification. He derives value from the difficulty of attainment, or, more exactly, from the amount of effort which he who wishes to acquire an object is spared by attaining his end through exchange. I shall not at this point dwell on Scharling's positive work, but rather refer the reader, in regard to his fundamental motif, to the succeeding chapter. Only, in passing, I may note that, among the efforts which are to give the standard to price. Scharling includes that (p. 558) “which it costs (at an auction) to distance other bidders,” or what it costs “to overcome an owner's disinclination to part from his goods.” Both of these efforts have their origin in nothing else than the payment of that very price whose standard they are supposed to explain. In this sense there might be included among the difficulties of attainment the fact that things must be paid for with money, while people are bound to be economical with money. His views on the theory of marginal utility are given, in an illustration cited by Böhm-Bawerk, of a boy to whom “the pleasure of eating an apple is more than seven times but less than eight times that of eating a plum.” “Let us suppose” continues Scharling “that the father comes and says to his boy: ‘Our neighbour has given you permission to pull as many apples from his garden as you wish’; the boy will at once alter his opinion as to the relation between apples and plums, although his taste for and his enjoyment in consuming the fruit remains unchanged. But the effort which the possession of one apple saves him from putting forth, is no longer the same.” To my mind this illustration, which Scharling advances in opposition to the theory of marginal utility, is really a proof of that theory. In what way has the situation chenged after the father's speech ! Clearly that the boy may now have as many apples as he will, while formerly he had only one, i.e. the available supply has been increased to superfluity. And thus the result is attained which the theory of marginal utility demands; the valuation of the apples is entirely altered. Scharling's opposition would be justified if it were directed against a theory which made value depend simply upon utility and not on marginal utility. In our theory, along with utility, all the influences are weighed which determine the degree of utilisation, and of estimation of utility, by the supply; indeed, even those influences which determine the amount of supply by the conditions of production.

It is not at all impossible that, at one and the same place, there may be a lack of labour in certain department—e.g. skilled labour—while there is superfluity in the available supply in other—e.g. common hand labour. In such a case the services of the former are estimated by utility, and the latter by amount of hardship. Under primitive economic conditions the “supply of labour power” is frequently too large; not until there has been a considerable advance in civilisation does it become the rule that labour is insufficient. Further, even the labour power of one and the same individual may be too small as regards certain requirements of labour, and at the same time too great as regards others. It happens almost invariably that labourers whose capacity for performing some particular form of service is not sufficient to meet the economic demand for such services, have always sufficient capacity remaining to meet the trifling necessity for labour in their own private lives. With this is connected the fact that labour power is never entirely worn out; after performing the labour of his particular vocation, man refreshes and restores his energy best by light and distracting employments. Even in a country where the economic demand for labour is entirely insufficient, there are not lacking occasions in which labour may be estimated according to the amount of hardship involved. Every individual is continually finding such occasions; and every one thus learns from his own experience the fundamental motif of the labour theory.

See Ursprung des Werthes, p. 103, and also Böhm-Bawerk's Werth, p. 42, and, on the opposite side, Sax, chapter 45. Sax, starting from the correct proposition that only those goods should be produced whose utility outweighs the burden of labour they involve, appears to me to go rather far in the conclusions he draws, when he says: “If the Unlust connected with the want in question (i.e. the unlust which originates from the want not being satisfied) is less than that of the burden of labour, then the desire for the good will be a passive one. The want itself ceases to be felt.” Only in so far as the desire is “active” does the expected product receive a value in thought. That, as I have said, seems to me to go too far. In considering whether a thing should be made or not, the value, as derived from the expected utility, will be estimated undiminished; and, at the same time, the expected toil will be weighed as a thing by itself. If I hunger but am too lazy to work, I still continue to feel the hunger, and thus estimate the value of food according to the measure of my hunger; only it may happen that the presentation of this value is not sufficient to overcome my laziness.

See Ursprung des Werthes, p. 165.

This, however, is not the reason why it is reserved for government to carry on wars; that reason being simply that no private individual possesses the means necessary for it.

We may take as illustration the case of a barren island whose occupation is demanded by military or political considerations.

See note at end of chapter.

Even in private economy, all things considered, one has to deal with masses of goods and with wants of great compass: private undertakings are in fact more numerous than state undertakings, and form the principal part of the body economic. All the same, the extent of the undertaking, in private economy, has only to a trifling extent that indefiniteness of valuation which it so easily gives rise to in national economy. In private economy one has to deal with more, but smaller objects; in state economy, with isolated but more wide-reaching matters. In the former all quantities finally resolve themselves into divisible sums; in the latter, they do not. This contrast is so important, and recognition of it affords so deep an insight into the structure of exchange value, that, at the risk of repeating myself, I shall try once more to give to it as exact expression as possible.

There are two considerations which must be carefully taken into account if we would understand the calculus of private economy.

First: all stocks of goods of a similar kind—and, along with these, all goods which, as products, relate themselves through costs to such stocks—come within the range of the marginal law, and are measured as divisible sums made up of the smallest units, each unit estimated at one and the same value. This makes it appear as though all wealth were split up into “atoms,” but it is so only in appearance; as a matter of fact within the sphere of the marginal law every “atom” in the whole circle of wealth is valued by this method of measurement; not only are all the marginal employments put in evidence but, with and through them, all permissible employments from the highest down to those standing on the margin,—-only that we are saved the trouble of putting into the calculation any but the marginal uses. This makes it possible to calculate even the almost infinite quantities which are destined to meet almost infinitely various wants. For the purposes of carrying on ordinary private business, for instance, the whole enormous agricultural wealth of a nation can be quite properly grasped through the ordinary economic estimate of the same, even although this estimate, which only takes stocks and marginal employments into consideration, is very far from giving expression to the whole importance which those satisfactions that are provided through agriculture have for the life of the nation. There is, therefore, nothing more misleading than to introduce a treatise on the price of agricultural products by a disquisition upon the importance of agriculture in this latter sense. The “surplus value” left out from the calculation need not be taken into the calculation; for one thing, that it is omitted, not only in agricultural taxation, but everywhere, and, for another thing, that, as regards detail, a quite adequate balancing of agriculture against trade, industry, and the other branches of economy, and also of the individual businesses of agriculture against each other, may be obtained, if only the margin be everywhere observed down to which wants are satisfied, production extended, and cost goods expended.

If this same agricultural wealth be considered with regard to the purposes of general economic politics, the point of view changes. We are no longer concerned with innumerable individual goods as opposed to each other, but with that which affects them all in common. Thus agriculture, or great parts of it, become a whole; then is the time to consider the importance of all its services; and then we have to face an enormous complex of results which must all be estimated in their entire extent.

Second: by private economy the whole productive return—again taking into account the smallest quantities—is distributed among the complementary productive factors without remainder. The sum of all the “productive contributions” is equal in value to the total return, and the productive value is consequently as clearly calculable as the value of the products. On the other hand, in questions of economic politics, if the destinies of large quantities of production goods have to be weighed all at one time, the estimate of the “contribution” does not suffice. It becomes necessary to undertake the exceedingly difficult task of considering how deep the “complementarity” of the productive factors in its ultimate ground may reach, and how far these factors mutually condition one another—in the way of fructifying or serving as foundation—if they are all at once brought together in masses, or severed from each other. Here, again, in the “contribution” of private economy we calculate only the marginal value, whereas, in the total “Co-operation” of national economy, we calculate the more far-reaching and less easily calculable importance of the goods.

This must all be understood with the above-mentioned limitation, that we have here indicated only the leading characteristic of the two economic systems, while each system always shows traces of the other, and the transitions from one to the other escape notice.

Sax (page 522) remarks that, in any case, as regards the over-burdening of the rich, the economic margin is already given in their “individual valuation looking to possible taxation.” But even granting that this margin is of purely economic origin, there remains, as we have seen, inside of it, sufficient room for the activity of other than purely economic considerations.

A great deal of the history of taxation may be explained by the fact that people only learnt gradually to distinguish between the valuation of goods in national economy and in free economy. In ordinary economic life one feels injured who has to pay a higher price than any one else; and it can be easily understood that, in face of this rooted opinion, it was hard to introduce the principle that every person should pay more taxation for the same state services according as he possessed more goods for the satisfaction of his wants—and that not simply but progressively.