The Online Library of Liberty

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• Editor's Preface
• Author's Preface
• Book I: The Elementary Theory of Value
• Chapter I: The Origin of Value
• Chapter II: The Value of Satisfactions of Want
• Chapter III: Gossen's Law of the Satiation of Want
• Chapter IV: The Scales of Satiation
• Chapter V: Marginal Utility
• Chapter VI: The Value of Future Satisfactions of Want
• Chapter VII: The Value of Goods
• Chapter VIII: The Valuation of a Single Commodity
• Chapter IX: The Valuation of Goods In Stocks. the Law of Marginal Utility the General Law of Value
• Chapter X: The Paradox of Value
• Chapter XI: The Antinomy of Value and the Service of Value
• Book II: Exchange Value and Natural Value
• Chapter I: Price
• Chapter II: Exchange Value In the Subjective Sense
• Chapter III: Exchange Value In the Objective Sense
• Chapter IV: The Antinomy of Exchange Value
• Chapter V: The Service of Exchange Value In General Economy
• Chapter VI: Natural Value
• Chapter VII: The Socialist Theory of Value
• Book III: The Natural Imputation of the Return From Production
• Part I: The General Principles of Imputation
• Chapter I: Return Value
• Chapter II: The Problem of Imputation
• Chapter III: The Socialist Reading of the Problem. the Claim of the Labourer to the Entire Return
• Chapter IV: Previous Attempts At Solution
• Chapter V: The Principle of Solution. the Productive Contribution
• Chapter VI: The Principle of Solution (continued) . Contribution and Co-operation
• Chapter VII: The Principle of Solution (continued) . the Economic Service of Imputation
• Chapter VIII: The Principle of Solution (continued) . Imputation and the Marginal Law
• Chapter IX: The Individual Factors of Imputation. I.—SUPPLY
• Chapter X: The Individual Factors of Imputation ( Continued ). II. — Demand and Complementary Goods
• Chapter XI: The Individual Factors of Imputation ( Continued ). III. — Technique
• Chapter XII: The Individual Factors of Imputation ( Continued ). IV. — the Imputation to Cost Goods and to Monopoly Goods
• Chapter XIII: The Individual Factors of Imputation ( Continued ). V. — the Imputation to Productive Factors of Preferable Quality
• Part II: Natural Land Rent
• Chapter XIV: Ricardo's Differential Rent: the First Part
• Chapter XV: Ricardo's Differential Rent: the Second Part
• Chapter XVI: Criticism of Ricardo's Theory
• Part III: The Natural Return to Capital
• Chapter XVII: The Productivity of Capital
• Chapter XVIII: The Calculation of Return to Capital In Primitiive and In Developed Economies
• Chapter XIX: The Imputation of Gross Return and of Net Return
• Book IV: The Natural Value of Land, Capital, and Labour
• Chapter I: Introduction
• Chapter II: The Value of Capital and the Interest On Capital I.—DISCOUNTING
• Chapter III: The Value of Capital and the Interest On Capital (continued) . II.—THE Rate of Interest
• Chapter IV: The Value of Capital and the Interest On Capital (continued). III.— The Law of the Uniform Calculation of the Interest Rate
• Chapter V: The Value of Capital and the Interest On Capital (continued.) IV.—CHANGE In the Rate of Interest
• Chapter VI: The Value of Capital and the Interest On Capital (continued) . V.—THE Valuation of Fixed Capital
• Chapter VII: The Value of Capital and the Interest On Capital ( Continued ) VI.— Capitalisation
• Chapter VIII: Interest On the Consumption Loan. House Rent
• Chapter IX: The Value of Land
• Chapter X: The Value of Labour
• Chapter XI.: The Value of Production Goods, With Reference to the Competition Between Present and Future Interests
• Book V: The Natural Cost Value of Products
• Chapter I: The Law of Costs
• Chapter II: The Conception of Costs
• Chapter III: Foundation of the Law of Costs
• Chapter IV: Conditions Under Which the Law of Costs Obtains
• Chapter V: The Determining Amount of Costs
• Chapter VI: The Law of Costs and the General Law of Value
• Chapter VII: The So-called Costs of Production of Labour
• Chapter VIII: The Cost Theories
• Chapter IX: The Cost Theories ( Continued ). Labour As an Element In Cost
• Chapter X: The Cost Theories ( Continued ). Capital As an Element In Cost
• Chapter XI: The Cost Theories (continued) . Interest As an Element In Cost
• Chapter XII: The Cost Theories (continued) . Land Rent As an Element In Cost
• Chapter XIII: The Service of Individual Economic Value In National Economy 1
• Book VI: Value In the Economy of the State
• Chapter I: Introduction
• Chapter II: The Province of a State Economy
• Chapter III: Value In the Natural Economy of the State
• Chapter IV: Value In the Present-day Economy of the State
• Chapter V: The Fundamental Law of Collective Valuation

CHAPTER XI

the antinomy of value and the service of value

As consequence of the observation that, in the overwhelming majority of cases, the value of possessions increases with economic prosperity, the exceptions have been either entirely forgotten, or put on one side as unessential and unimportant disturbances. The idea has gone abroad that value is the highest principle in economic life, and that all our economic action must be regulated with reference to it. It has been said that people should so act as to obtain on the whole the greatest amount of value.

If this idea were correct, our economic life would be directed by a power which would, in some measure, work against the aims of economic conduct; to the extent, namely, of preventing the realisation of economic ends beyond a certain point; that is, beyond the up grade of value. And one would be justified in speaking of an antinomy in the law of value, which would refer not only to exchange value, as Proudhon has asserted, but to every form of value. It would be expedient for every one, not only from a money-making and selling point of view, but in his own private economy—even for a Robinson Crusoe who could not sell at all—to convert superfluity into want, and want into greater want, in order to create and increase value. No one, however, would wish to act in this way, and it is therefore untrue that value has the guidance of our economies The highest principle of all economy is utility. Where value and utility come into conflict utility must conquer; there is nothing in the nature of value which could give it the ascendency. Utility is imperfectly contained in value, with the accompanying peculiarity that the amount of utility which is contained is intimately associated with the very idea of goods. But this latter phenomenon cannot have the effect of preventing any one from entering into transactions which a complete addition of the utilities to be got from the goods acquired would show to be profitable. If I were able, by any method whatever, to secure for myself a constant superfluity of all the services of goods, the idea that my interest need not thereafter be carried over from the services to the goods themselves, would not cause me a moment's hesitation in securing the superfluity. Or suppose that I expected a great amount of utility from some transaction, and the transaction at the same time caused me a certain loss of interest in the goods, this latter circumstance would not deter me in the faintest degree from carrying through the transaction.

Under these conditions, then, what service remains for value to render in economic life? A highly important one. The cases where there is a conflict between value and utility—where increase of the one is decrease of the other—occur but seldom. Experience shows that economic life moves almost always on the “up grade,” and here the tendencies of increase or decrease are similar for value and utility. Whenever the utility of a stock increases with the augmentation of the stock, the value also increases, and whenever the utility of a stock decreases with a diminution of the stock, the value also decreasea A greater value almost always corresponds with the greater utility, and a lesser value with the lesser utility, and on this account transactions which commend themselves in consideration of their utility, commend themselves also in consideration of their value. The service of value consists, then, in representing utility wherever both show the same tendency. We do not calculate utilities; we calculate values. Value is the form in which utility is calculated, and this renders calculation infinitely more easy. It is difficult indeed to estimate the utility of a stock; easy to estimate its value. That is to say, the value of a stock can be expressed as the single product of stock and marginal utility; it is a multiple of the marginal utility: whereas utility can be expressed only by a sum which contains as numerous and as various amounts as the stock contains items. The utility, for instance, of a harvest of a million quarters can be represented only by an almost inexhaustible description of all the benefits accruing from it, from its greatest effects down to those of the least important employments economically permissible in the circumstances of the case. The value of this same harvest is easily and shortly ascertained by multiplying the utility of the marginal employments by the whole amount. Mathematically expressed, the formula for expressing the utility of a stock of 50 items, the most intense use of which—that of the first item—reaches the figure of 100, if we assume a regular decrease in intensity for every successive item, will run:—100 + 99 + 98 + ... 51. But the value formula will be simply:—50 × 51.1

The simplification of economic calculation by the use of a value instead of a utility measurement is noticeable in proportion to the economic state of development, While the utility formula becomes continually more wearisome and less clear, the value formula becomes more comprehensive and uniform, particularly through the entrance of costs,—which we shall discuss later. Where money is the medium of exchange everything is measured equally, for purposes of trade, according to its money value; all utility in its illimitable variety is reckoned by the value of coin, the separate items of which are all equal to each other, and the amounts of which appear in the calculations as multiples of one and the same unit.

It is the possibility of calculating utility in terms of value which first puts us in a position to draw out exact economic plans and foresee their necessary limitation. Thus value comes to be the controlling power in economic life.

BOOK II

EXCHANGE VALUE AND NATURAL VALUE

[1]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.