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CHAPTER I: price - Friedrich von Wieser, Natural Value 
Natural Value, edited with a Preface and Analysis by William Smart (London: Macmillan, 1893).
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Exchange gives rise to a phenomenon which, originating from value, reacts upon it in the most powerful manner; this phenomenon is price. It is not our task here to deal either with price or with the forms of value depending on it Our concern—as will be shown clearly enough later on—is rather to describe natural value; i.e. value as we should find it in a community at a high stage of development carry. ing on its economic life without price or exchange. Nevertheless it will not do simply to disregard exchange and the forms of value connected with it. A description of social conditions whose actual or possible realisation is extremely doubtful, would be somewhat purposeless, if the description did not admit of some applications to life as we know it. Now to make these applications we must understand price and exchange value to the extent of rendering a comparison possible. At the least their general outlines must be indicated, so as to serve as background against which the clearer picture of natural value, which we intend to draw, will stand out in relief. In this way we shall be able to judge whether the fundamental features in both contrast or agree.
For this purpose it will be sufficient to describe that particular case of the formation of price in which its peculiar principle can be most clearly discerned. This is at the same time the normal formation of price under the organised division of labour. On the one side, we have numerous sellers, whose aim is the sale of stocks which they have produced for the market, and which they could not possibly use themselves; on the other side, we have numerous buyers who compete with each other in buying, just as the others compete in selling. Menger's theory of price, and that contained in Böhm-Bawerk's Werth, which goes considerably farther, may be used as starting-points for our own statement. Into any further consideration of the abundant literature existing on the subject of price our present task will not permit us to enter.
Suppose a person wishes to acquire an object, no matter what, he will not, however strong his desire, agree to pay any price that may be asked. There is a certain maximum at which he would rather withdraw from the market than raise his offer further. This maximum is determined by two valuations: first, the value in use of the good that is to be acquired (which will be determined according to the laws laid down in the previous chapters), and, second, the exchange value of the sum of money that will have to be paid (the estimate of which will be considered in the next chapter). The sum of money whose exchange value is equal to the value in use of the desired good, determines the maximum offer. To offer more would involve a loss, as more value would be given than received. This rule holds equally for all would be buyers without exception. Every one who thinks of making a purchase puts both these valuetions before him; establishes in his own mind this equation or equivalence; and comes to the market resolved not to go beyond it. But although the rule is the same for all concerned, the results of its application in the individual case are very unequal, inasmuch as the amounts that enter into the calculation differ greatly from each other. The value in use of the good that one buys will vary according to the different degree of individual need w which may depend on natural inclination, on accidental circumstances, or on the degree of satisfaction already reached—and according to the amount of supply one already has. The exchange value of the money, on the other hand, will vary principally according to the amount of the person's wealth (see on this subject the following chapter). When one considers the very great variety of possible economic situations, it will be seen that the equation or equivalence of both values cannot fail to be very different from buyer to buyer. The highest offer can be made by the person who is actuated by the strongest desire, and is at the same time the richest, because for him the highest real value is expressed in the greatest sum of money. What a contrast from the offers of poor men, in whose case the same degrees of desire are represented only by a most trifling sum of money, or from the bids of those whose desire, in the particular case, is so slight that they do not care to set apart anything but a small sum towards its satisfaction!
If we begin with the highest equivalent, that of the man who is the richest and the most anxious to obtain the goods, and come down gradually to the lowest, we shall obtain a descending scale of maximum offers. By way of example we shall assume that these range, in the hands of a hundred purchasers, from £5 down to ls.; and we shall assume, first, for simplicity's sake, that each purchaser is desirous to buy only one single good or one single item.
Here we can see clearly what is the power that must decide the competition of prices. A skilled seller may at times succeed in inducing an inexperienced buyer to pay a price which goes beyond his maximum; but, as a rule, the sellers will not be able to do more than drive the buyers to their maximum. The endeavour of a seller, who is honest but looks to his own advantage and acts purely according to his own interest, will be to find out those, among all the buyers, who can pay most, and to drive them, if possible, to the margin of their purchasing power. On the other hand, the would-be buyers will try to buy as much below that as is possible. The inter-competition of buyers, therefore, is to the advantage of sellers, and the inter-competition of sellers is to the advantage of buyers. We shall now see how far it is possible for each side to achieve its object. We assume as before that the sellers are forced to get rid of the entire quantity of goods they have brought to market, and have no wish to reserve any part of it for their own use, the goods having been produced for sale and being of no personal use to the sellers.
Supposing one single good is put upon the market, it will obviously—if all are equally alive to their own advantage—fall to that buyer who has the highest purchasing power, viz that one whose money equivalent we put down at £5. He is in a position which enables him to exclude all competing buyers, and he will do so if he understands his own interest. He must, of course, make up his mind to go the length of 99/, as this is the price to which his most dangerous competitor may go,—that one whose purchasing power stands next to his own. And as he, for his own part, is unable to give more than 100/, the price settles between 99/and 100/.
Suppose, again, that two goods are put on the market; the one must fall to the first, the other to the second in the series of competing buyers. The price paid by the latter, if rightly determined, must lie between 99/and 98/; that is, between his own equivalent and that of the next competitor,—the buyer whom he must outbid if he would not have his acquisition of the desired good disputed. But that buyer, again, whom we called the first, will not, under these circumstances, pay any higher price. There is now no necessity for him to offer more than 99/; it will suffice if he, along with the second buyer, outbid the third buyer's offer of 98/. Whoever buys in an open market, and from competing sellers, pays for the same article the same price as is paid by every one else. However great may be his own purchasing power, he need not use it to its full extent; there will always be a seller willing to let him have the good at that same lowest price which has to be conceded on the market to buyers generally.
If there are three goods, they will fall to the first three purchasers, and the price will be fixed equally for all three goods between 98/and 97/,—between the money equivalent of the third and fourth purchasers. Where there are ten goods the one price is fixed, for all buyers, between 91/and 90/; in order to dispose of all their goods the sellers must keep the price below 91/, and, in order to exclude the other competitors, the buyers must keep it over 90/. For fifty goods the price will stand between, 51/and 50/, corresponding to the equivalent of the 50th and 51st purchasers; for seventy goods it will be between 31/and 30/, corresponding to the equivalents of the 70th and 71st purchasers. In short, the larger the stock which has to be sold, the lower will fall the price, as this permits of the entrance of more numerous and less capable purchasers, and the market price established is one and the same for the whole market. If we give the name of Marginal Buyer (following an expression of Böhm-Bawerk's) to the weakest buyer, who, all the same, must be allowed to purchase if the whole stock is to be sold, the law of price will run thus: Price must at all times settle between the equivalents of the marginal buyer and that of the buyer who stands next under him; viz that one among the excluded competitors who has the greatest purchasing power. Where commodities come forward in great quantities and have a large sale, the degrees of difference between the equivalents of various buyers,— whom we should more correctly consider as classes of buyers, —are not great. And for such cases the law of price may, quite correctly, be still more simply stated as follows: Price is determined by the money equivalent of the current marginal buyer, or marginal class of buyers. It settles at a figure very near it, and indeed a little under it
The very first glance shows us that the law of price is nearly related to the law of value. The value of a stock consisting of separate items is determined as a marginal value, according to the marginal utility of the single good; the price of a stock which is sold in separate items is also determined as a marginal amount, according to the purchasing power of the marginal buyer of the single good. of the what decides, is, on the one side, the amount of the stock,—addition to which shifts the margin and lessens the determining amount, while diminution enlarges it—and, on the other side, the want with its varying gradations. In the case of price, however, there is, along with the degree of want, another determining fact which does not exist in the case of value. This fact is the valuetion of money from the side of the buyer; that is to say, his wealth and income Before however proceeding to examine the exceedingly important effects of this fact, we must assure ourselves that the law of price just explained holds also in the case where buyers, instead of desiring to purchase one single good, desire to purchase several or more than one. Only if this is the case can the law have any real interest for us.
We need not waste much time over this point. Such a buyer will have in his mind a maximum offer determined in the manner just described. The collective value in use of the goods to be acquired, estimated in a sum of money whose exchange value, according to the subjective valuetion of the would-be purchaser, is equal to this value in use, gives the maximum. The more items there are to calculate, the greater will be the maximum, reckoned as a whole, but the smaller will be the maximum of the single item, because in this case the value in use of tile unit will be proportionally less (and the higher also will rise the exchange value of the money as consequence of the increased expenditure on the whole). If e.g. a person were willing to buy 10 goods at a shilling each, but were made by the seller to buy 20 instead, he would be able to give only a smaller price per item, as the larger purchase would bring with it a smaller utility, and at the same time the larger expenditure would be more heavily felt. At no time, however, will any purchaser—and this is our most weighty proposition—consent to pay anything but one and the same price for one and the same article, and that price will be the equivalent of the current “marginal item,”say the 10th good in the case of 10 items, or the 20th in that of 20 items—always assuming that the market is an open one, and the buyer at liberty to purchase more or less according to his pleasure. If in any open market a price were demanded for any particular good which was in excess of the money estimate of the marginal good, the buyer would do better to abstain from purchasing this particular good, for which he would have to pay more than its value. The same considerations which—in estimating the value in use of a stock that may be divided up at pleasure —lead to every good, without exception, being valued at its marginal utility, also necessitate, that, in the purchase of a stock which may be greater or less according to desire, for every good without exception only the equivalent of the marginal utility shall be paid. And here we see that the laws of value which we have already explained have a direct influence on the laws of price, and that the latter could not be understood without the former,1
If this is once established there is little more to say. At every extension of his purchases the buyer will calculate his maximum. If we were to add together the calculations of all buyers we should obtain the quantities of goods which might be placed against every conceivable price. Where goods are held for high figures only small quantities will be sold, and that to the most“capable”buyers for the satisfaction of their most urgent demand. Where prices are low larger quantities will be sold, partly to the richest buyers to meet their less urgent demand, partly to others who are less“capable.”But, at a fixed price, only a fixed amount will be demanded and may be sold, If now sellers, on their side, come to market with a fixed quantity of goods which must be entirely got rid of, they will find the price already determined. It is that price at which just this amount is demanded.
Here again we have the same determinant facts;— the amount of supply already owned, the degree of want or desire, and the purchasing power of the buyers. The two latter have, however, the peculiarity that what decides is not simply the money equivalent of the marginal purchaser, or the marshal class of purchasers, but the money equivalent of the marginal purchaser, or class of purchasers, for the marginal good or goods.
Where sellers do not wish to part with their whole supply, but to retain a portion, either for their own use or for future sale in some altered condition of the market; where, instead of free competition on both sides, some monopoly exists, or the sale, instead of being public and open to all, takes place privately and in small groups or quite in isolation;—in such cases our law of price can act only imperfectly or in a greatly weakened manner. At the same time the characteristic element in the formation of price—that the purchasing power of the buyers is put in the scale—will always, excepting, at most, the case of monopoly on the side of the buyers, be present and retain its importance. Goods are not paid for simply according to the amount of utility (i.e. of marginal utility) which they render to the buyers, but also according to the amount of purchasing power which the marginal buyers put on that utility.
Of the many weighty consequences arising from this proposition, I shall at present refer only to ona” The highest prices therefore,”(to quote from the Ursprung des Werthes, p. 26)”are obtainable for those goods which are to be had only in small quantity and are objects of desire to the richest classes; the prices of such goods rise till all but the wealthiest classes—even those groups of the middle classes who are in most comfortable circumstances—are excluded from the circle of purchasers. Goods which, owing to their inferior quality, are desired only by the poorer classes obtain extremely low prices, as also do those goods of better quality which are so plentiful that the poorer classes must be admitted, to a considerable degree, within the circle of purchasers. Medium prices are reached by those goods of which the middle classes form the majority of the purchasers, those who have small means either being entirely excluded from purchase, or entering the struggle of competition only in so far as will satisfy their intensest sensation of desire for such goods Changes in the economic possibilities of great classes in a community will naturally induce changes in the prices of goods. The greater the inequalities of wealth, the greater will be the differences in price. Luxuries will rise in price when great fortunes increase, and will fall when they decrease”1
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.