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 III

value in the natural economy of the state

Suppose the utopian state of communism actually realised, there also, as we have just seen, where all economic life has become the concern of the state, must the same distinction as now be made between private economy and state economy,— though possibly under different names. On one side must be grouped by themselves all those businesses of the household and of production which are now left in the hands of private individuals, together with many undertakings which essentially belong to private economy, but are at present, for special reasons, conducted by the state. On the other side and distinct from these, must be placed all matters of the general administration of the state—or of all that is economic in it— and of economic politics in general. Of course, there would be no lack of transferences to and from each group, and whatever might be the ruling consideration in the one group would have a place in the other. This does not, however, in any way conflict with the statement that the leading principles in each must be different.

In the former, or private economic group, where goods are capable of being measured very accurately as to their amount and utility, the main endeavour must be to obtain from every practically measurable portion of goods the greatest amount of generally recognised utility. This endeavour must find its expression in an estimate of value which takes its measure, for each single good, from the margin at which the most perfectly utilised supply meets the most perfectly sifted demand. In the sphere of production such an estimate of value takes, as we are aware, the form of an estimate of return or of costs. The value of stocks of similar goods must be represented as multiples: the value of production goods combined in the shape of products as sums of multiples. The individual amounts must be calculable—in many instances very exactly calculable—against each other. An exact economic calculus must be established, the advantage and disadvantage of every sufficiently familiar process being put in figures; and it must be regarded as the triumph of economic art to exactly ascertain and exactly realise that plan which the value calculation indicates as the best.

In the latter, or national economic group, the first principle must also be to secure the greatest amount of utility, the highest well-being of the citizens. But the utility and its amount will not be so exactly estimated; will often, indeed, as we have already proved at length, be very inexactly estimated. As the means necessary to achieve the ends of the state are for the most part very extensive, and the more or less cannot be so exactly determined, the indefiniteness of the valuation will be increased from the side of the goods also. The estimate of value will often be very vague, and in many cases unanimity of opinion regarding it is not to be expected. More exact estimates will be obtained only as regards such goods as are also employed in private economy, by transferring to them the definite estimate obtained by private economy, and also as regards such goods as are obtained through production. But where national economy makes use of specific goods which do not, either by reason of their employment or origin, take to themselves the estimate of private economy;1 where national economy stands absolutely and entirely by itself, and seeks to guard public interests by specific public methods; there, in place of the quantitative estimate of the value of goods in masses, will emerge the vague and disputable valuation of interests, influenced by inclinations and passions.2

The opposition between natural value in national economy and natural value in private economy reduces itself, in effect, to an opposition between vagueness and definiteness, subjective valuation and exact calculation. Even thus the contrast is sufficiently great to obtain clear and peculiar expression in practical politics. Theoretically, of course, there can never be any doubt as to the relation of the two. Just as private economic interests, where they compete with each other, are ranked according to their relative importance, so the interests of private and of national economy are ranked in relation to each other. The more important aim takes precedence of the less important—this forms the theoretic basis on which the estimate of value is built. But how will this rule work in practice when any doubt arises as to the degree of importance? As a matter of fact, the indefinite nature of national economic valuations must in practice frequently give rise to doubts as to the exact relation which the acts of private and of national economy should bear to each other. Very frequently it is the same goods that may be employed by either private or national economy; in the last resort, indeed, there is nothing but one fund out of which to provide for both, and only a few goods are from the first specifically reserved for one or the other sphere. A characteristic and common instance of the competition between the two interests occurs where an undertaking, which is profitable as a private business as shown by its calculable return in direct results, is maintained, from the side of national economy, to have an unfavourable, destructive, or undermining effect; that is to say, as regards results which are more remote and difficult to follow. Alongside of this we have the converse instance, that an undertaking which is unprofitable as a private business, and whose valuable returns do not cover the costs, may, from the point of view of national economy, be regarded as profitable, whether tending to progress or conservative as the case may be. What holds as regards individual undertakings, also obtains as regards whole groups of these,—of the great acts of legislation and administration, of the various branches and spheres of production, of the activity of the producing class of a nation. It might e.g. be disputed whether agriculture or the labouring classes ought to have public subsidy—i.e. support which might not be justified, from the point of view of private economy, by the value of the land products or the results of labour, but might be justified if one looked at the maintenance of the stability of the national economy and of the life of the people.

In the communistic state, as in the economy of to-day, there will be no lack of occasions which will continually force people to decide anew between considerations of the quantitative and calculable proximate returns—considerations of direct profit,—and of results more remote and less calculable—considerations of general interests. Suppose that the subject were some technical improvement like the establishing of railways, discussions would undoubtedly arise,—as they did at the time when railways were introduced,—as to their utility, feasibility, and consequences. And even after experience has put an end to the general discussion, there will still continue to be a conflict of opinions as to the more exact relation between the calculable results and the incalculable. Or, possibly, there may be a doubt whether the industry of a people should take the direction of trade or of agriculture; whether the power of the labouring classes should be more utilised, or more economised; possibly, also, whether it would be wise to carry on war, whether preparations should be made for it, or whether it might be better to foster the arts of peace, and so forth. And certainly there will always be one party which calculates, and which looks dispassionately to the profitableness or unprofitableness of any scheme, and another, party which looks far ahead and leaves room for imagination and passion. Under different names the economical oppositions of interest to-day will recur. The conflict which we may observe now between exchange value and public interests, depends accordingly—apart altogether from the opposition of personal advantage—upon a difference in economic aims which is inevitable, and arises out of natural economic conditions.

If it must be confessed that, in the communistic state, the private economical valuation of goods is not satisfactory because it sometimes neglects necessary deductions, sometimes essential additions, and so comes out too high or too low, we must a fortiori say the same of exchange value in the present order of things, where it goes too far in emphasising the characteristics of the private economy. It is the exact calculation and the incalculable but actually observed influences, that, together, make up the full value of goods. The theorist must admit so much, however hard it is for him, when he considers how greatly economic theory loses by it in exact conception of its formulas and precepts. How simple and how easy to apply any advice whenever only calculable quantities are concerned;—whatever, calculated by exchange value, yields a profit is economically permissible; everything else is forbidden! And how misty and obscure all theoretical solutions become when they put absolute laws aside, and are obliged to appeal to concrete existing circumstances to decide for them! In the end it is to politics we must leave the task of deciding, as well as of carrying out its decisions in the concrete—remembering that politics belongs not only to the politician but to political science. However much the pride of theory may suffer in recognising this, it is a fact not to be gainsaid. In order to observe and understand things, they are often thought of as being less complicated than they really are: and this is right enough when nothing further is intended than to simplify the process of thought by beginning at the easiest. But it is not permissible to call a halt at this point, and apply the solution thus found, without more ado, to reality. This is the sort of thing that might be described as “the disease of theory”: to take things first in the way in which they can be most simply grasped, and then to represent the whole world according to the picture we have just been able to think out for ourselves; to take what is most easily grasped, or at all events most precisely grasped, for the actual.

Like every exaggeration this also produces its own reaction, viz. the opposition to all theory whatever. The book which my readers now hold in their hands is a proof that I do not share in this opposition. Possibly it may not prove equally clearly that I consider every other direction of investigation, besides the purely theoretical one, necessary and significant in its own place; but no candid critic will, I hope, find any reason to dispute this.

That the theory, even when it recognises the influences of national economy upon value, in some sort paves the way for politics, is not likely to be denied. The man who has thought out the theory of value to the end, even within the limits just mentioned, will have cause to point with pride to the help which this has afforded him in political science and practical statecraft. It is a matter of the first importance—one without which no decision can be arrived at,—to recognise that there is a sphere within which the estimate of exchange value is applicable, and another in which it is not. Now if we could define these spheres, even in the most general way; if we could keep entirely and clearly separate the laws of the national estimate and the laws of the private estimate of value, so that every one who followed with sufficient earnestness would be convinced that they corresponded to the essential demands of economic action; if it were possible, besides, to indicate the directions in which the actual course of things diverges from these laws most frequently and with the most serious results:— in that case the foundation for political action would be so plainly laid down, and would compare so well with all the errors and difficulties which beset its path without these principles, that no one would deny that such a theory had justified its existence. To mention only one special case. The representing of goods by weighed and counted sums of barren metal or paper, and the consequent valuation of goods, and of the well-being they secure, by numbers and figures, by items and weights, is in itself a somewhat mysterious matter; a matter which a man who wishes to obtain a clear view of things might imagine to have an artificial and unhealthy origin; a matter which does, in fact, lead many an honest and intelligent thinker to such a conjecture. It is, then, a conclusion well worthy of consideration when a science succeeds in proving that such a manner of procedure is, at bottom and in its own place, sound and simple, and that it would be impossible to obtain a more exact and distinct measure for the thousandfold variety of economic satisfactions, than that afforded, under the necessary conditions, by the natural marginal value of goods.

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

[2]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.