Front Page Titles (by Subject) CHAPTER 13: THE CONCEPT OF USANCE-VALUE - Economics, vol. 1: Economic Principles
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CHAPTER 13: THE CONCEPT OF USANCE-VALUE - Frank A. Fetter, Economics, vol. 1: Economic Principles 
Economics, vol. 1: Economic Principles, (New York: The Century Co., 1915).
Part of: Economics, 2 vols.
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THE CONCEPT OF USANCE-VALUE
§ 1. Usance and usufruct: definitions. § 2. Usance-value of agents yielding products of like grade. § 3. Usance-value of agents yielding products of different grades. § 4. Effect of the presence of one agent upon the usance-value of another. § 5. Usance-value determining utilization. § 6. Time as a factor in usance-value. § 7. Usance-value and the margin of utilization. § 8. Usance-value of complementary agents.
§ 1. Usance and usufruct: definitions. As the use of a consumptive good involves the using up of the good itself, the value of the consumptive use is identical with the value of the good itself. But when the uses are separable, the problem of value presents more complicated aspects. The whole use of the good consists then of a sum of separable uses, capable of being separately evaluated. The concrete object which yields the uses may, by repairs and replacement, be treated as a durative use-bearer, capable of yielding either an unending or a definitely limited series of like uses. This theoretical possibility appears in a number of practical problems. It is involved in the careful use of any durative agent by the owner himself. It is the important consideration in the definition of the legal right of usufruct. In law, usufruct is “the right of using and enjoying the income of an estate or other thing belonging to another, without impairing the substance.” One heir may have the usufruct for a term of years and another heir have meantime only the reversionary right, which, however, entitles him to sue for waste if the substance of the estate is being impaired, as by cutting standing timber, neglecting repairs, etc. The tenant of a rented farm has the usufruct, but must not impair (with minor exceptions) the substance of the farm. The value of the usufruct in any given period may be called the usufructuary value, or usancevalue, as distinct from the value of the estate, or of the concrete object. We have now to consider how the usance-value is related to the value of the products, be they indirect goods, direct goods, or psychic income.
§ 2. Usance-value of agents yielding products of like grade. Consider the simple case where the products are themselves immediately enjoyable goods, such as fruit. The value of the use of the tree is simply the net-value (deducting costs of cultivation, etc.) of the fruit that the tree yields in the season. It is clear that if the farmer has his choice between a tree that yields 30 bushels and one that yields 20 bushels of like apples (this being the net difference after deducting costs), he will value the season’s yields of the two trees in the ratio of 3 to 2. The tree yielding the most fruit is counted by so much the better, and relative values are at any given moment expressed by the relative quantities of products.
In a like manner, orchards (groups of agents) may be evaluated. In the Santa Clara valley, as in other parts of California, there is a frostless belt, marked off by a narrow belt of uncertain climate from the lands where, because of the probability of frost, it is quite unsafe to attempt to cultivate the delicate orange-tree and other semi-tropical plants. The usance-values of the orchards show gradations corresponding with the average amount of net products from the frostless belt to the region of frost. In manifold ways differences in geological formation affect the use of land and the success of many industries. On one side of a little creek may be limestone land, on the other shale, and the limestone land produces larger crops and therefore has the greater value. The usancevalue is plainly a reflection or derivative of the net-value of the products yielded during the period, and if other things are equal the usance-values of two use-bearers in the same market will differ as do the quantities of like uses which they yield.
§ 3. Usance-values of agents yielding products of different grades. If now two agents be compared whose products are equal in quantity but of different grade or quality, the agents will obviously have different usance-values corresponding with the differences in quality. Take a well-known example in the case of land. A peculiar mineral quality in the soil of a vineyard may impart to wine a choice flavor that can at once be recognized by experts, while other fields, distant but a few rods, cannot by any effort be made to produce wine of the same rare quality. There is said to be a marked difference in the success of orchards and of vineyards lying only a short distance apart on the shores of the larger lakes of New York. Nearness to the water moderates the temperature, often prevents frosts, and hence insures the ripening and enhances the quality as well as increases the quantity of the fruit. Where the peculiar nature, slope, or location of the land is found to be the cause of the exceptional quality of its fruits, the land acquires an exceptional usance-value as compared with ordinary land in the neighborhood.
It is the same with the usance-value of all other material agents. The common nag and the thorobred horse, the loom for weaving rag carpets and one for weaving complex designs in silk, the scow and the yacht, are yielding uses which have differing values reflected to them from their final products, and accordingly they vary in usance-value. The same principle applies in the case of human services. The labor-income or the wage obtained by a man for his labor for a definite period is a reflection of the value of that labor to his employer, and eventually to the user of the product. In all cases the usance-value is a derivative.
§ 4. Effect of the presence of one agent upon the usance-value of another. Let us now consider the effect which the presence of agents of inferior quality may have upon the usance-value of better agents. It is clear (see Chapter 12) that if two agents are of different grades of excellence, the better agent will be first used; but when there is sufficient demand, the less efficient agent will be pressed into service. Tho inferior as a whole, it has uses which are better than the lower grades of uses of the better agent, and we can speak of these uses as competing with, or as being substituted for, the more intensive uses of the better agent. Regarding the various uses in both objects as separable, we see that the total supply available to meet a given demand is increased by the presence of the inferior agent. The use of the inferior agent limits the utilization of the one of better grade, and therefore limits or lessens its usance-value. If there is but one grade of agent, it is necessarily valued without reference to any lower grade. There may be at first enough of the higher grade of agents to produce all the fruit wanted of the better quality. If, then, there is an increasing demand, and the additional yield can be secured only with more intensive utilization, the value of the product rises. The presence of inferior grades, however, limits that rise, because use can be shifted to them. Within the limits of substitution the poorer grades reduce somewhat the demand for the better grades. The usance-value of the better agents is due primarily to their scarcity and (not less important) to the scarcity of the more effective uses in those agents; but the substitutable uses in other available agents have their part in determining the particular level of valuation in any economic situation.
§ 5. Usance-value determining utilization. Both the quantity and the quality of products thus unite to determine the usance-value of an agent. A smaller crop of apples of better flavor on one tree may equal or exceed in value the larger crop of another tree. In this case usance-values of similar things are compared. But through the value of the products they afford, very dissimilar classes of goods may be compared: the apple orchard and the peach orchard, the corn field and the field of potatoes. The constant comparison of usance-values leads to the applying of each agent to the particular use in which it proves itself to have products of the highest value, and to the shifting of the use when a sufficient change of value takes place in the product. For example, a field used for corn becomes, as population grows, worth more for market gardening than for residence sites, and later becomes worth still more as a business location at the center of trade. The land has various possible alternative uses at any moment, but that one is to be chosen which secures the highest net yield.
§ 6. Time as a factor in usance-value. Each instant that an agent is in use may, if we choose, be counted a separate use, and usance consists of the sum, or succession, of net uses yielded in some limited period of time, as a day, a week, or a single season. It takes time for the separate uses to be realized. The series of uses bound up in an agent can not be secured at any single moment. If a fruit-tree were permanent, and the owner could wait through eternity for its yield, he would get an infinite yield of fruit. But in any finite period, there can be only a limited yield. When uses of different periods are compared, as this year’s use and the next year’s use, or the use during some year in the more distant future, another problem is involved, that of time-value. Moreover, time is an element in the comparison of the present values of products that are of various degrees of ripeness or readiness. A wagon can be used in June for hauling a family to the circus or for hauling a load of wood to the home to cook a meal the next December; or a horse may be used for an afternoon’s drive, or for dragging timbers to build a cottage to be used for a life-time. Here the usance is in the present, whereas one of the alternative uses is present and direct, and the other is indirect, resulting in future income. Inevitably the element of time enters in most cases into the estimate of usance-value. We must, however, postpone for a few chapters the fuller analysis of this factor.
§ 7. Usance-value and the margin of utilization. Usance-value, let us here recall, is a summation of the values of the separable uses contained in a good treated as durable (that is, kept in perfect repair). Its amount depends therefore on the values of the various, and perhaps numerous, separable uses, or products, some of them direct and others indirect. In this summation are the values both of actual and of expected uses. Merely potential uses that, in the existing conditions, are free do not increase the usance-value. Direct goods that were free may, however, become valuable. The poorer qualities of fruit that have been allowed to decay on the ground may now be carefully gathered, while the better qualities are used for special purposes. The total usance-value of the durative agent (the orchard), the value-summation of all the separable uses, would then be greater than it was before.
In the same way when the agents and their uses are indirect there is a point in the gradation from the better to the poorer agents where the materials and forces are left unused. Beyond or below that point the uses of machines, tools, and fields have no value, except for some prospective use. Outworn goods in manifold forms, old pictures, old clothing, having no longer charms even for a rummage sale, a great multitude of things unused and worthless, differing by only a shade from things that still are used and valued, form a valueless margin of wealth. Every rubbish-heap, rag-bag, junk-shop, and garret contains things once prized, now lingering on the margin of use or already become definitely useless.
Recall that there is an intensive margin of utilization, beyond which are certain potential uses in the things that we already have, which, however, in the existing conditions, lie outside the margin of utilization and of value. They may become valuable through any one of many changes in the economic situation. Their use now would involve an expenditure of other agents (labor, materials, etc.) that have a greater value than the product would have. Economic choice should go just far enough and not too far, either extensively or intensively, in the use of goods, if the maximum of usance-value is to be attained.
§ 8. Usance-value of complementary agents. In the foregoing discussion we have, for the sake of simplicity, spoken as if a single product were attributable to a single agent. In reality a situation as simple as this is rare, tho it may occur. Almost all products are the result of the uses of two or more complementary agents.1 When two or more agents are each indispensable to the existence of a valuable product, the lack of one agent makes the other agents valueless for that one purpose. The product cannot in any case be physically divided into fractions and the parts ascribed to the various agents respectively. But the valuation imputable to each under the existing conditions results from the demand and supply for each in all its uses together. This process of comparison is found even in the individual economy. Robinson Crusoe had to choose how he would apportion his labor (one good) and his limited stock of iron (another good) to make tools (the products). He would not apply all his agents to any one product (as hatchets), but he would, by the principle of substitution, apportion the agents among a number of products, hammers, knives, etc. There are thus, in this simple case, several series of evaluations. First, the successive units of the products from this process, as for example the hatchets, have a decreasing importance. Secondly, the successive units of labor applied to this one product would be limited by their value for other uses. Thirdly, the successive units of iron would have less value applied to this use and relatively greater value applied to different products. Each use is chosen in relation to all the alternative uses presented to choice at the moment, and a scale of values results that represents the equilibrium of choice. The choices may be made in a very imperfect way, but somehow they must be made by every individual working by himself, at whatever simple task. A large part of these choices are made easy through habit, custom, and imitation, by which the general scale of living and the industrial process are largely ruled.
When men come together to trade in markets, the problem of evaluating complementary agents becomes in some respects more complex, because of the variety of labor and of uses; but in some respects it is easier, because of the existence of current prices for all things, serving to give more exact expression to the value of alternative uses. Flour and water are needed to make bread.2 Assume that a loaf of bread has a value of 10. If the water is a free good, the flour has imputed to it the whole value of 10; but if the water needed is valued at 1 for some other purpose, as for sale at a price, then some readjustment of other values must take place. Either the value of the flour falls to 9, or that of the bread increases to 11, or an adjustment midway between these values is made. In this way occurs the adjustment of the value of complementary agents, each being valued in relation to all the other uses to which it could be applied. The total price of the products evidently must closely conform to the total price (actual, or estimated) of all the agents entering into the products. This measurement of money-costs and their adjustment to prices we shall have to study more fully later under “cost of production.”
[1 ]See above on complementary goods, ch. 4, sec. 5.
[2 ]Ignoring here for the moment, labor, yeast, salt, fuel, etc.