The Online Library of Liberty

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• Translator's Preface
• Author's Preface
• Introduction
• Book I: The Nature and Conception of Capital
• Book I, Chapter I: Man and Nature
• Book I, Chapter II: The Nature of Capital
• Book I, Chapter III: Historical Development of the Conception
• Book I, Chapter IV: The True Conception of Capital
• Book I, Chapter V: The Competing Conceptions of Capital
• Book I, Chapter VI: Social and Private Capital
• Book II: Capital As Instrument of Production
• Book Ii, Chapter I: Introductory
• Book Ii, Chapter II: Capitalist Production
• Book Ii, Chapter III: The Function of Capital In Production
• Book Ii, Chapter IV: The Theory of the Formation of Capital
• Book Ii, Chapter V: Formation of Capital In a Community
• Book Ii, Chapter VI: Possible Objections
• Book III: Value
• Book Iii, Chapter I: The Two Conceptions of Value1
• Book Iii, Chapter II: Nature and Origin of Subjective Value
• Book Iii, Chapter III: The Amount of Value
• Book Iii, Chapter IV: The Marginal Utility
• Book Iii, Chapter V: Complications
• Book Iii, Chapter VI: What Determines Marginal Utility
• Book Iii, Chapter VII: Alternative Uses
• Book Iii, Chapter VIII: Subjective Exchange Value
• Book Iii, Chapter IX: The Value of Complementary Goods
• Book Iii, Chapter X: The Value of Productive Goods. Value and Costs.
• Book IV: Price
• Book Iv, Chapter I: The Fundamental Law
• Book Iv, Chapter II: Isolated Exchange
• Book Iv, Chapter III: One-sided Competition
• Book Iv, Chapter IV: Two-sided Competition
• Book Iv, Chapter V: The Law of Supply and Demand
• Book Iv, Chapter VI: The Individual Determinants of Price
• Book Iv, Chapter VII: The Law of Costs
• Book V: Present and Future
• Book V, Chapter I: Present and Future In Economic Life
• Book V, Chapter II: Differences In Want and Provision For Want
• Book V, Chapter III: Underestimate of the Future
• Book V, Chapter IV: The Technical Superiority of Present Goods
• Book V, Chapter V: Co-operation of the Three Factors
• Book VI: The Source of Interest
• Book Vi, Chapter I: The Loan and Loan Interest
• Book Vi, Chapter II: The Profit of Capitalist Undertaking. Principles of Explanation.
• Book Vi, Chapter III: The Profit of Capitalist Undertaking. Complications.
• Book Vi, Chapter IV: The Profit of Capitalist Undertaking. the Labour Market.
• Book Vi, Chapter V: The Profit of Capitalist Undertaking. the General Subsistence Market.
• Book Vi, Chapter VI: The Profit of Capitalist Undertaking. the General Subsistence Market—(continued)
• Book Vi, Chapter VII: Interest From Durable Goods
• Book Vi, Chapter VIII: Interest From Durable Goods—(continued)
• Book Vi, Chapter IX: Results
• Book Vi, Chapter X: Interest Under Socialism
• Book VII: The Rate of Interest
• Book Vii, Chapter I: The Rate In Isolated Exchange
• Book Vii, Chapter II: The Rate In Market Transactions
• Book Vii, Chapter III: The Rate In Market Transactions—(continued)
• Book Vii, Chapter IV: The Market For Capital In Its Full Development
• Book Vii, Chapter V: The Market For Capital In Its Full Development—(continued)
• Appendix to Page 327 [book Vi, Chapter V]: Amount of Subsistence Fund Necessary Before Entering On a Production Period of Given Length

BOOK III

VALUE

Book III, Chapter I

The Two Conceptions of Value1

In the science of Political Economy, as in ordinary speech, two very distinct things have usually been classed together under the one name of Value. From the first it could scarcely escape notice that there was a difference between them, but the full extent of the difference was certainly underrated. Instead of being recognised as phenomena belonging to entirely distinct categories of thought, they were, quite falsely, represented as members of one and the same group of phenomena, and, under the not very felicitous names of Use Value and Exchange Value, they were assumed to be sub-species of one universal conception of Value, and distinguished from each other as such. This distinction once made, however, the so-called Use Value was almost entirely dropped out of sight. Economists took no trouble to inquire any deeper into its nature, nor did they make any use of it in further investigations. They simply catalogued it, as it were, among the conceptions of political economy, and left it lying in a corner of their systems like a stone for which there was no use. It is only of very recent date that economical investigation has discovered in this "stone rejected of the builders" the basis and support of one of the most important conceptions of economics, and has awaked to the fact that on it depends a group of most notable laws—laws with consequences reaching far beyond the boundaries of the theory of value, and laws to which almost every branch of economic theory must go back for its root and spring.

But, first of all, it is important that we give right names to those things which tradition has handed down to us under the inadequate designations of Use Value and Exchange Value. The two groups of phenomena, to both of which popular usage has given the ambiguous name "Value," we shall distinguish as value in the Subjective and value in the Objective sense.2

Value in the Subjective sense is the importance which a good, or a complex of goods, possesses with regard to the wellbeing of a subject. In this sense I should say of any particular good that it was valuable to me, if I recognised that my wellbeing was so associated with it that the possession of it satisfied some want, secured me a gratification or a feeling of pleasure which I should not have had without it, or saved me from a pain which, otherwise, I should have had to endure. In this case the existence of the good means my gain, the absence of it my loss, in wellbeing: to me it is a matter of importance, for me it has value.

By Objective value, on the other hand, is meant the Power or Capacity of a good to procure some one objective result. In this sense there are as many kinds of value as there are external results with which man may be connected. There is a nutritive value of food, a heating value of wood and coal, a fertilising value of manures, a blasting value of explosives, and so on. In any expressions of this kind all reference to the wellbeing or illbeing of a subject is excluded from the conception of value. If we affirm that beech has a superior heating value over pine, we only express the purely objective and, as it were, mechanical fact that with a definite weight of beech a greater amount of heat can be raised than with the same weight of pine. In the above connections, then, instead of the word "Value" we use, as entirely synonymous with it, the expressions "Power" or "Capacity"—expressions which themselves suggest a purely objective relation. Instead of "nutritive value," "heat value;" "explosive value," we use "nutritive power" or "nutritive capacity;" "heating power," "explosive power," and so on, as meaning exactly the same thing.

The varieties of Objective value just mentioned by way of illustration do not, however, belong to economical but to purely technical relations; and, however frequently they are referred to in economical text-books, they do not properly belong to political economy at all. It does not fall within the province of our science to expound the heating value of wood, nor, in explaining other economical phenomena, has it occasion to lay stress on this heating value any more than it does on any other physical or technical fact. I have given these illustrations purely as illustrations, with the intention of putting in clearer relief the very intimately related nature with the above of that branch of objective values which, of course, has the greatest possible importance for political economy, namely, the objective Exchange value of goods. By this expression I mean the objective worth of goods in exchange; or, in other words, the possibility of obtaining in exchange for them a quantity of other economical goods, this possibility being looked upon as a power or a property of the former goods. In this sense we say that a horse is worth £50, or a house worth £1000, if, in exchange for these, we can obtain, respectively, £50 or £1000.

Here, again, it must be noted that, as in the kindred expressions heating value and the like, we say nothing at all as to the influence which goods may exert on the wellbeing of any subject whatever; we simply indicate the objective relation that for a particular good a certain amount of other goods may be had in exchange. In this case also the characteristic phenomenon recurs, that the word "Value" can be, quite adequately, replaced by the word "Power," and is, indeed, so replaced in popular speech. Besides the expression "value in exchange" English economists use, quite indifferently, the expression "purchasing power," and we Germans are beginning in the same way to put in general use the term Tauschkraft.

The economical theory of value has, then, the double task of interpreting, on the one hand, the laws of Subjective Value, and, on the other, the laws of Objective Exchange Value, as from the economic point of view by far the most important branch of objective value. The first part of this task we shall take up in the present book, the second in the following book dealing with the theory of Price. It is true that the two conceptions, "Price" and "Exchange Value," are by no means identical. Exchange Value is the capacity of a good to obtain in exchange a quantity of other goods. Price is that other quantity of goods. But the laws of these two coincide. So far as the law of price explains that a good actually obtains such and such a price, and why it obtains it, it affords at the same time the explanation that the good is capable; and why it is capable, of obtaining a definite price. The law of Price, in fact, contains the law of Exchange Value.3

Book III, Chapter II

Nature and Origin of Subjective Value

All goods without exception—indeed according to the very conception of them as "good"—possess a certain relation to human wellbeing. There are, however, two essentially distinct grades of this relation. A good belongs to the lower grade when it possesses the general capacity to subserve human weal. The higher grade, on the other hand, demands that a good should be more than merely a sufficient cause; it must be an indispensable condition of human wellbeing—a condition of such a kind that some gratification stands or falls with the having or wanting of the good. In the expressive vocabulary of everyday life we find a separate designation for these grades. The lower is called Usefulness, the higher Value. This distinction, already recognised in common speech, we must try to make as clear and well-marked as its fundamental importance for the whole theory of value deserves.

A man dwells beside a bubbling spring of water. He has filled his cup, and the spring goes on pouring out enough to fill a hundred other cups every minute. Another man is travelling in the desert. A long day's journey over glowing sand still divides him from the nearest oasis, and he has come to his last cup of water. What is the relation in each case between the cup of water and the wellbeing of its owner?

A single glance shows us that the relation is very dissimilar; but wherein lies the difference? Simply that, in the former case, we have only the lower grade of the relation we call wellbeing, that of usefulness; in the latter case we have the higher grade as well. In the first case, just as in the second, the cup of water is useful, that is, capable of satisfying a want, and, moreover, in exactly the same degree; for evidently the refreshing qualities of the water—the qualities on which its capacity to quench thirst is based, such as coolness, taste, etc.—are not in the least degree weakened by the fact that other cups of water chance to possess similar properties; nor, in the second case, are these refreshing qualities in the least augmented by the accidental circumstance that there is no other water near. On the other hand, the two cases become essentially distinct when considered with reference to the second grade. Looking at the former case we must say that the possession of the cup of water does not provide the man with one single satisfaction more, nor its loss with one satisfaction less, than he could have obtained without it. If he has that particular cup of water he can quench his thirst with it; if he has not that cup—well, he can quench his thirst quite as well with one of the hundred others which the spring puts freely at his disposal every minute of the day. If he likes, therefore, he may make that one cup the cause of his satisfaction by quenching his thirst with it; an indispensable condition of his satisfaction it cannot be; for his wellbeing it is dispensable, unimportant, indifferent.

It is quite otherwise in the second case. Here we must say that, if our traveller had not that one last cup, he could not quench his thirst; he must bear its pangs unassuaged, perhaps even succumb to them. In the cup of water then, in this case, we see not merely a sufficient cause, but the indispensable condition, the sine qua non of human wellbeing. Here it is of consequence, even of urgency; it possesses importance for his wellbeing.

Now it is not too much to say that the distinction here drawn is one of the most fruitful and fundamental in the whole range of our science. It does not owe its existence to the microscope nor to any hair-splitting distinctions of the logician. It has its life in the world of men, who know it and use it and take it as guide for their common attitude towards the world of goods, not only as regards the intellectual estimate they apply to these goods, but as regards their actual business transactions. About goods which are only useful the practical business man is careless and indifferent. The academic knowledge that a good may be "of use" cannot evoke any efficient interest in the good, in face of the other knowledge that the same use may be obtained without it. Such goods are practically naught as regards our wellbeing, and we treat them as such; we are not put about when we lose them, and we make no effort to gain them. Who would fret at, or make an effort to prevent, the spilling of a cup of water at the spring, or the escape of a cubic foot of atmospheric air? Where, on the other hand, the sharpened glance of the economic man recognises that some satisfaction, wellbeing, gratification, is connected with a particular good, there the effective interest which we take in our own wellbeing is transferred to the good which we recognise as its condition; we see and value our own welfare in it; we recognise its importance for us as value; and finally, we develop an anxiety, proportioned to the greatness of that importance, to acquire and hold the good.

Thus, formally defined, value is the importance which a good or complex of goods possesses with respect to the wellbeing of a subject. Any addition to this definition, regarding the kind and reason of the importance, is, strictly speaking, not necessary, since goods can only have an effective importance for human wellbeing in one way, viz. by being the indispensable condition, the sine qua non, of some one utility which subserves it. In view of the fact, however, that in other definitions of value it is very often translated as an "importance;" while the importance spoken of rests, erroneously, on a simple capability of utility, or, not less erroneously, on the necessity of expenditure of costs, or the like,4 we shall define it, unambiguously and exactly, as: That importance which goods or complexes of goods acquire, as the recognised condition of a utility which makes for the wellbeing of a subject, and would not be obtained without them.

All goods have usefulness, but all goods have not value. For the emergence of value there must be scarcity as well as usefulness—not absolute scarcity, but scarcity relative to the demand for the particular class of goods. To put it more exactly: goods acquire value when the whole available stock of them is not sufficient to cover the wants depending on them for satisfaction, or when the stock would not be sufficient without these particular goods. On the other hand, those goods remain valueless which are offered in such superfluity that all the wants which they are fitted to satisfy are completely supplied, and when, beyond that, there is a surplus which can find no further employment in the satisfaction of want, and which, at the same time, is large enough to spare the goods or quantities of goods that we are valuing without imperilling the satisfaction of any one want.

After what has been said as to the nature of value, it should not be very difficult to prove these propositions. When the supply of goods is not sufficient, and some of the wants which they are adapted to satisfy must remain unsatisfied, it is clear that the loss of even a single good involves the loss of a possible satisfaction, while the addition of a single good involves the acquisition of a satisfaction otherwise impossible; and it is clear, consequently, that some gratification or form of wellbeing depends on the existence of that good. Conversely, it is quite as clear that, if goods of any class are to be had in superfluity, there is no harm done if one of the goods be lost—since it can be immediately replaced from the superfluous stock; nor any utility got if another such good be added—since it cannot be employed in any useful way. Suppose, for instance, that a peasant requires ten gallons of water per day, and no more, for general purposes—say, for his own drinking, for that of his family and servants, for watering his cattle, for cleansing, flushing, etc.—and suppose that the only spring within reach supplies no more than eight gallons a day. It is quite evident that he cannot spare one single gallon from his water-supply without suffering, to a more or less sensible extent, as regards the wants and aims of his economy. Every gallon in this case is the condition of a definite sphere of usefulness. Even if the spring supplied just ten gallons this would still be true. But if the spring supplied twenty gallons per day, it is just as obvious that the loss of one gallon would not do the slightest injury to our peasant. He can only employ ten gallons usefully, and he must let the other ten gallons flow away unused. If one gallon is spilled it is replaced from the overflow, and the only effect is that now the unusable surplus is reduced from ten gallons to nine.

Now as it is the insufficient, or the barely sufficient, goods that are the objects of economical care—the goods we "economise" or endeavour to acquire and keep,—while such goods as are to be had in superfluity are free to everybody, we may express the above propositions shortly in the following form: All economical goods have value; all free goods are valueless.5 In any case it must steadily be borne in mind that it is only relations of quantity that decide whether any particular good is merely capable of use, or is also the condition of a utility for us.6

Book III, Chapter III

The Amount of Value

In asking what is the principle that regulates the amount of value, we pass to a sphere where lies the chief task of a theory of value, and where at the same time lie its greatest difficulties. These difficulties are the result of a peculiar coincidence of circumstances. From one point of view the true principle almost suggests itself. If the value of a good is its importance to human wellbeing, and if this "importance" means that some portion of our wellbeing is dependent on our having the good, it is clear that the amount of the good's value must be determined by the amount of wellbeing which depends on it. Goods will have high value if our wellbeing depends on them to any important extent, low value if it does not.

But from another point of view, there are certain facts in the economical world which seem to give the lie to this very simple and natural explanation. Everybody knows that, in practical economic life, precious stones possess a high value, while bread and iron have a moderate value, and air and water usually no value at all. Now everybody knows that without air and water we simply could not exist, and that the uses of bread and iron are extremely important, while precious stones, for the most part, only satisfy the love of ornament, and have, accordingly, a very inferior importance for human wellbeing. It would appear, then, that one who holds fast by the principle that the amount of a good's value is determined by the importance of the services which it may render to human wellbeing, must expect to find in precious stones a low value, in bread and iron a high value, and in water and light the very highest value. But facts show that exactly the opposite of this is the case.

This startling phenomenon has been a veritable rock of offence in the theory of value. The highest utility accompanied by the smallest value is a strange paradox. It is true that, in confusing Usefulness and Use Value, economists did not apprehend and describe the state of the case quite exactly. When they falsely ascribed to the iron a high "use value" and to the diamond a low "use value;" the only reason for surprise was that the "exchange value" of these goods went so entirely in the opposite direction. But this was only to change the name of the opposition, not to take away any of its sharpness. There were plenty of attempts to bridge the fatal contradiction by involved explanations, but these were unsuccessful; and so it happens that, from Adam Smith's time to our own, innumerable theorists have despaired of finding the nature and measure of value in any relation to human wellbeing, and have fallen back upon quite foreign and often wonderful lines of explanation, such as labour or labour time, costs of production, resistance of nature to man, and the like. But, unable to get rid of the feeling that the value of goods must have something to do with utility and human wellbeing, they put down the want of harmony between the utility and the value of goods as a rare and perplexing contradiction, a contradiction économique.

In what follows I mean to prove that the older theory had no need to abandon the most natural explanation. The measure of the utility which depends on a good is, actually and everywhere, the measure of value for that good. To prove this nothing more is necessary than a dispassionate but keen casuistical investigation into the question, What is the gain to our wellbeing that, in any given circumstances, depends on a good? I say deliberately "casuistical" investigation; for the entire theory of subjective value is, properly, nothing else than a system of casuistry, determining when, under what circumstances, and how far our wellbeing is dependent upon any particular good. It is very remarkable that the ordinary man in everyday life is constantly making casuistic distinctions of this kind, and making them with great certainty. He seldom makes a mistake, and he never makes a mistake in the principle. He may, of course, ascribe a trifling value to a diamond if he mistakes it for a glass bead. But the theoretical consideration—which is quite irrelevant here—that without water the human race could not continue in life, would never lead him to the casuistical conclusion that every gallon of water which flows from the village spring is a good of priceless value, or worth thousands of pounds. Our task, then, is to hold the mirror up to those casuistical distinctions which men make in the ordinary affairs of life, and to bring those laws, which the ordinary man instinctively handles with certainty, to clear and conscious presentation.

What human wellbeing may gain from a good, and thus the advantage which is dependent on a good, is, in most cases,7 the satisfaction of a want. The casuistical consideration that really determines how far a person's wellbeing depends upon a particular good is found in the answer to two questions: first, which, among two or more wants, depends on it? and, second, what is the urgency of the dependent want or of its satisfaction?

For convenience we shall take the second question first, and answer it in the present chapter. It is a familiar fact that our wants vary very greatly in importance. We are accustomed to rank them according to the seriousness of the consequences which their non-satisfaction has on our wellbeing. Thus we attach the greatest weight to those wants the nonsatisfaction of which would be followed by death. Next to these we place wants the non-satisfaction of which would result in some serious permanent injury to our health, honour, or happiness. Below these again come such wants as expose us to more temporary injuries, pain, or deprivations. Finally, we put in the very lowest class those wants the non-satisfaction of which costs us nothing more than a very slight unpleasantness, or the deprivation of some quite insignificant pleasure. Arranging our wants according to these characteristics we obtain a regularly graduated scale of wants. Of course as differences of bodily and mental disposition, culture, and so on, result in very marked differences of wants, this scale will come out very different for different individuals, and even for the same individual at different times. All the same, every practical man whose means are limited must have a scale more or less clearly before his mind if he would make a choice among these wants, and even theorists have often had occasion to sketch such a scale from the "objective" standpoint of impartial scientific consideration.

So far everything would be simple and certain were it not that there is an ambiguity when we speak of graduation or ranking of wants. We may mean by these terms either the graduation of wants as kinds of wants, or the graduation of degrees of wants, the concrete individual feelings of want; and these two are essentially different, even divergent. If we compare kinds of wants, looked at as a whole, according to their importance for human wellbeing, there is no doubt whatever that to the needs of subsistence would be allotted the first rank, to the needs of housing and clothing a rank not much inferior, to the wants satisfied by tobacco, spirituous liquors, music, etc., a very much less important place, while the wants of ornament and the like would have a very insignificant rank indeed.

Now the graduation of concrete feelings of want is essentially different from this. Within one and the same kind of want the feeling of want is not always uniform, not always equally strong. Every feeling of hunger is not equally intense, and every satisfaction of hunger is not equally perfect. In the class of "needs of subsistence;" for instance, the concrete want of a man who has not eaten a morsel for eight days is infinitely more urgent than that of another man who has already got through two courses of his ordinary dinner, and is meditating whether he should have a third. In the graduation of concrete wants we have to deal with an entirely different state of affairs, and with a much greater variation. In the scale of kinds of wants the "needs of subsistence" came far and away before the desire for tobacco, for liquor, for ornament, etc. In the scale of concrete wants, wants belonging to the most various kinds cross and intersect each other. It is true that, even here, the most important concrete wants in the most important classes of wants stand at the top of the scale; but the less important concrete wants of these classes are frequently overpassed by concrete wants of much inferior classes—the bottom members of the highest class, perhaps, overpassed by the top member of the lowest class. It is very much the same as if a geographer were one time to arrange the Alps, Pyrenees, and Harz by their height as mountain ranges, and another time were to arrange their single summits. As ranges the Alps would, of course, come before the Pyrenees, and the Pyrenees before the Harz. But, in comparing individual heights, a great many of the Alpine summits would take rank below individual peaks of the Pyrenees, some even below hills in the insignificant Harz.

And now the question is, When goods have to be valued, by which scale shall we measure the importance of the wants they subserve—the scale of kinds or the scale of concrete wants? When the older theory came to this dividing of the ways—the very first opportunity offered it of making a mistake—it chose the wrong way. It adopted the scale of kinds. On this scale the class "Needs of Subsistence" occupies one of the most conspicuous places, while the class "Desire of Ornament" has a subordinate place. Thus the older theory decided that bread, universally, has a high "use value," and diamonds a low "use value," and, naturally, was very much astonished that the value practically put upon those two kinds of goods was exactly the reverse of this.

Now their conclusion was quite wrong. What the casuist must say to himself is: If I have a slice of bread I can indeed still this or that concrete feeling of hunger as it arises, but I can never satisfy the totality of such feelings—the actual and possible, present and future, feelings of hunger which, together, make up the kind "needs of subsistence." Obviously, then, it is quite out of place to attempt to measure the service which the piece of bread can render me by the fact that the totality of such feelings possesses much or little importance. To do so would be like the act of a man who, on being asked as to the height of the Kahlenberg, an insignificant off-shoot of the Alps near Vienna, were to ascribe to it the height of the Alpine chain! As a fact it would never occur to us in practical life to value every bit of bread in our possession as a treasure of infinite importance. We do not rejoice every time we buy a baker's roll as if we had saved a life, nor do we blame a man as spendthrift when he carelessly gives away a slice of bread or throws it to a dog. Yet this is the judgment we must pass if we would transfer the importance of the kind "needs of subsistence," on the satisfaction of which our very life depends, to the goods which actually minister to that satisfaction.

This much is clear, then, that the value we ascribe to goods has nothing to do with the graduation of kinds of want, but only with the graduation of concrete wants. In order to bring out all that is involved in this conclusion, it may be desirable to put more clearly certain points relating to the composition of this graduated scale, and to put the whole argument on a surer basis than has been done in the foregoing analysis.

Most of our wants are divisible, in the sense that they are susceptible of piecemeal satisfaction. When hungry I am not compelled to choose between satisfying my hunger completely and going entirely unsatisfied. I may take the edge off my appetite by a moderate meal, intending, perhaps, to dispel the feeling of hunger altogether later on by a full meal, or, perhaps, to make shift with the partial satisfaction I have got. Naturally the partial satisfaction of a concrete want has another and a smaller importance for my wellbeing than a complete satisfaction of the same; and, to a certain extent, this of itself would suffice to call attention to the above-mentioned phenomenon that, within a kind of wants, there are concrete wants (or degrees of want) of varying importance. But with this is connected a further notable fact. It is an experience, as familiar as it is deep-rooted in human nature, that the same enjoyment, when constantly repeated, gives us, beyond a certain point, a constantly decreasing gratification, till, in the end, it changes into its opposite. Any one can prove for himself that at a meal when the fourth or fifth course is reached, the appetite is not nearly so keen as at the first course, and that, if there are too many courses, a point is reached where enjoyment turns into discomfort or disgust. The same occurs in too long a concert, lecture, walk, play, and, generally speaking, in the case of most physical as well as intellectual enjoyments.

If we put the essence of these well-known facts into technical language we get the following proposition: The concrete degrees of want into which our sensations of want may be divided, or the successive degrees of satisfaction obtained from similar amounts of goods, are usually of very dissimilar importance—indeed, of importance which diminishes step by step to zero.

This will explain a whole series of propositions which were simply asserted above. It explains, firstly, how, in one and the same kind of wants, there may be concrete wants, or degrees of want, of varying urgency. Indeed in the case of all divisible satisfactions as the term is defined above—that is, in the great majority of cases—this not only may be but must be so, quite normally and, so to speak, organically. It explains, again, that, even in the most important kinds of wants, there are lower and lowest grades of importance. Properly speaking, the more important kind is marked off from the less important only by the fact that, to some extent, its head rises higher than the others, while its base stands on the same level as all the others. And, finally, it explains that, not only may it occasionally happen, as I have just said, that a concrete want belonging to a kind which, on the whole, is more important, may be outweighed by some individual concrete want of a kind, on the whole, less important, but that this happens as a perfectly normal, ordinary, and organic occurrence. There will always, for instance, be innumerable concrete subsistence wants which are weaker and less urgent than many a concrete want of quite unimportant classes; such things as the desire of ornament, the love of dancing, the craving for tobacco, etc., will often be stronger than the need of good food and warm clothing.

If we try to represent the classification of our wants by a typical scheme we must, on the principles just laid down, give it something like the following shape8 :—

In this scheme the Roman figures indicate the various kinds of wants, decreasing in order of importance from I to X. I indicates the most urgent kind, say the needs of subsistence; V indicates a kind of medium importance, say that of spirituous liquors; while X indicates the least important conceivable kind.

The Arabic figures 10 to 1, again, indicate the concrete wants and degrees of want that occur in the different kinds, their rank being shown by assigning the figure 10 to the most important conceivable want, the figure 9 to that next in importance, and so on, till the last figure 1 indicates the most insignificant want likely to occur.

This scheme now puts before us the fact that the more important the kind, the higher stands the most important concrete want contained in the kind; but it shows at the same time that in each kind there are all grades of importance, from greatest to least. The only exceptions in the scheme occur in classes IV and VII, in which some individual members of the descending scale are wanting. These represent the (comparatively rare) kinds where, on technical grounds, a successive satisfaction by means of partial acts is either incomplete or quite impossible, and where, accordingly, the want must either be entirely satisfied or not satisfied at all. The want met by kitchen ranges, for instance, is generally met so completely by one range that we should have absolutely no use for a second. Finally, the scheme shows that in the most important kind (I) there occur concrete wants, which bear the lowest figure of importance, while, in almost all the other kinds which stand under it in importance, there are concrete wants that bear higher figures.

Book III, Chapter IV

The Marginal Utility

Turning now to the second question suggested in last chapter we ask, Of several or many wants which one is it that actually depends on a particular good?

This question would not be put at all if the circumstances of economic life were so simple that single wants always stood over against single goods. If a good were adapted to satisfy a single concrete want, and if it were at the same time the only one of its kind, or, at least, the only one of its kind available, it would be quite clear without further consideration that the satisfaction of the single want depended on our command over the single good. But in practical life the matter is scarcely ever so simple as this; on the contrary, it is usually complicated simultaneously from two sides. First, one and the same good is usually adapted to satisfy various concrete wants, which wants again possess various degrees of importance; and second, several goods of one and the same kind are frequently available, thus leaving it to caprice which good will be used for the satisfaction of an important, and which for an unimportant want. To give the simplest possible example. I have been shooting for a few days on the mountains, and by some accident I miss my companions. I am far from any house or village, and the only food I have for myself and my dog is two entirely similar baker's rolls. It is clear that the satisfaction of my hunger is of infinitely more importance to me than the satisfaction of the dog's hunger and it is just as clear that it lies with me which of the two rolls I shall consume and which I shall give to the dog. And now the question arises, Which of the two wants here is dependent on the bread?

One is tempted to answer, That want to which the bread was actually devoted. But it is evident at once that this is an erroneous conclusion. It would amount to saying that the two rolls, devoted as they are to the satisfaction of wants of different importance, must possess different values; while it does not admit of question that two similar goods, available under similar conditions, must be entirely equal in value.

Here, again, an easy casuistical consideration gives the proper solution. The problem is: Which, among several wants, is dependent on a commodity? This resolves itself very simply when it is known which want it is that would fail of its satisfaction if that commodity were not present: that want is evidently the dependent one. And now it is easy to show that the want which failed of its satisfaction would not be that want which the particular commodity was, accidentally and capriciously, selected to satisfy, but would always be the least important among all the wants in question; that is to say, among all those wants which would formerly have been provided for out of the total stock of this class of goods.

Consideration for one's own convenience, as obvious as it is imperative, induces every reasonable man who acts economically to maintain a certain fixed order in the satisfaction of his wants. No one would be so foolish as to exhaust the resources at his command in satisfying trifling wants, or wants that could be easily ignored, and thus to deprive himself of the means of satisfying necessary wants. On the contrary, every one would take care to use the resources at his command, in the first instance, to provide for his most important wants; then for wants that come after these in importance; then for those of the third rank, and so on;—always arranging in such a way that the lesser wants were only provided for when all the higher wants had been supplied, and there still remained some means of satisfaction to spare. We act according to the same obvious and reasonable principles when our stock undergoes a change by the loss of one member of that stock. Naturally this will alter the plan according to which we have been employing our resources. Not all the wants we had arranged to satisfy can now be provided for, and some abatement in the totality of satisfaction is unavoidable. But, of course, the wise man will try to lay the burden on the least sensitive spot; that is to say, if the loss chances to be in a commodity which was destined to a more important use, he will not give up the satisfaction of this more important want, and, by holding on obstinately to his old plan, provide satisfaction for the less important wants. We may be sure that he will satisfy the more important want, and will do so by withdrawing provision from that want, among all the wants hitherto marked out for provision, on the satisfaction of which least depends. To put it in terms of our former illustration: if our sportsman loses the roll which he has meant for himself, he will scarcely feed his dog with the one that remains, and expose himself to the danger of starving. He will suddenly change his plan, elevate the roll that remains into fulfilling its more important function only, and shift the loss to the least important function, the feeding of the dog.

The case, then, stands as follows. Wants which are more important than this "last" want will not be affected by the loss of the good, for their satisfaction is, as before, guaranteed in case of need by the replacement of substitutes. Nor will those wants be affected which are less important than this "marginal want," for they go unsatisfied whether the good is there or not. The only want affected is the last of those that otherwise would be satisfied: it will be satisfied if the good is there; it will not be satisfied if it is not there. It is thus the dependent want we were seeking.

Here then we have reached the goal of the present inquiry, and may formulate it thus: the value of a good is measured by the importance of that concrete want, or partial want, which is least urgent among the wants that are met from the available stock of similar goods. What determines the value of a good, then, is not its greatest utility, not its average utility, but the least utility which it, or one like it, might be reasonably employed in providing under the concrete economical conditions. To save ourselves the repetition of this circumstantial description—which, all the same, had to be somewhat circumstantial to be quite correct—we shall follow Wieser9 in calling this least utility—the utility that stands on the margin of the economically permissible—the economic Marginal Utility of the good. The law which governs amount of value, then, may be put in the following very simple formula: The value of a good is determined by the amount of its Marginal Utility.

This proposition is the key-stone of our theory of value. But it is more. In my opinion it is the master-key to the action of practical economic men with regard to goods. In the simplest cases, as in all the tangle and complication which our present varied economic life has created, we find men valuing the goods with which they have to deal by the marginal utility of these goods, and dealing with them according to the result of this valuation. And to this extent the doctrine of marginal utility is not only the key-stone of the theory of value, but, as affording the explanation of all economical transactions, it is the key-stone of all economical theory.10 Those who have observed practical life closely will, I think, be convinced that this claim is not exaggerated. Rightly to observe and rightly to interpret what has been observed, however, is an art not always easy; and in what follows accordingly we shall make use of the value theory to guide us in observing and interpreting what falls within its sphere. We begin, then, with an illustration of the greatest conceivable simplicity.

A colonial farmer, whose log but stands by itself in the primeval forest, far away from the busy haunts of men, has just harvested five sacks of corn. These must serve him till the next autumn. Being a thrifty soul he lays his plans for the employment of these sacks over the year. One sack he absolutely requires for the sustenance of his life till the next harvest. A second he requires to supplement this bare living to the extent of keeping himself hale and vigorous. More corn than this, in the shape of bread and farinaceous food generally, he has no desire for. On the other hand, it would be very desirable to have some animal food, and he sets aside, therefore, a third sack to feed poultry. A fourth sack he destines for the making of coarse spirits. Suppose, now, that his various personal wants have been fully provided for by this apportionment of the four sacks, and that he cannot think of anything better to do with the fifth sack than feed a number of parrots, whose antics amuse him. Naturally these various methods of employing the corn are not equal in importance. If, to express this shortly in figures, we make out a scale of ten degrees of importance, our farmer will, naturally, give the highest figure 10 to the sustenance of his life; to the maintenance of his health he will give, say, the figure 8; then, going down the scale, he might give the figure 6 to the improvement of his fare by the addition of meat, the figure 4 to the enjoyment he gets from the liquor, and, finally, to the keeping of parrots, as expressing the least degree of importance, he will give the lowest possible figure 1. And now, putting ourselves in imagination at the standpoint of the farmer, we ask, What in these circumstances will be the importance, as regards his wellbeing, of one sack of corn?

This, as we know, will be most simply tested by inquiring, How much utility will he lose if a sack of corn gets lost? Suppose we carry out this in detail. Evidently our farmer would not be very wise if he thought of deducting the lost sack from his own consumption, and imperilled his health and life while using the corn as before to make brandy and feed parrots. On consideration we must see that only one course is conceivable: with the four sacks that remain our farmer will provide for the four most urgent groups of wants, and give up only the satisfaction of the last and least important, the marginal utility—in this case, the keeping of parrots. The only difference, then, that his having or not having the fifth sack of corn makes to his wellbeing is that, in the one case, he may allow himself the pleasure of keeping parrots, in the other he may not; and he will rightly value a single sack of his stock according to this unimportant utility. And not only one sack, but every single sack; for, if the sacks are equal to one another, it will be all the same to our farmer whether he lose sack A or sack B, so long as, behind the one lost, there are still four other sacks for the satisfying of his more urgent wants.

To vary the illustration, assume that our farmer's wants remain the same, and that he has only three sacks of grain. What now is the value of one sack to him? The test again is quite easily applied. If he has three sacks he can and will provide for the three most important groups of wants. If he has only two sacks, he will be obliged to limit himself to the satisfying of the two most important groups and give up the satisfying of the third, that of animal food. The possession of the third sack—and the third sack, be it remembered, is not a definite sack but any of the three sacks, so long as there are other two behind it—directly carries with it, therefore, the satisfaction of his third most important want; that is, the last or least of those wants covered by the three sacks which constitute his total stock. Any estimate other than that according to the marginal utility would, in this case also, obviously run counter to facts, and would be quite incorrect.

Finally, suppose that our farmer's wants remain as before, and that he only possesses one single sack of corn. In this case it is perfectly clear that all less important methods of employing the corn are out of court, and that it will be devoted to and spent in sustaining the farmer's life—a function for which it just suffices. And it is as clear that if this single sack fails the farmer will no longer be able to support himself in life. His possession of the sack, therefore, means life; his loss of it means death; the single sack of corn has the greatest conceivable importance for the wellbeing of the farmer. And all this is still in conformity with our principle of marginal utility. The greatest utility—the preservation of life—is here the sole, as well as the last or marginal utility.

These estimates according to marginal utility are not merely "academic." No one will doubt that our farmer on due occasion—say, on an offer made him for the corn—would act practically according to the same estimates. Any one of us, placed in his position, would undoubtedly be inclined to let one of the five sacks go pretty cheap in consideration of and in correspondence with its small marginal utility. He would charge considerably more for one of the three sacks. And he would not let the irreplaceable single sack, with its enormous marginal utility, go for any price whatever.

Transfer, now, the field of illustration from the solitary in the primeval forest to the bustle of a highly organised economic community. Here we encounter, in an altogether dominating position, the empirical proposition that quantity of goods stands in inverse ratio to value of goods. The more goods of one kind there are in the market, the smaller, ceteris paribus, is the value of the single commodity, and vice versâ. Every one knows that economic theory has made use of this empirical proposition—the most elementary proposition in the doctrine of price—to establish the law of "Supply and Demand." But this proposition maintains its validity quite apart from exchange and price. For instance, how much more value does a collector put upon the single specimen, which represents a class in his collection, than upon one of a dozen of such specimens? It is easy to show that well-authenticated facts of experience like these follow, as a natural consequence, from our theory of marginal utility. The more individual goods there are available in any class, the more completely can the wants to which they relate be satisfied, and the less important are the wants which are last satisfied—those whose satisfaction is imperilled by the failure of one of the goods. In other words, the more individual goods there are available in any class, the smaller is the marginal utility which determines the value. If, again, there are available so many individual goods of one class that, after all the wants to which they are relative are completely satisfied, there still remains a number of goods for which no further useful employment can be found, then the marginal utility is equal to zero, and a commodity of that particular class is valueless.

Here, then, we have an entirely natural explanation of the phenomenon which originally struck us as so surprising, that comparatively "useless" things, such as pearls and diamonds, have so high a value, while infinitely more "useful" things, like bread and iron, have a far less value, and water and air no value at all. Pearls and diamonds are to be had in such small quantities that the relative want is only satisfied to a trifling extent, and the point of marginal utility which the satisfaction reaches stands relatively high.11 Happily for us, on the other hand, bread and iron, water and light, are, as a rule, to be had in such quantities that the satisfaction of all the more important wants which depend on them is assured. Only very trifling concrete wants, or no wants at all, are dependent, for instance, on the command over a piece of bread or a glass of water. It is, of course, true that in abnormal circumstances—as, for instance, in besieged towns, or in desert journeys, where water and food are scarce, and small stores only suffice to meet the most urgent concrete wants of meat and drink—the marginal utility flies up. According to our principles the value of those goods, otherwise of so little account, must rise also, and the inference finds ample empirical confirmation in the enormous prices paid in such circumstances for the most wretched means of subsistence. Thus those very facts which, at first sight, seemed to contradict our theory that the amount of value is dependent on the amount of utility conditioned, on closer examination afford a striking confirmation of it.

Book III, Chapter V

Complications

The cases we have hitherto considered have been comparatively easy of interpretation; but practical economic life brings out a great many complications which the practical man treats with easy assurance, but the theorist finds considerable difficulty in explaining.12 To understand these everything depends on the correctness of our casuistical decision as to that amount of utility which, in the given circumstances, is the marginal utility. For this purpose the following general direction may serve as master-key to all the more difficult problems of value. We must look at the economic position of the person who is estimating the value of a good from two points of view. First, we must in thought add the good to his stock, and consider what further and lesser concrete wants can now be satisfied. Second, we must in thought deduct the good from his stock, and consider again what concrete wants will still be satisfied. In the latter case, of course, it becomes manifest that a certain layer of wants, viz. the lowest layer, has lost its former provision; this lowest layer indicates the marginal utility that determines the valuation.13

The first very obvious but, theoretically, not unimportant application, leads us to recognise that in valuing a good sometimes it is the importance of some one individual concrete want that is taken into consideration, sometimes it is the importance of many concrete wants that has to be summed up. That is to say, in the nature of things the layers of want that depend on the object we are valuing may turn out to be very various, in compass and extent, according to the constitution of that object. If it is a single individual of a perishable group of goods, for instance a food, the marginal utility will usually include no more than one single concrete want, or even a partial want. If the object, again, is a durable good, and thus susceptible of repeated acts of use, or if it is a number of goods considered as a whole, it is natural that an entire sum—in certain circumstances, a very great sum—of concrete wants may be included in the layer of wants that depends on it. On the possession or non-possession of a piano, for instance, depend hundreds of musical enjoyments; on the possession of a cask of wine hundreds of pleasures of the palate; and the importance of those pleasures naturally must be summed up in valuing these goods.14

To pass on now to another far-reaching complication. It follows from our earlier analysis that the marginal utility which determines the value of a good is not (or is only accidentally) identical with the utility which the good itself actually affords.15 As a rule, the marginal utility of any good is a foreign utility, the utility of the last individual good (or of the last similar part) which may be taken to replace it. In simple cases this utility, although the utility of another good, is at the least the utility of a good of the same kind. In the illustration already made use of, the value of each individual sack of corn—and therefore the value, for instance, of the first sack—was determined by the utility of another, the last sack of corn, but always by the utility of a sack of corn. The existence of organised exchange, however, may cause considerable complications here. In making it possible to exchange goods of one kind, without loss of time, for goods of another kind, it also makes it possible to shift a loss, which occurs in one kind of goods, over to another kind. Instead of replacing the loss of an individual good by withdrawing another good of the same kind from a less important employment, and leaving there a vacancy, we may summon goods of entirely different kinds from the occupation in which they have previously been employed, and, by way of barter, procure the good required to supply the loss. What is here lost in losing a good of class A is really the utility which the goods taken from class B would otherwise have afforded; and since, of course, we should not think of taking the replacing good from the more important but from the least important employments in their spheres of utility, the loss comes upon the marginal utility of the foreign good, that transferred from class B to class A. Here, therefore, the marginal utility and the value of a good of one kind is measured by the marginal utility of a good of another kind—by the good (or portion of goods) devoted to replace it.

To illustrate this. My only overcoat has been stolen. There is no question of replacing it directly by another coat of the same kind, because I had only the one. But, all the same, I shall not willingly let the loss caused me by the theft rest where it originally fell. For the want which now makes itself felt—that of warm winter clothing—is a very urgent one; its non-satisfaction may involve the most serious consequences to my health, and even endanger my life. I shall accordingly try to shift the incidence of the loss on to other kings of goods, and I shall do so by parting, in exchange for a new overcoat, with goods which, in other circumstances, would have been put to other uses. The goods needed for this exchange I shall, naturally, withdraw from those uses which are of least consequence to me; that is to say, I shall take the goods which are of least marginal utility to me. If I am well off I shall probably take the £3, the price of a new greatcoat, out of my cash-box, and I shall be able to buy one luxury the less with my diminished funds. If I am not well off, but am not exactly a poor man, I shall have to fill up the deficit in the cash-box by economising on my housekeeping expenses for a couple of months. If I am so poor that I neither have the money nor can save it out of my monthly income, I may have to sell or pawn some articles of furniture which can be most easily dispensed with. Finally, if I am so far reduced that I can provide only for the most urgent concrete wants in all the other classes, then I cannot shift the loss to other classes of wants, and needs must get along without an overcoat.

If we put ourselves for the moment into the position of the owner of the overcoat, and ask what it is, as regards his wellbeing, that depends on the coat being stolen or not, we shall find that the dependent circumstance is, in the first case, the spending of money on some luxury; in the second, some little curtailments in house-keeping; in the third, deprivation of the utility of the goods sold or pawned; in the fourth, the actual preservation of health. Only in the last case, therefore, is the value of the coat determined by the immediate marginal utility of its own class (which marginal utility here happens to coincide with the utility of the good itself because the class is represented by a single individual); in all the other cases it is determined by the marginal utility of foreign classes of goods and wants.

Under the present economic system, where exchange is very highly organised, a notable importance attaches to the casuistical modification we have just described. We might almost say that it includes the majority of subjective estimates of value. For reasons which may be easily inferred from what has been said, we scarcely ever value goods that are indispensable to us by their direct utility, but, almost always, according to the "substitutionary utility" of foreign classes of goods. I should say, however, emphatically that, even where exchange is most highly organised, we do not always have occasion to employ this latter method of valuation; it is only under certain conditions, although of course conditions that very often occur. That is to say, we employ the "substitutionary" method only when the marginal utility of the replacing good is less than the immediate marginal utility of the class into which it is transferred; to put it more exactly, when the prices of goods, and, at the same time, the circumstances of provision for the various kinds of wants, are such that, if a loss occurring in one kind were borne inside the kind itself, wants relatively more important would go unsatisfied than if the purchase price of the replacing good were drawn from other kinds of wants. But through all complications it is always the least utility, mediately or immediately dependent on a good, that determines its true marginal utility and value.

Casuistical complications similar to those made possible by exchange may be caused by the fact that replacing goods can be quickly obtained by production. This kind of complication also has a very notable place in the theory of value, from the fact that it gives the key to the influence of cost of production on value. It requires, on that account, particularly careful treatment. But it will be more appropriate to give an independent consideration to this and to certain other casuistical complications somewhat later, and to return meantime to the simple fundamental law, the statement of which requires to be supplemented in a particular direction.

Book III, Chapter VI

What Determines Marginal Utility

Thus far we have traced the amount of value which goods possess to the amount of their marginal utility. We may, however, pursue the causes which determine value one step further back, and ask on what circumstances the amount of this marginal utility itself depends. The answer is;—on the relation between Wants and their Provision. The way in which these two factors influence the amount of marginal utility has been suggested so often and so fully in the foregoing analysis, that I need not say anything further in way of explanation. I shall content myself with shortly formulating the law relating to it. It runs thus: the more comprehensive and the more intense the want, the higher the marginal utility, and vice versâ. That is to say, the more numerous and the more intense the wants demanding satisfaction on the one hand, and the less the quantity of goods available to satisfy them on the other hand, the more important are the layers of want that must remain unsatisfied, and the higher, therefore, the marginal utility. And conversely, the fewer and the less urgent the wants, and the more goods there are to satisfy them, the deeper down the scale goes the satisfaction, and the lower falls the marginal utility and the value. It comes nearly to the same thing, only in a less precise form, to say: Usefulness and Scarcity are the ultimate determinants of the value of goods. In so far as the degree of usefulness indicates whether, in its way, the good is capable of more or less important services to human wellbeing, so far, at the same time, does it indicate the height to which the marginal utility, in the most extreme case, may rise. But it is the scarcity that decides to what point the marginal utility actually does rise in the concrete case.16

This proposition, that the height of marginal utility is determined by the relations of Wants and Provision, admits of a great number of useful applications. Just now I shall only emphasise two of these, which we shall have to make use of later on in the theory of objective exchange value. First, since the relations of Wants and Provision among individuals are extremely various, one and the same good may possess an entirely distinct subjective value for different persons—without which, indeed, it is difficult to see how there could be any exchanging at all. And thus, second, under otherwise similar circumstances, the same quantities of goods have a different value to rich and poor; to the rich they have a smaller, to the poor a larger value. The rich being amply supplied with all classes of goods, their satisfaction extends, generally speaking, to the more unessential wants, and the added or deducted satisfaction dependent on any particular good is, consequently, inconsiderable; while to the poor man, who is generally able to provide for only his most urgent wants, the utility which depends on each good is much greater. Experience also shows that poor men find it a pleasant thing to acquire goods and a painful thing to lose them, where a similar gain or loss does not affect the rich at all. We would scarcely compare the state of mind of a poor clerk, who received his month's salary of £5 on the first day of the month and lost it on his way home, with that of the millionaire who dropped the same sum. To the former the loss would mean most painful privation over a whole month; to the latter it would only involve the want of some idle luxury.

Book III, Chapter VII

Alternative Uses

In the present and following chapters of this book we shall continue the discussion of various casuistical complications which arise in practical life in the formation of value. We must go into these for two reasons: first, in order to put on a surer foundation the perfect agreement of our theory of value with the phenomena of actual life, and, second, because the conclusions arrived at now will find important applications later when we come to the theory of capital.

It often happens that a commodity permits of being employed or used in two or even several entirely different ways. Wood, for instance, can be used for burning or for building; grain for bread, for seed, or for distilling; salt as a relish, or as an auxiliary material in the making of chemicals. Since, then, in each different employment the commodity supplies different wants, and these wants have, of course, different degrees of importance; since, further, in these different classes of wants, the relations of want and its provision are frequently dissimilar; and since, finally, the good, if it possesses a complex usefulness, does not usually possess this usefulness in the same degree at all times,—on all these grounds it is easy to see that the increment of utility which a good causes, or the marginal utility which it may afford, may vary very greatly from one employment to another. For instance, it may very well be that a pile of boards, used for building material, affords its owner a marginal utility that may be indicated by the figure 8, while the same boards, used as fuel, would only afford a marginal utility indicated by the figure 4. The question now is: In such cases which is the true economical marginal utility that determines the value of the good?

The answer is easy enough: it is always the highest marginal utility. As has been already shown at length,17 the true marginal utility of any good is identical with the least utility which it may be employed, economically, in providing. If, then, several mutually exclusive employments compete for any particular good, it is clear that, in any rational scheme of economy, the most important among them will get the preference; it alone is economically permissible; all less important uses are excluded; and, as the good cannot be used in these employments, they can have no influence on the value set upon it. To put it in terms of our concrete example. If a peasant, after using his stock of wood to provide for all the more urgent wants of building and fuel, has still two uses for wood—two employments to which he could profitably put it—indicated by the numbers 8 and 4, but has only one pile of boards remaining, it is clear that he will apply them to the more important of the two uses, and leave the less important unprovided. So long as he can get a utility indicated by 8 in building, he will not burn the wood to get a utility indicated by 4. What depends, then, on his having or not having that particular pile of boards, is the obtaining or not obtaining of the greater utility 8. We may put the rule in general terms thus: in the case of goods which allow of alternative uses or employments, and are capable of furnishing different marginal utilities in these uses, that employment which yields the highest marginal utility is the standard for the economical value of the goods. This rule will be found amply confirmed by experience. Nobody would price oak furniture at its value as fuel, or sell a fine picture for the price of old canvas, or estimate a lady's hunter by its capacity to draw a butcher's cart!

The formula, however, as now stated might easily give rise to mistakes, and it will be advisable to anticipate these before going further. It might seem as if what I have just said was contradictory of what was said a little ago. I now say that, among several alternative employments having different marginal utilities, the highest is the standard, while a few pages ago it was demonstrated that, if the immediate marginal utility of a good (say the utility of the last good of its own class) was greater than its mediate marginal utility (say the marginal utility of goods of another class employed as substitutes), the lower marginal utility was the standard.18 The seeming contradiction is very simply explained. In the former case we were dealing with a distinction between several ways in which a stock of goods could be employed; now we are dealing with a distinction between two or more employments for which the stock of goods is not sufficient, and, as I have already shown19 on a former occasion, the least of those uses to which a good is put always coincides exactly with the greatest of those uses which fail of provision if there is no such good.

When, then, in the above formula I spoke of several alternative employments and of alternative marginal utilities, it must be understood as a method of expression which, literally speaking, is not quite correct. For, naturally, of those competing employments only one can, economically, be the last; only one, therefore, can be the true "marginal employment"—that in which we find the marginal utility—while all the other employments are, economically, inhibited. They make the more demand on our attention, however, as being the first or most conspicuous representatives of an entire branch of employment. As soon as we think of this latter branch at all, these representatives force themselves, in the first place, on our consideration, and it is by choosing between them that we, as it were, give a casting vote for one among entire groups of employment, such as carving and burning of wood, hacking and knacking of horses, and so on—an actual psychological procedure which appears to me best and most concisely indicated by the above formula.

Here, however, it must be emphasised that the precedence given in the course of our inquiry to those pseudo-marginal employments is only formal: in our economical decisions they enjoy no sort of material preference. Generally speaking, the fact that the employments to which a good may be put fall into several distinct branches has really not the slightest influence on our calculations of value. Just as we do not value goods according to kinds of wants,20 so we do not distribute them according to branches of employment. Every concrete employment is only looked on as a possible employment according to the rank which it maintains in virtue of its importance among all competing employments of every branch. And thus, in obedience to the principle of economic conduct, we always follow one and the same course; we allocate our stock of goods among the concrete uses which are of most importance on our scale, and the last of these determines for us the marginal utility and the value of the good.

Now in doing so it will often happen that only one single branch of employment is taken into consideration. This will of course be, quite regularly, the case where we have only a single individual commodity to dispose of. But it will also happen where a whole series of concrete employments of one kind outweighs that of another kind in importance, and where, at the same time, this series is long enough, or the available stock of goods is small enough, to leave no provision for employments of less importance. If, for instance, in any branch of industry, there are a hundred opportunities of employing certain goods, and the importance of each opportunity is indicated by the figure 8, while the opportunities in another branch of employment are indicated only by the figure 6, and if our stock of goods consists of fifty individual commodities only, naturally all the fifty will be devoted exclusively to the first kind of employment, and their value will be fixed, according to the highest utility, at 8. But often it will happen that wants representing different branches of employment—say, for instance, timber wanted for building and for burning—demand satisfaction simultaneously; in such cases it is the ratio that chances to exist between the opportunities and the goods that decides to what branch of want the "last" employment will belong; that is to say, the employment which determines the value. Suppose that in one branch of employment there are four opportunities, indicated, according to importance, by the figures 10, 8, 6, 4; and that in another branch there are four opportunities, indicated by the figures 9, 7, 5, 3; and suppose that a man possesses in all five individual goods; there is no doubt that the five goods will be allotted to the opportunities 10, 9, 8, 7, 6, and that the last figure (which, accidentally, belongs to the first branch of employment) is the real marginal utility and determines the value of the good, while the employment that comes next in the second branch, that indicated by the figure 5, must, according to our formula, become the "pseudo-marginal utility."

Book III, Chapter VIII

Subjective Exchange Value

We are now ready to consider a concrete application of what has just been said, and one that lies at the root of a very widespread phenomenon. Hitherto we have mostly had before us cases where a commodity, in virtue of some technical adaptability peculiar to it, becomes susceptible of being employed in various ways. Quite apart from any such special assumption, however, the existence of an organised system of exchange gives almost every good a second kind of employment—that of being bartered for other goods. It is customary to put this against, and in opposition to, all other kinds of employment, and to associate this opposition between "Use" and "Exchange" with a division of value into "Use Value" and "Exchange Value."

Understood in a certain sense, to which in this place we shall adhere, both of these—exchange value as well as use value—are kinds of subjective value. Use value is the importance which a good obtains for the welfare of a person, on the assumption that it is used immediately in furthering his wellbeing; and, similarly, exchange value is the importance which a good obtains for the welfare of a person through its capacity to procure other goods by way of barter. The amount of use value is measured, according to rules already known to us, by the amount of the marginal utility which the good in question brings its owner when used by himself. The amount of (subjective) exchange value, on the other hand, obviously coincides with the amount of the use value of the goods got in exchange. When I employ a good by bartering it I procure for my welfare exactly what the goods I get in exchange procure for me in utility. The amount of the good's subjective exchange value, therefore, is to be measured by the marginal utility of the goods got in exchange for it.

Now nothing is more common than that the use value and the exchange value of a good to its owner are of unequal amount. To a scholar, for instance, the use value of his books would, as a rule, be considerably greater than their exchange value, while to the bookseller the contrary is likely to be the case. The question now recurs, Which of the two values in such cases is the true one?21

Here we have only to deal with a special case out of a group for which we have already laid down the general rule. Employment in personal use and employment in exchange are two different ways of employing one good. If the good affords a different marginal utility in each employment, it is the higher utility that gives the standard for its economical value. If, therefore, the use value and the exchange value of a good are different in amount, the higher of them is its true value. We recognise this principle in practical life. We always employ our goods in that which corresponds to the higher and the true value. The scholar keeps his books; the bookseller sells his. Or, if the scholar gets into reduced circumstances, he also sells his books; but in this case, while the use value and also the objective exchange value of the books remain unaltered, their subjective exchange value to him has risen. That is to say, there are now more urgent wants of other classes clamouring in vain for satisfaction, and the possibility of satisfying these other wants through the sale of the books acquires for him an increased importance, and an importance that easily outweighs the use value of the books.

The recognition that there is a subjective exchange value, and that this is something entirely distinct from what is usually called exchange value (that is, objective exchange value), is of fundamental importance in guiding us among the phenomena of value. It may be advisable, on that account, to devote a little more attention to the subject. The illustration of the scholar is enough to convince us that the subjective importance, based on the possibility of barter, may take a different direction from that taken by the objective power-in-exchange and price of goods. For, price remaining unaltered, the subjective exchange value of the goods may rise. But the two exchange values may even move simultaneously in opposite directions. Take the case of a poor student, whose last and sole possession—the only thing he can call his own—is a Jubilee sovereign. There is no doubt that this sovereign will have a high subjective importance for the satisfaction of his own wants; and there is no doubt that this importance is an exchange value, for sovereigns have no use value. Now suppose that our student falls heir unexpectedly to a fortune of ten thousand pounds, while, simultaneously, on account of the limited number issued, the sovereign goes up from 20s. to 40s. How is it now with the "exchange value" of the sovereign? Here the difference between the two conceptions becomes manifest. The objective exchange value, the current value of the coin, has gone up from 20s. to 40s.; but the importance which it has for the satisfaction of its owner's wants, the subjective exchange value of the sovereign, has, owing to the changed relations between the student's wants and his resources, unquestionably fallen. Yesterday our student would have lamented the loss of the sovereign as the loss of his last defence against extremest hunger and misery; to-day, perhaps, he gives it away with a light heart to a friend who collects coins. In spite of its increased current value it has become a mere bagatelle to him.

This fundamental and real difference between the two conceptions of exchange value is the principal reason why we cannot accept the ordinary division of Use Value and Exchange Value as the ultimate division of the total phenomena of value. To do so would be to separate related things, and to mix up matters which are really so heterogeneous that it is scarcely possible to find a common definition for them. Obviously, subjective exchange value is much more nearly related to subjective use value than to objective exchange value. If we wish to find our way with certainty among those phenomena to which the name of "value" has been attached, it is advisable to do as we have done: place objective exchange value by itself on one side, and subjective value on the other side, and afterwards separate the latter into subjective use value and subjective exchange value.22

Book III, Chapter IX

The Value of Complementary Goods

It very often occurs that, in order to obtain an economic utility, several goods require to co-operate in such a way that, if one good falls out of its place, the utility cannot be obtained, or cannot be completely obtained. Goods whose uses thus supplement each other we may follow Menger in calling Complementary goods. Thus, for instance, paper, pen and ink, needle and thread, cart and horse, bow and arrow, right and left hand gloves, and so on, are complementary goods. This complementary character obtains generally, indeed almost universally, among productive goods.

It is easy to see that the intimate co-relation of complementary goods—the co-relation in which they afford this utility—will be reflected in the formation of their value. This leads to a number of peculiarities, all, however, occurring within the limits of the universal law of marginal utility. In stating these we must distinguish between the value which belongs to the complete group, and that which belongs to individual members of it.

The total value of the complete group adapts itself, as a rule, to the amount of the marginal utility which it is capable of affording as a group. If, for instance, three goods, A, B, and C, form a complementary group, and if the smallest utility economically obtainable by the joint employment of these three goods amounts to a value of a hundred, the three goods A, B, and C taken together will be worth a hundred.

The only exception to this rule occurs in those cases where, on the general principles with which we are now familiar, the value of a good is to be measured, not by the immediate marginal utility of its own class, but by the marginal utility of other classes of goods drawn on to serve as substitutes. In the special case under consideration this will occur if every individual member of the complete group is replaceable by purchase, or production, or even by taking a substitute out of some other isolated employment, and if, at the same time, the total sum of the utility which the substituted goods would otherwise (in isolation) have had is less than the marginal utility they afford as combined. If the latter, for instance, amounts to 100, while the substitutionary value, the value of the three members individually, is only 20, 30, and 40—that is in all 90,—the thing that depends on the group of three is not the obtaining of the combined utility of 100—which is, in any case, assured by the substitutionary goods—but only the obtaining of the smaller utility, the 90, which fails of its provision when the members are taken away and become substitutes in the group. Since, however, in such cases the complementary character has, properly speaking, no influence on the formation of value, and the value is simply determined according to the ordinary laws already familiar to us, we need not give any separate consideration to this. In what follows, then, I shall give particular attention only to the normal case, where the marginal utility attainable by goods in joint employment is, at the same time, the true marginal utility.

As was before remarked, this marginal utility, first of all, determines the united value of the whole group. But in the manner in which this total value is divided out among the single members of the group, considerable differences emerge, varying with the casuistical peculiarity of the case.

First, if none of the members admits of any use other than the joint use, and if, at the same time, no one member which co-operates towards the joint utility can be replaced, then one single member has the full total value of the group, and the other members are entirely valueless. Suppose, for instance, I pay five shillings for a pair of gloves, five shillings is the total value of the pair. If I lose one of the gloves I lose the whole utility, and, with it, the whole value of the pair; and the remaining glove has no value. Of course either of the two gloves equally admits of either valuation, and it is simple circumstances that decide which of them is to rank as all, and which as nothing—the glove needed to complete the pair, or the useless single glove. Cases of this kind are relatively scarce in practical life.

Second, and more common, is the case where the individual members of the group can afford another, though a less utility, outside of their joint employment. Here the value of the single member does not lie between everything and nothing, but between the amount of the marginal utility which it is capable of affording in isolation as minimum, and the amount of the joint marginal utility, after deducting the isolated marginal utility of the other members, as maximum. Suppose, for instance, that three goods, A, B, and C, in co-operation afford a marginal utility of 100; that A by itself has a marginal utility of 10, B by itself of 20, and C by itself of 30; the value of A is determined as follows. If a merchant owns this good by itself he can get from it only its isolated marginal utility of 10, and the value of the good, accordingly, is only 10. But suppose he owns the whole group, and is asked to sell or give away the good A out of that group, what he has to consider is that, with the good A he can get a marginal utility of 100; without it, only the smaller (isolated) utility of the goods B and C, that is 20 + 30 = 50; and that, accordingly, on the having or losing of the good A depends a difference in value of 50. As complement of the group it is, therefore, worth 100-(20+30)=50; as an isolated good it is worth only 10.23 Here the difference in value is not so extreme as in the first case, but still it is very considerable.

Third, and more common still, is the case where some individual members of the group are not only employed for other purposes, but are, at the same time, replaceable by other goods of the same kind. For instance, building ground, bricks, beams, and labour are complementary goods in the building of a house. But if a few carts of bricks, intended for the building, go astray in transit, or some of the labourers engaged for the job refuse to work, in normal circumstances this does not in the least hinder the obtaining of the joint utility—the built house. The labourers and materials are simply replaced by others. The consequences as regards the formation of value are as follows:—

• 1. The replaceable members, even if they are needed as complements, can never obtain any higher than their "substitution value"—viz. the value conferred by the utility in those branches of employment from which the replacing goods are obtained.24
• 2. This fact considerably contracts the limits within which the value of the individual good—estimated sometimes as complementary, sometimes as isolated good—may be determined, particularly when it is a common marketable good. The more numerous the available goods of any kind, and the more numerous the opportunities of using them, the smaller will be the difference between the importance of that use from which a replacing sample might be drawn, as maximum, and the use next to it in rank, in which a superfluous isolated good might be employed, as minimum of value. If, for instance, besides the good A, which we shall call A₁, contained in the complementary group, there are two other similar goods A₂ and A₃, and if the possible opportunities of use (outside of employment in the complementary group) possess an importance indicated by the numbers 50, 20, 10, and so on, only the uses indicated by 50 and 20 would be filled by the goods A₂ and A₃, and if one of these two were taken to replace the good A₁ a utility of 20 would be lost. On the other hand, if the complementary group were broken up, and the good A₁ itself obliged to seek for an isolated and inferior employment, its only chance would be the third, that indicated by 10. Thus its value would always lie between 10 (isolated) and 20 (complementary). But if, instead of three, there are a thousand goods, and a thousand opportunities of using them, the difference between the 1000th employment (from which the good required to replace the other must in case of need be drawn) and the 1001st (in which the good must look for employment if it becomes superfluous through the breaking up of the group) will certainly fall to a quite insignificant amount.

Now, of course, it is not likely that any one individual, within the limits of his own economy, will possess a thousand goods of one kind, and a thousand different opportunities of employing them. But, all the same, the efficiency of the influences just described is in no wise annulled; it is only the scene of their operation that is changed, from individual economy to the market, and that in the following way. Individuals buy what they require, and sell their surpluses in the market. Here, then, all the stocks of goods and all the opportunities of employing them over the entire field covered by the market, come together. And now—exactly as before—everything depends on whether, in the market, commodities and opportunities of employing them are scarce or not. If the commodity is very scarce, it makes a very considerable difference in the determination of price whether we approach the particular good as buyer or as seller. For instance, suppose, as before, that there are only three similar goods, and three buyers each wishing to acquire just one such good, with the view of using it in employments that will yield 50, 20, and 10. Then, if one of these goods be withdrawn from the market to serve in a complementary employment, the two remaining goods are bought for the employments indicated by 50 and 20, and—according to laws which will be explained in next book—the purchase price must be fixed between 10 and 20, say at 15. But if now the complementary employment fails, and the third good also is thrown on the market, it must—if it is to find a sale at all—fall to the buyer who can get 10 by employing it, and the result is that the market price is in all cases fixed below the level of 10. Here, then, the price—and the subjective exchange value based on it—varies not inconsiderably.

If, on the other hand, there are a thousand similar goods offered, and a thousand buyers demand them, evidently it will not make the smallest difference to the market price whether there appears a thousand and first buyer, or a thousand and first seller; the good obtains a price and value independently of whether it finds a place in the single complementary employment or not.

Thus, under the assumptions now laid down, the value of the replaceable members is fixed at a certain level independently of their concrete complementary employment, and this value they have when we distribute out the total value of the group among its individual members. The distribution, then, will be made thus: of the total value of the whole group—which is determined by the marginal utility of the joint employment—this fixed value is previously assigned to the replaceable members, and the remainder—which varies according to the amount of the marginal utility—is reckoned to the nonreplaceable members as their individual value. To use our old illustration again; say that the joint marginal utility amounts to 100, and that the members A and B have a fixed "substitution" value of 10 and 20 respectively, 70 must be reckoned the individual value of the nonreplaceable good C; or, say that the marginal utility of the group amounts to 120, the individual value of C will be 90.25

Of the three cases we have discussed the last mentioned is by far the most common in practical life, and, accordingly, in the great majority of cases, the value of complementary goods is determined according to the latter formula. The most important application of it is in the distribution of the product among the various productive powers co-operating in producing it. Almost every product is the result of the co-operation of a group of complementary goods consisting of uses of ground, labour, fixed and floating capital. Of the complementary members the great majority are marketable commodities, and replaceable at will; as, for instance, the labour of wage-earners, the raw materials, fuel, tools, etc. Only a few of them are non-replaceable, or not easily replaceable; as, for instance, the land on which the peasant works, the mine, the railway lines, the factory walls, the activity of the undertaker himself with his peculiar and high qualifications, and so on. It is easy to see, therefore, that here we have exactly those casuistical circumstances in which the foregoing formula of distribution obtains, and, as a fact, it is acted upon in practical life in the most accurate way. In actual business the "costs" are first deducted from the total return. If we look closer, however, we shall see that what is deducted is not all the costs—for, if so, the use of ground, or the undertaker's activity, as both valuable goods, would come under costs—but only the expenditure for the replaceable means of production with a given substitution value, viz. the wage of labour, raw materials, wear and tear of tools, etc. The remainder, under the name of "net return," is ascribed to the non-replaceable member or members: the peasant calculates it to his land, the mine-owner to his mine, the manufacturer to his factory, the merchant to his undertaking activity.

If the joint returns increase, it would not occur to anybody to ascribe the surplus to the replaceable members; it is always the ground or the mine that "produces more." And, similarly, if the joint returns decrease, nobody would credit the "costs" with the reduced amount; the deficiency also is conceived as exclusively due to the diminished productiveness of the ground or the mine. And this is entirely logical and correct: on goods replaceable at any moment only the fixed substitution value is actually dependent; the entire remainder of the joint amount of utility obtainable depends on the goods that cannot be replaced.

The theory of the value of complementary goods is the key which will solve one of the most important and difficult problems of political economy—the problem of the distribution of goods as made in the present state of society, where competition is more or less free and prices are determined by free contract. All products come into existence through the cooperation of the three complementary "factors of production," labour, land, and capital. Now our theory, in showing how much of the joint product may economically26 be considered as due to each of these, and what share of the total value may, accordingly, be assigned to each of them, lays down, at the same time, the most decisive basis for determining the amount of remuneration which each of the three factors obtains. And thus although, as we know, capital as "factor of production" does not exactly coincide with capital as "source of income," yet this gives us at least a rough indication of the way in which the amount of the three branches of income—wage, rent, and interest—is determined.

It does not indeed do this quite directly. That quota which the workers receive, and that other quota which the owners of the co-operating ground receive, is directly identical with wage and rent. But the quota which falls to the co-operation of capital is not interest—as, in theories of distribution, economists have repeatedly assumed ever since the days of Say with fatal precipitation. It is, first, the gross remuneration for the co-operation of capital; and, out of this, interest is got, like a kernel out of a shell, because, and to the extent that, something remains over after deducting from the gross remuneration the value of the worn-out capital. To explain how this is so is a problem in itself. To make it quite clear by an illustration, suppose that a commodity, produced by the co-operation of all three factors, is worth £100. The law of complementary goods will carry us thus far; it will enable us to determine that the share of labour (the labour directly employed in the production) amounts to, say, £20, that of ground to £10, that of capital to £70. But it does not tell us what, or how much, of that £70 remains over net, as interest, after deduction of the wear and tear of capital. On the contrary, the law of complementary goods in itself would rather lead us to the conclusion that nothing remains over. For, according to it, it would be most natural to assume that the capital, to the co-operation of which the return of $70 is ascribed, and which has been consumed in obtaining that return, had already been valued at the entire £70; and, if this were the case, the return to capital would naturally be entirely absorbed by the wear and tear of the capital. That this is not the case is, so to speak, an internal mattera matter which plays its part inside the gross share of capital determined by the law of complementary goods, and is the object of an independent problem, the peculiar problem of Interest. But before we can discuss interest there is still a great deal to be explained.27

Book III, Chapter X

The Value of Productive Goods. Value and Costs.

It has been almost a commonplace of economical teaching that the value of goods is regulated by the costs of their production. This doctrine has very seldom been questioned on grounds of theory,28 but very often its validity has been closely limited by the enumeration of exceptions, and insertion of all sorts of saving clauses. In this contracted sphere, however, it has held almost unquestioned authority down to our own times; it has a certain amount of support in practical experience, and, what is most serious, it seems to contradict the theory of value just put forward. For "Costs of Production" are nothing else than the sum of productive goods which must be used up in the making of a good—the concrete capital consumed, the labour expended, and so on. Now to the question as to the ground and amount of value which a good has, our theory answers: it depends on the marginal utility which a good is capable of rendering; that is to say, it depends on its future employment. But the other theory answers: it depends on the value of the productive goods consumed in producing it; that is to say, on the conditions of its origin. Putting aside this contradiction for a moment, and forgetting everything we have been taught as to costs, let us inquire impartially what our theory of marginal utility, logically carried out, has to say as to the value of productive goods, and as to "costs."

For the sake of clearness it is desirable, before going further, to define with more exactness the object of our present inquiry, viz. Productive Goods. As compared with consumption goods (Genussgüter), which directly serve to satisfy human wants, all productive goods have this common feature—they serve to satisfy human wants only indirectly. But they differ, again, from one another in the degree of indirectness. The flour, for instance, from which bread is baked, stands nearer the final satisfaction of want by several degrees than the field which grows the wheat. To express these degrees—which we shall find to be of importance both theoretically and practically—we shall avail ourselves of Menger's division of goods into ranks.29 In the first rank we shall place consumption goods—those goods which serve immediately for the satisfaction of wants, such as bread. In the second rank we place those goods which assist in producing the goods of first rank—the goods which co-operate in the production of bread; as the flour, the oven, and the baker's labour. In the third rank we place those goods which serve for the production of goods of second rank; as the wheat from which the flour is ground, the mill in which it is ground, the building materials of the oven, etc. In the fourth rank we put the means of production of goods of third rank; as the land which grows the corn, the implements used in cultivation, the labour of the agriculturist, the building materials of the mill, etc. And so on to the fifth, sixth, and seventh ranks, which embrace those goods, the useful service of which consists in producing goods of the rank immediately below them.

On the lines of our conception of value it must be self-evident that a productive good, like any other good, can only obtain value for us through our recognition that on its possession or non-possession depends our gain or loss of some one utility, of some one satisfaction of want. And it is equally self-evident that its value will be high when the dependent satisfaction is important, and low when it is unimportant. The only difference is that, in the case of goods for immediate consumption, the good and the satisfaction stand beside each other in a direct causal relation; while, in the case of productive goods, there is interposed, between them and the satisfaction finally dependent on them, a more or less lengthy series of intermediate members, their successive products. In this prolonged connection there is both matter and occasion for the development of new and legitimate relations, particularly between the value of means of production and that of their products. But the great law of value is neither destroyed nor disturbed by these relations. Exactly as in the analogous case of complementary goods it is only obscured, as it were, by a mass of details, to which the more ample development of the phenomena gives occasion. These details we have now to consider. To this end let us take a typical productive series.

A good for immediate consumption, which we shall call A, is made from a group of productive goods of second rank, which we shall call G₂; this from a group of goods of third rank, G₃; and this, finally, from a group of fourth rank, G₄. For simplicity's sake assume, first, that each of these productive groups passes without loss of time into the product which it creates, and that, at the same time, this particular employment is the only one of which it is capable. We have now to find out what is the relation of dependence between each member of the above series, and the wellbeing of its owner.

What depends on the final member, the good A, we already know. It is its marginal utility. Our inquiry, then, begins at the member G₂. If we had not the group G₂ we should not have its product A; that is to say, of the class of goods to which A belongs, we should have one fewer than we should otherwise have had. But, as we already know, one good less means one satisfaction less, and that the least satisfaction to which economically, one good of the stock would otherwise have been devoted. In other words, it means the loss of the marginal utility of the product A. On the group G₂, therefore, exactly as on the final product A itself, depends the marginal utility of A. Looking now at the next member we find that, if we had not the group G₃, we could not have the group G₂ which is made from it; and, as consequence, we should lose, one good of the class A, or its marginal utility. On the group G₃, then, depends exactly the same utility and importance for wellbeing as on the members which come after it in the production series. The same thing again follows in the case of the group G₄. If it fails us, we, of course, lose one of the group G₃, which otherwise might have been produced from it; we lose, further, one of the group G₂, one of the class of good A, and, finally, the marginal utility of A. Thus we arrive at the following general proposition: On all groups of Means of Production of remoter rank which successively pass into one another, there depends one and the same gain to human wellbeing; that is, the marginal utility of their final product. No one will be surprised at this result. It is a foregone conclusion that a series of productions, which has no relation to our wellbeing except through its final member, can neither tend towards any other utility, nor condition any other utility, than that which this final member itself conditions. In every member of the chain successively we hold in our hand the condition of this final utility, sometimes at a further, sometimes at a nearer stage on the way to it.

From what has been said we may deduce the following general principles as regards the value of means of production. First, since on one and the same utility depend all the groups of means of production which successively pass into one another, the value of all these groups must be substantially the same. Second, the amount of this, their common value, is regulated for all, in the last resort, by the amount of the marginal utility of their finished product. I emphasise "in the last resort." For, thirdly, the value of each group has its immediate measure in the value of its product, the succeeding group. In the first instance, the utility and service of the means of production consist and exhaust themselves in the making of their product, and, naturally, the more important and more valuable the product is for us when made, the higher will be the estimate put on the importance of this utility, and of that which provides it. Substantially the third proposition is fully covered by the second, for, in the value of the goods of higher rank, the marginal utility of the final product is mirrored. From this marginal utility value is conducted to all the groups of means of production, but the conduction is done, as it were, by stages. First, and immediately, the amount of the marginal utility stamps itself on the value of the final product. This then forms the measure of the value of the group of goods from which this product comes. This again measures the value of the third group; and the third group, finally, the value of the last group, the goods of fourth rank. From stage to stage the name of the determining element changes, but, under the different names, it is always the same thing that acts—the marginal utility of the final product.

Although the second and third propositions, then, agree in substance, it is necessary to formulate the third explicitly. It is important as being a convenient abbreviated formula which we use in practical life much more frequently than the principal formula. If we are estimating what amount of wellbeing a productive instrument brings us, we look, naturally, first of all to the product which we get from it, and then, beyond that, to the wellbeing which that product brings us. If we do not know this, we must, I admit, go over the entire course of the conduction of utility, member by member, till we come finally to the marginal utility of the final member, the finished product. But very often this is not necessary. From previous consideration, or from experience, we meet with some opinion, already formed, on the value of the products, and, without further consideration, we make this the ground of our opinion as to the value of the means which produced them. A wood merchant, buying timber for cask staves, will not take long to consider the value of the wood to him. He estimates how many staves he can get out of the timber, and he knows what the staves are worth in the condition of the market at the time. Further than this he need not trouble himself.

Thus far we have formulated these principles as to the value of means of production on purely theoretical grounds; to some extent, as postulates of economical logic. If, now, we ask what experience says to these postulates, we shall find that it confirms them. Indeed we can appeal for confirmation to that very "law of costs" which is apparently so hostile to our theory of marginal utility. Experience shows that the value of most goods is equal to their "costs." But "costs" are nothing else than the complex of those productive goods which have value—the labour, concrete capital, uses of wealth, and so on, which must be expended in the making of a product. The well-known identity of costs and value is only another form of expressing the identity of value between groups of goods of various ranks which pass into one another. I am quite aware, of course, that, as regards the cause of this identity, those who adopt the law of costs usually read it in the converse way. While we say that the value of means of production, and therefore the value of the costs, is regulated by the value of their products, the usual way of interpreting the law is to say that the value of products is determined by the value of their costs—that is, by the value of the means of production out of which they are made. Later on we shall have occasion to go thoroughly into this difference of opinion as to the cause of the identity. Meantime all I intend to do is simply to confirm the statement, that the asserted identity of value between groups of productive instruments which successively pass into one another—whatever be its cause,—is an actual empirical fact.

Of course this identity is not absolute, but approximate; we can only speak of a tendency towards identity of value. The divergences from absolute identity are of two kinds—partly irregular, partly normal. Both kinds arise from the fact that production costs time. In the long periods which often intervene while goods of sixth or eighth rank are passing gradually through all the transformation stages into the finished consumption good, both men and things may change. Wants may change; the relations between wants and their provision may change; and, not less important, the knowledge of these relations may change. With them, of course, changes the valuation of the goods at various stages on their way to the matured product. It is easy to understand that the fluctuations which proceed from this cause may be sometimes great, sometimes small, sometimes upwards, sometimes downwards; they are irregular fluctuations. But, besides these, we notice a divergence from complete identity which is constant and normal. It is a matter of observation that the total value of a complete group of remote rank lags somewhat behind the value of its product, and in a definite ratio; and that, indeed, the amount of this difference in value is graduated according to the time required to change the group of means of production into its product. If the value of the product, for instance, is £100, experience tells us that the total value of the labour, uses of land, fixed and floating capital spent in producing it, is something less than £100—perhaps £95 if the production process lasts a year; perhaps £97 or £98 if it lasts only half that time. This difference of value is the crease, as it were, in which Interest is caught. Its explanation is a subject by itself, with which we shall have enough to do in following chapters. It would be very far from advisable to mix it up with our present inquiry, where we are dealing with the general relation between the value of means of production and that of their products, and for the moment we shall therefore entirely disregard the existence of this particular difference of value.

Up to this point we have expounded the law which governs the value of productive goods under the simple hypothesis that each group of productive instruments permits of only one quite definite employment. But in actual life the cases in which this hypothesis corresponds with facts are very limited. It is, indeed, characteristic of productive goods that they admit of an infinitely more various use than consumption goods. The vast majority of them are adapted to several productive uses, while many of them, like iron, coal, and, above all, human labour, are adapted to thousands of different uses. In theoretical research we must, of course, take note of these actual circumstances, and see whether they do not involve some modification of our law, that the value of a group of goods of remote rank is determined by the value of its product.

Suppose, then, we vary the assumptions of our typical illustration. A man possesses a great stock of groups of productive instruments of second rank (G₂). From one such group he can, at will, make a finished commodity of the kind A, or one of the kind B, or one of the kind C. Naturally he will provide for his various wants harmoniously, and will therefore, by means of different parts of this stock, produce simultaneously finished goods of all three classes according to the measure of his requirements. In a scheme of provision that was really harmonious, the amounts produced would be so regulated that, in each kind, wants of something like the same importance would depend on the last sample of the kind, and the marginal utility of every sample would therefore be approximately equal.30 Nevertheless there will be differences, and even considerable differences, of marginal utility, because, as we already know,31 the gradation of the concrete wants in any kind of want is not always uniform and unbroken. One fireplace in a room, for instance, will give me a very considerable utility—which I may represent by the figure 200—while a second fireplace would not be of any further use to me. Naturally, in providing for my wants, I shall therefore, in any case, stop at fireplaces when I have one fireplace with its marginal utility of 200, even if in other branches of wants the provision goes down, on the average, as low as a marginal utility of 100 or 120. To make our typical illustration true to nature, therefore, we must assume that the marginal utility of one sample is of different amount in the three kinds A, B, and C—say 100 in A, 120 in B, 200 in C. The question now is, In these circumstances what is the value of G₂?

After the practice we have had in drawing distinctions of a similar kind, we can give the answer without hesitation—the value will be equal to 100. For if one of the available groups were lost the owner would naturally shift the loss to the least sensitive part; he would neither limit the production of the kind B, where he would lose a marginal utility of 120, nor of the kind C, where he would lose a marginal utility of 200. He would simply produce one less of the kind A, whereby his loss of wellbeing would be only 100. To put it generally: The value of the productive unit adjusts itself to the marginal utility and value of that product which possesses the least marginal utility among all the products for whose production the unit might, economically, have been employed. All the relations which we found to hold as regards the value of means of production and of their products under the simple hypothesis of the single employment, hold, therefore, generally between the value of means of production and their least valuable product.

And how does it stand with the value of the remaining classes of products, B and C? This question brings us to the source of the "law of costs."

If, under all circumstances, the marginal utility attainable within the kind itself were to decide, the kinds of goods B and C would possess a value diverging, as well from the value of the kind A, as from the value of its costs G₂. B would have a value of 120, C a value of 200. But this is one of those cases where, through substitution, a loss occurring in one kind of goods is shifted to another kind, and consequently the marginal utility of the latter becomes the standard for the former.32 That is to say, if one of the kind C gets lost there is no occasion to give up the marginal utility of 200, which it would have directly afforded; we can and will immediately procure a new C out of a productive unit G₂, and we shall prefer to produce one less of that kind of good in which the marginal utility, and with it the loss of utility, is least. This, in our illustration, is the kind A. In virtue of the opportunity of substitution offered by production a good of the kind C is therefore valued, not at its own marginal utility 200, but at 100, the marginal utility of the least valuable cognate product A. The same holds, of course, of the value of kind B, and would hold, generally speaking, of every kind of good which is "cognate in production"33 with A, and has at the same time an immediate marginal utility greater than that of the kind A.

This leads to several important consequences: First of all, in this way the value of goods which have a higher individual marginal utility is put on a level with the value of the "marginal product"—as we shall call that product which has the least marginal utility—and thus with the value of the means of production, from which both in common come; the theoretical identity of Value and Costs, therefore, holds in this case also. But it is well worthy of notice that here the agreement between value and costs is brought about in a way essentially different from the agreement between costs and marginal product. In the latter case the identity was brought about by the value of means of production adapting itself to the value of the product; the value of the product was the determining, that of the means of production the determined. In the present case, on the contrary, it is the value of the product that must adapt itself. In the last resort, of course, it adapts itself only to the value of another product, the marginal product of the cognate production; but, in the first instance, it accommodates itself also to the value of the means of production from which it comes, and which are mediated by the substitutionary connection with the marginal product. Here the conduction of value describes, as it were, a broken line. First it goes from the marginal product to the means of production and fixes their value; then it goes in the opposite direction, from the means of production to the other products which may be made from them. In the end, therefore, products of higher immediate marginal utility get their value from the side of their means of production. To translate this from the abstract formula into practice. If we are considering what a good B or C (generally speaking, a product of higher immediate marginal utility) is worth for us, we must say first of all: It is worth exactly as much as the means of production from which we could replace it at any moment. Then if we examine further how much the means of production themselves are worth, we come to the marginal utility of the marginal product A. But very often, indeed, we may save ourselves this further inquiry, as we already know the value of the goods that make up the cost without having to begin at the foundation and follow it from case to case; and in all such cases we measure the value of the products in an abbreviated form, both accurate and convenient—that is to say, simply by their costs.

Here, then, we have the whole truth about the celebrated Law of Costs. As a fact people are right when they say that costs regulate value. Only they must always be conscious of the limits within which this "law" holds, and the source from which it gets its strength. It is, first, only a particular law. It holds only in so far as it is possible to obtain, at will and at the right time, substitutes through production. If there is no opportunity of substitution the value of every product has to be measured by the immediate marginal utility of its own kind, and its agreement with the value of the marginal product, and with the intermediate means of production, is disturbed. Hence the well-known empirical proposition that the law of costs holds only as regards goods "reproducible at will;" or "freely produced," and that it is simply an approximate law which does not bind the value of the goods that come under it with slavish exactitude to the level of costs, but—according as production for the moment comes short of demand or runs beyond it—permits of fluctuations now on one side, now on the other.

But it is still more important to emphasise, in the second place, that, even where the law of costs holds, costs are not the final but only the intermediate cause of value. In the last resort they do not give it to their products, but receive it from them. In the case of productive goods which have only a single employment this is perfectly clear. That Tokay is not valuable because there are Tokay vineyards, but that the Tokay vineyards are valuable because Tokay has a high value, no one will be inclined to deny, any more than that the value of a quicksilver mine depends on the value of quicksilver, the wheat field on the value of wheat, the brick kiln on that of bricks, and not the other way about. It is only this many-sided character of most cost goods—their capacity of being employed in many different uses—that gives the appearance of the contrary, and a little consideration shows this to be an appearance and nothing more. As the moon reflects the sun's rays on to the earth, so the many-sided costs reflect the value, which they receive from their marginal product, on to their other products. The principle of value is never in them, but outside them, in the marginal utility of the products. The law of costs is not an independent law of value; it only forms an incidental case inside the true universal law of marginal utility. It is simply the great counterpart to the law of Complementary Goods. As the latter disentangles and explains those relations of value which result from the temporary and causal collocation—the simultaneous co-operation of several goods to a common useful end; so does the Law of Costs for the value relations of those goods which act in temporary and causal sequence—the working of goods after one another and through one another to the same final goal. If we think of the value relations of goods that work into one another as a much-tangled net, we might say that the former law disentangles the meshes in their length and breadth, while the latter disentangles them in their depth; but both fall under the all-embracing law of Marginal Utility, and are nothing but special applications of that law to special problems.

[1.]My views on the subject of Value have already been published at length in another place (Grundzüge der Theorie des Wirthschaftlichen Güterwerths, in Conrad's Jahrbücher für Nationalökonomie und Statistik, vol. xiii. 1886, pp. 1-86 and 477-541). Since then I have seen no reason to change them. What I have now to say on the same subject can, therefore, offer but few new features. On the whole, what follows is an extract from my former work adapted to the requirements of the theory of capital, and, in the composition of it, I have gone on principles suggested by the nature of my present task. Those fundamental ideas on which the understanding of the whole depends, and those lines of thought with which the theory of capital is specially connected, I have taken in all their detail from my other book; and, as a simple change of form would have been as troublesome as it was useless, I have taken them, for the most part, without change. I have omitted, on the other hand, all those explications, demonstrations, and so on, which were important for the Value theory, but seemed not altogether indispensable for the understanding of the theory of Capital. In place of these I have added a good deal of matter in which I have taken advantage of the newest literature on the subject, and have tried to give a still clearer formulation to several ideas, and, particularly, to develop with more exactitude special points where the value theory comes into more intimate connection with the theory of capital. The most important additions occur in chapter vii. of the present book, and at the end of chapter v, and in chapter vii. of the next book. Readers who are interested in the theory of value and price for its own sake, I should ask to consult the statement in Conrad's Jahrbücher, which is much more complete, and which I tried to make easier by numerous references.

[2.]I frankly confess that I would gladly exchange these pedantic and clumsy expressions for terms more euphonious and popular, if they could be got to indicate the opposition referred to with even approximate correctness. But I have not been able to find such expressions. The words Use Value and Exchange Value are not suitable at all, because, as we shall see, there is a Subjective exchange value.

[3.]The foundations of the modern value theory have been laid by three writers whose work is in substantial agreement—Carl Menger, Jevons, and Walras. Of these, in clearness and completeness, Menger's statement takes the first place. Twenty years before his time, several of the most weighty and fundamental ideas had been already propounded by Gossen in his remarkable book, Entwicklung der Gesetze des menschlichen Verkerhs und der daraus fliessenden Regeln für menschliches Handeln, Brunswick, 1854. Like the book itself, these ideas sank into complete but undeserved oblivion, and had to be rediscovered by the economists just mentioned. That this was done almost simultaneously by three different men, belonging to three different nations, and quite independently of each other, is a very remarkable coincidence, and is, at the same time, no small guarantee for the correctness of the principles on which all three were certainly agreed, although in thoroughness their statement of them was unequal. Since then these principles have had a notable development, and received wide acceptance. Not long ago, in the preface to his Theorie de la Monnaie (Lausanne, 1886), Walras could give an imposing list of writers as adherents of the new theory. Since then we may add the name of E. Sax (Grundlegung der theoretischen Staatswirthschaft, Vienna, 1887, p. 250),—with whom, however, I cannot agree in many particulars, particularly in those where he tries to establish original ideas that are not in harmony with those of his predecessors; and that of R. Meyer (Das Wesen des Einkommens, Berlin, 1887).

[4.]See Conrad's Jahrbücher, vol. xiii. p. 11.

[5.]Some very interesting phenomena of value may, in certain circumstances, be exhibited by free goods also. For the explanation of this see my Grundzüge, p. 15.

[6.]Those numerous writers of whom Scharling is the latest instance (Conrad's Jahrbücher, vol. xvi. pp. 417 and 513, and particularly 424, 430, 551), who say that the distinguishing criterion of "economical" and "valuable" goods is difficulty of attainment, the necessity of expending labour, and the like, are giving a secondary ground of definition instead of the really decisive and primary one. It is only when and because we are suffering, or fear to suffer, lose of satisfaction from insufficient supply of goods that we decide, generally speaking, to submit to the hardships of acquiring them, to labour, and so on. Labour and hardship could not by themselves confer an economical character on goods were it not that, for the most part, another circumstance, and that the really decisive one, is also present; in other words, that those kinds of goods, which are difficult or troublesome to obtain, are, at the same time, the goods that remain scarce. That, however, it is not the difficulty but the scarcity that decides is vividly shown in those cases—not, I grant, very common—where the technical circumstances are of such a nature that the good can be got only, indeed, by conquering difficulties, but then in superfluous amount. When the peasant obtains good drinking water, e.g., by bringing it along a pipe to a house, it may occasion him a permanent expenditure of labour and costs for construction, upkeep, and management of the water-supply. But if this brings the water in greater quantity than he requires, it will not occur to the peasant, in spite of the labour, that he must "economise" the water.

[7.]On certain comparatively rare exceptions see Conrad's Jahrbücher, vol. xiii. p. 42.

[8.]See Menger's Grudsätze der Volkswirthschaftslehre, p. 93.

[9.]Ueber den Ursprung und die Hauptgesetze des wirtschaftlichen Werthes, p. 128. Jevons has the expressions "final degree of utility" and "terminal utility." With Menger, who first formulated the above law with entire clearness, but gets along without the convenience of a short technical expression, the law runs as follows (p. 98): "In every concrete case, accordingly, of the satisfactions of want guaranteed by the total quantity of goods, it is only those which have the smallest importance for the person that are dependent on his command over a definite part-quantity of the amount of goods at his disposal; and the value of a part-quantity of the available amount of goods is, accordingly, equal to the importance which the satisfactions of want that are least urgent among all the satisfactions guaranteed by the total quantity, and obtainable with a similar part-quantity, have for that person."

[10.]Even where men do not act egoistically but altruistically, they have occasion to consider the marginal utility, viz. that marginal utility which the goods given away have to the persons who get them. One gives donations, charities, and the like, when the importance of such, measured by their marginal utility, is very much higher as regards the wellbeing of the receiver than as regards that of the giver, and almost never when the converse is the case. I am glad to know that, in the idea expressed above, I am at one with so distinguished an economist as Walras. I can only express my entire concurrence with what he says, in the preface to his Théorie de la Monnaie, p. 11, as to the universal importance of the idea of marginal utility, both as regards theory and as regards the practice of economic life.

[11.]To guard against possible confusion it should be noted that the German writers on value generally speak of "satisfaction of want" under the metaphor of a descending scale: the increasing satisfaction creeps down the scale, and the point of saturation is zero, not 100.—W. S.

[12.]On the relation of theory and practice in the sphere of valuation see Conrad's Jahrbücher, vol. xvi. p. 74.

[13.]Generally speaking, there are two occasions on which a man is called on to form a judgment as to value. One is on parting with a good in his possession, e.g. in giving it away, or exchanging, or consuming it; the other, on acquiring a good. In the two cases the form which the valuation assumes in thought is, externally, a little different. A good which a man has he values according to the injury which he would suffer by its loss; he values it, therefore, according to the last satisfaction which is assured him by having it. A good which a man has not he values, on the contrary, according to the increment of utility which its acquisition brings; i.e. according to the most urgent among those satisfactions which, in the conditions of his fortunes up till the present time, he has not been able to obtain. Naturally we get the same result by either method, for the final satisfaction which is assured by a good is always identical with the first which would be lost without the good. In the text I have put the formula in such a way that it will sufficiently embrace either method.

[14.]On certain far-reaching complications which may be connected with this, see Conrad's Jahrbücher, vol. xvi. p. 34.

[15.]The latter occurs only with individual goods, or with those particular goods which may have chanced to be selected just for the most insignificant service.

[16.]In his recently published essays on Wertheorien und Werthgesetze (Conrad's Jahrbücher, N. F., vol. xvi. pp. 417-437, and 513-562) Scharling will not allow that the relation of Wants and Provision is the ultimate universal determinant of the value of goods, and would substitute Difficulty of Attainment in its place (ibid. p. 425, and particularly p. 430 in note, and p. 551). Notwithstanding some striking things in it I frankly confess—and all the more frankly that I attach so much scientific importance to the Danish economist, and so much weight to anything he says that I consider not only this proposition, but the whole treatise he has written in its proof, as a lamentable relapse in scientific analysis. Scharling has done everything possible to re-entangle certain things that had up till now scarcely escaped from confusion. And what makes it worse is that he has done it with skill, and with a certain semblance of truth. I consider "difficulty of attainment" one of those unlucky catch-words which can be stretched and stretched like an indiarubber band; it leads out of one ambiguity into another, and it either explains things falsely or (loss not explain them at all. I mean that either one connects with it a definite, limited, and narrow meaning, and holds fast by that—in which case the explanations that one would base on this narrow conception prove to be positively false; or one draws and stretches the rubber band, and, by making perverted and violent constructions, forces all sorts of foreign things under the elastic—in which case we avoid open contradiction, but at the cost of making the proposition expressed by the catch-word an insipid and weak phrase, which does not explain, but goes round about an explanation. And just this has been Scharling's fate. What does he mean by "difficulty of attainment"? He explains it as the amount of effort that every one must take on himself to obtain a good, or the effort which is spared him by the possession of the good (p. 430). And what does the word "effort;" again, mean? If any precise conception is to be attached to it, it can scarcely be understood as anything else than as some sort of exertion, pain, or labour. But if this is the meaning attached to it then the appeal to "saved effort," as the principle of the value of goods, is positively false. To give one example out of a thousand, take the case of a pensioner past work with an income of £60. He is told to value the overcoat which he possesses according to "saved effort." What kind of effort may that be? Perhaps the effort which he would have to expend to produce the overcoat himself? Certainly not; he would never himself make the coat, but always buy it. Or the effort which he would have to put forth if he were to produce those goods which he had to give away as equivalent for the coat? Neither can this be the case; for, past work as he is, he would never acquire this purchase price through effort, but simply take it from his income, and for that, of course, he must curtail the satisfaction of other less important wants. What, therefore, the possession of the overcoat spares him is not an effort, but a deprivation, and a deprivation the amount of which, as I have indicated in the work disputed by Scharling, depends exactly on the importance of those last needs which are satisfied by the good, which lose their satisfaction in losing it, and the urgency of which itself, again, is determined by the existing relation of Wants and Provision. It is only in those rare cases mentioned by me in Conrad's Jahrbücher(ibid. p. 42)—the exceptional character of which I most distinctly maintain in spite of Scharling's remarks (p. 430, note 1)—that the amount of an effort or the pain of labour can be the immediate standard of value.—Now I admit that Scharling sometimes gives the word "effort" quite another meaning from that of a pain. To avoid repetitions, however, I will show what that leads to, a little later, under the theory of price.—Finally, the illustration, with which Scharling thinks he has signally refuted my doctrine, will not mislead anyone who has rightly understood the doctrine of marginal utility. If a boy, who hitherto had only had a single apple, were allowed for once to pull as many apples as he liked in a neighbour's garden, he would, I admit, immediately reduce the value he put upon the good called "apple." But why? Not, as Scharling thinks he may assume as self-evident, because "his relish and his enjoyment in consuming the fruit remain unchanged." This enjoyment may run down a whole graduated scale from the consumption of the first and single apple to entire satiation with apples, but it is perfectly clear that the boy with the single apple sacrifices the enjoyment which stands highest in this scale, while, "with one of many apples to chose from", from, he sacrifices only a very trifling one.

[17.]See above, p. 147.

[18.]See above, p. 157.

[19.]See above, p. 154 in note 2.

[20.]See above, p. 142.

[21.]It is easy to see that we can only speak of two values in the same loose way as we spoke above of several "alternative marginal employments," for, naturally, a good can never have anything but one value to a person. Value is the importance which a good has for the wellbeing of a man, and this importance cannot be at the same time great and small, higher or lower. But we do now and then use this rather inaccurate way of thinking and speaking, and, therefore, I have here, as on the former occasion, adapted my formula to it.

[22.]Notwithstanding the objections of Diehl (P. J. Proudhon. Seine Lehre und sein Leben, vol. i., Jena, 1888, p. 109), who approves of the "traditional distinction of Use Value and Exchange Value," I must hold by everything I have said above.

[23.]Of course in this case also the peculiarities of the case decide which member is to be valued as the completing member of the group, and which as simply the isolated piece. If, for instance, the owner of the complete group is asked to sell the good A, he will value it as completing member, and the other goods B and C as isolated pieces. But if he is asked to sell C, he will value it as completing member at 100-(10+20)=70, while A and B will be valued as isolated pieces.

[24.]To put it concretely: although a load of bricks were absolutely indispensable to finish a house, the load could never obtain any higher value than that determined by the marginal utility of bricks generally; that is, as determined by all the uses to which bricks generally are put.—W. S.

[25.]If C also were replaceable by a substitute of less value the case mentioned on p. 170 would emerge, and the marginal utility of the joint use would not determine the value of the complementary group.

[26.]Not physically. It would, in most cases, be absolutely impossible to calculate the physical share—how could one be supposed to distinguish what percentage the material and what percentage the artist had contributed physically to the making of a statue?—but it is also a matter of no importance. On the other hand it is, in most cases, quite easy to determine what share of the utility, or of the value, would have to be done without if one were not in possession of a definite individual factor, and this quota, conditioned by the possession of one factor, I call its economical share in the total product.

[27.]The confusion, so common in economic literature, between the gross share assigned to the co-operation of capital (Rohzins) and net interest, has been fully discussed in my Capital and Interest (see the criticism of Lauderdale, p. 146; of Carey, p. 155; of Strasburger, p. 175; of Say, p. 189, etc.) It will not be expected of me to give a complete theory of distribution in the passing, as it were. I purposely refrain from going deeper into the subject than is necessary for my special task, the development of the Interest theory. And for this it is sufficient to sketch only in the broadest lines the principles which limit the gross share of capital, as against the shares of labour and uses of land that co-operate with it: our special task will be to lay down what is the state of the case as regards the gross share of capital. Moreover I hope that on this question of the shares allotted to the various factors, which I am compelled to treat in a very cursory way, the eagerly expected work of Wieser will very shortly shed a clear light. (Wieser's Der Natürliche Werth, Vienna, 1889, appeared while this was passing through the press.—W. S.)

[28.]Among older writers it was disputed by Say, Traité, vol. ii. chap. ix. seventh edition, p. 404: "Ce qui nous ramène à ce principe déjà établi, que les frais de production no sont pas la cause du prix des choses, mais que cette cause est dans les besoins que les produits peuvent satisfaire." In more recent literature what M'Leod has said (Elements of Political Economy, 1858, p. iii.) is worth notice. But the matter was really first grasped in its entirety by Menger, Jevons, and Walrus, whose books mark an epoch as regards the whole value theory, and of these again the work of Menger was the most profound.

[29.]Grundsätze, p. 8.

[30.]This is demanded by the principle of "economic conduct." See Wieser, Ursprung und Hauptgesetze des wirthschaftlichen Werthes, p. 148.

[31.]See above, p. 145.

[32.]See above, p. 156.

[33.]Wieser, p. 146.