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• Translator's Preface
• Introduction: the Problem of Interest
• Book I: The Development of the Problem
• Book I, Chapter I: The Opposition to Interest In Classical and Mediæval Times
• Book I, Chapter II: The Defence of Interest From the Sixteenth Till the Eighteenth Century
• Book I, Chapter III: Turgot's Fructification Theory
• Book I, Chapter IV: Adam Smith and the Development of the Problem
• Book I, Chapter V: The Colourless Theories
• Book II: The Productivity Theories
• Book Ii, Chapter I: The Productive Power of Capital
• Book Ii, Chapter II: The Naïve Productivity Theories
• Book Ii, Chapter III: The Indirect Productivity Theories
• Book III: The Use Theories
• Book Iii, Chapter I: The Use of Capital
• Book Iii, Chapter II: Historical Statement
• Book Iii, Chapter III: The Plan of Criticism
• Book Iii, Chapter IV: The Use of Capital According to the Say-hermann School
• Book Iii, Chapter V: The True Conception of the Use of Goods
• Book Iii, Chapter VI: Criticism of the Say-hermann Conceptions
• Book Iii, Chapter VII: The Independent Use: an Unproved Assumption
• Book Iii, Chapter VIII: The Independent Use: Its Untenable Conclusions
• Book Iii, Chapter IX: The Independent Use: Its Origin In Legal Fiction
• Book Iii, Chapter X: Menger's Conception of Use
• Book Iii, Chapter XI: Final Insufficiency of the Use Theory
• Book IV: The Abstinence Theory
• Book Iv, Chapter I: Senior's Statement of the Theory
• Book Iv, Chapter II: Criticism of Senior
• Book Iv, Chapter III: Bastiat's Statement
• Book V: The Labour Theories
• Book V, Chapter I: [the Labour Theories]
• The English Group
• The French Group
• The German Group
• Book VI: The Exploitation Theory
• Book Vi, Chapter I: Historical Survey
• Book Vi, Chapter II: Rodbertus
• Book Vi, Chapter III: Marx
• Book VII: Minor Systems
• Book Vii, Chapter I: The Eclectics
• Book Vii, Chapter II: The Later Fructification Theory
• Conclusion

BOOK III

THE USE THEORIES

Book III, Chapter I

The Use of Capital

The Use theories are an offshoot of the Productivity theories, but an offshoot which quickly grew into an independent life of its own.

They attach themselves directly to that idea on which the Productivity theories proper got into difficulties,—the idea that there is an exact causal connection between the value of products and the value of their means of production. If, as economists began to recognise, the value of every product is, as a rule, identical with the value of the means of production expended in making it, then every attempt to explain surplus value by the productive power of capital must fail; for the higher that power raises the value of the product, the higher must it raise the value of the capital itself as identical with it. The latter must follow the former with the fidelity of a shadow, and there should be no possibility of the slightest space between them.

Nevertheless there is a space.

This line of thought suggested almost of itself a new way of explanation. If, on the one hand, it is true that the value of every product is identical with the value of the means of production sacrificed in making it, and if, on the other hand, it is observed that, notwithstanding this, the product of capital is regularly greater than the value of the real capital thus sacrificed, the conviction almost forces itself on us that this real capital may not represent all the sacrifice that is made to obtain a product. Perhaps, besides this real capital, there is something else that must be expended at the same time; a something which claims a part of the value of the product,—the surplus value we are inquiring about.

This Something was sought and found. Indeed, we might say that more than one was found. Three distinct opinions were put forward as to its nature; and out of the one fundamental idea there grew three distinct theories—the Use theory, the Abstinence theory, and the Labour theory. Of these the one that kept most closely by the Productivity theories, and indeed made its first appearance simply as an extension of them, is the Use theory.

The fundamental idea of the Use theory is the following. Besides the substance of capital, the use (Gebrauch or Nutzung) of capital is an object of independent nature and of independent value. To obtain a return for capital it is not enough to sacrifice substance of capital alone; the use of the capital employed must be sacrificed also during the period of the production. Now since, as a matter of theory, the value of the product is equal to the sum of the values of the means of production spent in making it, and since, in conformity with this principle, the substance of capital and the use of capital, taken together, are equal to the value of the product, this product naturally must be greater than the value of the substance of capital by itself. In this way the phenomenon of surplus value is explained as being the share that falls to the part sacrifice, the "use of capital."

This theory of course assumes that capital is productive, but less emphatically, and in a way that is quite free from ambiguity. It assumes that the accession of capital to a given amount of labour assists in obtaining a relatively greater product than labour, unsupported by capital, could obtain. It is not necessary, however, that the capitalist process of production on the whole, embracing as it does both the making and the employing of capital, should be profitable. If, e.g. a fisherman makes a net by 100 days' labour, and with the net catches 500 fish in the 100 days during which the net lasts, while another fisherman without any net has been able to catch three fish a day for the 200 days, evidently the total process has not been a profitable one. Notwithstanding the employment of capital, only 500 fish have been caught by an outlay of 200 days' labour, while in the other case 600 fish have been caught. Nevertheless, according to the Use theory—as also according to facts—the net once made must bear interest. For, once made, it helps to catch more fish than could be caught without a net, and this fact is sufficient to assure the surplus return of 200 fish being calculated as due to its assistance. But it is only calculated as such in association with its use. There will be ascribed, therefore, a part return of, perhaps 190 fish, or their value, to the substance of the net; the remainder will be ascribed to the use of the net. Thus emerges a surplus value and an interest on capital.

If this very moderate amount of physical productivity on the part of capital is sufficient, according to the Use theory, to cause surplus value, it is self-evident that this theory in no way assumes any direct value productivity; indeed, rightly understood, it really excludes it.

The relation of the Use theories to the productive power of capital will not, however, be found stated so clearly in the writings of their representatives as I have thought necessary to state it. On the contrary, indeed, appeals to the productive power of capital long accompany the development of the Use theory proper, and we are very often left in doubt whether the author relies, for his explanation of surplus value, more on the productive power of capital or on the arguments peculiar to the Use theory. It is only gradually that the Use theories have cut themselves clear of this confusion with the Productivity theory, and developed in complete independence.1

In what follows I mean, first, to show the historical development of the Use theories. Criticism of them I shall divide into two parts. Such critical remarks as refer simply to individual defects in individual theories I shall include at once with the historical statement. My critical estimate of the school as a whole will follow in a separate chapter.

Book III, Chapter II

Historical Statement

The development of the Use theory is associated for the most part with three names. J. B. Say first suggested it; Hermann worked out the nature and essence of the Uses, and so put the theory on a firm foundation; Menger gave it the most complete form of which, in my opinion, it is capable. All the writers that come between take one or other of these as their model, and although some of them are well worthy of attention, they are of secondary importance to those just mentioned.

There are two things that strike us in looking over the list of these writers. The first is that, with the single exception of Say, the working out of the Use theory has been done entirely by German science. And the other is that in Germany this theory seems to have attracted the marked preference of our most thorough and acute thinkers. At least we find represented here a remarkable number of the best names in German science.

We have already considered at length the doctrine of Say, the founder of this school.2 In his writings Productivity theory and Use theory grow up side by side; so much so that neither seems to come before or be subordinate to the other; and the historian of theory has no alternative but to consider Say as the representative of both theories. As basis for what follows I shall recapitulate very briefly the line of thought followed in such of his ideas as belong properly to the Use theory.

The fund of productive capital provides productive services. These services possess economical independence, and are the objects of independent valuation and sale. Now as these services are indispensable for production, and at the same time are not to be obtained from their owners without compensation, the prices of all products of capital, under the play of supply and demand, must adjust themselves in such a way that, over and above the compensation to the other factors in production, they contain the ordinary compensation for these productive services. Thus the "surplus value" of the products of capital, and with it interest, originates in the necessity of paying independently for this independent sacrifice in production, the "services of capital."

The most signal weakness of this doctrine, apart from its being continually traversed by contradictory expressions of the Naïve Productivity theory, lies, perhaps, in the confusion in which Say leaves the conception of productive services. A writer who makes the independent existence and remuneration of such services the axis on which his interest theory turns is, at least, bound to express himself clearly as to what should be understood by these terms. Not only has Say omitted to do this, as we have already seen, but the few indications that he does give point in an entirely wrong direction.

From the analogy that Say repeatedly draws between the services of capital on the one hand, and human labour, as also the activity of the "natural fund," on the other, we might conclude that, by the services of capital, Say would wish us to understand the putting in motion of the natural powers that reside in real capital; e.g. the physical actions of beasts of burden, of machines, the setting free of the heating power in coal, etc. But if this is what he means, then the whole argument is on the wrong track. For this putting in motion of natural powers is nothing else than what, in another place, I have called the "Material Services" (Nutzleistungen) of goods.3 It is what our current science, with its unsuggestive and lamentably obscure vocabulary, has termed the Nutzung of capital, meaning the gross use of capital. It is this that is remunerated by the undiminished gross return sometimes called Hire.4 In a word, it is the substance of gross interest, not of net interest, and it is net interest with which we are here concerned. If this is what Say actually meant by his services productifs, then his whole theory has missed the mark; for it is only gross interest that emerges from the necessity of paying for productive services, not net interest; and it is net interest that is the object of explanation. But if by the services productifs he meant anything else, he has left us absolutely in the dark regarding the nature of it, and the theory built on its existence is, to say the least of it, incomplete.

In any case, then, Say's theory is not satisfactory. Yet it pointed out a new way which, when properly followed, led much nearer the heart of the interest problem than the barren Productivity theories had.

The two writers who come next after Say can scarcely be said to have done much towards any such development. One of them, indeed, Storch, fell very far short of the point to which Say had brought the theory.

Storch5 professes to follow Say, and often quotes him, but he only takes Say's results. He does not use his argument, and he has not supplied the want by one of his own. It is a characteristic symptom of the barren way in which Storch deals with our subject that he does not explain loan interest by natural interest, but natural by loan interest.

He starts by saying (p. 212) that capital is a "source of production"—although a secondary source—along with nature and labour, the two primary sources of goods. The sources of production become sources of income inasmuch as they often belong to different persons; and they must first, through a loan contract be put at the disposal of the person who unites them in productive co-operation. For this they receive remuneration, and this remuneration goes as income to the lender. "The price of a loaned piece of land is called rent; the price of loaned labour is called wages; the price of a loaned capital is called sometimes interest, sometimes hire."6

After Storch has thus given us to understand that lending out of productive powers is the regular way of getting an income, he adds, by way of postscript, that a man can obtain an income even if he himself employs the productive powers. "A man who cultivates his own garden at his own expense unites in his own hands the land, the labour and the capital. Nevertheless" (the word is significant of Storch's conception) "he draws from the first a land rent; from the second a subsistence; from the third an interest on capital." The sale of his products must return him a value which is, at least, equivalent to the remuneration he would have got from the land, labour, and capital if he had lent them; otherwise he will stop cultivating the garden, and lend out his productive powers.7

But why should it be possible for him to get a remuneration for the productive powers, particularly for the capital he lends? Storch does not take much trouble to answer this question. "Since every man," he says on p. 266, "is compelled to eat before he can obtain a product, the poor man finds himself in dependence on the rich, and can neither live nor work if he does not receive from him some of the food already in existence, which food he promises to replace when he has completed his product. These loans cannot be gratuitous, for, if they were, the advantage would be entirely on the side of the poor man, and the rich would have no interest whatever in making the bargain. To get the rich man's consent, then, it must be agreed that the owner of the accumulated surplus or capital draws a rent or a profit, and this rent will be in proportion to the amount of the capital advanced." This is an explanation which, in economical precision, leaves almost everything to be desired.

Of a second follower of Say, Nebenius, it cannot at any rate be said that the theory received any harm at his hands.

In his celebrated work on Public Credit,8 Nebenius has devoted a brief consideration to our subject, and given a somewhat eclectic explanation of it. In the main he follows Say's Use theory. He accepts his category of the productive services of capital,9 and bases interest on the fact that these services obtain exchange value. But in course of the argument he brings out a new element, in pointing to "the painful privations and exertions"10 which the accumulation of capital requires. In the long run he shows ample agreement with the Productivity theory. Thus on one occasion he remarks that the hire which the borrower has to pay for a capital which he employs to advantage may be considered as the fruit of that capital itself (p. 21); and, on another occasion, he emphasises the fact that, "in the reciprocal valuation by which the hire is determined, it is the productive power of the capitals that forms the chief element" (p. 22).

Nebenius, however, does not enter on any more exact explanation of his interest theory; nor does he analyse the nature of the productive services of capital, obviously taking the category without question from Say.

At this point I may mention a third writer who rose into prominence later—writing long after Hermann—but never got beyond Say's standpoint; Carl Marlo, in his System der Weltökonomie.11

In striking contrast with the imposing plan of this work, and the supreme importance which, from its very nature, the interest problem should have had in it, is the extremely slight treatment which the problem actually received. One may search these bulky volumes in vain for any connected and thorough inquiry into the origin of interest; indeed for any real interest theory at all. If it were not that Marlo in the course of his polemic against his opponents—particularly against the doctrine that labour is the sole source of value12 —had to some extent marked out his standpoint, what he said positively on the question of interest would not be enough to indicate, in the very slightest degree, what his opinions were,—to say nothing of introducing the uninitiated to the nature of the problem.

Marlo's views are a mixture of Use and Productivity theories taken from Say. He recognises, with special emphasis on the necessity of their working together,13 two sources of wealth—natural power and labour power—and from this comes his conception of capital as "perfected natural power."14 Corresponding to the two sources of wealth are two kinds of income—interest and wages. "Interest is the compensation for the productive or consumptive use of parent-wealth." "If we apply forms of wealth as instruments of work, they contribute to production, and so render us a service. If we apply them to purposes of consumption we not only consume the wealth itself, but also the service which it might have rendered if productively employed. If we employ wealth belonging to other people, we must compensate the owners for the productive service which it might have rendered. The compensation for this is variously called interest or rent. If we employ our own goods we ourselves draw the interest which they bear."15 It is a poor epitome of Say's old theory.

This unsatisfactory repetition of old arguments is still more wonderful when we consider that in the interval a very great stride had been taken towards the perfecting of the Use theory by Hermann's Staatswirtschaftliche Untersuchungen, published in 1832.

This work forms the second milestone in the development of the Use theory. Out of Say's scanty and contradictory suggestions—which he accepts with flattering recognition16 —Hermann has built up a stately theory; the same care expended on its foundations as on its details. And it is of no small importance that this well-constructed theory has become a vital part of Hermann's entire system. It permeates the whole of his lengthy work from end to end. There is not a chapter in it where a considerable space is not given to its statement or application. There is not a passage in it where the author allows himself to be untrue to the position which his acceptance of the Use theory compels him to take.

In what follows I can only briefly state the principal points of Hermann's theory, although it certainly deserves our more thorough acquaintance. In doing so I shall confine myself for the most part to the second edition of the Staatswirtschaftliche Untersuchungen (1874), in which the theory is substantially unchanged, and is at the same time put more definitely and in a more complete shape.

The foundation of Hermann's theory is his conception of the independent use of goods. Quite in contrast to Say, who tries to gloss over the nature of his services productifs with a few analogies and metaphors, Hermann takes all possible care in explaining his fundamental conception.

He introduces it first in the theory of Goods, where he speaks of the different kinds of usefulness that goods have. "Usefulness may be transitory or it may be durable. It is partly the nature of the goods, partly the nature of the use that determines this point. Transitory, often momentary usefulness belongs to freshly cooked food, and to many kinds of drink. The doing of a service has only a momentary use value, yet its result may be permanent, as is the case in tuition, in a physician's advice, etc. Land, dwellings, tools, books, money, have a durable use value. Their use, for the time that they last (called in German their Nutzung),17 can be conceived of as a good in itself, and may obtain for itself an exchange value which we call interest."

But not only are durable goods, but transitory and consumable goods also, capable of affording a durable use. Since this proposition is of cardinal importance in Hermann's theory, I give his exposition of it in his own words:—

"Technical processes are able, throughout all the change and combination of the usefulness of goods, to preserve the sum of their exchange values undiminished, so that goods, although successively taking on new shapes, still continue unchanged in value. Iron ore, coal, labour, obtain, in the form of pig iron, a combined usefulness to which they all three contribute chemical and mechanical elements. If, then, the pig iron possesses the exchange value of the three exchange goods employed, the earlier sum of goods persists, bound up qualitatively in the new usefulness, added together quantitatively in the exchange value.

"To goods that are of transitory material, technical processes, through this change of form, add economical durability and permanence. This persistence of usefulness and of exchange value which is given to goods otherwise transitory by technical change of form, is of the greatest economical importance. The amount of durable useful goods becomes thereby very much greater. Even goods of perishable material and of only temporary use, by constantly changing their shapes while retaining their exchange value, become re-created so that their use becomes lasting. Thus, as it is in the case of durable goods, so it is in the case of goods changing their form qualitatively, while retaining their exchange value; this use may be conceived of as a good in itself, as a use (Nutzung) which may itself obtain exchange value." I shall return to this notable passage later on.

Hermann then makes use of this analysis to introduce his conception of capital, which is based altogether on that of its use.

"Lasting or durable goods, and perishable goods which retain their value while changing their shape, may thus be brought under one and the same conception; they are the durable basis of a use which has exchange value. Such goods we call capital."18

The bridge between these preliminary conceptions and Hermann's interest theory proper is formed by the proposition that, in economic life, the uses of capital do regularly receive the exchange value, of which, as independent quantities, they are capable. Hermann does not treat this proposition with the emphasis adequate to its importance. Although everything further depends on it, he neither puts it formally, nor gives it any detailed explanation. Explanation, indeed, there is in plenty, but it is rather to be read between the lines than in them. It amounts to this, that the "uses" possess exchange value because they are economical goods—a piece of information which is concise indeed, but may be accepted as satisfactory without further commentary.19

His explanation of interest then proceeds as follows.

In almost all productions uses of capital, possessing exchange value, form an indispensable portion of the expenses of production. These expenses are made up of three parts:—

• 1. Of the outlay of the undertaker—that is, the expenditure of wealth previously existing; as, for instance, principal, secondary, and auxiliary materials, his own labour and that of others, wear and tear of workshops, tools, etc.
• 2. Of the undertaker's active intelligence and care in the initiation and carrying on of the undertaking, etc.
• 3. Of the uses of fixed and floating capital necessary for the production all the time of their employment up till the sale of the product.20

Now since, economically, the price of the product must cover the total costs of production, that price must be high enough to cover "not only the outlays, but also the sacrifice that the undertaker makes in the uses of capital, as also in his intelligence and care;" or, as it is usually expressed, over and above the compensation for outlays, the price must yield a profit (profit of capital and profit of undertaking). And more exactly explaining his idea, Hermann adds;—this profit "is by no means merely an advantage that comes by accident in the struggle that determines price." Rather we should say that profit is as much a compensation for goods possessing exchange value that are really sacrificed in the product as the outlays are. The only difference is that the undertaker makes these outlays in order to procure and hold together certain productive elements already existing, while the uses of the capital employed and his own superintendence of the business are new elements in the work, provided by himself during the production. He makes use of the outlays in order to obtain the highest possible remuneration for these new elements that he adds. "This remuneration is profit" (p. 314).

To make this explanation of profit complete, one thing is still wanting; it should be made clear how it is that, in production, there must be sacrifice of the uses of capital, besides that of the outlays of capital. This Hermann supplies in another place, where at the same time he points out, with great circumstantiality, that all products may ultimately be traced to exertions of labour and uses of capital. In doing so he makes some interesting statements about the character of the "use of goods," as he conceives of it, and it may be well to give this passage also in full.

He is making an analysis of the sacrifices that are required for the procuring of salt fish. He enumerates labour of catching, use and wear and tear of tools and boats, labour of procuring salt; and again the use of all kinds of tools, casks, and so on. Then he breaks up the boat into wood, iron, cordage, labour, and use of tools; the wood again, into use of the forest and labour; the iron, into use of the mine, and so on. "But this succession of labours and uses does not exhaust the sum total of the sacrifices made in procuring salt fish. There must besides be taken into calculation the period of time during which each element of exchange value is embodied in the product. For from that moment when a labour or a use is employed in the making of a product, the disposal of it in any other way is made impossible. Instead of being made use of in itself, it is simply made to co-operate in the making and delivery of the product to the consumers. To get a proper idea of this, it is to be remembered that labours and uses, so soon as they are employed in the making of a product, enter into floating capital quantitatively, as a constituent element, with the exchange value that they possessed at the time of their employment. With this value they become floating capital. But it is just this amount of value that a man abstains from using in any other way till the product is paid for by the buyer. As with the getting, working up, storing, and conveying, the floating capital grows through ever new labours and uses expended on it, it is itself wealth, the use of which is handed over to the consumers with every new accession of value up to the delivering over of the product to the buyer. And what must be paid for by the buyer is not simply the renunciation of that use which the undertaker might have made of the wealth for his own gratification. No; it is actually a new and peculiar use which is handed over to him along with the wealth itself; the putting together and keeping together, the storing and keeping ready for use, of all the technical elements of the production, from the acquiring of its first basis in natural goods, on through all technical changes and commercial processes, till the product is handed over in the place, at the time and in the quantity desired. This holding together of the technical elements of the product is the service, the objective use of floating capital."21

If we compare the form which Hermann has given to the Use theory with the doctrine of Say, we find them alike in their rough outlines. Both recognise the existence of independent work done by capital. In the fact that capital is made use of in production, both see a sacrifice independent of and separate from the expenditure of the substance of capital. And both explain interest as the necessary compensation for this independent sacrifice. Still, Hermann's doctrine shows a substantial advance on Say's. Say had, in fact, given the mere outlines of a theory, inside which the most important features were left blank. His services productifs are nothing but an ambiguous name, and the very important consideration of how the sacrifice of these services constitutes an independent sacrifice in production—independent, that is, of the substance of capital sacrificed—is very much left to the reader's fancy. In trying, with true German thoroughness, to work out and make clear these two cardinal points, Hermann has definitely filled in the outlines he took from Say, and in doing so has given to the whole the rank of a solid theory.

A negative merit in Hermann, not to be under estimated, is that he severely abstains from the secondary explanations (explaining interest by productivity) that are so offensive in Say. The expression "productivity" is perhaps as often in his mouth, but he uses it in a sense that, if not happy, is at least not misleading.22

Hermann of course has not managed to keep his formulation of the Use theory free from all inconsistencies. In particular it remains doubtful, in his case also, what is the nature of the connection between the exchange value of the uses of capital and the price of the products of capital. Is the price of products high because the exchange value of uses is high? Or, on the contrary, is the exchange value of the uses high because the price of products is high? This point, over which Say falls into the wildest contradictions,23 Hermann has not made entirely clear. In the passage given above, and in many others, he obviously inclines to the former view, and so represents the price of products as affected by the value of the uses of capital.24 But at the same time there are many expressions which assume just the opposite. Thus (p. 296) he remarks that the determining of the price of products "is itself the first to react on the price of the labours and uses." And similarly on another occasion (p. 559) he ascribes a determining influence on the price of the incomplete products, not to the constituent costs which have gone to create the incomplete product, but to the finished products which are their final result. It was reserved for Menger to make this difficult question entirely clear.

Thus far we have looked only at Hermann's doctrine of the origin of interest. But we cannot pass over the quite peculiar views that he propounds on the causes of the different rates of interest.

Hermann starts from the proposition already referred to, that "the total quantity of products," resolved into its simple constituents, is "a sum of labours and uses of capital." If we allow this, it becomes clear, in the next place, that all acts of exchange must consist in the exchange of labours and uses of capital possessed by one for labours and uses possessed by another, these labours and uses being either direct or embodied in products. Whatever, then, a man receives for his own labour in other people's labours and uses is the exchange value of labour, or wage; and "whatever a man receives in the labours and uses of other men, when he offers his own uses for sale, forms the exchange value of these uses, or the profit of capital." The wages of labour and the profit of capital must therefore, between them, exhaust the total quantity of all products coming to market.25

On what, then, depends the rate of profit; or, which is the same thing, the rate of the exchange value of the uses of capital? First, naturally, on the amount of other people's labours and uses obtainable for these. But this itself depends again, for the most part, on the proportion in which the two participants in the total product, labour and uses of capital, are supplied and demanded as against each other. And of course every increase in the supply of labour tends to diminish wages and to raise profit; and every increase in the supply of uses, to raise wages and lower profit. But, again, the supply of either of these two factors may be increased by two circumstances; either by increase of the available amount or by increase of its productiveness. These circumstances act in the following way.

"If the amount of capital increases, more uses are offered for sale, more equivalent values are sought for them. Now these equivalent values can only be labours or uses. So far as, in exchange for the increased uses, other uses of capital are demanded, a greater amount of equivalent values is actually disposable. Since then supply and demand are equally increased, the exchange value of the uses cannot alter. But if, as is here assumed, the quantity of labour, on the whole, is not increased, the owners of capital find, for the increased amount of uses which they seek to exchange against labour, only the amount of labour they got before—that is, they get an unsatisfactory equivalent value. The exchange value of uses will therefore sink in comparison with labour; with the same exertions, the labourer will buy more uses. In the exchange of use against use the capitalists now receive the same equivalent value as formerly, but in the exchange of uses against labour they receive less. The amount of profit, therefore, in proportion to the total capital—that is, the rate of profit—must fall. The total quantity of goods produced is indeed increased, but the increase has been divided among capitalists and labourers.

"If the productiveness of capital increases, or if in the same time it furnishes more means of satisfying needs, the owners of capital offer for sale more useful goods than before, and ask therefore for more equivalent values. They obtain these so far as each one seeks other uses in exchange for his own increased use. Here the supply has risen with the demand. The exchange value must therefore remain unaltered—that is, the uses of equal capitals for equal times exchange with each other—although the character of these uses as regards usefulness is higher than before. But under the assumption that labour is not increased, all the uses with which the capitalist wishes to buy labour do not obtain their former equivalent value; this must raise the competitive demand for labour, and must lower the exchange value of uses as against labour. The labourers now receive more uses for the same amount of labour as before, and find themselves therefore better off; the owners of capital do not themselves enjoy the whole fruit of the increased productiveness of capital, but are compelled to share it with the workers. But the lowering of the exchange value of the uses does not cause the owners of capital any loss, since the reduced value can obtain more means of enjoyment than the higher value formerly obtained."

On analogous grounds, which we need not further pursue, Hermann shows that the rate of profit rises if the amount or the productiveness of labour decreases.

The most striking feature in this theory certainly is, that Hermann finds a reason for the decline of interest in the increase of the productive power of capital. In this he goes in direct opposition, on the one hand, to Ricardo and his school, who found the principal cause of the declining rate of interest in the decrease of the productiveness of capitals when driven to worse lands; but, on the other hand, to the Productivity theorists also, who, from the nature of their theory, were bound to accept a direct proportion between the degree of productivity and the rate of interest.26

Whether the substance of Hermann's Use theory be tenable or not, I leave in the meantime an open question. But that Hermann's application of it to explain the height of the interest rate is not correct is, I think, demonstrable even at the present stage of our inquiries.

It appears to me that, in this part of his doctrine, Hermann has made too little distinction between two things that should have been kept very clearly distinct,—the ratio between total profit and total wage, and the ratio between amount of profit and amount of capital, or the rate of interest. What Hermann has put forward admirably explains and proves a lowering or raising of total profit in proportion to wages of labour; but that explains and proves nothing as regards the height of profit, or the rate of interest.

The source of the oversight lies in this: the abstraction—in other respects quite justifiable—in virtue of which he sees nothing in products but the labours and uses out of which they come, Hermann has extended to the sphere of exchange value, where it should never have been applied. Accustomed to look on uses and labours as representatives of all goods, Hermann thought he might look at these representatives even where the matter at issue concerned the high or low exchange value of any one amount. He calculates thus: uses and labours are the representatives of all goods. Consequently if the use buys as many uses as before, but at the same time buys less labours, its exchange value is evidently smaller. Now this is not true. The exchange value of goods (in the sense of "power in exchange," which is the sense that Hermann always gives to the word) is measured, not only in the quantities of one or two definite kinds of goods that can be got in exchange for it, but in the average of all goods; among which, in this case, are to be counted all products, each product having equal rights with the goods called "labour" and with the goods called "use of capital." Thus exchange value is understood in practical life and in economics, and thus also it is understood by Hermann himself. On p. 432 he expressly declares: "Among such differences of the goods in which price is paid, the establishment of an average price, such as we desired for the fixing of exchange value, is not to be thought of, but the conception of exchange value is not impossible on that account. It is arrived at by considering all the average prices which, in the same market, are paid for one good in all goods; it is a series of comparisons of the same good against many other goods. We shall call the exchange value of a good, as thus determined, the 'real value' of the good, to distinguish it from the average amount of the money prices, or the money value."

Now it is not difficult to show that the power in exchange of the use of capital as against products moves in quite a different direction from its power in exchange against other uses and labours. For instance, if the productiveness of all uses and labours rises to exactly double, the power in exchange between uses and labours, as regards each other, is not disturbed; on the other hand, the power in exchange of both as against the products which result from them is very seriously disturbed: it is, that is to say, doubled.

As regards the rate of interest, the question obviously is, What is the proportion between the exchange power of the uses of capital and the exchange power of a quite definite class of product, viz. that real capital which furnishes the "use"? If the power in exchange of the use of a machine be twenty times less than the exchange power of the product machine, the use of the machine "buys" £10, while the machine itself obtains £200 as its equivalent value, and the proportion corresponds to a 5 per cent rate of interest. If the exchange value of the use of a machine again is only ten times less than that of the product machine, the one buys £20 while the other buys £200, and the proportion corresponds to a 10 per cent rate of interest.

Now there is no obvious ground for assuming that the exchange value of real capital is determined in a different way from the exchange value of other products, and, as we have seen, the exchange value of products as against the exchange value of uses, generally speaking, can be altered in another proportion than the exchange value between uses and labour as regards each other is altered. It follows then that the ratio between the power in exchange of the uses of capital and the power in exchange of real capital (in other words, the rate of interest) may take a different course from the proportion of exchange value between uses and labour. Hermann's rule therefore is not sufficiently proved.27

In conclusion, let me say just a word on the position that Hermann assumes towards the "productivity of capital." I have already said that he often uses the expression, but never with the meaning given to it by the Productivity theory. He is so far from saying that interest is produced directly from capital, that he maintains high productive power to be a cause of the lowering of interest. He expressly guards himself also (p. 542) against being supposed to say that profit is a compensation for "dead use." He asserts that capital, to give its due results, demands "plan, care, superintendence, intellectual activity generally." For the rest, he has not himself attached any particularly clear conception to the expression "productivity." He defines it in the words: "The totality of the ways in which capital is employed, and the relation of the product to the expenditure, constitute what is called the productivity of capital."28 Does he mean by this the relation of the value of the product to the value of the expenditure? If so, then high productivity would only accompany high interest, whereas high productivity certainly occasions low interest. Or does he mean the relation of the quantity of the product to the quantity of the expenditure? But in economic life quantity, speaking generally, is of no importance. Or does he mean the relation of the quantity of the product to the value of the expenditure? But quantity on one side and value on the other are incommensurable. The fact of the matter, it appears to me, is that Hermann's definition will not stand strict interpretation. On the whole, it is just possible that he may have had in his mind a kind of physical productivity.

In Germany many writers of note have accepted Hermann's Use theory, and given it their strong support.

One very clear-headed follower of his is Bernhardi.29 Without developing the theory any further,—for he contents himself with quoting Hermann's doctrine incidentally, and expressing agreement with it,30 —he shows his originality and profound thinking by a number of fine criticisms, directed principally against the English school.31 He has, too, a word of censure for the school that stands at the opposite extreme, the blind Productivity theorists, with their "strange contradiction" of ascribing to the dead tool an independent living activity (p. 307).

Mangoldt again takes the same ground as Hermann, and diverges from him only in unimportant particulars. Thus he gives even less importance to the "productivity of capital" in the formation of interest.32 He would go so far as abolish that expression as incorrect, although he does not scruple to use it himself "for the sake of brevity."33 Thus, too, where Hermann puts the height of interest in inverse ratio to the productivity of capital, Mangoldt puts it in direct ratio; indeed, he accepts Thünen's formula, and puts it in direct ratio to the "last applied dose of capital."

Similarly Mithoff, in his account of the economical distribution of wealth, lately published in Schönberg's Handbuch,34 follows Hermann in all essential respects.

Schäffle takes a peculiar position on the Use theory. One of the most prominent promoters of that critical movement which came into existence with the rise of scientific Socialism, Schäffle was one of the first to pass through the fermentation of opinion which might have been expected when two such different conceptions encountered each other. This fermentation has left very characteristic traces on his utterances on the subject of interest. I shall show later on that in Schäffle's writings may be found no less than three distinctly different methods of explaining interest. One of these belongs to the older, two to the later "critical" conception. The first of them falls within the group of the Use theories.

In his first great work, the Gesellschaftliche System der menschlichen Wirtschaft,35 Schäffle states his entire theory of interest according to the terminology of the Use theory. Profit of capital is with him a profit from the "use (Nutzung) of capital": loan interest is a price paid for that use, and its rate depends on the supply and demand of the uses of loan capital: the uses are an independent element in cost, and so on. But there are unmistakable signs that he is not far from giving up the theory he professedly holds. He repeatedly gives the word "use" a signification very far from that attached to it by Hermann. He explains the use of capital as a "working" (Wirken) of an economical subject by means of wealth; as a "using" (Benutzung) of wealth for fruitful production; as a "devoting," an "employment" of wealth, as a "service" of the undertaker—expressions which would lead us to see in the Use, not so much a material element in production issuing from capital, as a personal element proceeding from the undertaker.36 This impression is, moreover, confirmed by the fact that Schäffle repeatedly speaks of profit as premium for an economical vocation. Further, he argues positively against the view that profit is a product of the use of capital contributed to the process of production (ii. p. 389). He charges Hermann with having coloured his theory too much by the idea of an independent productivity in capital (ii p. 459). But, on the other hand, he often uses the word "use" in such a way that it can only be interpreted in the objective, and therefore in Hermann's sense; as, e.g. when he speaks of the supply and demand of the uses of loan capital. On one occasion he explicitly admits that in the use, besides the personal element, there may be contained a material element, which he calls the Gebrauch of capital (ii. p. 458). And notwithstanding his condemnation of Hermann, he himself does not scruple now and then to ascribe "fruitfulness" to the use of capital. Thus he neither entirely accepts the ground of the Use theory nor entirely rejects it.

Even in his later systematic work, the Bau und Leben des sozialen Körpers,37 Schäffle's views have not developed into a completely clear and consistent theory. While he has got beyond the old Use theory in one respect, in another he has come nearer to it. In the Bau und Leben he always looks upon interest as a "return to the use (Nutzung) of capital," which use at all times maintains an economical value. In this he gives up the subjective meaning of use, and now treats it unambiguously as a purely objective element contributed by goods. He speaks of the uses as "functions of goods," as "equivalents of useful materials in living labour," as "living energies of impersonal social substance." Even in the socialist state this objective use would retain its independent value, and thereby preserve its capacity to yield interest. The phenomenon of interest can only disappear if, in the socialist state, the community, as sole owner of capital, should contribute the valuable use of capital gratuitously; in which case the return from it would go to the advantage of the entire social body (iii. p. 491). On the other hand, Schäffle rather diverges from the old Use theory in not acknowledging the use of capital as an ultimate and original element in production, and in tracing all costs of production to labour alone (iii. pp. 273, 274). But in doing so he chances on another line of explanation, which I shall have to discuss at length in another connection.

While these followers of Hermann have not developed his theory so much as broadened it, Knies may fairly claim to have improved it in some essential respects. He has made no change in its fundamental ideas, but he has given these fundamental ideas a much clearer and more unambiguous expression than Hermann himself gave them. That Hermann's theory was very much in want of such improvement was shown by the many misunderstandings of it. I have already remarked that Schäffle considered Hermann a Productivity theorist. Still more remarkable is it that Knies himself thought he saw in Hermann, not a forerunner, but an opponent.38

Knies was not always a Use theorist. In his Erörterungen über den Kredit,39 published in 1859, he looked on credit transactions as barter transactions, or, according to circumstances, buying transactions, in which what one party gives is given in the present, and what the other gives as equivalent is given in the future (p. 568). One of the ulterior results of this conception was that interest must not be looked on as an equivalent of a use transferred in the loan, but—almost as Galiani had put it long before40 —as a part-equivalent of the parent loan itself. But since then Knies has expressly withdrawn this conception, considering that there is no call for such an innovation, and that, on the contrary, there is much to deter one from accepting it.41 Later still, in a fully argued-out analysis, he has expressed himself quite directly to the effect, that any consideration of the different values which present and future goods of the same class may possess on account of the greater urgency of immediate need is, though "not quite unfruitful," still distinctly insufficient to explain the principal point in the phenomenon of interest.42

In place of this, in his comprehensive work Geld und Kredit, Knies has laid down an unusually clear and thoroughly reasoned Use theory.43

Although the purpose of this work only called for investigation into Contract interest, Knies yet treats the subject from such a general standpoint that his views on Natural interest may easily be supplied from what he says on the other.

In fundamental ideas he agrees with Hermann. Like him he conceives of the use (Nutzung) of a good as "that use (Gebrauch) which lasts through a period of time, and is limitable by moments of time"; a use to be kept quite distinct from the good itself which is the "bearer of the use"; and a use capable of economical independence. To the question which most concerns the Use theory, whether an independent use and its transfer are conceivable and practicable in the case of perishable goods, he devotes a searching inquiry, which ends with a distinct answer in the affirmative.44 Another cardinal question of the Use theory is, whether and why the independent use of capital must possess an exchange value, and obtain a compensation in the form of interest. This question, as we have seen, Hermann does not leave without answer, but he has laid so little stress on the answer, and put it in such an insignificant form, that it has not unfrequently been quite overlooked.45 In contrast to this, Knies has carefully reasoned it out, and concludes that "the emergence and the economical justification of a price for use, in the shape of interest, is founded on the same relation as that on which the price of material goods is founded." The use is an instrument for the satisfaction of human need just as much as the material good is; it is an object that is "economically valuable and that is economically valued."46 When I add that Knies has avoided not only any relapse into the Productivity theory, but even the very appearance of such a relapse, and that he has appended to his theory some very notable criticisms, particularly of the socialistic interest theory, I have said enough to point out how deeply Hermann's theory is indebted to a thinker equally distinguished for his acuteness and for the conscientiousness of his research.

We now come to that writer who has put the Use theory into the most perfect form in which it could well be put—Karl Menger, in his Grundsätze der Volkswirthschaftslehre.47

The superiority of Menger to all his predecessors consists in this, that he builds his interest theory on a much more complete theory of value,—a theory which gives an elaborate and satisfactory answer to the very difficult question of the relation between the value of products and that of their means of production. Does the value of a product depend on the value of its means of production, or does the value of the means of production depend on that of their product? As regards this question economists up till Menger's time had been very much groping in the dark. It is true that a number of writers had occasionally used expressions to the effect that the value of the means of production was conditioned by the value of their anticipated product; as, for instance, Say, Riedel, Hermann, Roscher.48 But these expressions were never put forward in the form of a general law, and still less in the form of an adequate logical argument. Moreover, as must have been noticed, expressions are to be found in these writers which indicate quite the opposite view; and with this opposite view the great body of economic literature fully agrees in recognising as a fundamental law that the cost of goods determines their value.

But so long as economists did not see clearly on this preliminary question, their treatment of the interest problem could scarcely be more than uncertain groping. How could any one possibly explain in clear outline a difference in value between two amounts—expenditure of capital and product of capital—if he did not even know on which side of the relation to seek for the cause, and on which side for the effect?

To Menger, then, belongs the great merit of having distinctly answered this preliminary question. In doing so he has definitely and for all time indicated the point at which, and the direction in which, the interest problem is to be solved.

His answer is this. The value of the means of production ("goods of higher rank," in his terminology) is determined always and without exception by the value of their products ("goods of lower rank"). He arrives at this conclusion by the following argument.49

Value is the importance "which concrete goods, or quantities of goods, receive for us through the fact that we are conscious of being dependent, for the satisfaction of our wants, on having these goods at our disposal." The amount of value that goods possess always depends on the importance of those wants, which depend for their satisfaction on our disposal over the goods in question. Since goods of "higher rank" (means of production) are only of service to us through the medium of those goods of "lower rank" (products) which result from them, it is clear that the means of production can only have an importance as regards the satisfaction of our wants so far as their products possess such an importance. If the only use of means of production were to consist in the making of valueless goods, these means of production could evidently in no way obtain value for us.

Further, since that circle of wants the satisfaction of which is conditioned by a product is obviously identical with that circle of wants the satisfaction of which is conditioned by the sum of the means of production of the product, the degree of importance which a product possesses for the satisfaction of our wants, and that which the sum of its means of production possesses, must be essentially identical. On those grounds the anticipated value of the product is the standard not only for the existence, but also for the amount of the value of its means of production. Finally, since the (subjective) value of goods is also the basis for their price, the price, or, as some people call it, the "economical value" of goods, is regulated by the same principle.

This being the foundation, the interest problem assumes the following shape.

A capital is nothing else than a sum of "complementary goods" of higher rank. Now if this sum derives its value from the value of its anticipated product, how is it that it never quite reaches that value, but is always less by a definite proportion? Or, if it is true that the anticipated value of the product is the source and the measure of the value of its means of production, how is it that real capital is not valued as highly as its product?

To this Menger gives the following acute answer.50

The transformation of means of production into products (or, shortly, Production) always demands a certain period of time, sometimes long, sometimes short. For the purposes of production it is necessary that a person should not only have the productive goods at his disposal for a single moment inside that period of time, but should retain them at his disposal and bind them together in the process of production over the whole period of time. One of the conditions of production, therefore, is this:the disposal over quantities of real capital during definite periods of time. It is in this Disposal that Menger places the essential nature of the use of capital.

The use of capital, or the disposal over capital, thus described, in so far as it is in demand and is not to be had in sufficient quantity, may now obtain a value, or, in other words, may become an economical good. When this happens,—as is usually the case,—then, over and above the other means of production employed in the making of a concrete product (over and above, e.g. the raw materials, auxiliary materials, labour, and so on), there enters into the sum of value contained in the anticipated product, the disposal over those goods that are required for the production, or the use of capital. And since, on that account, in this sum of value there must remain something for the economical good we have called "use of capital," the other means of production cannot account for the full amount of the value of the anticipated product. This is the origin of the difference in value between the concrete capital thrown into production and the product; and this at the same time is the origin of interest.51

In this doctrine of Menger the Use theory has at last attained to its full theoretical clearness and maturity. In it there is no falling back on old errors; there is nothing that could even recall the old Productivity theories and their dangers; and with that the interest problem has definitely passed from a production problem, which it is not, to a value problem, which it is. The value problem is, at the same time, so clearly and so sharply put, its outlines so happily filled in by the exposition he gives of the value relation between product and means of production, that Menger has not only distanced his predecessors in the Use theory, but has laid a permanent foundation on which all earnest work at the problem of interest must, for the future, be built.

The work of the critic as regards Menger, therefore, is different from that as regards any of his predecessors. In considering the previous doctrines I have purposely laid on one side the question whether the fundamental principle of the Use theory was warranted or not. I have only examined them in the way of asking whether they presented this principle with more or less completeness, with more or less internal consistency and clearness. In fact, up till now I have, to some extent, tested the concrete Use theories by the ideal Use theory, but I have not tested the ideal Use theory itself. In the case of Menger, however, it is only this latter test that needs to be applied. As regards his theory only one critical question remains to be put, but that the most decisive one: Can the Use theory give us a satisfactory explanation of the interest problem?

I shall try to answer this question in such a way that it will not merely be a special criticism of Menger's formulation of the theory, but will warrant us in forming an opinion on the whole theoretical movement that reaches its highest development with Menger.

In doing so I am conscious of having undertaken one of the most difficult tasks in criticism. Difficult through the general nature of the matter, which has for so many decades baffled the endeavours of the most prominent minds; difficult, in particular, because I shall be compelled to oppose opinions put forward, after most careful consideration, by the best minds of our nation, and supported with most marvellous ingenuity; difficult, finally, in this, that I shall be compelled to oppose ideas that were once vehemently contested in long past times, then won most brilliant victory over their opponents, and since then have been taught and believed in as dogmas. For what follows, then, I must particularly ask the reader to grant me an unbiassed hearing, patience, and attention.

Book III, Chapter III

The Plan of Criticism

All the Use theories rest on the following assumption. Not only does real capital itself possess value, but there is a Use (Nutzung) of capital which exists as an independent economical good, possessing independent value; and this latter value, together with the value of the capital, makes up the value of the product of capital.

Now in opposition to this I maintain:—

1. There is no independent "use of capital," such as is postulated by the Use theorists; there can, therefore, be no independent value of the kind asserted, and the phenomenon of "surplus value" cannot thus be accounted for. The assumption is nothing but the product of a fiction which is in contradiction of actual fact.52

2. Even if there were a "use of capital" of such a nature as is assumed by the Use theorists, the actual phenomena of interest would not be satisfactorily explained thereby.

The Use theories, therefore, rest on a hypothesis which contradicts actual facts, and is, besides, insufficient to explain the phenomena in question.

In proceeding to prove these two theses, I feel that I stand in a somewhat unfortunate position as regards the former. While the discussion of the second thesis opens up virgin soil, undisturbed as yet by the strife of economists, the first seems to put me in the position of attacking a res judicata,—a case long ago carried up through all courts, and long ago decided conclusively against me. It is, indeed, essentially the same question as was in dispute centuries ago between the canonists and the defenders of loan interest. The canonists maintained: Property in a thing includes all the uses that can be made of it; there can, therefore, be no separate use which stands outside the article and can be transferred in the loan along with it. The defenders of loan interest maintained that there was such an independent use. And Salmasius and his followers managed to support their views with such effectual arguments that the public opinion of the scientific world soon fell in with theirs, and that to-day we have but a smile for the "short-sighted pedantry" of these old canonists.

Now fully conscious that I am laying myself open to the charge of eccentricity, I maintain that the much decried doctrine of the canonists was, all the same, right to this extent;—that the independent use of capital, which was the object of dispute, has no existence in reality. And I trust to succeed in proving that the judgment of the former courts in this literary process, however unanimously given, was in fact wrong.

In the next few chapters, then, I hope to prove my first thesis—that there is no "use of capital" of the kind postulated by the Use theorists.

The first thing we have to do is of course to define the subject of discussion. What then is this Use, this Nutzung, the independent existence of which is maintained by the Use theorists and denied by me?

As to the nature of the Use there is no agreement among the theorists themselves. Menger in particular gives an essentially different reading of the conception from that of his predecessors. In view of this I find it necessary to divide my inquiry into at least two parts, the first of which has to do with the conception given by the Say-Hermann school, while the second will deal with Menger's conception.

Book III, Chapter IV

The Use of Capital According to the Say-Hermann School

Among the writers of the Say-Hermann school there obtains no exact agreement in the description and definition of the Use. But this want of agreement appears to me traceable, not so much to any real difference of opinion about the subject, as to their common failure to give any clear account of its nature. They hesitate in their definitions, not because they have different objects in view, but because, of the one object that all have in view, they have only uncertain vision. One proof of this lies in the fact that the individual Use theorists get into contradiction with their own definitions almost as often as with those of their colleagues. In this chapter we shall gather together provisionally the more important readings of the conception.

Say speaks of the "productive services" of capital, and defines them as a "labour" which capital performs.

Hermann in one place (p. 109) defines the Nutzung of goods as their Gebrauch. He repeats this on p. 111, where he says that the Gebrauch of goods of perishable material may be thought of as a good in itself, as a Nutzung. If Gebrauch here is simply identified with Nutzung, this is not the case in a passage on p. 125, where Hermann says that the Gebrauch is the employment of the Nutzung. On p. 287, finally he explains "the holding together of the technical elements of the product" as the "service," the "objective Nutzung" of floating capital.

Knies also identifies Gebrauch and Nutzung.53

Schäffle in one place defines Nutzung as the "employment" of goods (Gesell. System, iii. p. 143); similarly on p. 266 as "acquisitive employment." On p. 267 he calls it "the working of an economical subject by means of wealth, a using of wealth towards fruitful production." On the same page it is called a "devotion" of wealth to production; with which it is a little inconsistent that, on the next page, he speaks of a devotion of the Nutzung of capital—that is, of the devotion of a devotion. In the Bau und Leben, finally, Schäffle explains the uses in one place (iii. p. 258) as "functions of goods"; somewhat later (p. 259) as "equivalents of useful materials in living labour"; while on p. 260 the Nutzung is defined as the "releasing of the utility (Nutzen) from material goods."

If we look more closely at this somewhat chequered array of definitions and explications we may see in them two interpretations of the conception of use, a subjective and an objective. These two interpretations correspond pretty exactly with the double sense in which the word Use or Nutzung is generally employed in ordinary speech. It indicates, on the one hand, the subjective activity of the one who uses, and is called in German indifferently Benutzung or Gebrauch in the subjective sense of that equally ambiguous word; or, more significantly, Gebrauchshandlung. And, on the other hand, it indicates an objective function of the goods that are used; a service issuing from the goods. The subjective interpretation appears vaguely in Hermann's identification of Nutzung and Gebrauch, and very strongly in Schäffle's earlier work. The objective interpretation distinctly predominates with Say; almost as distinctly with Hermann, who, indeed, in one place speaks explicitly of the "objective use" of capital; and even Schäffle inclines to it in his latest work when he speaks of the use as a "function of goods."

It is easy to see that of the two interpretations it is simply and solely the objective that accords with the character of the Use theory. For, taking it only on the most obvious grounds, it is absolutely impossible to give a subjective meaning to those uses of capital which the borrower buys from the lender, and pays with loan interest. These cannot be acts of use performed by the lender, for he does not perform any such. Nor can they be acts of use performed by the borrower, for, although he may intend to perform such actions, he does not of course require to buy his own actions from the lender. To speak, therefore, of a transference of the uses of capital in the loan, has a meaning only if we understand by the word "uses" objective elements of use of some kind or other. I think, then, that I am justified in leaving out of account, as inconsistencies that contradict the spirit of their own theory, those subjective interpretations of use that are to be found sporadically in individual Use theorists, and in confining myself exclusively to the objective interpretations which have been adopted by the majority, and which, since Schäffle's change of front, are the only recognised interpretations. By Use, then, in the sense given it by the Say-Hermann school, we have to think of an objective useful element which proceeds from goods, and acquires independent economical existence as well as independent economical value.

Now nothing can be more certain than that there are, in fact, certain objective useful services of goods that obtain economical independence, and may, not unfitly, be designated by the name of Uses (Nutzungen). I have already, in another place, treated of these in detail, and done my utmost to describe their true nature as exactly and thoroughly as possible.54 Singularly enough, this attempt of mine stands almost alone in economic literature. I say "singularly enough" deliberately, for it does seem to me a very wonderful thing that, in a science which from beginning to end turns, as on its axis, on the satisfying of needs by means of goods,—on the relation of use between men and goods,—no inquiry has ever been made into the technical character of the use of goods. Or that, in a science where pages, chapters, even monographs have been written on many another conception, not a couple of lines should have been devoted to the definition or explanation of the fundamental conception "use of a good," and that the expression should be dragged into every theoretical research in all the confusion and ambiguity which it has in ordinary life.

Since for our present purpose everything depends on us getting a reliable idea of the useful functions which goods serve, I must at this point go into the matter with some exactitude; only begging the reader not to look on what follows as a digression, but as strictly germane to the subject.55

Book III, Chapter V

The True Conception of the Use of Goods

All material goods (Sachgüter) are of use to mankind through the action of the natural powers that reside in them. They are a part of the material world, and for that reason all their working, including their useful working, must bear the character that working generally has in the material world; it is a working of natural powers according to natural laws. What distinguishes the working of material goods from the working of other kinds of natural things, harmless or hurtful, is the single circumstance, that the results of such working admit of being directed towards the advantage of man, this direction also being under the rule of natural laws. That is to say, all things are endowed simply with working natural powers, but experience shows that these powers only admit of being directed to a definitely useful end, when the matter which possesses these powers has taken on certain forms that are favourable to them being so directed. All matter on the surface of the earth, for instance, among other forms of energy, possesses an amount of energy corresponding to its distance from the centre of the earth. But while men can do nothing with this form of energy when stored up in a mountain, that same energy is useful to them when the matter possessing it has taken on some form they wish—that is, some form in which the energy is available; say, that of a clock pendulum, or a paper weight, or a hammer. The energy of chemical affinity which carbon possesses is identical in every molecule of it. We get a direct economic utility, however, from the results of this energy only when the carbon has taken such forms as that of wood or coal; not when it exists as part of one of the constituents of the air. We may therefore say that the nature of material goods, as opposed to those material things that are not useful, is that they are such special forms of matter as admit of the natural powers they possess being directed to the advantage of man.

From this follow two important inferences, of which one concerns the character of the useful functions of material goods, and the other concerns the character of the use (Gebrauch) of goods.

The function of goods can consist in nothing else than in a giving off, or rendering up, or putting forth of power; or, to use the terminology of physical science, the passing of energy into work. On the natural side it shows a complete parallelism with the character of the useful function performed by a manual labourer. In the same way as a porter or a navvy is of use, when he puts forth the natural power residing in his body in the form of rendering useful services, so are material goods of use through concrete forthputting of the natural powers inherent in them and capable of direction—physically speaking, through the forthputting in work of the available forms of energy they possess. It is by the passing of available energy into work that the "use" of goods is obtained by man.56

The use (Gebrauch) of a thing then is realised in this way: man takes the peculiar forms of energy of the good at the proper time, supplies the conditions necessary to render them available where they previously existed in an unavailable form, and then brings these forms of energy into proper connection with that object in which the useful effect is to take place. For instance, in order to "use" the locomotive the stoker fills the boiler with water, applies heat, and thus obtains in an available form the heat energy of the steam, which is transferred into energy of motion of the locomotive. This last-named energy is then transferred by connection to the carriages that convey persons or goods. Or one brings a book into the necessary relation with his eye for the image, which is continually being formed by reflection, to fall on the retina; or brings the house which continually offers shelter into proper relation with his whole person. But any "use" of material goods which does not consist in the receiving from them of useful results due to their inherent powers or forms of energy, is absolutely unthinkable.

I think I need have no fear of the propositions I have just advanced meeting with any scientific opposition. The conception laid down is no longer strange in our economic literature;57 and in the present state of the natural sciences the acceptance of it has indeed become a peremptory necessity. If by any chance it should be objected that this conception is one that belongs to the natural sciences and is not an economic one, I answer that in these questions economic science must leave the last word to natural science. The principle of the unity of all science demands it. Economic science does not explain the facts that belong to its province to the very bottom, any more than any other science does. It solves only one portion of the causal connection that binds together the phenomena of things, and leaves it to other sciences to carry the explanation farther. Not to mention other limiting sciences, the sphere of economic explanation lies between the sphere of psychological explanation on the one hand, and that of the natural sciences on the other. To give a concrete example. Economic science will explain thus far the circumstance that bread has an exchange value: it will point out that bread is able to satisfy the want of sustenance, and that men have a tendency to ensure the satisfaction of their wants, if necessary by making a sacrifice. But that men have this tendency, and why they have it, is not explained by economic science but by psychology. To explain that men want sustenance and why, falls within the domain of physiology. Finally, it also falls within the sphere of physiology to explain that bread is able to satisfy that want, and why it is able to do so, but physiology does not finish the explanation within its own sphere; it has to call in assistance from the more general physical sciences.

Now it is clear that all explanations given by economic science have a value only under this condition, that they are continuous with the related sciences. The explanations of economics cannot rest on anything that a science related to it is bound to declare untrue or impossible; otherwise the thread of the explanation is broken from the first. It must on that account keep exactly in touch with the related sciences at the points where they limit it, and one such point is just this question as to the working of material goods.

The one thing of which I have, perhaps, some reason to be afraid is, that the employment of this physical conception in regard to a certain limited class of material goods, especially to the so-called "ideal goods," may be somewhat startling at the first glance to some readers. That, e.g. a fixed and stationary dwelling-house, a volume of poems, or a picture of Raphael should be of use to us through the forthputting of inherent properties connected with one or other of the forms of energy, or, as we may shortly express it, the forthputting of its natural powers, may at first, I admit, be a little strange. Objections like these, however, which have their origin more in feeling than in understanding, may be removed by a single consideration. All the things that I have named enter into the relation which makes them "goods" only in virtue of the peculiar natural powers which they possess, and possess, indeed, in peculiar combination. That a house shelters and warms, is nothing else than a result of the forces of gravity, cohesion, and resistance, of impenetrability, of the non-conducting quality of building materials. That the thoughts and feelings of the poet reproduce themselves in us is mediated, in a directly physical way, by light, colour, and form of written characters; and it is this physical part of the mediation which is the office of the book. There must of course have been a poet soul in whom ideas and feelings waked, and, again, it is only in a spirit and through spiritual forces that they can be reawakened; but the way of spirit to spirit lies some little distance through the natural world, and over this distance even the spiritual must make use of the vehicle of natural powers. Such a natural vehicle is the book, the picture, the spoken word. Of themselves they give only a physical suggestion, nothing more; the spiritual we give of our own on accepting the suggestion; and if we are not prepared beforehand for a profitable acceptance of it,—if we cannot read, or, reading, cannot understand, or cannot feel,—it remains simply a physical suggestion.

With these explanations perhaps I may consider it established beyond question that material goods exert their economical use through the forthputting of the natural powers residing in them.

The individual useful forthputtings of natural powers that are obtainable from material goods I propose to designate as "Material Services."58 In itself, indeed, the word Use (Nutzung) would not be inappropriate, but to adopt it would be to surrender our conception to all the obscurity that now, unfortunately, hangs over that ambiguous expression.59

The conception of Material Services is, in my opinion, destined to be one of the most important elementary conceptions in economic theory. In importance it does not come behind the conception of the economic Good.60 Unfortunately up till now it has received little attention and little development. From the nature of our task it is indispensable that we should repair this neglect, and follow out some of the more important relations into which the material services enter in economic life.

First of all, it is clear that everything which would lay claim to the name of a "good" must be capable of rendering material services, and that, with the exhausting of this capability, it ceases to have the quality of a good; it falls out of the circle of "goods" back into the circle of simple "things." An exhaustion of this capability must not be thought of as an exhaustion of the capability to exert or to put forth energy in general; for what we have called the "natural powers" of the material are as imperishable as the material itself. But although these powers or forms of energy never cease to exist in some form or other, they may very well cease to be available for material services in this way, that the original good, in the course of doing work, has undergone such a change,—be it separation, dislocation, or uniting of its parts with other bodies,—that, in its changed form, its energy is no longer available for human use. For instance, when the carbon of the wood burned in the blast furnace has combined with oxygen in the combustion process, its powers cannot again be employed to smelt iron, although these powers are constant, and continue to work according to natural laws. The broken pendulum retains its energy due to gravity just as it did before, but the loss of the pendulum form does not allow of this energy being directed to regulate the clock. The exhaustion of capability to render material services we are accustomed to call the using up or Consumption of goods.

While all goods thus agree and must agree in this, that they have to render material services, they differ essentially from one another in the number of services that they have to render. On this rests the familiar division of goods into perishable and non-perishable, or better, into perishable and durable.61 Many goods are of such a nature that, to render the uses peculiar to them, they must give forth their whole power, as it were, at a blow, in one more or less intense service, so that their first use quite exhausts their capability of service, and is their consumption. These are the so-called perishable goods, such as food, gunpowder, fuel, etc. Other goods, again, are, in their nature, capable of rendering a number of material services in the way of giving off these services successively, within a shorter or longer period of time; and thus after a first, or even after many acts of use, they may retain their capability of rendering further services, and so retain their character of goods. These are the durable goods, such as clothing, houses, tools, precious stones, land, etc.

Where a good successively gives off a number of material services, it may do so in one of two ways: either the services following each other evidently separate themselves from each other, as clearly marked single acts, in such a way that they are easily distinguished, limited, and counted,—as, e.g. the single blows of a coining press, or the operations of the automatic printing press of a great newspaper; or they issue from the goods in unbroken, similar continuance,—as, e.g. the shelter silently given over long periods of time by a dwelling-house. If, however, it is desired, in cases of this sort, to separate and divide the continuous amount of services—and practical need often requires this—the expedient is adopted that is generally taken in the dividing of continuous quantities; the dividing line that does not suggest itself in the phenomena under consideration is borrowed from some outside circumstance, e.g. from the lapse of a definite time; as when one delivers over to the hirer of a house the services to be rendered by the house during the year.

Another essential feature that meets us in the analysis of material services is their capability of obtaining complete economical independence. The source of this phenomenon is that in very many, indeed in most cases, the satisfaction of a concrete human want does not demand the exhaustion of the entire useful content of a good, but only the rendering of a single material service. In virtue of this the single service in the first instance obtains an independent importance as regards the satisfaction of our wants, and then in practical economic life this independence is fully recognised. We give the recognition (1) wherever we make an independent estimate of the value of isolated services; and (2) wherever we make them into independent objects of business transactions. This latter happens when we sell or exchange single services, or groups of services, apart from the goods from which they proceed. Economical custom and law have created a number of forms in which this is effectuated. Among the most important of these I may name the relations of tenancy, of hire, and of the old commodatum;62 further, the institution of easements, of fee farm, of copyhold (emphyteusis and superficies). A little consideration will convince us that, as a fact, all these forms of transaction agree in this, that one portion of the services of which a good is capable is divided off and transferred separately while the rest of the anticipated services, be they many or few, remain with the ownership of the body of the good, in the hands of the owner of the good.63

Finally, it is of great theoretic importance to determine the relations that exist between the material services and the goods from which they proceed. On this point I may put down three cardinal propositions, all of which appear to me so obvious that we may dispense here with any detailed proof of them; more especially as I have gone thoroughly into the subject on another occasion.64

1. It seems to me clear that we value and desire goods only on account of the material services that we expect from them. The services, as it were, form the economical substance with which we have to do. The goods themselves form only the bodily shell.

2. It follows from the above, and appears to me equally beyond doubt, that, where entire goods are obtained and transferred, the economical substance of such transactions always lies in the acquisition and the transference of material services; indeed of the totality of these services. The transference of the goods themselves constitutes only a form—certainly a form that, in the nature of things, is very prominent, but still only an accompanying and limiting form. To buy a good can mean nothing, economically speaking, but to buy all its material services.65

3. From this, finally, comes the important conclusion that the value and price of a good is nothing else than the value and price of all its material services thrown together into a lump sum; and that accordingly the value and price of each individual service is contained in the value and price of the good itself.66

Before going farther let me illustrate these three propositions by a concrete example. I think all readers will agree with me when I say that a cloth manufacturer values and demands looms only because he expects to get from the looms the useful energies peculiar to them; that not only when he hires a loom, but when he buys it, he looks, as a fact, to the acquisition of its services; and that the ownership he acquires at the same time in the body of the machine only serves as greater security that he will obtain these services. Even if this ownership in point of law appears to be the primary thing, economically it is certainly only the secondary. And, lastly, it will be granted, I think, that the use which the whole machine renders is nothing else than the use of all its material services thrown together into one sum; and that similarly the value and price of the whole machine is nothing else, and can be nothing else, than the value and price of all its material services thrown together into one sum.

Book III, Chapter VI

Criticism of the Say-Hermann Conceptions

Having, then, sufficiently explained the nature and the constitution of the use of goods, let us come back to the principal point under consideration—the critical examination of the conception of "use" put forward by the Use theorists.

And first we ask, May it not be the case that the Uses (Nutzungen) of the Say-Hermann school are identical with our Material Services (Nutzleistungen)? There can be no doubt that they are not identical. That something which the school in question calls "use" is intended to be the basis and the equivalent of net interest. The material services, on the contrary, are sometimes (in the case of durable goods) the basis of gross interest, embracing the net interest and a part of the capital value itself; sometimes (in the case of perishable goods) the basis of the entire capital value. If I buy the material services of a dwelling-house, I pay a year's rent for the services of one year; this is a gross interest. If I buy the material services of a cwt. of coal, I pay, for the services of the single hour in which the coal burns to ashes, the whole capital value of the coal. On the other hand, what the Use theorists call "use" is paid for quite differently. The "use" that a cwt. of coal gives off during a whole year attains no higher price than, say, a twentieth part of the capital value of the coal. Use and Material Service must, therefore, be two quite distinct amounts. From this, among other things, it is clear that those writers who defined and pointed out the existence of what we have called material services, under the idea that they were defining the basis of net interest, and pointing to it, were under a serious delusion. This criticism applies particularly to the services productifs of Say, and to Schäffle's earlier definitions of use.

And now we come to the decisive question. If what the Use theorists called "uses" (Nutzungen) are anything else than the "material services" of goods, does their conception represent anything real? Is it conceivable that between, beside, or among these material services we get some other useful thing from goods?

I can give no other answer to this question than the most emphatic No. And I think every one will be compelled to give this answer who admits that material goods are objects of the material world; that material results cannot be produced otherwise than through manifestations of natural powers; and that even the "utility" of a thing is an activity. Granted these premises,—none of which are likely to be opposed,—it appears to me that no other kind of use in material goods is conceivable than that which comes through the forthputting of their peculiar natural powers—that is, through the rendering of Material Services.

But it is not even necessary to appeal to the logic of the natural sciences. I appeal simply to the common sense of the reader. Take an example or two to remind us of what we mean when we say that goods are "of use." A thrashing machine, there is no doubt, is of use economically in helping to thrash corn. How does it, how can it, render this use? Not otherwise than through putting forth its mechanical powers one after another, till such time as the worn-out mechanism refuses to put forth any more power of the same kind. Can any reader picture to himself the effect that the thrashing machine exerts in separating the corn from the ear under any other form than that of a forthputting of mechanical power? Can he imagine one single use that the machine could exert in thrashing, not through putting forth of power, but through some other kind of Nutzung? I doubt it very much. The thrashing machine either thrashes by putting forth its physical powers, or it does not thrash at all.

It would be useless too to attempt to make out another kind of use or Nutzung by pointing to different kinds of mediate uses that can be got from the thrashing machine. Our grain when thrashed is certainly worth more than it was before being thrashed, and the increment of value is a use we get from the machine. But it is easy to see that this is not a use in addition to the material services of the machine, but a use through these services; that it is just the use of the machine. Take an exactly similar case. Suppose some one were to give me £50, and with it I were to buy myself a riding-horse. No one would say that I had received two presents—£50 and a riding-horse. We have just as little right to conceive of the mediate use of the material services as a second and different useful service of the goods.67

This becomes quite clear in the case of perishable goods. What do I get from a cwt. of coal? The heat-creating powers that it gives off during combustion, and which I pay for by the capital price of the coal, and, beyond that, nothing—absolutely nothing. And what I call my "use" of the coal consists in this, that I put these material services, as they issue from the coal, into connection with some one object in which I wish to effect a change through heat; the use lasts as long as these services issue from the burning coal.

And when I lend a man a cwt. of coal for a year, what does my debtor get from it? Just the heat-creating power that issues from the coal during a couple of hours, and besides that, in this case also, nothing—absolutely nothing. And his use of the coal likewise is exhausted in the same number of hours. It may perhaps be asked, Can he not, then, in virtue of the loan agreement, use the coal over a whole year? The owner, I admit, could have nothing to say against it, but nature has; and nature says inexorably that the use shall be over in a couple of hours. What then remains of the contract is, that the debtor is obliged at the expiry of the year, but not till then, to replace the loan by another cwt. of coal. But it is surely a most extraordinary confusion of ideas that the fact of a man having to give a cwt. of coal at the expiry of a year in place of another cwt. of coal that has been burnt, should be taken to mean that, in the burned cwt. of coal, there continues to exist an objective use for a whole year!

For any "use of goods," then, other than their natural material services, there is no room either in the world of fact or in the world of logical ideas.

Possibly many readers will consider this analysis sufficiently convincing. But the matter is too important, and the antagonistic views too deeply rooted, to admit of it resting here; and, accordingly, I shall try to bring forward still further evidence against the existence of the use postulated by the Use theorists. Of course the nature of my contention, as a negative one, does not allow of a positive proof. I cannot put before the mind the non-existence of a thing in the same way as I might put the existence of a thing. Nevertheless there is no lack of decisive evidence on the point, and indeed it is offered by my opponents themselves.

There are two criterions of a true proposition: that it is obtained by a correct process of reasoning, and that it leads to correct conclusions. In the case of the assertion we are combating—the assertion that there is an independent use—neither of these criterions applies, and what I mean to prove now is this:—

• 1. That in all the reasoning by which the Use theorists thought they had proved the existence of this Use, an error or a misunderstanding has crept in.
• 2. That the assumption of an independent Use necessarily leads to conclusions that are untenable.

After what has been already demonstrated, that there is no place for any objective Use or Nutzung besides the Material Services, the proof of the above points should afford the fullest evidence that can be brought forward for my thesis.

Book III, Chapter VII

The Independent Use: An Unproved Assumption

Of the prominent representatives of the Use theory, two have taken particular pains to prove the existence of an independent use, Hermann and Knies. I shall therefore make their argument the chief subject of critical examination. Besides these writers, however, the contribution made by Say, the Nestor of the Use theory, and by Schäffle, deserve our consideration. To begin with the last two writers, a few words will show the misunderstanding into which they have fallen.

Say ascribes to capital the rendering of productive services, or, as he often expresses it, the rendering of "labour," and this labour is, according to him, the foundation of interest. The expressions Services and Labour may perhaps be objected to as more applicable to the actions of persons than of impersonal goods. But there is no doubt that Say is substantially right; capital does perform "labour." It appears to me, however, just as much beyond doubt that the labour which capital actually performs consists in what I have called the Material Services of goods, and these form the foundation of gross interest, or, as the case may be, of the capital value of goods. Say appears quietly to assume that capital, besides these, gives off services distinct from what we have defined as the material services, and that such services may be the separate foundation of a net interest, but he does not give the slightest proof of it—possibly because he had never remarked the chameleon-like ambiguity of his conception of the services productifs.

Very much the same is true of Schäffle. I need not speak of the subjective interpretations of his earlier work, which are inconsistent with the character of the Use theory, and which have been quietly withdrawn in the latest edition of his Bau und Leben. In the later work, however, he calls goods "stores of useful energies" (iii. p. 258), and he calls uses "functions of goods," "equivalents of useful materials in living labour" (iii. pp. 258, 259), "living energies of impersonal social substance" (p. 313). This is all quite correct; but the function of goods, the forthputting of useful energies, is nothing else than our Material Services, and these, as we have shown, find their equivalent not in net interest, as Schäffle assumes, but in gross interest, or, in the case of perishable goods, in their capital value. Say and Schäffle, therefore, have misunderstood what it was they had to prove, and their arguments are therefore entirely beside the mark.

The way in which Hermann arrives at his independent "use" (Nutzung) has quite a psychological interest.

His first introduction of the conception occurs when speaking of the use of durable goods. "Land, dwellings, tools, books, money, have durable use value. Their use, for the time that they last, may be conceived of as a good in itself, and may obtain for itself an exchange value which we call interest."68 Here no special evidence is adduced for the existence of an independent use possessing an independent value, and indeed there is no need to prove it; every one knows that, as a fact, the use of a piece of ground, or the use of a house, can be independently valued and sold. But what must be emphasised is, that the thing which every reader will understand in this connection, and must understand, as use, is the gross use of durable goods; the basis of rent in the case of land, of hire in the case of houses—the same thing, in short, as we have called the material services of goods. Further, the independent existence of this "use" alongside of the good that renders the use, is only explained by the fact that the use in question does not exhaust the good itself. We are forced to admit that the use is something different from the good itself and independent of it, because the good continues to exist alongside it, in the sense that a portion of the use which it is capable of affording remains intact.

The second step that Hermann takes is to draw an analogy between the use of durable and the use of perishable goods, and to try to show that, in the case of the latter also, there is an independent use with independent value existing alongside the value of the good. He finds69 that perishable goods, through technical change of form, preserve their usefulness, and although in changed shape, "may obtain permanence for their use." If, e.g. iron-ore, coal, and labour are transformed into pig iron, in being so transformed they contribute the chemical and mechanical elements for a new usefulness which emerges from their combination; and if, in such case, the pig iron possesses the exchange value of the three goods of exchange employed in its making, then the former sum of goods persists, qualitatively bound up in the new usefulness, quantitatively added together in the exchange value. "But if in this way goods that are perishable are capable of a lasting use, then," continues Hermann, "it is the same with goods that change their form qualitatively while retaining their exchange value, as it is with durable goods; this use may be conceived of as a good in itself, as a use (Nutzung) which may itself obtain exchange value."

In this Hermann has of course reached the goal he set before him, of proving that, even in perishable goods, there is a use which exists alongside of the good itself. Let us look, however, a little more closely at the basis of his argument.

First of all, it should be noticed that the sole support of this demonstration is a conclusion drawn from analogy. The existence of an independent use in perishable goods can in no way appeal, like the use of durable goods, to the testimony of the senses, and to practical economic experience. No one has seen an independent use detaching itself from a perishable good. If we think that it is to be seen in the case of every loan inasmuch as a loan is nothing else than a transfer of the use of perishable goods, we are wrong; here we do not see an independent use; we only infer that there is one. What we see is simply that the borrower receives £100 at the beginning of the year, to give back at the end of it £105. That in this case £100 is given for the sum that was lent, and £5 for the use of the same, is not an immediate sensuous observation; it is a construction put by us on our observation. At all events, where the existence of an independent use in perishable goods is in question, no appeal can be made to the case of the loan; for so long as the existence of that independent use is questioned, of course the justification of interpreting the loan as a transfer of use must also be questioned, and to try to prove the one by the other is obviously begging the question.

If, therefore, the "independent use of perishable goods" is to be anything more than an unproved assertion, it can only be through the force of the argument from analogy that Hermann has introduced,—not indeed in form but in substance,—in the passage just quoted. The argument there is as follows: Durable goods are capable, as every one knows, of affording a use independent of the goods themselves; if we look closely we can see that perishable goods, like durable goods, allow of a durable use; consequently perishable goods are, and must be, capable of affording a use independent of the goods themselves.

The conclusion thus drawn is false, for, as I shall prove immediately, the analogy fails just at the critical point. I admit at once that perishable goods, through technical change of form, really become capable of durable use. I grant that coal and iron ore are first used in the production of iron. I grant that the use which the iron then affords is nothing but a further result of the powers of those first things; which first things are therefore used in the shape of iron for the second time, and again in the nail that is made out of the iron for the third time, and in the house which the nail helps to hold together for the fourth time; that is to say, are used in a lasting way. Only it must be carefully noted that the durableness in this case rests on quite another ground, and possesses quite another character from that of durable goods properly so called. The durable goods are used over and over again in this way that, in each act of use, only a part of their useful content is exhausted, while another part is left undisturbed for future acts of use. But the perishable goods are used over and over again by exhausting the whole of them over and over again—by exhausting the whole useful content of that form which the goods have at the time; but since this useful content then takes on a new shape, the exhaustive use is repeated in it again. The two kinds of use are as distinct as the continuous outflow of water from a reservoir is distinct from the continuous flow of water from one vessel to another and back again; or, to take an example from the economical world, they are as distinct as the obtaining of successive proceeds from selling land piece by piece is distinct from the obtaining of successive proceeds by spending the price of the whole piece of ground in a new purchase, and selling this new purchase over again.

A few words more will bring out more sharply the halting nature of Hermann's analogy.

Between the "durable use" which Hermann points out in perishable goods, and durable goods proper, there is really a perfect analogy, but Hermann, instead of drawing this parallel, has drawn another. We have here to do with one of those points in which the neglect that our science has been guilty of in regard to the conception of the "use of goods" has revenged itself on the science. If Hermann had more accurately examined the conception of use (Gebrauch) he would have perceived that under that name two very distinct things are coupled together—things which, for want of a better expression, I shall distinguish as the immediate and mediate use of goods. The immediate use (the only one which perhaps has any claim to the name of "use") consists in the receiving of the material services of a good. The mediate use (which perhaps it would be more proper not to call "use" at all) consists in receiving the material services of those other goods that only come into existence through the material services of the first "used" good; then again the services of the goods that proceed from the material services of these latter goods, and so on. In other words, the "mediate use" consists in receiving the more distant members of that chain of causes and effects which takes its beginning in the first immediate use—members that possibly go on evolving to the crack of doom.

Now I should not like to say that it is exactly false to call the use of these distant results of a good a use of the good itself; in any case the two kinds of use have an entirely different character. If any one likes to call my riding on a horse a use of the hay that my horse has eaten, it is manifest, at all events, that this is an entirely different kind of use from the immediate use of the hay, and in some essential respects is subject to totally different conditions.

If we wish therefore to draw an analogy between the use of two goods, or of two kinds of goods, we must evidently confine ourselves strictly to similar kinds of use. We may compare the immediate use of one good with the immediate use of another, or the mediate use of one good with the mediate use of another; but not the immediate use of one good with the mediate use of another,—particularly if we wish to deduce further scientific conclusions from the comparison. It is here that Hermann has gone wrong. Durable goods as well as perishable goods permit of two kinds of use. Coal, a perishable good, has its immediate use in burning; its mediate use, as Hermann has quite correctly pointed out, in the use of the iron which is smelted by its aid. But this is the case also with every durable good. E.g. every spinning frame, besides its immediate use which consists in the production of yarn, has also a mediate use which consists in the use of the yarn for making cloth, in the use of cloth for making clothing, in the use of clothing itself, and so on. Now the proper comparison would obviously be between the immediate use of the durable goods and the momentary use of the perishable goods,70 or between the durable mediate use of the perishable and the similarly durable mediate use of the durable goods. But Hermann has made a mistake in the parallels; he has drawn his analogy where there is really none—between the immediate use of durable goods and the mediate use of the perishable; misled by the circumstance that both kinds of use are "durable," and overlooking the fact that, in the two cases, this "durableness" rests on grounds that are utterly and entirely distinct.

This much, I trust, has at all events been made clear by the present analysis, that the analogy which Hermann draws between the "durable" use of durable and of perishable goods is not complete. But beyond this it is easy to show that the dissimilarity comes in exactly at the critical point. Why is it that we can see in durable goods an independent use with an independent value by the side of the good itself? Not simply because the use is a durable one, but because the use that has already been made of the good leaves something over of the good, and of the value of the good; because in that portion of the immediate useful content that has been released and in the portion that is not yet released we have two different things that exist beside each other, each of them having simultaneously an economic value of its own. But in the case of perishable goods the exact opposite of all this is the case. Here the use of the moment entirely exhausts the useful content of the form which the good had at the moment, and the value of this use is always identical with the entire value of the good itself. At no one moment have we two valuable things alongside of each other; only one and the same valuable thing two times in succession. When we use coal and iron ore in making iron, we consume them; for this use we pay the entire capital value of these goods, and not one atom of them is saved, or continues to exist and have an independent value beside and after this consumption. And it is just the same when the iron is consumed again for the making of nails. It is consumed; the whole capital value of the iron is paid for it; and not the smallest fragment of it continues to exist alongside. There never are in one single moment the thing and its use beside each other; only the things "coal and iron-ore," "iron," and "nails," after one another, and through their successive use. But such being the case, it can be shown us neither by analogy nor in any other way how the "use" of a perishable article can attain to an existence and to a value independent of the article itself.

The fact is, Hermann's analogical reasoning is no more correct than an argument like the following would be. From a great water tank in an hour's time I can draw off a gallon of water every second. Each of the 3600 gallons thus poured out has an independent existence of itself, and is a perfectly distinct thing; distinct from the water that has been drawn and from the water that remains in the tank. But suppose I have only one gallon of water, and go on pouring this from one vessel in to another; as in the former case, a gallon of water is poured out every second for the space of an hour. Therefore in this case also it must be 3600 independent gallons that are poured out from our vessels!

But, lastly, Hermann takes a third step, and resolves the use of durable goods into two elements; one element that alone deserves the name "use" (Gebrauch or Nutzung) and a second element which he calls "using up" (Abnutzung). I must confess that this last step reminds me very forcibly of the old anecdote of Munchausen, in which Munchausen lets himself down by a rope from the moon by always cutting the rope above his head, and knotting it again below him. Very much in the same way Hermann has at first treated of the whole (gross) use of durable goods as use (Nutzung), till such time as he has based a conclusion from analogy on it, and through it has demonstrated a use in perishable goods also. No sooner has he got this length than he tears his primary conception of use in pieces, nowise disturbed by the fact that with it he destroys the peg to which he has attached his later conception of independent use, and that this conception now hangs in the air.

I shall return later on to the further inconsistencies involved in this. In the meantime I content myself with saying that the contention which looks so fascinating at the first glance proves on closer examination to have no better support than a false analogy.

It would be an obvious omission in my criticism if it were not to include the thorough and conscientious efforts of Knies on this subject. The work of this distinguished thinker has a twofold similarity to Hermann's doctrine; like Hermann, his arguments are remarkably convincing at first sight, and this power they owe to an effective employment of analogies—analogies, however, which, like those of Hermann, I feel bound to declare false.

Knies chances on our subject when discussing the economical nature of the loan. He agrees with the view that the essence of the loan consists in a transfer of the use of the sum lent; and when trying, with his usual carefulness, to find reasons for this conception, he is compelled to go into the question of the existence or non-existence of an independent use in perishable goods.

In some introductory considerations he starts from the idea that there are economical "transfers" which do not coincide with the transfer of the rights of property. The transferences of the simple use of goods seem to be of this sort. He goes on to note the distinction between perishable and non-perishable goods, and then turns to a detailed consideration of the transfer of the uses of non-perishable goods—a consideration which, with him as with Hermann, is made to serve as bridge to explain the delicate phenomena in the use of perishable goods. Here be puts down the distinction that must be drawn between the Nutzung as "that Gebrauch of a good which lasts over a period of time, and is measured by moments of time," and the good itself as the "bearer of the Nutzung." The economical principle of the transfers in question is that the intention is to transfer a Nutzung, but not the bearer of a Nutzung, But the nature of things necessitates that the transfer of the Nutzungen of goods always involves certain concessions in regard to the bearer of the Nutzung. The owner of a leased piece of ground, e.g., must, from physical considerations, deliver it over to the lessee, if the lessee is to get the use of it. The amount of these concessions, and the inevitable risk of loss as well as of deterioration of the good which bears the use, vary just as things vary, and as the particular circumstances of the individual case vary. In hire, for instance, a certain amount of deterioration, and the consent of the owner to this deterioration, are quite necessary.71

Then, after explaining the meaning of the legal categories of fungible and non-fungible goods, Knies puts the following question p. 71), Is it not then actually possible, must it not, indeed, be understood as the intention of a compact, that the use (Nutzung) of a fungible, and even of a perishable good should be transferred?

In this sentence Knies implicitly asks whether there is not an independent use of perishable goods. He answers the question by putting the following case.

"A cwt. of corn is a fungible and perishable good of this kind. The owner, in certain circumstances, cannot part with this cwt., and is not inclined to exchange it, or sell it,—perhaps because he is obliged to consume (verbrauchen), or wishes to consume it himself at the end of six months. But up till that date he does not need it. This being so he might of course very well allow himself to transfer the use (Gebrauch) of it to some one else for the next six months, if only at the expiry of that time he could get back his good. Say, then, that there is another man who desires the corn, but cannot barter for it or buy it. He will point out that he could not get any use (Nutzung) from the corn, as a perishable good, unless through the consumption (Verbrauch) of the corn itself, say as seed; but that he would be able to replace another cwt. from the harvest obtained by means of this use (Nutzung) transferred to him. The owner may find this perfectly satisfactory for his economical interests, since the transaction here refers to a fungible good.

"In this statement there is not a particle of an idea containing anything at all impossible, far-fetched, or artificial. But such a transaction taken by itself—that is, the transfer of a cwt. of corn under the condition of the borrower giving back a cwt. of corn at the end of six months—belongs undoubtedly to those things that are called loans.... In conformity with this we put the loan in the category of transfers of a Use (Nutzung)—that is, of the use (Nutzung) of fungible goods which pass over into the control and for the use of the owner, and are replaced by a similar quantity. Naturally, in the case of the loan, it is of the greatest consequence to understand clearly that, however liberal the concessions may be as regards the bearer of the use, still it is not in the concessions that the principle of the transaction lies. Rather are these concessions always determined in conformity with the overruling necessity of obtaining the use at the time. And just on this account, in the case of a perishable good, they are extended so far as to give the owner the power of consumption, while all the same there is even here no other principle in the matter than the transfer of a use. In the loan, therefore, the transfer of the right of property is unavoidable, but still only as an accompanying circumstance."

I admit at once that these analyses are calculated to make an entirely convincing impression on one who does not look very closely into them. Not only has Knies shown unusual skill in drawing the analogy which the old opponents of the canonists used to draw, between lease and hire on the one side and the loan on the other, but he has enriched it by a new and effective feature. For by the allusion he makes to the unavoidable concessions, in regard to the "bearer of the use," that are made in the case of all transfers of use, he has managed to change the element that seemed completely to destroy the analogy between the loan and the hire (the complete transfer of the property in the goods lent) into a further support of it.

If, however, we do not allow ourselves to be carried away by these brilliant analogies, but begin to reflect critically on them, we shall easily see that their admissibility, and with it the strength of the proof, depends on an affirmative answer being given to a previous question. The previous question is, Whether in perishable goods there is any independent use to transfer by way of loan? And we shall look more exactly at the kind of evidence that Knies specially brings forward as regards this question—a question that is the key to his whole theory of the loan.

At this point I think we shall make the astonishing discovery that Knies has not said a word in proof of the existence, or even the conceivableness of an independent use, but has evaded the great difficulty of his theory by using the word Nutzung in a double sense.

I shall try to show how he does so. On p. 61 he himself identifies the Nutzung of a good with its Gebrauch. He knows besides (p. 61 again) that in perishable goods there is no other possible Gebrauch but a Verbrauch. He must, therefore, also know that in perishable goods the Nutzung is identical with the Verbrauch. But, on the other hand, he uses the word Nutzung in stating the problem, and then in the concluding sentence—"In conformity with this we put the loan in the category of transfers of a Nutzung"—he evidently uses the word in a sense that is not identical with Verbrauch, but means a durable Nutzung. In the course of the passage quoted he mixes up step by step the Nutzung in the first sense with the Nutzung in the second sense, till he arrives at this concluding sentence, where, from a number of propositions that are only correct if they refer to Nutzung in the first sense, is drawn the conclusion that there is a Nutzung in the second sense.

The first proposition runs: "The owner, in certain circumstances, cannot part with this cwt., and is not inclined to exchange it, or sell it,—perhaps because he is obliged to consume (verbrauchen), or wishes to consume it himself at the end of six months. But up till that date he does not need it."

In this proposition the kind of use that is thought of, and, in the nature of things, the only kind that can be thought of, is quite correctly indicated as the Verbrauch of the good. Then he continues: "He might of course very well allow himself to transfer the Gebrauch of it to some one else for the next six months, if only at the expiry of that time he could get back his good."

Here begins the ambiguity. What is the meaning of Gebrauch here? Does it mean Verbrauch? Or does it mean a kind of Nutzung that lasts over a period of six months? Obviously the Gebrauch is conceivable only as the Verbrauch, but the words "Gebrauch for the next six months" are calculated to suggest a durable Gebrauch, and with this begins the quid pro quo.

Now follows the third proposition: "Say then that there is another man who desires the corn, but cannot barter for it or buy it. He will point out that he could not get any Nutzung from the corn, as a perishable good, unless through the Verbrauch of the corn itself, say as seed; but that he would be able to replace another cwt. from the harvest obtained by means of this Nutzung transferred to him. The owner may find this perfectly satisfactory for his economical interests, since the transaction here refers to a fungible good."

This proposition contains the crowning confusion. Knies makes the suitor for the loan point out distinctly that a Nutzung of perishable goods cannot be anything else than identical with their Verbrauch, but in the same breath he uses and places the words Nutzung and Verbrauch in such a way that the two conceptions are kept separate from one another, and appear not to be identical. He thus smuggles into his argument—and the oftener he does it the less likely is it to be noticed—the suggestion of a durable Nutzung in perishable goods. Thus when it is said that the harvest is "obtained by means of this Nutzung transferred," one might quite well imagine that the Nutzgebrauch of the seed is here again only the same thing as the Nutzverbrauch which obtained the harvest. But, thanks to the agreement of the "Nutzung transferred" with the "transfer of the Nutzung," which we have been constantly hearing about, and which had meant the opposite of the "transfers of the bearer of the Nutzung," we are forced involuntarily to think of a durable Nutzung after the analogy of the Nutzung of durable goods. Any scruple we may have about the conceivableness of such a Nutzung is the more easily silenced that we are told, at the same time, that through it the harvest is obtained—that is, that something very real indeed is accomplished—a proof of the existence of a Nutzung which the reader, once caught in the tangle, naturally puts to the account of the "durable Nutzung."

And now from this confused argument Knies draws his conclusions. After saving that "in this statement there is not a particle of an idea containing anything at all impossible, far-fetched, or artificial"—which, indeed, if we grant his assumptions, is quite correct, but admits of no conclusion in favour of his thesis if, for the words Gebrauch or Nutzung, we substitute in each ambiguous passage the word Nutzverbrauch—he draws the conclusion, Therefore the loan belongs to the class of transfers of a simple Nutzung.

This conclusion is simply fallacious. The thing he had to prove has not been proved. Nay, more; the thing that was to be proved is introduced quietly in the deduction, as something that had been assumed; the Nutzung, in the peculiar sense attached to it, is spoken of as if it were a familiar fact, without one word being said in support of what was to be proved, the existence of such a Nutzung. But the difficulty of discovering this fundamental flaw in the argument is very much aggravated by two circumstances: first, that the false Nutzung sails under the flag of the true Nutzung, and we forget to protest against the existence of the so-called Nutzung, because, thanks to the dialectical skill of the author, we do not keep it separate and distinct from the true Nutzung, which unquestionably does exist; and second, through the very naïveté of the suggestion. That is to say, without in point of fact once entering on the problem whether a durable Nutzung in perishable goods is conceivable or not, Knies represents the owner and the suitor for the loan as negotiating over the transfer of the Nutzung in a tone of certainty, which implies that the existence of the Nutzung is beyond question,—and the reader almost involuntarily shares in the certainty!

If we look back and compare the efforts that the writers of the Say-Hermann school have made to prove their peculiar Use of capital, we shall perceive, among all their difference of detail, a substantial agreement which is very suggestive.

All the authors of that school, from Say to Knies, when they begin to speak of the use of capital, first of all allude to the material services which capital actually renders. Then under cover of this they get the reader to admit that the "use of capital" does really exist; that it exists as an independent economic element, and even possesses an independent economical value. That this independence is not the independence of a second whole beside the good itself, but only that of an independent and separable part of the content of the good, the rendering of the service being always attended by a diminution in the value of the good itself; and that the remuneration of this service is a gross interest—all this is kept in the background.

But no sooner have they got the length of recognising the "independent use of capital" than they substitute, for the true material services of capital (under cover of which they arrived at the independent use), the imaginary use of their own making, impute to it an independent value outside the full value of the good, and end by drawing away the true use that had served as a ladder for the false. This way of working is seen in Say and Schäffle only in a hasty and abbreviated form, in quietly changing what is the substance of gross interest into what is the substance of net interest; but Hermann and Knies work it out in complete detail before our eyes. Blunders like these show us how urgent is the necessity that the "revision of fundamental conceptions," so much desiderated, should even at this late date be applied to the apparently insignificant conception of the Use of goods. I have tried to do my part in giving a first contribution to it, and I believe that in the present chapter I have proved my first proposition,—that in all the reasoning by which the Use theorists of the Say-Hermann school thought they had proved the existence of the asserted use, an error or a misunderstanding has crept in.

Not only, however, is the assumption of that independent use absolutely unproved, but, as I mean to show in the next chapter, it leads necessarily to internal contradictions and untenable conclusions.

Book III, Chapter VIII

The Independent Use: Its Untenable Conclusions

It is customary among the Use theorists, and even among others,72 to make a distinction between a gross Nutzung, which is the basis of gross interest (rent or hire), and a net Nutzung, which is the basis of net interest. It is singular enough that we have all been in the habit of innocently repeating this distinction, without it ever occurring to any one that there was in it an irreconcilable contradiction.

If we are to believe the unanimous assurance of our theorists, Nutzung should be taken as synonymous with Gebrauch in the objective sense of the word. Now, if there is a net and a gross Nutzung, are we to understand that there are two Nutzungen, two Gebräuche of the same good—not, it must be remembered, two successive or two alternative kinds of Gebrauch, but two simultaneous cumulative Gebräuche that are obtained beside or in each other in every transaction, however elementary, where a Gebrauch enters?

That one good gives off two uses, the one after the other, can be understood. That one good permits of two kinds of use alternatively—as wood for building and for burning—can also be understood. It is quite conceivable even that one good should permit of two kinds of use simultaneously, the one beside the other, and that these furnish two distinct utilities; e.g. that a picturesque rustic bridge should at once serve as medium of traffic, and as object of aesthetic satisfaction.

But when I hire a house or a lodging, and make use of it for purposes of habitation, to imagine that in one and the same series of acts of use I am receiving and profiting by two different uses, a wider one for which I pay the whole hire, and a narrower one for which I pay the net interest contained in the hire; or to imagine that in every stroke of the pen that I put on paper, in every look that I throw on a picture, in every cut that I make with my knife, in short, in every use, however simple, that I get from a good, I get always two uses, in or beside each other;—this is in contradiction alike with the nature of things and with healthy common sense. If I look at a picture, or live in a house, I make one use of the picture or house; and if in this connection I speak of two things, whether Gebrauch or Nutzung, I am giving a wrong name to one of them,

To which of them do I give the wrong name?

On this point, again, the current view is a very strange one. The theorists we are speaking of certainly appear to have felt in some degree the impropriety of assuming two uses to exist alongside each other. For although as a rule they employ the word Nutzung to express two things, they sometimes make an attempt to put one of them out of sight. Indeed, the gross Nutzung is eliminated when it is split up into net Nutzung plus partial replacement of capital. Thus Roscher, whom we are justified in quoting as the representative of the current opinion, says:73 "The Nutzung of a capital must not be confounded with its partial replacement. In house rent, for instance, over and above the payment for the Gebrauch of the house, there must be contained a sufficient sum for repairs, indeed enough for the gradual accumulation of capital sufficient to put up a new building." It follows that the thing for which we pay net interest is in truth a Gebrauch, and it is erroneous and inaccurate to apply the name to that for which we pay gross interest. I do not believe that it would be possible to put the representatives of this wonderful view in a more embarrassing position than by challenging them to define what they mean by Gebrauch. What else can it mean than the receiving or, if we like to give it an objective significance, the proffering of the Material Services of which a good is capable? Or, if there is any objection to my expression, let us say "useful services" with Say, or "releasing of a use from material goods" or "receiving of useful effects" with Schäffle, or however else we like to put it. But define the word as we may, one thing appears to my mind beyond dispute. When A makes over to B a house for temporary habitation, and B inhabits it, then A has given over to B the Gebrauch of the house, and B has taken the Gebrauch of the house; and if B pays anything for the Gebrauch, he does not pay a single penny of hire or rent for anything else than this;—that he may avail himself of the useful properties and powers of the house. In other words, he has paid for the Gebrauch transferred to him.

It may be said, Yes, perhaps so; but has not B consumed a portion of the value of the house itself? and if so, did he not get transferred to him a part of the value of the house itself, in addition to the use of the house? One who would argue thus might be expected to hold the somewhat singular view that two aspects of one event are two events. The truth of the matter is that the hirer has received the Gebrauch of the house, and only the Gebrauch; but in using it, and through using it, he has diminished its value. He has received a "store of energies," from which he is at liberty to "release" so many; he has done nothing but "release" or use them; but, naturally, the value of the remainder of the energies has been diminished thereby. To construe that as meaning that the hirer has received two things alongside each other, Gebrauch and partial value of capital, appears to me very much as if, in buying a fourth horse to match three he had already, a man were to consider it an acquisition of two separate things—first, a horse, and second, the complement of the team of four; and as if he were then to maintain that, of the £50 he paid, only one portion, say £25, was the price of the horse, while the remaining £25 was the price of the complement of the team! It is the same thing as if one were to say of a workman who had put up the cross on the steeple and thereby finished the building of the steeple, that he had performed two acts—first, had put up the cross, and second, had finished the building of the steeple; and were further to say that, if the workman took an hour to do the whole job, not more than three-quarters of an hour were needed for the erection of the cross, since a part of the whole time expended, say a quarter of an hour, must be put to the account of the second act, the completion of the building of the steeple!

But if, notwithstanding all this, some one thinks that he sees in Gebrauch, not the gross Nutzung, but another something which is ill to define, let him say in what the Gebrauch of a meal consists. In eating? It cannot be so, for that is a gross Nutzung, that swallows up the whole value of the capital, and of course we cannot confuse that with the true Gebrauch. But in what then does it consist? In an aliquot part of eating? or in something entirely different from eating? I am glad to think that the duty of answering this question does not fall to me, but to the Use theorists.

If, then, we are not to give the words Gebrauch and Nutzung a meaning that is equally opposed to language and to life, to the representations of practice and of science, we cannot deny the gross Nutzung the property of being a true Nutzung.But if there cannot be two Nutzungen, and if in any case the gross Nutzung must be recognised as that which correctly conveys the conception of Nutzung, then there is no need to argue further against the net Nutzung of the Use theorists.

But let us leave all that on one side, and confine our attention to the following. Whether the gross Nutzung be a true Nutzung or not, at any rate it is undoubtedly something. And the Use theorists would like to make out the net Nutzung to be something likewise. Now these two quantities, if they both actually exist, must at all events stand in some relation to each other. The net Nutzung must either be part of the gross Nutzung or it is no part of it; there is no third course. Now let us see. If we look at durable goods it seems probable that the net Nutzung is a part of the gross; for since the remuneration of the former, the net interest, is contained in the remuneration of the latter, the gross interest, so must also the first object of purchase be contained in the second, and be a part of it. This indeed even the Use theorists themselves maintain when they analyse the one sum of the gross Nutzung into net Nutzung plus partial replacement of capital. But look now at perishable goods. The net interest I pay in this case is not paid for their consumption (Verbrauch), for if, on the moment of the consumption, I replace the perishable goods by their fungible equivalent, I do not require to pay any interest. What I pay interest for is only the delay in the replacement of the equivalent; that is, I pay it for something that is not contained in the consumption—that most intense form of gross use—but stands quite outside it. Are we to conclude then that the net Nutzung is at once part and not part of the gross Nutzung? How can the Use theorists explain this contradiction?

I might draw out to much greater length the number of riddles and contradictions into which the assumption of the independent Nutzung leads us. I might ask the Use theorists what, for instance, I should represent to myself as the ten years' Nutzung, or the ten years' Gebrauch, of the bottle of wine that I drank on the first day of the first year? An existence it must have, for I can buy or sell it on a loan of from one to ten years. I might point out what a singular assumption it is, even verging on the ludicrous, that, on the moment when a good by its complete consumption actually ceases to be of use, it should really be only beginning to afford a perpetual use; that one debtor, who at the end of a year pays back a bottle of wine he borrowed, has consumed less than another who only returns the bottle of wine at the end of ten years, inasmuch as the former has consumed the bottle of wine and its one year's use, the latter the bottle of wine and its ten years' use; while all the time it is evident to everybody that both parties have obtained the same use from the bottle of wine, and that the obligation that emerges, to pay back another bottle of wine sooner or later, has absolutely nothing to do with the shorter or longer duration of the objective uses of the first bottle. But I think that more than enough has been said to carry conviction.

To sum up, I consider that three things have been here proved. I think it has been proved, firstly, that the nature of goods, as material bearers of useful natural powers, precludes the conceivability of any Nutzung that does not consist in the forthputting of their useful natural powers—that is, any Nutzung that is not identical with what I have called the Material Services of goods—those services being the basis not of net, but of gross interest; or, in the case of perishable goods, their entire capital value.

I think that it has been proved, secondly, that all attempts on the part of the Use theorists to demonstrate the existence or the conceivability of a net Nutzung different from the material services, are erroneous or based on a misunderstanding.

I think it has been proved, thirdly, that the assumption of the net Nutzung postulated by the Use theorists necessarily leads to absurd and contradictory conclusions.

I think, therefore, that I am entirely justified in maintaining that the net Nutzung, on the existence of which the Use theorists of the Say-Hermann school base their explanation of interest, does not in truth exist, but is only the product of a misleading fiction.

But in what way did this remarkable fiction enter into our science? And how came it to be taken for reality? By recurring for a little to the history of the problem I hope to dispel any doubts that may linger in the minds of my readers; and, in particular, I trust we may get an opportunity of estimating at its true value any prejudice that might still linger as a consequence of the former victory of Salmasius's theory.

Book III, Chapter IX

The Independent Use: Its Origin in Legal Fiction

We have here to deal with one of those not uncommon cases where a fiction, originating in the sphere of law and originally used for practical legal purpose by people who were fully conscious of its fictitious character, has been transferred to the sphere of economics, and the consciousness of the fiction has been lost in the transfer. Jurisprudence has at all times required fictions. To make comparatively few and simple principles of law suffice for the whole varied actuality of legal life, jurisprudence is often compelled to look upon cases as quite similar with each other that in reality are not similar, but may be appropriately dealt with in practice as if they were so. It was in this way that the formulae fictitiae of the Roman civil process originated; thus also the legal "persons," the res incorporales, and innumerable other fictions of the science of law.

Now it sometimes happened that a fiction which had grown very venerable became in the end petrified into a thoroughly credited dogma. If for hundreds of years people had been accustomed to treat a thing, both in theory and practice, as if it really were essentially the same as something else, then, other circumstances being favourable, it might end in their quite forgetting that there was a fiction. So it is, as I have pointed out in another place, with the res incorporales of Roman law; and so too it has been with the independent Nutzung of perishable and fungible goods. Let us follow, step by step, the course whereby the fiction became petrified into a dogma.

There are some goods the individuality of which is of no importance,—goods that are only taken account of by their kind and amount, quae pondere, numero, mensura consistunt. These are called in law fungible goods.74 Since no importance attaches to their individuality, the replacing goods perfectly supply the place of the replaced goods. For certain purposes of practical legal life these goods could be treated without difficulty as identical. Particularly was this the case in such legal transactions as related to the giving away and getting back of fungible goods. Here it suggested itself as convenient to conceive of the giving back of an equal amount of fungible goods as a giving back of the very same goods; in other words, to feign identity between the fungible goods given back and those given away.

So far as I know, the old Roman sources of law do not put this fiction formally. They say quite correctly of it that, in the loan, tantundem or idem genus, not simply idem is given back. But at any rate the fiction is there. If, e.g. the so-called depositum irregulare, where the depositary was allowed to employ on his own account the sum of money given over to his safe keeping, and to replace the deposit in other pieces of money, was treated as a depositum,75 this construction can only be explained by supposing that the lawyers invoked the assistance of the fiction whereby the pieces of money replaced were considered identical with those given in for safe keeping. Modern jurisprudence has occasionally gone farther, and spoken explicitly of a "legal identity" between fungible goods.76

From this first fiction it was but a step to a second. If it once came to be thought that, in the loan and in similar transactions, the same goods were given back that the debtor had received, the further idea was logically bound to follow, that the debtor had retained the goods lent him during the whole period of the loan, had kept them unbroken, and had used them unbroken; that the use obtained from them was therefore a durable use; and that where interest was paid it was paid just for this durable use.

This second step in the fiction the jurists did make. They knew quite well, to begin with, that they were only dealing with a fiction. They knew quite well that the goods given back are not identical with the goods received; that the debtor does not hold and possess these goods during the whole period of the loan;—the fact being that, to attain the purpose of the loan, the debtor must, as a rule, very soon entirely part with the goods. Lastly, they knew quite well that, for the same reason, the debtor does not get any durable use out of the goods lent. But for the practical purposes and requirements of both parties it was the same as if everything actually were what it pretended to be, and therefore the jurists could employ the fiction. They gave expression to this fiction in the sphere of their science when, on the ground of it, they confirmed the expression for loan interest that had already found a home in the speech of the people, usura, money paid for use; when they taught that interest was paid for the use of the sum lent; and when they made out a usufruct even in perishable goods. This usufruct of course was only a quasi-usufruct, the lawyers being quite aware that they were only dealing with a fiction. On one occasion they even expressed this pointedly, in correcting a legislative act that had given the fiction too realistic an expression.77

Finally, after many centuries of teaching that the usura was money paid for use, and in an age when the better part of the living spirit of classical jurisprudence had fled, and had consequently been replaced by a greater reverence for transmitted formulas, the justification of loan interest was sharply attacked by the canonists. One of their strongest weapons was the discovery of this fiction in regard to the uses of perishable goods. For the rest, their argument appeared so convincing that one could scarcely see how loan interest was to be saved, if the premiss were granted that there is no such thing as an independent use of perishable goods. Thus the fiction all at once attained an importance it never had before. To believe in the actual existence of the usus was the same thing as to approve of interest; not to believe in it seemed to force one to condemn it. To save interest in this dilemma, people were inclined to give the legal formula more honour than it deserved; and Salmasius and his followers exerted themselves to find reasons which would allow them to take the formula for the fact. The reasons they did find were just good enough to convince people eager to be convinced,—as already won over by a demonstration that was in other respects excellent,—that Salmasius, on the whole, had right on his side; while his opponents, who were evidently wrong as regards the chief point, were suspected even on those points where they were occasionally right. So it happened—not for the first, and certainly not for the last time—that under the pressure of practical exigencies an abortive theory was born, and the old fiction of the lawyers proclaimed as fact.

Thus it has remained ever since, at least in political economy. While the newer jurisprudence drew back for the most part from the doctrine of Salmasius, modern political economy has held by the old stock formula taken from the legal répertoire. In the seventeenth century the formula had served to support the practical justification of interest; in the nineteenth it did as good service in affording a theoretical explanation of it, which people would have been embarrassed to get otherwise. This puzzling "surplus value" had to be explained. It appeared to hang in the air. Something was wanted to hang it from. And there, in the most welcome way, the old fiction offered itself. As beseemed its rising claims as a theory, it was dressed out in all sorts of new accessories, and so was worthy at last, under the name of Nutzung, to take the highest place of honour, and become the foundation stone of a theory of interest as distinctive as it is comprehensive.

It may be the good fortune of these pages to break the spell under which the custom of centuries has laid our conception. It may be that the net Nutzung of capital will be relegated finally to that domain from which it never should have emerged—the domain of fiction, of metaphor, which, as Bastiat once remarked with only too much truth, has so often turned the science from the right path. With it many a deeply rooted conviction will have to be given up—not the Use theory only, in the narrower and proper sense of the word, which makes the Nutzung the chief pillar in the explanation of interest, but a number of other convictions also, which are commonly accepted outside the rank of the Use theorists, and which employ that conception along with others. Among other things will go the favourite construction of the loan as a transfer of uses, as having its analogue in rent and hire.

But what is to be put in its place?

To answer that does not, strictly speaking, belong to our present critical task; it is a matter for the positive statement which I have reserved for the second volume of this work. It may, however, with some justice be expected that, when I assume the doctrine of the canonists as regards one of its principal points, I should at least indicate how we are to escape the obviously false conclusions of the canonists. Consequently I shall briefly indicate my own view on the nature of the loan; of course under the reservation of returning to more exact treatment of it in my next volume, and meantime asking my readers to postpone their final verdict on my theory till such time as I have stated it in detail, and connected it with the entire theory of interest.

I may best take up the subject at the old canonist dispute. In my opinion the canonists alone were wrong in their conclusions, while both parties were wrong in the reasoning which led them to their conclusions. The canonists remained in the wrong, because they made only one mistake in their reasoning. Salmasius made two mistakes, but of these the second cancelled the harm done by the first, so that after a very tumultuous course his argument ended in reaching the truth. I explain this as follows:—

Both parties agree in regarding it as an axiom that the capital sum replaced on the expiry of the loan contract is the equivalent, and, indeed, is the exact and full equivalent, of the capital sum originally lent. Now this assumption is so false that the wonder is how it has not long ago been exposed as a superstition. Every economist knows that the value of goods does not depend simply on their physical qualities, but, to a very great extent, on the circumstances under which they become available for the satisfaction of human needs. It is well known that goods of the same kind, e.g. grain, have a very different value in varying circumstances. Among the most important of the circumstances that influence the value of goods, outside of their physical constitution, are the time and place at which they become available. It would be very strange if goods of a definite kind had exactly the same value at all places where they might be found. It would be strange, for instance, if a cwt. of coal at the pit-brow had exactly the same value as a cwt. of coal at the railway terminus, and if that again had exactly the same value as a cwt. of coal at the fireside. Now it would be quite as strange if £100 which are at my disposal to-day should be exactly equivalent to £100 which I am to receive a year later, or ten or a hundred years later. On the contrary it is clear that, if one and the same quantity of goods falls to the disposal of an economical subject at different points of time, its economical position will, as a rule, come under a different influence, and, in conformity with that, the goods will obtain a different value. It is impossible to agree with Salmasius and the canonists, and assume it as a self-evident principle that there is a complete equivalence between the present goods given in loan and the goods of like number and kind returned at some distant period. Such an equivalence, on the contrary, can only be a very rare and accidental exception.

It is very evident from what source both parties obtained the quite unscientific view of the equivalence between the sum of capital given out and that received back. It is from the old legal fiction of the identity between fungible goods of similar kind and number. If, on the strength of this fiction, the loan is conceived of as if it meant that the same £100, which the creditor advances to the debtor, is given back by the debtor to the creditor on the expiry of the loan, then of course this replacement must be looked on as entirely equivalent and just. It was the common mistake of the canonists and of their opponents that they fell into this trap laid for them in the first part of the legal fiction. It was the sole mistake of the canonists and the first mistake of Salmasius. The further development was simply this:—

The canonists remained in error because this was their only mistake. Once they had made it they began at the wrong time to be sharp-sighted, and to expose the assumed independent use of the loaned goods as a fiction. With that fell away every support that could properly have been given to interest, and they were bound—falsely, but logically—to pronounce it wrong. But the first error that Salmasius had made, in the fiction of the identity between the capital received and the capital paid back, he rectified by a second; he refined that fiction as regards the loan of money, and held that in this case the borrower possessed the "use" of the loaned goods all the time of the loan.

The truth is in neither reading. The loan is a real exchange of present goods against future goods. For reasons that I shall give in detail in my second volume, present goods invariably possess a greater value than future goods of the same number and kind, and therefore a definite sum of present goods can, as a rule, only be purchased by a larger sum of future goods. Present goods possess an agio in future goods. This agio is interest. It is not a separate equivalent for a separate and durable use of the loaned goods, for that is inconceivable; it is a part equivalent of the loaned sum, kept separate for practical reasons. The replacement of the capital + the interest constitutes the full equivalent.78

Book III, Chapter X

Menger's Conception of Use

Up till now my analyses have gone to prove that there is no independent use of goods of the kind conceived of by the Say-Hermann side of the Use theory, and by nearly all the economists of the present day in their train. It still remains to be proved that there cannot be an independent use even in that essentially different shape that Menger sought to give the conception.

While the Say-Hermann school represented the "net use" as an objective element of use, separating itself from goods, Menger explains it as a disposal; indeed, as "a disposal over quantities of economical goods within a definite period of time."79 This disposal being for economic subjects a means to better and more complete satisfaction of their wants, it acquires, according to Menger, the character of an independent good, which, on account of its relative scarcity, will usually be at the same time an economical good.80

Now, to go no farther, it seems to be putting a very daring construction on things to say that the disposal over goods, that is, a relation to a good, is itself a good. I have on another occasion 81 stated at length the reasons for which I consider it theoretically inadmissible to recognise relations as real Goods, in the sense given to that term by economic theory. These reasons, I believe, have the same validity as regards this "disposal" over goods.

To maintain its position in face of these weighty deductive objections Menger's hypothesis must have some very strong and positive support. I doubt if it has sufficient support of this kind. The special character of my present contention prevents us from the first from obtaining any direct evidence, such as might be given by the senses, that "disposal" really is a good. The only thing we have to consider is whether the hypothesis is accredited by a consensus of sufficiently numerous and significant indirect supports. And this I must doubt.

It appears to me that there is, distinctively, only one indirect support for it, and that is, the existence of a surplus value which is unexplained otherwise. As astronomers, from certain otherwise unexplained disturbances in the orbits of known planets, have concluded for the existence of disturbing and as yet unknown planetary bodies, so does Menger postulate the existence of a "bearer" of the surplus value which otherwise is unexplained. And since the disposal over quantities of goods for definite periods of time appears to him to stand in a regular connection with the emergence and the amount of surplus value, he does not hesitate to put forward the hypothesis that this disposal is the "bearer" sought for, and, as such, an independent good of independent nature. If the possibility of any other explanation had ever occurred to this distinguished thinker, I am persuaded that he would have withdrawn his hypothesis at once.

Now is this one indirect point of support sufficient to prove that "disposal" is an independent good?

There are two reasons for answering this in the negative. The one is that the phenomena of surplus value can be explained in an entirely satisfactory way without this hypothesis, and indeed can be explained on lines that Menger himself has laid down in his now classical theory of value; the proof of this I hope to give in my next volume. But the following consideration is of itself, in my opinion, quite convincing.

According to Menger's theory the loan is looked upon as a transference of disposal over goods. The longer then the period of the loan, the greater of course is the quantity of the transferred good, the disposal. In a loan for two years more disposal is transferred than in a loan for one year; in a three years' loan more disposal than in a two years' loan; in a hundred years' loan almost an unlimited amount of disposal is transferred. Finally, if the replacement of the capital is not only postponed for a very long time, but is altogether dispensed with, surely a quite infinite amount of disposal is transferred to the borrower. This, for instance, will be the case if goods are not lent, but given.

We now ask in such a case, How much value is received by the one to whom the gift is made? There can be no doubt that he receives as much value in capital as is possessed by the thing given. And the value of the permanent disposal that inheres in the thing, and is presented along with it?—Is evidently contained in the capital value of the thing itself. From which I draw the conclusion—and I do not think I am perpetrating any fallacy in so concluding—that if the plus, viz. the value of the permanently inhering disposal, is contained in the capital value of the good itself, the minus contained in it, the temporary disposal over a good, must be contained in the value of the good itself. The temporary disposal, therefore, cannot be, as Menger assumes, an independent bearer of value alongside the value of the good in itself.82

Book III, Chapter XI

Final Insufficiency of the Use Theory

In Chapter III, I indicated that I proposed to maintain two theses. The first of these I think I may regard as proved, viz. that the use assumed by the Use theory as having an independent existence has really no existence at all. But even if it had, the actual phenomena of interest would not be sufficiently explained thereby. The proof of this second thesis will not require many words.

The Use theory, in virtue of its special line of explanation, is led to make a distinction between a value which goods have in themselves, and a value which the use of goods has. In this it starts with the tacit assumption that the usual estimated value, or selling value of real capital, represents the value of the goods themselves, exclusive of the value of their use; the explanation of surplus value being based on this very circumstance, that the value of the use joins itself, as a quite new element, to the value of the substance of capital, and that the two together make up the value of the product.

But this assumption contradicts the actual phenomena of the economical world.

It is well known that a bond only obtains a price equivalent to its full course value if it is provided with all the coupons belonging to it; in other words, if the disposal over all its future "uses"—to adopt the language of a Use theorist—is transferred to the buyer at the same time with the bond. But if one of the coupons is missing, the buyer will always make a corresponding reduction in the price that he pays for the bond. An analogous experience occurs with all other goods. If, in selling an estate that otherwise would have fetched £10,000, I retain the use of the estate for one or more years, or, if I sell another such estate which is burdened, perhaps in virtue of a legacy, with so many years' claim by a third party to its produce, there is no doubt that the price obtainable for the estate will fall below the amount of £10,000 by a sum that corresponds to the "uses" retained, or claimed by the third party.

These facts, which may be multiplied at will, in my opinion admit of being interpreted in only one way,—that the usual estimated value or selling value of goods embraces not only the value of the "goods in themselves," but also that of their future "uses," supposing there are any such.

But if this is so, then the "use" fails to explain the very thing which it was intended by the Use theory to explain. That theory would explain the fact that the value of a capital of £100 expands in its product to £105, by saying that a new and independent element of the value of £5 had been added to it. This explanation falls to the ground, as the Use theory must recognise, the moment it is seen that, in the capital value of £100, the future use itself has been considered and is contained. However unreservedly one may admit the existence of such uses, the riddle of surplus value is not read by them; the form of the question is only a little changed. It will now run: How comes it that the value of the elements of a product of capital, viz. substance of capital and uses of capital, which before were worth together £100, expands in the course of the production to £105? The fact is, that instead of one riddle we have now two. The first, that given by the nature of the phenomena of every interest theory, runs: Why does the value of the elements expand by the amount of the surplus value? To this the Use theory has added a second riddle of its own, In what way do the future "uses" of a good and the value of the "good in itself" together make up the present capital value of the good?—and no Use theorist has faced the difficulties of such a problem.

Thus the Use theory ends by putting more problems than it started with.

But if it has not had the good fortune to solve the interest problem, the Use theory has contributed more than any other to prepare the way towards it. While many other theories went wandering in ways that were quite unfruitful, the Use theory managed to gather together many an important piece of knowledge. I might compare it with some of the older theories of natural science; with that combustion theory of ancient times that worked with the mystical element Phlogiston; or with that older theory of heat that worked with a Warm Fluid. Phlogiston and warm fluid turned out to be fabulous essences, just as the "net use" turns out to be. But the symbol which in the meantime our theorists put in the place of the unknown something, helped in the same way as the x of our equations to discover a number of valuable relations and laws revolving about that unknown something. It did not point out the truth, but it helped to bring about its discovery.

[1.]The hesitating way in which many of the Use theorists have expressed themselves is to blame in great part for the fact that, up till now, so little attention has been paid to the independent existence of these theories. Their representatives were usually classed with the adherents of the Productivity theories proper, and it was considered that the former had been confuted when only the latter had been. From what I have said above it will be seen that this is quite erroneous. The two groups of theories rest on essentially distinct principles.

[2.]See above, p. 120. [Book II, Chapter II pars. 1-4.—Econlib Ed.]

[3.]See my Rechte und Verhaltnisse, p. 57. More exactly also below.

[4.]It will be well to remember that the word Hire (Miethzins in German) is properly used of the lending of a durable article where the sum paid monthly or yearly includes wear and tear. If we pay 20s. a month for the hire of a piano, it is understood that the piano suffers so much by our use, and that the 20s. covers that deterioration. We are not expected to repair the damage done to the piano, nor to pay an extra sum for repairing it. That is to say, the 20s. per month is a gross interest, which includes the replacement of the capital. If in three years the music-seller gets £36 in hires for an ordinary piano, it is evident that this is far more than interest. The true interest (net interest) is found by deducting the capital value of the piano. Say that that value was £30, and that in three years' time the piano is worn out; then £6 is the interest obtained by the music-seller over a period of three years on a capital sum of £30. But this distinction, evident at a first glance in a concrete example, has been overlooked, as we see, by more than one economist.—W. S.

[5.]Cours d'Economie Politique, vol. i. Paris, 1823.

[6.]These last words are a quotation from Say.

[7.]Even in discussing the question of the rate of interest this perversion of the relation of natural and loan interest reappears. On p. 285 Storch makes interest determined by the proportion between the supply of the capitalists having capitals to lend, and of the undertakers wishing to hire these capitals. And on p. 286 he says that the rate of the income of those persons who themselves employ their productive powers adapts itself to that rate which is determined by the demand and supply of loaned productive powers.

[8.]Oeffentliche Credit. I quote from the second edition, 1829.

[9.]See, e.g. pp. 19, 20.

[10.]"On the one hand, the necessity and the usefulness of capital for the business of production in its most multifarious forms, and on the other, the hardship of the privations to which we owe its accumulation; these lie at the root of the exchange value of the services rendered by capital. They get their compensation in a share of the value of the products, to the production of which they have cooperated" (p. 19).

"The services of capital and of industry necessarily have an exchange value; the former because capitals are only got through more or less painful privations or exertions, and people can be induced to undergo such only by getting an adequate share..." (p. 22)

[11.]Kassel, 1850-57.

[12.]i. sect. ii p. 246, etc., and many other places.

[13.]ii. p. 214, and other places.

[14.]ii. p. 255.

[15.]ii. pp. 633, 660.

[16.]See first edition, p. 270, in the note.

[17.]"Ihr Gebrauch während dessen sie fortbestehen, wird ihr Nutzung gennant," etc.

[18.]P. 111. Hermann of course does not always remain quite faithful to the conception here given. In this passage he calls the goods which form the basis of a durable use capital; but later on he is fond of representing capital as something different from the goods—as it were something hovering over them. Thus, e.g. when he says on p. 605: "Above all we must distinguish the object in which a capital exhibits itself from the capital itself. Capital is the basis of a durable use which has definite exchange value; it continues to exist undiminished so long as the use retains this value, and here it is all the same whether the goods which form the capital are useful simply as capital or in other ways—that is, generally speaking, it is all the same in what form the capital exhibits itself." If the question be put, What then is capital, if it is not the substance of the goods in which it "exhibits" itself? it might be difficult enough to give a straightforward answer, and one that would not be simply playing with words.

[19.]Hermann evidently considers the exchange value of uses too self-evident to need any formal explanation from him. Even the extremely scanty explanation mentioned above is usually given only indirectly, although at the same time quite plainly; thus when on p. 507 he says: "For the use of land the corn producer can obtain no compensation in price, so long as it is offered to any one in any quantity as a free gift."

[20.]Pp. 312, etc., 412, etc.

[21.]P. 286, etc.

[22.]See below, p. 204. [Book III, Chapter II, pars. III.II.50-51.—Econlib Ed.]

[23.]See above, p. 125. [Book II, Chapter II, pars. II.II.20-22.—Econlib Ed.]

[24.]See also p. 560: "The uses of capital are therefore a ground of the determination of prices."

[25.]Under capital Hermann includes land.

[26.]E.g. Roscher, § 183. Roesler, who accepts Hermann's results, although he ascribes them to somewhat different causes, is the only exception.

[27.]A note which occurs here in the German edition is omitted by the author's instructions.—W. S.

[28.]P. 541; p. 212 of first edition.

[29.]Versuch einer Kritik der Gründe die für grosses und kleines Grundeigenthum angeführt werden, St. Petersburg, 1849.

[30.]E.g. p. 236, etc.

[31.]P. 306, etc.

[32.]Volkswirtschaftslehre, Stuttgart, 1868; particularly pp. 121, 137, 333. 445, etc.

[33.]Pp. 122, 432.

[34.]Schönberg's Handbuch, i. pp. 437, 484, etc.

[35.]Third edition, Tübingen, 1873.

[36.]Ges. System, third edition, i. p. 266; ii. p. 458, etc.

[37.]Second edition, Tübingen, 1881.

[38.]Knies, Geld und Kredit, ii. part ii. p. 35. See also Nasse's Rezension in vol. xxxv of the Jahrbücher für National-Oekonomie und Statistik, 1880, p. 94.

[39.]Zeitschrift für die gesammte Staatswissenschaft, vol. xv. p. 559.

[40.]See above, p. 49.

[41.]Der Kredit, part i. p. 11.

[42.]Ibid. ii. p. 38. I may perhaps express the conjecture that the respected author was led to the above polemic by the contents of a work which I had written in his economical Seminar a few years before, and in which I had laid down the views contested.

[43.]Das Geld, Berlin, 1873. Der Kredit, part i. 1876; part ii. 1879.

[44.]Das Geld, pp. 61, 71, etc. I shall return to the details of this inquiry later on, when criticising the Use theory as a whole.

[45.]See above, p. 196.

[46.]Kredit, part ii. p. 33, and other places.

[47.]Vienna, 1871.

[48.]See above, pp. 139, 199.

[49.]I regret that I must deny myself the pleasure of introducing in this place more than the barest outlines of Menger's value theory. Holding as I do that his theory is among the most valuable and most certain acquisitions of modern economics, I feel that it cannot be at all adequately appreciated from any such sketch. In my next volume I shall have the opportunity of going more thoroughly into the subject. Meanwhile, for more exact information on the propositions which I have given in very condensed form in the text, I must refer to Menger's own unusually luminous and convincing statement in the Grundsätze, particularly p. 77 onward.

[50.]Pp. 133-138.

[51.]Mataja in his Unternehmergewinn (Vienna, 1884) is in substantial agreement with Menger. This valuable work, unfortunately, reached me too late to allow me to make any thorough use of it.

[52.]To guard against a misunderstanding which I should very much deprecate, let me say in so many words that I have no intention of denying the existence of "uses of capital" in general. What I must deny is the existence of that special something which our theorists point to as the "use" of capital, and which they endow with a variety of attributes that, in my opinion, go against the nature of things. But this is anticipating.

[53.]Geld, p. 61: "Nutzung = the Gebrauch of a good lasting over a period of time, and limitable by moments of time."

[54.]See my Rechte und Verhältnisse vom Standpunkte der volkwirthschaftlichen Güterlehre, Innsbruck, 1881, p. 51.

[55.]I take the liberty in the next chapter of repeating, partly in the same words, the argument of my Rechte und Verhältnisse, which was written some time ago with a view to the present work.

[56.]I may remind the reader that, according to the scientific conception of energy—energy being that quality the possession of which confers upon a body the power of doing work—it may exist either as available or unavailable energy; that is, the body may possess energy of which a use can be made, or it may possess energy of which no use can be made. Thus the storage of energy in certain material bodies in an unavailable form, and the change of this unavailable into available energy, by means of which work is done that has a direct influence on the satisfaction of human wants, is just the physical conception applied to economics.—W. S.

[57.]Schäffle, in particular, in the third volume of his Bau und Leben, very beautifully puts the same point of view. Schäffle, I may say, forms an honourable exception among economists as regards this objectionable habit of not taking any trouble with the principles that regulate the working of goods.

[58.]I have already introduced this term Nutzleistung in my Rechte und Verhältnisse; before that I used it in a work written in 1876 but not printed. It is employed by Knies several times in the second portion of his Kredit, but unfortunately in the same ambiguous sense in which on other occasions he uses the word Nutzung.

NOTE BY TRANSLATOR.

After much deliberation Material Service is the nearest rendering I can give to the word Nutzleistung, introduced by Professor Böhm-Bawerk. Every translator finds the difficulty of rendering scientific terms from one language into another, but this difficulty is greater in political economy, where we are bound to use words "understanded of the people." The word Nutzleistung is one of these happy combinations which, as compounded of two familiar words, do not strike a German as peculiar or clumsy, and are yet strict enough to satisfy scientific requirements. But our language does not admit of many such combinations—the literal translation "use rendering" at once shows the impossibility in the present case—and in a translation one does not feel justified in coining a new word. In rendering the word thus it becomes necessary to eliminate a note that follows in the German edition, where Professor Böhm-Bawerk congratulates himself on having escaped Say's services productifs, which might be objected to on the ground that "only a person, not a thing, can render services." The prefix "material" seems to me fairly to meet this objection, as the total expression now implies a service—a forthputting of natural power in the service of man—rendered by a material object.—W. S.

[59.]After this clause, in the German edition, come the words: "Und andererseits scheint mir der Name Nutzleistung in der That ausserordentlich prägnant zu sein: es sind im eigenstlichen Wortsinn nützliche Kräfteleistungen, die von den Sachgütern ausgehen."—W. S.

[60.]It is unfortunate that in English economics we have devoted so little attention to this most elementary conception, on which Menger, in particular, has bestowed so much pains. The poverty of our scientific nomenclature shows this defect very markedly: the word "commodity" is really the only singular equivalent we have for the familiar and suggestive word "goods," although I personally have not scrupled to translate the German Gut by the English "good." There is, indeed, reason for Mr. Ruskin's sarcasm that our most famous treatise on Wealth does not even define the meaning of the word "wealth."—W. S.

[61.]Even the so-called non-perishable goods are perishable, however gradually they perish.

[62.]Not of the loan; see below.

[63.]See also my Rechte und Verhältnisse, p. 70, etc.

[64.]In my Rechte und Verhältnisse, p. 60, where, in particular, I have stated the character of the material services as primary elements of our economic transactions, and have deduced the value of goods from the value of the material services.

[65.]This idea, though put somewhat differently, is explicitly recognised by Knies, Der Kredit, part ii. pp. 34, 77, 78. He expressly calls the selling price of a house the price of the permanent use of a house in opposition to the hire price, which is the price of the temporary uses of the same good. See also his Geld, p. 86. Schäffle too (Bau und Leben, second edition, iii.) describes goods as "stores of useful energies" (p. 258).

[66.]For more exact statement, see my Rechte und Verhältnisse, p. 64.

[67.]A hair-splitting critic might perhaps point out that the possession of good machines assists the maker to secure, say, a good credit, a good name, good custom, etc. The careful reader will have no difficulty in answering such objections. To the same category belongs the "use through exchange".

[68.]Staatswirthschaftliche Untersuchungen, second edition, p. 109.

[69.]P. 110, etc. See the quotation above, p. 194. [Book III, Chapter II, par. III.II.23.—Econlib Ed.]

[70.]To prove the appropriateness of this analogy we need only picture to ourselves the graduation of transition from the durable goods,—such as land, precious stones,—down through always less durable goods,—as tools, furniture, clothes, linen, tapers, paper collars and so on,—till we come to the entirely perishable goods—matches, food, drink, etc.

[71.]Geld, p. 59, etc.

[72.]It is as well to put it in so many words that, in this polemic on the conception of Use, I am in opposition, not only to the Use theorists properly so called, but to almost the entire literature of political economy. The conception of the Use of capital which I dispute is that commonly accepted since the day of Salmasius. Even writers who explain the origin of interest by quite different theories—e.g. Roscher, by the Productivity theory; or Senior, by the Abstinence theory; or Courcelle-Seneuil or Wagner, by the Labour theory—always conceive of loan interest as a remuneration for a transferred Use or Usage of capital, and occasionally they conceive even of natural interest as a result of the same use or usage. The only distinction between them and the Use theorists properly so called is this, that the former employ these expressions naïvely, using terms that have become popular, and do not trouble themselves as to the premises and conclusions of the Use conception,—which sometimes entirely contradict the rest of their interest theory; while the Use theorists build their distinctive theory on the conclusions of that conception. The almost universal acceptance of the error I am opposing may further justify my prolixity.

[73.]Grundlagen, tenth edition, p. 401, etc.

[74.]The common German word is vertretbar, which might be loosely translated here by "representative" or "replaceable." But the word "fungible" is perhaps worth adopting in English economics.—W. S.

[75.]See L. 31, Dig. loc. 19, 2, and L. 25, § 1, Dig. dep. 16, 3.

[76.]Goldschmidt, Handbuch des Handelsrechtes, second edition, Stuttgart, 1883, vol. ii. part. i. p. 26 in the note.

[77.]Ulpian, it is well known, in Dig. vii. 5, L. 1, De usufructu earum rerum quae usu consumuntur vel minuntur, quotes a decree of the Senate which established the bequeathing of a usufruct in perishable goods. On this Gaius remarks: "Quo senatus consulto non id effectum est, ut pecuniae usufructus proprie esset; nec enim naturalis ratio auctoritate senatus commutari potuit; sed, remedio introducto, caepit quasi usufructus haberi." I do not agree with Knies (Geld, p. 75) that Gaius took exception simply to the formal flaw that there could only be a regular usufruct in goods belonging to another person, while the legatee holds the perishable goods left him as his own property, res suae. The appeal to the naturalis ratio could hardly have been made in order to rehabilitate a defective formal definition of usufruct; it is infinitely more probable that it was made on behalf of a truth of nature that was seriously violated by the decree.

[78.]The germs of this view, which I consider the only correct one, are to be found in Galiani (see above, p. 49 [Book I, Chapter II, par. I.II.70-72.—Econlib Ed.]), in Turgot (see above, p. 56 [Book I, Chapter II, par. I.II.92-94.—Econlib Ed.]), and latterly in Knies, who, however, has since expressly withdrawn it as erroneous.

[79.]Grundsätze, p. 132, etc.

[80.]Ibid. p. 132, etc.

[81.]See my Rechte und Verhältnisse, particularly p. 124. See also the acute remarks of H. Dietzel in the tract Der Ausgangspunkt der Sozialwirthscaftslehre und ihr Grundbegriff (Tübinger Zeitschrift für die gesammte Staatswissenschaft, Jahrgang, 39), p. 78, etc. On the other hand, I cannot agree with Dietzel in some further criticisms that he makes on Menger on p. 52, etc. He has two objections to Menger's fundamental definition of economical goods as "those goods the available quantity of which is less than human need." First, he says, in trade generally we must recognise "the tendency to assimilate need and available quantity," on account of which "in every normal case" a number of the most important economical objects must fall out of the circle of economical goods. And second, he says, Menger's definition of his conception is not definite enough, and leaves room for all sort of things that have not the character of economical goods, such, for instance, as useful "technical knowledge." I consider that both objections are based on a misunderstanding. As a matter of fact trade can never quite assimilate the available quantity of economical goods to the need for them; it can of course meet the demand that has power to pay, but never the need. However commerce may flood a market with exchangeable goods, while it will very soon succeed in supplying the amount that people can buy, it will never supply all they wish to possess for the purpose of supplying their wants to the saturation point—that point where the last and most insignificant wish is gratified. As to the second objection, Menger's definition seems to me to mark out the circle of economic goods both correctly and sufficiently. We must not overlook the fact that what determines the conception of the "good" has a share in determining the conception of the "economical good." Things like qualities, skill, rights, relations, cannot, I admit, be economical goods, even if they are only to be had in insufficient quantity; but that is because they are not true goods—that is to say, they are not really effectual means of satisfying human wants, and at best can only be called so by a metaphor. But where we have true goods, such of them as are insufficient in quantity are at the same time economical goods. If, therefore, Menger, in some individual cases, does come into collision with truth—as I maintain he does in regard to the economical good "disposal"—it is not because he has made a mistake in defining the attribute "economical," but only because he has occasionally treated the conception of the "good" a little too loosely.

[82.]If we put the illustration a little differently it may show more forcibly that the value of the disposal is contained in the value of the good. Suppose that A first lends B a thing for twenty years without interest—presents him therefore with the good called "disposal for twenty years," and then, a couple of days after the loan contract is concluded, presents him with the thing itself. Here he has in two actions given away the twenty years' disposal and the thing itself. If the "disposal" were a thing of independent value in addition to the thing itself, the total value of the gift would obviously be greater than the value of the thing itself, which just as obviously is not the case.