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The Intellectual Foundations of Political Economy

The Austrian School

Natural Value:

BOOK 2, Exchange Value and Natural Value

by Friedrich Von Wieser

Chapter I Chapter V
Chapter II Chapter VI
Chapter III Chapter VII
Chapter IV  

Chapter 1


Exchange gives rise to a phenomenon which, originating from value, reacts upon it in the most powerful manner; this phenomenon is price. It is not our task here to deal either with price or with the forms of value depending on it. Our concern -- as will be shown clearly enough later on -- is rather to describe natural value; i.e. value as we should find it in a community at a high stage of development carrying on its economic life without price or exchange. Nevertheless it will not do simply to disregard exchange and the forms of value connected with it. A description of social conditions whose actual or possible realisation is extremely doubtful, would be somewhat purposeless, if the description did not admit of some applications to life as we know it. Now to make these applications we must understand price and exchange value to the extent of rendering a comparison possible. At the least their general outlines must be indicated, so as to serve as background against which the clearer picture of natural value, which we intend to draw, will stand out in relief. In this way we shall be able to judge whether the fundamental features in both contrast or agree.

For this purpose it will be sufficient to describe that particular case of the formation of price in which its peculiar principle can be most clearly discerned. This is at the same time the normal formation of price under the organised division of labour. On the one side, we have numerous sellers, whose aim is the sale of stocks which they have produced for the market, and which they could not possibly use themselves; on the other side, we have numerous buyers who compete with each other in buying, just as the others compete in selling. Menger's theory of price, and that contained in Bohm-Bawerk's Werth, which goes considerably farther, may be used as starting-points for our own statement. Into any further consideration of the abundant literature existing on the subject of price our present task will not permit us to enter.

Suppose a person wishes to acquire an object, no matter what, he will not, however strong his desire, agree to pay any price that may be asked. There is a certain maximum at which he would rather withdraw from the market than raise his offer further. This maximum is determined by two valuations: first, the value in use of the good that is to be acquired (which will be determined according to the laws laid down in the previous chapters), and, second, the exchange value of the sum of money that will have to be paid (the estimate of which will be considered in the next chapter). The sum of money whose exchange value is equal to the value in use of the desired good, determines the maximum offer. To offer more would involve a loss, as more value would be given than received. This rule holds equally for all would-be buyers without exception. Every one who thinks of making a purchase puts both these valuations before him; establishes in his own mind this equation or equivalence; and comes to the market resolved not to go beyond it. But although the rule is the same for all concerned, the results of its application in the individual case are very unequal, inasmuch as the amounts that enter into the calculation differ greatly from each other. The value in use of the good that one buys will vary according to the different degree of individual need -- which may depend on natural inclination, on accidental circumstances, or on the degree of satisfaction already reached -- and according to the amount of supply one already has. The exchange value of the money, on the other hand, will vary principally according to the amount of the person's wealth (see on this subject the following chapter). When one considers the very great variety of possible economic situations, it will be seen that the equation or equivalence of both values cannot fail to be very different from buyer to buyer. The highest offer can be made by the person who is actuated by the strongest desire, and is at the same time the richest, because for him the highest real value is expressed in the greatest sum of money. What a contrast from the offers of poor men, in whose case the same degrees of desire are represented only by a most trifling sum of money, or from the bids of those whose desire, in the particular case, is so slight that they do not care to set apart anything but a small sum towards its satisfaction!

If we begin with the highest equivalent, that of the man who is the richest and the most anxious to obtain the goods, and come down gradually to the lowest, we shall obtain a descending scale of maximum offers. By way of example we shall assume that these range, in the hands of a hundred purchasers, from £5 down to 1s.; and we shall assume, first, for simplicity's sake, that each purchaser is desirous to buy only one single good or one single item.

Here we can see clearly what is the power that must decide the competition of prices. A skilled seller may at times succeed in inducing an inexperienced buyer to pay a price which goes beyond his maximum; but, as a rule, the sellers will not be able to do more than drive the buyers to their maximum. The endeavour of a seller, who is honest but looks to his own advantage and acts purely according to his own interest, will be to find out those, among all the buyers, who can pay most, and to drive them, if possible, to the margin of their purchasing power. On the other hand, the would-be buyers will try to buy as much below that as is possible. The inter-competition of buyers, therefore, is to the advantage of sellers, and the inter-competition of sellers is to the advantage of buyers. We shall now see how far it is possible for each side to achieve its object. We assume as before that the sellers are forced to get rid of the entire quantity of goods they have brought to market, aid have no wish to reserve any part of it for their own use, the goods having been produced for sale and being of no personal use to the sellers.

Supposing one single good is put upon the market, it will obviously -- if all are equally alive to their own advantage -- fall to that buyer who has the highest purchasing power, viz. that one whose money equivalent we put down at £5. He is in a position which enables him to exclude all competing buyers, and he will do so if he understands his own interest. He must, of course, make up his mind to go the length of 99/, as this is the price to which his most dangerous competitor may go, -- that one whose purchasing power stands next to his own. And as he, for his own part, is unable to give more than 100/, the price settles between 99/ and 100/.

Suppose, again, that two goods are put on the market; the one must fall to the first, the other to the second in the series of competing buyers. The price paid by the latter, if rightly determined, must lie between 99/ and, 98/; that is, between his own equivalent and that of the next competitor, -- the buyer whom he must outbid if he would not have his acquisition of the desired good disputed. But that buyer, again, whom we called the first, will not, under these circumstances, pay any higher price. There is now no necessity for him to offer more than, 99/; it will suffice if he, along with the second buyer, outbid the third buyer's offer of 98/. Whoever buys in an open market, and from competing sellers, pays for the same article the same price as is paid by every one else. However great may be his own purchasing power, he need not use it to its full extent; there will always be a seller willing to let him have the good at that same lowest price which has to be conceded on the market to buyers generally.

If there are three goods, they will fall to the first three purchasers, and the price will be fixed equally for all three goods between 98/ and 97/, -- between the money equivalent of the third and fourth purchasers. Where there are ten goods the one price is fixed, for all buyers, between 91/ and 90/; in order to dispose of all their goods the sellers must keep the price below 91/, and, in order to exclude the other competitors, the buyers must keep it over 90/. For fifty goods the price will stand between 51/ and 50/, corresponding to the equivalent of the 50th and 51st purchasers; for seventy goods it will be between 31/ and 30/, corresponding to the equivalents of the 70th and 71st purchasers. In short, the larger the stock which has to be sold, the lower will fall the price, as this permits of the entrance of more numerous and less capable purchasers, and the market price established is one and the same for the whole market. If we give the name of Marginal Buyer (following an expression of Bohm-Bawerk's) to the weakest buyer, who, all the same, must be allowed to purchase if the whole stock is to be sold, the law of price will run thus: Price must at all times settle between the equivalents of the marginal buyer and that of the buyer who stands next under him; viz. that one among the excluded competitors who has the greatest purchasing power. Where commodities come forward in great quantities and have a large sale, the degrees of difference between the equivalents of various buyers, whom we should more correctly consider as classes of buyers, -- are not great. And for such cases the law of price may, quite correctly, be still more simply stated as follows: Price is determined by the money equivalent of the current marginal buyer, or marginal class of buyers. It settles at a figure very near it, and indeed a little under it.

The very first glance shows us that the law of price is nearly related to the law of value. The value of a stock consisting of separate items is determined as a marginal value, according to the marginal utility of the single good; the price of a stock which is sold in separate items is also determined as a marginal amount, according to the purchasing power of the marginal buyer of the single good. In both cases what decides, is, on the one side, the amount of the stock, -- addition to which shifts the margin and lessens the determining amount, while diminution enlarges it -- and, on the other side, the want with its varying gradations. In the case of price, however, there is, along with the degree of want, another determining fact which does not exist in the case of value. This fact is the valuation of money from the side of the buyer; that is to say, his wealth and income. Before however proceeding to examine the exceedingly important effects of this fact, we must assure ourselves that the law of price just explained holds also in the case where buyers, instead of desiring to purchase one single good, desire to purchase several or more than one. Only if this is the case can the law have any real interest for us.

We need not waste much time over this point. Such a buyer will have in his mind a maximum offer determined in the manner just described. The collective value in use of the goods to be acquired, estimated in a sum of money whose exchange value, according to the subjective valuation of the would-be purchaser, is equal to this value in use, gives the maximum. The more items there are to calculate, the greater will be the maximum, reckoned as a whole, but the smaller will be the maximum of the single item, because in this case the value in use of the unit will be proportionally less (and the higher also will rise the exchange value of the money as consequence of the increased expenditure on the whole). If e.g. a person were willing to buy 10 goods at a shilling each, but were made by the seller to buy 20 instead, he would be able to give only a smaller price per item, as the larger purchase would bring with it a smaller utility, and at the same time the larger expenditure would be more heavily felt. At no time, however, will any purchaser -- and this is our most weighty proposition -- consent to pay anything but one and the same price for one and the same article, and that price will be the equivalent of the current "marginal item," say the 10th good in the case of 10 items, or the 20th in that of 20 items -- always assuming that the market is an open one, and the buyer at liberty to purchase more or less according to his pleasure. If in any open market a price were demanded for any particular good which was in excess of the money estimate of the marginal good, the buyer would do better to abstain from purchasing this particular good, for which he would have to pay more than its value. The same considerations which -- in estimating the value in use of a stock that may be divided up at pleasure -- lead to every good, without exception, being valued at its marginal utility, also necessitate that, in the purchase of a stock which may be greater or less according to desire, for every good without exception only the equivalent of the marginal utility shall be paid. And here we see that the laws of value which we have already explained have a direct influence on the laws of price, and that the latter could not be understood without the former.(1*) If this is once established there is little more to say. At every extension o£ his purchases the buyer will calculate his maximum. If we were to add together the calculations of all buyers we should obtain the quantities of goods which might be placed against every conceivable price. Where goods are held for high figures only small quantities will be sold, and that to the most "capable" buyers for the satisfaction of their most urgent demand. Where prices are low larger quantities will be sold, partly to the richest buyers to meet their less urgent demand, partly to others who are less "capable." But, at a fixed price, only a fixed amount will be demanded and may be sold. If now sellers, on their side, come to market with a fixed quantity of goods which must be entirely got rid of, they will find the price already determined. It is that price at which just this amount is demanded.

Here again we have the same determinant facts; -- the amount of supply already owned, the degree of want or desire; and the purchasing power of the buyers. The two latter have, however, the peculiarity that what decides is not simply the money equivalent of the marginal purchaser, or the marginal class of purchasers, but the money equivalent of the marginal purchaser, or class of purchasers, for the marginal good or goods.

Where sellers do not wish to part with their whole supply, but to retain a portion, either for their own use or for future sale in some altered condition of the market; where, instead of free competition on both sides, some monopoly exists, or the sale, instead of being public and open to all, takes place privately and in small groups or quite in isolation; -- in such cases our law of price can act only imperfectly or in a greatly weakened manner. At the same time the characteristic element in the formation of price -- that the purchasing power of the buyers is put in the scale -- will always, excepting, at most, the ease of monopoly on the side of the buyers, be present and retain its importance. Goods are not paid for simply according to the amount of utility (i.e. of marginal utility) which they render to the buyers, but also according to the amount of purchasing power which the marginal buyers put on that utility.

Of the many weighty consequences arising from this proposition, I shall at present refer only to one. "The highest prices therefore," (to quote from the Ursprung des Werthes, p. 26) "are obtainable for those goods which are to be had only in small quantity and are objects of desire to the richest classes; the prices of such goods rise till all but the wealthiest classes -- even those groups of the middle classes who are in most comfortable circumstances -- are excluded from the circle of purchasers. Goods which, owing to their inferior quality, are desired only by the poorer classes obtain extremely low prices, as also do those goods of better quality which are so plentiful that the poorer classes must be admitted, to a considerable degree, within the circle of purchasers. Medium prices are reached by those goods of which the middle classes form the majority of the purchasers, those who have small means either being entirely excluded from purchase, or entering the struggle of competition only in so far as will satisfy their intensest sensation of desire for such goods. Changes in the economic possibilities of great classes in a community will naturally induce changes in the prices of goods. The greater the inequalities of wealth, the greater will be the differences in price. Luxuries will rise in price when great fortunes increase, and will fall when they decrease."(2*)


1. Here we have a proof from experience for our statement in Book I, chap. ix that (for the same owner) the separate items of a stock, so far as they are equal to each other, have the same use value, and are all valued according to the amount of the marginal utility. One and the same buyer will not consent to pay other than one price for the similar items which are all bought at the same time: he will not pay more for one than for another, and for none will he pay a higher sum than the marginal equivalent. This shows that he values them all equally, and all according to the same marginal amount. Otherwise there would be nothing to prevent his paying different prices for them, and possibly paying more than the marginal equivalent for a great many of them -- indeed for all except one, the marginal item.

2. It is as result of the recognition of this principle that we first arrive at a complete understanding of the remarkable phenomenon which has occupied the attention of so many theorists; that the value of goods which can quite well be done without, such as diamonds, may be so much greater than that of the indispensable necessaries of life; the value of gold, for instance, so much higher than that of iron. It has already been shown, in the elementary theory of value, that the value in use of an entirely insignificant good must be greater than that of a much more useful one when the marginal utility of the former is, owing to its scarcity, comparatively high, while that of the latter, by reason of its superfluity, has fallen very low down on the scale. Even greater differences are found, under certain circumstances, in prices, and consequently in the estimates of exchange value, than are shown in the different estimates of use value. Diamonds and gold stand exceptionally high in price because they are luxuries, valued and paid for according to the purchasing power of the richest classes; while the coarser food stuffs and iron are low in price, because they are common goods, in regard to which the decisive factor is the purchasing power and the valuation of the poor.

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Chapter 2

Exchange Value in the Subjective Sense

The fact that goods can be bought and sold gives a new and powerful impulse to the estimating of values in all individual economies which exchange with one another. In the housekeeping of a Crusoe only the value in use of things obtains; whereas, in all individual economies which trade with each other, exchange value also has to be considered. The best explanation of the nature of exchange value, of its relation to value in use, and of the services which it renders to the individual economy, will be got if we examine separately the different cases of its occurrence.

Money is always, and by all who possess it, estimated according to its exchange value. Its use consists in the spending of it, -- in the parting with it in purchase of other goods (1*) that are expected to satisfy those sensations of want which would otherwise have no provision. The exchange value of money is the anticipated use value of the things which can be obtained for it. The law, therefore, which obtains for the latter obtains for the former; it is demand and supply, according as these express themselves in marginal utility, that decide the exchange value. The various things which determine money value to the individual are the following: -- the amount of money which is at his disposal; the nature and quantity of the goods which can be obtained under the existing market conditions and prices; the utility which those goods are able to give, as also the utility already secured by possessions otherwise acquired; and, lastly, the amount and urgency of demand.(2*)

The unit of money always receives its value from the least important expenditure which, in the circumstances of the possessor, it serves economically to defray; every larger sum of money, and the entire amount of money owned, contains this marginal unit value as often as there are units. It is inevitable that different persons give very various estimates of value to the same sum of money. The circumstance which most largely influences these estimates is amount of wealth and income.(5*) The penny is more to the poor man than the shilling to the rich. Every one must be conscious how very important it is, for the proper ordering of his own economic affairs, that he should have an exact idea of the value which money has for him. No one is utterly ignorant of this, and with every good householder the knowledge is almost a part of himself.

Besides money, all goods which are made or held for sale are estimated by their possessors according to this exchange value, -- whether it be that the owner cannot himself make use of them, because they are unsuited to his personal needs, or that, although he might be able to use them, the utility they would furnish seems too trifling to be weighed against the proceeds of a sale.(4*) The proximate basis of valuation is the expected money proceeds, or the exchange value of that money; the ultimate basis is that use value which is anticipated from the exchange value of the money proceeds. Again the estimate of value leads us back to use value, and again the law of marginal utility obtains. The same good on the same market obtains for all sellers the same price, but how different are the valuations of that good on the part of those whose whole yearly income is dependent on their sale, as compared with those whose enjoyment would scarcely surer were they to do without selling them from one year's end to the other!

Finally, numerous goods which their owners have not the smallest intention of selling, are estimated by their exchange value. In frustration we may make use of the example which Bohm-Bawerk, who was the first to examine this particular instance, gives in his Werth (p. 37). A poor man values his overcoat on account of the use he expects from it as a defence against cold, knowing well that, should he lose the coat, he will be exposed to all the severity of the winter weather, as he does not possess sufficient means to purchase another. Even to a man in better circumstances the loss of his overcoat would be a loss; but in this case it could and would be replaced at the price of making another. The rich man, therefore, will not value his coat according to its utility, but according to the cost of procuring it; in his estimation this cost will stand lower than the utility, and to that cost he can always reduce the injury he suffers from its loss. Cases of this kind of valuation by exchange value are innumerable. All household goods which, when lost or stolen, can be replaced by purchase are thus valued. Here we see that the proximate basis for valuation is the market price at which the purchase can he made, while the ultimate basis is again a use value; that, namely, which is anticipated in the valuation of the purchase price.(5*) To sum up. The exchange value which we have here explained is that value which is ascribed to goods, either by reason of the owners' intention to sell them, or because of the possibility of replacing them by purchase. More briefly stated, it is that value which attaches to goods on account of an anticipated act of exchange. Exchange value in this sense and use value are of the same nature; the former is derived from the latter, and is one of its forms of development. Both forms of value follow the same general laws; both are subjective; and the amount of both varies according to personal circumstances. The price of an article never completely expresses the exchange value it has for its owner. This depends further upon the "personal equation" of money to him.

Subjective exchange value cannot be absent in any individual economy without causing the greatest confusion in all its exchange relations. The "personal equation" of money is indispensable in every economy, in order that we may weigh against each other goods estimated according to their use value, and goods estimated according to their exchange value. Without it no expenditure, no purchase, no sale could be logically made. The poor man could not enter the market as a poor man, nor the rich man as a rich. Every separate act of exchange depends upon it, and thus not only the regulation of individual economies, but the whole of exchange depends upon it.

It is most wonderful that a fact of such universal practice, and of so great importance, has, until quite lately, been almost entirely neglected by theory. Menger was the first to give it a clear theoretical explanation, and to adopt it in his system; and it is not the least of his many services to economics.


1. Or, as we say simply, in purchase of goods -- money and goods being generally thought of as in opposition to each other.

2. For instance, the value of a shilling to me depends (1) on the number of shillings I have to spend; (2) on what and how much I can buy in the shops for a shilling; (3) on what use I can make of the shilling's worth of goods when I get them -- which, again, depends (a) on how much I have of similar goods already; and (b) on my natural or acquired capacity of consuming or employing such goods. -- W.S.

3. See Jevons, p. 152.

4. Of course the author does not mean that the consideration of possible personal use of his goods ever comes into the mind of the maker or merchant who supplies the market. Their "use" to him is their "exchange." Wieser is only making out the logical point that even goods made for sale would not be estimated at their exchange value if it were not that the personal use is less than the exchange use. -- W.S.

5. On the change of motive which results from this in the conflict of price, see Bohm-Bawerk's Werth (p. 515). I may perhaps be allowed to point out that in my Ursprung des Werthes (p. 185) I alluded briefly to the case described above.

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Chapter 3

Exchange Value in the Objective Sense

No one can take his own personal valuation of money, and of the money value of goods, outside of himself, and apply it to other people. No one will persuade a business man to let him have a commodity at half-price simply by proving that it is more difficult for him to procure the half-price than for some other person to procure double the price. And no business man could sell an article at twice the market price, simply because he could prove that the double gain was necessary to enable him to satisfy his most urgent wants. Every one needs to have an exact subjective estimate of the value of money to himself, as a private individual economising his own resources, in order to decide for himself what attitude he may take up with regard to things outside of him. But this personal attitude can have no effect on the movement of goods in the great economic exchange between one economy and another, or in the end between any economy and his own, except in so far as he may succeed in influencing the prices of goods. It is the prices that absolutely decide in exchange. Goods fall to those who pay the highest prices, and -- what is most important -- the amount expended upon production is regulated by the prices expected from the sale of the goods. Those goods which will be sold at the highest prices attract the most means of production. The rank of goods in economic exchange -- their external economic power -- is absolutely decided by their prices, however individuals may judge as to their intrinsic importance.

When we speak generally of the value of goods we mean the economic rank given them by their prices. A good whose market price is £100 has, in the common usage of speech, absolutely, and for every one, ten times more value than one whose price is only £10. The dearest good is, in the ordinary use of words, also the most valuable. But we must make one single limitation: goods have ascribed to them as value only those prices which are paid for them in the usual run of cases. Exceptional prices, usurious prices, and "cut" prices form no foundation for value; and accordingly goods whose prices fluctuate greatly have, in common usage, no fixed "intrinsic" value.

As a matter of fact some particular designation is indispensable for the ranking of goods in economic exchange, and it is impossible to find any other designation than that of value. And this not simply because we are forced to it from the outside as it were, by ordinary usage of speech, but because it essentially justifies itself. What subjective value does for the individual economy, -- measuring every outlay and every return, and deciding the amount of consumption that is permissible and the extent to which production may be extended, -- is done for economy generally by this ranking of goods as it is determined by relation to the objective prices. It is the measure for outlay and returns, and upon it distribution and production are dependent. But it must be emphasised that the word value alters its original sense somewhat, when transferred from the subjective relation to wants to the objective relation to price. Subjective value represents a distinct feeling; that of being dependent upon the possession of a good for the satisfaction of a want, -- a distinct degree of personal interest in goods. Objective value, on the other hand, merely represents a definite price; a definite amount of payment which is expected or required in buying and selling. The former has its measure in the different gradations of desire, the latter in the quantities of coin, -- in the figures of the price.

Of course internal valuations of personal interest do, always and without exception, attach to objective value also, but these valuations are only subjective, being greater for one and smaller for another. Objective value or price is not in the least the expression of the economic valuation of goods, even when it is the result of economic competition, and of the individual valuations of all the different members of the economic community. Price is a social fact, but it does not denote the estimate put upon goods by society.(2*) Luxuries are paid for more highly than necessaries, but who would affirm that they are therefore of greater social importance? Those very persons who, on the market, come to an agreement regarding the price of goods -- compelled thereto by the power of circumstances -- will each reserve his own judgment upon the importance of the goods to him personally; and that authority which is earliest called upon to deliver the social judgment, the government, is universally considered to be the furthest removed from recognising the prices of goods as a measure of their social importance. A government, indeed, is, for the most part, concerned with the carrying through of just such economic tasks as could not be justified by their money return, if they were not justified by their utility.

In what follows, when the word "exchange value" occurs, I shall always mean "exchange value in the objective sense." There is no need to formulate the law of "exchange value"; we know it already, if only in a general way. It is the law of price.(2*)


1. The ordinary conception, which makes price the social estimate put upon goods, has to the superficial judgment the attraction of simplicity. A good A whose market price is £100 is not only ten times as dear as B whose market price is £10, but it is also absolutely and for every one ten times as valuable. In our conception the matter is much more complicated, and according to it we obtain the following propositions. 1. A is paid for with ten times as much money as B: its price is ten times greater. 2. Its objective exchange value is also ten times greater -- the weightiest consequence of which is that ten times the cost may, and, if practicable, will be expended upon its production. 3. But these relations of price and of objective value do not in the least degree correspond with the relative position of the two goods in regard to their economic importance or subjective valuation. Price alone forms no basis whatever for an estimate of the economic importance of the goods. We must go further and find out their relation to wants. But this relation to want can only be realised and measured individually. Suppose both goods are owned by the same person (or by people under exactly similar conditions of want and provision), A will, of course, have ten times the importance of B. But it may just as well happen that A has exactly the same importance for one owner as B has for another; it may indeed happen that A, in spite of its greater exchange value, has for its owner, supposing him to be a rich man, even less value than B has to its owner, supposing him to be a poor man. If there are many goods of the class A and many of the class B, the individual valuations of the various owners will be widely diverse, and a unanimous judgment is not to be expected. And the question how it is possible to unite those divergent individual valuations into one social valuation, is one that cannot be answered quite so easily as those imagine who are rash enough to conclude that price represents the social estimate of value.

See further, on the relation of objective to subjective exchange value, my Ursprung des Werthes (pp. 10 and 21; also Bohm-Bawerk's Werth, introd., etc.), and Sax (chapters xlviii and xlix).

2. Exchange value is, so far as concerns its application, without doubt the most important form of value, inasmuch as it governs the largest sphere; -- that of industrial economy generally. Political economy, outside that chapter where the theory of value is given, is almost exclusively concerned with it. No wonder, then, that theoretical treatises have taken it as their end. But application is one thing and explanation another. To explanation subjective value is chief in importance, for only through it can exchange value be reached. Subjective value is the original and perfect form of value; exchange value taken by itself and unrelated to subjective value is imperfect and unintelligible. What does it signify to say that one article costs this and another that price in money, if we cannot say how money and prices are themselves valued? Theorists who have confined themselves to the examination of exchange value, or, what comes to the same thing, of price, may have succeeded in discovering certain empirical laws of changes in amounts of value, but they could never unfold the real nature of value, and discover its true measure. As regards these questions, so long as examination was confined to exchange value, it was impossible to get beyond the formula that value lies in the relation of exchange; -- that everything is so much more valuable the more of other things it can be exchanged for. Why the exchanged things had value; why things generally were worth anything to us; and how this value was to be measured; -- these theories could never explain nor hope to explain. Value was conceived of relatively, by referring one thing to another; -- as the ratio of valuable things. Absolutely and by itself value was not to be understood. It is significant of this inception to state that one thing cannot be an object of value in itself; that a second must be present before the first can be valued.

Theory has only very gradually shaken itself free from this misconception, this circle. Where an absolute theory was attempted -- such as the labour theory, or that which explained value as usefulness -- some logical leap generally reconnected it with the relative conception. It was forced into this by the overestimate of exchange value from which it seemed impossible to get free. A striking example of this is Ricardo's theory of value. As a matter of fact value is still chiefly regarded relatively. German literature has for long had the great advance of much penetrating criticism of exchange value, and of manifold attempts to supplement it, but it has nevertheless failed in any final solution. Among the later reformers of the theory of value, Jevons is distinguished for the strictness and accuracy with which he separates the two conceptions of value from one another, but he fails to construct a theory of subjective value (see second note to Book I. chap. ix), and to determine the functions of both kinds of value. Menger, on the other hand, has a complete theory of subjective value, but makes no attempt to develop objective value.

My own investigations in the Ursprung des Werthes are almost entirely occupied with subjective value. And even favourable critics have concluded from this that I do not recognise objective value. The reproach is the less merited that (on page 38) I have especially acknowledged the necessity for an objective conception of value. The relation of subjective and objective value has been best described by Bohm-Bawerk, and -- particularly as regards the distinction of their separate functions in economic life -- by Sax.

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Chapter 4

The Antinomy of Exchange Value

Exchange value -- that is, as just explained, objective exchange value -- shows the same movement as subjective value. With every addition to the amount to be sold (demand remaining constant), goes a fall in the return got for the single item, while the total return rises: this is the "up grade" of value. But, when a certain point is reached, the total return also falls: this is the "down grade" of value. And where, finally, there is universal superfluity, no price whatever can be obtained.

The causes of this movement are even stronger in the case of exchange value. It is induced not only by the natural limitation of wants, inasmuch as these cannot reach beyond the point of satiation, but also by the actual limitation of the purchasing power of many buyers, who have not means enough to satisfy their wants to the point of satiation. Goods which would still find purchasers, so far as wants are concerned, often find no sale in the market, and consequently the upper limit of price is often reached sooner than that of subjective value.

There would, nevertheless, be just as little reason to speak of an antinomy of exchange value as of an antinomy of subjective value, were it not that the economic order, under which society exists, gives to exchange value an efficiency in the general business economy, which goes far beyond that of subjective value in the individual economy. In every self-contained private economy utility is the highest principle; but, in the business world, wherever the prodding of society with goods is in the hands of undertakers who desire to make a gain out of it, and to obtain a remuneration for their services, exchange value takes its place. The private undertaker is not concerned to provide the greatest utility for society generally; his aim is rather to obtain the highest value for himself: -- which is at the same time his highest utility. Utility approves itself as the first principle in the undertaker's economy; but, just because of this, in the conflict between exchange value and social utility, it is exchange value which is victorious, -- so far at least as the undertaker has power to act according to his own interest.

Proudhon, therefore, is right -- although he may not have formulated his contention quite correctly -- when he affirms the antinomy of exchange value. Every undertaker finds it to his advantage when he succeeds in turning free goods which he cannot sell, into economically scarce goods which he can sell. And it is to his advantage when he is successful in reducing the amount to be sold, and raising the returns, just as it is to his disadvantage to increase the amount that is to be sold, and thereby diminish the returns.

The conclusion which Proudhon draws from this -- that the discord can only be resolved by a socialist organisation of society -- is nevertheless incorrect.

In the main the antinomy does not exist in the "up grade" of the movement of value. And in this up grade is found by far the greater number of the actual forms of value. Further, the antinomy only holds in so far as the undertaker is able to rule society. But where there is really free competition no undertaker has this power. Under free competition, social utility will be -- as it ought to be the first principle of economic life. Here each of the competing undertakers is bound to strive to widen to the utmost the compass of his undertaking. The increase of supply which the individual producer causes is, in relation to supply as a whole, too trifling to have any material effect in lowering prices, while it materially increases the amount which the individuals have to sell. Thus every one calculates, and, on the strength of this calculation, production is stretched to the utmost possible extent. The economic history of our own time is rich in examples which prove that competition can press prices far on the down grade of exchange value.

In any remaining cases, society -- if it is to escape injury -- will, of course, require to carry on production, or have it carried on by individuals, on common account; but such cases are too few to call for the socialist organisation of society. From the first, governments have undertaken such responsibilities. The antinomy of exchange value does not necessitate a complete overturn of the free economic order of society; it merely requires that it be supplemented by suitable interference on the part of governments.

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Chapter 5

The Service of Exchange Value in General Economy

If we consider the elements which go to form exchange value, we are forced to the conclusion that the charge of antinomy is not the heaviest that may be raised against it. Entirely apart from this, the law of its formation remains such that, even in the most favourable circumstances -- say when there is no disturbing element, no suspicion of force, dishonesty, or error, and when the transaction is one we are accustomed to call free and just, -- exchange value is calculated to render its service in economic life only in an imperfect manner, and with consequences which society feels to be serious evils.

It must be premised that the service rendered by exchange value to general or industrial economy, as compared with the service rendered by subjective value to the self-contained economy, is greater by one additional task. In the latter, value has only to measure outlay and return materially against each other, in the former, it must also do so personally. The material or economic-technical service of exchange value relates chiefly to production. Here it has the function of control. It gives the measure for production and for expenditure of costs. Goods should be produced according to the rank of their value, and other goods should be sacrificed for them as costs only in so far as the comparison between the value of amount produced and the value of costs allows. The personal service of exchange value, on the other hand, comes in, principally, in the distribution of the products acquired among the separate individuals taking part in the exchange; in this case value is the measure of the personal acquisition. To every participator in the great economic process must be assigned a return equal in value to the amount of his outlay -- whether it be outlay of wealth or expenditure of labour.

The exchange value of all goods which are brought upon the market in stocks or quantities, is measured as a marginal value. That is to say, each unit of the stock is valued at the same as the marginal equivalent, and the whole stock is estimated as a multiple of the unit, -- as product of the amount into the unit value. So far exchange value gives the same appropriate and faultless assistance in the economic calculation as marginal value generally does. Its applicability to this kind of calculation is indisputable. It is, then, unnecessary to repeat in detail what has already been said on the subject in general in in Book I chapter xi.

In order, however, properly to appraise the service of exchange value in economic life, it must be remembered that it does not contain exactly the same elements as does value in use in the self-contained economy. The latter simply depends upon utility: the former is besides dependent upon purchasing power (see Book II. chap. i). Value in use measures utility; exchange value measures a combination of utility and purchasing power. The stock which is greater in use value (in the "up grade") is also always the richer in utility; the stock which is greater in exchange value is not necessarily so. In the latter case the higher value may arise from higher utility, but it may also arise from the greater wealth of the buyers, and the strong inducement held out to them to throw their riches into the balance in the war of competition.

In the material service of exchange value, as well as in the personal, this peculiar method of its formation obtains importance. As a consequence of it, production is ordered not only according to simple want, but also according to wealth. Instead of things which would have the greatest utility, those things are produced for which the most will be paid. The greater the differences in wealth, the more striking will be the anomalies of production. It will furnish luxuries for the wanton and the glutton, while it is deaf to the wants of the miserable and the poor. It is therefore the distribution of wealth which decides how production is set to work, and induces consumption of the most uneconomic kind: a consumption which wastes upon unnecessary and culpable enjoyment what might have served to heal the wounds of poverty.(1*)

It may be of interest to follow somewhat more particularly the law of distribution, in so far as it is conditioned by the law of exchange value. The favouring of the rich, and with it the perverted employment of goods, really goes much further than the mere fact of wealth would allow one to suspect. The rich have not only the advantage over the poor of possessing more means wherewith to purchase goods; they have the further advantage of being for the most part in a more favorable position to utilise their means. In the battle of price the decision lies with the weakest buyers, who are, as a rule, also the poorest; and price is adapted to their valuation. They must, therefore, pay for the goods exactly as highly as they value them, while their stronger competitors, who pay the same price, pay under their personal valuation. The beggar and the millionaire eat the same bread and pay the same price for it; the beggar according to the measure of his hunger, and the millionaire according to the same measure -- that is, according to the beggar's hunger. The price which the millionaire might be willing to pay for the bread, supposing he were hungry and driven to offer his maximum, never comes into the question. It is only where the rich compete among themselves for luxuries which they mean to reserve for their own enjoyment, that they pay according to their own ability, and are measured according to their own personal standard.

But the more the ability of the rich is spared in the purchasing of necessaries, the greater are the means which they have over, wherewith to extend and increase the prices they offer for luxuries, and the more defective is the impulse given by consumption to production.

The law of value in the individual economy is strict, but its strictness is undoubtedly necessary and salutary. It forbids satisfaction to go beyond a certain marginal point, namely, the point beyond which, when everything, including the future, is carefully weighed, the means possessed at the moment will not suffice. Any violation of this prohibition brings its own punishment, when, to make up for the trifling want that has been rashly satisfied at the moment, a far more urgent desire later on has to go unsatisfied. The law of price follows the law of value in demanding a marginal point beyond which purchase must not go, but it does not present the same unquestionable and material necessity; and the natural and reasonable strictness of the prohibition is thereby changed into what seems personal and inconsistent severity. The man who cannot furnish the price paid by the marginal buyer is excluded from competition within the economic circle, just as, in the individual household, the quite trifling desires are excluded from satisfaction. As in the household there are marginal wants, so in economic life are there marginal entities, and anything below that level is permitted to exist only by way of charity. But while, in the individual household, the marginal line is drawn naturally, in economic life generally it is influenced also by the manner of the distribution of wealth. In the midst of the comfort and luxury of the opulent classes, law condemns the poor to a restriction, as though there was no affluence, and nature herself forbade the greater satisfaction.

These are the charges which may be brought against the law of exchange value. They would soon make short work of it could we not answer them. The examination of these charges and their answer does not, however, belong to the theory of value, but to the greater theory of economics and economical laws; and this book does not propose even to exhaust the theory of value. I only wished to explain the elements in the formation of exchange value so far as is necessary to show clearly what I should like to be understood by the term "Natural Value." We have now arrived at this point, and need hesitate no longer in presenting to the reader my explanation of the expression. The thing itself is not new to us; the value which we looked at in the first book, under the elementary theory, is natural value.


1. On the effect of exchange value on distribution see Bohm-Bawerk's Werth, p. 510.

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Chapter 6

Natural Value

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Even in a community or state whose economic affairs were ordered on communistic principles, goods would not cease to have value. Wants there would still be, there as elsewhere; the available means would still be insufficient for their full satisfaction; and the human heart would still cling to its possessions. All goods which were not free would be recognised as not only useful but valuable; they would rank in value according to the relation in which the available stocks stood to the demand; and that relation would express itself finally in the marginal utility. Social supply and demand, or amount of goods and utility socially compared with one another, would decide value. The elementary laws of valuation, as we have explained them, would be entirely and unlimitedly effective for the whole community.

That value which arises from the social relation between amount of goods and utility, or value as it would exist in the communist state, we shall henceforth call "Natural Value."(1*) I choose the name in full consciousness of the double sense which an appeal to the "natural" has in the disposition of human affairs. In its simplicity, purity, and originality it is so attractive, and at the same time so contradictory to all experience, that it is doubtful whether it can ever be more than a dream. So too we shall think of the communistic state as the perfect state. Everything will be ordered in the best possible way; there will be no misuse of power on the part of its officials, or selfish isolation on the part of its individual citizens; no error or any other kind of friction will ever occur. Natural value shall be that which would be recognised by a completely organic and most highly rational community.(2*)

The laws which we found in the elementary theory of value are its natural laws, as those would take shape under the simplified assumption that goods come into men's disposal without requiring to be first produced. If we do away with this assumption we obtain the natural laws of value in production. It will now be our task to find out these laws. We shall ask ourselves what productive instruments would be likely to obtain value in a communistic state, whether labour alone, or also land and capital; in what measure they would obtain value; whether there is a natural rent from land and a natural interest on capital -- and so on through all the circumstances of production, till we arrive at the question of cost value and its natural measurement.

The relation of natural value to exchange value is clear. Natural value is one element in the formation of exchange value. It does not, however, enter simply and thoroughly into exchange value. On the one side, it is disturbed by human imperfection, by error, fraud, force, chance; and on the other, by the present order of society, by the existence of private property, and by the differences between rich and poor, -- as a consequence of which latter a second element mingles itself in the formation of exchange value, namely, purchasing power. In natural value goods are estimated simply according to their marginal utility; in exchange value, according to a combination of marginal utility and purchasing power. In the former, luxuries are estimated far lower, and necessaries, comparatively, much higher than in the latter. Exchange value, even when considered as perfect, is, if we may so call it, a caricature of natural value; it disturbs its economic symmetry, magnifying the small and reducing the great.

The fact that natural value forms an element in the formation of exchange value, puts our investigation in touch with reality, and gives it its empirical importance. The value which would be recognised by an extremely rational and completely united commonwealth is not entirely foreign to that value which is recognised by the society of to-day. Every individual desires for his own part to form a rational judgment about value, but it is not always within his power to do so; and, in the coming into connection with others in exchange, the final effect becomes altered, as I said, into caricature. There are innumerable more or less correct approximations to natural value. Every one finds them within his own economic circle; and even when the single circles come together these individual valuations are not entirely lost, but only somewhat altered. It will be of interest to investigate closely to what extent the phenomena of exchange value are of natural origin, and how great, accordingly, is the formative power of natural value in existing conditions of society. I believe the sequel will show that it is enormously greater than is usually supposed. Land rent is, perhaps, the formation of value that is most frequently attacked in our present economy. Now I believe our examination will show that, even in the communistic state, there must be land rent. Such a state must, under certain circumstances, calculate the return from land, and must, from certain portions of land, calculate a greater return than from others: the circumstances upon which such a calculation is dependent are essentially the same as those which to-day determine the existence of rent, and the height of rent, The only difference lies in this, that, as things now are, rent goes to the private owner of the land, whereas, in a communistic state, it would fall to the entire united community. In such a state it would not form personal property, but it would be calculated separately in the total income of the community, and that on essential grounds; -- namely, in order to find out what is the quota which individual lands contribute to the total return, and to judge therefrom what outlay may and ought to be expended to obtain this quota. In other words, the economic-technical service, that of controlling production, would remain, while the personal part it plays, as a source of private income, would fall away. Should our examination succeed in establishing this and similar facts, no one will be able to deny that it helps us to a clearer understanding of existing economic conditions. It would show what part of the present forms of value not only exists for the satisfaction of self-interest, but renders at the same time a technical service to social economy; it would show therefore what part must never be given up, on pain of leaving the economy without power of calculation and without control.

On this account the examination of natural value will be useful, as well for those who wish to understand the economy of the present, as for those who wish to evolve a new one. Defenders of the existing order of things, equally with those who are fighting to prepare the way for a new and ideal state, may, without prejudice and without going against their principles, unite in this study. Natural value is a neutral phenomenon, the examination of which, whatever may come of it, can prove nothing for and nothing against socialism. If land rent and interest on capital are natural phenomena of value, they will have their place in the socialistic state also, without necessarily breaking it up and leaving the way clear again for capitalists and landowners. Every natural form of value may be left its material office, without connecting with it any personal privilege of income.

So little is natural value a weapon against socialism, that socialists could scarcely make use of a better witness in favour of it. Exchange value can have no severer criticism than that which exposes its divergences from the natural measurement, although, indeed, this forms no particular proof for the essence of socialism. As is well known, however, the socialists have another theory of value. This we shall find again and again in contradiction with the claims that rest on natural value, and although we say nothing against socialism, but wish to remain throughout within the neutral sphere of natural value, we shall be obliged again and again to speak against the socialists.

It will be of advantage to the statement which follows if we first try to make a general survey of the socialist theory of value.


1. What I propose to call "Natural Value" has been hitherto called social use value. With the word "value in use" (Gebrauchswerth) are connected too many misunderstandings to permit of our using it without danger. Use value is commonly understood as usefulness, or something closely related to that, and not as actual value. It is, moreover, rarely used in connection with production, and I wish to speak as much of the value of production goods and of costs, as of the direct use value of consumption goods.

2. The question whether such a community can or ever will exist is one which does not in the least concern us. We shall content ourselves with imagining it, and it will be an excellent aid in raising what would remain. of our present economy if we could think away private property, as well as all the troubles which are a consequence of human imperfection. Most theorists, particularly those of the classical school, have tacitly made similar abstractions. In particular, that point of view from which price becomes a social judgment of value, really amounts to a disregard of all the individual differences which emerge in purchasing power, and which separate price from natural value. A great many theorists have thus written the value theory of communism without being aware of it, and in doing so have omitted to give the value theory of the present state. By making our assumptions quite clear, and guarding against a similar error, we may do more for value as we find it than they have.

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Chapter 7

The Socialist Theory of Value

Socialist writers, however much they find to object to in value as it is in the present day, have little enough to say concerning its future. They give us very scanty information as to the part it would have to play in the socialist state. Karl Marx, in explanation of this reserve, says that "the social relations of man to his labour and to the products of his labour are here transparently simple." It would appear that value, in the socialist sense, resembles those organs of the human body of whose existence, when diseased, we are painfully conscious, while in health they are scarcely noticed. Physicians even, who know their pathology thoroughly, are not able to say what vital functions they serve.

The socialists teach that the one and only source of value is labour. In the socialist state there are to be only two objects of value, -- labour, and consumption goods produced by labour. Land and capital will not be objects of value. Value presupposes utility, but does not originate in it. It is created by labour, and the expenditure of labour naturally attracts to itself the interest of man. Its measure is labour-time, or even the exertion involved in labour. Of the social services rendered by value only that of the distribution of goods is retained, and even this only to a limited extent; the produced consumption goods, estimated according to their labour-value, are distributed among the labourers according to the amount of labour service they have rendered. Productive land and capital are the exclusive property of the state, and are neither objects nor standards of the distribution. The other service rendered by value, that of being the controlling power of social economy, and, in particular, of production, is not claimed at all. The only claims allowed are those of utility or of use value, but by "use value" is not to be understood value in the sense we give to it, but utility pure and simple, and therefore utility without that peculiar measuring power which arises from comparison of want and provision.

This, in outline, is the socialist programme of the future for the valuation of goods, -- although, of course, not expressed in the original language of its authors. In my opinion there has never been, in the whole course of history, a more important change contemplated in the social order than that now desired in economic life; and never has plan of alteration been more imperfectly thought out. To change a feudal kingdom into a modern administration, or a monarchy into a republic, or an aristocracy into a democracy, would be nothing to this; for it is the attempt at an economic revolution which would affect not only those few who are interested in political matters, but the whole body of the people, -- affect them, too, just where they are most strongly conscious of their own interests. Dreams of political freedom, of equality, of brotherhood, even the religious dreams of a kingdom of God on the earth, however fantastically tricked out, have never betrayed so imperfect a knowledge of their object, as does the socialist theory of value. These have at least the excuse that they appeal to feelings of human nature which may soar to unknown heights, and which, of their very nature, give nourishment to the most extravagant expectations. But value is a thing for the most unimpassioned thought. Here it is wrong for any one to let imagination speak instead of reason, -- wrong for the academic writer, and ever so much more wrong for the social reformer and agitator. Not for one day could the economic state of the future be administered according to any such reading of value; indeed the first preliminary arrangements for its introduction would show its utter uselessness.

To a certain extent, however, the socialists are justified by their very opponents. The idea of labour value, and many other ideas of socialist theory, originated among the bourgeois economists, and were found by the leaders of the labour party to be, theoretically, perfectly developed: it only refined to make a practical application of them for the benefit of the socialist party. It was hard not to make use of the advantage thus put into their hands. If it be acknowledged that labour alone creates value, it seems impossible to deny the claim that the labourer alone should enjoy the value. In the academic struggle the socialists undoubtedly got an important tactical advantage through the unqualified acceptance of that theory -- the theory held by a large section of their opponents, and a section which, under the circumstances, might be considered the most formidable. If all the tremendous conflict of interests could have been ended by the arguments used by the spokesmen of the socialist party in their wordy warfare, at a certain period of the literary development the victory of socialism would probably have been complete. But, of course, what was good enough in argument would have broken down in face of facts, for no amount of plausibility can impose on them, -- and, after vanquishing their opponents with one theory, the socialists would have required to make up another to support their position.

In the socialist theory of value pretty nearly everything is wrong. The origin of value, which lies in utility and not in labour, is mistaken. The relation of supply to demand -- that fact which impels us to attribute utility to goods, and upon whose fluctuations depend, in the last resort, the fluctuations in amount of value -- is overlooked. The objects to which value attaches are not all embraced, for among those must be included productive land and capital, both as elements in the calculation of costs, and also per se. And the service rendered by value in economic life is only half understood, inasmuch as the most essential part of it, the material control of economy, is neglected.

All of this we shall require, -- now that we have made acquaintance with the elementary phenomena, -- to demonstrate in the circumstances of production. In particular we shall have to show that, in the natural order of economy, labour is valued according to its utility, value attaches to land and capital, and land rent, as well as interest on capital, is calculated among costs. If this were to be neglected production would become chaos.

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