Natural Value

Friedrich von Wieser

Authors Preface: p. XXVII: Adam Smiths Theory of Value: o Philosophical Adam Smith first of all abstracts from the complicated circumstances of ordinary economic life, and confines himself to the simple, primitive, natural state. In this state he finds that it is labour in which value originates. Goods are worth to us what they cost in labour, and what, therefore, their possession saves us in labour. o Empirical As a rule three factors together, he thinks, make up the exchange value of products; besides the labour of production there is also interest on the capital required and rent of the land required Contradiction: That value which is created by land and capital is of the same nature as that created by labour. As regards it also, ti is labour to which we must refer, if we are to grasp its content and measure it p. XXVIII: David Ricardos Theory of Value: o Rent does not determine the value of products, but is determined by that value o Interest increases with the value of products in the same ratio as the quantities of labour required for production o He does not try to explain interest for it forms no hindrance to his system pathway to the Ricardian socialists o The contradiction between Smiths two theories disappear. o He had no intention of explaining the whole of economics. He wished to show only that the value which is, is very much the same as the value which can although only from a certain point of view be understood p. XXXII The New Theory of Value: o (...) the want for the same things even in the same person, and in given economic conditions is of quite different strengths, varying according to the degree in which the want has already been satisfied through the employment of goods. But since the employment of goods depends upon the amount of goods which one possesses, the quantity of goods obtains a decisive influence on the valuation of wants and so on the source of value itself p. XXXIII The value of mathematics: The laws which govern amounts of value undoubtedly allow of a mathematical expression; nay, the more complicated of these can be expressed exactly only by means of mathematics; and here certainly mathematics has a great task to fulfill Book I The Elementary Theory of Value Chapter I The origin of value Objections to utility being the source of value: o Goods which are to be had in superfluity, and which anyone may appropriate at will, no one will pay anything for, by they ever so useful water

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Things which have a great deal of use have often a smaller value than those which have little use iron vs. gold Even in the socialist state supposing its citizens still to possess the aesthetic sense it will be considered of less moment to lose an ounce of iron than an ounce of gold A large quantity has, under certain circumstances, less value than a small quantity of the same thing excess demand While the measure of use is in such frequent and striking contradiction with that of value, it happens as often and as strikingly, that value is in agreement with the exact antithesis of use namely, with costs. I say antithesis because, if goods, by their use, prove themselves the friends of man, they prove his enemy by the costs which they necessarily involve

Chapter II The value of satisfactions of want The value of goods derives from the value of wants Satisfaction is that which is really desired, and is worthy of desire: and, as we do not desire goods for themselves, but for the satisfaction they give, so do we value them only for that satisfaction. The value of goods is derived from the value of wants Wants are ranked according to their intensity The actual ranking of the valuable no matter how moral judgment or fancy would dictate is simply that which men recognize by their actions when they are called on to choose between having one thing and another Chapter III Gossens Law of the satiation of want Gossens work: Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fliessenden Regeln fr das menschliche Handeln The desire for food decreases as the want is gradually satisfied, until, finally, when what we may call the satiation point is reached, the desire is for a certain time entirely allayed, and possibly changed into its opposite, surfeit and disgust. However, during the period of development, the law of diminishing desire meets with an opposite tendency, and the law applies unlimitedly only to wants which are entirely developed Important distinction: o Want as a whole The want as a whole of course retains its strength so long as man retains his health; satisfaction does not weaken but rather stimulates it o Separate sensations of want These are narrowly limited both in point of time and in point of matter. Any one who has just taken a certain quantity of food of a certain kind will not immediately have the same strength of desire for another similar quantity Chapter IV The scales of satiation The scales are irregular, obeying to such series as 20, 14, 5, 3, 2, 1, 0. Classes and specific sensations The importance of the entire class is measure by the entire scale of satiation, especially by its highest degree. But the importance of every separate sensation of desire is measured by some particular and possibly low point upon the scale, according to the condition of satisfaction which has already been reached Utility is thus subjective Chapter V Marginal Utility The marginal utility is the smallest utility obtainable in the circumstances, assuming the most thorough possible utilisation of the goods This should be put as low as possible through:

The utmost possible quantitative exploitation of goods The utmost care in choosing how the goods are to be employed where there are several competing ways of employing them Where goods are capable of manifold and various uses Where supplies are accumulated and their consumption should be spread over periods of time It would, however, be a mistake to believe (...) that it is necessary to keep strictly in every branch of expenditure to the same degree of satisfaction, the same level, the same marginal utility (well, not to keep, but it seems plausible that this is a situation to which everything approaches without every reaching it if the valuation is influenced by considerations of other goods, the utility is ideally the same in the margin otherwise, we would keep trading) The principle for the economic employment of goods of manifold usefulness is not, then, that we must, in every employment, obtain the same lowest possible marginal utility, but that in all employment as low a marginal utility be reached as is possible without necessitating the loss, in some other employment, of a higher utility o o

Chapter VI The value of future satisfactions of want Two kinds of future wants: o All those wants which must be covered by the present supply of consumption goods, and by the income available at the moment o Alongside of these we may put the far more numerous wants which have to be covered by suitable employment of the present parent wealth Attitude towards the future: The future want, wherever it comes into the domain of the present, is preceded by a psychical reflection, and this reflection is of a totally different nature from the want itself. It is far finer, more innerlich, and, even in the case of purely bodily wants, is always mental. Chapter VII The value of goods Towards things (...) man is originally indifferent, and his interest in them only awakens in so far as he finds them connected with human interests and destinies Scarcity generates the good states (...) where there is not an assured superfluity, interest awakens in the train of self-seeking calculation, and communicates itself to such goods as we notice ourselves using and not caring to lose Hence, economic goods have value, which, according to Mengers definition is: the importance which concrete goods, or quantities of goods, receive for us from the fact that we are conscious of being dependent on our disposal over them for the satisfaction of our wants If the use of a good in the individual case be so far removed from its general usefulness, its value (...) must be even further removed from tat general usefulness Chapter VIII The valuation of a single commodity Goods are valued either individually and by themselves, or in connection with other goods. (A valuation of one good, by being influenced by the circumstances of time and place, also includes valuations on other goods. Hence, it is impossible to value any good individually, because wants are not) In connection with other similar goods belonging to one and the same stock or supply In connection with goods from which it can be produced

In connection with goods which can be added to it by purchase Individual (or isolated) goods must have ascribed to them the full value of the utility which is expected from them. The means without which an end cannot be reached must be valued as highly as the end itself (But our ends are put on a general scale of values, so goods cannot really be valued singly The whole of supply: A vendor may, for instance, lay down as a condition of selling some large supply of goods, that it be bought entire or not at all. If circumstances force the buyer to consent to this condition, he on his part must estimate the value of the supply as a whole (...). Value here reflects the whole utility aimed at in employing the goods

Chapter IX The valuation of goods in stocks. The Law of Marginal Utility The General Law of Value. any on good, in a stock of goods of the same kind, will have in general the value of the final or marginal utility. The larger the supply the need remaining unaltered the smaller will be the marginal utility and the value, and vice versa; while, on the other hand, the greater the need the higher will be both marginal utility and value, and vice versa General Law of Value - the value of a supply of similar goods is equal to the sum of items multiplied by the marginal utility Rationale: In the case of economic goods, our only concern is with the marginal utility, all the higher utilities being assured so long as the amount of the supply remains unaltered Chapter X The Paradox of Value Paradox Value decreases as stock increases Solution: Value (the marginal value) arises from a combination of two elements, the one positive, the other negative. It is a complex amount; or, more exactly a residual amount o Positive element: The additional enjoyment in the use of a good o Negative element: We bestow upon goods an amount of interest derived from the interest we have in the services they render us. But we do not give them the whole of this interest; we make a certain reservation. That is to say, all the single items of a stock are considered only at the value of their marginal utility The surplus value, that which goes beyond the marginal utility, is withheld from the goods The value of a supply must increase with the increase of its items so long as the positive element preponderates; in other words, so long as the increment of value, furnished by the utility of the newly-acquired good, is greater than the value which is lost through the decrement of value which its addition causes to every good already in the stock The value must be zero two times: If we possess nothing, there are no objects to value; if we possess everything, there is just on account of the superfluity no subjective inducement to an act of valuation Chapter XI The antinomy of value and the service of value The parabolic shape of value constitutes an antinomy. Value cannot be the highest principle. Hence, The highest principle of all economy is utility. Where value and utility come into conflict utility must conquer The service of value consists, then, in representing utility wherever both show the same tendency. We do not calculate utilities, we calculate values, value being Q x MU (circular reasoning!) Two occasions for valuation of goods:

When we wish to acquire goods, and to measure the amount of the acquisition Here we measure results in goods Of two acquisitions, between which one may choose, that one will be chosen which gives the greater amount of value, because it also gives the greater utility When we wish to part with goods in order to devote them to some given end, and to measure the amount of service which they thus will render Here we measure outlays in goods In every appropriation of goods to a particular purpose the value of the sacrifice involved must be estimated and compared with the expected result Consumption as such does not arise from any economical considerations. It is only economising in consumption that is economical (...). In other words, value does not control consumption; it only forbids uneconomical consumption (...). This prohibition and nothing else is expressed in marginal value; no employment of goods which goes below the margin drawn can be allowed