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Appendix B[1]


INVESTIGATIONS OF THE NATURE of economic goods began with attempts to define the concept wealth in the economy of an individual. Adam Smith barely touched upon the question, but the suggestions he made have had the most far-reaching effects on theories of wealth. “After the division of labour has once thoroughly taken place,” he says, “. . .  a man . . . must be rich or poor according to the quantity of that labour which he can command or which he can afford to purchase.” (Wealth of Nations, Modern Library Edition, New York, 1937, p. 30.) From this it may be concluded as a consistent extension of the Smithian theory that whether or not a good provides us with command of labor (or, which is the same thing as far as Smith is concerned, whether or not it has exchange value) is the criterion by which its character as an object of wealth (in the economy of an individual) is to be judged. Say also follows this line of reasoning. In his Traité d’économie politique (Paris, 1803, p. 2), he separates goods that have exchange value from goods that do not, and excludes the latter from wealth. (“Ce qui n’a point de valeur, ne saurait être une richesse. Ces choses ne sont pas du domaine d’économie politique.”[2]) In his Principles of Political Economy and Taxation (ed. by E.C.K. Gonner, London, 1891, p. 258), Ricardo also distinguishes between value and goods (“riches”), and differs from his predecessors only in that he employs the word “riches” in a markedly different sense than that in which Say uses the word “richesse.” Following Adam Smith (op. cit., pp. 314ff.), Malthus sought the criterion of the wealth-character of goods in whether or not they are tangible objects (Principles of Political Economy, London, 1820, p. 28), and in his later writings as well, he confines the concept wealth to material goods. Among German writers, this same opinion is held by H. Storch (Cours d’économie politique, St. Petersbourg, 1815, I, 108ff.); F.C. Fulda (Grundsätze der ökonomisch-politischen oder Kameralwissenschaften, Tübingen, 1816, p. 2); J.A. Oberndorfer (System der Nationalökonomie, Landshut, 1822, pp. 64–65); K.H. Rau (Grundsätze der Volkswirthschazftslehre, Heidelberg, 1847, p. 1); J.F.E. Lotz (Handbuch der Staatswirthschaftslehre, Erlangen, 1837, I, 19); and Theodor Bernhardi (Versuch einer Kritik der Gründe die für grosses und kleines Grundeigenthum angeführt werden, St. Petersburg, 1849, pp. 134ff., and especially pp. 143ff.).

     Writers who have argued against the exclusion of immaterial goods are: J.B. Say (Cours complet d’économie politique pratique, Paris, 1840, I, 89), J.R. McCulloch (Principles of Political Economy, London, 1830, pp. 6ff.), F. v. Hermann (Staatswirthschaftliche Untersuchungen, München, 1874, pp. 21ff.), and Wilhelm Roscher (Grundlagen der Nationalökonomie, Twentieth edition, Stuttgart, 1892, p. 16). Malthus had already recognized that the concept of wealth cannot be correctly defined by limiting it to material goods (Principles of Political Economy, Second Edition, London, 1836, p. 34), but I shall have occasion at a later point to discuss his shifting attempts to provide a definition of wealth.

     The most recent representatives of political economy in England tie the concept of wealth almost exclusively to objects having exchange value. See, for example, McCulloch (op. cit., p. 6); J.S. Mill (Principles of Political Economy, ed. by Sir W.J. Ashley, London, 1909, p. 9); and N.W. Senior (An Outline of the Science of Political Economy, London, 1836, p. 6). Among the recent French writers, Ambroise Clément and Auguste Walras (De la nature de la richesse et de l’origine de la valeur, ed. by Gaëtan Pirou, Paris, 1938, pp. 146ff.) in particular hold this view.

     Whereas the English and French economists merely distinguish between goods that are wealth and goods that are not, Hermann (op. cit., p. 12) goes much deeper, since he contrasts economic goods (objects of economizing) with free goods. This distinction has since been maintained in German economics with few exceptions. But Hermann defines the concept economic goods too narrowly. For he says that an economic good is “was nur gegen bestimmte Aufopferung, durch Arbeit oder Vergeltung her gestellt werden kann.”[3] He thus makes the economic character of goods depend on labor or on trade between men (ibid., p. 18). But are not the fruits that an isolated individual can gather without labor from trees economic goods for him if they are available to him in smaller quantities than his requirements for them? And is not spring water that is also available to him without labor and in quantities exceeding his requirements a non-economic good?

     Roscher who had defined economic goods in his Grundriss zu Vorlesungen über die Staatswirthschaft (Göttingen, 1843, p. 3) as goods “die in den Verkehr kommen,” and who defined them in the earlier editions of his System der Volkswirthschaft (Edition of 1857, p. 3) as “Güter, welche des Verkehrs fähig sind, oder wenigstens denselben fördern können,”[4] defines them in the more recent editions of his major work (Grundlagen der Nationalökonomie, Twentieth edition, Stuttgart, 1892, p. 4) as “Zwecke und Mittel der Wirthschaft.”[5] This definition is merely a paraphrase of the concept to be defined, and shows that the eminent scholar considers the question of the criteria for distinguishing between economic and non-economic goods as still open. See also Schäffle’s Das gesellschaftliche System der menschlichen Wirthschaft (Tübingen, 1873, I, 66ff.), and his “Die ethische Seite der nationalökonomischen Lehre vom Werthe” (originally published in Tübingen Universitätsschriften, 1862, and reprinted in A.E.F. Schäffle, Gesammelte Aufsätze Tübingen, 1885, I, 184–195).

     That the difficulties non-German economists have had in attempting to define the concept “wealth” stem from the fact that they do not know the concept “economic good” is most clearly illustrated by the writings of Malthus. In the first edition of his Principles of Political Economy, which was published in 1820, he defines wealth as “those material objects which are necessary, useful, or agreeable to mankind” (p. 28). Since this definition includes all (material) goods in the concept “wealth,” it includes even non-economic goods, and is entirely too broad for this reason. In his Definitions in Political Economy, which appeared seven years later, he defines wealth as “the material objects necessary, useful or agreeable to man, which have required some portion of human exertion to appropriate or produce” (p. 234.) In the second edition of his Principles (London, 1836, pp. 33–34, note) he explains that “the latter part was added, in order to exclude air, light, rain, etc.” But he recognizes that even this definition is untenable and says (ibid.) that “there is some objection to the introduction of the term industry or labour into the definition, because an object might be considered as wealth which has had no labour employed upon it.” Finally, in the text of the second (1836) edition of the Principles (p. 33) he comes to the following definition of the concept: “I should define wealth to be the material objects, necessary, useful, or agreeable to man, which are voluntarily appropriated by individuals or nations.” Thus he falls into a new error by making the fact that a good is the property of an economizing individual the source of its wealth-character (i.e., of its economic character).

     We find similar shifting attempts to arrive at a definition of wealth in the writings of J.B. Say. In his Traité d’économie politique (Paris, 1803, p. 2), he makes value (exchange value) the source of the wealth-character of goods. He says that “ce qui n’a point de valeur, ne saurait être une richesse.” This view was attacked by R. Torrens (An Essay on the Production of Wealth, London, 1821, p. 7), and Say then shifted in his Cours complet d’économie politique pratique (Paris, 1840, I, 66), to the following description of goods that constitute wealth: “Nous sommes forcés d’acheter, pour ainsi dire, ces . . . biens par des travaux, des économies, des privations; en un mot, par de véritables sacrifices.”[6] In this passage, Say takes essentially the same position as that expressed by Malthus in his Definitions in Political Economy. But a little further on (Cours complet, p. 66) he says, “On ne peut pas séparer de ces biens l’idée de la propriété. Ils n’existeraient pas si la possession exclusive n’en était assurée à celui qui les a acquis. . . . D’un autre côté, la propriété suppose une société quelconque, des conventions, des lois. On peut en conséquence nommer les richesses ainsi acquises, des richesses socials.”[7]

[1]To Chapter II. See notes 9 and 14 of Chapter II.—TR.

[2]“That which has no value cannot be wealth. These things are not within the domain of political economy.”

[3]“what can be obtained only for a definite sacrifice in the form of labor or monetary consideration.”

[4]“that are capable of being traded, or that, at least, facilitate trade.”

[5]“ends and means of economizing.”

[6]“We are forced, so to speak, to buy these . . . goods by labor, economy, abstinence,—in a word by real sacrifices.”

[7]“One cannot separate the idea of property from these goods. They would not exist if exclusive possession of them were not assured to the person who has acquired them. . . . On the other hand, property presupposes some form of society, contracts, and laws. Hence wealth so acquired may be called social wealth.”

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