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A. The Nature of Use Value and Exchange Value

AS LONG AS THE development of a people is so retarded economically that there is no significant amount of trade and the requirements of the various families for goods must be met directly from their own production, goods obviously have value to economizing individuals only if the goods are themselves capable of satisfying the needs of the isolated economizing individuals or their families directly.[1] But when men become increasingly more aware of their economic interests, enter into trading relationships with one another, and begin to exchange goods for goods, a situation finally develops in which possession of economic goods gives the possessors the power to obtain goods of other kinds by means of exchange. When this occurs, it is no longer absolutely necessary, if economizing individuals are to be assured of the satisfaction of their needs, that they have command of the particular goods that are directly necessary for the satisfaction of their particular needs. In this more developed social situation, economizing individuals can of course ensure the satisfaction of their needs as before by obtaining possession of the particular goods that will, when employed directly, produce the result that we call satisfaction of their needs. But they can also, in the new situation, bring this result about indirectly by obtaining command of goods that can, according to the existing economic situation, be exchanged for such other goods as they require for the direct satisfaction of their needs. The special requirement for the value of goods obtaining under isolated household economy ceases, therefore, to apply.

     Value, we saw, is the importance a good acquires for us when we are aware of being dependent on command of it for the satisfaction of one of our needs—that is, when we are conscious that a satisfaction would not take place if we did not have command of the good in question. Without the fulfillment of this condition, the existence of value is inconceivable. But value is not tied to the condition of a direct, to the exclusion of an indirect, assurance of our requirements. To have value, a good must assure the satisfaction of needs that would not be provided for if we did not have it at our command. But whether it does so in a direct or in an indirect manner is quite irrelevant when the existence of value in the general sense of the term is in question. The skin of a bear that he has killed has value to an isolated hunter only to the extent to which he would have to forgo the satisfaction of some need if he did not have the skin at his disposal. After he enters into trading relations, the skin has value to him for exactly the same reason. There is no difference between the two cases that in any way affects the essential nature of the phenomenon of value. For the only difference is that the hunter would be exposed to the injurious influences of the weather or would have to forgo the satisfaction of some other need for which the skin can be used in a direct fashion if it were unavailable to him in the first case, while he would have to forgo the satisfactions he could achieve by means of goods that are at his disposal indirectly (by way of exchange) because of his possession of the skin if it were unavailable to him in the second case.

     The value of the skin in the first case and its value in the second case are therefore only two different forms of the same phenomenon of economic life. In both cases value is the importance that goods acquire for economizing individuals when these individuals are aware of being dependent on command of them for the satisfaction of their needs. What lends a special character, in each of the two cases, to the phenomenon of value is the fact that goods acquire the importance, to the economizing individuals commanding them, that we call value by being employed directly in the first case and indirectly in the second. This difference is nevertheless of sufficient importance both in ordinary life and in our science in particular to require specific terms for each of the two forms of the one general value phenomenon. Thus we call value in the first case use value) and in the second case we call it exchange value.[2]

     Use value, therefore, is the importance that goods acquire for us because they directly assure us the satisfaction of needs that would not be provided for if we did not have the goods at our command. Exchange value is the importance that goods acquire for us because their possession assures the same result indirectly.

B. The Relationship Between the Use Value and the Exchange Value of Goods

     In an isolated household economy, economic goods either have use value or they have no value at all to the economizing individuals possessing them. But even in a society that has undergone considerable cultural development and in which there is an active commerce, economic goods can frequently be observed that have no exchange value to the economizing individuals possessing them, even though their use value to these same persons is beyond all doubt.

     The crutches of a peculiarly deformed person, notes that can be used only by the writer who made them, family documents, and many similar goods, frequently have considerable use value to particular individuals But these same individuals would, in most cases, attempt in vain to satisfy any of their needs with these goods in an indirect fashion—that is, through exchange. In a developed civilization, the Opposite relationship occurs much more frequently. The spectacles and optical instruments kept in stock by an optical goods dealer usually have no use value to him, just as surgical instruments have none to the persons who produce and market them, and as books in foreign languages that can be understood only by a few scholars have none to booksellers. But all these goods, in view of the potential opportunities for exchange, ordinarily have a definite exchange value to these persons.

     In these and in all other cases where economic goods have either use value or exchange value but not both to the persons possessing them, the question as to which of the two is determining in the economic activity of the individuals concerned cannot arise. But these cases are only exceptions in the economic life of men. When commerce has developed to any appreciable extent, economizing individuals ordinarily have a choice between employing the economic goods at their command directly or employing them indirectly for the satisfaction of their needs. Economic goods usually have use value, therefore, as well as exchange value to their possessors. Most of the clothes, the pieces of furniture, the jewelry, and the thousands of other goods in our possession undoubtedly have use value to us. But it is just as certain that we can also apply them indirectly for the satisfaction of our needs when commerce has developed, and that they therefore also simultaneously have exchange value to us.

     It is true, as we have seen, that the importance of goods to us with respect to a direct employment and with respect to an indirect employment for the satisfaction of our needs are only different forms of a single general phenomenon of value. But their importance to us may simultaneously be very different in degree in the two forms. A gold cup will undoubtedly have a high exchange value to a poor man who has won it in a lottery. By means of the cup he will be in a position (in an indirect manner, through exchange) to satisfy many needs that would not otherwise be provided for. But the use value of the cup to him will scarcely be worth mentioning at all. A pair of glasses, on the other hand, adjusted exactly to the eyes of the owner, probably has a considerable use value to him, while its exchange value is usually very small.

     It is certain, then, that numerous cases can be observed in the economic life of men in which economic goods have use value and exchange value simultaneously to the economizing individuals possessing them, and that the two forms of value are often of different magnitudes. The question that arises is which of these two magnitudes is, in any given case, the one that determines the economic calculations and actions of men—or, in other words, which of the two forms of value is the economic form of value in the given instance.

     The solution to this question arises from reflection upon the nature of human economy and upon the nature of value. The leading idea in all the economic activity of men is the fullest possible satisfaction of their needs. If more important satisfactions of an economizing individual are assured by the direct use of a good than by its indirect use, it follows that more important needs of the individual would remain unsatisfied if he were to employ the good in an indirect fashion for the satisfaction of his needs than if he were to employ it directly. There can be no doubt that in this case the use value of the good will be determining in the economic calculations and actions of the economizing individual concerned, and that in the reverse case it will be the exchange value. In the first case, it is the satisfactions that are assured by a direct employment of the good that the economizing individual would choose if he had command of it; in the second case, it is the satisfactions that are assured by an indirect employment of the good that he would choose if he had command of it; hence in each case it is the satisfactions that would otherwise have taken place that he would be compelled to forgo if he did not have command of the good in question. In all cases, therefore, in which a good has both use value and exchange value to its possessor, the economic value is the one that is the greater. But from what was said in Chapter IV, it is evident, in every instance in which the foundations for an economic exchange are present, that it is the exchange value of the good, and when this is not the case that it is the use value, that is the economic value.

C. Changes in the Economic Center of Gravity of the Value of Goods[3]

     One of the most important tasks of economizing men is that of recognizing the economic value of goods—that is, of being clear at all times whether their use value or their exchange value is the economic value. The determination of which goods or what portions of them are to be retained and which it is in one’s best economic interest to offer for sale depends on this knowledge. But judging this relationship correctly is one of the most difficult tasks of practical economy, not only because a survey of all available use and exchange opportunities is required even in well developed markets, but also and above all because the factors on which a correct solution of this problem must be based are subject to a multitude of changes. It is clear that anything that diminishes the use value of a thing to us may, other things being equal, cause the exchange value of the good to become the economic form of value, and that anything that increases the use value of a good to us can have the effect of pushing the significance of its exchange value into the background. An increase or decrease in the exchange value of a good will, other things being equal, have the opposite effect.

The chief causes of changes in the economic form of value are as follows:

     (1) Changes in the importance of the particular satisfaction that a good renders to the economizing individual who has it at his command, if its use value to him is increased or decreased by the change. Thus if a person loses his taste for tobacco or wine, the stock of tobacco or wine in his possession will take on a predominating exchange value for him. And men who have been hunting or sporting enthusiasts will sell their hunting utensils, hunting animals, etc., when their pastimes have lost their previous importance to them, the diminution in the use value of these goods having caused their exchange value to come to the fore in importance.

     Transitions from one stage of life to another especially are characterized by changes of this kind. Satisfaction of the same want has a different meaning to an adolescent than it has to a mature man, and a different meaning again to a mature man than it has to an old man. Even if no other factors existed, therefore, the natural course of human development would alone cause the use value of goods to undergo significant changes. The simple toys of the child lose their use value to the adolescent; the study materials used by the adolescent lose their use value to the mature man; and the instruments by which the mature man earns a living lose their use value to the old man. In each instance, the exchange value of the goods mentioned becomes predominant. Nothing is more common, therefore, than for an adolescent to sell the goods that had a predominating use value to him as a child. We see people entering maturity generally selling not only many of the means of enjoyment appropriate to adolescence but the study materials of their youth as well. Old men can be observed permitting not only many of the means of enjoyment of their prime that require strength and courage to use, but also the instruments they employed in earning a living (factories, business firms, etc.), to pass into other hands. If the economic phenomena that would appear to be the natural consequence of these facts do not appear as distinctly on the surface as we might expect, the reason is to be found in the family life of men. For the passage of goods from the older members of a family into the possession of younger members takes place, not as a result of monetary compensation, but as a result of affection. The family, with its special economic relations, is thus an essential factor in the stability of human economic relations.

     Increases in the use value of a good to its possessor naturally have the opposite effect. The owner of a forest, for example, to whom the yearly cut of timber has only exchange value, will probably immediately discontinue exchanging his timber for other goods if he constructs a blast furnace to melt iron and needs the full output of his timberland for its operation. An author who previously sold his work to publishers will not do so in the future if he founds his own magazine, and so on.

     (2) Mere changes in the properties of a good can shift the center of gravity of its economic importance if its use value to the possessor is altered by the change while its exchange value either remains unchanged or does not rise or fall to the same extent as its use value.

     Clothes, horses, dogs, coaches, and similar objects, usually lose their use value to wealthy people almost entirely if they have an externally visible defect. Their exchange value, although also decreased, comes to the fore in importance since the loss in their use value is usually greater to these persons than the loss in their exchange value.

     On the other hand, goods become altered in many instances in such a way that their exchange value, which previously was the economic form of value to the economizing individuals possessing them, recedes as compared with their use value. Thus innkeepers and grocers usually employ foods having some external defect for their own consumption, since the defect in these goods causes them to lose their exchange value almost completely while their use value often remains the same, or is at any rate not diminished to the same extent as their exchange value. The same phenomenon can be observed in other trades. Shoemakers, especially in smaller villages, often wear badly fitting shoes, tailors often wear imperfectly cut clothes, and hatters often wear hats in whose production some slight accident has occurred.

     (3) We come now to the third, and most important, cause of changes in the economic center of gravity of the value of goods. I refer to increases in the quantities of goods at the disposal of economizing individuals. An increase in the quantity of a good a person has almost always, other things remaining the same, causes the use value of each unit of the good to him to diminish and its exchange value to become the more important. After the harvest, the exchange value of grain is almost without exception the economic form of value to farmers, and it remains so until, as a result of successive sales of portions of the grain, its use value again becomes the more important. The grain that farmers still possess in summer generally has a predominating use value to them. At another place in this work (Chapter IV, section 2) I have shown at what limit the importance of the exchange value of goods passes into the background as compared with their use value. To an heir, who is already equipped with sufficient furniture before his succession, and who finds still another large set of furniture in the legacy of his testator, many pieces of the furniture will have a very low use value (and some perhaps no use value at all) and will therefore acquire a predominating exchange value. The heir will continue to sell pieces of furniture until the pieces remaining in his possession again have a predominating use value.

     A decrease in the quantity of a good available to an economizing individual will, on the other hand, generally cause its use value to him to increase, and thus cause the quantities of the good previously destined for exchange now to acquire a predominating use value.

     Of special importance in this connection is the effect of changes in total wealth. When commercial relations are well developed, an increase or decrease in wealth is equivalent, to the economizing individual experiencing the change, to an increase or decrease of almost every particular kind of economic good. A man who becomes poor is forced to retrench in the satisfaction of almost all his needs. He will satisfy some needs less completely, quantitatively or qualitatively. Other needs he will perhaps not satisfy at all. If, after his impoverishment, there are any of the choicer consumption goods or articles of luxury in his possession, which previously contributed to the harmonic satisfaction of his needs, but which do not correspond to his changed circumstances, he will, if he is an economizing individual, sell them in order to use the proceeds to satisfy more important needs of himself and his family that would otherwise remain unsatisfied. People who have lost a large part of their wealth by unlucky speculations or as the result of other misfortunes actually sell their jewelry, works of art, and other objects of luxury, in order to provide themselves with the necessities of life. Increasing wealth has a similar but opposite effect, since many goods that previously had a predominating use value to their owners lose this use value, and the economic importance of their exchange value is pushed to the fore. Thus people who have suddenly become rich usually sell their simple furniture, their shabby trinkets, their inadequate houses, and many other goods that had previously had a predominating use value to them.

[1]See Gustav Schmoller, “Die Lehre vom Einkommen in ihrem Zusammenhang mit den Grundprincipien der Steuerlehre,” Zeitschrift für die gesammte Staatswissenschaft, XIX (1863), 53.

[2]See Appendix G (p. 306) for the material originally appearing here as a footnote.—TR.

[3]“Center of gravity” is the literal translation for “Schwerpunkt.” Menger’s title is “Ueber den Wechsel im ökonomischen Schwerpunkte des Güterwerthes.” A less awkward translation is not possible without loss of the flavor of the original.—TR.

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