7. The Controversy Over the Theory of Value

We meet here to discuss a question of economic theory.1 But first of all we must be in agreement on two principles. Otherwise, every attempt at mutual understanding would be hopeless from the very outset.

Following in the footsteps of Kant, we must reject the common saying: “That may be true in theory, but not in practice.” Though I do not think this point needs any further elaboration, I mention it nevertheless because at the last plenary meeting of our society the term “theorist” was used by one of the speakers with a trace of scorn, without immediately arousing disagreement.

For us to be able to have any discussion at all, it is far more important that we also acknowledge a principle that Kant, to be sure, did not explicitly state, but, like all his forerunners, implicitly assumed. We must take it for granted that the logical structure of human thought is immutable throughout the whole course of time and is the same for all races, nations, and classes. We know very well that the majority of the German people—and even most educated Germans—do not share this point of view. Indeed, I believe one might also say that most students of economics at the universities today hear lectures in which this idea is rejected. If we wish to study praxeology and economics, we cannot avoid dealing with doctrines which assert that temporal, racial, or “class” factors determine abstract thought. However, the discussion of such ideas can be meaningful only for those of us who assume that logic and thought are independent of time, race, nationality, and class. We who hold this view can attempt to carry to their ultimate conclusions and examine the validity of the objections of those who say that thought is conditioned by the thinker’s social existence. But those who maintain such doctrines may not, and indeed cannot, argue with us about our criticisms of them without at the same time giving up their own point of view.

This is no less true of epistemological discussions concerning the foundations of praxeological knowledge than it is of the discussion of the particular problems of our science. Yet we do want to deal with science, not with subjective value judgments; with questions of cognition, not of volition; with what is, not with what ought to be. If we wish to discuss the theory of value, we cannot do so in a manner that allows everyone to justify his position by appealing to considerations of nation, race, or class. And we certainly cannot tolerate reproaches that make reference to the class or racial determination of the opposing point of view, like the familiar characterization of Böhm-Bawerk’s theory of interest as the theory of the Phaeacian city of Vienna, or of the subjective theory of value as the political economy of the rentier. Let the Marxist, if he can, “unmask” Böhm-Bawerk as the representative of “students snatching at amusement” and of “officers, resplendent, but always suffering from a lack of money.”2  But then let him tell his discovery to those whom he considers the comrades of his class, not to us, who in his eyes are only playboys. Phaeacians, and rentiers, or perhaps even worse.

A Marxist?and I understand by this term not only the members of a political party that swears by Marx, but all who appeal to Marx in their thinking concerning the sciences of human action?who condescends to discuss a scientific problem with people who are not comrades of his own class has given up the first and most important principle of his theory. If thought is conditioned by the thinker’s social existence, how can he understand me and how can I understand him? If there is a “bourgeois” logic and a “proletarian” logic, how am I, the “bourgeois,” to come to an understanding with him, the “proletarian”? Whoever takes the Marxist point of view seriously must advocate a complete division between “bourgeois” and “proletarian” science; and the same is also true, mutatis mutandis, of the view of those who regard thought as determined by the race or the nationality of the thinker. The Marxist cannot be satisfied with separating classes in athletic contests, with a “bourgeois” and a “proletarian” Olympics. He must demand this separation above all in scientific discussion.

The fruitlessness of many of the debates that were conducted here in the Verein für Sozialpolitik as well as in the Gesellschaft für Soziologie are to be attributed more than anything else to the neglect of this principle. In my opinion, the position of dogmatic Marxism is wrong, but that of the Marxist who engages in discussions with representatives of what he calls “bourgeois science” is confused. The consistent Marxist does not seek to refute opponents whom he calls “bourgeois.” He seeks to destroy them physically and morally.

The Marxist oversteps the bounds that he himself sets up by his avowal of Marxism if he wishes to take part in our discussion without first making sure that we are all comrades of his own class. The heart of Marxism is the doctrine that thought is determined by one’s class. One cannot simply forget about this doctrine for the time being, to make use of it only occasionally when needed or to suit one’s convenience. Without the materialist conception of history Marxist economics would be nothing but a garbled Ricardianism. Of course, no one will deny that we would have to come to grips with Ricardo’s ideas if defenders of his labor theory of value were to appear here.

It is certainly not the purpose of a discussion such as ours to minimize or veil in any way the difference that exists between our points of view. At political rallies it may seem desirable to make the opposition between different schools of thought appear as slight as possible. The purpose of such tactics, to bring about a resolution for united action, can be achieved only when all are finally in agreement. Our purpose, however, is not action, but cognition. And cognition is furthered only by clarity and distinctness, never by compromises. We must endeavor to bring what divides us as sharply into relief as possible.

As soon as we do this we shall arrive at a very important result. We shall discover that in the province we are dealing with here today there are and must be far fewer positions than there are labels and parties.

The task we have set for ourselves is the explanation of the phenomena of the market. We wish to investigate the laws that determine the formation of the exchange ratios of goods and services, i.e., of prices, wages, and interest rates. I know very well that even this has been challenged. The Historical School believes that there can be no universally valid economic laws and that it is therefore foolish to search for them. Prices, it is said, are determined not by “economic laws,” but by the “conditions of social power.”

It is clear that even this point of view must be analyzed if one wishes to pursue economics at all. And we are all acquainted with the immortal, masterful works of Menger, Böhm-Bawerk, and others in which such an analysis has been attempted. However, one cannot deal with all scientific problems at the same time. We took up this denial of the possibility of economic science at the conference at Würzburg. This question should not be considered here today if out discussion is not to wander off the topic we have agreed on.

This topic is the theory of the market. And the point at which we must begin is the question: Are we obliged to construct a special theory of value as the foundation of the theory of price determination?

In the theory of value we attempt to trace back the formation of prices to factors that are operative not only in a society acquainted with private property, and consequently with the market, but in every conceivable society, even in the self-sufficient economy in which there is no interpersonal exchange, such as the economy of the isolated household, on the one hand, and the economy of a socialist community, on the other. We shall not go into the question of whether these two types of economies—the isolated self-sufficient economy and the socialist collective economy—are merely imaginary constructions, or whether they are also historically realizable. Cassel has misunderstood the purport of this procedure in supposing that it is used with the intention of studying primitive society as the simplest case of economic action in order to be able to proceed from there—in Cassel’s opinion, deceitfully—to the study of a money economy, which is regarded as more complicated.3  By means of this imaginary construction we want to study not the simplest or the most primitive, but the most general case, and not so much in order to proceed to the historically later and more complicated, but to the more special cases. And we do not want to assume the existence and the use of money, as Cassel does. On the contrary we want to comprehend and deduce the function of money from the more general case of an economy without money.

Catallactics has accomplished its task only when it has succeeded in this process of generalization, only when it has traced the formation of prices back to the point where acting man makes his choice and pronounces his decision: I prefer A to B.

However, economics also stops here. It does not go further back. It does not inquire into what lies behind the decisions of acting men, why they act precisely in the way they do and not otherwise. This self-limitation on the part of economics is not arbitrary. It finds its justification in the fact that the motives that actuate men are of no significance for the formation of prices. It is without importance whether the demand for weapons on the market comes from men who are on the side of law and order or from criminals and revolutionists. What is alone decisive is that a demand exists in a definite volume. Economics is distinguished from psychology by the fact that it considers action alone and that the psychic events that have led to an action are without importance for it.

It has been repeatedly pointed out that the term “value” is ambiguous. No one will choose to dispute this, and no one ever has disputed it. Every economist who wants to make use of this term has striven above all to eliminate the ambiguity of the word “value” by means of a strict definition designed to meet the requirements of scientific work. The assertion that modern economics has not undertaken to do this with all necessary rigor is to be emphatically denied. Cassel is quite wrong as far as scientific literature is concerned in maintaining that the notions of “use value” and “exchange value” sufficiently attest to the ambiguity of the concept of “value.”4  At least since the middle of the eighteenth century—and therefore as long as there has been any economics at all—economists have sharply distinguished between these two concepts. A difference of opinion concerning their significance for the explanation of the phenomena of the market has nothing to do with the alleged ambiguity of the idea of value. It is impermissible to declare that modern economics has not forged its concept of value with full clarity. One must ask Cassel, Gottl, and all the others to prove their charges by means of a thoroughgoing critique of the modern authors.

Unfortunately, the point must be made again and again that the greater part of the repeated criticism of the modem theory of value is based on gross misunderstanding or refers to difficulties that belong to an older stage in the development of the theory and that have long since been overcome. The science of the last forty years may not simply be ignored. Today one may no longer be satisfied with a cursory consideration of Menger and Böhm-Bawerk; one must also be familiar with Pareto and have read Cuhel and Strigl, not to mention the most recent works in this field. Cassel’s criticism of a few peculiarities in Menger’s and Böhm-Bawerk’s presentation (which he made thirty-three years ago)5  was justified in many respects, even if his positive arguments were completely erroneous. However, Cassel is wrong in thinking that his criticism refers not only to the form of presentation, but also to the substance of the theory. And it is unpardonable that even today he clings to his errors and ignores the scientific literature of the last generation as well. Everything that Cassel has to say about the problem of the measurement of value is untenable because it does not take into consideration the accomplishments of the last decades.

The most recent and most vehement criticism of the subjective theory of value comes from universalism. Spann maintains that the conduct of a household can change only “if production, payments, transportation, consumption, etc. have changed beforehand; in other words, only if the collective whole of the economy (taken in its strict sense) has first undergone a change.” Therefore, no individual member can be conceived as an independent variable.6  Daily experience contradicts this idea. When I change the habitual course of my conduct and begin to consume less meat, for example, and more vegetables, this must affect the market. The change originates in me and is not predicated on the supposition that consumption has previously changed. Indeed, the change in consumption consists precisely in the fact that I change my own consumption. That this is noticeable on the market only when not just one man changes his habits of consumption, but many, is a quantitative question that has nothing to do with the main problem. Equally irrelevant in this regard are general changes in consumption that have a common cause?e.g., a shift from the consumption of meat to the consumption of vegetables that may be caused by a change in the prevailing views concerning the physiology of nutrition. These changes concern motives, and we have already said why motives are of no concern to us.

What Spann expressly designates as the most important objections of universalism—the rejection of the assumption of the quantitative ascertainability of changes, the measurability of wants, and the quantification of value—can certainly not be cited as arguments against the subjective theory of value. For the starting point of the latter—which Spann, following the arguments of Cuhel and Pareto on this point, accepts when he speaks of the order of rank—is precisely the fact that values are not measured, but graded. No doubt there are unique and nonrepeatable actions, but we may not so far disregard the facts that can be established in human experience as to assert that every action is unique and nonrepeatable and of a special character.7  What we actually can observe is that certain actions are regarded as repeatable and replaceable. Spann thinks that be has proved his point when he states that an opera by Mozart is certainly more valuable—has a higher rank—than an opera by Flotow, but that one cannot say that it is ten and a half times more valuable. It is regrettable that such a gifted thinker should waste his ingenuity on theories that long before him had already been criticized and rejected by the founders of the subjective theory of value, and it is equally deplorable that thus far he has not seen fit to concern himself with the literature on that theory that has been published in the last forty years.

All the objections that Spann is able to advance against the subjective theory of value disintegrate when they are confronted with the simple fact that in life men again and again have to choose between various possibilities. The distinction in rank of which Spann speaks manifests itself precisely in the fact that a man prefers a concrete A to a concrete B, and nothing else. The market price comes into being as a result of such decisions on the part of men making exchanges on the market. If catallactics begins with the act of choice, it takes as its starting point a fact whose existence can be established in a manner that admits of no doubt?a fact that every human being knows and, because he himself acts, grasps in its essence. If catallactics were to begin, as Spann wants it to do, with totalities and imaginary constructions, its point of departure would be arbitrarily chosen. For totalities and imaginary constructions are not unequivocally precise, recognizable, and confirmable in such a way that agreement could be reached about their existence or nonexistence. Totalities and imaginary constructions are seen very differently by Spann from the way they are viewed by the Marxists, and Coudenhove-Kalergi certainly does not look upon them in the same light as Friedrich Naumann did.

Spann, to be sure, considers the concepts of the subjective theory of value to be arbitrarily chosen?for example, the concept of “quantity.” Only in the figurative sense, he asserts, is there a “quantity.” For “what unit should be taken? Should the unit be a sack of flour, a bale of cotton or a gram, one piece or a shock?”8  We need not enter here into the epistemological question how the concept of “quantity” is to be formulated. For what is under discussion is not this, but the question what quantity the theory of the market has to start from. Unfortunately, Spann did not see that the subjective theory of value answers this question with the greatest precision. We always have to start from that quantity which is the object of the definite act of choice we have in view. I must let the matter rest here with this brief comment because I do not wish to repeat what I have said about total value in my theory of money.9

Where Spann is correct he follows the path pointed out by the subjective theory of value that he attacks. Where he opposes the subjective theory he becomes involved in metaphysical speculations that frequently hinder him even where he is right on his own account—as, for example, in rejecting the errors of those who want to make economics a mathematical science. However, we cannot deal with this point today. If our present discussion is fruitful and thus proves that the Verein für Sozialpolitik is an appropriate place to debate economic problems, then I think there is no other question that so urgently requires investigation as that of the mathematical method. But one cannot dispose of this subject in a cursory way. One must devote thorough preparation to its treatment and make sufficient time available for its discussion.10

Unfortunately, we shall never be able to reach an understanding with Spann because the goal of his work is different from ours. It is not his purpose to understand and explain things as they are. Instead, his object is to determine the correct, and, following from this, the just price.11  He sees the failure of the old doctrines precisely in the fact that they do not aim at this goal and therefore cannot attain it. Our object is to comprehend things as they are, because we are well aware that this is the only task that science is capable of undertaking and the only matter about which agreement can be reached. Spann’s object is to comprehend what ought to be. But if someone is of the opinion that something else ought to be, the adherent of universalism is helpless and can only repeat over and over again: I, however, consider my opinion right and wish to regard my solutions as just. All that universalism can say to its opponents is: You are simply inferior, and your inferiority makes it impossible for you to know what is true and what is just, as I, who am more meritorious, do. It is obvious that with such a deep-seated difference of viewpoint there can be no fruitful scientific discussion.

Whoever wishes to form some idea of the importance of the theory of marginal utility has only to look at any presentation of the theory of the market in one of the current textbooks on the subject and to try separating out all the ideas contained in it that we owe to the modern subjective theory of value. Let him pick up the leading books on business management?for example, the works of Schmalenbach?and he will understand the contribution that subjectivism has made to this subject. He will have to admit that today there is still only one economics. I should like to point out expressly that this is true also of the German-speaking countries.

For a very long time the solution of the fundamental problem of catallactics was prevented by the apparent antinomy of value. Not until this difficulty was overcome could one construct a comprehensive theory of value and price determination that, starting from the action of the individual, proceeds to the explanation of all the phenomena of the market. The history of modern economics begins with the resolution of the paradox of value by Menger, Jevons, and Walras. There is no period in the history of economics more important than the one in which these thinkers flourished. However, we recognize more clearly today than was yet possible a generation ago that the work of the classical economists was not useless and that the substance of what they accomplished could be incorporated into the modern system. In the theory of value, the opposition between subjectivism and objectivism, between utility theory and cost theory, has lost none of its distinctness. We see it merely in another light since we have understood the proper place of a modified concept of cost in the whole system of subjectivist economics.

In the classical doctrine, the theory of money occupies a separate position. Neither Ricardo nor his successors succeeded in giving an explanation of the phenomena of the market in which the same principles used to explain the exchange relationships in direct exchange could be used to explain money prices. If one starts from a cost theory like that of the classical economists and accepts the labor theory of value, one cannot, of course, master the problem of indirect exchange. In this way the theory of money and credit, and thus also of the trade cycle, came to assume a strikingly distinctive position in the whole system of classical economics. The triumph of the subjective theory of value deprived these theories of their separate position. It succeeded in developing the theory of indirect exchange in harmony with that of direct exchange without being compelled to accept the help of hypotheses that are not already contained in the fundamental concepts of its system. With the disappearance of the separate position of the theory of money and credit, the separate treatment of the theory of the trade cycle also disappeared. Here too we must again point out that the subjective theory of value has derived the greatest benefit from the intellectual heritage left by the classical economists. The modern theory of credit and the modern theory of the trade cycle can truly be designated as the successors to the currency theory, which, for its part, is in turn based on the ideas of Ricardo.

Within modern subjectivist economics it has become customary to distinguish several schools. We usually speak of the Austrian and the Anglo-American Schools and the School of Lausanne. Morgenstern’s work,12  which you have before you, has said almost all that is necessary about the fact that these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.

The assertion is repeatedly made that there is not one economics, but many kinds. Sombart mentions three, and others profess to know still more. And many go so far as to say that there are as many kinds of economics as there are economists. This is just as incorrect as Sombart’s declaration that economics does not know what its domain is in the globus intellectualis. On this point, however, there can be no argument: the problems of catallactics constitute the field of our science. We are faced with them and we have to solve them. Historicism, to be sure, disputes this, but only in principle. As soon as it begins to pursue the study of economic history, it defines its sphere. For out of the entire range of historical phenomena it takes upon itself the study of catallactic phenomena.

Today we have only one theory for the solution of the problems of catallactics, even if it makes use of several forms of expression and appears in different guises. It cannot be denied that there are also opponents of this theory who reject it or who maintain that they are able to teach something entirely different from it. The very fact that distinguished thinkers like Cassel, Otto Conrad, Diehl, Dietzel, Gottl, Liefmann, Oppenheimer, Spann, and Veblen believe that they must combat it makes our discussion necessary. Its purpose is the clarification of the points we do not agree on by means of their distinct and precise formulation. We shall not vote at the end of our discussion. We shall go our separate ways, unconverted even if perhaps not unadvised. If our conference today and the forthcoming publication of its proceedings help the younger economists in forming their opinions, it will have done the most that a conference of this kind can do.

The chairman of the subcommittee assigned to me the task of opening the discussion. I do not consider myself as one who has read a paper in a seminar. For this reason I shall not present a summary of the proceedings. To do so would be quite pointless at a conference like ours. I shall, however, reserve the privilege possessed by everyone present to engage in the open discussion, if circumstances permit. I know quite well that my opening remarks were not neutral and that the opponents of the subjective theory of value will regard them as partisan. But perhaps even they will agree with me when I say in conclusion: Is it not remarkable that this subjective theory of value, which in the German-speaking countries is condemned and decried as heresy, which was pronounced dead a thousand times, does not, for all that, cease to occupy the center of scientific debate? Is it not astonishing that the ideas of Menger and Jevons still arouse general interest, while all their contemporaries have long since been forgotten? Does anyone still dare today to mention in the same breath with Gossen, Menger, or Böhm-Bawerk the names of those contemporaries who during their lifetimes were much more famous? We feel it is a treatment thoroughly worthy of a great subject that today books still appear that are devoted to the struggle against the teachings of Menger and Böhm-Bawerk. For these theories, which have again and again been pronounced dead, still live. And the proof that they do is precisely the fact that they find opponents. Would we not consider it fighting windmills if someone were to choose to devote his efforts to refuting the long-dead theories of the contemporaries of these thinkers, who were much more renowned in their day? If it is true that the importance of an author consists in his effect on posterity, then the founders of the theory of marginal utility have attained far greater importance than any other economists of the postclassical period. Today, whoever attempts to deal with the problems of economics cannot avoid coming to grips with the much maligned subjective theory of value. In this sense it can be called the prevailing theory, in spite of the fact that anyone who acknowledges it in the German-speaking countries must be prepared to stand a great deal of hostility and even worse.

The most striking indication of the authority of a doctrine is the fact that it is the target of many attacks. The Marginal Utility School proves its sway over men’s minds by freely inviting their criticism.

• 1Speech delivered in introduction to the discussion of the problem of the theory of value, September 30, 1932, at Dresden, before the panel on theory of the Verein für Sozialpolitik. (Schriften des Vereins für Sozialpolitik, Vol. CLXXXIII, Part II.)
• 2 Cf. Totomianz, Grundgedanken der theoretischen Ökonomie (2nd ed.; Berlin, 1929), p. 132.
• 3Cf. Cassel, Grundgedanken der theoretischen Ökonomie (2nd ed.; Berlin, 1929), p. 132.
• 4Cf. Cassel, ibid., p. 24.
• 5Cf. Cassel, “Grundriss einer elementaren Preislehre,” Zeitschrift für die gesamte Staatswissenschaft (1889).
• 6Cf. Spann’s contribution to Vol. CLXXXIII, Part I, p. 204, of the periodical of the Verein für Sozialpolitik. The contributions to this volume will hereafter be quoted as Schriftenband, with the page number.
• 7Cf. Spann, Schriftenband, P. 217.
• 8Spann, Schriftenband, p. 222.
• 9Cf. my Theory of Money and Credit, pp. 45-47.
• 10Concerning the mathematical method, cf. above pp. 116 ff.
• 11Cf. Spann, Schriftenband, p. 250.
• 12Cf, Schriftenband, pp. 3 ff.