Capital and Interest

CHAPTER X

MENGER’S CONCEPTION OF USE

UP till now my analyses have gone to prove that there is no independent use of goods of the kind conceived of by the Say-Hermann side of the Use theory, and by nearly all the economists of the present day in their train. It still remains to be proved that there cannot be an independent use even in that essentially different shape that Menger sought to give the conception.

While the Say-Hermann school represented the “net use “as an objective element of use, separating itself from goods, Menger explains it as a Disposal; indeed, as “a disposal over quantities of economical goods within a definite period of time.” 1 This disposal being for economic subjects a means to better and more complete satisfaction of their wants, it acquires, according to Menger, the character of an independent good, which, on account of its relative scarcity, will usually be at the same time an economical good.2

Now, to go nq farther, it seems to be putting a very daring construction on things to say that the disposal over goods, that is, a relation to a good, is itself a good. I have on another occasion3 stated at length the reasons for which I consider it theoretically inadmissible to recognise relations as real Goods, in the sense given to that term by economic theory. These reasons, I believe, have the same validity as regards this “disposal”over goods.

To maintain its position in face of these weighty deductive objections Menger’s hypothesis must have some very strong and positive support. I doubt if it has sufficient support of this kind. The special character of my present contention prevents us from the first from obtaining any direct evidence, such as might be given by the senses, that “disposal”really is a good. The only thing we have to consider is whether the hypothesis is accredited by a consensus of sufficiently numerous and significant indirect supports. And this I must doubt.

It appears to me that there is, distinctively, only one indirect support for it, and that is, the existence of a surplus value which is unexplained otherwise. As astronomers, from certain otherwise unexplained disturbances in the orbits of known planets, have concluded for the existence of disturbing and as yet unknown planetary bodies, so does Menger postulate the existence όί a “hearer of the surplus value which otherwise is unexplained. And since the disposal over quantities of goods for definite periods of time appears to him to stand in a regular connection with the emergence and the amount of surplus value, he does not hesitate to put forward the hypothesis that this disposal is the “bearer” sought for, and, as such, an independent good of independent nature. If the possibility of any other explanation had ever occurred to this distinguished thinker, I am persuaded that he would have withdrawn his hypothesis at once.

Now is this one indirect point of support sufficient to prove that “disposal”is an independent good?

There are two reasons for answering this in the negative. The one is that the phenomena of surplus value can be explained in an entirely satisfactory way without this hypothesis, and indeed can be explained on lines that Menger himself has laid down in his now classical theory of value; the proof of this I hope to give in my next volume. But the following consideration is of itself, in my opinion, quite convincing.

According to Menger’s theory the loan is looked upon as a transference of disposal over goods. The longer then the period of the loan, the greater of course is the quantity of the transferred good, the disposal. In a loan for two years more disposal is transferred than in a loan for one year; in a three years’ loan more disposal than in a two years’ loan; in a hundred years’ loan almost an unlimited amount of disposal is transferred. Finally, if the replacement of the capital is not only postponed for a very long time, but is altogether dispensed with, surely a quite infinite amount of disposal is transferred to the borrower. This, for instance, will be the case if goods are not lent, but given.

We now ask in such a case, How much value is received by the one to whom the gift is made? There can be no doubt that he receives as much value in capital as is possessed by the thing given. And the value of the permanent disposal that inheres in the thing, and is presented along with it?—Is evidently contained in the capital value of the thing itself. From which I draw the conclusion—and I do not think I am perpetrating any fallacy in so concluding—that if the plus, viz. the value of the permanently inhering disposal, is contained in the capital value of the good itself, the minus contained in it, the temporary disposal over a good, must be contained in the value of the good itself. The temporary disposal, therefore, cannot be, as Menger assumes, an independent bearer of value alongside the value of the good in itself.4

5 Grundsätze, p. 132, etc.

6 Ibid. p. 132, etc.

7 See my Beeilte und Verhältnisse, particularly p. 124. See also the acute remarks of H. Dietzel in the tract Der Ausgangspunkt der Sozialwirthsehafts-lehre und ihr Grundhegriff Tübinger Zeitschrift für die gesammte Staatswissenschaft, Jahrgang, 39), p. 78, etc. On the other hand, I cannot agree with Dietzel in some further criticisms that he makes on Menger on p. 52, etc. He has two objections to Menger’s fundamental definition of economical goods as “those goods the available quantity of which is less than human need.” First, he says, in trade generally we must recognise “the tendency to assimilate need and available quantity,” on account of which “in every normal case” a number of the most important economical objects must fall out of the circle of economical goods. And second, he says, Menger’s definition of his conception is not definite enough, and leaves room for all sort of things that have not the character of economical goods, such, for instance, as useful “technical knowledge.” I onsider that both objections are based on a misunderstanding. As a matter of fact trade can never quite assimilate the available quantity of economical goods to the need for them; it can of course meet the demand that has power to pay, but never the need. However commerce may flood a market with exchangeable goods, while it will very soon succeed in supplying the amount that people can buy, it will never supply all they wisli to possess for the purpose of supplying their wants to the saturation point—that point where the last and most insignificant wish is gratified. As to the second objection, Menger’s definition seems to me to mark out the circle of economic goods both correctly and sufficiently. We must not overlook the fact that what determines the conception of the “good”has a share in determining the conception of the “economical good.” Things like qualities, skill, rights, relations, cannot, I admit, be economical goods, even if they are only to be had in insufficient quantity, but that is because they are not true goods—that is to say, they are not really effectual means of satisfying human wants, and at best can only be called so by a metaphor. But where we have true goods, such of them as are insufficient in quantity are at the same time economical goods. If, therefore, Menger, in some individual cases, does come into collision with truth—as I maintain he does in regard to the economical good “disposal”—it is not because he has made a mistake in defining the attribute “economical,” but only because he has occasionally treated the conception of the “good” a little too loosely.

8 If we put the illustration a little differently it may show more forcibly that the value of the disposal is contained in the value of the good. Suppose that A first lends B a thing for twenty years without interest—presents him therefore with the good called “disposal for twenty years,” and then, a couple of days after the loan contract is concluded, presents him with the thing itself. Here he has in two actions given away the twenty years’ disposal and the thing itself. If the “disposal”were a thing of independent value in addition to the thing itself, the total value of the gift would obviously be greater than the value of the thing itself, which just as obviously is not the case.

• 1Grundlagen der National-Oekonomie, tenth edition, Stuttgart, 189. I
• 2Paris, 1828-29.
• 3Goldschmidt, Handbuch des Handelsrechtes, second edition, Stuttgart, 1883, vol. ii. part. i. p. 26 in the note.
• 4This consideration of itself suggests the indefmiteness of what is usually called Undertaker’s Profit. In the Limited Liability Company this “ wage of intellect “ is measured and paid, but the varying dividend shows that it by no means exhausts this “profit.” The solution probably is that the attempt to assess undertaker’s wage on any principle is hopeless in present circumstances. It is a “ glorious risk,” depending, among other things, on adroitness, foresight, opportunity, and exploitation of labour—four factors scarcely reducible to figures. But with this line of thought, interesting and important as it is, we have nothing to do here.
• 5Physical productivity manifests itself in an increased quantity of products, or, it may be, in an improved quality of products. We may illustrate it by the well-known example given by Koscher: “Suppose a nation of fisher-folk, with no private ownership in land and no capital, dwelling naked in caves, and living on fish caught by the hand in pools left by the ebbing tide. All the workers here may be supposed equal, and each man catches and eats three fish per day. But now one prudent man limits his consumption to two fish per day for 100 days, lays up in this way a stock of 100 fish, and makes use of this stock to enable him to apply his whole labour-power to the making of a boat and net. By the aid of this capital he catches from the first perhaps thirty fish a day.”
• 6Of Say’s two chief works, the Traité d’ Economie Politique and the Cours Gomplet d’Economie Politique Pratique, it is on the former that we must rely almost exclusively for a statement of his views. The Gours Gomplet avoids suggestive expressions almost entirely.
• 7So far as I know, the old Roman sources of law do not put this fiction formally. They say quite correctly of it that, in the loan, tantundem or idem genus, not simply idem is given back. But at any rate the fiction is there. If, e.g. the so-called depositum irregulare, where the depositary was allowed to employ on his own account the sum of money given over to his safe keeping, and to replace the deposit in other pieces of money, was treated as a depositum, this construction can only be explained by supposing that the lawyers invoked the assistance of the fiction whereby the pieces of money replaced were considered identical with those given in for safe keeping. Modern jurisprudence has occasionally gone farther, and spoken explicitly of a “legal identity “between fungible goods.
• 8The question now is, Is such a dividend pure interest? Here we have to reckon with the familiar fact that limited companies, under similar conditions, pay the most various rates of dividend. If then we accept “dividend” as the equivalent of “interest” we shall have to conclude that varying rates of interest are obtainable on equal amounts of capital. On looking closer, however, we find the dividing line again reasserting itself. If a sound industrial company is known to be paying a dividend higher than a certain definite percentage on its capital, the value of the stock, or parent capital, will rise to the point where dividend corresponds to an interest no greater than this definite percentage—e.g. the £100 stock of a great railway paying 5 per cent will rise to something like £125, at which price the 5 per cent dividend on the original capital shows a return of 4 per cent on the new value of the capital.