An Introduction to the Theory of Value

POLITICAL Economy is based on the analysis of economic conduct. As has been said, we are not at liberty to lay down new categories or even to give new names to economic phenomena. We have to take our categories and our vocabulary alike from the industrial and commercial world, and our most original work in this department is no more than the interpretation of a life which is, for the most part, unconscious of its own laws: a category of “the useful” or “the valuable” which practical people did not recognise as containing useful and valuable things and no other, would be quite unscientific. True, the economist has sometimes to show that the practical world is unfaithful to its own principles, but he can do so only after extended study of the economic organism has yielded these principles. The theory of value, therefore, must begin with a careful analysis of what the word means in the mouths of ordinary people.

A man values food, clothing, shelter, and the like, because they minister to his physical life, and he values music and books because they minister to what he calls his “higher life.” As a nation, we value our service rifle because it can kill at so many hundred yards, and many forms of art and literature are highly valued because they minister to corrupt desires and moral decay. A collector values a piece of ugly china because it is old and rare, just as most women value their diamonds because everybody cannot wear diamonds.

Taking these instances as fairly typical, and collating the common ideas out of them, we seem to learn three things about value.

First, that, in probably the great majority of cases, the word has some direct or indirect reference to human life. On the whole, one would be inclined to say that the root idea of the valuable is that which avails towards life.

Second, that men, as not only imperfect in nature but erring in judgment, have made an easy extension of the term “human life” to cover “human desire,” and count things valuable because they satisfy some want or other. The economic “want” is not necessarily a rational or a healthy want—and political economy, as primarily analytic, must not be censured for the statement, nor condemned as if it approved of the fact—but simply a want, and the things which satisfy such wants we call “goods.” The desirable is interpreted in economics by the desired.

Third, that the element of scarcity somehow plays a large part in many, and seems to have a share in all, estimates of value.

Were it not for this element of scarcity one might conclude that the “valuable” and the “useful” were synonymous terms. Few writers have been careful to keep the two conceptions sufficiently separate, and the distinction which we have now to draw, while contained in Ricardo, was not scientifically formulated till the appearance of Menger’s Grundsätze in 1871.

The economically Useful is that which is capable of satisfying the want of man—always meaning by “want “no more than “desire.”1 Corresponding with this conception, economically, is that of the “Good.”2 To constitute a good, four things, according to Menger, are required: (1) a human want, (2) certain properties in an object which make it capable of satisfying a human want, (3) the knowledge of this capability, (4) power to dispose of this object in the satisfaction of want.

In these two conceptions, the Useful and the Good, there is no reference to scarcity.

We shall find the Valuable separating itself naturally from the Useful if we look at what are called the free gifts of nature. Air, water, light, are recognised by every one as useful. But are they valuable? Most people—economists without knowing it—would answer in the negative, although certainly there is reason to suspect that they base this answer on the fact that they “could not get anything for them.” Again, those scarce things which we seem to value just because they are scarce (as rare statues, pictures, books, coins, wines made from grapes of one limited locality, etc., to use Ricardo’s examples), have always a background of usefulness, as satisfying some social, or class, or individual desire

Evidently Usefulness or Utility is the larger conception of the two, and embraces Value. But if all valuable things are useful, while all useful things are not valuable, value must emerge at some particular limiting point of utility. Value, then, will be based on utility—utility limited in some particular way, but still utility.3

4 “Anything which an individual is found to desire and to labour for must be assumed to possess for him utility. In the science of Economics we treat men, not as they ought to be, but as they are.”—Jevons, Theory, 2d Edition, p. 41.

5 It is one of the difficulties of our economic vocabulary that, where we wish to express the singular of “goods,” we have to use “commodity” or some such word. In my translations, I have made no scruple of rendering the honest German Gut by its literal equivalent, and it is in this sense that the word is used above and throughout this book. It will be noted in what follows that there is a difference between simple goods and “economic goods.”

6 It is perhaps a pity on two grounds that the word “utility” should have been adopted by economic science:—(1) that the word seems to suggest things really useful, when it means no more than things desired, bought, and sold; (2) that it has so often suggested to shallow thinkers that Political Economy is a “sordid science” whose investigations do not go beyond mere material considerations

• 1The division is as old as Aristotle. “Of everything which we possess there are two uses both belonging to the thing as such, but not in the same manner; for one is the proper and the other the improper or secondary use of it. For example, the shoe is used for wear, and it is used for exchange; both are uses of the shoe.”—Polities (Jowett), § 9.
• 2“Value is the life-giving power of anything; cost, the quantity of labour required to produce it; price, the quantity of labour which its possessor will take in exchange for it. ‘Value’ signifies the strength, or ‘availing’ of anything towards the sustaining of life, and is always twofold; that is to say, primarily, intrinsic, and secondarily, effectual. Intrinsic value is the absolute power of anything to support life. A sheaf of wheat of given quality and weight has in it a measurable power of sustaining the substance of the body; a cubic foot of pure air, a fixed power of sustaining its warmth; and a cluster of flowers of given beauty, a fixed power of enlivening or animating the senses and heart. It does not in the least affect the intrinsic value of the wheat, the air, or the flowers, that men refuse or despise them. Used or not, their own power is in them, and that particular power is in nothing else. But in order that this value of theirs may become effectual, a certain state is necessary in the recipient of it. The digesting, breathing, and perceiving functions must be perfect in the human creature before the food, air, or flowers can become of their full value to it. The production of effectual value, therefore, always involves two needs: first, the production of a thing essentially useful; then the production of the capacity to use it.”—Munera Pulveris, i. § 12.
• 3For instance—to say nothing of the fact that all economic ends must be subjective—of the four ways indicated above in which Well-being may be conceived, the three first may be considered objective as compared with the subjective fourth, while the wellbeing of man generally—particularly the ideal good—may very well be called the only objective end in contrast to the accident of a technical result. But, as it is impossible to keep the economic vocabulary clear of the philosophical, we may be satisfied if these names are definite enough to keep before our minds the broad lines of the division indicated above.
• 4“The word Value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called ‘Value in use,’ the other ‘Value in exchange.’ The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use, but a very great quantity of goods may frequently be had in exchange for it.”
• 5But although it is almost impossible to use the term without suggesting an inherent property, Value in all its forms implies a relation. The word seems to arise fundamentally in the relation of Means to End, and will accordingly take various forms according to the “end” conceived of. This end may be, directly, the Wellbeing of man, whether conceived of as the ideal good of humanity, or the social ideal current at the time, or the realisation of individual character, or merely the gratification of individual desire. Or it may be some mechanical or technical result, which has no direct reference to personal wellbeing, or at least admits of being considered, for the moment, as a merely objective or intermediate result. Corresponding to these two classes of “ends,” we may divide the phenomena of value into Subjective—or Personal—Value and Objective Value. The expressions are not by any means perfect, but they are the terms generally used by the Austrian school, and they are perhaps the best we can get.
• 6But although it is almost impossible to use the term without suggesting an inherent property, Value in all its forms implies a relation. The word seems to arise fundamentally in the relation of Means to End, and will accordingly take various forms according to the “end” conceived of. This end may be, directly, the Wellbeing of man, whether conceived of as the ideal good of humanity, or the social ideal current at the time, or the realisation of individual character, or merely the gratification of individual desire. Or it may be some mechanical or technical result, which has no direct reference to personal wellbeing, or at least admits of being considered, for the moment, as a merely objective or intermediate result. Corresponding to these two classes of “ends,” we may divide the phenomena of value into Subjective—or Personal—Value and Objective Value. The expressions are not by any means perfect, but they are the terms generally used by the Austrian school, and they are perhaps the best we can get.