The Positive Theory of Capital

CHAPTER II

NATURE AND ORIGIN OF SUBJECTIVE VALUE

ALL goods without exception—indeed according to the very conception of them as “good”—possess a certain relation to human wellbeing. There are, however, two essentially distinct grades of this relation. A good belongs to the lower grade when it possesses the general capacity to subserve human weal. The higher grade, on the other hand, demands that a good should be more than merely a sufficient cause; it must be an indispensable condition of human wellbeing—a condition of such a kind that some gratification stands or falls with the having or wanting of the good. In the expressive vocabulary of everyday life we find a separate designation for these grades. The lower is called Usefulness, the higher Value. This distinction, already recognised in common speech, we must try to make as clear and well-marked as its fundamental importance for the whole theory of value deserves.

A man dwells beside a bubbling spring of water. He has filled his cup, and the spring goes on pouring out enough to fill a hundred other cups every minute. Another man is travelling in the desert. A long day’s journey over glowing sand still divides him from the nearest oasis, and he has come to his last cup of water. What is the relation in each case between the cup of water and the wellbeing of its owner?

A single glance shows us that the relation is very dissimilar; but wherein lies the difference? Simply that, in the former case, we have only the lower grade of the relation we call wellbeing, that of usefulness; in the latter case we have the higher grade as well. In the first case, just as in the second, the cup of water is useful, that is, capable of satisfying a want, and, moreover, in exactly the same degree; for evidently the refreshing qualities of the water—the qualities on which its capacity to quench thirst is based, such as coolness, taste, etc.—are not in the least degree weakened by the fact that other cups of water chance to possess similar properties; nor, in the second case, are these refreshing qualities in the least augmented by the accidental circumstance that there is no other water near. On the other hand, the two cases become essentially distinct when considered with reference to the second grade. Looking at the former case we must say that the possession of the cup of water does not provide the man with one single satisfaction more, nor its loss with one satisfaction less, than he could have obtained without it. If he has that particular cup of water he can quench his thirst with it; if he has not that cup—well, he can quench his thirst quite as well with one of the hundred others which the spring puts freely at his disposal every minute of the day. If he likes, therefore, he may make that one cup the cause of his satisfaction by quenching his thirst with it; an indispensable condition of his satisfaction it cannot be; for his wellbeing it is dispensable, unimportant, indifferent.

It is quite otherwise in the second case. Here we must say that, if our traveller had not that one last cup, he could not quench his thirst; he must bear its pangs unassuaged, perhaps even succumb to them. In the cup of water then, in this case, we see not merely a sufficient cause, but the indispensable condition, the sine qua non of human wellbeing. Here it is of consequence, even of urgency; it possesses importance for his wellbeing.

Now it is not too much to say that the distinction here drawn is one of the most fruitful and fundamental in the whole range of our science. It does not owe its existence to the microscope nor to any hair-splitting distinctions of the logician. It has its life in the world of men, who know it and use it and take it as guide for their common attitude towards the world of goods, not only as regards the intellectual estimate they apply to these goods, but as regards their actual business transactions. About goods which are only useful the practical business man is careless and indifferent. The academic knowledge that a good may be “of use” cannot evoke any efficient interest in the good, in face of the other knowledge that the same use may be obtained without it. Such goods are practically naught as regards our wellbeing, and we treat them as such; we are not put about when we lose them, and we make no effort to gain them. Who would fret at, or make an effort to prevent, the spilling of a cup of water at the spring, or the escape of a cubic foot of atmospheric air? Where, on the other hand, the sharpened glance of the economic man recognises that some satisfaction, well-being, gratification, is connected with a particular good, there the effective interest which we take in our own wellbeing is transferred to the good which we recognise as its condition; we see and value our own welfare in it; we recognise its importance for us as value; and finally, we develop an anxiety, proportioned to the greatness of that importance, to acquire and hold the good.

Thus, formally defined, value is the importance which a good or complex of goods possesses with respect to the wellbeing of a subject. Any addition to this definition, regarding the kind and reason of the importance, is, strictly speaking, not necessary, since goods can only have an effective importance for human wellbeing in one way, viz. by being the indispensable condition, the sine qua non, of some one utility which subserves it. In view of the fact, however, that in other definitions of value it is very often translated as an “importance,” while the importance spoken of rests, erroneously, on a simple capability of utility, or, not less erroneously, on the necessity of expenditure of costs, or the like,1 we shall define it, un-ambiguously and exactly, as: That importance which goods or complexes of goods acquire, as the recognised condition of a utility which makes for the wellbeing of a subject, and would not be obtained without them.

All goods have usefulness, but all goods have not value. For the emergence of value there must be scarcity as well as usefulness—not absolute scarcity, but scarcity relative to the demand for the particular class of goods. To put it more exactly: goods acquire value when the whole available stock of them is not sufficient to cover the wants depending on them for satisfaction, or when the stock would not be sufficient without these particular goods. On the other hand, those goods remain valueless which are offered in such superfluity that all the wants which they are fitted to satisfy are completely supplied, and when, beyond that, there is a surplus which can find no further employment in the satisfaction of want, and which, at the same time, is large enough to spare the goods or quantities of goods that we are valuing without imperilling the satisfaction of any one want.

After what has been said as to the nature of value, it should not be very difficult to prove these propositions. When the supply of goods is not sufficient, and some of the wants which they are adapted to satisfy must remain unsatisfied, it is clear that the loss of even a single good involves the loss of a possible satisfaction, while the addition of a single good involves the acquisition of a satisfaction otherwise impossible; and it is clear, consequently, that some gratification or form of wellbeing depends on the existence of that good. Conversely, it is quite as clear that, if goods of any class are to be had in superfluity, there is no harm done if one of the goods be lost—since it can be immediately replaced from the superfluous stock; nor any utility got if another such good be added—since it cannot be employed in any useful way. Suppose, for instance, that a peasant requires ten gallons of water per day, and no more, for general purposes—say, for his own drinking, for that of his family and servants, for watering his cattle, for cleansing, flushing, etc.—and suppose that the only spring within reach supplies no more than eight gallons a day. It is quite evident that he cannot spare one single gallon from his water-supply without suffering, to a more or less sensible extent, as regards the wants and aims of his economy. Every gallon in this case is the condition of a definite sphere of usefulness. Even if the spring supplied just ten gallons this would still be true. But if the spring supplied twenty gallons per day, it is just as obvious that the loss of one gallon would not do the slightest injury to our peasant. He can only employ ten gallons usefully, and he must let the other ten gallons flow away unused. If one gallon is spilled it is replaced from the overflow, and the only effect is that now the unusable surplus is reduced from ten gallons to nine.

Now as it is the insufficient, or the barely sufficient, goods that are the objects of economical care—the goods we “economise” or endeavour to acquire and keep,—while such goods as are to be had in superfluity are free to everybody, we may express the above propositions shortly in the following form: All economical goods have value; all free goods are valueless.2 In any case it must steadily be borne in mind that it is only relations of quantity that decide whether any particular good is merely capable of use, or is also the condition of a utility for us.3

4 See Conrad’s Jahrbücher, vol. xiii. p. 11.

5 Some very interesting phenomena of value may, in certain circumstances, be exhibited by free goods also. For the explanation of this see my Grudzüge, p. 15.

6 Those numerous writers of whom Scharling is the latest instance (Conrad’s Jahrbücher, vol. xvi. pp. 417 and 513, and particularly 424, 430, 651), who say that the distinguishing criterion of “economical” and “valuable” goods is difficulty of attainment, the necessity of expending labour, and the like, are giving a secondary ground of definition instead of the really decisive and primary one. It is only when and because we are suffering, or fear to suffer, loss of satisfaction from insufficient supply of goods that we decide, generally speaking, to submit to the hardships of acquiring them, to labour, and so on. Labour and hardship could not by themselves confer an economical character on goods were it not that, for the most part, another circumstance, and that the really decisive one, is also present; in other words, that those kinds of goods, which are difficult or troublesome to obtain, are, at the same time, the goods that remain scarce. That, however, it is not the difficulty but the scarcity that decides is vividly shown in those cases—not, I grant, very common—where the technical circumstances are of such a nature that the good can be got only, indeed, by conquering difficulties, but then in superfluous amount. When the peasant obtains good drinking water, e.g., by bringing it along a pipe to a house, it may occasion him a permanent expenditure of labour and costs for construction, upkeep, and management of the water-supply. But if this brings the water in greater quantity than he requires, it will not occur to the peasant, in spite of the labour, that he must “economise” the water.

• 1See my Capital and Interest, 1890, p. 111.
• 2P. 219 (German edition, p. 266). See also my Hechte und Verhältnisse, p. 51. Innsbruck, 1881.
• 3Cossa [La Nozione del Capitale), Saggi di Ee. Pol., p. 157, has the definition: “Capitale è un prodotto impiegato nella produzione.” Ricca-Salerno (Sulla Teoria del Capitale, 1877, p. 51) says: “Il capitale è ricchezza prodotta applicata alla produzione.” Rodbertus, whose opinion I am inclined to put particularly high, because, although not altogether happy in his solution of the problems of capital, he had an insight into its essence such as scarcely any one before him had, explains (Das Kapital, p. 234, also Zur Beleuchtung der soz. Frage, p. 98) that “Capital (materials and tools) is product which serves for still further production.” A. Wagner, also, who has done good service in the theory of capital (Grundlegung, second edition, p. 38), calls capital a “Stock of economical goods, which serve as instruments to the making or acquiring of new economical goods.” In the most recent Italian monograph on capital, Supino (Il Capitale nell’ Organismo Economico e nell’ Economia Politica, 1886, pp. 9 and 17) defines capital again as “Il prodotto del lavoro passato che serve a produzione successiva,” or as “ricchezza impiegata produttivamente allo scopo di ricavarne un profitto.” Of other prominent modem writers may be mentioned Pierson (Leerboek der Staathuishoudkunde, Haarlem, 1884, p. 157); Schönberg (Handbuch, second edition, p. 209), “Capital is a material means of production, obtained by human labour, which, employed as such, is destined to give a return to its owner”; E. Sax (Grundlegung der theoretischen Staatswirth-schaft, pp. 115, 315, 323, etc.) Of recent French writers on the subject Gide (Principes d’Économie Politique, Paris, 1884) recognises the two varieties in the conception of capital with a clearness rare even in French literature, and distinguishes them as “capitaux simplement lucratifs” and “capitaux productifs.” “Les premiers,” he says, “sont ceux que rapportent un revenu á une personne; les seconds sont ceux qui prodnisent one richesse nouvelle dans le pays” (p. 148). His only failure is that he would recognise productive capitals alone as “true” capitals.In English literature our conception of capital (without, of course, any clear distinction being kept between its two varieties) is almost exclusively the prevailing one; this is so well known that I may spare quotations. Generally speaking, it is very significant of the state of “public opinion” in the matter that not long ago Kleinwächter (Schönberg’s Handbuch, second edition, p. 210) could explain “Common usage in political economy to-day considers it an essential characteristic of capital that it is a material means of production.” The only difference of opinion is as to whether land should be reckoned as capital or not. Finally, I think I may ventare to express the opinion that even the fore-most representative of a rival definition, Knies, is in opposition to us more in form than in matter. It is he at any rate who has, in a masterly manner, developed the idea—the really important one in our statement of the conception—that, in defining capital, we must define that which is the object of those problems that “have appeared on the scene under the name of capital” (Das Odd, p. 19).
• 4When we are told that capital assists in the production of wealth, and then again that it assists in the obtaining of wealth for its owner, we are apt to jump to the conclusion that the two phenomena are intimately and essentially connected, and that the one is the immediate result of the other—that capital can bring wealth to its owner because capital assists in the production of wealth. As a fact, Political Economy has taken up this idea only too readily and too completely. Captivated by the deceptive symmetry that exists between the three great factors of production—Nature, Labour, Capital—and the three great branches of income—Rent, Wage, and Interest—the science, from Say’s day till the present, has taught that these three branches of income are nothing else than the payment for the three factors of production, and that Interest in particular is nothing else than the compensation which capital receives for its productive services when the product is divided out among society. Propounded by various interest theories in various forms this idea has found its most concise and, at the same time, its most naive expression, in the well-known “Productivity theories”—those theories which explain interest directly as the natural fruit of a productive power peculiar to and resident in capital.
• 5The theory of the use of goods I have already gone into at length in Capital and Interest. I there showed that material goods are nothing else than such distinct forms of matter as admit of the natural powers residing in them being directed to human advantage. I showed how the “use” they afford is realised through concrete activities of these natural powers, and, therefore, by real forth putting of power. I showed how a use (Gebrauch or Nutzung) cannot be made of them otherwise than by taking the peculiar forms of the energy of the good at the proper moment, supplying the conditions necessary to render them available where they previously existed in an unavailable form, and then bringing these forms of energy into proper connection with that object in which the useful effect is to take place. On these considerations I based the conception of the “Material Services” (Nutzleistungen) which I believe to be the only one that corresponds with facts, and rejected certain shadowy ideas which connected the old theory of interest with the word “Uses” of goods. What remains for us here is, on the same lines, to lay down certain fundamental ideas as to the origin of material goods.
• 6Again, the solution suggested is the most conservative one. Without laying any particular weight on the fact that the historical origin of the word Capital indicates a relation to an acquisition or a gain, and that our reading remains true to this, it preserves the double relation—the relation to acquisition of interest on the one side, and to production on the other—which was imported into the conception of capital by Adam Smith, and since his time has been adopted in scientific usage. It is no inconsiderable advantage, then, that we do not require to create a majority in its favour by a revolution in terminology; the majority is already with us, and the conception may easily be carried unanimously if we add some new unbiassed members. Here, too, it is worthy of particular attention that those writers who have occupied themselves professedly and most profoundly with the investigation of the conception of capital and its problems, have ended, almost without exception, by adopting exactly the same conception, or at least one which comes very close to it.