Natural Value (1889)

by Friedrich von Wieser (1851-1926)

Book II: Exchange Value and Natural Value

Chapter V
The Service of Exchange Value in General Economy

NV-II-5.1 If we consider the elements which go to form exchange value, we are forced to the conclusion that the charge of antinomy is not the heaviest that may be raised against it. Entirely apart from this, the law of its formation remains such that, even in the most favourable circumstances – say when there is no disturbing element, no suspicion of force, dishonesty, or error, and when the transaction is one we are accustomed to call free and just, – exchange value is calculated to render its service in economic life only in an imperfect manner, and with consequences which society feels to be serious evils.
NV-II-5.2 It must be premised that the service rendered by exchange value to general or industrial economy, as compared with the service rendered by subjective value to the self-contained economy, is greater by one additional task. In the latter, value has only to measure outlay and return materially against each other; in the former, it must also do so personally. The material or economic-technical service of exchange value relates chiefly to production. Here it has the function of control. It gives the measure for production and for expenditure of costs. Goods should be produced according to the rank of their value, and other goods should be sacrificed for them as costs only in so far as the comparison between the value of amount produced and the value of costs allows. The personal service of exchange value, on the other hand, comes in, principally, in the distribution of the products acquired among the separate individuals taking part in the exchange; in this case value is the measure of the personal acquisition. To every participator in the great economic process must be assigned a return equal in value to the amount of his outlay – whether it be outlay of wealth or expenditure of labour.
NV-II-5.3 The exchange value of all goods which are brought upon the market in stocks or quantities, is measured as a marginal value. That is to say, each unit of the stock is valued at the same as the marginal equivalent, and the whole stock is estimated as a multiple of the unit, – as product of the amount into the unit value. So far exchange value gives the same appropriate and faultless assistance in the economic calculation as marginal value generally does. Its applicability to this kind of calculation is indisputable. It is, then, unnecessary to repeat in detail what has already been said on the subject in general in in Book I. chapter xi.
NV-II-5.4 In order, however, properly to appraise the service of exchange value in economic life, it must be remembered that it does not contain exactly the same elements as does value in use in the self-contained economy. The latter simply depends upon utility: the former is besides dependent upon purchasing power (see Book II. chap. i.). Value in use measures utility; exchange value measures a combination of utility and purchasing power. The stock which is greater in use value (in the “up grade"”) is also always the richer in utility; the stock which is greater in exchange value is not necessarily so. In the latter case the higher value may arise from higher utility, but it may also arise from the greater wealth of the buyers, and the strong inducement held out to them to throw their riches into the balance in the war of competition.
NV-II-5.5 In the material service of exchange value, as well as in the personal, this peculiar method of its formation obtains importance. As a consequence of it, production is ordered not only according to simple want, but also according to wealth. Instead of things which would have the greatest utility, those things are produced for which the most will be paid. The greater the differences in wealth, the more striking will be the anomalies of production. It will furnish luxuries for the wanton and the glutton, while it is deaf to the wants of the miserable and the poor. It is therefore the distribution of wealth which decides how production is set to work, and induces consumption of the most uneconomic kind: a consumption which wastes upon unnecessary and culpable enjoyment what might have served to heal the wounds of poverty.1
NV-II-5.6 It may be of interest to follow somewhat more particularly the law of distribution, in so far as it is conditioned by the law of exchange value. The favouring of the rich, and with it the perverted employment of goods, really goes much further than the mere fact of wealth would allow one to suspect. The rich have not only the advantage over the poor of possessing more means wherewith to purchase goods; they have the further advantage of being for the most part in a more favorable position to utilise their means. In the battle of price the decision lies with the weakest buyers, who are, as a rule, also the poorest; and price is adapted to their valuation. They must, therefore, pay for the goods exactly as highly as they value them, while their stronger competitors, who pay the same price, pay under their personal valuation. The beggar and the millionaire eat the same bread and pay the same price for it; the beggar according to the measure of his hunger, and the millionaire according to the same measure – that is, according to the beggar’s hunger. The price which the millionaire might be willing to pay for the bread, supposing he were hungry and driven to offer his maximum, never comes into the question. It is only where the rich compete among themselves for luxuries which they mean to reserve for their own enjoyment, that they pay according to their own ability, and are measured according to their own personal standard.
NV-II-5.7 But the more the ability of the rich is spared in the purchasing of necessaries, the greater are the means which they have over, wherewith to extend and increase the prices they offer for luxuries, and the more defective is the impulse given by consumption to production.
NV-II-5.8 The law of value in the individual economy is strict, but its strictness is undoubtedly necessary and salutary. It forbids satisfaction to go beyond a certain marginal point, namely, the point beyond which, when everything, including the future, is carefully weighed, the means possessed at the moment will not suffice. Any violation of this prohibition brings its own punishment, when, to make up for the trifling want that has been rashly satisfied at the moment, a far more urgent desire later on has to go unsatisfied. The law of price follows the law of value in demanding a marginal point beyond which purchase must not go, but it does not present the same unquestionable and material necessity; and the natural and reasonable strictness of the prohibition is thereby changed into what seems personal and inconsistent severity. The man who cannot furnish the price paid by the marginal buyer is excluded from competition within the economic circle, just as, in the individual household, the quite trifling desires are excluded from satisfaction. As in the household there are marginal wants, so in economic life are there marginal entities, and anything below that level is permitted to exist only by way of charity. But while, in the individual household, the marginal line is drawn naturally, in economic life generally it is influenced also by the manner of the distribution of wealth. In the midst of the comfort and luxury of the opulent classes, law condemns the poor to a restriction, as though there was no affluence, and nature herself forbade the greater satisfaction.
NV-II-5.9 These are the charges which may be brought against the law of exchange value. They would soon make short work of it could we not answer them. The examination of these charges and their answer does not, however, belong to the theory of value, but to the greater theory of economics and economical laws; and this book does not propose even to exhaust the theory of value. I only wished to explain the elements in the formation of exchange value so far as is necessary to show clearly what I should like to be understood by the term “Natural Value.” We have now arrived at this point, and need hesitate no longer in presenting to the reader my explanation of the expression. The thing itself is not new to us; the value which we looked at in the first book, under the elementary theory, is natural value.

NV-II-5.n1.1 1 On the effect of exchange value on distribution see Böhm-Bawerk’s Werth, p. 510.

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