Natural Value (1889)

by Friedrich von Wieser (1851-1926)

Book III: The Natural Imputation of the Return from Production

Chapter IV
Previous Attempts at Solution

NV-III-4.1 The only writer who has made any attempt at an exhaustive treatment of the problem now occupying our attention is Menger. In this Menger starts from the fundamental idea of his theory of value. Supposing that I possess a stock of consumption goods, the clearest way of finding the value of one single item of the stock is by assuming that I lose it. In this way I find what enjoyment depends upon this item – the marginal enjoyment already described, – and find at once the source and amount of its value. This method of determining value Menger now applies to the more complicated case in which one has to decide the value of a single item, among several co-operating production goods. Here also he asks what would be the consequence of losing a single item, or a definite portion of any such item, from among the entire group of available goods (land, seed, agricultural implements, labour, cattle, manure, and so on) – e.g. a cart-horse or quantity of manure. The decrease in the total return which would take place, gives him the amount of return which the owner feels to be dependent upon the possession of the item in question, and gives him at the same time the foundation of its value.
NV-III-4.2 In applying this Menger has arrived at some very remarkable and important results. No production good can work by itself: to accomplish anything every good requires the co-operation of others; and, in so far as production goods mutually demand and supplement each other, they are, to use Menger’s expression, “complementary goods.” At the same time the combinations which they enter into are less strict than might be expected. If a single good falls out of a productive group of goods, the efficiency of the remaining goods is not, as a rule, completely destroyed thereby. It happens frequently that the group may still remain a group, and still be effectively employed, although with somewhat diminished return, without the lost good being replaced at all. Land, e.g., yields some return even without manure, or without the whole amount of manure demanded by good farming. Or the loss may be made up, if not with quite the same effect, by the substitution of a good taken from some other group, in which latter group, naturally, the return must equally sink a little. Or it may happen that the goods left over become ineffective, or too little effective, when grouped as was originally intended, but allow of being annexed to other groups, whose return is thereby raised, although, perhaps, not by the entire amount of what was lost originally. Take, as example, agricultural capital and labour, which have lost their original employment through laying waste of the ground for which they were intended, and are turned to industrial purposes.
NV-III-4.3 It will be seen that the complementary nature of goods does not reach so far as at first sight might be supposed. Every single good requires the co-operation of others in order to be really of use, but the connection of the goods is not a very strict one. Only a portion of the return from the combination ever depends upon any one single element of production; never (except in a few cases which scarcely require to be considered) the entire return.
NV-III-4.4 What Menger has done is distinguished, as well by the logical sequence of his argument as by his skill in observation, and the lifelike interpretation of that observation. It brings light into the darkness of a subject which no other theorist could have faced, much less illumined. At the same time even Menger has not given the entire solution quite perfectly. An example will make this clear.
NV-III-4.5 Suppose three productive elements, employed in the most rational plan of production possible, promise in combination a product whose value amounts to 10 units of value. If the three elements were to be employed otherwise, in combination with other groups, they would certainly raise the return of these groups, but it is against our hypothesis – whichh is that of the most rational plan of production, – that the return can be raised by 10 units; otherwise the first combination chosen would not after all have been the best. There is always an infinite number of ways in which the elements in question can be grouped, but there is always one plan, and that the best, which should be carried out: if this be given up in favour of another, the result must be smaller, even if only to a trifling extent.
NV-III-4.6 Suppose, again, that the three elements are employed in some plan other than the best – which, be it remembered, demanded their being combined with one another in a distinct group. Say that, by being each separately employed in some other group, the return of each of these three groups is raised by 3 units, and the three elements accordingly now produce a return amounting to 9 units of value.
NV-III-4.7 How in this case will the value of each single item be reckoned according to Menger’s principle? By the decrease in return which ensues in the case of loss. In this case the decrease amounts to 10 units – the full return of the best combination now broken up – of which, however, 6 can be recovered by the new employment of the two remaining elements. The loss, therefore, amounts finally to 4, and this is true indifferently of any of the three goods. 12, then, is the value of the three taken together. But this is impossible, since, when most profitably employed, they can give only a return of 10.
NV-III-4.8 This mistake in the result proceeds from a mistake in the method. The normal and determining assumption on which one calculates the value of a good, is not that of its loss, but that of its undisturbed possession, and of the use it gives in fulfilling its end. The assumption of loss serves, in certain circumstances, to show more clearly the advantage of possession. I see more clearly what I have by possessing a thing when I imagine what would be the consequence if I ceased to have it. But this holds only under certain circumstances, namely, as regards a stock of goods of the same kind, where if, in imagination, I take away one good from the others, it is this one good alone and nothing else that is taken away. It does not hold in the case of a stock of heterogeneous and co-operating production goods, where if, in imagination, I remove one, I deprive the others also of a portion of their effect.
NV-III-4.9 The full effect of all the elements in any productive combination can only be realised when these elements remain together undisturbed; it is therefore impossible to discover what value I receive and enjoy from this undisturbed possession, if I begin by assuming the dissolution of the combination, and then ask what still remains. The question must be put positively: What do I actually obtain from the goods as they stand at my disposal? Those productive employments which stand first, – the employments which are most desirable and would be first chosen – decide the value; not those which stand second, and would be taken up only in the exceptional case of some disturbance of the original combination. Two persons who are both in exactly the same circumstances, and whose judgment agrees as to the best arrangements for production, must obviously ascribe precisely the same value to their productive possessions, although one of them should have something better to fall back upon in case the first plan falls through. According to Menger, however, the values, in this latter case, would require to be assessed differently, and indeed the higher valuation would be that of the person who had the least to fall back upon, because to him it would be much more important that the first plan should not fall through.
NV-III-4.10 The assumption of loss is sufficient if what is required is the dividing up of the return which the elements of one combination guarantee when put into other combinations; but it is of no use when what is wanted is to calculate as well the surplus by which the first-chosen combination excels all others. This surplus is left an undivided remainder of the return, and as regards it the problem of imputation is not solved, but comes up again for solution.1
NV-III-4.11 It needs only a very slight turn to correct the error in Menger’s theory. Every well-thought-out train of reasoning teaches by its very faults, as these faults also possess the first requisite of scientific insight, that is, clearness; and Menger’s theory contains in itself the indication as to how the error may be corrected. The deciding element is not that portion of the return which is lost through the loss of a good, but that which is secured by its possession.2

NV-III-4.n1.1 1 Menger reckons this undivided residue to each separate factor instead of charging it to the entire amount, and thus the value comes out too high. In our example the surplus equals 1 (10-9). Menger calculates it three times instead of only once; thus calculating two units too many, and showing a value of 12 where there is only a return of 10.
NV-III-4.n2.1 2 The other attempts at solution of the problem do not go beyond suggestions. In Böhm-Bawerk alone (Werth, p. 56) is there a more detailed statement, – and it professes only to point out the direction in which probably the solution of the problem might be sought – “To measure the share which each one of several co-operating factors takes in producing the common product.” Böhm-Bawerk, speaking first of some less important cases of “complementariness,” establishes firmly the fundamental maxim that no element in a group which admits, firstly, of a separate employment outside the group, and which, secondly, may be replaced at the same time in the group by other goods of the same nature – obtained from some outside source – can receive a value higher than its “substitution value.” By substitution value he means “that which is derived from the decrease of utility in those branches of production from which the substituted goods are procured.” Of such a nature are, e.g., the bricks destined for housebuilding. If some cartloads of these are destroyed, it will not hinder the building, as they are simply replaced by others. This proposition Böhm-Bawerk applies to the cases of productive complementariness, dividing the total amount of complementary production goods into two categories. Of these, one – which includes the overwhelming majority – containns those goods which, as marketable wares, are “replaceable at will”; e.g., “the services of hired labourers, raw materials, fuel, tools, and so on.” The other category – which contains the minority – includes those productive elements which “cannot be replaced, or are difficult to replace; e.g. the piece of land which the peasant cultivates, mines, railway plant, factories, the activity of the undertaker himself with his high personal qualities.” The value of those goods which belong to the first group is decided, in every case, through the other employments possible to them; it is, so far, fixed. This value is first deducted from the total return, and the residue then falls “to the member or members which cannot be replaced”; thus the “peasant ascribes it to his land, the mine-owner to his mine, the manufacturer to his factory, the merchant to his capacity.”
NV-III-4.n2.2 Similar ideas may be found more or less clearly stated by various writers; in the Ursprung des Werthes I have myself pointed to a similar solution. Probably we should not be far wrong were we to assume that the reason why so many writers have neglected to take up this problem of distribution, is that they supposed distribution in this sense to be as easily solved in theory as it is in practice. How is it, however, when several “unreplaceable” goods come together? Do not the mine and the activity of its owner, as employer, go together? And are not many – indeed very many – replaceable goods often combined? The value of these, which, practically, can always be ascertained by referring to their secondary employment and valuation, must, theoretically, be first separated from the combination, as again the secondary employment itself always requires combination with complementary goods, – but how can this be done unless the rules of distribution are known?
NV-III-4.n2.3 If these observations of Böhm-Bawerk can give no solution of the problem of imputation, they none the less contain an important and notable contribution towards its theory, for that could never be complete without recognising the distinction to which he has drawn attention. On this point see, in Book III. chap. xii., the examination of “cost goods and monopoly goods.”

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