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Natural Value (1889)

by Friedrich von Wieser (1851-1926)


Book III: The Natural Imputation of the Return from Production

Chapter VIII
The Principle of Solution (continued). Imputation and the Marginal Law


NV-III-8.1 In the case of production goods which are available, not individually but in stocks, imputation of the productive contribution follows the marginal law. To each single item or quantity is imputed the smallest contribution which, under the circumstances, can be economically aimed at by the employment of this particular item or quantity – the “Marginal Contribution” as I have already called it (Ursprung des Werthes, p. 177), or, looking at it from a different point of view, the “Marginal Product.” Böhm-Bawerk has drawn attention (Werth, p. 502) to the fact that this law of exchange value has long been recognised in the case of certain production goods: – “Thünen [Online editor’s note: German economist Johann Heinrich von Thünen, 1780/83-1850. – RTL], and all the body of economic doctrine after him, have taught that the rate of interest is decided by the productiveness of the last applied dose of capital, and the rate of wages by the return of the last labourer employed in the undertaking.” Now what is here conceded to a limited extent holds generally of all production goods, and for every form of value, as a law of natural valuation.
NV-III-8.2 It is self-evident that the marginal law which holds as regards produced consumption goods, holds also as regards the goods which produce them. We know that, in every stock of consumption goods, every unit receives its value from the marginal utility; thus the value which the products are expected to have is already adjusted to the marginal level, and the value of the production goods, as derived from this, is consequently placed, from the beginning, on the basis of the marginal value. If the communistic state wish to produce a million new rifles to one pattern, it will, in the calculations previous to production, reckon every individual rifle as equal in value; and thus it is, from the first, impossible that one quantity of metal destined to make these rifles should obtain a value different from any other quantity of like amount and quality. If from 1000 productive units 10,000 units of product are produced, each with a marginal value of 5 (the total value being exposed by the formula 10,000 × 5 = 50,000), the entire productive stock receives a value of 50,000, and each individual unit will be valued equally at 50.
NV-III-8.3 While this application of the marginal law to production goods results indirectly, through the medium of products, we have to consider a second and direct application. Production goods which are capable of being employed in many different ways, are used to create products of various kinds. In each kind, taken by itself, the value of the product is adjusted to the level of its particular marginal utility, but we need not expect – and, in fact, it would be essentially a mere chance – that the marginal amounts of all the different kinds should, when compared with each other, entirely agree. We have already shown (in Book I. chap. iv.) that only in a limited sense can one speak of a common level of household economy; and it is only in the same limited sense that we can speak of a common level of production. Production stocks must always be employed in such a way as to bring forward those products which will secure the greatest possible satisfaction of want. In particular, the destination of production goods to individual branches of production, – or, what is the same thing, the choice of the kind and amount of goods to be produced, and the investment of labour and capital in the individual classes and branches of production, – must always be weighed and decided with a view to providing the greatest possible satisfaction of wants. This does not, however, in the least imply that products must everywhere have the same marginal utility. Many products satisfy wants of trifling extent, where the satiation point is reached very speedily: others again satisfy wants whose receptive capacity is very great, and where the scale of satisfaction shows the finest shades of transition from the stronger intensities of desire downwards. To take as drastic an example as possible, compare the employment of gold in the filling of teeth with its employment for purposes of luxury. The two scales of satisfaction do not in the least correspond with each other, and it is quite impossible in the two kinds of employments to keep always exactly to the same marginal amount. All economic demands are fulfilled when care is taken that goods of less marginal utility are never produced from production goods which, if employed in producing other things, might have brought a higher marginal utility. It may, therefore, very well happen, and, in the case of all means of production which are capable of numerous and varied employments, it will always happen, that the marginal amounts in the different classes of production will differ from each other.
NV-III-8.4 Suppose, for example, that from one stock of iron are produced three kinds of products, which we may designate as A, B, and C; that, in kind A, the unit of iron receives a value of 10 – corresponding with the economically-attainable marginal utility of 10; – that in kind B the unit receives a value of 9 – corresponding with the marginal utility 9; in kind C, a value of 8 – corresponding with the marginal utility 8. Here we have a case where utility, at the stage of the products, is not yet completely adjusted to the marginal level, and where the equalisation must first take place directly and at the stage of the production goods. That the equalisation must ultimately take place cannot be doubted. It is quite impossible to estimate one-third of the iron higher than another third; indeed, assuming it to be all of one quality, there would be no possible way of deciding which concrete portion of the stock should have the preference over the rest. So long as any appreciable quantity of the iron is destined to turn out products with a marginal utility of 8, no unit of the entire stock can be valued at a higher return. To every unit in such a case must be imputed the marginal return of 8, and the value of the entire stock is found by multiplying the number of units which it contains by the marginal value 8.1
NV-III-8.5 The fact that the marginal law applies, partly directly partly indirectly, to production goods also, first renders it possible for value actively to fulfil its peculiar economic service, as the form in which we calculate utility and the means by which we control it. Compared with stocks of consumption goods, stocks of production goods are larger, more concentrated, and more homogeneous. In the household of an individual there are not many stocks of anything, but the elements which produce almost all he possesses are accumulated in stocks – in the hands of producers sometimes in enormous stocks, – and thus become subject to the simplified calculation of value, where the economic amount of each stock is expressed by a multiple of its amount and marginal value. And thus, through the law of costs (see note below), products also are subjected, in great numbers, to this simplified form of calculation.
NV-III-8.6 We constantly see producers making calculations as to their warehouses, materials, plants, and stocks in this simple way; namely, by taking the amount and the price of the unit, and putting down as the total value the amount obtained by multiplying the one into the other. This observation by itself is sufficient proof of the wide extent to which the marginal law obtains in the economy of to-day. Not only are prices decided by a marginal law, but, by means of prices, the whole sphere of production, which makes its calculations throughout in terms of price, is based all through on a marginal valuation. Is it not worth while to discover what is meant by the application of a marginal valuation such as this? And is it not satisfactory to know that the naive form of estimating goods, pursued from time immemorial in virtue of the original prompting of man’s nature, is a wonder of simplicity and appropriateness?



NOTES:
NV-III-8.n1.1 1 This is one of the most pregnant applications of the marginal law; we shall return to it again and again later on, particularly in the fifth book, where we consider the subject of costs. To assist our comprehension of the law of costs, we may here anticipate so much as to say, that the productive marginal value on its part has a levelling effect upon the value of products. In the above example the value of the marginal utilities 10 and 9, in kinds A and B respectively, will be alike pressed down to the productive marginal amount of 8.



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