An Introduction to the Theory of Value

on the Lines of Menger, Wieser, and Böhm-Bawerk

First Edition – 1891

by William Smart (1853-1915)


ITV-E1-15.1 Thus we have found that what determines the value of productive goods where the product is one single good directly connected with them, and what determines it in the most complicated cases where the conduction of value is, first, to means of production and, then, back again to product, is always the marginal utility, the utility of the marginal product. As the vineyards of Tokay get their value from the wine of their grapes, and as cotton gets its value from the bare backs it covers, so do iron, coal, and labour get their value in the last resort – far as may be the course from post to finish – from the last employment into which they enter.
ITV-E1-15.2 But the emphasis necessary to prove a difficult proposition may have given the impression that the present law may have given the impression that the present law is put forward in opposition to the old law of costs of production, and that both laws cannot be true. It may, then, be as well to remember that the whole of this book is a quest for the fundamental law of value. In the complicated circumstances of modern industry it is not easy to see the real nexus of cause and effect. In a developed market, where production speculates on demand, value naturally assumes the appearance of being determined beforehand. Human wants are tempted, as it were, instead of giving the initiative. Thus the impression is easily got, and with difficulty got rid of, that human want will pay the price which production dictates, the fact being that production must, in the long run, conform to the nature and measure of human want. And thus also, I am afraid, comes the idea, certainly common among the employing classes, that wages are dictated by them from above, instead of being produced by the labourers themselves – an idea degenerating in many cases into the belief that combinations of workers to secure their share in the product are illegitimate interferences with capital.
ITV-E1-15.3 What is contended is that the Law of Cost is a good working secondary law as regards articles reproducible at will under large and organised production; that is, of course, as regards the vast majority of goods produced. But it has always been taught by economists that it did not hold outside these cases. On the other hand, the Law of Marginal Utility is claimed as the universal and fundamental law of value. It has not been difficult to prove its validity in the simpler cases, and if now, in the later chapters, our law has been shown to be the real background of the empirical Law of Cost, the contention of the book is justified.
ITV-E1-15.4 And thus, as representing, however humbly, the modern Austrian school, I may close with the words written by our own Jevons twenty years ago. “Repeated reflection and inquiry have led me to the somewhat novel opinion, that value depends entirely upon utility. Prevailing opinions make labour rather than utility the origin of value; and there are even those who distinctly assert that labour is the cause of value. I show, on the contrary, that we have only to trace out carefully the natural laws of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence. This theory is in harmony with facts; and, whenever there is any apparent reason for the belief that labour is the cause of value, we obtain an explanation of the reason. Labour is found often to determine value, but only in an indirect manner, by varying the degree of utility of the commodity through an increase or limitation of the supply.”

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