An Introduction to the Theory of Value

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

First Edition – 1891

by William Smart (1853-1915)

Chapter III
The Difference Between Utility and Value

ITV-E1-3.1 Utility and not Value, says Wieser, is “the supreme principle of all economy; where value and utility come into conflict utility must conquer.” The statement is a very suggestive one. The economic goal of civilisation is to turn the whole natural environment of man from a relation of hostility or indifference into a relation of utility. Certain goods we have from nature without money and without price, and the incessant effort of the industrial world is in the direction of bringing all goods nearer to that category. Indeed some of the necessaries of life have already been brought so nearly to that condition that states and municipalities occasionally pay the small remaining price, and distribute them as heaven does the rain. But the effort to cheapen production generally is nothing else than the effort to increase utility at the expense of value. For value reflects utility, but the mirror is too small to hold all the picture. To use Wieser’s words again, “Value is the calculation-form of utility” – an expression which will be appreciated if we realise how impossible it is to estimate the utility of a harvest, how easy to calculate its value.
ITV-E1-3.2 Value, then, is a much less comprehensive conception, and does not emerge till a certain limitation is put upon this utility. But the limitation is not an arbitrary one. To drain a river of a few hundred gallons, or even to drain it all but a few hundred gallons, will not necessarily give the remainder any value. To change utility into value there must be, not only a capability of satisfying want, but a felt dependence of some want on the particular good containing the utility. The proper relation of value to utility may be described as the relation of a positive condition to a capability. As capable of quenching thirst all water is useful, but it does not obtain any value till some limitation of the available quantity makes it the indispensable condition of a satisfaction. The water led into a city may come from a stream which, as a whole, flows to the sea unvalued, but, in this city, it conditions the wellbeing of thousands of people, and obtains a value from the satisfaction of wants that are dependent on it and conditioned by it.1
ITV-E1-3.3 If, then, the distinction between Value and Utility, so essential to clearness of thinking, is to be maintained, it will be by attaching the former to an indispensable and felt condition, the latter to a general capability of ministering to human wellbeing.
ITV-E1-3.4 Thus we may say that, while utility is the importance which a good possesses as generally capable of ministering to the wellbeing of a subject, Value is the importance which a good possesses as the indispensable condition of the wellbeing of a subject. Or more fully: Value is the importance which a good acquires as the recognised condition of something that makes for the wellbeing of a subject, and would not be obtainable without the good.2 It cannot be too firmly grasped then, that the relation between utility and value is quantitative, and that the same thing may or may not have value according to change of circumstances, or difference in points of view and comparison.
ITV-E1-3.5 It may be advisable to put this in another way. The first thing the economist sees in man is that he stands in a relation of want to the world outside him. Economically man is a complex of wants, some physical, some intellectual, some aesthetic, and so on. And the higher man rises in the scale of spiritual being, the more numerous and varied are his wants. Now want is in itself a painful feeling; at least, a feeling of incompleteness. As an animal man knows instinctively, and as an intellectual being he learns by experience, that certain things or arrangements in the outside world are the objects which such a feeling craves: as they are supplied to the organism in which the wants inhere, the feelings of want, gradually or immediately, fade away, and feelings of satisfaction or pleasure supervene. In time the satisfaction fades, the wants reappear, and the process begins over again. Thus the wants of man’s life, whether these wants are wise or unwise, natural or acquired, constitute a demand for satisfaction. Each individual has his quota of wants, and the sum total of all wants makes the community’s demand. To meet this demand the working portion of the community is set producing. The whole end and aim of the industrial organisation of society is to put the matter and forces of nature into shapes capable of satisfying this demand, and these shapes, now recognised as “good,” society significantly calls “Goods.”
ITV-E1-3.6 Now if, in any class of goods, the supply is not sufficient to meet the demand for satisfaction (either as regards the individual or the community), some want goes unsatisfied; the painful feeling of emptiness points to some good or other as the condition of a certain wellbeing; the relation of dependence between person and thing is established, and value emerges. If, on the other hand, the supply of any class of goods is so great that every demand is met, and yet there is such a surplus that no ordinary waste will cause scarcity, then no want goes unsatisfied, and value does not emerge. Suppose that a housewife is in the habit of using ten gallons of water a day for various domestic purposes. If the well, from which she draws her supply, holds just ten gallons and no more, then every gallon is the condition of a definite use or satisfaction, and every gallon has a value – the test being that, if one gallon is lost, some domestic purpose is not suited. But if the well yields twenty gallons, the loss of even ten gallons involves no loss of wellbeing to the housewife; no want goes unsatisfied; no value emerges. And, again, if the wants increase to eleven, or the supply sinks to nine gallons, then certain wants go unsatisfied, and value emerges.
ITV-E1-3.7 In short, the centre of value is within us. It is only by association that we transfer to goods the value which we obtain through the consumption of them. We attach importance to them only as we find that our life is incomplete or impossible without them. Thus water, air, etc., being, in their totality, conditions of our life, we attach value to them as a whole, and indeed speak of them as “infinitely valuable.” But we do not attach value to any individual portion of them, because, where there is enough to allow of waste, our lives are not dependent on any individual portion.
ITV-E1-3.8 Here we begin to understand how the theory of value lies at the basis of all economic theory. The only goods we “economise” – the goods which alone are objects of economic care – are the goods that are insufficient, or just sufficient, to meet our wants. Contrasted with them are the “free gifts of nature,” meaning by the expression, such things, adapted to man’s use, as are presented to us by nature in superfluous abundance. As goods which we economise, therefore, are the only goods which we recognise as conditioning our satisfaction, we may say that, while all goods, by definition, have utility, only economic goods have value.3

ITV-E1-3.n1.1 1 It is worth noting that Jevons, with all his mathematical exactness, did not maintain this distinction. He speaks, for instance[,] of the utility of water sinking gradually to zero.
ITV-E1-3.n2.1 2 Menger’s definition is “Die Bedeutung, welche concrete Güter oder Güterquantitäten für uns dadurch erlangen, das wir in der Befriedigung unserer Bedürfnisse von der Verfügung über dieselben abh&aunl;ngig zu sein uns bewusst sind.” – Grundzüge, p. 78. [Online editor’s note: “The significance which attaches to concrete goods or quantities of goods in virtue of our consciousness of our dependence on command over them for the satisfaction of our needs.” Menger’s Grundzüge (not to be confused with his Grundsätze) is presumably his article “Grundzüge einer Klassification der Wirtschaftswissenschaften,” or “Fundamentals of a Classification of the Economic Sciences” (Conrad’s Jahrbücher, 1889). – RTL]
ITV-E1-3.n3.1 3 In view of the loose way in which we use “economic” and “economise,” Menger’s definitions are worth remembering. When men recognise that their wellbeing is bound up with the command over certain goods within certain periods of time, and that such goods are likely to be insufficient for their demand, their impulse is (1) to get such goods into their possession or disposal; (2) to preserve the useful properties of the same; (3) to decide which are their more important and which their less important wants, and to satisfy the former only; and (4) to so dispose of the goods as to get the greatest possible result or satisfaction on the whole, and to obtain every individual result with the smallest possible expenditure. “The activity men direct to those ends, in its totality, we call their ‘economy,’ and the goods which stand in these quantitative relations, as the exclusive objects of that economy, we call ‘economic goods.’” – Grundsätze, chap. ii. § 3.

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