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 IV
The Scale of Value

ITV-E1-4.1 If the cause of a good having value is that the satisfaction of some want is dependent upon it, the degree or amount of value must, one would imagine, be measured by the importance of the dependent want; that is to say, by the amount of wellbeing its satisfaction conditions. But here most people will hesitate. They would, probably, be willing to admit that utility is, in a general way, the cause of value, or, like Ricardo, that utility is “absolutely essential to exchangeable value.” But they are shaken in this belief when they are told that things of great utility, like bread, are little valued, while things of small utility, like diamonds, are very highly valued, and that it is this contradiction which led to the distinction between “value-in-use” and “value-in-exchange” – practically to the abandonment of the latter. [Online editor’s note: Smart means “the former”; this is corrected in the second edition. – RTL]
ITV-E1-4.2 We have here a difficulty of the theory of value which comes to us as a heritage from the old economy. Old classifications are more easily dismissed than got rid of; and it will not be wasted time if we employ this chapter in pointing out how Adam Smith hopelessly confused utility and value by the introduction of the hermaphrodite “use value.”
ITV-E1-4.3 We have already defined the economically Useful as that which is capable of satisfying the want of man. If utility, then, is relative to human want, obviously before pronouncing on what has great and what has small utility, we must classify the various wants, and arrange them on some sort of scale. The familiar expression, however, “One man’s meat is another man’s poison,” might be taken as a text to show the difficulty of classifying wants. There are certain wants that require periodical or continuous satisfaction, such as food and warmth. These wants seem to tie us to the earth, and they keep us perpetually in mind of our physical limitations. However high we soar into the regions of intellect and spirit, hunger and cold bring us to earth again; and if these wants are not satisfied the animal nature asserts itself, and we are ready to sell our birthright for a mess of pottage. Such wants, then, are fundamental and universal, but there are two very notable circumstances connected with them. One is that they are limited. More meat than the organism requires clogs the wheels of life; more than a certain amount of clothes is a burden, and so on. The other is that these fundamental and limited wants are precisely the ones for which nature makes the most abundant provision. There must be many millions of people who have never known what hunger is except by hearsay, nor imagined the torturing cold of a night on the street.
ITV-E1-4.4 But, on this simple and, so far, measurable basis of necessary and limited wants, we rear a superstructure of another kind of want. Of the distinctively human wants there are many that become necessary from the individual or social development of intellectual or spiritual beings, and, beyond these, again, there are the innumerable desires, caprices, follies, and so on. Now all these are unlimited in their demands: here “the appetite grows by what it feeds on.” [Online editor’s note: “As if increase of appetite had grown by what it fed on”: Hamlet, I. ii. 144-145. – RTL] As civilisation or wealth progresses new wants awaken, and the old circle of wants expands. This circumstance makes classification of such wants all but impossible. Between the wants of the savage or the child and those of the educated man or delicately-nurtured woman, there is a long gradation of almost infinite fineness. How are we to put in one category the “hunger” which is satisfied among members of one class by bacon and beer, and among members of another class by costly dishes and wines and hot-house fruits; or the “love of dress,” which in one sphere demands “a black silk and a gold brooch,” in another, diamonds and old lace? Yet the fact that goods may be purchased at prices from a farthing upwards proves that the community has classified its wants, and said that such and such wants are higher or lower than others. In other words, we find exchange existing in all communities, even the simplest, and exchange presupposes that we have already arranged our wants on a scale, and said that the satisfaction of such and such wants confers a high value, and the satisfaction of such and such a low value. What is the principle of this scale?
ITV-E1-4.5 Adam Smith, and all who have followed him in paraphrasing his text “a diamond has scarce any value in use,” certainly referred to a scale of wants, and considered this scale so important, and so universally recognised, that they had to separate off the value measured by it (use value) from the value measured by money or barter (exchange value). But if we inquire what this scale is, we have some difficulty in answering.
ITV-E1-4.6 There is a rough but sometimes convenient division of goods into Necessaries, Comforts, and Luxuries. Corresponding with this classification of goods we should consider the wants satisfied by “necessaries” as the most important; and in the first rank of utilities, therefore, we should put goods necessary to sustain life, as food, clothes, shelter. Next would come goods necessary for health and fullness of life, and thus good food, good clothes, good shelter might be considered in the second rank of utilities. Lastly, we should put goods required for the refinements or for the artificial appetites of life, and corresponding with them we should have music and pictures, liquor, tobacco and so on. It is easy to see that the sanction or principle of this scale is a negative one. It is not based on the satisfaction we get from goods, but on the consequences which will ensue to our lives if these wants go unsatisfied. Food is in the first class of goods, because here death follows unsatisfied want. Tobacco is in a subordinate class, because the want of it causes, at worst, discomfort. And diamonds are in the lowest rank of useful goods because the loss of them involves a quite trifling loss of wellbeing. This is a scale of wants with a definite principle.
ITV-E1-4.7 But it is not difficult to see that it is a scale adapted to circumstances so simple as to have no resemblance to any known form of society. Possibly the economists’ favourite classic, Robinson Crusoe, has had something to do with the making of it. Certainly there never was a people who divided out their labour to satisfy successively the wants of such a scale, producing first for life, then for health, then for pleasure: such a division would evidence a higher level of reason than our communities have reached, for it would be founded on a theory of life which had put subsistence, health, and pleasure into a definite relation. The very suggestion that the loss of diamonds is “trifling” would condemn it: it would justify the reproach the economist has sometimes to bear, that “it is well seen political economy was written by men!” The fact remains that this is nobody’s scale: the poorest savage, the worst paid mill-girl, the most refined woman, will put ornament only second to bare necessaries.
ITV-E1-4.8 Yet, strangely enough, a scale something like this was the one by which the older economists measured utility. In the interpretation they gave to “use value,” they assumed that utility is relative to mere physical life. Those who speak of diamonds having no use value, and of food as having infinite use value, seem very much to draw their ideas, not from the life of men but from the life of cattle. It is possible to draw out a scientific catalogue of what things and amounts and conditions will put a sheep or bullock into the best condition for the market, just as it is possible to consider the labourer as a force of so many foot-pounds. But the economic end of the sheep is – mutton, while the economic end of labour is – the labourer. That is to say, the “life” by which economists, as distinguished from butchers, must measure utility, is the life of a spiritual being for whom and towards whom all economic effort exists. To such a being it is inconceivable that bread should have the highest use value and diamonds none at all.
ITV-E1-4.9 Compared with this purely theoretical scale, let us inquire of facts as to the scale to which men in ordinary life refer goods.
ITV-E1-4.10 Consciously or unconsciously every man whose means or wealth or resources are more limited than his wants – and this is, practically, the case with human beings generally – has a scale of wants in his mind when he arranges these means. On the basis of this scale he satisfies what are his most urgent wants, and leaves the less urgent unsatisfied. But which are the more urgent wants on his scale? Are they determined by anything like the classification just spoken of? If so, how is it that a tramp with sixpence in his pocket will spend threepence on a bed in a lodging house, a penny on bread, and twopence on tobacco?
ITV-E1-4.11 This by itself is sufficient to show that Adam Smith’s graduation of wants is quite misleading in the present connection. When we ask about the “degree” or “urgency” of any individual want, we get no information by determining to what class or kind it belongs – whether, for instance, it is the demand for a necessary or the desire for a luxury. The craving for food, as a necessary of life, belongs so conspicuously to the first class of wants, that we do not so often speak of wants of subsistence, as of Needs of subsistence. The desire for liquor, again, some people would scarcely dignify by the name of “Want” at all. Yet many people will attach as much importance to the one as to the other. If we are to judge by his expenditure, the working man may graduate his wants thus: – bread and meal, house, liquor, tea, tobacco, clothes, meat; while a rich man may spend more on his horses than he does on his house, and his grocer’s bill be less than his florist’s. The fact seems to be that, with the scale of wants which each man makes for himself, the graduation by classes or kinds has very little to do. From the consideration already pointed out, that certain wants are fundamental and necessary, the class must have something to do with it, but the other two considerations, the limited nature of these wants and the abundance of provision for them in most communities, throw the former consideration quite into the background.
ITV-E1-4.12 There is one case, however, where Adam Smith’s scale comes nearly true; – where the income is just sufficient, and no more, to cover the barest wants of man as a living being. If a seamstress has to sustain life on one shilling a day, she will take care to dispose of the shilling in such a way that she spends on food just enough to keep life in, on clothes, enough to keep her warm, while the meanest roof that will keep out the rain will satisfy her “want of shelter.” And in proportion as we come near to this direst poverty will the class have more to do with the scale. Even the seamstress, however, will probably jump the class of “comforts,” and spend her last penny on the highest concrete want among the luxuries of the poor, tea.
ITV-E1-4.13 This was the first mistake made by the old economy in the matter: it based “use-value” on a false or, at least, unduly limited, conception of utility. The second – and more subtle – was in keeping no clear distinction between this utility and the so-called “use value.” For want of this distinction it was overlooked that, in the relation between wants and goods in which value emerges, the supply of goods plays a part. Value emerges when a good becomes the condition of a satisfaction; it is conferred by the dependence of a felt want, not of a possible one. Hunger, for instance, – understanding by that the overmastering craving which puts all other feelings into the background – is not a felt want if food lies around like the manna on the Israelites’ plain. The nearer we get to making any object of want similar to a gift of nature, the less value has that object – not that its utility is any less indispensable, but that the abundance of supply has abolished the relation of dependence. A want never felt, would, of course, not be a want at all. But a trifling want unsupplied attains an importance for wellbeing which elevates it into a cause of value. Now, in the case of goods adapted to satisfy the necessary and universal wants of mankind, the “necessaries” of life, as no man can escape from these wants, there is always a fixed and steady market for these goods. Wherever we have such a market in economic life we may be sure that the brains of men and the resources of nature have been taxed to the utmost to make the supply abundant and cheap. Competition always assures this at least. Hence the tendency of economical progress is to assure the satisfaction of these fundamental and limited wants; in proportion as this is done do men escape from that dependence of satisfaction which gives value: and thus many goods tend to come nearer to the free gifts of nature. The old theory, then, in taking hunger as the type of the most urgent want, was not dealing with wants, but with possibilities of want. Want is, at bottom, a feeling of incompleteness. It may indicate something wanting in our physical frame which, if entirely unsupplied, will cause death. But if a few mouthfuls are sufficient to make the want disappear for the moment, and if there be no probability of these mouthfuls ever being wanting, we have been too hasty in giving it the highest rank among human wants. It is like estimating the greatness of a danger by the loss of life which it might cause, without considering the precautions taken to prevent it. To consider food as having the highest use value because the want of food means death, is like considering the presence of water a great danger because a man might be drowned if he fell in; it reminds one of the schoolboy’s proposition, “Pins have saved many thousands of lives. – By people not swallowing them.”
ITV-E1-4.14 To sum up then: In assuming that bread and water had a higher “use value” than iron, iron than gold, gold than diamonds, the older economists evidently referred to a theoretical scale of wants which is not recognised by any man as his scale; and as they could not ignore the fact that practical men, in making their valuations, put diamonds above gold, gold above iron, and iron above bread, they had to divide their so-called “use value” sharply off from the value which ruled the economical transactions of the world, and call the latter “exchange value.” And what we say, is, that the phenomenon of bread with small value and diamonds with much value, is not in contradiction with the theory of the cause of value laid down in Chapter II. Bread is little thought of, and diamonds much thought of, because, when all the circumstances are taken into account – the circumstance of limitation of want and the circumstance of provision for want – the importance to concrete human want of the one is little, and of the other is much.

ITV-E1-4.15 The Austrian writers, whose economics are strongly coloured by the utilitarian psychology, usually put the matter in the following way. The course of the satisfaction of a want may be represented by a diminishing scale. Of most wants, material and intellectual alike, it is true that the pleasure got from the first draught of satisfaction is the keenest. The complete satisfaction, then, of any want might be represented by a graduated scale diminishing to zero – beyond zero, the pleasure turning into satiety and disgust.
ITV-E1-4.16 If we combine this scale with that other alluded to in the text – that which has the negative sanction of loss of wellbeing – we get a scheme like the following: –

ITV-E1-4.17 Here the Roman figures indicate classes or kinds of wants, the Arabic, the concrete wants, or part wants, in each class. We thus see at a glance that the more important the class, the more important are the concrete wants that stand highest in the class: that, even in the highest class, there are concrete wants which are outweighed by concrete wants of almost every other lower class: and that there are classes of want, like IV and VII, which are not satisfied gradually, as in the assuaging of hunger, but where want breaks off at a high level and does not emerge again till wants of much inferior classes have been met.
ITV-E1-4.18 As an illustration this scheme has a certain value, but to my mind it suggests more objections than it settles. The division of wants into kinds or classes, whether the principle of that division be determined by the nature of the sensations or by the objects which satisfy them, requires a better psychological basis than has yet been shown. For instance, a generic want like that called Needs of Subsistence, is about as vague a conception as could well be imagined. And, again, on the “calculus of pleasure and pain,” it seems to me that the satisfaction of wants generally involves degrees and levels of physical, intellectual, and aesthetic feeling that cannot be represented by any such simple diagram. For these reasons – and also because I do not think the theory of value is strengthened by seeming to rest so much on a utilitarian psychology – I have not included the Sättigungscala in the text. There are some ingenious and interesting calculations on the subject in Wieser, (Natürlicher Werth, p. 27), which I have added in the Appendix.

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