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 VIII
Subjective Exchange Value

ITV-E1-8.1 Before passing from subjective or personal value, there remains for consideration one point, which is at once important in itself, and decisive against the old division of the total phenomena under discussion into value in use and value in exchange. To the subtle analysis of Böhm-Bawerk and Wieser we owe the recognition of subjective exchange value, as distinct from the purely objective exchange value which we have to consider in following chapters. Aristotle said that every good had two uses, “both belonging to the thing as such”: similarly we say that every good has two subjective importances, that which it can directly afford, and that which the things got in exchange for it can afford. A little reflection will convince us that subjective value contains these two distinct branches, use value and exchange value.
ITV-E1-8.2 It may occasionally suit the economist, for purposes of illustration, to discuss the economy of a Crusoe – particularly in problems of production where the essential features of society, as at once a producing and consuming body, are obscured by the division of labour – but in the simplest form of society known to experience there is always some barter or exchange of goods. But wherever this is the case every good acquires a second possible value, as an exchange form of other goods, or a potentiality of obtaining other goods. In the organism called society each man becomes – at least potentially – richer or poorer with the increase or decrease of its wealth. Some part of our neighbour’s goods becomes available for the satisfaction of our want whenever exchange becomes possible between us, inasmuch as the actual existence of his surplus – not to mention his enjoyment of it – depends on our co-operation. Thus the goods which were first valuable to us personally, as possible satisfactions of our want, get a secondary value. Every good becomes potentially a number of other goods, and the range of our possible satisfactions becomes by so much widened. The presence of exchange, in short, gives us a choice of values.
ITV-E1-8.3 These two kinds of value are possessed in varying degree by different goods. In some the exchange value may be greater than the use value – as, for instance, when a change in productiveness in the community increases the quantity or improves the quality of things I can get in exchange, while the use value of things I can give in exchange remains unaltered: in others it may be less, as in all cases where habit and association root the goods in our affection. What has to be emphasised is, that the position which every man occupies as a member of society gives to all goods of personal use this other value, and that, as we saw on p. 36 whichever of the two valuations we place higher determines the total subjective value. In other words; there is, as we shall see later, a direct and an indirect satisfaction of wants, corresponding to the division of goods into consumption goods and production goods. Just as grain may be used for bread or for seed, and just as the value of the grain is determined by calculations of marginal utility which take both these into account as possible uses, so has every good, subjectively considered, a use value and an exchange value, and the total subjective value is calculated on the consideration of both of these as possible uses of the good.
ITV-E1-8.4 On the other side, there is no doubt that the analysis of exchange value into subjective and objective is subtle, and that it is difficult to keep the two distinct. The real difference may be most easily seen by an illustration. Say that the first edition of Modern Painters [Online editor’s note: Given Smart’s interest in Ruskin this is probably a reference to Ruskin’s 1843 work of that title. – RTL], which cost me £18 some years ago, now stands in the booksellers’ catalogues at £30. As a cultured man it may be supposed that my pleasure in the possession of this first edition is measured by something like £30. But suppose I now suffer a reverse of fortune. The subjective use value of the book remains as before: the objective exchange value also remains as before: but the subjective exchange value has immensely risen. In my former circumstances the price of £30 was a bagatelle: now it may perhaps pay my insurance premium: this second subjective value is distinct alike from subjective use value and objective exchange value.
ITV-E1-8.5 In former chapters we have seen that the value of a good is determined by the marginal utility which depends on it: in the same way this secondary value will be determined by the marginal utility which depends on the things obtained in exchange for the good. This being so, the amount of this exchange value will depend on two things: (1) on the objective value, or price, of the goods – which determines what or how many things can be got for them: (2) on the existing state of the owner’s want and provision – which determines what place the satisfactions, obtainable from the goods got in exchange, have in his scale of living. For instance: the use to me of the one riding horse which I can just afford may be quite definite, as giving me a pleasant form of exercise. But its subjective exchange value depends on (1) the sum of money I could get for him, and (2) what part this sum of money plays in my scale of living.
ITV-E1-8.6 And here we come in sight of the decisive distinction between subjective and objective exchange value. The objective exchange value of the horse is the same to everyone; the subjective exchange value varies from person to person according to the previous state of his wants and resources. An article in a poor man’s house which he can, if necessary, sell for 20/ has a very different importance to him from what a similar article has to a rich man. 20/ is a large part of a £50 wage, but a very small proportion of a £1000 income.
ITV-E1-8.7 The necessity of drawing this distinction lies in the fact that Money has no subjective value other than an exchange value. As the tool of exchange the only use to which we can put it is to part with it. It is one of the virtues of a good money that it is never “used,” say, as a metal, but passes from hand to hand without question in satisfaction of debt. And yet, as a pound note in a man’s pocket is the temporary form of so much bread, meat, lodging, clothes, etc., it is clear that the pound note to the working man has just the marginal utility which these things have. To use Wieser’s terse expression: The exchange value of money is the anticipated use value of the things it buys.

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