An Introduction to the Theory of Value

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

First Edition – 1891

by William Smart (1853-1915)

Appendix to Page 27

ITV-E1- Appx1.1 Wieser’s chapter on the paradox of value (Natürlicher Werth, i. §§ 7 and 10) deserves more space than could appropriately be given it in the text. I therefore give the substance of it here. Suppose, he says, that I have a certain good the employment of which yields me a utility represented by 10, and that I add successively 10 similar goods to my stock, the marginal utility at each addition diminishing by 1. The value of the stock will stand successively at 10, 18 (9 × 2), 24 (8 × 3), 28 (7 × 4), 30 (6 × 5), 30 (5 × 6), 28 (4 × 7), 24 (3 × 8), 18 (2 × 9), 10 (1 × 10), 0 (0 × 11). Here, obviously, each added good brings a smaller utility than the last, and at each addition the marginal utility, and with it the value, of the unit of goods falls. But while the value of the single good thus steadily falls, the value of the whole stock describes a peculiar course: it rises from 10 to 30, and then falls from 30 to zero. This phenomenon of increasing wealth accompanied by decreasing value is a paradox from which we shall not escape so long as we consider value a simple and positive amount. Value arises in the combination of two elements, a positive and a negative. It is a combined amount, or, more accurately, a residual amount. The positive element in value is the gratification from the use of goods. This gratification is subject to a natural law of “diminishing returns:” as the first draught of any pleasure is the most grateful, and the gratification weakens at every repetition, so a single good stands highest in our estimation, and each addition to the stock occupies a lower place. The value of the stock successively may be represented thus –
ITV-E1- Appx1.2 This would be the movement of value if value were simply positive: beyond a certain point additions to the stock would add no value, but they would not cause any loss of value, and the highest point would come last in the series. But there is another, and a negative element in value.
ITV-E1- Appx1.3 It arises from the indifference which we naturally feel towards goods. To man only the human is really important: by nature his thought, his sympathy, is for himself; for things he only cares, in the first instance, as he finds in them any relation to human interests and fate. This interest may take the form of sympathy with pain or pleasure in the animal world; or that of religious and poetic feeling suggesting the unity of all life; or, lastly, that of economic valuation finding in things the auxiliaries and conditions of human wellbeing. This natural indifference is so great that it requires a peculiar compulsion before we look at anything outside us as having importance or value. Simple utility is not enough: if useful things are present in superfluity we think no more of them than we do of the sand on the seashore. It is only when our wellbeing is not assured that an interest awakens in the things on which it is seen to depend, and we exert ourselves to acquire these things. The overcoming of this natural resistance, then, is something with which we have to reckon. The greater our need, the less the resistance: in cases of extreme need it disappears altogether, and we identify our fate with the fate of the goods which “are life or death to us.” The resistance is at its height when we have everything in excess, and feel no thanks due to goods which cannot help ministering to our enjoyment – for there is no reason why we should value additional goods unless they give us additional wellbeing. Between these two extremes the interest we transfer to goods is proportional to the interest we take in what they do for us. But we do not attach to them the whole of the interest they really have for us: we do not require to do so, for goods of a stock are not estimated according to their actual importance, but according to the marginal utility they afford. All utility over the marginal utility is kept back from the value of the goods, and this gives us the figures for the strength of the resistance: the negative element is equal to the surplus value deducted. Thus when the stock consists of two goods the actual gratification is 10 + 9 = 19, while the calculation of the value is 9 × 2 = 18, leaving a surplus of 1: when the stock consists of 4 the actual gratification is 10 + 9 + 8 + 7 = 34, but the value is 7 × 4 = 28, leaving a surplus of 6, and so on. Putting these two scales together we have the following –
ITV-E1- Appx1.4 That is to say, combining the positive and the negative elements, we get Residual Amounts corresponding to the marginal scale. Thus we see that the value of a stock increases with the increase of its units so long as the positive element is in the ascendant: i.e. so long as the increment of value obtained from the newly-acquired good is greater than the decrement of value which its addition causes to every good already in the stock. We may call this the “Up Grade” of the movement of value. On the other hand the value of a stock falls in the converse circumstances, and this marks the “Down Grade” of value. Twice, then, in the development of value is zero touched – when we have nothing and when we have all: in the former case because value has no object to which to attach; in the latter, because there is no subjective motive to attach it to anything. In practical life we have mostly to do with the up grade of value. In most of our possessions we are so far from superfluity that increase of quantity involves increase of value: while the individual value of the single good sinks, that of the stock rises. And this is the reason why we usually measure wealth and riches by the sum of the values of their elements, and count it hard if the value of our property and our returns goes down. And this, again, is why it seems paradoxical when we find that the amount of goods ad enjoyment of wealth and welfare has increased while their “value” has gone down. It does on rare occasions happen that individual branches of economy are for the moment forced on to the down grade – as in the case of phenomenal weather producing a miraculous crop, or the discovery of new mineral strata of unsuspected richness, or great discoveries in machinery and processes, or, perhaps, the fact of producers extending too fast from overreaching greed or foolish overestimate of demand. But it is probable that the conditions of industry as a whole will never be favourable enough to bring production so near excess that the down grade of value will be permanently entered on. All the same, the existence of what we call the “free gifts of nature” allows us no room to doubt that value disappears whenever superfluity is reached, and this gives us the best confirmation of the statement that it must decrease as we come near it.


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