An Introduction to the Theory of Value

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

Second Edition – 1910

by William Smart (1853-1915)

Chapter II
The Analysis of Value

ITV-E2-2.1 Political Economy is based on the analysis of economic conduct. As has been said, we are not at liberty to lay down new categories or even to give new names to economic phenomena. We have to take our categories and our vocabulary alike from the industrial and commercial world, and our most original work in this department is no more than the interpretation of a life which is, for the most part, unconscious of its own laws: a category of “the useful” or “the valuable” which practical people did not recognise as containing useful and valuable things and no other, would be quite unscientific. True, the economist has sometimes to show that the practical world is unfaithful to its own principles, but he can only do so after extended study of the economic organism has yielded these principles. The theory of value, therefore, must begin with an analysis of what the word means in the mouths of ordinary people.
ITV-E2-2.2 A man values food, clothing, shelter, and the like, because they minister to his physical life, and he values music and books because they minister to what he calls his “higher life.” As a nation, we value our service rifle because it can kill at so many hundred yards, and many forms of art and literature are highly valued because they minister to corrupt desires and moral decay. A collector values a piece of ugly china because it is old and rare, just as most women value their diamonds because everybody cannot wear diamonds.
ITV-E2-2.3 Taking these instances as fairly typical, and collating the common ideas out of them, we seem to learn three things about value.
ITV-E2-2.4 First, that, in probably the great majority of cases, the word has some direct or indirect reference to human life. On the whole, one would be inclined to say that the root idea of the valuable is that which avails toward life.
ITV-E2-2.5 Second, that men, as not only imperfect in nature but erring in judgment, have made an easy extension of the term “human life” to cover “human desire,” and count things valuable because they satisfy some want or other. The economic “want” is not necessarily a rational or healthy want – and political economy, as primarily analytic, must not be censured for the statement, nor condemned as if it approved of the fact – but simply a want, and the things which satisfy such wants we call “goods.” The desirable is interpreted in economics by the desired.
ITV-E2-2.6 Third, that the element of scarcity somehow plays a large part in many, and seems to have a share in all, estimates of value.
ITV-E2-2.7 Were it not for this element of scarcity we might conclude that the “valuable” and the “useful” were synonymous terms. Few writers have been careful to keep the two conceptions sufficiently separate, and the distinction which we have now to draw, while contained in Ricardo, was not scientifically formulated till the appearance of Menger’s Grundsätze in 1871.
ITV-E2-2.8 The economically Useful is that which is capable of satisfying the want of man – always meaning by “want” no more than “desire.”1 Corresponding with this conception is that of the “Good.”2 To constitute a good, four things, according to Menger, are required: (1) a human want, (2) certain properties in an object which make it capable of satisfying a human want, (3) the knowledge of this capability, (4) power to dispose of this object in the satisfaction of want.
ITV-E2-2.9 In these two conceptions, the Useful and the Good, there is no reference to scarcity.
ITV-E2-2.10 We shall find the Valuable separating itself naturally from the Useful if we look at what are called the free gifts of nature. Air, water, light, are recognised by every one as useful. But are they valuable? Most people – economists without knowing it – would answer in the negative, although certainly there is reason to suspect that they base this answer on the fact that they “could not get anything for them.” Again, those scarce things which we seem to value just because they are scarce (as rare statues, pictures, books, coins, wines made from grapes of one limited locality, etc., to use Ricardo’s examples), have always a background of usefulness, as satisfying some social, or class, or individual desire.
ITV-E2-2.11 Evidently Usefulness or Utility is the larger conception of the two, and embraces Value. But if all valuable things are useful, while all useful things are not valuable, value must emerge at some particular limiting point of utility. Value, then, will be based on utility – utility limited in some particular way, but still utility.3

ITV-E2-2.n1.1 1 “Anything which an individual is found to desire and to labour for must be assumed to possess for him utility. In the science of Economics we treat men, not as they ought to be, but as they are.” – Jevons, Theory, 2d edition, p. 41.
ITV-E2-2.n2.1 2 It is one of the difficulties of our economic vocabulary that, where we wish to express the singular of “goods,” we have to use “commodity” or some such word. In my translations, I have made no scruple of rendering the honest German Gut by its literal equivalent, and it is in this sense that the word is used above and throughout this book. It will be noted in what follows that there is a difference between simple goods and “economic goods.”
ITV-E2-2.n3.1 3 Perhaps it is not too late to suggest that our word Utility – never a good word, and now actually misleading from philosophical associations – should be replaced by the word Usefulness, which certainly better conveys the idea of capability.

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