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 IV
The Scale of Value

ITV-E2-4.1 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 remember that things of great utility, like bread, are little valued, while things of small utility, like diamonds, are very highly valued, and are told that it is this contradiction which led to the distinction between “value-in-use” and “value-in-exchange” – practically to the abandonment of the former.
ITV-E2-4.2 We have here a heritage from our earlier economic science. Old classifications are more easily dismissed than got rid of; and it may not be wasted time to point out in this chapter how Adam Smith hopelessly confused utility and value by the introduction of the hermaphrodite “use value.”
ITV-E2-4.3 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, it would seem that, before pronouncing on what has great and what has little 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 which require periodical or continuous satisfaction, such as the needs of 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 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 – instinctively we call them “needs.” But there are two very notable circumstances connected with them. One is that they are limited. More meat than the body requires clogs the wheels of life; more than a certain amount of clothes is a burden. 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-E2-4.4 But, on this simple and, to a certain extent, measurable basis of necessary, universal, 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. Beyond these, again, there are innumerable desires, caprices, follies, and so on. These, however, are not in the least limited 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 and as wealth progress, not only does the old circle of want expand, but new wants awaken. This 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 and thirst which are satisfied, among members of one class, by bacon and beer, and, among members of another class, by stately dinners and rare vintages; 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 in some sort of way. 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 on the goods which satisfy them, and the satisfaction of such and such a low value. What is the principle of this scale?
ITV-E2-4.5 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 they did so instinctively, and, if we inquire what this scale is, we have some difficulty in translating the instinctive expression.
ITV-E2-4.6 There is a rough, but sometimes convenient, division of goods into Necessaries, Comforts, and Luxuries. Corresponding with this classification of goods, we might consider the physical needs satisfied by “necessaries” as the most important; and in the first rank of utilities, therefore, we should put goods necessary to sustain life, such as food, clothes, shelter. Next would come health and fullness of life, and in the second rank of utilities we should put good food, good clothes, good shelter. Last we should put the refinements or the artificial appetites of life, and, corresponding with these, 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 rank of goods, because here death follows unsatisfied want. Tobacco is in a subordinate place, because the want of it causes, at worst, discomfort. And diamonds come in the lowest rank of useful goods because the loss of them involves a quite trifling loss of wellbeing. Here is a scale of wants with a definite enough principle.
ITV-E2-4.7 But 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, not producing anything for fullness of life till all had the necessaries, nor anything for pleasure till all had the necessaries of efficiency. Such a division would evidence a higher level of reason and self-restraint than our communities have reached, since it would be founded on a deliberate theory of social life. The very suggestion that the loss of diamonds is “trifling” would justify the reproach one 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-E2-4.8 Yet it seems that it must have been a scale something like this 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, must be drawing 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 human 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-E2-4.9 Compared with this purely theoretical scale, let us inquire of facts as to the scale which men in ordinary life adopt as regards goods.
ITV-E2-4.10 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 his expenditure. 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-E2-4.11 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 need for a necessary or the desire for a luxury. The craving for food, as has been suggested, 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, house room, 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 may 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, necessary, and universal, the class must, indeed, 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 consideration of necessity quite into the background.
ITV-E2-4.12 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 approximate 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-E2-4.13 This was the first mistake made by the older economists in the matter: it based “use-value” on a false or, at least, an 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 capability of use is any less, 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, as no man can escape from these wants, there is always a large and steady market for these goods, and we call them “necessaries.” 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. Hence the tendency of economic progress is to assure the satisfaction of these fundamental and limited wants; in proportion as this is done, do men escape from that dependence which gives value: and thus many goods tend to come nearer to the free gifts of nature – their value falls and falls. 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 to our physical organism which, if entirely unsupplied, will cause death. But if a few mouthfuls be sufficient to make this want disappear for the moment, and if there be no probability of these mouthfuls ever being absent, we have been too hasty in giving it the highest rank among human wants. To consider food as having the highest use value because the want of food means death, 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: it reminds one of the schoolboy’s proposition, “Pins have saved many thousands of lives – By people not swallowing them.”
ITV-E2-4.14 To sum up. In assuming that bread and water had a higher “use-value” than iron, iron than gold, gold than diamonds, the earlier 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, seemed to put diamonds above gold, gold above iron, and iron above bread, they had to divide off their so-called “use value” sharply from the value which ruled the economical transactions of the world, and call the latter “exchange value.” The modern economist says that the phenomenon of bread possessing little value and diamonds much value, is not in contradiction with the theory that value depends entirely on utility. 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-E2-4.15 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-E2-4.16 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: –

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-E2-4.17 As an illustration, this scheme has a certain value, but it suggests more objections perhaps 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 demonstrated. 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,” the satisfaction of wants generally involves degrees and levels of physical, intellectual, and aesthetic feeling which cannot be represented by any such simple diagram. For these reasons – and also because the theory of value is not accredited 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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