The Positive Theory of Capital

Eugen v. Böhm-Bawerk, from the Warren J. Samuels Portrait Collection
Böhm-Bawerk, Eugen v.
(1851-1914)
CEE
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Editor/Trans.
William A. Smart, trans.
First Pub. Date
1888
Publisher/Edition
London: Macmillan and Co.
Pub. Date
1891
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Book III, Chapter VI

What Determines Marginal Utility

III.VI.1

Thus far we have traced the amount of value which goods possess to the amount of their marginal utility. We may, however, pursue the causes which determine value one step further back, and ask on what circumstances the amount of this marginal utility itself depends. The answer is;—on the relation between Wants and their Provision. The way in which these two factors influence the amount of marginal utility has been suggested so often and so fully in the foregoing analysis, that I need not say anything further in way of explanation. I shall content myself with shortly formulating the law relating to it. It runs thus: the more comprehensive and the more intense the want, the higher the marginal utility, and vice versâ. That is to say, the more numerous and the more intense the wants demanding satisfaction on the one hand, and the less the quantity of goods available to satisfy them on the other hand, the more important are the layers of want that must remain unsatisfied, and the higher, therefore, the marginal utility. And conversely, the fewer and the less urgent the wants, and the more goods there are to satisfy them, the deeper down the scale goes the satisfaction, and the lower falls the marginal utility and the value. It comes nearly to the same thing, only in a less precise form, to say: Usefulness and Scarcity are the ultimate determinants of the value of goods. In so far as the degree of usefulness indicates whether, in its way, the good is capable of more or less important services to human wellbeing, so far, at the same time, does it indicate the height to which the marginal utility, in the most extreme case, may rise. But it is the scarcity that decides to what point the marginal utility actually does rise in the concrete case.*16

III.VI.2

This proposition, that the height of marginal utility is determined by the relations of Wants and Provision, admits of a great number of useful applications. Just now I shall only emphasise two of these, which we shall have to make use of later on in the theory of objective exchange value. First, since the relations of Wants and Provision among individuals are extremely various, one and the same good may possess an entirely distinct subjective value for different persons—without which, indeed, it is difficult to see how there could be any exchanging at all. And thus, second, under otherwise similar circumstances, the same quantities of goods have a different value to rich and poor; to the rich they have a smaller, to the poor a larger value. The rich being amply supplied with all classes of goods, their satisfaction extends, generally speaking, to the more unessential wants, and the added or deducted satisfaction dependent on any particular good is, consequently, inconsiderable; while to the poor man, who is generally able to provide for only his most urgent wants, the utility which depends on each good is much greater. Experience also shows that poor men find it a pleasant thing to acquire goods and a painful thing to lose them, where a similar gain or loss does not affect the rich at all. We would scarcely compare the state of mind of a poor clerk, who received his month's salary of £5 on the first day of the month and lost it on his way home, with that of the millionaire who dropped the same sum. To the former the loss would mean most painful privation over a whole month; to the latter it would only involve the want of some idle luxury.


Notes for this chapter


16.
In his recently published essays on Wertheorien und Werthgesetze (Conrad's Jahrbücher, N. F., vol. xvi. pp. 417-437, and 513-562) Scharling will not allow that the relation of Wants and Provision is the ultimate universal determinant of the value of goods, and would substitute Difficulty of Attainment in its place (ibid. p. 425, and particularly p. 430 in note, and p. 551). Notwithstanding some striking things in it I frankly confess—and all the more frankly that I attach so much scientific importance to the Danish economist, and so much weight to anything he says that I consider not only this proposition, but the whole treatise he has written in its proof, as a lamentable relapse in scientific analysis. Scharling has done everything possible to re-entangle certain things that had up till now scarcely escaped from confusion. And what makes it worse is that he has done it with skill, and with a certain semblance of truth. I consider "difficulty of attainment" one of those unlucky catch-words which can be stretched and stretched like an indiarubber band; it leads out of one ambiguity into another, and it either explains things falsely or (loss not explain them at all. I mean that either one connects with it a definite, limited, and narrow meaning, and holds fast by that—in which case the explanations that one would base on this narrow conception prove to be positively false; or one draws and stretches the rubber band, and, by making perverted and violent constructions, forces all sorts of foreign things under the elastic—in which case we avoid open contradiction, but at the cost of making the proposition expressed by the catch-word an insipid and weak phrase, which does not explain, but goes round about an explanation. And just this has been Scharling's fate. What does he mean by "difficulty of attainment"? He explains it as the amount of effort that every one must take on himself to obtain a good, or the effort which is spared him by the possession of the good (p. 430). And what does the word "effort;" again, mean? If any precise conception is to be attached to it, it can scarcely be understood as anything else than as some sort of exertion, pain, or labour. But if this is the meaning attached to it then the appeal to "saved effort," as the principle of the value of goods, is positively false. To give one example out of a thousand, take the case of a pensioner past work with an income of £60. He is told to value the overcoat which he possesses according to "saved effort." What kind of effort may that be? Perhaps the effort which he would have to expend to produce the overcoat himself? Certainly not; he would never himself make the coat, but always buy it. Or the effort which he would have to put forth if he were to produce those goods which he had to give away as equivalent for the coat? Neither can this be the case; for, past work as he is, he would never acquire this purchase price through effort, but simply take it from his income, and for that, of course, he must curtail the satisfaction of other less important wants. What, therefore, the possession of the overcoat spares him is not an effort, but a deprivation, and a deprivation the amount of which, as I have indicated in the work disputed by Scharling, depends exactly on the importance of those last needs which are satisfied by the good, which lose their satisfaction in losing it, and the urgency of which itself, again, is determined by the existing relation of Wants and Provision. It is only in those rare cases mentioned by me in Conrad's Jahrbücher (ibid. p. 42)—the exceptional character of which I most distinctly maintain in spite of Scharling's remarks (p. 430, note 1)—that the amount of an effort or the pain of labour can be the immediate standard of value.—Now I admit that Scharling sometimes gives the word "effort" quite another meaning from that of a pain. To avoid repetitions, however, I will show what that leads to, a little later, under the theory of price.—Finally, the illustration, with which Scharling thinks he has signally refuted my doctrine, will not mislead anyone who has rightly understood the doctrine of marginal utility. If a boy, who hitherto had only had a single apple, were allowed for once to pull as many apples as he liked in a neighbour's garden, he would, I admit, immediately reduce the value he put upon the good called "apple." But why? Not, as Scharling thinks he may assume as self-evident, because "his relish and his enjoyment in consuming the fruit remain unchanged." This enjoyment may run down a whole graduated scale from the consumption of the first and single apple to entire satiation with apples, but it is perfectly clear that the boy with the single apple sacrifices the enjoyment which stands highest in this scale, while, "with one of many apples to chose from", from, he sacrifices only a very trifling one.

End of Notes


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