Social Value

Chapter 3: Value and Marginal Utility

Benjamin McAlester Anderson Jr.

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THE method of Jevons and the Austrians, and, for that matter, of the great majority of value theorists, including even the social value school, in seeking the determinants of value, is to start with individual "utilities" or psychic "costs" directly connected with the consumption or production of goods. Such a study, if confined to an isolated individual economy, or if confined to an ideal communistic economy, like that for which Wieser works out his laws of "natural value," seems to yield us quantities of "utility," which may properly be called values, or quantities of sacrifice which may be properly treated as exactly measuring values.[1] But when applied to a competitive society, or to any society where there are inequalities among men in their power to attain the gratification of their wants, it yields us, not quantities of value, but only particular ratios between such quantities, or prices. An examination of the Austrian procedure will make this clear.

If the Austrian analysis be taken as meaning anything more than a method of determining surface- ratios of exchange, difficulties at once arise.

(29) What quantitative relation is there between the satisfaction which an individual man gets from a good and the value of that good? What quantitative relation does the sacrifice, in terms of dissatisfactions endured and satisfactions foregone, of the individual producer bear to the value of his product? Now in thus positing the problem, I wish to distinguish it clearly from another problem, namely: what is the quantitative relation between psychic satisfaction, subjective individual value, and psychic cost, connected with the commodity, in the mind of some hypothetical "normal " man, and market value in a hypothetical market, where only " normal " men are found, and where there is an equality of wealth among these men? The problem is a concrete one: how are the actual desires and aversions of living men and women, no one of them "normal" perhaps, living in a world where inequalities of wealth are everywhere manifest, quantitatively related to value in the market?

Let us consider the inadequacy of the old Austrian analysis for this quantitative determination. I assume, without trying to prove here, the homogeneity and commensurability of human desires and aversions. (The Austrians, be it noted, do not explicitly postulate this, and Jevons, as will later be noted, rejects it, but it is necessary for Wieser's argument, and Böhm-Bawerk implies it clearly enough in places.[2])

(30) This does not mean that any two men have, necessarily, the same desire for any particular good, or the same aversion from any particular piece of work, but simply that the desires and aversions of one man are comparable with those of another, and may be fractions or multiples of them, even though not exactly equal. My object in this assumption is to justify the use of the concept of units of desires and aversions, which are not the desires and aversions of a hypothetical " normal " man, but are some particular concrete desire and some particular concrete aversion of any man you choose to take. Now let us assume the market as treated in the usual Austrian analysis (somewhat simplified): five men have horses to sell, and five buyers appear in the market also.

  A B C D E
Sellers will take: $20 $30 $40 $50 $60
Buyers will give: $60 $50 $40 $30 $20

(31) Price is then fixed at forty dollars. Now if all these men were "normal" men, and if all had equal wealth, we could say here, marginal utility-value. But such is not the case in real life. Our marginal buyer and marginal seller may be as different as you please. Let us assume that the marginal buyer is a very rich man: forty dollars is to him a bagatelle: surrendering it means one unit of cost to him: he has, further, many horses: he has no special use in mind for the horse he is on the margin of buying: it has one unit of utility to him. The marginal seller, we will assume, is a poor country boy: the horse is one he has raised himself: he has a personal affection for it, and it is immensely useful to him: it has two hundred units of utility to him, and to give it up means two hundred units of sacrifice: but he needs the forty dollars pressingly: it has two hundred units of utility to him. Is marginal utility equal to value here? If so, marginal utility to whom? But this does not exhaust the difficulties of the analysis - if the analysis be designed to show anything except what a particular price is, and the utility theorists, when very careful, do not always claim to do more than that.[3] But price is not value.

We take up now, as an additional point designed to show that marginal utility to an individual is not the same as value, Professor Clark's cleancut analysis amending the Austrian theory

(32) which we shall call" Clark's Law."[4] A detailed statement of this law is not necessary here, but its main meaning may be outlined, and its demonstration left to Professor Clark himself. Any good, except the poorest and simplest, is a complex, giving several distinct services. Thus, an automobile gives the service of transportation (a cart would do that); of comfort (a spring-buggy, with top, would do that); of elegance and social distinction (a carriage would do that); of speed and exhilaration (only an automobile can do this last, and the others as well). Now each of these services Professor Clark considers as a distinct economic good, and he constructs a demand curve for each of them. The service of transportation would be worth $5000 to the marginal buyer of automobiles, if he could not get it for less, but then, he is not the marginal user of carts, and he gets the cart service for what the marginal buyer of it pays, say $10. The comfort element would be worth $3000 to him, but he is not the marginal buyer there, and he gets it for what the marginal buyer of buggies pays for a buggy, less the $10 for the mere transportation-service of the buggy, say $100 less $10, or $90. For the service of elegance and social distinction, he would pay $4000, but then hp does not have to do so, for he is not the marginal buyer of carriages, and he gets this additional service for $800, less the price of the preceding two services, or less $100. For the

(33) additional service of speed and exhilaration he is the marginal demander, and his margin fixes the price, say $2000, for that service. Now his automobile - and he is the marginal buyer, and he buys only one - gives him satisfaction far in excess of that measured by the price he pays for it. The automobile, economically considered, is several distinct services bundled together, worth to him $5000 plus $3000 plus $4000 plus $9.000. But he pays for the automobile only $2800, or less than he would have paid even for the first service. Now by the Austrian definition the price of anything is determined by its utility to the marginal user. And marginal utility is the total utility of the marginal unit consumed. The total utility of this marginal automobile, to this marginal user, would balance $14,000 in his mind, and this, by the Austrian analysis, ought to be the price. But the price is $2800. Marginal utility determines price? Marginal utility to whom? Not to the marginal buyer! To whom, then? Professor Clark says, to society, without further defining what he means by that, except in general terms of social organism, etc. But it seems to me clear that, except on the basis of some such conception, we shall have to give up the idea that marginal utility determines price, and say rather that price is something with which marginal utility has something to do I And the quantitative relation between the feeling of any individual and value has become very uncertain indeed.

Notes

  1. This statement must be qualified, as subsequently appears. Even in Wieser's "natural" community, there are psychic factors in value other than mere utility. See chap. XIII, infra.
  2. For further discussion of this doctrine, see chapters IV and VIII of this book. Böhm-Bawerk Positive Theory, p. 149, n., says: "One gives donations, charities, and the like, when the importance of such, measured by their marginal utility, is very much higher as regards the well-being of the receiver than as regards that of the giver, and almost never when the converse is the case." The assumption that emotional states in different minds can be compared is very clear in this passage. Cf. Veblen, Thorstein, "Professor Clark's Economics," Q. J. E., Feb., 1908, p. 170, U.: "Among modern economic hedonists, including Mr. Clark, there stands over from the better days of the order of nature a presumption, disavowed, but often decisive, that the sensational response to the like mechanical impact of the stimulating body is the same in different individuals. But, while this presumption stands ever in the background, and helps to many important conclusions.... few modern hedonists would question the statement in the text" [i.e., that comparison of emotional intensity in one man's mind with emotional intensity in another man's mind is impossible]. In the light of the psychological doctrine which I shall maintain ill the chapter on the psychology of value, this whole question will seem beside the point, considered as a psychological question. But my interest here is in making clear the psychological implications of the Austrian theory, as I wish for the present to consider their theory on their own ground.
  3. Böhm-Bawerk and Wieser are certainly seeking an objective value, but Jevons and Pareto are concerned simply with the ratio. See Wieser, Natural Val., p. 53, n. Jevons, Pareto, and Böhm-Bawerk are discussed, with reference to this point, in chap. iv..
  4. This law is first set forth by Professor Clark in an article in the Q. J. E., vol. VIII, "A Universal Law of Economic Variation." See, also, The Distribution of Wealth, pp. 210-45. A brief exposition of the doctrine is found in Seligman, Principles, 1905, pp. 185-88.

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