Principles of Economics by Karl Menger - HTML preview

APPENDICES

Appendix A¹ Goods and “Relationships”

 

A

ristotle ( Politics i. 4. 1253^b, 23–25) calls the means of life and well-being of men “goods.” The predominantly ethical standpoint from which the, peoples of antiquity regarded

human relationships is reflected in the views of ancient writers on the nature of utility and the nature of goods, just as the religious standpoint predominates in medieval writings. Ambrosius says “nihil utile, nisi quod ad vitae illius eternae prosit gratiam,”² and even Louis Thomassin, whose economic views belong to the middle ages, writes in his Traité du négoce et de l’usure (Paris, 1697, p. 22), that “l’utilité même se mesure par les considérations de la vie éter

¹To Chapter I. See notes 2 and 8 of Chapter I.—TR.
²“nothing is useful but what serves to the salvation of one’s eternal life.”
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nelle.”³ Among more recent writers, François V. de Forbonnais defines goods (biens) as “les propriétés qui ne rendent pas une production annuelle, telles que les meubles précieux, les fruits destinés à la consommation.”⁴ (Principes économiques in E. Daire [ed.], Mélanges d’économie politique, Paris, 1847, I, 174–175), and contrasts them with “richesses” (goods that yield a revenue). A similar distinction, in a different sense, is also made by Du Pont (Physiocratie, Leyden, 1768, p. cxviii).

The word “good,” in the special meaning of present day science, was already used by Guillaume F. Le Trosne (De l’intdérêt social, Paris, 1777, pp. 5–6) who contrasts needs with the means for their satisfaction and calls the latter goods (biens). See also Jacques Necker, Sur la législation et le commerce des grains, Paris, 1775, pp. 17–24. Jean Baptiste Say (Cours complet d’économze politique pratique, Paris, 1840, I, 65) defines goods (biens) as “les moyens que nous avons de satisfaire [nos besoins].”

The development of the theory of the good in Germany can be seen from what follows: Julius v. Soden (Die Nazional-Oekonomie, Leipzig, 1805, I, 39–40) defined a good as an article of consumption; L.H. v. Jakob (Grundsätzeder National-Oekonomie, Halle, 1825, p. 30) defined a good as “was zur Befriedigung menschlicher Bedürfinsse geschickt ist”;⁵ Gottlieb Hufeland (Neue Grundlegung der Staatswirthschaftskunst, Wien, 1815, I, 15) defined it as “jedes Mittel zu einem Zwecke eines Menschen”;⁶ Henri Storch (Cours d’économie politique, St. Petersbourg, 1815, I, 56–57) said: “L’arrêt que notre jugement porte sur l’utilité des choses . . . en fait des biens.”⁷ From these beginnings, Friedrich Carl Fulda (Grundsätze der ökonomisch-politischen oder Kameralwissenschaften, Tübingen, 1816, p. 2) defines goods as “diejenige [Sachen], welche der Mensch zu diesem Zweck [Befriedigung geistiger und physicher Bedürfnisse] als Mittel anerkennt”⁸ (cf., however, Hufeland, op. cit., I, 22ff.). Wilhelm Roscher (Grundlagen der Nationalökonomie, Twentieth edition, Stuttgart, 1892, p. 2) defines them as “alles dasjenige was zur. . . . Befriedigung eines wahren menschlichen Bedürfnisses anerkannt brauchbar ist.”⁹

³ “utility itself is measured by considerations of eternal life.”
⁴“possessions that do not yield an annual product, such as precious objects, products destined for consumption.”
⁵“what is suited to the satisfaction of human needs.”
⁶“every means to a purpose of a man.”
⁷“the judgment we pass upon the utility of things . . . makes goods of them.”
⁸“those [things) which man recognizes as means to this end [satisfaction of psychological and physical needs].”

Sir James Steuart, in An Inquiry into the Principles of Political Oeconomy (London, 1767, I, 360ff.), had already divided goods into things, personal services, and rights. In the category of rights he even included marketable privileges or immunities (p. 370). Say (op. cit., pp. 530–531) counted a law practice, the goodwill enjoyed by a merchant, newspaper enterprises, and even the reputation of a military leader as goods (biens). Friedrich v. Hermann (Staatswirthschaftliche Untersuchungen, München, 1874, pp. 103ff.) includes a large number of relationships under the concept of external goods (relationships of hospitality, love, family, gainful employment, etc.) and distinguishes them from material goods and personal services as a special category of goods. Roscher (op. cit., p. 8) counts the state among “relationships,” whereas Albert E.F. Schäffle (Die nationalökonomische Theorie der ausschliessenden Absazverhältnisse, Tübingen, 1867, p. 12) confines the concept “relationships” to “übertragbare, durch private Beherrschung des Absatzes und durch Verdrängung der Concurrenz ausschliessend gemachte Renten.”¹⁰ In this passage Schäffle uses the term “rent” in a sense peculiar to himself. (See Schäffle, Das gesellschaftliche System der menschlichen Wirtschaft, Tübingen, 1873, I, 208ff.; also Soden, op. cit., I, 25ff.; and Hufeland, op. cit., I, 30.)

Appendix B¹ Wealth

 

I

nvestigations of the nature of economic goods began with attempts to define the concept wealth in the economy of an individual. Adam Smith barely touched upon the question, but the

suggestions he made have had the most far-reaching effects on theories of wealth. “After the division of labour has once thoroughly taken place,” he says, “. . . a man . . . must be rich or poor according to the quantity of that labour which he can command or which he can afford to purchase.” (Wealth of Nations, Modern Library Edition, New York, 1937, p. 30.) From this it may be concluded as a consist

⁹ “all that is recognized as being applicable to the satisfaction of a true human need” (Menger’s italics).
¹⁰“transferable rents made exclusive by private control of supply and elimination of competition.”
¹To Chapter II. See notes 9 and 14 of Chapter II.—TR.

ent extension of the Smithian theory that whether or not a good provides us with command of labor (or, which is the same thing as far as Smith is concerned, whether or not it has exchange value) is the criterion by which its character as an object of wealth (in the economy of an individual) is to be judged. Say also follows this line of reasoning. In his Traité d’économie politique (Paris, 1803, p. 2), he separates goods that have exchange value from goods that do not, and excludes the latter from wealth. (“Ce qui n’a point de valeur, ne saurait être une richesse. Ces choses ne sont pas du domaine d’économie politique.”²) In his Principles of Political Economy and Taxation (ed. by E.C.K. Gonner, London, 1891, p. 258), Ricardo also distinguishes between value and goods (“riches”), and differs from his predecessors only in that he employs the word “riches” in a markedly different sense than that in which Say uses the word “richesse.” Following Adam Smith (op. cit., pp. 314ff.), Malthus sought the criterion of the wealth-character of goods in whether or not they are tangible objects (Principles of Political Economy, London, 1820, p. 28), and in his later writings as well, he confines the concept wealth to material goods. Among German writers, this same opinion is held by H. Storch (Cours d’économie politique, St. Petersbourg, 1815, I, 108ff.); F.C. Fulda (Grundsätze der ökonomisch-politischen oder Kameralwissenschaften, Tübingen, 1816, p. 2); J.A. Oberndorfer (System der Nationalökonomie, Landshut, 1822, pp. 64–65); K.H. Rau (Grundsätzeder Volkswirthschazftslehre, Heidelberg, 1847, p. 1); J.F.E. Lotz (Handbuch der Staatswirthschaftslehre, Erlangen, 1837, I, 19); and Theodor Bernhardi (Versuch einer Kritikder Gründe die für grosses und kleines Grundeigenthum angeführt werden, St. Petersburg, 1849, pp. 134ff., and especially pp. 143ff.).

Writers who have argued against the exclusion of immaterial goods are: J.B. Say (Cours complet d’économie politique pratique, Paris, 1840, I, 89), J.R. McCulloch (Principles of Political Economy, London, 1830, pp. 6ff.), F. v. Hermann (Staatswirthschaftliche Untersuchungen, München, 1874, pp. 21ff.), and Wilhelm Roscher (Grundlagen der Nationalökonomie, Twentieth edition, Stuttgart, 1892, p. 16). Malthus had already recognized that the concept of wealth cannot be correctly defined by limiting it to material goods (Principles of Political Economy, Second Edition, London, 1836, p. 34), but I shall have occasion at a later point to discuss his shifting attempts to provide a definition of wealth.

²“That which has no value cannot be wealth. These things are not within the domain of political economy.”

The most recent representatives of political economy in England tie the concept of wealth almost exclusively to objects having exchange value. See, for example, McCulloch (op. cit., p. 6); J.S. Mill (Principles of Political Economy, ed. by Sir W.J. Ashley, London, 1909, p. 9); and N.W. Senior (An Outline of the Science of Political Economy, London, 1836, p. 6). Among the recent French writers, Ambroise Clément and Auguste Walras (De la nature de la richesse et de l’originede la valeur, ed. by Gaëtan Pirou, Paris, 1938, pp. 146ff.) in particular hold this view.

Whereas the English and French economists merely distinguish between goods that are wealth and goods that are not, Hermann (op. cit., p. 12) goes much deeper, since he contrasts economic goods (objects of economizing) with free goods. This distinction has since been maintained in German economics with few exceptions. But Hermann defines the concept economic goods too narrowly. For he says that an economic good is “was nur gegen bestimmte Aufopferung, durch Arbeit oder Vergeltung hergestellt werden kann.”³ He thus makes the economic character of goods depend on labor or on trade between men (ibid., p. 18). But are not the fruits that an isolated individual can gather without labor from trees economic goods for him if they are available to him in smaller quantities than his requirements for them? And is not spring water that is also available to him without labor and in quantities exceeding his requirements a non-economic good?

Roscher who had defined economic goods in his Grundriss zu Vorlesungen über die Staatswirthschaft (Göttingen, 1843, p. 3) as goods “die in den Verkehr kommen,” and who defined them in the earlier editions of his System der Volkswirthschaft (Edition of 1857, p. 3) as “Güter, welche des Verkehrs fähig sind, oder wenigstens denselben fördern können,”⁴ defines them in the more recent editions of his major work (Grundlagen der Nationalökonomie, Twentieth edition, Stuttgart, 1892, p. 4) as “Zwecke und Mittel der Wirthschaft.”⁵ This definition is merely a paraphrase of the concept to be defined, and shows that the eminent scholar considers the question of the criteria for distinguishing between economic and non-economic goods as still open. See also Schäffle’s Das gesellschaftliche System der menschlichen Wirthschaft (Tübingen, 1873, I, 66ff.), and his “Die ethische Seite der nationalökonomischen Lehre vom Werthe” (originally published in Tübingen Universitätsschriften, 1862, and reprinted in A.E.F. Schäffle, Gesammelte Aufsätze Tübingen, 1885, I, 184–195).

³ “what can be obtained only for a definite sacrifice in the form of labor or monetary consideration.”
⁴“that are capable of being traded, or that, at least, facilitate trade.”
⁵“ends and means of economizing.”

That the difficulties non-German economists have had in attempting to define the concept “wealth” stem from the fact that they do not know the concept “economic good” is most clearly illustrated by the writings of Malthus. In the first edition of his Principles of Political Economy, which was published in 1820, he defines wealth as “those material objects which are necessary, useful, or agreeable to mankind” (p. 28). Since this definition includes all (material) goods in the concept “wealth,” it includes even non-economic goods, and is entirely too broad for this reason. In his Definitions in Political Economy, which appeared seven years later, he defines wealth as “the material objects necessary, useful or agreeable to man, which have required some portion of human exertion to appropriate or produce” (p. 234.) In the second edition of his Principles (London, 1836, pp. 33–34, note) he explains that “the latter part was added, in order to exclude air, light, rain, etc.” But he recognizes that even this definition is untenable and says (ibid.) that “there is some objection to the introduction of the term industry or labour into the definition, because an object might be considered as wealth which has had no labour employed upon it.” Finally, in the text of the second (1836) edition of the Principles (p. 33) he comes to the following definition of the concept: “I should define wealth to be the material objects, necessary, useful, or agreeable to man, which are voluntarily appropriated by individuals or nations.” Thus he falls into a new error by making the fact that a good is the property of an economizing individual the source of its wealth-character (i.e., of its economic character).

We find similar shifting attempts to arrive at a definition of wealth in the writings of J.B. Say. In his Traité d’économie politique (Paris, 1803, p. 2), he makes value (exchange value) the source of the wealth-character of goods. He says that “ce qui n’a point de valeur, ne saurait être une richesse.” This view was attacked by R. Torrens (An Essay on the Production of Wealth, London, 1821, p. 7), and Say then shifted in his Cours complet d’économie politique pratique (Paris, 1840, I, 66), to the following description of goods that constitute wealth: “Nous sommes forcés d’acheter, pour ainsi dire, ces . . . biens par des travaux, des économies, des privations; en un mot, par de véritables sacrifices.”⁶ In this passage, Say takes essentially the same position as that expressed by Malthus in his Definitions in Political Economy. But a little further on (Cours complet, p. 66) he says, “On ne peut pas séparer de ces biens l’idée de la propriété. Ils n’existeraient pas si la possession exclusive n’en était assurée à celui qui les a acquis. . . . D’un autre côté, la propriété suppose une société quelconque, des conventions, des lois. On peut en conséquence nommer les richesses ainsi acquises, des richesses socials.”⁷

⁶We are forced, so to speak, to buy these . . . goods by labor, economy, abstinence,—in a word by real sacrifices.”

 

Appendix C¹ The Nature of Value

 

A

ttempts to determine the factors common to all forms of the value of goods, and thus to formulate the general concept of “value,” can be found in the works of all recent German authors

who have independently treated the theory of value. Moreover, they have all tried to distinguish the use value of goods from mere utility.

Friedländer (“Theorie des Werthes,” Dorpater Universitäts Program, 1852, p. 48)² defines value as “das im menschlichen Urtheil erkannte Verhältniss, wornach ein Ding Mittel für die Erfüllung eines erstrebenswerthen Zweckes sein kann.”³ (See also H. Storch, Cours d’économie politique, St. Petersbourg, 1815, I, 36.) Since the relationship described by Friedländer (provided that the end desired is the satisfaction of a human need or an end that is causally connected with the satisfaction of a human need) is what is responsible for the utility of a thing, his definition is identical with one in which the value of a good is conceived to consist in its recognized fitness for attaining an end, or as the recognized utility of a thing. But utility is a general prerequisite of goods character and Friedländer’s definition is therefore too broad, quite apart from the fact that it does not touch upon the nature of value. Indeed, Friedländer comes to the conclusion (op. cit., p. 50) that non-economic goods are just as much objects of human valuation as economic goods.

⁷ “One cannot separate the idea of property from these goods. They would not exist if exclusive possession of them were not assured to the person who has acquired them. . . . On the other hand, property presupposes some form of society, contracts, and laws. Hence wealth so acquired may be called social wealth.”

¹ To Chapter III, Section 1. See note 1 of Chapter III.—TR.
²We were unable to locate this item. We suspect, however, that Menger’s reference is to the following work: Dorpat, Kaiserliche Universität, Facultätsschriften der Kaiserlichen Universität Dorpat, dargebracht zur Feier ihres funfzigjährigen Bestehens, etc. Dorpat, 1852, (see Catalogue of the Printed Books in the Library of the British Museum, London, 1881–1900, I, 202).—TR.
³“the relationship recognized by human judgment that a thing can be a means to the fulfilment of some desired end.”

Like many of his predecessors, Karl Knies (“Die nationalökonomische Lehre vom Werth,” Zeitschrift für die gesammte Stattswissenschaft, XI [1855], 423) sees in value the degree of suitability of a good for serving human ends. (See also the earlier editions of Wilhelm Roscher’s Die Grundlagen der Nationalökonomie, e.g., the Fourth Edition, Stuttgart, 1861, p. 5.) I cannot concur in this view, because although value is a magnitude that can be measured, the measure of value belongs as little to the nature of value as the measure of space or time to the nature of space or time. In fact, Knies himself senses the difficulties to which his conception of value ultimately leads, since he also acknowledges usefulness, utility, and even goods-character as definitions of value and remarks that “die Werttheorie . . . [ist] . . . an einzelnen Stellen thatsächlich im Ganzen auf die Combination beider Bedeutungen des Wortes Werth aufgebaut”⁴ (ibid., pp. 423–424). He does not, therefore, reach any uniform principle of value.

A.E.F. Schäffle (“Die ethische Seite der nationalökonomischen Lehre vom Werthe” originally published in Akademisches Programm zur Feier des Geburtsfestes Sr. Majestät des Königs Wilhelm, Tübingen, 1862, and reprinted in A.E.F. Schäffle Gesammelte Aufsätze Tübingen, 1885, I, 184–195) proceeds from the view that “eine potentielle oder actuelle vom Menschen mit bewusstem Willen gestaltete Beziehung zwischen Person und unpersönlichen Aussendingen ist also stets erforderlich, wenn vom Wirthschaften und von wirthschaftlichen Gütern soll die Rede sein können. Diese Beziehung lässt sich nun sowohl von Seite des wirthschaftlichen Objectes als von Seite des wirthschaftlichen Subjectes auffassen. Objectiv ist sie die Brauchbarkeit, subjectiv der Werth des Gutes. Brauchbarkeit (Dienlichkeit, Nützlichkeit) ist die Tauglichkeit der Sache, einem menschlichen Zwecke . . . zu dienen. Werth aber ist die Bedeutung, welche das Gut vermöge seiner Brauchbarkeit für das ökonomische Zweckbewusstsein der wirthschaftlichen Persönlichkeit hat.”⁵ (Ibid., p. 186). But Schäffie himself shows that this definition of value is certainly too broad when, in his later writings (e.g., Das gesellschaftliche System der menschlichen Wirthschaft, Tübingen, 1873, I, 162) he defines value as “die Bedeutung eines Gutes, um der dafür zu bringenden Opfer.”⁶ His earlier definition is too broad because non-economic goods also have utility and may be consciously applied to the purposes of men even though they have no value. It does not, therefore, confine value to economic goods, although Schäffie, a penetrating scholar, is fully aware of the fact that value is never attributed to non-economic goods (Gesammelte Aufsätze, p. 187). His more recent definition, on the other hand, is clearly too narrow, for nothing is more certain than that there are numerous economic goods that come into the command of men without the least sacrifice (alluvial land, for instance), and still other economic goods that cannot be attained by any economic sacrifice at all (inborn talents, for example). But Schäffle nevertheless placed an important factor for the deeper understanding of the nature of value in the clearest possible light. For according to him it is not the objective suitability of a good in itself (ibid., p. 186), nor the degree of its utility (ibid., pp. 191–192), but the importance of a good to an economizing individual that constitutes the essence of its value.

⁴“in a number of instances, the theory of value . . . [is] . . . actually erected entirely on a combination of the two meanings of the word value.”

An interesting contribution to the correct conception of value has been made by H. Roesler (“Zur Theorie des Werthes,” Jahrbücher für Nationalökonomie und Statistik, XI [1868], 279–313 and 406–419). Roesler comes to the conclusion that “die herkömmliche Unterscheidung zwischen Gebrauchs- und Tauschwert unrichtig sei und mit dem Moment des nützlichen Gebrauchs der Dinge der Begriff des Werthes absolut nicht verbunden werden könne; dass vielmehr der Begriff des Werthes nur ein einheitlicher sei, die Vermögensqualität der Dinge bezeichne und durch Realisirung der Vermögensrechtsordnung zur concreten Erscheinung komme.” (Ibid., p. 406.)⁷ Roesler’s peculiar point of view is evident in this passage, but so also is the fact that his conception is a forward step. For he correctly delimits the sphere of objects that constitute wealth and strictly s.eparates the utility of goods from their value. But I cannot agree with Roesler if he makes the wealth-character of a good the determining principle of its value, since both a good’s wealth-character and its value are consequences of the same quantitative relationship (the relationship described in the text above). Moreover, Roesler’s conception of wealth character seems questionable to me because it was borrowed from jurisprudence (see ibid., pp. 295 and 302ff., and also Christian von Schlözer, Anfangsgründe der Staatswirthschaft, Riga, 1805, p. 14). Like their economic character the value of goods is independent of social economy, of the legal order and even of the existence of human society itself. For value can be observed in an isolated economy, and cannot therefore be founded upon the legal order.

⁵ “in order to be able to speak of economizing or of economic goods, a potential or actual relationship between persons and impersonal external objects consciously established by men must always exist. This relationship can be considered with reference to the economic object or from the standpoint of the economizing individual. Looked at objectively itis the utility of the good. Looked at subjectively itis the value of the good. Utility (serviceability, usefulness) is the suitability of a thing to serve a human purpose. . . . But value is the importance the good has, because of its utility, for the conscious economic purposes of the economizing individual.”

⁶“the importance of a good because of the sacrifices made in obtaining it.”

Among earlier attempts to define the general concept of value I wish also to mention those of: Geminiano Montanari (Della moneta, in Scrittori classici Italiani di economia politica, Milano, 1803–5, II, 43); A.R.J. Turgot (“Valeurs et Monnaies” in Oeuvres de Turgot, ed. by G. Schelle, Paris, 1913–23, III, 79ff.); E.B. de Condillac (Le commerce et le gouvernement, reprinted in E. Daire, [ed.] Mélanges d’économie politique, Paris, 1847, I, 251ff.); G. Gamier (in the Preface to his French translation of A. Smith’s Wealth of Nations under the title La Richesse des Nations, Paris, 1843, I, xlviff.); and H. Storch (op. cit., I, 56ff.) Among these, it is Condillac’s definition of value in particular that bears no small resemblance to the recent developments of the theory of value in Germany.

Appendix D¹ The Measure of Value

 

A

 

s early as Aristotle we find an attempt to discover a measure of the use value of goods and to represent use value as the foundation

⁷ “the traditional distinction between use value and exchange value is incorrect, and the concept of value cannot by any means be tied to the factor of things having useful employments. On the contrary, the concept of value is uniform, designating the wealth-character of things, and becoming a concrete phenomenon as a result of the institution of laws with respect to property.” (The italics in the quotation were added by Menger).—TR.

¹To Chapter III, Section 2. See note 11 of Chapter III.—TR.

of exchange value. In the Ethica Nicomachea (v. 5. 1133^a, 26–1133^b, 10) he says that “there must be something that can be the measure of all goods. . . . This measure is, in reality, nothing other than need, which compares all goods. For if men desire nothing or if they desire all goods in the same way, there would be no trade in goods.”² In the same spirit Ferdinando Galiani (Della moneta in Scrittori classici Italiani di economia politica, Milano, 1803–5, X, 58) writes “ch’essendo varie le disposizioni degli animi umani e varj i bisogni, vario è il valor delle cose.”³

A.R.J. Turgot deals with this problem in an essay of which only a fragment survives (“Valeurs et Monnaies” in Oeuvres de Turgot, ed. by G. Schelle, Paris, 1913–23, III, 79–98). He explains (pp. 85ff.) that when human civilization has reached a certain stage man begins to compare his needs one with another, in order to adjust his efforts in procuring different goods to the degree of necessity and utility of these goods (besoins, a word used frequently in this sense by the Physiocrats). In evaluating goods man also takes into account the greater or less difficulty of procuring them, and Turgot thus comes to the conclusion that “la valeur estimative d’un objet, pour l’homme isolé, est précisément la portion du total de ses facultés qui répond au désir qu’il a de cet objet, ou celle qu’il veut employer à satisfaire ce désir.”⁴ (