Economic Theory of the Leisure Class. Nikolai Bukharin 1919

Chapter III
The Theory of Value (Continued)

1. The Theory of Utility by Substitution.
2. The Amount of Marginal Utility and the Quantity of Commodities.
3. The Fixing of the Value of Commodities in Various Types of Consumption; Subjective Exchange Value; Money.
4. The Value of Complementary Commodities (The Theory of Imputation).
5. The Value of Productive Commodities. Production Costs.
6. Conclusions.

1. The Theory of Utility by Substitution.

We now arrive at a point where the new theory runs up against a terrible snag and sails inevitably into destruction, from which not even so skilled a mariner as Böhm-Bawerk can save it.

We have hitherto considered only the simplest cases of an evaluation of commodities. Together with Böhm-Bawerk, we have assumed that the evaluation of commodities depended on the marginal utility of the commodity in question. As a matter of fact, the matter is not quite so simple; Böhm-Bawerk himself says:

“The existence of a developed exchange system may here produce serious complications, for, by making it possible to transform commodities of a certain type into commodities of another type at any moment, it also makes possible the filling of a lack in commodities of one type by means of commodities of another ..... The lack therefore influences the marginal utility of the substituted new commodities, the marginal utility of the group of commodities of another type here used as a substitute.” Böhm-Bawerk: Grundzüge, etc., pp. 37, 38)

The following example is offered by Böhm-Bawerk:

“I have only one winter overcoat, which some one steals from me. I cannot immediately substitute another unit of the same type for it, having possessed only one winter overcoat. I shall also have but little inclination to bear the loss consequent upon this theft where the loss is felt most directly .... I shall therefore seek to transfer the loss to other types of commodities, which I do by acquiring a new winter overcoat in exchange for commodities that might otherwise have been differently applied.” (Ibid., p.38.) Böhm-Bawerk will sell such commodities as have least “importance.” Besides direct sale, other cases may occur, depending on the material situation of the “economic subject.” If the latter is a wealthy man “the forty florins that he may have to pay for the new winter overcoat” [Italics mine. — N.B.] may be taken from his available cash, which may result in a corresponding decrease in expenditures for luxuries; if he is neither wealthy nor impoverished, this decrease in his cash supply will oblige him to do without a number of things for a time. Should this also be impracticable, he will sell or pawn a number of articles of household furniture; only in cases of extreme poverty will it be impossible to transfer the loss to other types of needs, and therefore necessary to dispense altogether with a winter overcoat. In all these cases, except the last, the evaluation of the commodities is therefore not an isolated evaluation, but is closely related with the evaluation of other commodities. “I am inclined to believe,” says Böhm-Bawerk, “that most of the subjective evaluations that are formed at all are ascribed to such combined evaluations. For we hardly ever estimate commodities indispensable to us, by their direct utility, but almost always by the ‘substitution utility’ of other types of commodities.” (Ibid., p.39; [italics mine. — N.B.].)

This discussion approaches reality more closely than the author’s preceding statements: but they have a great negative “value” for the “welfare” of the entire theory of Böhm-Bawerk and his adherents. For instance, where does Böhm-Bawerk get his “forty florins,” and why forty; why not fifty or one thousand? It is clear that in this case Böhm-Bawerk simply accepts the market prices as given. Assuming purchase and sale, or even only purchase, as a necessary condition, he simultaneously also presupposes the objectively given price. (Cf. R. Stolzmann: Der Zweck in der Volkswirtchaftslehre, 1909, p.723.) Nor does Böhm-Bawerk ignore this fact, for he formulates this point of view quite clearly. “Yet I should like to emphasise expressly,” he observes, “that even in the midst of a developed commercial life ... we have not always occasion to apply the latter mode of evaluation [i.e., that by “substitution utility.” — N.B.]. We apply it only ... when the prices of commodities and simultaneously the cessation of the various types of needs are so situated that a loss occurring within the specific type itself would cause relatively more important requirements to go unsatisfied, than if the purchase price of a replacing specimen should be taken from the satisfaction of other needs."[83]

Böhm-Bawerk therefore admits that in our subjective evaluation (he modestly grants that this means in a majority of cases) an objective real value is assumed. But since his task consists precisely in deriving this value figure from subjective evaluations, it is obvious that the entire doctrine of substitutional utility developed by our author is simply a circulars vitiosus: objective value is traced back to subjective evaluations, which in turn are explained by objective value. And Böhm-Bawerk was guilty of this theoretical outrage at the, very moment when he was directly faced with the problem of explaining some hypothetical economy having no point of contact with reality, with an actual real economy, characterised by “a developed exchange system."[84] It is interesting to note that Böhm-Bawerk himself recognizes the “serious theoretical difficulty” this point involves for the theory of marginal utility. Yet he attempts to make his escape from this maze of contradictions. Here is his method of saving the face of his theory: the assumption of the winter overcoat at forty florins is based on the “anticipation of a condition which can only be created later on the market."[85] Therefore, “such subjective evaluations have no other influence on their [men’s] practical actions on the market than would any general expectation of being able to purchase the necessary commodity at a certain price, for example, forty florins. If the article is obtained at this price, very well; if it is not obtained, one need not go home empty-handed, but may abandon the expectations thus frustrated by reality and consider whether the general state of one’s circumstances will permit one to continue bidding to a higher level.” (Ibid., p.517.) Böhm-Bawerk makes the decision depend on whether a single market or a number of markets are available to the purchaser. In the former case: “If there is no other market, the purchaser will no doubt continue to bid, if necessary up to the full level of the direct marginal utility he expects from the commodity to be secured.” (Ibid., p.518.) “The purchaser will therefore,” concludes Böhm-Bawerk (and this is the result which is important for our theory of prices), “contribute to the formation of the price resultant not in accordance with the lower direct marginal utility, constructed on the assumption of a certain market price, but in accordance with the higher indirect marginal utility.” In the second case: “the hypothetical evaluation .... may at any rate [!] cause the customer to transfer his purchase from one part of the market to another; but it cannot prevent him from applying the full pressure of his evaluation, up to the indirect marginal utility, to some part of the entire market.” (Ibid., p.518.) There follows the conclusion: “Subjective evaluations, based on the conjecture that it will be possible to purchase the desired commodity at a certain price, constitute a noteworthy psychical step in our attitude in the market in which this conjecture is to be realised but not a final law of conduct. The latter can only be based on a consideration of the degree of indirect marginal utility.” (Ibid., pp. 518, 519.)

This is Böhm-Bawerk’s method of disposing of the above-mentioned “theoretical difficulty.” Yet his explanation is only imaginary and is made of whole cloth. Let us take the crassest example, that of foodstuffs. Their subjective value, based on utility (let us take a unit corresponding to the lowest limit of satisfaction and the highest limit of utility) is boundless. Let us assume, furthermore, that the evaluation based on an anticipation of market conditions is two rubles. When is the decision to be made, which Böhm-Bawerk assumes? In other words, when will our “individual” decide to pay any price at all, to give “all for a piece of bread"? Obviously this condition may occur only in very unusual market situations.

Not even abnormal situations, but altogether exceptional states must supervene, i.e., where there is no social production at all, no social economy, etc., in the common sense of the word. Such a case may perhaps occur in a “besieged city” (one of Böhm-Barwerk’s favourite examples) or on a ship that has run aground on a deserted island, or to the man who wanders in the desert. But no such thing can occur in modern life while the social production and reproduction are engaged in their normal course. The process here is quite different. Between the subjective evaluation according to utility and the presumable figure of the market price (in the present case, therefore, between infinity and two rubles) there is a great series of various possible prices (ignoring, for the moment, a possible descent under two rubles). As a rule, each single concrete transaction will be concluded on a basis very close to the anticipated prices, and in some cases they will completely coincide, as in a one-price shop. But be this as it may, one thing is plain: assuming a normal course of social production, the relation between the social demand and the social supply is such as to prevent individual evaluations as to utility from playing any dominant part, in fact, they do not even appear on the surface of the social life at all. (Wilhelm Scharling, op. cit., p.29; also Lewin: Arbeitslohn und soziale Entwicklung. Appendix.)

Our example is appropriate for both of the cases cited above by Böhm-Bawerk. We have still to analyse another case treated by him, namely, purchase for the purpose of resale, in which “a purchaser estimates the commodity entirely according to its (subjective) exchange value, and not at all by its use value."[86] In such cases, Böhm-Bawerk represents the condition in the following words: “The market price is first influenced by the (exchange) evaluation of the trader; this is based on the conjectured market price of a second market, and this, in turn, among other things [! !] on the evaluation of prospective purchasers in this second market field. “ (Ibid., p.519.) Here the condition is even more complicated. Böhm-Bawerk maintains that the purchaser evaluates the useful article on the basis of the sum of money “one hopes to obtain in another market (allowing also for cost of transportation and handling) for it.” This sum of money he analyses into the evaluations of the purchasers (evaluations according to utility) in the second market. But the matter is by no means so simple. The trader aims to secure as large a profit as possible, the amount of which depends on a number of circumstances. Böhm-Bawerk himself points out a few: transportation cost, handling expenses (overhead). But this means to Böhm-Bawerk merely the introduction of new series (each having their varying constituent elements) of commercial prices, as quantities requiring no explanation. But actually each ingredient of these costs must be explained. Furthermore, Böhm-Bawerk imagines he has reached the final stage in his explanation when he comes to the evaluations of the purchasers in the second market. Here he deludes himself mightily. For these evaluations may be further sub-divided. Surely they cannot be based on pure “utility” alone. For again there are new traders who are purchasing the commodity for other markets; on the other hand, even the purchasers for direct use do not evaluate the commodity directly, but also by its “substitution utility.” The presence of middlemen obliges us to set forth for a third market also, and since middlemen may again be found there, we may have to travel to a fourth, a fifth market, etc., ad infinitum. Furthermore, we have also seen that a further series of trading prices and evaluations by substitution utility have been smuggled in by Böhm-Bawerk as given. The final fact is that the total phenomenon is really divided into a host of elements of which none can be explained with even a fair degree of satisfaction.

Let us dwell for a moment on a defence offered by Böhm-Bawerk, since it is of general importance; it appears in his attempt to meet the objection that his theory constitutes a circulus vitiosus.

The essential point in the question of such a circle is always that those subjective evaluations based upon the conjectured formation of a concrete market price are different from the evaluations on which this market price itself is based, and vice versa. The apparent circle is due merely to the dialectic similarity of the words used in both cases — ‘subjective evaluation’ — whereas it should actually be explained and emphasised that the same name in these two cases does not indicate one and the same phenomenon, but different phenomena, both being covered by the same general term.” (Böhm-Bawerk: Kapital and Kapitalzins, vol. II, part I, p.403. footnote.) Böhm-Bawerk attempts to clarify this by the following example: “A parliamentary caucus has adopted the unit rule; its members must vote according to the decision of the majority in the caucus meetings. Obviously the decisions of the caucus are to be correctly explained as the result of a vote of the various members of the caucus, and the later votes of the members in the parliament are to be just as correctly explained by the decision of the caucus; yet this explanation involves no circle at all.” (Ibid., p.403.)

In other words, Böhm-Bawerk seeks to justify himself for having explained one set of subjective evaluations by another set of subjective evaluations. We may add that the “other” set also has a “third,” a “fourth,” etc., set after it. The situation is not saved by the fact that these evaluations are different, for the theory of production costs, so vigorously combated by the representatives of the theory of marginal utility, also proceeds from one cost group to another; from one price group to another, which did not save it from the perpetration of a circulus vitiosus. The reason is quite clear; we are not merely tracing phenomena to other phenomena of the same type, but explaining one category of phenomena by a different category of phenomena. In the former case, we are limited only by the boundlessness of time and space, with the result that any evaluation will lead far beyond the bounds of the present time; we should be practically projecting an endless moving picture in the reverse direction, which would be far from constituting a solution of a theoretical problem, but rather an endless retracing of steps. Such a situation is of course not an accident. As has been already stated, Böhm-Bawerk could not help becoming involved in this circle, an inevitable consequence of the individualistic position of the Austrian School. The Austrians do not understand that the individual psychology is conditioned by the social milieu, that the “individual” characteristics of man in society are for the greater part a “social characteristic,” that the “social atom” is a figment of the Austrian imagination, similar to Wilhelm Roscher’s ‘ feeble proletarian of the primeval forests."[87] The matter proceeds quite smoothly as long as the analysis of “motives” and “evaluations” is concerned only with the make-believe Robinson Crusoe. But as soon as we reach the present day, insurmountable difficulties are met with; we cannot construct a theoretical bridge from the psyche of the “isolated subject” to that of man in an economy of commodities production. But if we proceed from the psychology of the latter, the “objective” elements of the economic phenomena of the commodities economy are already given; consequently they may not be derived exclusively from individual-psychical phenomena without incurring the accusation that one is thus explaining idem per idem.

In the theory of substitution utility, the incorrectness of the methodological bases of the Austrian School, and their theoretical insufficiency, become quite clear. The fundamental fallacy of Böhm-Bawerk is his determining of subjective value by objective value, which in turn is derived from subjective value: many solutions of parts of the problem again and again present this same fallacy.[88]

2. The Amount of Marginal Utility and the Quantity of Commodities.

In investigating the question as to the level of value, we found that Böhm-Bawerk made it depend on the level of marginal utility. We may now proceed to the further question as to the factors defining this level.

“Here,” says Böhm-Bawerk, “we must mention the relation between demand and supply.” In his analysis of this relation, Böhm-Bawerk discovers the following simple “law,” intended as an expression of the relation between “consumption” and “commodities”: “The greater and the more important the needs requiring satisfaction, and the less the quantity of commodities available for the purpose ..... the higher ‘must’ therefore be the marginal utility.” (Böhm-Bawerk: Grundzüge, etc., p.40.) In other words, the level of marginal utility is determined by two factors: a subjective factor (needs, requirements), and an objective factor (quantity of commodities). But how is this quantity itself determined? The theory of the Austrian School has no answer to this question.[89] It simply assumes a certain number of products to be present, it presupposes a certain degree of “rarity” to be given for all time. But this point of view is theoretically weak, for the “establishment” whose phenomena are analysed by political economy includes an economic activity and above all the production of economic commodities. The concept of a “supply” of commodities, as A. Schor has quite correctly observed, pre-supposes a preliminary process of production,[90] a phenomenon which in one way or other must have enormous influence on the evaluation of commodities. Production becomes still more important when we proceed from the static to the dynamic. It is obvious that the Austrian theory, starting with the given supply of commodities, cannot explain the most elementary phenomena of elementary dynamics, as for example, the movement of prices, not to mention more complicated phenomena. Closely related to this fact is the peculiarity that Böhm-Bawerk’s explanation as to the question of the level of value at once calls forth new questions. “Pearls and diamonds happen to exist in such small quantities [!] that the need for them can be satisfied only in small measure, and the marginal utility possessed by its satisfaction is relatively high, while fortunately bread and iron, water and air, are as a rule available in such large quantities as to assure the satisfaction of all the more important needs for these substances.” (Böhm-Bawerk: Grundzüge, etc., p.32.)

“Exist,” — “are as a rule available,” — what would Böhm-Bawerk say of the so called “price revolutions,” when the increased productivity of labour produces an outright catastrophic fall of prices? We can no longer content ourselves here with the phrase “are as a rule available.” The reader has noted with what partiality Böhm-Bawerk chooses his examples. Instead of offering an explanation for the value of typical products, products constituting a commodity, i.e. products bearing the stamp of factory production, he prefers to speak of water and air. Even “bread” reveals the insufficiency of our professor’s position; we need only recall the sudden drop in grain prices at the beginning of the agricultural crisis caused in the decade 1880-1890 by overseas competition. The “supply of commodities” was altered at once, for the simple reason that new conditions of production, never mentioned in a single breath by Böhm-Bawerk, were here concerned.[91] The process of production, however, is not a “complicated circumstance,” a “modification of the principal case,” as Böhm-Bawerk imagines. On the contrary, production is the basis of the social life in general and of its economic phase in particular. The “rarity” of commodities (except in a few cases which we have a right to ignore) is merely an expression for certain conditions of production, a function of the expenditure of social labour.[92] Therefore an object once “rare” may become very common under altered conditions. “Why ..... are cotton, potatoes and whiskey the fulcra of bourgeois society? Because their production requires least labour and their price is consequently lowest.” (Karl Marx: Poverty of Philosophy.) But these products do not always play such a role. Both cotton and potatoes achieve this importance only on the alteration in the system of social labour, only when the costs of production and reproduction of these products (also of their transportation) have attained a certain level.[93]

In other words, without offering to answer the question as to how the quantum of commodities is determined, Böhm-Bawerk cannot also give an exhaustive answer to the second question as to what determines the various levels of marginal utility.

Together with Böhm-Bawerk, we have thus far been considering the question abstractly. Let us now turn to the “modifying influence” of exchange economy. As might have been expected in advance, Böhm-Bawerk’s explanations will here be particularly confused.

“The existence of the system of exchange here also produces complications. At any moment, it makes possible a partial fulfilment of a requirement, to be sure at the cost of the fulfilment of other types of needs, which are accordingly abridged .... This complicates the circle of factors which influence the level of the marginal utility in the following manner: an influence is exerted, in the first place, by the relation of demand and supply existing for commodities of the type to be evaluated, throughout the society united by exchange traffic. For this relation (of demand and supply) influences ... the level of the price to be paid for the desired replacement specimen, and simultaneously the volume of self-denial that must be practiced as to other types of commodities which must suffer for the replacement. In the second place, there is the influence of the relation between demand and supply existing in the evaluating individual himself, as to the types of’ needs which must be abridged by reason of the replacement. For it will depend on this condition whether the abridgment of commodities will affect a low or high level of satisfaction of requirements, in other words, whether it is a small or a large ‘marginal utility’, that must be dispensed with.” (Böhm-Bawerk: Grundzüge, etc., pp. 40, 41.) We find, therefore, that the relation between the social demand and the social supply of goods is a factor determining the level of the individual subjective evaluation (or, the level of the “marginal utility”), for it is this relation that determines the price. The higher the price of a certain new object, the higher the subjective evaluation of the old object.

It is not difficult to observe that this question again involves a number of contradictions. In the first place, all we have already said in our analysis of the theory of substitution utility is again applicable here; the subjective evaluation from which price is to be derived really starts from this price. Furthermore, the final circumstance governing price is considered to be the law of demand and supply, which, from the point of view of the Austrians, must be traced back to laws determining the subjective evaluations, in the last analysis to the law of marginal utility. But if price may really be explained satisfactorily by the law of demand and supply, without further elucidation, why have a subjective theory of value at all? Finally, since the law of demand and supply may be explained, even according to the theory of marginal utility, only by those laws which determine the subjective evaluations, the “prices” intended as explanations of the subjective evaluations must be themselves explained by the subjective evaluations. In an exchange commodities system, however, even these subjective evaluations are subject to the general law and are dependent on prices.[94] It is the same old song, the old Böhm-Bawerk tune, based on this School’s erroneous conception of the relation between the “individual” and the “social aggregate.”

3. The Fixing of the Value of Commodities in Various Types of Consumption; Subjective Exchange Value; Money.

We have hitherto considered only cases in which the commodity to be evaluated has satisfied only one need; we shall now proceed with Böhm-Bawerk to take up the case in which a single commodity may serve for the satisfaction of several needs. “The answer to this question,” says Böhm-Bawerk, “is quite simple. The highest marginal utility is always the determining one ..... The true marginal utility of a commodity is identical with the smallest utility in whose achievement it may be economically used. Now if various mutually exclusive uses are disputing for an available commodity, it is obvious that a rational economic procedure will assign priority to the most important use. It alone is economically admissible; all less important uses are shut out and can therefore have no influence on the evaluation of the commodity, which is in no case to serve them.” (Böhm-Bawerk: Grundzüge, etc., p.52.) From this, Böhm-Bawerk derives the following general formula: “in the case of commodities alternately permitting of various applications and capable of bringing about a varying lewd of marginal utility in these uses, the highest of the alternative marginal utility applications is dominant in fixing the level of its economic value.” (Ibid., pp. 52, 53; italics mine. — N.B.)

It is the remarkable terminology that most surprises us. “The highest utility of the commodity turns out to be the ‘lowest utility’ in whose achievement it may be economically used.” Why it is just the “smallest” remains completely obscure. But this is not a question touching the essence of the matter. If we apply Böhm-Bawerk’s formula to real economic life, we again encounter the fallacy we have met so often, namely, the circle in which his discussions move. As a matter of fact, let us assume a simple case: we have a commodity A, with the money obtained from the sale of which we may buy a number of things, i.e. with money x we can buy commodity B, with money y, commodity C, with money z, commodity D, etc. It is obvious that the commodity to be purchased, consequently also the application of the commodity, will depend on the existing market prices; we shall buy this commodity or that, depending on their being dear or cheap at the moment. Similarly, if we are concerned with the choice of the “means of application” of means of production, we make our choice in accordance with the prices of the products of the various branches of production: in other words, the question of “modes of application” presupposes the price, as is rightly observed by Gustav Eckstein. (Gustav Eckstein: “Zur Methode der politischen ökonomie,” Die Neue Zeit, Vol. XXVIII, part I, p. 371).

This fallacy reaches its culmination in the theory of subjective exchange value.

Böhm-Bawerk distinguishes between two varieties of the “versatility” of commodities, based upon the two varieties of their “application”; namely, the various modes of application are either the result of a “technical versatility” of the commodity or that of its capacity of being exchanged for another commodity. The latter is the more often the case, the more involved are the exchange relations. The division of subjective value into subjective use-value and subjective exchange-value[95] is based on this dual significance of the commodity, on its being directly or indirectly a means of satisfying a need, on the one hand (meaning its use as a means of production), or, on the other hand, a means of exchange.

“The magnitude of use-value,” says Böhm-Bawerk, “is measured . .. by the level of the marginal utility involved in the commodity to be evaluated, for one’s own use. The magnitude of subjective exchange value must therefore be measured by the marginal utility of the commodities to be exchanged for it.” (Böhm-Bawerk: Grundzüge, etc.. pp. 53. 54.) It follows that the magnitude of the subjective exchange value “must depend on two circumstances: first, on the objective exchange power (objective exchange value) of the commodity, for the latter determines whether one may obtain many or few commodities in exchange for it; and second, on the condition of the requirements and resources of the owner.” (Ibid.. p.54.)

We have quoted Böhm-Bawerk’s formulation almost in full, as it is the best expression of the absurdity and contradiction involved in the concept of objective exchange value. Böhm-Bawerk himself tells us that the “measure of the subjective exchange value ... must depend on the objective exchange value ... “ [Italics mine — N.B.]

Here the “objective” world of the market is not smuggled in by a side entrance. On the contrary, the collapse of the theory founded on the sands of the individual psychology be-comes apparent in the very definition of the standard of subjective exchange value.[96]

It is quite natural that the complete untenability of the Austrian theory should reveal itself most crassly in the question of money.

“The most versatile commodity,” says Wieser, “is money ..... No other commodity affords an opportunity of forming so clear a conception of the notion of marginal utility... .” (Friedrich von Wieser, Der natürliche Wert, Vienna, 1889, page 13.) This statement by one of the most prominent theoreticians of marginal utility sounds rather ironical when compared with the results attained by the new school in this field. As is well known, money is distinguished from other commodities in being a universal equivalent of commodities. Precisely this property, by virtue of which money is a universal expression of abstract exchange value, makes it extremely difficult to analyse money from the point of view of marginal utility.[97] In actual fact, the agent of the modern capitalist economic order always regards money, in all exchange transactions, exclusively from the point of view of its “purchasing power,” i.e., its objective exchange value. Not a single “economic subject” would ever think of estimating his available cash supply of gold from the point of view of its ability to satisfy the “need for adornment.” In view of the dual use-value of money[98] namely, as a commodity and as money, its evaluation touches only the latter function. If, in an analysis of the value of ordinary commodities, it be possible to ascertain the presence of social relations, precluding any individualistic interpretation of economic phenomena (see our analysis of the doctrine of substitution utility, above), these social connections find their fullest expression in the case of money. For money is the “commodity” whose subjective evaluation, according to the terminology of the Austrian School, is subjective exchange value. In exposing the contradictoriness and the logical untenability of this conception, we have revealed the fundamental error of the entire money theory. Gustav Eckstein ably paraphrases this error: “The objective exchange value of money, therefore, results from its subjective use-value; the latter consists in its subjective exchange value, which in turn depends on its objective exchange value. The final result appears to possess the same cogency and the same value as the famous theorem that indigence is a result of poverty... . “[99] In other words, the objective exchange value of money is determined by the objective exchange value of money.

The theory of money and of money circulation may be regarded in a certain sense as a touchstone for any value theory, since money is precisely the most obvious objectivisation of the complicated human relations. Just for this reason, “the enigma of the fetish of gold,” which “blinds by its metallic lustre,” is one of the most difficult problems for political economy. Karl Marx presented a classic example for the analysis of gold (in Capital and in his Contribution to a Critique of Political Economy) and those pages of his work concerned with the analysis of money are the finest things ever done in this field. As opposed to this work of Marx, the “theory” of money advanced by the Austrian School plainly reveals the entire theoretical barrenness of all their constructions — their complete theoretical bankruptcy.[100]

4. The Value of Complementary Goods. (The Theory of Imputation.)[a]

One of the most confusing questions treated by the Austrian School is that of the value of the so-called “complementary goods” (Karl Menger) or the “theory of imputation,” a term introduced by Wieser. By complementary goods Böhm-Bawerk understands those goods which mutually complement each other: in this case, “the co-operation of several commodities is required, for the attainment of an economic utility, in such manner ... that, if one commodity should be missing from the series, the utility could not be attained, or could be attained but imperfectly.” (Böhm-Bawerk: Grundzüge, etc., p.56.) Examples of such series of commodities, cited by Böhm-Bawerk, are: paper, pen and ink: needle and thread; the two gloves of a pair, etc. It is obvious that such groups of complementary goods are to be found with particular frequency in production materials, for which the production conditions require the co-operation of a whole series of factors, the omission of even a single factor frequently destroying the total operation and neutralizing the effectiveness of the other factors. In his analysis of the value of complementary goods, Böhm-Bawerk arrives at a series of special “laws,” “all operative within the frame of the general law of marginal utility.” His point of departure in this analysis is the total value of the entire group, for which he states the following theorem: “The total value of the entire group is determined as a rule by the figure of the marginal utility which they are capable of producing in their combination.” (Ibid., p.56.) If three commodities, A, B, C, when used conjointly, are capable of attaining a minimum economic utility of one hundred value units, the whole value of the group will be equal to one hundred. But such simple cases, according to Böhm-Bawerk, are found only “in the general normal case.” We must distinguish the special cases from this “normal” one; in the case of the former, the law of substitution is operative, of which we have spoken above (see the analysis of the theory of substitution utility). For example, if the marginal utility in a joint utilisation is 100, “while the substitution value of the three members of the group may individually be only 20, 30, 40, a total of only 90, the attainment of their joint utility of 100 is evidently not dependent on all three taken together, while that of the low utility of 90 is so dependent.” (Ibid., p.57) Such “subsidiary matters” (matters quite “normal in capitalist economy, we may add) are apparently of no interest to Böhm-Bawerk; he analyses only the principal case “in which the marginal utility to be obtained by a joint application is simultaneously the true ‘value-determining’ marginal utility.” (Ibid., p.57.) In other words, the value of the entire group is assumed as given. The question is merely to determine the proportions according to which the aggregate value is to be distributed to the individual commodities constituting the group. This is the problem of “economic imputation.” This economic imputation must be distinguished, according to the Austrian School, from all other economic responsibility: for instance, from legal, moral, and physical responsibility. The earlier theorists, according to Wieser, were guilty of the following fallacy: “They attempt to determine which share of the total product, physically considered, has been produced by each factor, or, which share of the effect must be assigned to each physical cause. But it is impossible to determine this.” (Friedrich von Wieser: Der natürliche Wert, p.72; also, Peter Struve, op. cit., vol. II, Moscow, 1916, in Russian ) Böhm-Bawerk’s attitude is similar; in this matter he agrees thoroughly with Wieser.[101 In distributing values to the various shares in the group, there arise various combinations, which depend, according to the terminology of Böhm-Bawerk, on “the casuistic peculiarity of the case.” Let us examine the three fundamental cases distinguished by Böhm-Bawerk.

I. The given commodities may yield utility only when used together and may not be replaced. In this case each is the bearer of the total value of the entire complementary group.

II. The various members of the group may also be put to use elsewhere, outside the given complementary group. “In this case, the value of the individual article no longer fluctuates between ‘nothing’ and ‘everything’ but only between the magnitude of the marginal utility to whirls it may give rise unaided, as a minimum, and the magnitude of the total marginal utility of the other members, as a maximum.” (Ibid., p.58.) Let us assume that three articles, A, B, C, by their joint effect produce a marginal utility of 100; let us assume also that outside the complementary group (in another “mode of utilization”). their “isolated values” are; A = 10, B = 20, C = 30; in this case the “isolated value” of A is 10. However, the value of A as a member of the complementary group (found by assuming A to be eliminated and the group consequently destroyed) is equal to 100 — (20 + 30), i.e., 50.

III. Certain numbers of the group may be replaced. In this case the law of substitution becomes operative. The general formula covering the case is: “The value of the replaceable members, regardless of their concrete complementary use, is fixed at a specific figure, which determines the degree of their participation when the whole value of the group is distributed to its various members. The distribution is now effected by first assigning their fixed value to the members that can be replaced, to be subtracted from the value of the entire group resulting from its conjoining, and then assigning the remainder — which will vary with the magnitude of the marginal utility — to the non-replaceable members as their individual value.” (Ibid., p.50.) So much for the theory of “economic responsibility” in its general aspect. No doubt the “ascribing” (imputing) of the value of a product to the various production factors constitutes to a certain extent a psychological process that actually takes place.[102] Insofar as we are dealing with individual psychological phenomena, such as systems, etc., an ascribing (imputing) of the value of the product to the various “factors” takes place.[103] Of course, whether the study of these phenomena may lead to a satisfactory solution of the problem is another matter. Suffice it here to examine the most typical case, namely, the case in which the introduction of substitution evaluations is a determining factor. Here the question is above all: “What ‘value of the product’ is to be assigned to the complementary group? What does it represent in the eyes of the capitalist?”

We have seen above that even Böhm-Bawerk puts the evaluations of commodities by their capitalist producers at hardly more than zero. In the eyes of the capitalist, there is no marginal utility of goods as a standard for his estimate.

On the other hand, it would be absurd to speak of a “social marginal utility.”[104] But it is possible in this case for the capitalist to speak (and he does speak) of the price of the product, which he imputes now to one operation, now to another operation, of his production capital. It follows that the introduction of one or another production factor for one or another portion of the complementary group depends above all on the price of the product and by no means on its marginal utility, as is maintained by Böhm-Bawerk. Furthermore, in our typical case, the portions of the complementary group may be replaced, may at any time be obtained in the market. Nor is it by any means a matter of indifference to our capitalist how much he must pay for this machine or that, or what wages he gives his workers, etc. In other words, he is interested in the market price of the instruments of production; on this depends his acquisition of new machinery, his employment of new labour power, his expanding or restricting his production. Finally, there is also another category of objectively given economic quantities — the interest rate. For instance, how shall the peasant evaluate his land? According to Böhm-Bawerk, his estimate takes the following form: “In actual practice. the ‘costs’ are first deducted from the total yield. The costs are ..... precisely the expenses for the replaceable means of production of given substitution value.” (Böhm-Bawerk: Grundzüge, etc., p.60.) The rest the peasant “ascribes” (imputes) to his land. (Ibid., p.60.) This is what we call rent of land, a capitalisation of which will give the price of the land. There is no need to prove that each parcel of real estate is actually evaluated in this manner, by capitalising the ground rent; any practical instance will confirm this fact. But such an evaluation presupposes the interest rate to be given; the result of the capitalisation depends entirely on the latter.

We thus find that Böhm-Bawerk wrongly describes even the “fetishistic psychology of the producer” since he excludes the “objective” factors always involved as soon as we assume a commodities production and — still more so — a capitalist commodities production.

The theory of “economic responsibility” (imputation) constitutes a direct transition to the theory of distribution, in the representatives of the Austrian School. We shall, therefore, ignore, for the present, a number of questions touched upon by Böhm-Bawerk, since we are to take them up in our analysis of his theory of interest.[105]

5. The Value or Productive Commodities; Production Costs.

The classical school of political economy, like Marx, in its analysis of the component elements in the value of consumption commodities, traces this value chiefly to the value of the materials of production that are consumed. Whatever the form of the analysis in a specific case, the underlying idea always was this: the value of the means of production constitutes the determining value factor for commodities that may be reproduced ad libitum. But this is not the case with the Austrian theorists. “Their value is equal to the ‘prospective value of the prospective yield’ in marginal commodities. Just this is the true fundamental idea of the modern system of economy as opposed to the classics. This idea is that, as we proceed from the value of the articles of consumption, we base our theory of the formation of prices on this value, thus creating the value of the productive commodities, a value we need in this procedure, by deriving it from that of the consumption commodities.” (Joseph Schumpeter: Bemerkungen, etc., p.83; italics mine. — N.B.)

Let us examine this fundamental idea more closely. According to Menger’s, or rather Gossen’s, example, Böhm-Bawerk divides all commodities into categories, depending on their greater or smaller proximity to the consumption process. We thus obtain: (1) consumption commodities; (2) productive commodities, directly in contact with certain given consumption commodities, or, “productive commodities of the first order”; etc. These latter commodities are called commodities of the “highest” or “remotest” order. How is the value of these commodities of the “highest” order determined? Böhm-Bawerk discusses the matter as follows: each commodity, therefore any commodity of the “highest order,” i.e., any instrument of production, may possess a value only when it directly or indirectly satisfies a requirement. Assuming we are dealing with a consumption commodity A, a result of the utilisation of the productive commodities G2, G3, G4, (the figures 2,3,4 indicating the order of commodities, the degree of their remoteness from the consumption commodity A), it is obvious that the marginal utility of commodity A will result from commodity G,. “The marginal utility of A will depend on group G2, as well as on the final product A itself.” (Böhm-Bawerk: Grundzüge, etc., p.64.) Böhm-Bawerk arrives at the following theorem:

“On all the successive groups of productive commodities of more remote order depends one and the same useful result, namely, the marginal utility of their final product.” (Ibid., p.64.) It follows that: “The magnitude of the marginal utility will express itself first and directly in the value of the final product. The latter then constitutes the guiding line for the value of the group of commodities from which it proceeds; this in turn, for the value of the group of commodities of the third order; the latter, finally, for the value of the final group, that of the fourth order. At each stage, the name of the decisive factor may change; but the same fact is always present under the various names — the marginal utility of the final product.” (Ibid., p.65.) This condition is found whenever we ignore the circumstances that one and the same means of production may serve, and usually does serve, for the production of various consumption commodities. Let us assume that the productive commodity G, may be utilised in three different branches of production, resulting in the products A, B, C, having respectively marginal utilities of 100, 120, and 200 value units. Böhm-Bawerk resorts to the same reasoning as in the analysis of the value of consumption commodities and infers that the loss of one group of the productive commodities of the category G2 will lead to a diminishing of that branch of production which furnishes the product having least marginal utility. There results the theorem: “The value of the unit means of production is determined by the marginal utility and value of that product which among all those commodities for producing which the unit means of production might have economically been used, has least marginal utility.” (Ibid., p. 69.) This law, according to Böhm-Bawerk, also serves to explain the “classical” law of production costs, in such manner that the value of those commodities whose marginal utility is not the lowest marginal utility (groups B and C in our example) are not determined by their own marginal utility, but by the value of the means of production (“production costs”), which depends in turn on the value and marginal utility of the “marginal product,” i.e., the product having least marginal utility. In other words, the above-mentioned substitution law becomes operative here. With the exception of the “marginal product,” the production costs are, therefore, the determining factor in all the types of “commodities related in production,”[106] yet this magnitude itself, i.e., the value of the means of production, is determined by the value of the marginal product, by its marginal utility: “'In the last analysis’ the marginal utility appears as the determining quantity, while the law of production costs appears as a ‘particular’ law, since the costs are not the final, but always only a medial cause of the value of commodities.” (Ibid., p.71.) So much for the general form of the value of productive commodities according to the new school. Let us now turn to a criticism of this theory, beginning with its fundamental idea, namely, that of the dependence of the value of the means of production on the value of the product.[107] The fall in the price of commodities involved in the progress of industry was the most important empirical fact upon which the “older” theory could work, which stated that the production costs constitute a factor determining the value (or price) of the product. The connection between the decrease in the production costs and the drop in the prices of commodities seemed perfectly clear. We must call Böhm-Bawerk’s attention to this phenomenon above all as a touch-stone of his own theory. Böhm-Bawerk has the following to say on this subject:

Let us assume, he says, that new deposits of copper have been discovered. This circumstance (unless there should be a great simultaneous increase in the demand for copper) will cause a drop in the value of copper products. The immediate cause of this drop is, therefore, to be found in the field of the productive commodities, which does not mean, as Böhm-Bawerk continues to say, that the original cause is the fall in the value of copper. He represents the process as follows: the total supply of copper increases; this brings about an increase in copper articles; this circumstance is accompanied by a, decreasing value of these products, which, in turn, results in a decrease in the value of the productive commodity (copper).[108]

Let us examine this thesis. In the first place, it is quite clear that each productive commodity may have value so long (whatever be our definition of value: the Marxian objective value, or the Böhm-Bawerk subjective value) as it truly remains a productive commodity, i.e., a means for the production of any useful object. Only in this sense can we speak of the value of a product as of a “cause” of the value of the productive product.[109] Our assuming the “causal provocation” as precisely the “cause” is quite another matter.

This “causal provocation” emanates, as we have seen, from the field of the productive commodities. The question now is whether we are here dealing only with the total quantity of the means of production — as assumed by Böhm-Bawerk — or whether a lowering of their value is already involved simultaneously with their increased number, as a result of the latter (which would mean that the value of the product is the magnitude to be determined). No doubt we have no reason to oppose the total quantity of the means of production to their value.[110] It is particularly clear that a drop in the value, i.e., in the long run, the price (see below), of the productive commodities, occurs earlier than the drop in the value of the consumption commodities. Any commodity appearing on the market not only is present in a certain quantity, but also represents a certain magnitude of value. Raw copper, thrown on the market in excessive quantities, will go down in price long before the copper products become cheaper. Böhm-Bawerk finds it possible to urge an objection even here, pointing out that the value of the commodities of “higher order” is not determined by the value of the commodities of “lower order,” a value they possess at the moment, but by the value which they will have as a result of an increase in the total quantity of the means of production brought about in the total sphere of production.[111] But the distance between the means of production and the consumption commodities is in general so great that even the representatives of the marginal utility theory themselves doubt the dependence of the value of the means of production on the value of the product.[112]It is obvious that an alteration in the quantity of means of production thrown on the market will make it impossible to ascertain any such dependence as is maintained by Böhm-Bawerk. To clarify this question, it is sufficient, in this case, to oppose Böhm-Bawerk’s assertions with his own theses, which read: “When we consider what .... a product of higher, more immediate marginal utility is worth for us, we must confess that it is worth just what the production commodities are worth for us, from which we might at any moment reproduce the product. Continuing in our quest, asking what the means of production themselves are worth, we come to marginal utility. But time and time again we may spare ourselves this further study. Again and again we are thoroughly aware of the value of the cost commodities without being put to the necessity of evolving it from its foundations in each case ....” In a footnote, he adds: “Particularly, the intervention of the division of labour and of the exchange process contributes much too frequently [!] to causing the value of intermediate products to be fixed independently.” (Böhm-Bawerk: Grundzüge, etc., pp. 70, 71, footnote; italics mine. — N.B.)

Unfortunately, Böhm-Bawerk does not pursue this thought; he does not show why the division of labour and exchange should have such a decisive influence on the formation of the “independence” of the value of the productive commodities. As a matter of fact, the process is as follows: Modern society is not a harmoniously developed whole in which production is planfully adapted to consumption; in the present day, production and consumption are isolated from each other, representing two economically opposite poles in the economic life. This severing of production from consumption expresses itself also in economic upheavals, such as crises. The estimates made for products by the agents of production themselves are by no means made in accordance with the “marginal utility”; this holds true, as we have seen, even for consumption commodities; it is even more true in the manufacture of means of production. An anarchically constituted society, in which there is no planful relation at all between the various phases of production, in which the relation is regulated in the last instance by the social consumption, will inevitably lead to a condition of affairs that may in a certain sense be designated as “production for production.” This circumstance has its effect, on the one hand, on the psychology of the agents of the capitalist mode of production (an analysis of this psychology is a part of Böhm-Bawerk’s task) in a quite different manner than is assumed by Böhm-Bawerk. Let us now begin with the estimates of the sellers of the means of production. They are capitalists whose capital is invested in the branches of production which produce means of production. Whereby is the estimate of the resulting means of production determined on the part of the owner of the specific enterprise? He by no means estimates his commodity (“productive commodities”) by the marginal utility of the product manufactured with its aid; rather, he estimates his commodity on the basis of the “price” he can get for it in the market; in Böhm-Bawerk’s terminology, he values it according to its subjective exchange value[113] Let us now assume that the above-mentioned “producer” introduces a new technique and increases production; he is now in a position to throw a greater number of goods — means of production — on the market. In what direction will the evaluation of the individual unit commodity be altered thereby? It will of course go down. But this decline will not, in his eyes, be effected by the decline in the prices of the products manufactured from his wares, but rather by his own effort to lower prices in order thus to win his competitors’ customers and thus attain higher profits.

Let us now turn to the other party to the transaction, the purchasers, in the present instance, the capitalists of the branch of production, producing articles of consumption with the aid of production commodities purchased from the capitalists of the first category (production of production commodities). Their evaluation will of course take into consideration the price at which the product is offered; yet this assumed price of the product may at best serve as an upper limit. Actually the estimate of the production commodities is always lower; and the amount by which the estimate of the production commodities is lessened by the purchasers is in the present instance nothing more nor less than a certain correction of the price, produced by the larger quantity of production commodities thrown on the market. Such is the true psychology of the agents of commodities production. The value of the means of production is in truth fixed more or less independently, and the alteration in the value of the means of production occurs sooner than the alteration in the value of the articles of consumption. In consequence, the analysis must begin with the alterations in the value in the sphere of the production of means of production.

We must again point out a very grave logical fallacy. We saw above that the value of the means of production, according to Böhm-Bawerk, is determined by the value of the product: “In the last instance” the marginal utility of the marginal product is the decisive factor. But what determines the amount of this marginal utility? We already know that the amount of the marginal utility is in inverse ratio to the quantity of the product to be evaluated; the more the units that are available of a certain class of commodities, the lower will go the estimate for each unit in the “supply,” and vice versa. The question naturally arises, how is this quantity in turn determined? Our professor tells us: “The total quantity of commodities available in a market region (is) in turn determined ... in particularly great measure by the height of the production costs. For, the higher the production costs of a commodity go, the lower remains, relatively, the number of specimens furnished by production to the demand.” (Ibid., p.521) This “explanation” may be paraphrased thus: the value of the productive commodities (production costs) is determined by the value of the product; the value of the product depends on its quantity; the quantity of the product is determined by the costs of production, or, in other words, the costs of production are determined by the costs of production. This is another one of the spurious explanations in which the theory of the Austrians is so prolific. Böhm-Bawerk is thus trapped in the same vicious circle in which he rightly observes that the old theory of production is still involved.[114]

In conclusion, let me say a word on Böhm-Bawerk’s general formula for the value of means of production. As we have seen, the value of the unit means of production ..... is determined by the marginal utility and value of that product which, among all those that might have been economically used for the production of the unit means of production in question, has the lowest marginal value.” (Böhm-Bawerk: Grundzüge, etc., p.69.) Considering, for a moment, the capitalist production, we at once observe that the word “economically,” already presupposes the category of price as given."[115] This is again an error “immanent” in the entire Austrian School; it arises, as we have shown, from a misunderstanding of the function of the social relations in the formation of the individual psychology of the modern “economic man.”

6. Conclusions.

We may conclude our investigation of the subjective theory of value by examining also the price theory of the Austrian School, for Böhm-Bawerk considers price, after a fashion, as a resultant of subjective evaluations colliding in the exchange prices on the market. In deriving this resultant, Böhm-Bawerk is obliged to enumerate a number of factors participating in its production, and concerned chiefly with the content. i.e., the quantitative definiteness of the subjective evaluations made by purchasers and sellers contending in the market. In our proof of the contradictions and uselessness of Böhm-Bawerk’s assertions concerning these “factors” we shall also recapitulate briefly our previous detailed objections.

Let us first dwell for a moment on Böhm-Bawerk’s picture of the mechanism of the exchange process. Böhm-Bawerk considers the exchange process on the basis of its constantly increasing complexity. He recognises four types of the process (1) isolated exchange; (2) one-sided competition between purchasers themselves; (3) one-sided competition between sellers themselves; (4) “mutual competition,” i.e., the case in which both buyers and sellers contend together.

In the first case (isolated exchange), the formula is very simple: “In the isolated exchange taking place between two persons, the price is fixed within a field whose upper limit is the subjective evaluation of the product by the purchaser, and whose lower limit is its evaluation by the seller.” (Böhm-Bawerk: Grundzüge, etc., p.493.)

In the second case (competition between buyers) Böhm-Bawerk sets up the following theorem: “In a one-sided competition between prospective purchasers, the competitor most capable of exchange, i.e., he having the highest estimate of the commodity as compared with the price, will obtain the commodity. The price moves between the evaluation of the obtainer as an upper limit, and that of the most exchange-capable of his excluded competitors as the lower limit, constituting at each moment the purchaser’s own evaluation.” (Ibid., p.494.)

The case in the third type, namely, in that of one-sided competition between sellers, is similar; here the limits within which the price fluctuates are determined by the lowest estimate of the strongest (or, to use Böhm-Bawerk’s term, “the most exchange-capable”) seller and the estimate of the strongest among his defeated competitors.

Of course, the most interesting case is the fourth, that of competition between all the buyers and sellers. This is the typical example of exchange transactions within any fairly developed exchange economy.

For this type, Böhm-Bawerk presents a case in which ten buyers seek to purchase a horse while eight sellers wish to sell one. The following table gives the individual estimates assumed by Böhm-Bawerk:

Alestimates the value at300 florins
B1asks for his horse100 florins.

Let us assume that the buyers begin by offering 130 florins; all of them would be willing to obtain horses at this price, but only two of the sellers (Bl and B2) would consent to meet their price. This being the case, the exchange obviously cannot be realised since the sellers would doubtless utilise the competition between the buyers to bring about a higher price. Likewise the competition among the buyers themselves would prevent the two buyers from finishing their transactions at 130 florins per horse. As the price rises, the number of competitors among the purchasers will decrease; for instance, if the price exceeds 150 florins, purchaser A10 also is eliminated, while a price exceeding 170 florins will eliminate purchaser A9, etc. On the other hand, as the number of purchasers decreases. the number of sellers increases, who will be enabled economically to take part in the exchange transaction. At the price of 150 florins, B3 can also sell his horse; at a price of 170 florins, even B4, etc. At a price of 200 florins, there is still competition among the purchasers. But the situation changes if a further increase in price takes place. Let us assume that the price rises above 200 florins. Now supply and demand balance each other. The price cannot rise above 200 florins, for in this case purchaser A5 will be eliminated, with the result that the competition between the sellers would lower the price; in the given case, the price could not even rise to 215 florins, for now there would be six sellers and only five purchasers. The resulting price will be somewhere between 210 and 215 florins.

It follows, in the first place: the exchange will be effected “by the most exchange-capable competitors on both sides; namely, the purchasers who estimate the unit highest (A1 to A5) and the sellers who estimate it lowest (B1 to B5).” (Ibid., p.400. )

In the second place, “as many of the competitors on each side will effect an exchange as there are pairs resulting from a juxtaposition of the competitors according to the descending order of their exchange-capacity, within which pairs the prospective purchaser estimates the article at a higher price than the seller"[116]

In the third place: “In a mutual competition between all parties, the market price will be fixed between an upper limit constituting the evaluations of the last purchaser available for exchange and that of the most exchange-capable of the excluded prospective sellers, and a lower limit fixed by the evaluations of the least exchange-capable of the sellers who effect an exchange and the most exchange-capable of the prospective buyers excluded from exchange.” (Ibid., p.501.) Taking these pairs as “limiting pairs” we obtain the following formulation of the price law: “The magnitude of the market price is limited and fixed by the magnitude of the subjective evaluations of the two limiting pairs.” (Ibid., p.501.)

So much for the mechanism of competition. i.e., the process of price formation considered from the formal aspect. Essentially this is nothing more or less than an amplified formulation of the old law of supply and demand. Therefore this formal aspect of the matter is less interesting than its content, the quantitative determination of the exchange process. But let us insert a third observation. In determining the “general rules” moving those who take part in the exchange, Böhm-Bawerk formulates the following three “rules”: “He [the candidate in the exchange process] will in the first place not exchange at all unless the exchange brings advantage to him; he will, in the second place, rather exchange with a large ad-vantage than with a small one; and in the third place, he will rather exchange with slight advantage than with none at all.” (Ibid., p.489.) The first of these three rules is fallacious, for there are cases in which the sellers accept an exchange though it may mean a loss, recognising the principle that a small loss is better than a big one. Such is the case, for instance, when capitalists are obliged by market conditions to sell their goods below cost of production. Böhm-Bawerk himself states, in another passage, that only “a sentimental fool” could under such conditions refuse to sell his goods. In this case the original valuation for which the seller came to market is defeated by the elemental force of the market conditions, which obliged him to accept an exchange involving loss to his business. Let us now touch upon the factors determining the level of prices in accordance with the above formal ‘price law’. Böhm-Bawerk enumerates six such factors: (1) the number of specific demands for the commodity; (2) the absolute magnitude of the subjective value of the commodity for the prospective purchaser; (3) the absolute magnitude of the subjective value of the price money for the prospective purchaser; (4) the number of specimens of the commodity available; (5 ) the absolute magnitude of the subjective value of the commodity for the sellers: (6) the absolute magnitude of the subjective value of the purchase money for the sellers. Let us note how Böhm-Bawerk considers each of these factors conditioned.

(1) The number of specific demands for the commodity. Böhm-Bawerk has the following to say on this point: “Very little that is not self-evident can be said of this factor. It is obviously influenced on the one hand by the extent of the market, and on the other by the character of the need. Furthermore — and this is the sole remark of theoretical interest to be made here — not every one who wishes to possess the commodity by virtue of his needs constitutes thereby a prospective purchaser ..... Countless persons who need a commodity and wish to own it nevertheless voluntarily [!] absent themselves from the market because their evaluation of the purchase money, in view of the presumable level of prices (Böhm-Bawerk’s italics], so far exceeds their evaluation of the goods as to preclude any economic possibility of their effecting a purchase.” (Ibid., pp. 514. 515.) In other words, the “number of demands” is fixed as the number of possible demands minus the number of demands that are self-precluded from purchase; the latter depends on the market prices, which in turn appear to be determined by the “number of demands.”

(2) The estimation of the commodity by the purchasers. On this point. Böhm-Bawerk writes: “The magnitude of the value is determined ... in general by the magnitude of the marginal utility.” (Ibid., p.515.) We have already examined this principle at length and have found that the purchasers by no means evaluate the commodity by its marginal utility. The corrective which Böhm-Bawerk seeks to introduce in the form of his substitution theory is merely, however, a theoretical circle.

(3) The subjective value of the commodity for the prospective purchasers. All of Böhm-Bawerk’s elucidations are concentrated in the following sentence: “In general, therefore, the rich man will put a lower subjective value on the unit of money than the poor man.” (Ibid., p.520.) In its essence, the theory of money consists in the fact that the subjective value of money — for sellers as well as for buyers — is its own subjective exchange value, which is in turn determined by the market prices of the commodities. Thus, this “determination of prices” is explained by the prices themselves.

(4) The number of specimens of the commodity available, The determining factors are (a) purely natural conditions such as limited available real estate); (b) social and legal conditions (monopolies); (c) “in particularly great extent, however,” the magnitude of the production costs. But we find no explanation for the latter figure, as pointed out above, in Böhm-Bawerk’s theory, since this quantity is determined on the one hand by the product’s marginal utility and on the other hand by the product itself.

(5) The subjective value of the commodity for the seller. Böhm-Bawerk formulates this matter in two ways: The first is that “... the immediate marginal utility and also the subjective consumption value possessed by a single specimen in their [the sellers’) eyes is usually extremely low.” (Ibid., p.521.) This formulation, as has been shown in detail, is not in accordance with fact, since there exists no evaluation of the commodities offered for sale, according to their utility, i.e., this evaluation is mathematically equal to zero. On the other hand, it is obvious that the sellers estimate the value of their commodities and do not put it “extremely low.” Now let us see Böhm-Bawerk’s second formula. “The magnitude of the market price,” he says elsewhere, “to be achieved by each producer for his product is decisive for the magnitude of the subjective (exchange) value which he assigns to it.” (Ibid., p.538.) Yet this formulation is theoretically even less tenable, since the very concept of subjective value constitutes a contradiction in itself; it is sometimes the basis for the formation of prices while at other times it assumes the prices to be given.

(6) The subjective value of the price money for the sellers. “On this point, “ says Böhm-Bawerk, “we may again apply, in general, what has been said above on the value of purchase prices for the purchasers. Now, it may be true for the sellers more frequently than for the buyers that the value they place upon the purchase price in money depends not so much on the general condition of their fortune as on a specific need for cash.” (Ibid., p.521.) We have accordingly to distinguish two factors: (a) the evaluation of money in accordance with one’s “general condition of fortune”; this evaluation arises under the influence of two factors: the amount of money at the disposal of the owner, and the prices of commodities; (b) the evaluation of money in accordance with the “specific need,” i.e., the market situation, which again means simply “a specific condition of market prices.” We thus find that the peculiar nature of money as an exchange value does not permit this phenomenon to be explained from the point of view of utility, with the result that Böhm-Bawerk’s theory inevitably moves in a circle.

“In the whole course of the process of price formation, therefore,” Böhm-Bawerk says, “there is indeed ... not a single phase, not a single trait, that cannot be traced back completely to the condition of subjective evaluations as its cause, and we have every right, therefore, to regard a price as the resultant of the subjective evaluations of commodity and purchase money which come into contact on the market.” (Ibid., p.503) But this view, as we have already shown in our first section, is fallacious; it does not consider the fundamental fact of the social relation between men, a relation given at the outset and determining the individual psyche of each person concerned, by informing it with social content. Whenever the Böhm-Bawerk theory, it appears, resorts to individual motives as a basis for the derivation of social phenomena, he is actually smuggling in the social content in a more or less disguised form in advance, so that the entire construction becomes a vicious circle, a continuous logical fallacy, a fallacy that can serve only specious ends, and demonstrating in reality nothing more than the complete barrenness of modern bourgeois theory. Thus, we have seen in our analysis of his theory of prices, that of the six “determining factors” in the formation of price, not a single one is in reality well supported by Böhm-Bawerk. The Böhm-Bawerk theory of value has been unable to explain the phenomenon of prices. The peculiar fetishism of the Austrian School, which provides its adherents with individualistic blinders and thus shuts off from their view the dialectic relation between phenomena — the social threads passing from individual to individual and alone constituting man a “social animal” — this fetishism precludes any possibility of their understanding the structure of modern society. The Marxian School is still the only one capable of offering a solution to this problem.

a. We are using the word “imputation” as an equivalent for the German “Zurechnung,” following Professor William A. Scott’s usage in his English version: Recent Literature on Interest (1884-1899); a Supplement to Capital and Interest, by Eugen v. Böhm-Bawerk. New York, 1903 A translation of Capital and Interest (by Prof. William Smart) appeared in London in 1890. — Translator.