1. The ordinary conception, which makes price the social estimate put upon goods, has to the superficial judgment the attraction of simplicity. A good A whose market price is ?00 is not only ten times as dear as B whose market price is ?0, but it is also absolutely and for every one ten times as valuable. In our conception the matter is much more complicated, and according to it we obtain the following propositions. 1. A is paid for with ten times as much money as B: its price is ten times greater. 2.
Its objective exchange value is also ten times greater -- the weightiest consequence of which is that ten times the cost may, and, if practicable, will be expended upon its production. 3. But these relations of price and of objective value do not in the least degree correspond with the relative position of the two goods in regard to their economic importance or subjective valuation. Price alone forms no basis whatever for an estimate of the economic importance of the goods. We must go further and find out their relation to wants. But this relation to want can only be realised and measured individually. Suppose both goods are owned by the same person (or by people under exactly similar conditions of want and provision), A will, of course, have ten times the importance of B. But it may just as well happen that Ahas exactly the same importance for one owner as B has for another; it may indeed happen that A, in spite of its greater exchange value, has for its owner, supposing him to be a rich man, even less value than B has to its owner, supposing him to be a poor man. If there are many goods of the class A and many of the class B, the individual valuations of the various owners will be widely diverse, and a unanimous judgment is not to be expected. And the question how it is possible to unite those divergent individual valuations into one social valuation, is one that cannot be answered quite so easily as those imagine who are rash enough to conclude that price represents the social estimate of value.
See further, on the relation of objective to subjective exchange value, my Ursprung des Werthes (pp. 10 and 21; also Bohm-Bawerk's Werth, introd., etc.), and Sax (chapters xlviii and xlix).
2. Exchange value is, so far as concerns its application, without doubt the most important form of value, inasmuch as it governs the largest sphere; -- that of industrial economy generally.
Political economy, outside that chapter where the theory of value is given, is almost exclusively concerned with it. No wonder, then, that theoretical treatises have taken it as their end. But application is one thing and explanation another. To explanation subjective value is chief in importance, for only through it can exchange value be reached. Subjective value is the original and perfect form of value; exchange value taken by itself and unrelated to subjective value is imperfect and unintelligible.
What does it signify to say that one article costs this and another that price in money, if we cannot say how money and prices are themselves valued? Theorists who have confined themselves to the examination of exchange value, or, what comes to the same thing, of price, may have succeeded in discovering certain empirical laws of changes in amounts of value, but they could never unfold the real nature of value, and discover its true measure. As regards these questions, so long as examination was confined to exchange value, it was impossible to get beyond the formula that value lies in the relation of exchange; -- that everything is so much more valuable the more of other things it can be exchanged for. Why the exchanged things had value; why things generally were worth anything to us; and how this value was to be measured; -- these theories could never explain nor hope to explain. Value was conceived of relatively, by referring one thing to another; -- as the ratio of valuable things.
Absolutely and by itself value was not to be understood. It is significant of this inception to state that one thing cannot be an object of value in itself; that a second must be present before the first can be valued.
Theory has only very gradually shaken itself free from this misconception, this circle. Where an absolute theory was attempted -- such as the labour theory, or that which explained value as usefulness -- some logical leap generally reconnected it with the relative conception. It was forced into this by the overestimate of exchange value from which it seemed impossible to get free. A striking example of this is Ricardo's theory of value. As a matter of fact value is still chiefly regarded relatively. German literature has for long had the great advance of much penetrating criticism of exchange value, and of manifold attempts to supplement it, but it has nevertheless failed in any final solution. Among the later reformers of the theory of value, Jevons is distinguished for the strictness and accuracy with which he separates the two conceptions of value from one another, but he fails to construct a theory of subjective value (see second note to Book I. chap. ix), and to determine the functions of both kinds of value. Menger, on the other hand, has a complete theory of subjective value, but makes no attempt to develop objective value.
My own investigations in the Ursprung des Werthes are almost entirely occupied with subjective value. And even favourable critics have concluded from this that I do not recognise objective value. The reproach is the less merited that (on page 38) I have especially acknowledged the necessity for an objective conception of value. The relation of subjective and objective value has been best described by Bohm-Bawerk, and -- particularly as regards the distinction of their separate functions in economic life -- by Sax.
