by Smart
[Title Page and Prefaces]: The front matter and prefaces introduce William Smart's work as an English-language introduction to the Austrian School of economics, specifically the value theories of Menger, Wieser, and Böhm-Bawerk. Smart emphasizes the importance of the 'demand side' of value, which he believes has been neglected by English-speaking colleagues since Jevons. [Contents and Bibliography]: Table of contents and a list of primary references for the Austrian School and Jevons, detailing the foundational texts used in the construction of this theory of value. [Chapter I: Introductory]: Smart discusses the historical confusion surrounding the term 'Value' in economics, critiquing Adam Smith's distinction between value-in-use and value-in-exchange. He introduces the Austrian distinction between Subjective (Personal) Value, based on human wellbeing, and Objective Value (specifically Objective Exchange Value), which is the power of a good to obtain other goods. [Chapter II: The Analysis of Value]: This chapter analyzes the common usage of 'value' and 'utility'. Smart defines 'Useful' as the capability to satisfy a want and identifies four requirements for an object to be considered a 'good' according to Menger. He argues that value emerges from utility only when scarcity creates a felt dependence on a specific good. [Chapter III: The Difference Between Utility and Value]: Smart clarifies the distinction between utility (general capability to satisfy wants) and value (the importance of a good as an indispensable condition for wellbeing). He explains that only 'economic goods'—those where supply is insufficient to meet demand—possess value, whereas free gifts of nature have utility but no value because no individual portion is indispensable. [Chapter IV: The Scale of Value]: Smart critiques the classical 'value-in-use' scale that prioritized physical necessaries over luxuries. He argues that actual human valuation is based on concrete wants in specific circumstances, where the abundance of necessaries often reduces their marginal importance, while the scarcity of luxuries like diamonds maintains their high value. He introduces the concept of a diminishing scale of satisfaction. [Chapter V: The Marginal Utility]: Smart defines 'Marginal Utility' (or Jevons' 'Final Utility') as the importance of the least urgent want satisfied by a stock of goods. Using Böhm-Bawerk's illustration of a pioneer with five sacks of corn, he demonstrates that the value of any single unit in a homogeneous stock is determined by the utility of the last (marginal) unit. This explains why increased supply lowers value. [Chapter VI: Difficulties and Explanations]: Smart addresses complexities in applying marginal utility theory, such as durable goods (which are complexes of services), capitalized value (involving time-preference), and the distinction between 'lowest use' and 'marginal use'. He explains that when a good is lost, the loss is often shifted to the least sensitive part of one's total expenditure (replacement value). [Determinants of Marginal Utility: Usefulness and Scarcity]: Explores the relationship between a man's wants and resources in determining the level of marginal utility. It concludes that while usefulness indicates the potential height of marginal utility, scarcity determines the actual point it reaches in concrete cases. [Chapter VII: Complementary Goods]: Analyzes the valuation of goods that must cooperate to satisfy a want, termed 'complementary goods' by Menger. Smart discusses three cases: where members are useless in isolation, where they have lesser isolated utility, and where some members are replaceable while others are not. The chapter includes a significant footnote debate between Böhm-Bawerk and Wieser regarding the 'imputation' (Zurechnung) of value to individual factors of production within a group. [Chapter VIII: Subjective Exchange Value]: Distinguishes between subjective use value and subjective exchange value. Smart argues that in a society with exchange, every good possesses a potentiality for obtaining other goods, which creates a choice of values. He emphasizes that money's subjective value is purely its exchange value, defined as the anticipated use value of the things it can buy. [Chapter IX: From Subjective to Objective Value]: Explains how individual subjective valuations are harmonized in a market through contact and comparison. Smart describes how the money scale provides a universal language for expressing these valuations, allowing individuals to compare the importance of a commodity against other potential satisfactions represented by a specific sum of money. [Chapter X: Price]: Develops the theory of price under perfect competition, moving from isolated exchange to complete market competition. It introduces the concept of the 'Marginal Pair'—the last buyer and last seller whose valuations determine the market price zone where supply and demand reach equilibrium. [Chapter XI: Subjective Valuations the Basis of Price]: Argues that objective exchange value (price) is a superstructure built upon subjective valuations. Smart explains that while the law of Supply and Demand is accurate in its observation of market equilibrium, it fails to analyze the underlying subjective motives that determine the 'intensity' and 'extent' of that demand and supply. [Chapter XII: Cost of Production]: Reverses the classical view of cost, arguing that value flows from the final product (consumption good) back to the means of production (productive goods). Using Menger's 'ranks of goods' framework, Smart demonstrates that costs must conform to value; if a product loses its marginal utility (e.g., goes out of fashion or silver is demonetized), the value of the productive factors used to create it falls accordingly. [Chapter XIII: From Marginal Products to Cost of Production]: Explains the 'law of cost' as a specific instance of the law of marginal utility. When a productive resource can create multiple products, its value is determined by the 'marginal product' (the least valuable product it is used for). Competition then levels the prices of other products made from the same resource to this marginal cost. [Chapter XIV: From Cost of Production to Product]: Examines how value is conducted from products back to versatile productive goods like iron and labour. Smart argues that even when it appears that costs (like wages or raw material prices) determine product prices, those costs were themselves previously determined by the marginal utility of the products they create. He discusses how increased supply only lowers prices if it meets a lower level of unsatisfied demand. [Conclusion: The Fundamental Law of Value]: Smart concludes the main text by synthesizing the Austrian theory of value, asserting that marginal utility is the universal and fundamental law underlying all economic phenomena. He argues that while the Law of Cost serves as a useful secondary rule for reproducible goods, it is ultimately derived from the utility of the marginal product. The section also addresses the misconception that production dictates price, emphasizing instead that production must conform to human wants, and critiques the view that wages are arbitrarily dictated by employers rather than being a product of the laborers' own output. [Appendix I: Wieser's Paradox of Value]: This appendix details Wieser's exploration of the 'paradox of value,' where increasing the quantity of goods can lead to a decrease in total value once a certain point is reached. It explains value as a residual amount resulting from the combination of a positive element (gratification) and a negative element (natural indifference or resistance). Through a mathematical scale, it demonstrates how total value rises on an 'up grade' before falling on a 'down grade' toward zero as superfluity is reached, distinguishing between the growth of total utility and the movement of exchange value. [Appendix II: Theory of Value: The Demand Side]: A comprehensive summary of the demand-side theory of value, defining wealth as instruments of satisfaction and utility as the 'common third' that allows for the comparison of diverse goods. It traces the logical progression from human wants to the Law of Diminishing Utility and defines value as being determined by 'Final Utility' (the utility of the last increment). The section explains the transition from subjective valuation to objective price in exchange and concludes by acknowledging that while utility is the 'tap root' of value, it must be balanced with the supply side (cost of production), famously likened by Marshall to the two blades of a pair of scissors. [Index and Colophon]: A detailed alphabetical index of subjects and authors mentioned throughout the work, including key Austrian economists like Böhm-Bawerk, Menger, and Wieser. It provides page references for core concepts such as marginal utility, cost of production, and subjective exchange value. The segment concludes with a quote by William Smart and publication metadata for the Mises Institute edition.
The front matter and prefaces introduce William Smart's work as an English-language introduction to the Austrian School of economics, specifically the value theories of Menger, Wieser, and Böhm-Bawerk. Smart emphasizes the importance of the 'demand side' of value, which he believes has been neglected by English-speaking colleagues since Jevons.
Read full textTable of contents and a list of primary references for the Austrian School and Jevons, detailing the foundational texts used in the construction of this theory of value.
Read full textSmart discusses the historical confusion surrounding the term 'Value' in economics, critiquing Adam Smith's distinction between value-in-use and value-in-exchange. He introduces the Austrian distinction between Subjective (Personal) Value, based on human wellbeing, and Objective Value (specifically Objective Exchange Value), which is the power of a good to obtain other goods.
Read full textThis chapter analyzes the common usage of 'value' and 'utility'. Smart defines 'Useful' as the capability to satisfy a want and identifies four requirements for an object to be considered a 'good' according to Menger. He argues that value emerges from utility only when scarcity creates a felt dependence on a specific good.
Read full textSmart clarifies the distinction between utility (general capability to satisfy wants) and value (the importance of a good as an indispensable condition for wellbeing). He explains that only 'economic goods'—those where supply is insufficient to meet demand—possess value, whereas free gifts of nature have utility but no value because no individual portion is indispensable.
Read full textSmart critiques the classical 'value-in-use' scale that prioritized physical necessaries over luxuries. He argues that actual human valuation is based on concrete wants in specific circumstances, where the abundance of necessaries often reduces their marginal importance, while the scarcity of luxuries like diamonds maintains their high value. He introduces the concept of a diminishing scale of satisfaction.
Read full textSmart defines 'Marginal Utility' (or Jevons' 'Final Utility') as the importance of the least urgent want satisfied by a stock of goods. Using Böhm-Bawerk's illustration of a pioneer with five sacks of corn, he demonstrates that the value of any single unit in a homogeneous stock is determined by the utility of the last (marginal) unit. This explains why increased supply lowers value.
Read full textSmart addresses complexities in applying marginal utility theory, such as durable goods (which are complexes of services), capitalized value (involving time-preference), and the distinction between 'lowest use' and 'marginal use'. He explains that when a good is lost, the loss is often shifted to the least sensitive part of one's total expenditure (replacement value).
Read full textExplores the relationship between a man's wants and resources in determining the level of marginal utility. It concludes that while usefulness indicates the potential height of marginal utility, scarcity determines the actual point it reaches in concrete cases.
Read full textAnalyzes the valuation of goods that must cooperate to satisfy a want, termed 'complementary goods' by Menger. Smart discusses three cases: where members are useless in isolation, where they have lesser isolated utility, and where some members are replaceable while others are not. The chapter includes a significant footnote debate between Böhm-Bawerk and Wieser regarding the 'imputation' (Zurechnung) of value to individual factors of production within a group.
Read full textDistinguishes between subjective use value and subjective exchange value. Smart argues that in a society with exchange, every good possesses a potentiality for obtaining other goods, which creates a choice of values. He emphasizes that money's subjective value is purely its exchange value, defined as the anticipated use value of the things it can buy.
Read full textExplains how individual subjective valuations are harmonized in a market through contact and comparison. Smart describes how the money scale provides a universal language for expressing these valuations, allowing individuals to compare the importance of a commodity against other potential satisfactions represented by a specific sum of money.
Read full textDevelops the theory of price under perfect competition, moving from isolated exchange to complete market competition. It introduces the concept of the 'Marginal Pair'—the last buyer and last seller whose valuations determine the market price zone where supply and demand reach equilibrium.
Read full textArgues that objective exchange value (price) is a superstructure built upon subjective valuations. Smart explains that while the law of Supply and Demand is accurate in its observation of market equilibrium, it fails to analyze the underlying subjective motives that determine the 'intensity' and 'extent' of that demand and supply.
Read full textReverses the classical view of cost, arguing that value flows from the final product (consumption good) back to the means of production (productive goods). Using Menger's 'ranks of goods' framework, Smart demonstrates that costs must conform to value; if a product loses its marginal utility (e.g., goes out of fashion or silver is demonetized), the value of the productive factors used to create it falls accordingly.
Read full textExplains the 'law of cost' as a specific instance of the law of marginal utility. When a productive resource can create multiple products, its value is determined by the 'marginal product' (the least valuable product it is used for). Competition then levels the prices of other products made from the same resource to this marginal cost.
Read full textExamines how value is conducted from products back to versatile productive goods like iron and labour. Smart argues that even when it appears that costs (like wages or raw material prices) determine product prices, those costs were themselves previously determined by the marginal utility of the products they create. He discusses how increased supply only lowers prices if it meets a lower level of unsatisfied demand.
Read full textSmart concludes the main text by synthesizing the Austrian theory of value, asserting that marginal utility is the universal and fundamental law underlying all economic phenomena. He argues that while the Law of Cost serves as a useful secondary rule for reproducible goods, it is ultimately derived from the utility of the marginal product. The section also addresses the misconception that production dictates price, emphasizing instead that production must conform to human wants, and critiques the view that wages are arbitrarily dictated by employers rather than being a product of the laborers' own output.
Read full textThis appendix details Wieser's exploration of the 'paradox of value,' where increasing the quantity of goods can lead to a decrease in total value once a certain point is reached. It explains value as a residual amount resulting from the combination of a positive element (gratification) and a negative element (natural indifference or resistance). Through a mathematical scale, it demonstrates how total value rises on an 'up grade' before falling on a 'down grade' toward zero as superfluity is reached, distinguishing between the growth of total utility and the movement of exchange value.
Read full textA comprehensive summary of the demand-side theory of value, defining wealth as instruments of satisfaction and utility as the 'common third' that allows for the comparison of diverse goods. It traces the logical progression from human wants to the Law of Diminishing Utility and defines value as being determined by 'Final Utility' (the utility of the last increment). The section explains the transition from subjective valuation to objective price in exchange and concludes by acknowledging that while utility is the 'tap root' of value, it must be balanced with the supply side (cost of production), famously likened by Marshall to the two blades of a pair of scissors.
Read full textA detailed alphabetical index of subjects and authors mentioned throughout the work, including key Austrian economists like Böhm-Bawerk, Menger, and Wieser. It provides page references for core concepts such as marginal utility, cost of production, and subjective exchange value. The segment concludes with a quote by William Smart and publication metadata for the Mises Institute edition.
Read full text