Eugen von Böhm-Bawerk, Der letzte Maasstab des Güterwertes (1894)

Böhm-Bawerk’s journal article reopens the dispute over the ultimate determinant of goods’ value by locating its central confusion in the ambiguous meaning of “costs.” Its six sections move from a survey of rival theories through distinctions between cost concepts and tests of their empirical validity to an Austrian reinterpretation of the cost law. The thesis is qualified: utility and personal sacrifice are both fundamental determinants of value, but utility governs overwhelmingly more cases. Production costs genuinely regulate prices; they generally do so, however, by transmitting valuations grounded in utility, rather than by measuring the producer’s suffering.

Um die Ehre, der letzte Bestimmgrund oder Regulator des Wertes zu sein, streiten vom Anfang unserer Wissenschaft zwei Rivalen: der Nutzen, den die Güter stiften, und die Kosten, die ihre Erlangung uns auferlegt.

English translation: Since the beginning of our science, two rivals have contended for the distinction of being the ultimate determinant or regulator of value: the utility that goods yield and the costs that obtaining them imposes upon us.

Section I explains why neither ordinary usefulness nor an unexamined appeal to costs resolves this rivalry. Classical theory largely assigned reproducible goods to costs and scarcity goods to utility. Marginal-utility theory transformed the argument by distinguishing usefulness generally from the particular satisfaction dependent on possessing a particular good. Abundant air and water can consequently have no marginal value despite their indispensable usefulness. More importantly, productive inputs themselves have values requiring explanation. Böhm-Bawerk positions Austrian theory near Jevons, while distinguishing it from his unrestricted assertion of utility’s sovereignty. His survey reaches from Scharling and Clark to Dietzel, Macvane, Marshall, and Edgeworth; their unexpectedly divergent positions suggest that an equivocal concept, not simply disagreement about marginal utility, structures the controversy.

Section II distinguishes “synchronistic” costs—the simultaneously required inputs valued at their prices—from “historical” costs, which trace those inputs back through successive production stages to original sacrifices. “Historical” here concerns the layered structure of production, not merely expenditure already incurred. Labour, waiting or abstinence, and possibly valuable natural powers enter this latter account. Böhm-Bawerk concentrates on labour without denying the other elements. Labour can itself be measured by duration, value, or discomfort, and these measures produce substantively different rankings of costs. Highly paid artistic work, for example, need not involve exceptional suffering.

Sections III and IV ask which meaning actually supports the empirical law that reproducible goods’ prices tend toward costs. Business expenditure plainly does: losses discourage production and surplus returns encourage expansion. Historical costs measured in wages and interest also support the law where competitive adjustment operates throughout the production chain. Neither raw labour time nor labour pain has the same standing. Böhm-Bawerk argues that reducing skilled labour to multiples of ordinary labour imports labour’s value into an ostensibly quantitative measure.

He nevertheless grants the strongest case for disutility. Where individuals freely choose working hours, they can stop when the discomfort of the final increment equals the marginal utility of its reward. Utility and disutility then jointly determine equilibrium, as in Marshall’s scissors analogy. The objection concerns this model’s applicability. Factory rules, custom, and legislation ordinarily impose a fixed working day; workers may accept it because the whole wage outweighs the whole burden even though its final increment does not. Occupational discomfort can affect relative wages, but does not thereby determine the general wage level. Changes in working hours also reflect social power rather than a precise adjustment of subjective pain to remuneration. Conversely, a monopolist artist can balance effort against reward although monopoly prices stand outside the classical cost law. The two laws therefore have different domains.

Section V presses the explanatory question left unresolved by treating wages as costs:

Offenbar sind wir nicht zu Ende, sondern müssen weiter fragen: wodurch wird denn der Wert der Productivmittel, oder wenn wir diese „historisch“ in vorgethane Arbeit auflösen, wodurch wird der Wert der Arbeit selbst wieder bestimmt?

English translation: Clearly we have not reached the end, but must ask further: what determines the value of the means of production, or, if we resolve these “historically” into previously performed labour, what in turn determines the value of labour itself?

Subsistence costs cannot supply an independent answer if the prices of subsistence goods have already been explained through wages. Nor can hypothetical adjustment over generations explain commodity prices gravitating toward the currently prevailing wage. Böhm-Bawerk instead adopts Marshall’s reference to the net product of the marginal worker, then addresses the apparent circularity of explaining products through labour and labour through products.

Section VI resolves this by examining interconnected production branches. Competition reallocates productive resources toward better-paid uses, extending supply into successively lower layers of effective demand. The marginal layer reached determines product values and remunerations. This is demand backed by purchasing power, not an ordering of needs by intrinsic importance: essential needs of poorer people may remain unmet.

Das Kostengesetz ist überhaupt zunächst ein einfaches Nivellierungsgesetz; um die unter seiner Firma wirksamen elementaren Kräfte zu bestimmen, muss man erst weiter zusehen, was sich unter dem Namen „Kosten“ eigentlich nivelliert.

English translation: The cost law is, in the first instance, simply a law of equalization; to determine the elementary forces operating under its name, one must first investigate further what actually becomes equalized under the name “costs.”

Costs thus communicate competing bids from other markets. Marshall’s scissors remain valid locally, but their cost blade generally represents the marginal utility of other goods sharing productive resources. Copper-price changes, patent fees, and tariffs further show why synchronistic costs cannot be discarded: prices may follow immediate input expenditure without corresponding changes in original labour costs. Equalization can operate within one production stage while monopoly or other barriers obstruct it elsewhere.

The article’s significance lies in separating an empirically useful price-adjustment mechanism from an ultimate explanation of value. Its illustrative numerical predominance of utility is expressly not a measurement. Ultimately, welfare is the broadest standard; more concretely, utility and personal sacrifice are coordinate principles with markedly unequal practical scope.

Und zwar ist das Geltungsgebiet dieses letzteren Maasstabes das weitaus engere — ein viel engeres, als man gewöhnlich anzunehmen pflegt — während in der ungeheueren Mehrzahl der Fälle, und zwar auch in solchen, in welchen die sogenannten Kosten eine Rolle spielen, der letzte Ausschlag für den Wert der Güter durch einen Nutzen gegeben wird.

English translation: The domain of applicability of this latter standard is by far the narrower—a much narrower one than is usually assumed—whereas in the immense majority of cases, including those in which so-called costs play a role, a utility provides the ultimate deciding factor in the value of goods.