Eugen von Bohm-Bawerk on Marginal Utility – Part 6

Eugen von Bohm-Bawerk on Marginal Utility – Part 1
Eugen von Bohm-Bawerk on Marginal Utility – Part 2
Eugen von Bohm-Bawerk on Marginal Utility – Part 3
Eugen von Bohm-Bawerk on Marginal Utility – Part 4
Eugen von Bohm-Bawerk on Marginal Utility – Part 5

Transfer, now, the field of illustration from the solitary in
the primeval forest to the bustle of a highly organised economic
community. Here we encounter, in an altogether dominating
position, the empirical proposition that quantity of goods stands
in inverse ratio to value of goods. The more goods of one
kind there are in the market, the smaller, ceteris paribus, is the
value of the single commodity, and vice versd. Every one
knows that economic theory has made use of this empirical
proposition—the most elementary proposition in the doctrine
of price—to establish the law of ” Supply and Demand.” But
this proposition maintains its validity quite apart from exchange
and price. For instance, how much more value does a collector
put upon the single specimen, which represents a class in his
collection, than upon one of a dozen of such specimens ? It
is easy to show that well-authenticated facts of experience like
these follow, as a natural consequence, from our theory of
marginal utility. The more individual goods there are available
in any class, the more completely can the wants to which
they relate be satisfied, and the less important are the wants
which are last satisfied—those whose satisfaction is imperilled
by the failure of one of the goods. In other words, the more
individual goods there are available in any class, the smaller
is the marginal utility which determines the value. If, again,
there are available so many individual goods of one class
that, after all the wants to which they are relative are completely
satisfied, there still remains a number of goods for
which no further useful employment can be found, then the
marginal utility is equal to zero, and a commodity of that
particular class is valueless.

Here, then, we have an entirely natural explanation of the
phenomenon which originally struck us as so surprising, that
comparatively ” useless” things, such as pearls and diamonds,
have so high a value, while infinitely more ” useful” things,
like bread and iron, have a far less value, and water and air
no value at all. Pearls and diamonds are to be had in such
small quantities that the relative want is only satisfied to a
trifling extent, and the point of marginal utility which the
satisfaction reaches stands relatively high [1]. Happily for us,
on the other hand, bread and iron, water and light, are, as a
rule, to be had in such quantities that the satisfaction of all
the more important wants which depend on them is assured.
Only very trifling concrete wants, or no wants at all, are
dependent, for instance, on the command over a piece of bread
or a glass of water. It is, of course, true that in abnormal
circumstances—as, for instance, in besieged towns, or in desert
journeys, where water and food are scarce, and small stores
only suffice to meet the most urgent concrete wants of meat
and drink—the marginal utility flies up. According to our
principles the value of those goods, otherwise of so little
account, must rise also, and the inference finds ample empirical
confirmation in the enormous prices paid in such circumstances
for the most wretched means of subsistence. Thus those very
facts which, at first sight, seemed to contradict our theory that
the amount of value is dependent on the amount of utility
conditioned, on closer examination afford a striking confirmation
of it.

[1] To guard against possible confusion it should be noted that the German
writers on value generally speak of “satisfaction of want” under the metaphor
of a descending scale: the increasing satisfaction creeps down the scale, and the
point of saturation is zero, not 100.—W. S.

Thus ends Eugen von Bohm-Bawerk’s magnificent Chapter 4, Book 3 of his magnum opus The Positive Theory of Capital.

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