University of Virginia Library

II

1. In retrospect it may seem curious that the rich
intellectual legacy of ancient Greece included no sys-
tematic economic study apart from a few uninteresting
works on oikonomia, on rules for good housekeeping.
But the attention of an inquisitive mind will never be
arrested by a stationary process. The ancient Greeks
were a nation of busy traders and navigators over many
seas, but their economy was nevertheless stationary,
in the sense that, apart from random fluctuations
caused by natural phenomena, economic life went from
day to day without any perceptible change. What
should surprise us, therefore, is that in spite of this fact
many of their writings are studded with ideas on value
and utility which even nowadays, after the theory of
consumer behavior has become a highly developed
branch of the economic science, retain their full sig-
nificance.

No modern utilitarian has been able to add anything
substantial to Plato's clear formulation of the doctrine.
He tells us repeatedly that life is a “juxtaposition” of
pleasure and pain, and that “each one of us has in his
bosom two counsellors, both foolish and also antago-
nistic; of which we call the one pleasure, and the other
pain” (Protagoras 357; Laws I. 644, V. 733). After more
than two thousand years, Bentham, the modern archi-
tect of utilitarianism, echoed this very thought in the
opening sentence of An Introduction to Principles of
Morals and Legislation: “Nature has placed mankind
under the governance of two sovereign masters, pain
and pleasure.” Hermann H. Gossen, the first author of
a mathematical theory of utility, in 1854 also began
his Entwicklung der Gesetze des menschliches Verkehrs
und der daraus fliessenden Regeln für menschliches
Handeln (1854; “Exposition of the Laws of Human
Relations and the Resulting Principles for Human Ac-
tions”) with it: “Man wants to enjoy life, and on this
he sets his life goal,” because this is the Creator's law.
In a quite modern vein, Plato (Philebus 21, trans. B.
Jowett), further argues that “... and if you had no
power of calculation you would not be able to calculate
on future pleasure, and your life would be the life,
not of a man, but of an oyster or 'pulmo marinus.'”
This time, however, Bentham's echo—that “all men
[even madmen] calculate” pleasure and pain—falls
much short of the convincing power of Plato's original
argument.

Even though Plato's analysis of pleasure and pain,
spread throughout the Dialogues, is not as systematic
as Bentham's, recent trends in utility theory show that
Plato's is superior. Whilst Bentham maintains that
pleasures and pains are “addible” so that in any situa-
tion the net result is a quantum of either pleasure or
pain, Plato argues that although they “both admit of
more and less” neither can be subtracted from the other
because “the negation of pain will not be the same
with pleasure” (Philebus 41, 43). This idea is further
strengthened by several observations in The Republic
on the nature of wants and, especially, on their hierar-
chy. Plato even notes that new wants emerge with the
increase in income and also touches the important idea
that basic wants are irreducible to one another. Else-
where (Euthydemus 299), he adumbrates another vital
principle for the theory of utility, namely, the principle
that every want is satiable.

2. We owe to Aristotle the fundamental distinction
between value in use and value in exchange (Politics
1257a). Less known is the fact that both his Politics
and Topics contain many other first thoughts on utility.
We find, for example, the idea that “the more con-
spicuous good” is the more desirable and also the
concept of complementarity among commodities,
which F. Y. Edgeworth was to introduce in economics
more than two thousand years later. Also, the observa-
tion that wants satisfied by material consumption alone
are subject to satiety was made again in 1855 by
Richard Jennings. On the other hand, Aristotle's analy-
sis becomes cumbersome as he forces upon it his
strongly ethical views. While recognizing that the
number of human wants is normally unlimited, he
contends that a good household should aim at setting
a limit to the satisfaction of these wants (Politics I.
9-10). He also denounces the craving for money on
the part of money-making people as abnormal and the
practice of “money-breeding” (money-lending) as the
most obnoxious of all. So set was Aristotle on this point
that he invoked the legend of King Midas in its support
without realizing that the legend illustrates only the
principle of want irreducibility. Even if everything
Midas touched had turned into bread, he still would
have died—of thirst.

Unfortunately, the most fateful of Aristotle's
thoughts on value are crowded in a few pages of
Nicomachean Ethics (1132a-1133b) and more often
than not are off the mark. His argument that commodi-
ties could not be exchanged with one another if every
commodity did not possess one measurable quality

common to all, is the origin of commodity fetishism.
In a somewhat cryptic sentence Aristotle asserted that
what renders all commodities comparable is χρεία,
which means “need” and may mean also “demand.”
Most likely, all he wanted to say was that exchange
is possible because people, generally, have the same
wants. Aristotle was very clear on the point which
anticipates the teaching of classical economists: the
quality that endows commodities with value is labor,
and the value of a commodity is proportional to the
amount of labor embodied in it. But, like many after
him, he simply begged the question of whether every
kind of labor is reducible to the same unit of measure-
ment.

A logician of Aristotle's stature could not possibly
overlook the logical implication that, if value is in
things (in whatever form), then exchange cannot in-
crease it—an idea that Karl Marx, in particular, was
to defend in modern times. The point that after a just
exchange or a just remuneration everyone must come
out without gain or loss harmonized splendidly with
Aristotle's ethical views. But the fallacy, shielded by
such a high authority, constituted the sturdiest obstacle
for more than two millennia to a clarification of the
problem of utility.

3. With the fate that awaited knowledge after the
Athenian Akademeia came to an end, the rekindled
intellectual activity of the Middle Ages found no other
authoritative guide than Aristotle's integrated philo-
sophical system. So, as the Scholastic doctors turned
their attention during the thirteenth century to man's
secular problems, they found Aristotle's ethical views
of economic life perfectly congenial to the Christian
teachings. Aristotle's thought that the basis of value
is χρεία offered to Saint Thomas Aquinas a splendid
ground for arguing that value represents the need of
the whole society, not the whimsical need of the indi-
vidual. Moreover, this need must reflect social justice,
without which any society is doomed. However, in the
end the Scholastics began to ask what value is, instead
of what it should be. It was Saint Antoninus who, about
the middle of the fifteenth century, reached the highest
point on a trail broken by Duns Scotus. In his explicit
formulation, the value of an object involves (1) its
quality in comparison with other similar objects, (2)
its scarcity, and (3) its complacibilitas—a notion equiv-
alent to that of utility as defined later by Galiani and
Bentham.

4. During the next three hundred years or so—until
the Enlightenment—the problem of value even
suffered a regress. If some histories of economic
thought leave a different impression it is only because
the historian, either through ignorance of the older
writings or through faulty logic, gratuitously credited
some authors with original thoughts. The truth is that
this period contributed an erroneous idea which had
grown out of the fact that throughout Western Europe
the structure of production remained practically con-
stant over the years. The idea, which constituted an
analytical obstacle for a long time, is that demand is
an invariant coordinate for each community. We find
it first stated in an essay, Della moneta: trattato mer-
cantile (1686), by an Italian scholar, Geminiano
Montanari. But its clearest formulation came some
twenty years later from the financier John Law: “If
the Quantity of Wine brought from France be a 100
Tunn, and the Demand be for 500 Tunn, the Demand
is greater than the Vent” (Money and Trade..., p. 4).
Even Galiani spoke of the demand for wheat in the
Kingdom of Naples as a fixed quantity. And, along with
Montanari, he insisted that only fashion, “an affection
of the mind,” may change the demand.

The mercantilist mood induced later writers to rep-
resent demand by an invariant expenditure, instead of
an invariant quantity. According to this view, the price
of a commodity is the quotient between the money
allocated for that purchase and the quantity of the
commodity brought to the market, as Richard Cantillon
neatly explained in a celebrated essay of 1755 (Essai
sur la nature du commerce en général). This fallacy
is stated in equally plain words by Adam Smith (The
Wealth of Nations [1776], Ch. vii) and appears several
times in Karl Marx's circuitous discussion of demand
(Capital, III, Ch. x). J. B. Say derived from it the
theorem that the rise of price is in direct ratio to the
demand, and in inverse ratio to the supply.

One exception strenghens the view that this errone-
ous conception of demand was fostered by the con-
stancy of economic patterns. The great variations
in grain prices caused by climatic fluctuations led
Gregory King to observe as early as 1686 that the
smaller the crop, the greater its cash value. King,
however, remained totally ignored for almost two
centuries. Only much later—with A. A. Cournot (1838)
in France and Fleeming Jenkin (1870) in England, and
independently of King's work—did the notion of de-
mand at a price emerge to clear the way for the mod-
ern theory of utility.

5. The publication of Galiani's Della moneta (1750)
was an important event, not because the treatise
abounded in remarks which redistilled systematically
some thoughts of Plato's and Aristotle's or because it
substituted utilità for Saint Antoninus' complacibilitas,
but because it marked a change of temper. The treatise
contains the first sparks of subjectivist ideas, of the
recognition of man as the center of everything social,
which was in line with the reformist ideas of the Age
of Enlightenment. Galiani thus argues that the only

invariable standard of value is man himself, for while
the value of all things changes, “man has been, is, and
will be everywhere the same self.” And in his analysis
of man's behavior we find the thesis that the desire
for “rank, titles, honor, nobility, authority” is stronger
than that for luxuries, and the desire for luxuries
stronger than the desire of the hungry for food—a
thesis germane to a recent idea that man works harder
for that additional income which elevates him on the
social scale (Milton Friedmann and L. J. Savage,
1948).

Most important of all is the fact that Galiani antici-
pates the highest thought advanced on utility, namely,
the modern theory of choice. Value, he says, is “an
idea of the balance between the possession of one thing
and that of another in the mind of an individual.” No
wonder then, that Galiani himself did not grasp the
full relevance of this thought. Otherwise he would not
have continued to cling to the Aristotelian fallacy that
in a just exchange there can be neither loss nor gain.
The idea of subjective choice is even more sharply
outlined in a little known essay, “Valeurs et monnaies”
by Turgot (1768):

(Oeuvres... [1844], I, 80).

Turgot goes on to explain that choice reflects the hier-
archy that exists among the individual wants. He also
is the first writer to admit that in barter each party
values what it gets more than what it gives. But, symp-
tomatically, Turgot still could not free himself from
the Aristotelian tradition completely, for he goes on
to argue that in free barter the gains of both parties
must be equal.

5. Thoughts such as Turgot's betrayed the increasing
economic awareness brought about by the increased
commercialization of economic life and, especially, by
the ebullient transformation of the Industrial Revolu-
tion. Students of economic affairs not only became
more visibly interested in the problem of value but
also, on the disappearing trails of mercantilism, began
searching for the source of value. An economy, such
as that of France ruined by the wars of Louis XIV
and crippled by a nobility who deserted the country-
side for Versailles, led François Quesnay to see the
source of value in natural resources, particularly in the
agricultural ones. “Rich peasants, rich kingdom,” is the
way he epitomized his doctrine. Equally natural is
the fact that an economy—such as England's during
the same period—which could not find enough hands
to keep pace with a revolutionary increase in the de
mand for manufactured wares, should have inspired
Adam Smith to see in labor alone the source of value.

Unfortunately, the rise to glory of the classical school
also meant a total return to the Aristotelian ideas and
hence a setback for the correct approach to the prob-
lem of utility initiated by Galiani and Turgot. While
classical economists freely admitted that a thing must
have some use value in order to have a market value,
they scorned—as David Ricardo did most clearly in
the essay “Absolute Value and Exchangeable Value”
written shortly before his death in 1823—any thought
that the individual may have something to say about
the value of a commodity. And with his excellent logic
Ricardo could but acknowledge and defend the star-
tling conclusion that the value of the income of a
society does not increase at all if, after any technologi-
cal innovations, the society produces more goods with-
out employing more labor.

There certainly was an anachronism in the re-
enthronement of the notion of an invariant demand,
just as the forces of the Industrial Revolution began
swaying markets and values. The problem of why
people do not spend their income entirely on bread
or entirely on pearls did not exist for the followers of
Adam Smith even after Lord Lauderdale lectured them
on its importance. Small wonder then that a consum-
mate economist and philosopher such as J. S. Mill could
proclaim in 1848 that “happily, there is nothing in the
laws of value which remains for the present or for any
future writer to clear up; the theory of the subject is
complete” (Principles of Political Economy... 7th ed.
[1961], p. 436).

The British as a whole spoke the language of utility,
as the historian Élie Halévy judged. Only the British
economists, who lived under the great shadow cast by
Adam Smith and Ricardo, remained immune to
Bentham's influence. Even in the awakening from their
slumber Bentham's utilitarianism played a very small
role. The event came as economists everywhere were
compelled to pay attention to the increasing impor-
tance of the consumer in an expanding market capable
of satisfying a growing spectrum of wants. It was not
a mere coincidence that, almost at the same time and
independently of each other, four authors came up with
an almost identical theory of utility: H. H. Gossen in
Germany (1854), W. Stanley Jevons in England (1871),
Carl Menger in Austria (1871), and Léon Walras (1874)
in France. Gossen alone poses a problem to the his-
torian because at the time the historical school of
thought ruled supreme in Germany. But this condition
accounts for the injustice done to the author who not
only anticipated the others by many years, but also
excelled them in many respects. Even today his name
is overshadowed by those of the others.