Joseph Schumpeter, “On the Concept of Social Value”

Schumpeter’s essay is a methodological intervention into value theory. Its central claim is that “social value” is often used too loosely in economic theory: it is indispensable for analyzing a genuinely communistic economy, useful as a limited fiction elsewhere, but misleading when treated as an independent force in competitive society. Schumpeter insists that pure theory begins from individuals, because utility, want, marginal utility, and exchange all presuppose individual agents and a given distribution of wealth.

For only individuals can feel wants.

This premise does not deny altruism or public goods; it denies that “society” literally feels wants in the way persons do. Even demands for battleships or other collective objects are, for theory, demands asserted by individuals or their agents. Thus Schumpeter’s first conceptual move is to separate social influence from social subjecthood: society shapes individual wants, but it is not itself a wanting organism.

The only wants which for the purpose of economic theory should be called strictly social are those which are consciously asserted by the whole community.

The essay’s structure follows from this distinction. Section I establishes the individualistic basis of pure theory. Section II examines current uses of “social value,” allowing that prices are “social” in the weak sense that they arise from interaction, but rejecting the stronger claim that society directly values goods in non-communistic conditions. General demand curves are not social utility curves; they are combinations of individual curves under a particular distribution of wealth.

no obvious or natural meaning attaches to the concept of social value in a non-communistic society.

Schumpeter’s major target is the optimistic distributive doctrine associated with J. B. Clark, Wieser, and others: the idea that under competition each factor receives what its service is worth to the community. He sees this as the most consequential use of social value, because it appears to give competitive distribution a quasi-social sanction.

The concept of social value is chiefly instrumental in opening up a thoroughly optimistic view of society and its activities.

Against this, Schumpeter argues that competitive prices do not reproduce the valuations of a consciously organized community. They depend on individual utilities, bargaining positions, ownership of land and capital, and above all the original distribution of wealth. A communistic society could have social utility curves because it would dispose of resources as a unit; a competitive society cannot be interpreted as though it secretly did the same.

The decisive analytic distinction comes in Section IV: value and price are not interchangeable. Even if the utilities of land, capital, and labor are determinate, their shares in the social product are not thereby determined. Distribution requires a theory of prices, and prices arise from the interaction of individual valuations.

Determination of values and determination of prices, therefore, are vastly different things.

Schumpeter concedes that market marginal utilities may be called “social” in a restricted sense, since marginal buyers and sellers help determine price. But this does not mean they express the satisfaction of society as a whole. The “social” marginal utility may simply be the utility of someone made marginal by poverty, ownership, or opportunity. It therefore cannot justify the conclusion that competitive outcomes maximize social welfare in any substantive sense.

The essay’s relevance lies in its early and careful defense of “methodological individualism” without reducing economics to egoism or denying social formation. Schumpeter’s conclusion is balanced but firm: social value clarifies communistic theory and may serve as a fiction in competitive analysis, yet it cannot replace the price theory grounded in individual values.

No conclusions as to the justification of the competitive régime can be drawn from this theory