FOOTNOTES:

The study of wealth is meaningless, unless there be a unit for measuring it. The questions to be answered are quantitative.... Reciprocal comparisons give no sums.... Ratios of exchange alone afford us no answer to the economist's chief inquiries.[15]

This quotation from Professor Clark raises an issue which we must examine in detail. Professor Clark proceeds, pointing out the need for a homogeneous element, among the diversities of the physical forms of goods, capable of absolute measurement, if goods are ever to be added together, or a sum of wealth obtained. Money, on the surface of things, affords this common standard, but "the thought of men runs forward to the power that resides in the coins." This power is effective social utility, the quantitative measure of which is value. Elsewhere in his writings,[16]Professor Clark insists on the conception of value as a quantity, an absolute magnitude, and he consistently makes use of this conception. All of the exponents of the social value concept named, except Professor Seligman, follow him in this, and it may be considered an essential feature of the theory. Marginal utilityis a definite quantity, social marginal utility is a definite quantity, and value, if conceived as identical with social marginal utility, or as the quantitative measure of it (the difference is verbal, for present purposes, at least), must be so considered. Aratio of exchange, then, is a ratio between two quantities of social marginal utility, or social value, rather than between two physical objects, andprice, in this view, is a particular sort of ratio of exchange, namely, one where one of the terms of the ratio is the social marginal utility, or the social value, of the money unit.

It is important to contrast value as thus conceived, in its formal and logical aspects, with other historical conceptions of value. In the classification which follows, the writer has by no means attempted an exhaustive list. Definitions of value are very numerous, but it is not necessary to list them all, since many differ, not so much in their logical or formal aspects, as in the theory of the origin of value which the definition is made to include. There are two principles of classification which will be used, however, which, used in a cross-classification, will enable us to exhibit the contrasts of most importance for present purposes.

The first line of cleavage is between the conceptions which treat value as an ethical ideal, often different from the market fact, and those which accept the value which is expressed in prices in the market as the "real or true" value for economic science. The medieval conception of thejustum pretiumbelongs to the first class,as does also the conception of President Hadley: "The price of an article or service, in the ordinary commercial sense, is the amount of money which is paid, asked, or offered for it. The value of an article or service, is the amount of money which may properly be paid, asked, or offered for it."[17]And the value theory of Karl Marx, though differing from either of these in points, is yet like them in this one respect: value and price do not necessarily agree for Marx. The value of a thing for him depends on the "socially necessary" labor embodied in it, while some things, as land, command a price in the market, even though embodying no labor.[18]Opposed to this group of theories are, doubtless, the greater part of present-day writers, who, while differing among themselves at many points, would insist that value is a fact, and not an ideal.

The second line of division is between the conceptions of value as a quantity and value as a ratio, or, to put the thing more generally and more accurately, between the value of a thing as a definite magnitude, independent of exchange relations, and that value as a relative thing, not onlymeasuredby the process of exchanging, butalso caused by it, and varying with the value of the things with which the article is compared. Professor Clark and his followers belong in the second group of the first classification, and in the first group of the second classification. The social value of which they speak is a fact, and not an ideal (though Professor Clark has often been interpreted as teaching that the fact corresponds closely with an ideal), and social value as treated by them (noting the exception of Professor Seligman, who does not follow Professor Clark closely), is an absolute magnitude.[19]Karl Marx and Henry George agree with them upon this latter point. Value is a quantity, and not a mere relation, for both.[20]Wieser would concur here.[21]

Professor Carver, in a recent article in theQuarterly Journal of Economics,[22]insists on the conception of value as a quantity. Gabriel Tarde states the matter illuminatingly in a passage in hisPsychologie Économique:[23]—

Value is a quality which we attribute to things, like color, but which, like color, exists only in ourselves.... This quality is of that peculiar species of qualities which present numerical degrees, and mount or descend a scale without essentially changing their nature, and hence merit the name of quantities.

On the other hand, the doctrine of relativity has characterized the teachings of the English School, of the Austrians (except Wieser), and of many of the more eclectic followers of each in this country. It will appear later that this relative conception follows naturally from their individualistic method of approaching the subject. The essence of the relative conception of value, whether defined as "power in exchange," or "ratio of exchange," or, with Professor Fisher,[24]and others, as a quantity of goods to be got in exchange, comes out in the statement, so commonin the text-books, that, while there can be a general rise or fall ofprices, there cannot be a general rise or fall ofvalues, since a rise in the value of one good implies a corresponding fall in the value of all other goods. The incompatibility of the two opposing conceptions comes out strikingly here: if value be an absolute magnitude, then therecanbe a general rise or fall of values without disturbing exchange ratios at all—12:6::6:3. All values might be cut in half, or multiplied by any factor, and, provided all decreased or increased in the same degree, exchange relations would not change.

Now this difference is fundamental. Vastly more than terminology and definition is involved. Is value a quantity or a relation? Is value a thing which determines causally exchange relations, or is value determined causally by them? To the writer, the former conception seems a logical necessity. Value as merely relative is a thing hanging in the air. There is a vicious circle in reasoning if, when I ask you what the value of wheat is, you refer me to corn, and then when I ask you the value of corn, you refer me again to wheat. And if you put in intermediate links, even as many links as there are different commodities in the market, the circle still remains: the value of A is its power over, or its ratio with, B; the value of B its relation to C; the value of C ... its relation to Z; and the value of Z, the last in the series, must come back to its relation to one of those named before. This circle is noted and sharply criticized by Wieser:[25]—

Theorists who have confined themselves to the examination of exchange value, or, what comes to the same thing, of price, may have succeeded in discovering certain empirical laws of changes in amounts of value, but they could never unfold the real nature of value, and discover its true measure. As regards these questions, so long as examination was confined to exchange value, it was impossible to get beyond the formula that value lies in the relation of exchange;—that everything is so much more valuable the more of other things it can be exchanged for.... Absolutely and by itself, value was not to be understood. It is significant of this conception to state that one thing cannot be an object of value in itself; that a second must be present before the first can be valued.Theory has only very gradually shaken itself free from this misconception, this circle. Where an absolute theory was attempted—such as the labour theory, or that which explained value as usefulness—some logical leap generally reconnected it with the relative conception.

Theory has only very gradually shaken itself free from this misconception, this circle. Where an absolute theory was attempted—such as the labour theory, or that which explained value as usefulness—some logical leap generally reconnected it with the relative conception.

Now the validity of this reasoning might be admitted, in so far as it applies to "Crusoe economics"—though Professor Seligman, with strict consistency, insists that even there value arises from a comparison in Crusoe's mind of apples with nuts[26]—by those who would objectto its application to value in society. Value there, it would be insisted, is determined through exchange, and does not have any meaning except as a ratio between physical commodities.[27]Buteven here, it seems to me, the same reasoning must hold. We really do not find a ratio between physical commodities at all. Four gallons of milk exchange for one dollar, or 23.22 grains of gold. The exchange ratio is four to one. But milk is in units of liquid measure; gold in incommensurable units of Troy weight. The ratio, 4:1, is not on the basis of any physical commensurability. If any physical basis of comparison be taken, whether weight, or bulk, or length, or more subtle and less easily measurable physical qualities, the ratio would be found very different. But 4:1isthe market ratio. Now a quantitative ratio is between commensurable quantities. Gold and milk must be, then, commensurable quantities,i.e.must have a commonquality, present in each in definite quantitative degree, before comparison is possible, or a ratio can emerge. This quality isvalue. The difficulty, from the standpoint of logic, is only covered up, and not avoided, if we say with Professor Davenport,[28]"Value is a ratio of exchange between two goods,quantitatively specified." [Italics mine.] For the quantitative specification depends on the extent to which the homogeneous quality is present in each of the goods, or, if we assume that the quantitative specification is made before the question of exchange ratio is raised, then the exchange ratio will vary with the extent to which the common quality is present in each of thegoods. We can have no quantitative ratios between unlike things. And yet, we must have terms for our ratios. The situation here is not unlike the situation that arises when we compare two weights. We have no unit of weight in the abstract. Weight never appears as an isolated quality, but always along with other qualities, as extension, color, and the like. And when we compare weights, we really compare two heavy objects, and make our weight ratio between the object to be weighed and the physical standard of weight. Nor does value ever appear as an isolated quality. And we have no unit of abstract value which we can apply abstractly in a measurement. Instead, we choose some valuable object, as 23.22 grains of gold, and make our ratio between the given quantity of gold and the object whose value we wish to measure. But we must not forget that this is merely a symbol, a convenient mode of expression, and that the fact expressed is something different—that the real terms of our ratios are so many units of abstract weight, or of abstract value, as the case may be. Otherwise conceived, the ratio itself is meaningless: it has no terms. We have four to one up in the air, not four units of something to one unit of something. The abstract ratio is a thing for pure mathematics, and not a thing for economics. An economic ratio must have "economic quantities" as terms.[29]

The difficulty with the doctrine we are maintaining arises from the difficulty of isolating and defining this quality of value. It is not a quality "inherent" in the good (whatever "inherent" may mean). It does not arise from the simple relation between our senses and the object, or even from an intellectual elaboration thereof. It rather grows out of the relation between our emotional-volitional life and the object, and the definition of this relation, and the determination of the quality, have been so difficult, that some writers, as Professor Davenport,[30]have explicitly given it up as a hopeless task, and have determined to content themselves with the surface facts of relativity. But there is no logical resting place in those surface facts. Relativity impliesthingsrelated, ratios must have quantitativeterms, additions requirehomogeneousquantities to make up a sum.

Some further distinctions are necessary. When we say "absolute magnitude," we do not mean a magnitude which stands out of all relations to other facts in the universe. There is no intention of setting up a metaphysical absolute here. The terms "positive" and "relative" (suggested by Professor Taylor)[31]might serve our purpose better, except for the fact that we wish to reserve the term "positive value" to contrast with "negative value" at a later stage of our discussion. Our objection to the relative conception of value really gives our value more, rather than lessrelations. Instead of allowing its relation to one particular thing, namely, some other good with which it happens to be compared, to determine its amount, we insist that that relation is so much a minor matter that it can generally be ignored, and that the significant relations—a very numerous set of relations indeed, as we shall later see!—are of another sort. The contention is that value is absolute only in this sense: its amount is not determined by the particular exchange ratio in which it happens to be put, and is not changedeo ipsoevery time a new comparison is made.

Further, it is in the process of exchange, and by the method of comparison, that the value of goods becomes quantitativelyknown, as a rule. That is to say, we find out preciselyhow muchvalue a good has by comparing it in exchange with some other good. In this respect, value is again like other qualities. We measure lengths, weights, cubic contents of objects, all by comparison, direct or indirect, with other objects. But the amount of water in a vessel is not changed when we put it into a measure, and determine how many gallons of it there are. Nor is the amount of value in a goodcausallydetermined by the process of exchange.[32]We must distinguish between two confused meanings of the word "determine." It may mean "to cause," and it may mean "to find out" or "to measure." We mustdistinguish, in Kantian phrase, between the "ratio essendi" and the "ratio cognoscendi."Valueandevaluationare two distinct things. Value, to anticipate a later part of the study, is primary, and grows out of the action of the volitional-emotional side of human-social life; evaluation is secondary, and is the intellectual process devoted, not togivingvalue, but tofinding outhow much value there is in a good. This distinction between the existence of a quantity, and our precise knowledge of its amount, is brought out by several writers, among them, General F. A. Walker,[33]and the keen mathematical economists, Pareto[34]and Edgeworth.[35]

There are two further arguments for the propriety of this conception, considered primarily as a question of terminology, to be drawn from usage in the treatment of other terms. The first is drawn from a consideration of the function of the value concept in economic science,[36]and of its relation to the concept of wealth. "The notion of value is to our science what that of energy is to mechanics," says Jevons.[37]It is clear that a mere abstract ratio, which Jevons two pages later declares value to be, cannot serve such a purpose. Abstract ratios are subject-matter for mathematics, not for economics. "Wealth andvalue differ as substance and attribute," (Senior, quoted with approval by F. A. Walker.[38]) With this view, Marx[39]would concur. "Wealth is that which has value," Professor Laughlin states.[40]Clearly a qualitative attribute, and not a ratio, must be indicated here, even though Professor Laughlin elsewhere in the book defines value as a "ratio between two objective articles."[41]And if we take a definition like that of Professor Seligman, who defines wealth in terms which entirely ignore the ideas of comparison and exchange as consisting of those things which are (1) capable of satisfying desire, (2) external to man, and (3) limited in supply,[42]we find no basis for insisting on relativity, exchange and comparison, as essential to the idea of value, which is the essential and distinguishing characteristic of wealth. The science loses in coherency from this diversity of definition. The second argument is similar. Current economic usage speaks of money as a "measure" of values. Professor Seligman uses the expression in the chapter on money in the book referred to. But the point made by General Walker against this expression, when value is defined as a ratio, is absolutely valid. He says:—

I apprehend that this notion of money serving as a common measure of value is wholly fanciful; indeed, the very phrase seems to represent a misconception. Value is a relation. Relations may be expressed, but not measured. You cannot measure the relation of a mile to a furlong; you express it as 8:1.[43]

Only on the basis of a definition of value as a quantity is it proper to speak of a "measure of values."[44]

I conclude that the value of a thing is a quantity, and not a ratio. It is a definite magnitude, and not a mere relation. What sort of a quantity remains to be seen.

FOOTNOTES:[15]Clark, J. B., "Ultimate Standard of Value,"Yale Review, 1892. p. 258.[16]E.g.,The Philosophy of Wealth, chap. v.[17]Economics, p. 92. See also the article by President Hadley on "Value" in Baldwin'sDictionary of Philosophy, etc., and "Misunderstandings about Economic Terms,"Yale Review, vol.iv, pp. 156-70. The same ideas are expressed in all.[18]Some of my socialist friends object to the interpretation of Marx given above. I feel strengthened in my position here by finding the same view expressed by Conrad in hisGrundriss, etc., 4te Aufl, Bd.i, pp. 17-18. Professor O. D. Skelton's admirableSocialism(Hart, Schaffner & Marx Series, 1911) comes to hand while the proof sheets of the present volume are being revised.Cf.his interesting chapter on the Marxian theory of value.[19]Seligman,Principles, pp. 184-85. See also Taylor, W. G. L., "Values, Positive and Relative,"Annals A. A., vol.ix, pp. 70-106. Taylor, who follows Professor Clark largely, accepts the conception of social value as a quantity.[20]Marx,Capital and Capitalistic Production, London, 1896, pp. 2-4. George,Science of Political Economy, New York, 1898, chap.xi.[21]Natural Value, p. 53, n.[22]"The Concept of an Economic Quantity,"Q. J. E., May, 1907. Professor Carver insists on the quantitative nature of value, taking as his point of departure the point madeinfra, p. 27, with reference to money as a measure of values. But it is not clear that he has entirely freed himself from the conception of relativity, for he continues to speak of value as "purchasing power" (pp. 438-39), and this term has usually the relative, rather than the absolute, significance.Cf.his use of the term "purchasing power" in hisDistribution of Wealth, 1904, pp. 51-52, where therelativityof value is insisted on as a basis for a criticism of Professor Clark's amendment of the Austrian theory.[23]Paris, 1902, vol.i, p. 63.[24]Fisher, Irving,The Nature of Capital and Income, New York, 1906, pp. 13et seq.Ely, R. T. (and others).Outlines of Economics, New York, 1908, pp. 156-57. Professor Ely uses the term in a different sense on pp. 99-100; and on the pages first cited indicates that value, defined as a quantity of other goods, is to be distinguished from subjective value. But "subjective" (individual) value would hardly serve as an equivalent for the value described on pp. 99-100. There are, in fact, four pretty distinct uses of the term value to be found in Professor Ely's discussion, inadequately distinguished, and often confused in the treatment: (1) homogeneous quality among the diversities of the physical forms of wealth, by virtue of which a sum of wealth may be obtained (99-100); (2) ratio of exchange (156); (3) quantity of goods obtained in exchange (157); (4) subjective utility (157 andante); and a fifth meaning is indicated for market value on pp. 358-59, where, in explaining the law of rent for pleasure grounds and residence sites, the "general law of value" is declared to be that value measuresmarginal utility.Cf.the confusions of utility and demand pointed outinfra, chapter v. This loose treatment of the value concept, while doubtless accentuated by the fact that four men have coöperated in the production of the book, is too much characteristic of most of the text-books. There is even to-day little uniformity or agreement as to what value means.[25]Natural Value, p. 53, n.[26]Principles of Economics, p. 183. Professor Seligman in theQ. J. E.article (supra, p. 6, notei) indicates that Pantaleoni expresses a similar thought (Pure Economics, London, 1898, p. 127). This idea is elaborated by Professor Georg Simmel,Philosophie des Geldes, Erster Teil, Kap. 2. (A translation of this chapter, under the title, "A Chapter in the Philosophy of Value," appears in theAmerican Journal of Sociology, vol. v, pp. 577-603. The translation was made from the author's manuscript, before the publication of the book, and does not exactly correspond with the chapter as published by Simmel.) Simmel's contention is that, even for an isolated economy, value arises from exchange, and that exchange is essential to it. Every value is relative to some other value. But to develop this conception, "exchange" is distorted into a variety of meanings. In one place, exchange takes place between an isolated man and his environment. It makes no difference to him whether he is exchanging with other men or with the order of nature (Phil. des Geldes, p. 34). But later, exchange is declared to be "a sociological structuresui generis" (ibid., p. 56). Again, only in the vaguest sort of sense is exchange used in this expression, "wo wir Liebe um Liebe tauschen" (ibid., p. 33). Yet all these meanings are forced in to fit the exigencies of the argument. The doctrine of cost is brought in, and the exchange is between individual cost and individual utility, and an equality between them is insisted upon, despite the well-known phenomenon of "consumer's surplus." This emphasis onequalityin exchanges is stressed especially on p. 31, and economic activity is said to derive its peculiar character from a consideration of these equalities in abstraction.The gist of Simmel's argument comes out in the following: "The object is not for us a thing of value so long as it is dissolved in the subjective process as an immediate stimulator of feelings." Desire must encounter obstacles before a value can appear. "It is only the postponement of an object through obstacles,the anxiety lest the object escape[italics mine], the tension of struggle for it, which brings into existence that aggregate of desire elements which may be designated as intensity or passion of volition." Value is conditioned upon a "distance between subject and object" (A. J. S., 589-90).—I waive for the moment Simmel's apparent insistence upon the element of conscious desire as essential to value, though I shall attack that doctrine in a later chapter on the psychology of value. It is enough to point out here that this "distance between subject and object" is adequately present, that there is surely "anxiety lest the object escape," if only the object be sufficiently limited in supply, independently of the existence of other objects so limited.—Simmel undertakes to meet this objection by holding that "scarcity, purely as such, is only a negative quantity, an existence characterized by a non-existence. The non-existent, however, cannot be operative" (Phil. des G., p. 57).—But the scarcity, I would reply, is not, as he holds, "the quantitative relation in which the object stands to the aggregate of its kind" (A. J. S., p. 592), but is rather a relation between the object and our wants. A bushel of wheat would be a scarcity, a bushel of diamonds a superabundance, for a man. There is a positive thing here, not a mere "non-existence," and that positive thing is theunsatisfied want.Cf.Pareto,Cours d'Économie Politique, vol.i, p. 34.See further, on the psychology of value, chapterx, and on Professor Seligman's theory of the relativity of value, chapterxvi, of the present volume.[27]Laughlin, J. L.,Elements of Political Economy, rev. ed., copyright 1902, p. 18: "Value ... is a ratio between two objective articles." See also Professor Laughlin's rejoinder to Clow's "The Quantity Theory and its Critics,"Journal of P. E., 1902, where Professor Laughlin insists that exchange value is "something physical." Professor Davenport,Value and Distribution, Chicago, 1908, p. 569, defines value similarly.[28]Value and Distribution, p. 569.[29]Professor Davenport, caught between two apparently invincible logical difficulties, accepts this situation frankly, as, seemingly, the only thing possible. SeeValue and Distribution, p. 184, n. The ratio has no terms for him.[30]Value and Distribution, pp. 330-31.[31]"Values, Positive and Relative."Annals, vol.ix.[32]It is, of course, recognized that exchange modifies value in so far as exchange is aproductiveprocess. But the essential thing here is thetransferaspect of exchange, which would hold even in a communistic society where value relations might be found out by some process other than exchange.[33]Political Economy, New York, 1888, p. 84.[34]Cours d'Économie Politique, vol.i, pp. 8-9.[35]Edgeworth, F. Y.,Mathematical Psychics, London, 1881, chapter on "Unnumerical Mathematics," pp. 83et seq.[36]A fuller discussion of the functions of the value concept is given in chapterxiwhere this argument is materially strengthened. The points here made, however, seem adequate.[37]Jevons,Principles of Economics, 1905 (posthumous), p. 50.[38]Walker,op. cit., p. 5.[39]Marx,op. cit., vol.i, chap.i.[40]Laughlin,Elements, p. 77.Cf.also, Ely,op. cit., 99-100.[41]Ibid., p. 18. It is interesting to note that Professor Irving Fisher so defines wealth and value as to divorce the two concepts. Wealth includes free human beings, who cannot be exchanged, while the idea of value is derived from that of price, which, in turn, comes from the ideas of exchange and transfer. (Nature of Capital and Income, chap.i.)[42]Principles, pp. 8-11.[43]Money, p. 288.[44]Cf.Kinley,op. cit., Merriam,loc. cit., and Carver, "The Concept of an Economic Quantity,"loc. cit.Cf.also, Laughlin,Money, 1903, pp. 14-16; and Davenport,Value and Distribution, p. 181, n.

[15]Clark, J. B., "Ultimate Standard of Value,"Yale Review, 1892. p. 258.

[16]E.g.,The Philosophy of Wealth, chap. v.

[17]Economics, p. 92. See also the article by President Hadley on "Value" in Baldwin'sDictionary of Philosophy, etc., and "Misunderstandings about Economic Terms,"Yale Review, vol.iv, pp. 156-70. The same ideas are expressed in all.

[18]Some of my socialist friends object to the interpretation of Marx given above. I feel strengthened in my position here by finding the same view expressed by Conrad in hisGrundriss, etc., 4te Aufl, Bd.i, pp. 17-18. Professor O. D. Skelton's admirableSocialism(Hart, Schaffner & Marx Series, 1911) comes to hand while the proof sheets of the present volume are being revised.Cf.his interesting chapter on the Marxian theory of value.

[19]Seligman,Principles, pp. 184-85. See also Taylor, W. G. L., "Values, Positive and Relative,"Annals A. A., vol.ix, pp. 70-106. Taylor, who follows Professor Clark largely, accepts the conception of social value as a quantity.

[20]Marx,Capital and Capitalistic Production, London, 1896, pp. 2-4. George,Science of Political Economy, New York, 1898, chap.xi.

[21]Natural Value, p. 53, n.

[22]"The Concept of an Economic Quantity,"Q. J. E., May, 1907. Professor Carver insists on the quantitative nature of value, taking as his point of departure the point madeinfra, p. 27, with reference to money as a measure of values. But it is not clear that he has entirely freed himself from the conception of relativity, for he continues to speak of value as "purchasing power" (pp. 438-39), and this term has usually the relative, rather than the absolute, significance.Cf.his use of the term "purchasing power" in hisDistribution of Wealth, 1904, pp. 51-52, where therelativityof value is insisted on as a basis for a criticism of Professor Clark's amendment of the Austrian theory.

[23]Paris, 1902, vol.i, p. 63.

[24]Fisher, Irving,The Nature of Capital and Income, New York, 1906, pp. 13et seq.Ely, R. T. (and others).Outlines of Economics, New York, 1908, pp. 156-57. Professor Ely uses the term in a different sense on pp. 99-100; and on the pages first cited indicates that value, defined as a quantity of other goods, is to be distinguished from subjective value. But "subjective" (individual) value would hardly serve as an equivalent for the value described on pp. 99-100. There are, in fact, four pretty distinct uses of the term value to be found in Professor Ely's discussion, inadequately distinguished, and often confused in the treatment: (1) homogeneous quality among the diversities of the physical forms of wealth, by virtue of which a sum of wealth may be obtained (99-100); (2) ratio of exchange (156); (3) quantity of goods obtained in exchange (157); (4) subjective utility (157 andante); and a fifth meaning is indicated for market value on pp. 358-59, where, in explaining the law of rent for pleasure grounds and residence sites, the "general law of value" is declared to be that value measuresmarginal utility.Cf.the confusions of utility and demand pointed outinfra, chapter v. This loose treatment of the value concept, while doubtless accentuated by the fact that four men have coöperated in the production of the book, is too much characteristic of most of the text-books. There is even to-day little uniformity or agreement as to what value means.

[25]Natural Value, p. 53, n.

[26]Principles of Economics, p. 183. Professor Seligman in theQ. J. E.article (supra, p. 6, notei) indicates that Pantaleoni expresses a similar thought (Pure Economics, London, 1898, p. 127). This idea is elaborated by Professor Georg Simmel,Philosophie des Geldes, Erster Teil, Kap. 2. (A translation of this chapter, under the title, "A Chapter in the Philosophy of Value," appears in theAmerican Journal of Sociology, vol. v, pp. 577-603. The translation was made from the author's manuscript, before the publication of the book, and does not exactly correspond with the chapter as published by Simmel.) Simmel's contention is that, even for an isolated economy, value arises from exchange, and that exchange is essential to it. Every value is relative to some other value. But to develop this conception, "exchange" is distorted into a variety of meanings. In one place, exchange takes place between an isolated man and his environment. It makes no difference to him whether he is exchanging with other men or with the order of nature (Phil. des Geldes, p. 34). But later, exchange is declared to be "a sociological structuresui generis" (ibid., p. 56). Again, only in the vaguest sort of sense is exchange used in this expression, "wo wir Liebe um Liebe tauschen" (ibid., p. 33). Yet all these meanings are forced in to fit the exigencies of the argument. The doctrine of cost is brought in, and the exchange is between individual cost and individual utility, and an equality between them is insisted upon, despite the well-known phenomenon of "consumer's surplus." This emphasis onequalityin exchanges is stressed especially on p. 31, and economic activity is said to derive its peculiar character from a consideration of these equalities in abstraction.The gist of Simmel's argument comes out in the following: "The object is not for us a thing of value so long as it is dissolved in the subjective process as an immediate stimulator of feelings." Desire must encounter obstacles before a value can appear. "It is only the postponement of an object through obstacles,the anxiety lest the object escape[italics mine], the tension of struggle for it, which brings into existence that aggregate of desire elements which may be designated as intensity or passion of volition." Value is conditioned upon a "distance between subject and object" (A. J. S., 589-90).—I waive for the moment Simmel's apparent insistence upon the element of conscious desire as essential to value, though I shall attack that doctrine in a later chapter on the psychology of value. It is enough to point out here that this "distance between subject and object" is adequately present, that there is surely "anxiety lest the object escape," if only the object be sufficiently limited in supply, independently of the existence of other objects so limited.—Simmel undertakes to meet this objection by holding that "scarcity, purely as such, is only a negative quantity, an existence characterized by a non-existence. The non-existent, however, cannot be operative" (Phil. des G., p. 57).—But the scarcity, I would reply, is not, as he holds, "the quantitative relation in which the object stands to the aggregate of its kind" (A. J. S., p. 592), but is rather a relation between the object and our wants. A bushel of wheat would be a scarcity, a bushel of diamonds a superabundance, for a man. There is a positive thing here, not a mere "non-existence," and that positive thing is theunsatisfied want.Cf.Pareto,Cours d'Économie Politique, vol.i, p. 34.See further, on the psychology of value, chapterx, and on Professor Seligman's theory of the relativity of value, chapterxvi, of the present volume.

The gist of Simmel's argument comes out in the following: "The object is not for us a thing of value so long as it is dissolved in the subjective process as an immediate stimulator of feelings." Desire must encounter obstacles before a value can appear. "It is only the postponement of an object through obstacles,the anxiety lest the object escape[italics mine], the tension of struggle for it, which brings into existence that aggregate of desire elements which may be designated as intensity or passion of volition." Value is conditioned upon a "distance between subject and object" (A. J. S., 589-90).—I waive for the moment Simmel's apparent insistence upon the element of conscious desire as essential to value, though I shall attack that doctrine in a later chapter on the psychology of value. It is enough to point out here that this "distance between subject and object" is adequately present, that there is surely "anxiety lest the object escape," if only the object be sufficiently limited in supply, independently of the existence of other objects so limited.—Simmel undertakes to meet this objection by holding that "scarcity, purely as such, is only a negative quantity, an existence characterized by a non-existence. The non-existent, however, cannot be operative" (Phil. des G., p. 57).—But the scarcity, I would reply, is not, as he holds, "the quantitative relation in which the object stands to the aggregate of its kind" (A. J. S., p. 592), but is rather a relation between the object and our wants. A bushel of wheat would be a scarcity, a bushel of diamonds a superabundance, for a man. There is a positive thing here, not a mere "non-existence," and that positive thing is theunsatisfied want.Cf.Pareto,Cours d'Économie Politique, vol.i, p. 34.

See further, on the psychology of value, chapterx, and on Professor Seligman's theory of the relativity of value, chapterxvi, of the present volume.

[27]Laughlin, J. L.,Elements of Political Economy, rev. ed., copyright 1902, p. 18: "Value ... is a ratio between two objective articles." See also Professor Laughlin's rejoinder to Clow's "The Quantity Theory and its Critics,"Journal of P. E., 1902, where Professor Laughlin insists that exchange value is "something physical." Professor Davenport,Value and Distribution, Chicago, 1908, p. 569, defines value similarly.

[28]Value and Distribution, p. 569.

[29]Professor Davenport, caught between two apparently invincible logical difficulties, accepts this situation frankly, as, seemingly, the only thing possible. SeeValue and Distribution, p. 184, n. The ratio has no terms for him.

[30]Value and Distribution, pp. 330-31.

[31]"Values, Positive and Relative."Annals, vol.ix.

[32]It is, of course, recognized that exchange modifies value in so far as exchange is aproductiveprocess. But the essential thing here is thetransferaspect of exchange, which would hold even in a communistic society where value relations might be found out by some process other than exchange.

[33]Political Economy, New York, 1888, p. 84.

[34]Cours d'Économie Politique, vol.i, pp. 8-9.

[35]Edgeworth, F. Y.,Mathematical Psychics, London, 1881, chapter on "Unnumerical Mathematics," pp. 83et seq.

[36]A fuller discussion of the functions of the value concept is given in chapterxiwhere this argument is materially strengthened. The points here made, however, seem adequate.

[37]Jevons,Principles of Economics, 1905 (posthumous), p. 50.

[38]Walker,op. cit., p. 5.

[39]Marx,op. cit., vol.i, chap.i.

[40]Laughlin,Elements, p. 77.Cf.also, Ely,op. cit., 99-100.

[41]Ibid., p. 18. It is interesting to note that Professor Irving Fisher so defines wealth and value as to divorce the two concepts. Wealth includes free human beings, who cannot be exchanged, while the idea of value is derived from that of price, which, in turn, comes from the ideas of exchange and transfer. (Nature of Capital and Income, chap.i.)

[42]Principles, pp. 8-11.

[43]Money, p. 288.

[44]Cf.Kinley,op. cit., Merriam,loc. cit., and Carver, "The Concept of an Economic Quantity,"loc. cit.Cf.also, Laughlin,Money, 1903, pp. 14-16; and Davenport,Value and Distribution, p. 181, n.

The method of Jevons and the Austrians, and, for that matter, of the great majority of value theorists, including even the social value school, in seeking the determinants of value, is to start with individual "utilities" or psychic "costs" directly connected with the consumption or production of goods. Such a study, if confined to an isolated individual economy, or if confined to an ideal communistic economy, like that for which Wieser works out his laws of "natural value," seems to yield us quantities of "utility," which may properly be called values, or quantities of sacrifice which may be properly treated as exactly measuring values.[45]But when applied to a competitive society, or to any society where there are inequalities among men in their power to attain the gratification of their wants, it yields us, not quantities of value, but only particular ratios between such quantities, or prices. An examination of the Austrian procedure will make this clear.

If the Austrian analysis be taken as meaning anything more than a method of determining surface ratios of exchange, difficulties at once arise.What quantitative relation is there between the satisfaction which an individual man gets from a good and the value of that good? What quantitative relation does the sacrifice, in terms of dissatisfactions endured and satisfactions foregone, of the individual producer bear to the value of his product? Now in thus positing the problem, I wish to distinguish it clearly from another problem, namely: what is the quantitative relation between psychic satisfaction, subjective individual value, and psychic cost, connected with the commodity, in the mind of some hypothetical "normal" man, and market value in a hypothetical market, where only "normal" men are found, and where there is an equality of wealth among these men? The problem is a concrete one: how are the actual desires and aversions of living men and women, no one of them "normal" perhaps, living in a world where inequalities of wealth are everywhere manifest,quantitativelyrelated to value in the market?

Let us consider the inadequacy of the old Austrian analysis for this quantitative determination. I assume, without trying to prove here, the homogeneity and commensurability of human desires and aversions. (The Austrians, be it noted, do not explicitly postulate this, and Jevons, as will later be noted, rejects it, but it is necessary for Wieser's argument, and Böhm-Bawerk implies it clearly enough in places.[46])This does not mean that any two men have, necessarily, the same desire for any particular good, or the same aversion from any particular piece of work, but simply that the desires and aversions of one man are comparable with those of another, and may be fractions or multiples of them, even though not exactly equal. My object in this assumption is to justify the use of the concept ofunitsof desires and aversions, which are not the desires and aversions of a hypothetical "normal" man, but are some particular concrete desire and some particular concrete aversion of any man you choose to take. Now let us assume the market as treated in the usual Austrian analysis (somewhat simplified): five men have horses to sell, and five buyers appear in the market also.

A B C D ESellers will take: $20 $30 $40 $50 $60Buyers will give: $60 $50 $40 $30 $20

Priceis then fixed at forty dollars. Now if all these men were "normal" men, and if all had equal wealth, we could say here,marginal utility=value. But such is not the case in real life. Our marginal buyer and marginal seller may be as different as you please. Let us assume that the marginal buyer is a very rich man: forty dollars is to him a bagatelle: surrendering it means one unit of cost to him: he has, further, many horses: he has no special use in mind for the horse he is on the margin of buying: it has one unit of utility to him. The marginal seller, we will assume, is a poor country boy: the horse is one he has raised himself: he has a personal affection for it, and it is immensely useful to him: it has two hundred units of utility to him, and to give it up means two hundred units of sacrifice: but he needs the forty dollars pressingly: it has two hundred units of utility to him. Is marginal utility equal to value here? If so, marginal utility to whom? But this does not exhaust the difficulties of the analysis—if the analysis be designed to show anything except what a particularpriceis, and the utility theorists, when very careful, do not always claim to do more than that.[47]Butpriceis notvalue.

We take up now, as an additional point designed to show that marginal utility to an individual is not the same as value, Professor Clark's clean-cut analysis amending the Austrian theorywhich we shall call "Clark's Law."[48]A detailed statement of this law is not necessary here, but its main meaning may be outlined, and its demonstration left to Professor Clark himself. Any good, except the poorest and simplest, is a complex, giving several distinct services. Thus, an automobile gives the service of transportation (a cart would do that); of comfort (a spring-buggy, with top, would do that); of elegance and social distinction (a carriage would do that); of speed and exhilaration (only an automobile can do this last, and the others as well). Now each of these services Professor Clark considers as a distinct economic good, and he constructs a demand curve for each of them. The service of transportation would be worth $5000 to the marginal buyer of automobiles, if he could not get it for less, but then, he is not the marginal user of carts, and he gets the cart service for what the marginal buyer of it pays, say $10. The comfort element would be worth $3000 to him, but he is not the marginal buyer there, and he gets it for what the marginal buyer of buggies pays for a buggy, less the $10 for the mere transportation-service of the buggy, say $100 less $10, or $90. For the service of elegance and social distinction, he would pay $4000, but then he does not have to do so, for he is not the marginal buyer of carriages, and he gets this additional service for $800, less the price of the preceding two services, or less $100. For theadditional service of speed and exhilaration heisthe marginal demander, and his margin fixes the price, say $2000, for that service. Now his automobile—and he is the marginal buyer, and he buys only one—gives him satisfaction far in excess of that measured by the price he pays for it. The automobile, economically considered, is several distinct services bundled together, worth to him $5000 plus $3000 plus $4000 plus $2000. But he pays for the automobile only $2800, or less than he would have paid even for the first service. Now by the Austrian definition the price of anything is determined by its utility to the marginal user. And marginal utility is thetotalutility of the marginal unit consumed. The total utility of this marginal automobile, to this marginal user, would balance $14,000 in his mind, and this, by the Austrian analysis, ought to be the price. But the price is $2800. Marginal utility determines price? Marginal utility to whom? Not to the marginal buyer! To whom, then? Professor Clark says, tosociety, without further defining what he means by that, except in general terms of social organism, etc. But it seems to me clear that, except on the basis of some such conception, we shall have to give up the idea that marginal utility determines price, and say rather that price is something with which marginal utility has something to do! And the quantitative relation between the feeling of any individual andvaluehas become very uncertain indeed.

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