Progress consists in reducing costs, so that we gradually approach gratuity. But, in reducing the value of certain things, we necessarily increase the value of other things. By diminishing the efforts required to satisfy one want, we liberate the efforts needed to satisfy a new want; it is only when we can satisfy this new want that the means ofsatisfaction acquires value. For the pioneer who with difficulty is able to clothe and feed himself a piano has no value. It is only as clothing and food take up less of his energy—that is, become of less value to him—that he will appreciate the new want, until finally in civilized society a piano is worth far more than a suit of clothes. Since value, as we know, is simply an expression for marginal utility, we cannot affirm that value in general ever increases or decreases. As pianos are worth more, clothing is worth less.
Progress consists in reducing costs, so that we gradually approach gratuity. But, in reducing the value of certain things, we necessarily increase the value of other things. By diminishing the efforts required to satisfy one want, we liberate the efforts needed to satisfy a new want; it is only when we can satisfy this new want that the means ofsatisfaction acquires value. For the pioneer who with difficulty is able to clothe and feed himself a piano has no value. It is only as clothing and food take up less of his energy—that is, become of less value to him—that he will appreciate the new want, until finally in civilized society a piano is worth far more than a suit of clothes. Since value, as we know, is simply an expression for marginal utility, we cannot affirm that value in general ever increases or decreases. As pianos are worth more, clothing is worth less.
The relativity of value is here made to depend on a ground different from that which lies at the basis of the English School's doctrine of relativity. The ground of the latter islogical; the ground for Professor Seligman's view ispsychological. Values considered as mutual relations between two goods cannot both fall—a fall in one means that it goes lowerthan the other, whence inevitably the other must rise, as a matter of logical definition. For Professor Seligman, on the other hand, value is a quantity of marginal utility. So far as the logic of the situation is concerned, an increase in the supply of good diminishestheirmarginal utility, and so their value.[189]But, as soon as that is done, a new want springs into existence, a new object receives value therefrom, and the total quantity of value remains as before. In the article from which the quotation is taken, the doctrine is merged to some extent with the English doctrine of logical relativity, as indicated by the discussionon page 343, and by the footnote on page 344. The English doctrine is also suggested by the treatment in thePrinciples of Economics(pp. 184-85), where it is stated that "prices may rise or fall with reference to this standard, but we cannot speak of a general rise or fall of values, because there is no fixed point." It is clear, however, that the argument for relativity in the passage first quoted, is wholly distinct from, and independent of, the logical relativity of definition. Professor Seligman, in conversation with the writer, has so distinguished it, and has indicated that, rejecting the logical doctrine of relativity, he now holds this psychological doctrine of relativity, as distinct, both from the absolute conception of Professor Clark, and the relative conception of the English School.
As preliminary to a criticism of Professor Seligman's doctrine, certain distinctions must be made. Values may be relative in Professor Seligman's sense without being relative in the sense in which the English School uses the term: the English School thought only of the relations among, say, aunitof wheat and a unit of corn, a unit of woolen goods, a unit of wine, etc.: Professor Seligman is thinking of thetotal stocksof these various commodities. Assume, for simplicity, that the stocks of all commodities were doubled, and that the demand curves for all the commodities have the same shape, and that form is the rectangular hyperbola,[190]so thatthe absolute value of each unit of each commodity would be exactly cut in half. The English School would say that there had been no change in the values of the units; Professor Seligman would say that there had been no change in the value of thestocks, but would concede at once that every unit has had its value cut in half.[191]
Another distinction must be made. There is, to be sure, at any given time, a pretty definitely limited[192]amount of socialproductive energy. This energy can be distributed among only a limited number of products. Hence, there can be only a limited number of objects to receive value from the mental energies of society. But does it follow from this that what we may call the social energy of value-giving is a limited thing? Or, granted that it is limited, does it necessarily follow that the limits are fixed and rigid? Cannot circumstances arise which will make it vary in amount? If a new want arises, does it necessarily follow that all the old wants become less intense in the exact degree that the new want is intense? Must a quantum of value be withdrawn from the old objects precisely equal to that which is attached to the new object? Thisdoctrine is deliberately affirmed, so far, at least, as the individual is concerned, in the article on "Worth"[193]in Baldwin'sDictionary of Philosophy, etc.:—
The struggle for existence among dispositions, which are at once the objects of ethical valuation and the source of value reactions, springs out of the nervous conditions of these dispositions. While there dwells in each the tendency to utmost activity under the given conditions, yet, since the valuing subject is master of only a limited energy of valuation, i.e., nervous energy, the increase of value of any given disposition must necessarily cause others to decrease. In any case increase of values is always relative.
The struggle for existence among dispositions, which are at once the objects of ethical valuation and the source of value reactions, springs out of the nervous conditions of these dispositions. While there dwells in each the tendency to utmost activity under the given conditions, yet, since the valuing subject is master of only a limited energy of valuation, i.e., nervous energy, the increase of value of any given disposition must necessarily cause others to decrease. In any case increase of values is always relative.
Now two lines of criticism suggest themselves. In the first place, the concluding sentence of the quotation is anon-sequitur. If there be a definite, absolute quantity of energy, then its distribution among objects can give absolute quantities of value. Reservoirs connected by pipes may among them contain a definite quantity of water, and increase in the volume of water in one may be at the expense of all the others. But still the amount of water in each is an absolute amount. This criticism, I may note, Professor Seligman concurs in. Conceding that a definite amount of value may exist in each object, he holds that there is, none the less, a relativity about value in the sense that increase in the value of one item can only come from a decrease in the value of another, andvice versa. The other line of criticism calls attention to theidentification of "energy of valuation" with "nervous energy." That the two are identical would be maintained only by the crudest materialism. The one is a physical force; the other is a psychical force. While nervous energy and energy of valuation may be connected, the nature of the connection is surely not so well known as to justify the assumption that definite limitation in the one implies a precisely corresponding limitation in the other.[194]There is no justification—at least in the present state of psychological knowledge—for holding that the law of the "conservation of energy" applies to psychical energy.[195]
Some concrete illustrations will make clearer the difficulties of the doctrine, as applied to economic life. Assume a group of men on board a whaling vessel, who suddenly discover that they will be obliged to spend the winter in the ice-zone, instead of reaching home in the fall as they had planned. Will not the value of everything in their store of provisions be increased? Will not their whole stock of wealth have a greater value? But this, Professor Seligman objects, is because they are in a situation such that opportunity for reproduction is lacking, and he raises the question as to whether the same situation is possible in economic life on a large scale, where wealth is being constantly produced. Well, assume that a crop failure on a large scale occurs.Will not the value of the total existing supply of the articles in which there is a failure be raised? And will not other competing articles of food have their values increased also? But, Professor Seligman would retort, these increases would be at the expense of the values of the half-grown fields of grain, and at the expense of articles other than food. Granted: but what evidence is there of exact equivalence? And further, assume that half of every existing stock of commodities, of every sort, were suddenly wiped out. Would the sum total of values remain the same? Only on the assumption that the social value curve for this totality of commodities is a rectangular hyperbola.[196]That this particular shape of the curve holds for any particular commodity would be difficult to prove. That it does not hold at all for the necessities of life is one of the commonplaces of economic analysis. Initial items in a stock of necessities have a very great value, when there are no other items of the stock, and the curve often descends very abruptly. Gregory King has undertaken to show, in terms of money, the shape of this curve for wheat in the England of his day. Other commodities have curves which behave very differently. While the argument from the part to the whole is not a valid argument in the presence of specific reasons making the whole obey different laws from the parts, it still, in the absence of such special considerations, does raise a strong presumption. And I must confess that I see no reasons why thecurve for the totality of commodities should take the particular form of a rectangular hyperbola, instead of some other form.A priori, the presumption would seem to be that its form would be irregular.
There is another point of view which seems to support Professor Seligman's contention, and that is the money-price viewpoint. At a given moment, each man has a definite quantity of money—or of bank-credit—which he can use in purchasing commodities. If he spends it for some commodities, he cannot spend it for others. As he joins one group, demanding one commodity, he must—at least to the extent of that amount of money—withdraw from other groups demanding other commodities. At a given instant, therefore, there is a definite demand-situation with reference to every item of every stock, and one can increase its money-price only by drawing upon the demand for others. But let a panic now come. Let these bank credits become unstable: letsocial confidencebe wiped out, and what happens to general prices and values? Does the value that leaves the general range of commodities all betake itself to the gold supply? That cannot be, for the supply of gold, as compared with the supply of other commodities, is well-nigh infinitesimal, and if the whole of the values that left the commodities went into gold, then every unit of gold would be tremendously increased in value, and prices in terms of gold would fall, not two-thirds, but a thousandfold. What has become of the values?They have simply been wiped out. A psychical change has taken place, a malady has afflicted the social mind, its integrity is shattered, doubt has taken the place of confidence, panic fear has replaced buoyant expectation, demoralization and disorganization have lessened the social psychic energy—or dissipated it in inchoate, unorganized individual activities. The sum total of values is lessened. Of course, the reverse may happen. Let confidence be restored, let the social psychic organization function normally once more and values rise again. As we have indicated in our discussion of the psychology of value,belief, as well as desire and feeling, may often be a very significant phase in the value situation, and have a motivating power quite as great as the other phases.Credit, while it exists, is a real addition to the sum of values—has, that is to say, a real power in motivating economic activity, calling forth new productive efforts, and directing labor, capital, and enterprise to new channels. This is not, of course, asserting the doctrine of John Law. Credit cannot be manufactured out of whole cloth. Beliefs, at least to some extent, follow rational laws, and, except in moments of hysteria, there must be something for people to believe in before strong belief can emerge. Sometimes, of course, an unstable but momentarily powerful belief, based on nothing rational, may dominate a situation, and radically upset the existing scale of values—with a sad reaction following shortly after. And, in the absence of belief, the most rational justificationfor belief is impotent. Witness the bankruptcies, in times of panic, of men whose assets turn out later perfectly adequate, but who are unable to liquidate them at the time of the panic. Note, too, in this connection, the tendency in times of panic to turn to government for aid in sustaining values—to substitute for the waning social force of belief the power of a new legal force.
A case parallel to the panic, as inducing a diminution of the total psychic energy of control, is presented by widespread epidemics. Gabriel Tarde, criticizing Mill's contention that all values cannot rise or fall, instances the general fall in all values which an epidemic occasions, and the recovery of values after the epidemic.[197]This criticism of Tarde's will not, of course, hold as against Mill's doctrine (indefensible on other grounds) which bases the relativity of values upon a logical definition, but it will hold as against the psychological doctrine of relativity under discussion.
A further point is to be noted. Even granting that the sum total of social power of motivation is definitely limited, it still does not follow that the sum total of economic value is so limited. For not all of this social psychic energy goes into economic values. Religious, æsthetic, patriotic, moral values, all call for their share of this energy, and the amount given to each varies from time to time. This phase of the matter is discussedin detail by Professor Ross, in the chapter on "The Social Forces" in hisFoundations of Sociology, and I shall not expand the discussion here.
The doctrine that there is a definite, unchanging sum of economic values, therefore, cannot, in my judgment, be maintained. And yet, it must be conceded, there is a substantial element of truth in Professor Seligman's contention. At a given time, or through a considerable period, assuming social conditions to change slowly, there are fairly definite amounts of social energy, both of production and of control over production (value-giving energy). The surface fact here is that men have definite incomes. If this energy is disposed of in one way, it cannot be disposed of in another. If men elect to have one good, they must dispense with something else. And in using their control over social forces to increase the value of one good, they must refrain from using it to increase the value of another. In the long run, these quantities are subject to change. At a given moment, a sudden disturbance may radically change them. But, as a statement of tendency, Professor Seligman's doctrine must be admitted.
Professor Seligman's view differs from that of Professor Clark simply in that it adds an element. On its logical side, it conceives value in the same way. Value is a quality, with degrees, i.e., a quantity. This quantity in a particular good is an absolute fraction of an absolute quantity. It is not changed merely in consequenceof being compared with some other good—it remains the same, regardless of what price-ratio it is put into. On its formal and logical side, therefore, Professor Seligman's concept is to be classed with that of Professor Clark—with which, as indicated in chapterii, I am in hearty accord, in so far as the issues raised in that chapter are concerned.
FOOTNOTES:[183]Principles, 1905, p. 174.[184]Economic Interpretation of History,passim.[185]Principles, p. 175.[186]Ibid., pp. 147-48.[187]It might be possible to put the argument into terms which would give an analogical meaning to "social utility" and "social cost." The diagram representing the intersection of the demand curve and the supply curve, fixing price, may be taken equally well to represent the balance of social forces which lies back of the market phenomena in the case of a given commodity. The demand curve might then be called a "social utility" curve, and the supply curve a "social cost" curve, if only it be remembered that cost and utility here have only a vague, analogical meaning, and cover up a host of factors which, while they fall conveniently into two opposing groups, like the individual's "cost" and "utility," are yet much more than the latter. But they are really so very much more than the latter, that it seems to me misleading to continue the use of the terms, utility and cost, when the associations of these terms in economic theory are remembered. The tendency would be to make the student feel that value depends on two abstract phases of social-mental life, instead of being an outcome of the organic whole.[188]Pp. 342-43.[189]The reader will understand that I am using accustomed phraseology and making customary assumptions, not because I approve of them, but because the point at issue here is not affected by the question as to the relations between value and utility, etc. The distinction between a utility curve and a price curve does not affect the argument here.[190]Analytically expressedxy=c. This curve, by definition, leaves the "value area" (xy) constant.[191]A complication must be noticed here, due to my use of the term, "demand curve." I am tacitly assuming that the absolute value of the money unit remains the same in this process, and so must say that the English School would concede that the value of the money unit has doubled even though holding that all the other values remain unchanged, except with reference to the money unit. For Professor Seligman, the value of money (i.e., the total stock) has not changed.[192]But the limitation is not absolute. New incentives may call out substantial increases in productive activity.[193]Written by Professor W. M. Urban, author ofValuation, to which frequent reference has been made.Vide Valuation, p. 4, n. The article was, of course, written several years before the book.[194]In this view I am sustained by Professor John Dewey.[195]Cf.Stuart, "Valuation as a Logical Process," in Dewey'sStudies in Logical Theory, pp. 328, n., and 330.[196]Seesupra, p. 165, n.[197]"La psychologie en économie politique,"Rev. Philosophique, vol.xii, p. 238.
[183]Principles, 1905, p. 174.
[183]Principles, 1905, p. 174.
[184]Economic Interpretation of History,passim.
[184]Economic Interpretation of History,passim.
[185]Principles, p. 175.
[185]Principles, p. 175.
[186]Ibid., pp. 147-48.
[186]Ibid., pp. 147-48.
[187]It might be possible to put the argument into terms which would give an analogical meaning to "social utility" and "social cost." The diagram representing the intersection of the demand curve and the supply curve, fixing price, may be taken equally well to represent the balance of social forces which lies back of the market phenomena in the case of a given commodity. The demand curve might then be called a "social utility" curve, and the supply curve a "social cost" curve, if only it be remembered that cost and utility here have only a vague, analogical meaning, and cover up a host of factors which, while they fall conveniently into two opposing groups, like the individual's "cost" and "utility," are yet much more than the latter. But they are really so very much more than the latter, that it seems to me misleading to continue the use of the terms, utility and cost, when the associations of these terms in economic theory are remembered. The tendency would be to make the student feel that value depends on two abstract phases of social-mental life, instead of being an outcome of the organic whole.
[187]It might be possible to put the argument into terms which would give an analogical meaning to "social utility" and "social cost." The diagram representing the intersection of the demand curve and the supply curve, fixing price, may be taken equally well to represent the balance of social forces which lies back of the market phenomena in the case of a given commodity. The demand curve might then be called a "social utility" curve, and the supply curve a "social cost" curve, if only it be remembered that cost and utility here have only a vague, analogical meaning, and cover up a host of factors which, while they fall conveniently into two opposing groups, like the individual's "cost" and "utility," are yet much more than the latter. But they are really so very much more than the latter, that it seems to me misleading to continue the use of the terms, utility and cost, when the associations of these terms in economic theory are remembered. The tendency would be to make the student feel that value depends on two abstract phases of social-mental life, instead of being an outcome of the organic whole.
[188]Pp. 342-43.
[188]Pp. 342-43.
[189]The reader will understand that I am using accustomed phraseology and making customary assumptions, not because I approve of them, but because the point at issue here is not affected by the question as to the relations between value and utility, etc. The distinction between a utility curve and a price curve does not affect the argument here.
[189]The reader will understand that I am using accustomed phraseology and making customary assumptions, not because I approve of them, but because the point at issue here is not affected by the question as to the relations between value and utility, etc. The distinction between a utility curve and a price curve does not affect the argument here.
[190]Analytically expressedxy=c. This curve, by definition, leaves the "value area" (xy) constant.
[190]Analytically expressedxy=c. This curve, by definition, leaves the "value area" (xy) constant.
[191]A complication must be noticed here, due to my use of the term, "demand curve." I am tacitly assuming that the absolute value of the money unit remains the same in this process, and so must say that the English School would concede that the value of the money unit has doubled even though holding that all the other values remain unchanged, except with reference to the money unit. For Professor Seligman, the value of money (i.e., the total stock) has not changed.
[191]A complication must be noticed here, due to my use of the term, "demand curve." I am tacitly assuming that the absolute value of the money unit remains the same in this process, and so must say that the English School would concede that the value of the money unit has doubled even though holding that all the other values remain unchanged, except with reference to the money unit. For Professor Seligman, the value of money (i.e., the total stock) has not changed.
[192]But the limitation is not absolute. New incentives may call out substantial increases in productive activity.
[192]But the limitation is not absolute. New incentives may call out substantial increases in productive activity.
[193]Written by Professor W. M. Urban, author ofValuation, to which frequent reference has been made.Vide Valuation, p. 4, n. The article was, of course, written several years before the book.
[193]Written by Professor W. M. Urban, author ofValuation, to which frequent reference has been made.Vide Valuation, p. 4, n. The article was, of course, written several years before the book.
[194]In this view I am sustained by Professor John Dewey.
[194]In this view I am sustained by Professor John Dewey.
[195]Cf.Stuart, "Valuation as a Logical Process," in Dewey'sStudies in Logical Theory, pp. 328, n., and 330.
[195]Cf.Stuart, "Valuation as a Logical Process," in Dewey'sStudies in Logical Theory, pp. 328, n., and 330.
[196]Seesupra, p. 165, n.
[196]Seesupra, p. 165, n.
[197]"La psychologie en économie politique,"Rev. Philosophique, vol.xii, p. 238.
[197]"La psychologie en économie politique,"Rev. Philosophique, vol.xii, p. 238.
In most English treatises on economics, a price means a sum of money given in exchange for a commodity, or the ratio between the money and the commodity, or the ratio between the value of the money and the value of the commodity. In any case, price as a rule involves the idea of money. With the Germans, on the other hand,Preismeans any exchange ratio (or a quantity of commodities of any sort given in exchange for a good), whether or not one of the terms of the ratio involves money, and the distinction between price and value (PreisandWert) is, commonly, the distinction between the measure and the thing measured, or between "relative value" and "absolute value" in Ricardian phrase.[198]The conception of price has been broadened by some later writers in English, however, to correspond with the German usage, notably by Professor Patten,[199]and by Professor Schumpeter,[200]in an English article contributed recently to theQuarterly Journal. I do not care to argue a merely terminological question, and I readily concede that there are disadvantages in departing fromfamiliar usage. But, on the other hand, since I am convinced that ratios of exchange in general, and money prices in particular, are generically the same, while ratios of exchange and values are generically as unlike as it is easily possible for two things to be, I shall use the term price in this wider meaning, and confine the word value, in the exposition of my own theory, to the non-relative meaning.
The distinction between prices in this sense and absolute values appears in Adam Smith and in Ricardo. These writers do not adhere very strictly to either meaning of the term, value, however.[201]The conception of absolute values islost by J. S. Mill, and the distinction which he draws in connection with the problem of the standard of deferred payments (not so called by Mill) is between values (relative) andcost of production.[202]In Cairnes, the two conceptions are hopelessly confused on a single page,[203]while Marshall's whole treatment runs in terms of price.
In what follows, I wish to generalize the conception of price, to show the function of the price concept in economics, to distinguish carefully between the theory of value and the theory of prices, and to see what light the theory of value outlined in this book throws upon the problems of the price analysis.
In chapterii, the distinction between "absolute and relative values," or, in our present phrase, between values and prices, was sufficiently indicated not to need further elaboration here. The relation between them was made clear—the absolute value must first exist before the price, which is the expression of the value of a good in terms of some other valuable object which is chosen as a measure, can be determined. In fact,twovalues, the value of the good measured, and the value of the good which is to serve as the measure, must first exist, as absolute quantities, before a price-ratio can be madebetween them, and their "relative values" shown. In the chapter on the psychology of value, the notion of price was generalized, and we spoke of the price measure of values of non-economic sort. This notion is one of very general application and one of significance for the whole realm of social and psychical phenomena: not merely where the question of exchanging economic goods is involved, but wherever choice among alternative goods, or courses of action, or men, or institutions, or works of art, or other objects of value, is necessary, wecomparethem with each other, wemeasurethem by each other, wepricethem in terms of each other. We arrange them inscalesof value, or in series, seeing which is higher and which lower. Where only two goods are involved, we may call either the measure, depending on the point of view. But where many goods are to be compared, it is highly convenient to pick out some one as the common measure of all, so that they may be reduced to common terms. For measuring economic goods, money is, of course, the standard, or common measurepar excellence, for most purposes. If we are measuring the value of the political institutions of various countries, we usually take the institutions of our own country, with which we are most familiar, as the common measure or standard. Or, in measuring the moral systems, or the literary masterpieces, of other countries, we again find those of our own people the most convenient standard. But it is significant of the correctness of our general point ofview that values of different species may be measured in terms of each other.Money, in particular, is a very general measure, which may serve for many values outside the economic sphere. Thus, I have pointed out how legal values may be measured in terms of money, as when the fine for one offense is five dollars, and that for another twenty-five. Gabriel Tarde[204]points out that by comparing the theatre receipts of theatres representing different dramatic schools we may compare the vogues of each, or that by comparing the income of the clergy in different periods we may get some index of the variations of religious sentiments. He suggests that while money as a measure of economic values usually functions in exchange, it may, as a measure of beliefs or other social forces, function through gifts, through popular subscriptions to build this or that statue, for the support of scientific work or philanthropies, or even through thefts: "Quelquefois même c'est par des vols où se montre la perversion d'un esprit sectaire, l'aberration et la profondeur de ses convictions passionées."
Commonly, indeed, money performs even this function, that of measuring currents of belief, passion, enthusiasms, etc., through the process of exchange, and, ordinarily, it is difficult to get any single current separately. We simply get the resultant of an equilibrium of a complex of forces in economic values. But sometimes a single factor stands out so prominently that we canabstract from the rest, and let money changes measure changes in it alone. For example, during the three days of the battle of Gettysburg, the premium on gold, as measured in terms of Federal paper, fell from forty-five per cent to twenty-three and a fourth per cent.[205]For the market, this means simply a change in the economic value of Federal paper. But for one who cares to look even superficially behind the scenes, it means an increased volume of belief in the triumph of the Federal arms—a belief that at once affected economic values, and was measured in terms of money. Or, the economist may abstract a single legal factor, as a tax law, and measure its influence on the assumption that the rest of the situation is constant, in the well-known laws of shifting and incidence.
Such clean-cut instances are not the rule, however. The organic complexity of the social forces lying back of economic values makes it difficult to disentangle single elements, and measure their force. For one thing, variations in one factor usually mean movements in the others. If we may borrow terms from chemistry, while the economist may give us aqualitativeanalysis of these forces, it is hard for him to give us aquantitativeanalysis. And the characteristic of pure economic theory has been its effort to get quantitative, quasi-mathematical laws. The "pure theorist," therefore, does well to start with a quantitative value concept (a convenient shorthand or symbol for the infinitecomplexity that lies behind it), a value quantity in which the net outcome of social interactions does precisely manifest itself, and study the laws which it manifests. His chief interest is, not in the origin of economic value itself, but in the changes in quantities in value in different goods and services as these manifest themselves in the market, and submit themselves to economic measurement. In a word, his chief interest is, not in value, but inprices.[206]And the great bulk of pure economic theory, and practically all that is of greatest importance in pure theory, is in the theory of prices, and not in the theory of value. Lest I be misunderstood, the qualification must be repeated: prices here mean, not money-prices, but prices in the generic sense. In this sense of the word price, it is just as accurate to speak of the price of money in terms of commodities, or of a composite of commodities, as to speak of prices of commodities in terms of money.
That is to say, the economist gives himself little concern, in his quasi-mathematical study, as to the ultimate nature of the social forces that manifest themselves in the market. A host of forces lie back of demand, but the economist puts the phenomena of demand into a curve which is the function of two variables, one a quantity of money, and the other a quantity of goods. Lying back of these quantities of goods and money, and giving meaning to the curve, are the more fundamental quantities, the value ofthe goods and the value of the money. Further than this, for the purposes of his quasi-mathematical, pure theory, the pure economist has no real occasion to go—in proof of which it need be remarked simply that the most divergent theories as to the nature of value, none of them adequate if the theory set forth in this book be true, have not prevented the development of a vast, highly organized, and immensely useful body of price doctrine, shared by economists of many schools. If only the economist have a quantitative value concept, he can do wonders. And, if the question be regarding relations between factors where the question of the value of money may be ignored, he may often safely abstract from the idea of value, and speak simply of money quantities, and relative changes in these money quantities. Such is, indeed, Professor Marshall's procedure in a large part of his great work. Professor Davenport's contention that, from the standpoint of the entrepreneur, the whole thing may be looked at in pecuniary terms, is true of many problems. Cost for the entrepreneur is simply a money matter. And while, for the more fundamental analysis, we of course must insist that a host of psychic forces determine what those money costs shall be, our analysis will justify the contention that it is impossible to treat them in any but price terms, in a precise and quantitative manner. They are too complex. Certainly labor-pain and abstinence, looked on as abstract individual feeling-magnitudes, will not explain the supply-pricesof labor and capital, any more than individual "utilities" will explain demand-schedules. And we may add that the terms "social cost" and "social utility" can, in our scheme, get no meaning that will make them useful. The social value concept seems to us absolutely essential for the validation of the whole procedure of the price analysis, and to be implied in every step in it, but the only meaning we can find for the concept of social marginal utility would be one which would make it identical with social value; and against that there are two objections: first, it would be superfluous, and second, it would be misleading. "Social utility" can get only a vague, analogical meaning in our scheme. Instead of explaining social value, it would itself present a problem.[207]A measure of social economic value in terms of a feeling-magnitude which an individual can appreciate is not to be had. Value can be measured and quantitatively handled only in terms ofprice.
In saying this, I do not mean to impeach that more abstract procedure which speaks of abstract units of value, and uses arithmetical numbers which designate no particular commodities, or algebraic symbols, or even ordinary speech, to indicate quantitative relations among different sums of these abstract units. Such procedure is thoroughly correct, and often highly convenient, if one be dealing with highly general laws, or if one wish to avoid any complications from changes in the value of any concretecommodity which might be chosen as the standard of value. Only, I would insist, such procedure is simply an abstraction from the price concept, and so presupposes it. A unit of value, in the concrete, must be the value of some particular concrete good, which is chosen as the standard.Whatgood is chosen is a purely arbitrary matter, determined by convenience. Abstract value, apart from valuable things, is an utter impossibility—only a Platonic idealism or mediæval realism could hold the contrary view. And, in order to show how many units of value there are in a good, we must compare it with another good, whose value is the unit, unless, indeed, we arbitrarily choose as our unit the good in question, and say that its value is one unit, or several units, in case we arbitrarily define the unit as a fraction of its value. But clearly this latter procedure would tell us nothing after all as to the amount of the value in the good. It would be a purely formal process—like renaming a "hocus-pocus" and calling it two "Abracadabras." Any real measuring—and real measuring is essential for any quantitative manipulation—impliestwothings, one of which shall serve as the measure of the other. The conception of abstractunitsof value, therefore, is an abstraction from the price conception, and presupposes it.[208]
A valid price procedure, in my view, is essentially this: we take our quantitative value concept, summing up the multitudinous social forces which determine values: then we assume a given set of ethical, legal, and social values of a non-economic sort,[209]as a sort of frozen framework within which our economic values are to operate, and which shall remain constant during the investigation: then, measuring the economic values in terms of a common unit, we let them exert their influence on the situation, and see what results follow. We vary first one and then the other, and see what readjustments any change involves. Since the situation is so infinitely complex, we bring about this artificial simplicity in thought, that we may study the tendencies one by one. But a given economic change will work out its consequences fully only on the assumption that other economic changes are not occurring. We can in thought let them vary one by one, but they do in fact all vary at once. And further—and for this fact price theory has made no allowance—the "frozen framework" of legal, moral, and other non-economic social values, is not "frozen." Changes in economic values lead to readjustments, not only in the other economic values, but also in the legal, ethical, and other values of the framework. These last are fluid, psychic forces, just as trulyas are the economic values. They change because of changes in the economic values; they initiate changes in the economic values; and they initiate changes which deflect the tendencies of changes in the economic values. So that, even though we premise a thoroughly organic theory of social value, in which the influence of the non-economic social values, workingthroughthe economic values, is carefully provided for, we still have to correct the results of our price analysis, before applying it to practice, to account for changes in the non-economic values working to deflect the tendencies which the economic values would lead to if the other values had remained constant.
This last, of course, most economists in practice constantly try to do. Present day discussions of practical economic problems are rich in data of a non-economic sort. In practice the economist recognizes that his mission is, not to see how far a few abstract factors will go in the explanation of economic life, but rather, toexplainthat economic life by any means in his power, though he ransack heaven and earth in the process.
Of course, it is but a commonplace to add that the economist, in practice, does try to take account of the extent to which his assumptions as to the legal and social "framework" hold: how far there is real freedom of competition, how far real "intelligent self-interest," how far mobility of labor and of capital, how far monopoly privilege, etc. Or, at least, he usually tries to makehimself think that he has done so. It still remains lamentably true that a great deal of reasoning even on practical problems is an effort to apply theories without any adequate understanding of the extent to which the theories grow out of abstractions made for purposes of study, or any effort to put back the concrete facts from which the abstraction was made. The practical business man knows how these various forces operate on values. He studies them, tries to estimate their force in quantitative price terms, and adjusts his plans to them. If a religious wave sweeps over a large section of the country, the wholesaler sends in larger orders for Bibles, and smaller orders for playing cards. If a rate-reduction agitation is going on, the manufacturer of steel rails and railroad supplies plans to cut down his output. If trades-unionism grows strong, employers of labor recognize that they must readjust their budgets.
FOOTNOTES:[198]Cf.Davenport,op. cit., pp. 296-97.[199]Theory of Prosperity, New York, 1902, pp. 16-17, 89.[200]"On the Concept of Social Value,"Quar. Jour. Econ., Feb., 1909, pp. 226-27.[201]SeeWealth of Nations, introductory part of chap.viiiof bk.i(pp. 66-67 of the Cannan ed.) For Ricardo, seeWorks, McCulloch ed., London, 1852, p. 15. Adam Smith seems occasionally to use value in the relative sense, as on p. 183 of vol.iiof the Cannan ed. Ricardo, though indicating that he is concerned only with relative values on the page citedsupra, still speaks of values as simultaneously falling, in ch.xx, on "Value and Riches," which, of course, is impossible on the basis of the relative concept. There is no point to torturing these passages unduly, however, in the effort to find our distinctions in them.Professor Seligman calls my attention to a most interesting forty-page discussion of the theory of value by W. F. Lloyd,A Lecture on the Notion of Value, as Distinguishable not only from Utility, but also from Value in Exchange. The lecture was delivered before the University of Oxford, in Michælmas Term, 1833, and published, in accordance with the rules of the foundation which provided funds for the lecture, in London, 1834. The writer insists on the conception of value as absolute, and devotes pp. 30-40 to a defense of the absolute conception. He cites the passage in Adam Smith referred tosupra, in which Smith distinguishes real dearness from apparent dearness (introductory part of chap.viiiof bk.i). The most striking thing about this lecture, however, is its anticipation of Jevons's doctrine of marginal utility, and its emphasis upon the subjective character of value. The word, margin, is used in virtually the sense in which Jevons uses it, on p. 16.The book is very rare,—only three copies, one in Professor Seligman's library, one in the British Museum, and one in the Goldsmiths' (formerly Foxwell) Library in London, are known to exist. It seems to have made no impression upon the economists of the time of its publication. A reprint to-day would enable the economic world to do belated justice to a very acute and original thinker.Cf.Professor Seligman's article "On Some Neglected British Economists" in theEconomic Journal, vol.xiii, esp. pp. 357-63.[202]Principles, bk.iii, chap.xv, par. 2.[203]Leading Principles, editions of 1878 and 1900, pp. 12-13.[204]Psychologie Économique, vol.i, pp. 77-78.[205]Scott,Money and Banking, 1903 ed., p. 60.[206]Cf.Schumpeter,Quar. Jour. Econ., Feb., 1909, pp. 226-27.[207]Seesupra, p. 163, n.[208]Cf.p. 50, n. It is sufficiently clear, I trust, that this argument is concerned with the relativity ofknowledge, and not with the relativity ofvalue. We canknowthings only in terms of our "apperceptive mass," but that does not mean that thingsexistonly by virtue of our apperceptive mass. And even knowledge is relative only when it is "Knowledge-about."Cf.James,Principles of Psychology, vol.i, p. 221, andThe Meaning of Truth, p. 4, n.[209]Marshall accords a limited recognition to our doctrine. SeePrinciples, 1907 ed., p. 35, where he indicates that certain parts of the theory of value assume the prevailing ethical standards of our Western civilization, and that prices of various stock exchange securities are "normally" affected by the patriotic feelings of purchasers, and even brokers, etc.
[198]Cf.Davenport,op. cit., pp. 296-97.
[198]Cf.Davenport,op. cit., pp. 296-97.
[199]Theory of Prosperity, New York, 1902, pp. 16-17, 89.
[199]Theory of Prosperity, New York, 1902, pp. 16-17, 89.
[200]"On the Concept of Social Value,"Quar. Jour. Econ., Feb., 1909, pp. 226-27.
[200]"On the Concept of Social Value,"Quar. Jour. Econ., Feb., 1909, pp. 226-27.
[201]SeeWealth of Nations, introductory part of chap.viiiof bk.i(pp. 66-67 of the Cannan ed.) For Ricardo, seeWorks, McCulloch ed., London, 1852, p. 15. Adam Smith seems occasionally to use value in the relative sense, as on p. 183 of vol.iiof the Cannan ed. Ricardo, though indicating that he is concerned only with relative values on the page citedsupra, still speaks of values as simultaneously falling, in ch.xx, on "Value and Riches," which, of course, is impossible on the basis of the relative concept. There is no point to torturing these passages unduly, however, in the effort to find our distinctions in them.Professor Seligman calls my attention to a most interesting forty-page discussion of the theory of value by W. F. Lloyd,A Lecture on the Notion of Value, as Distinguishable not only from Utility, but also from Value in Exchange. The lecture was delivered before the University of Oxford, in Michælmas Term, 1833, and published, in accordance with the rules of the foundation which provided funds for the lecture, in London, 1834. The writer insists on the conception of value as absolute, and devotes pp. 30-40 to a defense of the absolute conception. He cites the passage in Adam Smith referred tosupra, in which Smith distinguishes real dearness from apparent dearness (introductory part of chap.viiiof bk.i). The most striking thing about this lecture, however, is its anticipation of Jevons's doctrine of marginal utility, and its emphasis upon the subjective character of value. The word, margin, is used in virtually the sense in which Jevons uses it, on p. 16.The book is very rare,—only three copies, one in Professor Seligman's library, one in the British Museum, and one in the Goldsmiths' (formerly Foxwell) Library in London, are known to exist. It seems to have made no impression upon the economists of the time of its publication. A reprint to-day would enable the economic world to do belated justice to a very acute and original thinker.Cf.Professor Seligman's article "On Some Neglected British Economists" in theEconomic Journal, vol.xiii, esp. pp. 357-63.
[201]SeeWealth of Nations, introductory part of chap.viiiof bk.i(pp. 66-67 of the Cannan ed.) For Ricardo, seeWorks, McCulloch ed., London, 1852, p. 15. Adam Smith seems occasionally to use value in the relative sense, as on p. 183 of vol.iiof the Cannan ed. Ricardo, though indicating that he is concerned only with relative values on the page citedsupra, still speaks of values as simultaneously falling, in ch.xx, on "Value and Riches," which, of course, is impossible on the basis of the relative concept. There is no point to torturing these passages unduly, however, in the effort to find our distinctions in them.
Professor Seligman calls my attention to a most interesting forty-page discussion of the theory of value by W. F. Lloyd,A Lecture on the Notion of Value, as Distinguishable not only from Utility, but also from Value in Exchange. The lecture was delivered before the University of Oxford, in Michælmas Term, 1833, and published, in accordance with the rules of the foundation which provided funds for the lecture, in London, 1834. The writer insists on the conception of value as absolute, and devotes pp. 30-40 to a defense of the absolute conception. He cites the passage in Adam Smith referred tosupra, in which Smith distinguishes real dearness from apparent dearness (introductory part of chap.viiiof bk.i). The most striking thing about this lecture, however, is its anticipation of Jevons's doctrine of marginal utility, and its emphasis upon the subjective character of value. The word, margin, is used in virtually the sense in which Jevons uses it, on p. 16.
The book is very rare,—only three copies, one in Professor Seligman's library, one in the British Museum, and one in the Goldsmiths' (formerly Foxwell) Library in London, are known to exist. It seems to have made no impression upon the economists of the time of its publication. A reprint to-day would enable the economic world to do belated justice to a very acute and original thinker.Cf.Professor Seligman's article "On Some Neglected British Economists" in theEconomic Journal, vol.xiii, esp. pp. 357-63.
[202]Principles, bk.iii, chap.xv, par. 2.
[202]Principles, bk.iii, chap.xv, par. 2.
[203]Leading Principles, editions of 1878 and 1900, pp. 12-13.
[203]Leading Principles, editions of 1878 and 1900, pp. 12-13.
[204]Psychologie Économique, vol.i, pp. 77-78.
[204]Psychologie Économique, vol.i, pp. 77-78.
[205]Scott,Money and Banking, 1903 ed., p. 60.
[205]Scott,Money and Banking, 1903 ed., p. 60.
[206]Cf.Schumpeter,Quar. Jour. Econ., Feb., 1909, pp. 226-27.
[206]Cf.Schumpeter,Quar. Jour. Econ., Feb., 1909, pp. 226-27.
[207]Seesupra, p. 163, n.
[207]Seesupra, p. 163, n.
[208]Cf.p. 50, n. It is sufficiently clear, I trust, that this argument is concerned with the relativity ofknowledge, and not with the relativity ofvalue. We canknowthings only in terms of our "apperceptive mass," but that does not mean that thingsexistonly by virtue of our apperceptive mass. And even knowledge is relative only when it is "Knowledge-about."Cf.James,Principles of Psychology, vol.i, p. 221, andThe Meaning of Truth, p. 4, n.
[208]Cf.p. 50, n. It is sufficiently clear, I trust, that this argument is concerned with the relativity ofknowledge, and not with the relativity ofvalue. We canknowthings only in terms of our "apperceptive mass," but that does not mean that thingsexistonly by virtue of our apperceptive mass. And even knowledge is relative only when it is "Knowledge-about."Cf.James,Principles of Psychology, vol.i, p. 221, andThe Meaning of Truth, p. 4, n.
[209]Marshall accords a limited recognition to our doctrine. SeePrinciples, 1907 ed., p. 35, where he indicates that certain parts of the theory of value assume the prevailing ethical standards of our Western civilization, and that prices of various stock exchange securities are "normally" affected by the patriotic feelings of purchasers, and even brokers, etc.
[209]Marshall accords a limited recognition to our doctrine. SeePrinciples, 1907 ed., p. 35, where he indicates that certain parts of the theory of value assume the prevailing ethical standards of our Western civilization, and that prices of various stock exchange securities are "normally" affected by the patriotic feelings of purchasers, and even brokers, etc.
My strictures upon the Austrian, or "utility" theory of value in what has gone before seem to call for further qualification here. As a theory ofvalue, as a theory to explain the nature and origin of value, I am convinced that the Austrian theory is utterly and hopelessly inadequate. And yet, for the work of the Austrian economists, taken by and large, I have the highest admiration. Their treatment of margins, their conception of the motivating function of value, and their new stress on the demand side of the price-problem, constitute a marked advance over the point of view of the earlier English School, even though perhaps too extreme a reaction. And their detailed work in the price analysis, despite the utterly inadequate basis which the utility theory of value affords for it, has been marvelously accurate, sound, and useful. Having no logical warrant for an objectively valid quantitative value concept, they have none the less assumed and used one—and used it marvelously well. Sometimes that objective value is called by the name, "objective value." Sometimes they call it "marginal utility," and yet it is clearly anything but the feeling of an individual,for it is broken up into different parts, and reflected back and back through different productive goods of remoter and remoter rank till it has got very far from the individual who may be supposed to feel it. Production is the production, not of material things, but of "utilities"—and yet these utilities, as treated in the analysis, are anything but individual feeling-magnitudes, and the actual reasoning on the basis of them would not be different if they were called quantities of value outright. By logical leaps, by confusing "utility" with demand, or by confusing "marginal utility" with objective value,[210]the Austrians have got what the practical exigencies of price theory demand. A detailed estimate of the work of the Austrian School is, of course, out of place here, but I do not wish to be understood as failing to recognize the immense value of the work of men who have given so great an impetus to economic thought as has been the case with the Austrian masters.
There is a further topic in connection with the relation between value theory and price theory that calls for more explicit attention here, though frequent reference has been made to it already. What is the relation of the distributive problem to value theory and to price theory? Is distribution a price problem or a value problem?
It may be looked at from either angle, and treated in either way. A complete theory of distribution involves many of the most fundamental social values. Indeed, it is through themachinery of distribution that the non-economic values most vitally affect economic values. Wages, interest, competitive profits, are surely legal categories, and are possible only in a society where there is free labor and private control of industry. We may agree with Wieser[211]that, as categories of economic causation, interest, rent, and wages will remain even in a communistic society (and, doubtless, also profit and loss), but that is far from saying (as Wieser of course recognizes) that they would remain as distributive shares. Each social system has its own distributive scheme.
But, in a system like that of Western civilization to-day, where human services and the uses of land and instrumental goods are offered in the market like other commodities, we may treat them in terms of the price analysis with as much propriety as the other commodities. The prices paid for them measure a complex of social forces, but we cannot always disentangle these social forces and measure them separately. It is hard to tell precisely how much influence on the price of labor has been exerted by a speech from Mr. Gompers, or a Federal injunction, or a law for the exclusion of certain classes of immigrants. If we wish to handle distribution quantitatively, we must do it superficially, studying in the market the effects which the underlying social forces manifest there with reference to the rewards of the different factors of production. This has been increasingly the casewith later theories of distribution. If, on the other hand, we take the discussion which J. S. Mill gives in bookiiof hisPrinciples, we shall find that the price analysis plays relatively little part, and that he considers chiefly the influence of the more fundamental social values.[212]
A failure to recognize the distinction between value theory and price theory seems to lie behind the complaint which Professor Davenport makes against the "Social Value School" in his criticism of Professor Seligman: "As soon as we turn from the value problem to the separate treatment of the distributive shares, we find ourselves to have descended from the cloud-land mysteries of transcendental economics to the old and beaten paths of the traditional analysis."[213]To this complaint the obvious answer is that we have turned from fundamental value theory to abstract, quantitative price analysis. And the social value theorist has as much right to do this as has any other economist—in fact, if our theory be true, only on the basis of a social value doctrine has any economist a right (logically) to take up price analysis.
The theory of value, as I conceive it, is, then, not a substitute for detailed price analysis, but rather a presupposition of it. The theory of value is to interpret, validate, and guide the theory of prices. If the theory here outlined be true, it will have significant consequences for the theory of prices, in that it will open up new problems for the price analysis to attack. There are many social forces which can be measured with substantial accuracy, and many more which can be, for purposes of theory, disentangled from the complex in which they appear, and treated by the methods of price analysis already discussed, which economic theory has not yet thought it worth while to attack. The economist must emulate the practical business man, in trying to treat in price terms the various social changes which affect economic values. There is much left for the theory of prices to do. The theory defended here, with its sharp sundering of values and prices, will, of course, criticize the mixing of the two. One chief criticism of the Austrian theory, and also of the theory of the English School in so far as it attempts to give a "real cost" doctrine, is that they are attempts to give both a theory of value and a theory of prices at the same time. Certainly we must object to Böhm-Bawerk's contention that the solving of the price problemipso factosolves the value problem.[214]The purpose of this book is, notdestructive, butreconstructive. A detailed criticism of the various economic theories that have appeared,as theories of prices, is manifestly too big a task to be undertaken here. All of them cannot, of course, be acceptedin toto, for there are, doubtless, irreconcilable differences among them at points. But it is the belief of the writer that the great bulk of what has been done in the study of the quasi-mathematical laws of prices is of substantial worth, that a recognition of the distinction between value theory and price theory, and of the confusions that result from mixing the two, will remove many seemingly irreconcilable differences between opposing schools, and that existing price theories are less to be criticized for what they affirm than for what they ignore and deny.
Much of the significance of the theory of value for the interpretation of price theory has been indicated from time to time, in what has gone before. Prices havemeanings. They expressvalues. To understand the meanings of prices, we must know what the values mean. There is one further point in this connection which is so important that we shall give a separate chapter to it.