SOCIAL VALUE
A STUDY IN ECONOMIC THEORY CRITICAL AND CONSTRUCTIVE
BY
B. M. ANDERSON, Jr., Ph.D.
Instructor in Political Economy Columbia University
BOSTON AND NEW YORK
HOUGHTON MIFFLIN COMPANY
The Riverside Press Cambridge
1911
COPYRIGHT, 1911, BY HART, SCHAFFNER & MARX
ALL RIGHTS RESERVED
Published November 1911
TO MY FATHER
BENJAMIN M. ANDERSON
OF COLUMBIA, MISSOURI
MY FIRST TEACHER OF
POLITICAL ECONOMY
PREFACE
This series of books owes its existence to the generosity of Messrs. Hart, Schaffner, and Marx of Chicago, who have shown a special interest in directing the attention of American youth to the study of economic and commercial subjects, and in encouraging the systematic investigation of the problems which vitally affect the business world of to-day. For this purpose they have delegated to the undersigned Committee the task of selecting topics, making all announcements, and awarding prizes annually for those who wish to compete.
In the year ending June 1, 1910, the following topics were assigned:—
1. The effect of labor unions on international trade.
2. The best means of raising the wages of the unskilled.
3. A comparison between the theory and the actual practice of protectionism in the United States.
4. A scheme for an ideal monetary system for the United States.
5. The true relation of the central government to trusts.
6. How much of J. S. Mill's economic system survives?
7. A central bank as a factor in a financial crisis.
8. Any other topic which has received the approval of the Committee.
A first prize of six hundred dollars, and a second prize of four hundred dollars, were offered for the best studies presented by class A, composed chiefly of graduates of American colleges.
The present volume was awarded the second prize.
Professor J. Laurence Laughlin,
University of Chicago, Chairman.
Professor J. B. Clark,
Columbia University.
Professor Henry C. Adams,
University of Michigan.
Horace White, Esq.,
New York City.
Professor Edwin F. Gay,
Harvard University.
A NOTE
The following study is the outgrowth of investigations in the "Quantity Theory" of money, carried on in the seminar of Professor Jesse E. Pope, at the University of Missouri, during the term 1904-5. That a satisfactory general theory of value must underlie any adequate treatment of the problem of the value of money, and that there is little agreement among monetary theorists concerning the general theory of value, became very evident in the course of this investigation; and that the present writer's conception of value, as expressed in a paper written at that time on the "Quantity Theory," was not satisfactory, became painfully clear after Professor Pope's kindly but fundamental criticisms. The problem of value, laid aside for a time, forced itself upon me in the course of my teaching: my students seemed to understand the treatment of value in the text-books used quite clearly, but I could never convince myself that I understood it, and the conviction grew upon me that the value problem really remained unsolved. Hence the present book. It was begun in Dean Kinley's seminar, at the University of Illinois, in the term 1909-10. The first three parts, in substantially their present form, and an outline sketch of the germ idea of the fourth part, were submitted, in May of 1910, in the Hart, Schaffner & Marx Economic Prize Contest of that year. Part iv was elaborated in detail, and minor changes made in the first three parts, during the year 1910-11, at Columbia University. The book is submitted as a doctor's dissertation to the Faculty of Political Science of that institution.
My obligations to others in connection with this book are numerous. I cannot refrain from thanking my old teacher Professor Pope, in this connection. I owe my interest in economic theory, and the greater part of my training in economic method, to the three years I spent in his seminar at Missouri. I am also indebted to him for substantial aid in the critical revision of the proofsheets. At the University of Illinois, Dean Kinley and Professors E. L. Bogart and E. C. Hayes were of special service to me, as was also Mr. F. C. Becker, now of the department of philosophy at the University of California. Dean Kinley, in particular, criticized several successive drafts, and made numerous valuable suggestions. My chief obligations at Columbia University are to Professors Seligman, Seager, John Dewey, and Giddings. My debt to Professors Seligman and Dewey is, in part, indicated in the course of the book, so far as points of doctrine are concerned. Both have been kind enough to read and criticize the provisional draft, and Professor Seligman has supervised the revision at every stage. My wife's services, in criticism, in bibliographical work, and in the mechanical labors which writing a book involves, have been indispensable.
It is due Professor J. B. Clark, since I discuss his theories here at length, to mention the fact that, owing to his absence from Columbia University during the year 1910-11, I have been unable to talk over my criticisms with him, and so may have misinterpreted him at points. Of course, there is a similar danger with reference to every other writer mentioned in the book, but the reader will not be likely to think, in the case of others, that the interpretations have been passed on by the writers discussed, in advance of publication. I must also mention here Professor H. J. Davenport, whose name occurs frequently in the following pages. Chiefly he has evoked criticism in this discussion, but it goes without saying that his Value and Distribution is a most significant work in the history of economic theory, and my indebtedness to it will be manifest.
The Author.
Columbia University,
May, 1911.
ANALYTICAL TABLE OF CONTENTS
PART I. INTRODUCTION
CHAPTER I
PROBLEM AND PLAN OF PROCEDURE
Social Value concept recently become important, chiefly in America, and primarily through the influence of Professor J. B. Clark—Value and "social marginal utility"—Relation of social-value theory to Austrian theory: Professor Clark's view; views of Böhm-Bawerk, Wieser, and Sax—Statement of the author's position: conceptions of social utility and social cost unsatisfactory, but social value concept a necessity for the validation of economic theory—Plan of procedure: study of logical requirements of valid value concept; failure of current theory to justify such a concept; cause of this failure in faulty psychology, epistemology, and sociology presupposed by current economic theory; reconstruction of these presuppositions; on the basis of the reconstruction, a positive theory of social value [3]
PART II. CRITIQUE OF CURRENT VALUE THEORY
CHAPTER II
FORMAL AND LOGICAL ASPECTS OF THE VALUE CONCEPT
Value as ideal, and value as market fact—Value as absolute, and value as relative—Value as quantity—Relation between quantity and quality—Relative conception of value involves a vicious circle, if treated as ultimate—Every "relative value" implies two absolute values—Ratios must have quantitative terms—But physical quantities cannot serve as these terms—Value and evaluation: confusion of the two responsible, in part, for doctrine of relativity—Value in current economic usage: value and wealth; money as a "measure of values" [13]
CHAPTER III
VALUE AND MARGINAL UTILITY
Individualistic method of Jevons and the Austrians—Such a method, applied to value problem in concrete social life, yields, not quantities of value, but rather, particular ratios between such quantities—Value cannot be identified with marginal utility of a good to a marginal individual, even though we assume the commensurability and homogeneity of human emotions—Clark's Law [28]
CHAPTER IV
JEVONS, PARETO AND BÖHM-BAWERK
When individualistic methods and assumptions are pushed to the extreme, the problem of a quantitative value becomes still more hopeless—Jevons' psychological and epistemological assumptions—No objective value quantity for Jevons—The same true of Pareto—Böhm-Bawerk, trying to find law of value in law of price, reaches results no more satisfactory—Austrian analysis, even with Professor Clark's correction, is simply an explanation of the modus operandi of determining particular ratios between values in the market—It tells us nothing of value itself, and assumes a whole system of values predetermined [34]
CHAPTER V
DEMAND CURVES AND UTILITY CURVES
Constant confusion of demand curves and utility curves in current economic literature has made necessary much of the foregoing criticism—Confusions in the writings of Jevons, Böhm-Bawerk, Wieser, Pierson, Patten, Hadley, Ely, Schaeffle, Flux, Marshall, and Davenport [40]
CHAPTER VI
THE VICIOUS CIRCLE OF THE AUSTRIANS
Extreme abstractness of the Austrian theory—Abstraction legitimate and necessary, but must not be carried so far that the explanation phenomena are obliged to include the problem phenomenon—Austrians explain value in terms of value,—a vicious circle—Circle explicit in Wieser—Also explicit in Hobson's attempt to combine Austrian theory with cost theory of English School [45]
CHAPTER VII
PROFESSOR CLARK'S THEORY OF SOCIAL VALUE
All attempts to explain value in terms of the highly abstract factors of individual utility and individual cost, or any combination of them, must become similarly entangled—Austrians have shown this of English theory—Professor Clark's value theory, set forth in the Distribution of Wealth, intended to justify social value concept, really uses only these abstract individual factors, combined in arithmetical sums, and similarly falls into a circle—Differences between Professor Clark's point of view in his Philosophy of Wealth and that of his later writings—The point of view of the earlier book, supplemented by later studies in social psychology, will afford the basis for an organic conception of society, and a valid doctrine of social value [49]
PART III. THE PRESUPPOSITIONS OF ECONOMIC THEORY
CHAPTER VIII
THE PHILOSOPHICAL AND PSYCHOLOGICAL PRESUPPOSITIONS
Connection between social philosophy and metaphysics and epistemology always close—Three stages in history of philosophy: dogmatic, skeptical, critical—Ancient and modern philosophy have each gone through these three stages—Each philosophic stage characterized by distinctive social philosophy: individualism and sociological monadism go with skeptical philosophy, while organic conception of society goes with critical stage—Economics to-day based on skeptical philosophy of Hume—Doctrine of sociological monadism: Marshall, Pareto, Jevons, Veblen, Davenport—Critique of sociological monadism, from standpoint of epistemology and psychology [59]
CHAPTER IX
THE SOCIOLOGICAL PRESUPPOSITIONS
Conceptions of the social unity: mechanical, biological, psychological—DeGreef's criticism of mechanical and biological analogies—Hierarchy of sciences: Comte and Baldwin—Baldwin's psychical abstractionism—Cooley's psychological conception of the nature of society seems most useful for purposes of this study—Cooley's view—Relation between Cooley and Giddings: the Social Mind—Summary of sociological doctrine—Critique of Davenport [72]
PART IV. A POSITIVE THEORY OF SOCIAL VALUE
CHAPTER X
VALUE AS GENERIC—THE PSYCHOLOGY OF VALUE
Economic value a species, coördinate with ethical, legal, æsthetic, and other values—Psychology of value, as manifested in individual experience—Values as "tertiary qualities"—When we reflectively break up the experience, values thrown from object to subject's emotional life, but this an abstraction from concrete experience—Feeling and desire in relation to value: hedonism; Ehrenfels and Davenport; Urban and Meinong—"Presuppositions" of value—Feeling and desire both phases in value, but neither is the worth-fundamental, and each may vary in intensity without affecting amount of value—Value and reality judgment: Meinong and Tarde; Urban—On structural side, feeling, desire, and "reality feeling" are all significant phases in value—But real significance of value lies in its functional aspect: the function of value is the function of motivation—Essence of value is power in motivation—For concrete experience, this power a quality of the object—Positive and negative values—Complementary values—Rival values: two cases: qualitatively compatible, and qualitatively incompatible values—In first case, quantitative marginal compromise often possible: generalization of Austrian analysis—So-called "absolute values" ("absolute" here used as in history of ethics)—No sharp lines between different sorts of values, as ethical, economic, æsthetic—Different sorts of values do not constitute self-complete, separate systems—Generalization of notion of price—Suggestions as to analogues in the field of the social values [93]
CHAPTER XI
RECAPITULATION—THE SOCIAL VALUES—FUNCTIONS OF THE VALUE CONCEPT IN ECONOMICS
Conclusions reached both in economic analysis and in sociological analysis point to values which correspond to no individual values, great social forces of motivation—To individual, economic, legal, and moral values appear as external forces, over which his control is limited, and to which he must adapt his individual behavior—Economic theory, often unconsciously, has assumed objectively valid, quantitative value, and economic theory valid only on the basis of such a concept: value the homogeneous element among the diversities of physical forms of goods, by virtue of which ratios, sums, and percentages may be obtained among them, and comparisons made—Process of "imputation" assumes such a value concept—Value used by economists to explain motivation of economic activity—Such a value concept essential for the theory of money—Implied in the term, "purchasing power"—Such a concept has never been justified, but economists, more concerned about practical results than logical consistency, have found it essential, and used it—Impossible to develop a social quantity by synthesis of abstract individual elements—Correct procedure the reverse of this [115]
CHAPTER XII
SOCIAL VALUE: THE THEORIES OF URBAN AND TARDE
Neither Urban nor Tarde primarily concerned with economic value—Urban's important contributions—Insists on conscious feeling as essential for social value—But feeling may vary in intensity without affecting the power in motivation of the value—Feeling significant when values are to be compared—Social weight of those who feel a value a highly significant phase which Urban ignores—Tarde recognizes this phase, but errs in treating it as an abstract element, which obeys the laws of simple arithmetic [124]
CHAPTER XIII
ECONOMIC SOCIAL VALUE
How get out of Austrian circle?—Temporal regressus vs. logical analysis of the concrete whole of the Social Mind—Even in Wieser's "natural" community, psychic elements other than "marginal utility" significant for the determination of economic values, especially legal and moral values concerned with distribution—Quotation from Mill—Critique of "pure economic" theories of distribution—They presuppose as a "framework" a set of legal and moral values which, in modern times, especially, are little more stable than "pure economic" forces, and which, in any case, are of same nature as economic forces,—fluid, psychic forces—"Pure economic" forces, working in vacuo, would lead to anarchy; any concrete economic tendency depends on legal and moral forces quite as much as on "pure economic" forces—Illustrations [132]
CHAPTER XIV
ECONOMIC SOCIAL VALUE (continued)
Abstract elements of the Austrian and English schools, individual "utilities" and "costs," have their place in the concrete whole of social intermental life—Social causes largely determine them—But this not enough for a theory of social value—Intensity of a man's feelings or desires has no relation whatever to value in market till we know social rankings of men—Conflicts of values concerned with these social rankings—Prices express results of court decisions as well as results of changing individual desires for economic goods—We break the circle by turning to the concrete whole of social-mental life—Economics has failed to profit by example of other social sciences here—No social science can explain its phenomena by reference to one or two abstract factors [148]
CHAPTER XV
SOME MECHANICAL ANALOGIES
Mechanical analogies of limited use in revealing full complexity of social control, but of use for certain purposes—Our argument can be put, in part, in terms of mechanical analogies—Transformations of social forces—Illustrations—Marginal equilibria among social forces—Illustrations—Social forces of control take different forms under different conditions—Mechanical analogies useful enough for economic price-analysis—Our thesis involves no radical revision of economic methodology—It is rather concerned with interpretation and validation of economic methodology [156]
CHAPTER XVI
PROFESSOR SELIGMAN'S PSYCHOLOGICAL DOCTRINE OF THE RELATIVITY OF VALUES
Professor Seligman's contributions to value theory—Points of difference between his views and those here maintained—His psychological doctrine of relativity—Different from doctrine of English School, which is a matter of logical definition—Values relative because there is fixed sum of values, and increase in one value can come only through decrease in other values—Criticism: psychological difficulties; diminution of all values in times of panics and epidemics; decrease of economic values through increase of religious and other values—Element of truth in Professor Seligman's doctrine—Relation between Professor Seligman's view and that of Professor Clark [162]
CHAPTER XVII
THE THEORY OF VALUE AND THE THEORY OF PRICES
Price and Preis—Price broadened to include all relations between values, whether money be involved or not—History of price-concept in English economics—Distinction between prices and values—Generalization of notion of price—Measurement of beliefs, etc., in terms of money—"Qualitative analysis" and "quantitative analysis"—Great bulk of economic theory, and virtually all that is valid and valuable in economic theory, has so far been in theory of prices, and not in theory of value—Methods of price analysis—Abstract units of value—Price theory and practical problems [175]
CHAPTER XVIII
THE THEORY OF VALUE AND THE THEORY OF PRICES (concluded)
Great work of Austrians really done in field of price theory—They have, without logical right, but with excellent results, assumed and used a quantitative, objective value concept—Distribution in relation to theory of value and theory of prices—Mill's treatment primarily from standpoint of fundamental value theory; later theories, as a rule, chiefly concerned with more superficial, but also more exact, price analysis of distributive problems—Theory of value not a substitute for detailed price analysis, but, rather, a presupposition of it—Prices have meanings, which only theory of value can explain [188]
CHAPTER XIX
THE THEORY OF VALUE AND THE SOCIAL OUTLOOK—SUMMARY
Belief that social optimism and social pessimism are connected with theory of value—Views of Fetter, Schumpeter, Wieser, and Davenport—No such implications, either optimistic or pessimistic, in theory here maintained—Theory of value does not contain justification of existing social order—Summary of main argument of book [194]
INDEX OF NAMES [201]
PART I
INTRODUCTION
SOCIAL VALUE
CHAPTER I
PROBLEM AND PLAN OF PROCEDURE
Recent economic literature has had much to say about "social value." The conception, while not entirely new,[1] has become important only of late years, chiefly through the influence of Professor J. B. Clark, who first set it forth in his article in The New Englander in 1881 (since reproduced as the chapter on the theory of value in his Philosophy of Wealth). The conception has been found attractive by many other American writers, however, and has become familiar in many text-books, and in periodical literature. Among those who have used the conception may be named: Professors Seligman, Bullock, Kinley, Merriam, Ross, and C. A. Tuttle.[2] Gabriel Tarde, the brilliant French sociologist, has independently developed a social value doctrine, different in many respects from that of the Americans named, which we shall later have occasion to consider.[3]
In its most definite form, the theory asserts that the value of an economic good is determined by, and precisely accords with, the marginal utility of the good to society, considered as a unitary organism. Professor Clark, as is well known, makes use of the analysis of diminishing utility in an individual's consumption of goods in much the same fashion that Jevons does, but while Jevons makes this simply a step in the analysis of market ratios of exchanges, Professor Clark treats it as analogical, representing in parvo what society does, as an organic whole, on a bigger scale.[4]
The precise relation of social value to social marginal utility is variously stated by the writers named: for Professor Clark, value is the measure of effective, or marginal, utility;[5] for Professor Seligman, social value is the expression of social marginal utility;[6] for Professors Ross, Merriam, and Kinley, value is that social marginal utility itself.[7] These statements are more different in words than in ideas, though some significance is to be attached to Professor Seligman's formulation, as will later appear.
This conception is a bold one. It has, moreover, never been adequately developed or criticized. Its friends have found it a convenient and useful working hypothesis, and Professor Clark, especially, has built a great system upon it, but, with the exception of an article in the Yale Review of 1892,[8] has made no serious efforts, either to make clear its full meaning, or to vindicate it—except that, of course, his whole system may be considered such a vindication. Professor Seligman, in an article in the Quarterly Journal of Economics, vol. xv, and also in his Principles of Economics, has espoused the conception, and has shown how, assuming its truth, a great many antagonistic theories may be harmonized; but he, also, has failed to treat it with that detail which full demonstration requires. In particular, he has omitted a treatment of the problem of the relation between the value of a good for the individual and for society, and the relation between individual and social marginal utility.[9] The most searching investigation of the theory has come from unfriendly critics, among whom may be especially named Professor H. J. Davenport, and Professor J. Schumpeter of Vienna.[10]
For the purposes of this discussion, Professor Clark will be considered as the representative of the Social Value School, for the most part, though attention will be given to some of the other writers named as well. It is worth while, consequently, to make clear at this point the relation between Professor Clark and the Austrian School, with which he is sometimes associated by economic writers. His extensive use of the marginal principle, his use of the term, "utility," and his deduction of value from utility, seem to place him at one with them. Professor Clark has pointed out, however, in the preface to the second edition of his Philosophy of Wealth, that his theory is to be distinguished from that of Jevons by "the analysis of the part played by society as an organic whole in the valuing processes of the market." And the Austrians, for their part, have rejected the conception that value and social marginal utility coincide, or that society, as an organic whole, puts a value on goods. Thus, Böhm-Bawerk:—
Man pflegt den objektiven Tauschwert im Gegensatz zu dem auf individuellen Schätzungen beruhenden subjektiven Wert häufig auch als den volkswirtschaftlichen Wert der Güter zu bezeichnen. Ich halte diesen Gebrauch für nicht empfehlenswert. Zwar wenn man durch ihn nichts anders hervorheben wollte, als dass diese Gestalt des Wertes nur in der Gesellschaft und durch die Gesellschaft hervortreten könne, dass er also das volks- und sozialwirtschaftliche Wertphänomen per eminentiam sei, so wäre dagegen nichts zu erinnern. Gewöhnlich mischt sich aber mit jener Benennung auch die Vorstellung, dass der Tauschwert der Wert sei, den ein Gut für die Volkswirtschaft habe. Man deutet ihn als ein über den subjektiven Urteilen der einzelnen stehendes Urteil der Gesellschaft, welche Bedeutung ein Gut für sie im ganzen habe; gewissermassen als Werturteil einer objektiven höheren Instanz. Dies ist irreführend.[11]
Equally emphatic is Wieser:—
The ordinary conception, which makes price the social estimate put upon goods, has to the superficial judgment the attraction of simplicity. A good A whose market price is £100 is not only ten times as dear as B whose market price is £10, but it is also absolutely and for every one ten times as valuable. In our conception the matter is much more complicated.... Price alone forms no basis whatever for an estimate of the economic importance of the goods. We must go further and find out their relation to wants. But this relation to wants can only be realised and measured individually.... And the question how it is possible to unite those divergent individual valuations into one social valuation, is one that cannot be answered quite so easily as those imagine who are rash enough to conclude that price represents the social estimate of value.[12]
Sax, likewise, expresses his dissent:—
Da für die exacte Forschung die Psyche einer fabelhaften Collectiv-Personlichkeit nicht existirt, so kann der Ausgangspunkt unserer Untersuchung auch wieder nur der Individualwerth sein.[13]
Whatever the worth of the conception of social value, it is not the same as the Austrian theory. It is proper to remark here that these strictures of the Austrian writers are probably directed, not against Professor Clark, but rather against the social use-value concept as it had appeared in Germany, in the writings, say, of Rodbertus, and of Adolph Wagner, who accepts Rodbertus' notion.[14]
It may be well, at the outset, for the writer to define his own position briefly. We shall find the notion of social marginal utility, and the companion notion of social marginal cost (considering the latter as a "real cost," or pain-abstinence cost, concept), unsatisfactory and unilluminating. Social marginal utility, as a determinant of value, cannot be the marginal utility of a good to some particular individual who stands out as the marginal individual in society, nor can it be an average of individual marginal utilities, nor a sum of individual marginal utilities, nor any other possible arithmetical combination of individual marginal utilities, if our conclusions are true. For the term, social marginal utility, we can find only a vague, analogical meaning, if any at all, unless we identify it outright with social value, in which case it is a superfluous term, which itself not only explains nothing, but rather presents complications which call for explanation. We shall find no use for the social utility concept in our analysis. On the other hand, we shall find the conception of social value a necessity for the validation of economic analysis, and a conception which present-day psychological and sociological theory abundantly warrant us in accepting.
I do not desire, at the outset of a comparatively short book, to anticipate my arguments in detail, but a statement of the plan of procedure may aid the exposition somewhat. I shall first, through an examination of the logical necessities of economic theory, and of the function of the value concept in economics, set up certain logical and formal qualifications for an adequate value concept. Then I shall examine the efforts made by current theories of value to attain such a value concept, by means of the elements of individual utilities, individual costs, or combinations of the two, and show that such procedure gets into invincible logical difficulties. We shall find the source of these difficulties in the faulty epistemology, psychology, and sociology which constitute the avowed or implicit presuppositions of the economic theory of to-day. Criticizing these faulty presuppositions, we shall endeavor to reconstruct them in the light of later epistemological, psychological, and sociological doctrine, and then, on the basis of the new presuppositions, we shall endeavor to develop a truly organic doctrine of social value, and to link it with what seems valuable—that is to say, the greater part—in the economic theory of to-day.
FOOTNOTES:
[1] The value concept of Marx is not, strictly speaking, a social value concept. Cf. Pareto, V., Cours d'Économie Politique, vol. I, p. 32. Rodbertus, however, has a doctrine of social use value, based on the organic conception of society. "Nemlich so: es gibt nur Eine Art Werth und das ist der Gebrauchswerth.... Aber dieser Eine Gebrauchswerth ist entweder individueller Gebrauchswerth oder socialer Gebrauchswerth.... Der zweite ist der Gebrauchswerth, den ein aus vielen individuellen Organismen bestehender socialer Organismus hat.... Damit glaube ich also bewiesen zu haben, dass der Tauschwerth nur der historische Um- und Anhang des socialen Gebrauchswerths aus einer bestimmten Geschichtsperiode ist. Indem man also dem Gebrauchswerth einen Tauschwerth als logischen Gegensatz gegenüber stellt, stellt man zu einem logischen Begriff einen historischen Begriff in logischem Gegensatz, was logisch nicht angeht." From a letter to Adolph Wagner, published by Wagner in the Zeitschrift für die Gesammte Staatswissenschaft, 1878, pp. 223-24. Wagner indicates his approval of this concept, though he makes little use of it, in his Grundlegung der politischen Oekonomie, Leipzig, 1892, pp. 329-30. Ingram, in his History of Political Economy (New York, 1888), although he takes no account of social value theories of other writers, suggests one of his own—which is, however, a vague one, mixing technological, ethical, and economic categories. See p. 241.
[2] Seligman, E. R. A., Principles of Economics, New York, 1905, especially pp. 179-82 and 192-93. Bullock, C. J., Introduction to the Study of Economics, especially pp. 162-64. There is no attempt at a psychological treatment in this work, and no clear statement of the meaning of the concept, social. Kinley, David, Money, New York, 1904, pp. 125-26. The social value conception runs through the book. Merriam, L. S., "The Theory of Final Utility in its Relation to Money and the Standard of Deferred Payments," Annals of the American Academy, vol. III; "Money as a Measure of Value," ibid., vol. IV; an unfinished study in the same volume, pp. 969-72, described by Professor J. B. Clark. Ross, E. A., "The Standard of Deferred Payments," ibid., vol. III; "The Total Utility Standard of Deferred Payments," ibid., vol. IV. These articles by Professors Ross and Merriam were written in the course of an interesting controversy between the gentlemen named, Tuttle, C. A., "The Wealth Concept," ibid., vol. I; "The Fundamental Economic Principle," Quarterly Journal of Economics, 1901.
[3] See chapter XII.
[4] See especially Professor Clark's Essentials of Economic Theory, New York, 1907, pp. 41-42.
[5] See especially The Philosophy of Wealth, 1892 ed., pp. 73-74.
[6] Principles, pp. 179-82.
[7] The general references for Ross and Merriam have been given supra. Cf. p. 62 of Dean Kinley's Money.
[8] "Ultimate Standard of Value." This article is substantially the same as chap, xxiv of The Distribution of Wealth, New York, 1899.
[9] In his discussion of social value in the Principles, Professor Seligman modifies a statement made in his article, "Social Elements in the Theory of Value" (Quarterly Journal of Economics, vol. xv). The two discussions are parallel in part, the former being based upon the latter. The passage quoted is from the Q. J. E. article, pp. 323-24. The same passage is essentially reproduced in the Principles (first edition, p. 180), with the exception of the passages in italics: "I not only measure the relative satisfaction that I can get from apples or nuts, but the quantity of apples I can get for the nuts depends upon the relative estimate put upon them by the rest of society. Some individuals may prize a commodity a little more, some a little less; but its real value is the average estimate, the estimate of what society thinks it is worth. If an apple is worth twice as much as a nut, it is only because the community, after comparing and averaging individual preferences," etc. The conception of social value as an average of individual values is withdrawn in the second treatment, and no substitute is offered for it.
[10] Davenport, "Seligman, 'Social Value,'" Journal of Pol. Econ., 1906; Value and Distribution, Chicago, 1908. This last work reproduces, in abridged form, the article on Professor Seligman, in a footnote, pp. 444 et seq. Schumpeter, "On the Concept of Social Value," Q. J. E., Feb., 1909; "Die neuere Wirtschaftslehre in den Vereinigten Staaten," Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtechaft im Deutschen Reich, 1910, pp. 913 et seq. In the last-named article (p. 925, n.) Professor Schumpeter indicates that his objection to the social value concept relates not so much to the question of fact as to the question of method. The English article in the Quarterly Journal contains Schumpeter's fullest treatment of the topic.
[11] Böhm-Bawerk, "Grundzüge der Theorie des wirtschaftlichen Güterwerts," Conrad's Jahrbücher, N. F., Bd. xiii, 1886, p. 478.
[12] Natural Value, p. 52, n.
[13] Sax, Emil, Grundlegung Der Theoretischen Staatswirtschaft, Vienna, 1887, p. 249.
[14] See supra, p. 3, note 1.
PART II
CRITIQUE OF CURRENT VALUE THEORY
CHAPTER II
FORMAL AND LOGICAL ASPECTS OF THE VALUE CONCEPT
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 utility is 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. A ratio of exchange, then, is a ratio between two quantities of social marginal utility, or social value, rather than between two physical objects, and price, 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 the justum pretium belongs 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 only measured by the process of exchanging, but also 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 the Quarterly Journal of Economics,[22] insists on the conception of value as a quantity. Gabriel Tarde states the matter illuminatingly in a passage in his Psychologie 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 common in the text-books, that, while there can be a general rise or fall of prices, there cannot be a general rise or fall of values, 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 there can be 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.
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 object to 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] But even 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 4:1 is the market ratio. Now a quantitative ratio is between commensurable quantities. Gold and milk must be, then, commensurable quantities, i.e. must have a common quality, present in each in definite quantitative degree, before comparison is possible, or a ratio can emerge. This quality is value. 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 the goods. 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 implies things related, ratios must have quantitative terms, additions require homogeneous quantities 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 less relations. 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 changed eo ipso every 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 quantitatively known, as a rule. That is to say, we find out precisely how much value 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 good causally determined 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 must distinguish, in Kantian phrase, between the "ratio essendi" and the "ratio cognoscendi." Value and evaluation are 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 to giving value, but to finding out how 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 and value 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's Dictionary 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 his Grundriss, etc., 4te Aufl, Bd. i, pp. 17-18. Professor O. D. Skelton's admirable Socialism (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 made infra, 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 his Distribution of Wealth, 1904, pp. 51-52, where the relativity of 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. 13 et 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 and ante); 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 measures marginal utility. Cf. the confusions of utility and demand pointed out infra, 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 the Q. J. E. article (supra, p. 6, note i) 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 the American 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 structure sui 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 on equality in 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 the unsatisfied want. Cf. Pareto, Cours d'Économie Politique, vol. i, p. 34.
See further, on the psychology of value, chapter x, and on Professor Seligman's theory of the relativity of value, chapter xvi, 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. See Value 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 a productive process. But the essential thing here is the transfer aspect 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. 83 et seq.
[36] A fuller discussion of the functions of the value concept is given in chapter xi where 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.
CHAPTER III
VALUE AND MARGINAL UTILITY
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, quantitatively related 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 of units of 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 E
Sellers will take: $20 $30 $40 $50 $60
Buyers will give: $60 $50 $40 $30 $20
Price is 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 particular price is, and the utility theorists, when very careful, do not always claim to do more than that.[47] But price is not value.
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 theory which 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 the additional service of speed and exhilaration he is the 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 the total utility 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, to society, 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 and value has become very uncertain indeed.
FOOTNOTES:
[45] This statement must be qualified, as subsequently appears. Even in Wieser's "natural" community, there are psychic factors in value other than mere utility. See chap. xiii, infra.
[46] For further discussion of this doctrine, see chapters iv and viii of this book. Böhm-Bawerk, Positive Theory, p. 149, n., says: "One gives donations, charities, and the like, when the importance of such, measured by their marginal utility, is very much higher as regards the well-being Footnote: of the receiver than as regards that of the giver, and almost never when the converse is the case." The assumption that emotional states in different minds can be compared is very clear in this passage. Cf. Veblen, Thorstein, "Professor Clark's Economics," Q. J. E., Feb., 1908, p. 170, n.: "Among modern economic hedonists, including Mr. Clark, there stands over from the better days of the order of nature a presumption, disavowed, but often decisive, that the sensational response to the like mechanical impact of the stimulating body is the same in different individuals. But, while this presumption stands ever in the background, and helps to many important conclusions,... few modern hedonists would question the statement in the text" [i.e., that comparison of emotional intensity in one man's mind with emotional intensity in another man's mind is impossible]. In the light of the psychological doctrine which I shall maintain in the chapter on the psychology of value, this whole question will seem beside the point, considered as a psychological question. But my interest here is in making clear the psychological implications of the Austrian theory, as I wish for the present to consider their theory on their own ground.
[47] Böhm-Bawerk and Wieser are certainly seeking an objective value, but Jevons and Pareto are concerned simply with the ratio. See Wieser, Natural Val., p. 53, n. Jevons, Pareto, and Böhm-Bawerk are discussed, with reference to this point, in chap. iv.
[48] This law is first set forth by Professor Clark in an article in the Q. J. E., vol. viii, "A Universal Law of Economic Variation." See also, The Distribution of Wealth, pp. 210-45. A brief exposition of the doctrine is found in Seligman, Principles, 1905, pp. 185-88.
CHAPTER IV
JEVONS, PARETO AND BÖHM-BAWERK
In the foregoing analysis, the assumption of the homogeneity and communicability of human wants was made. Only on this assumption could value as a quantity of utility appear even in Wieser's "natural" community. How hopeless the case becomes when individualistic methods and assumptions are pushed to the extreme, will appear from a consideration of Jevons and Pareto, both of whom insist on the entirely subjective and incommunicable nature of human wants. Thus, Jevons:[49]—
I see no means by which such a comparison [between the motives of one man and those of another] can be accomplished. The susceptibility of one mind may, for what we know, be a thousand times greater than that of another. But, provided that the susceptibility was different in a like ratio in all directions, we should never be able to discover the difference. Every mind is thus inscrutable to every other mind, and no common denominator of feelings seems to be possible.... But the motive in one mind is weighed only against other motives in the same mind, never against the motives in other minds. Each person is to other persons a portion of the outside world—the non-ego as the metaphysicians call it. Thus the motives in the mind of A may give rise to phenomena which may be represented by motives in the mind of B; but between A and B there is a gulf. Hence the weighing of motives must always be confined to the bosom of the individual.
This question as to the homogeneity and communicability of emotional states in different men is one fundamental to any value theory which starts with individual feelings or desires as elements—and, indeed, from a somewhat different viewpoint, is fundamental to all value theory. Value, as a concrete quantity of desire or feeling, embodied in a given good at a given time, regardless of who is purchaser and who is seller, can exist only if feelings and desires are homogeneous and can interact—even in Wieser's ideal society, where the complication of differences in wealth does not obtain. And value must have some very different meaning unless this assumption be held. In illustration of this, I wish to quote further from Jevons. Jevons finds for value[50] three distinct meanings, for each of which he employs both a "popular" and a "scientific" name: (1) value in use ("popular" name) = total utility ("scientific" name); (2) esteem, or urgency of desire ("popular" name) = final degree of utility ("scientific" name); (3) purchasing power ("popular" name) = ratio of exchange ("scientific" name). Now the first two of these are purely subjective, individual facts, varying as to their quantities for each individual. The only one that can have social meaning is the third, and that, as Jevons explicitly states, is a numerical ratio, an abstract number.[51] This is brought out very clearly when he discusses the question of the concrete dimensions of these three quantities. Total utility has dimensions, and so has final utility, but ratio of exchange, which he considers the precise scientific equivalent for the popular term, purchasing power, has no dimension at all. Its dimension is zero. Finding these ambiguities in the word value, Jevons proposes to abandon it altogether, and to use instead either of the three expressions discussed, depending on which sense of the word value is intended.[52] He can find no definite meaning for value as an unqualified term. Now in this I believe he is correct. Economic value is not total utility to an individual, nor marginal utility to an individual, nor is it a mere ratio of exchange. If no other meaning of the term can be found—and no other meaning can be found on Jevons's psychological assumptions—then the term should be abandoned altogether.
Pareto's position[53] is essentially similar. "Ophelimity" (which he uses in place of the more ambiguous "utility" to mean what Jevons means by the latter term) "is an entirely subjective quality." (4.) "On ne doit pas oublier que le vigneron établit l'égalité des deux ophélimités pour lui, et que le laboureur fait de même, mais qu'il n'y a aucun rapport entre l'ophélimité du vin pour le vigneron et pour le laboureur, ni entre l'ophélimité du blé pour le vigneron et pour le laboureur. Il faut toujours se rapeller ce caractère subjectif de l'ophélimité." (21.) Now no quantity of value, irrespective of the particular holder of the good, emerges for Pareto. Value is either a "rapport de convenance" between a man and a good, i.e., ophelimity, or is a "taux d'échange," a ratio between two goods. (30.) The older term, "puissance d'achat," power in exchange, which John Stuart Mill makes synonymous with value in exchange, is, at bottom, nothing but a vague conception of ophelimity. (30.) The two conceptions, ratio of exchange and ophelimity, are to be sharply distinguished, power in exchange is ruled out as a vague and confused conception, and value as an objective quantity does not appear at all.
Davenport, who recognizes clearly "the rich-man-poor-man complication,"[54] and avoids, for the most part, the confusion into which others have fallen, of mixing a demand-price curve and a utility curve (a confusion dealt with in detail in the next chapter), and who accepts the psychological assumption of subjective isolation unreservedly,[55] reaches, as already indicated, the same conclusion regarding the nature of value. For him there is no social validity in value except as a ratio of exchange.[56]
The same may be said for Böhm-Bawerk, so far as his formal analysis goes. It is true that he recognizes the existence of an "objective value in exchange"[57] in addition to "subjective value" and "subjective value in exchange," and in addition to price,[58] but he makes no effort to exhibit its nature, or to show its origin. His study has to do with individual subjective ratios, between the marginal utilities of two goods, and the market ratio, or price, that results from the meeting of these individual ratios—not utilities—in the market. The nature of his objective exchange value is expected to become clear, somehow, from this surface determination of price:—
Exchange Value is the capacity of a good to obtain in exchange a quantity of other goods. Price is that other quantity of goods. But the laws of these two coincide. So far as the law of price explains that a good actually obtains such and such a price, and why it obtains it, it affords at the same time the explanation that the good is capable, and why it is capable, of obtaining a definite price. The law of Price, in fact, contains the law of Exchange Value.[59]
But (as will be elaborated more fully in chapter vi), Böhm-Bawerk's law of price does not explain the why any more than do those of Jevons and Pareto, and the assumption that an "objective value in exchange" exists, in addition to the ratio of exchange and the subjective values, might just as logically be added to their systems as to his, with the assumption that the problem of its nature and causes had been cleared up. The Austrian analysis, even with Professor Clark's correction, is simply an explanation of the modus operandi of the determination of particular ratios in the market. It tells us nothing of quantitative values, and, in fact, assumes a whole system of values already predetermined, before the question of any particular price can be approached.[60]
FOOTNOTES:
[49] Theory of Political Economy, 3d edition, p. 14.
[50] Op. cit., pp. 76-84.
[51] Ibid., p. 83.
[52] Op. cit., p. 81.
[53] Cours d'Économie Politique, vol. i, pp. 1-40. The numerals in the text refer to pages in this volume.
[54] Value and Distribution, p. 444.
[55] Professor Davenport's attitude on this point we shall discuss more fully in chapter viii.
[56] Ibid., pp. 184, n., and 330-31.
[57] It is not wholly clear whether or not Böhm-Bawerk means his "objective value in exchange" to be considered as an absolute or as a relative concept. His formal definition ("Grundzüge der Theorie des wirtschaft lichen Güterwerts," Conrad's Jahrbücher, N. F., xiii, 1886, p. 5) is as follows: "Hierunter ist zu verstehen die objective Geltung der Güter im Tausch, oder mit anderen Worten, die Möglichkeit für sie im Austausch eine Quantität anderer wirtschaftlicher Güter zu erlangen, diese Möglichkeit als eine Kraft oder Eigenschaft der ersteren Güter gedacht." The concluding phrase would seem to point to an absolute conception, as would also his criticism of the expressions, "ratio of exchange," "Austauschverhältnis," and "Tauschfuss" (Ibid., p. 478, n.): "Diese Ausdrücke haben nämlich eine Nüance an sich, die es unmöglich macht, sie sprachlich den Gütern als Eigenschaft beizulegen, oder von einer grösseren oder geringeren Höhe derselben zu sprechen." But, on the other hand, his identification of the concept, "objective value in exchange," with the term "power in exchange" of the English economists (in both the passages referred to) would seem to make the relative implication in the concept unavoidable, and perhaps there is no point to raising the question. His criticism of Hermann in the Capital and Interest (p. 203) is based on the relative conception of value. Cf. our discussion of the practical usage of the Austrians in chapters xi and xviii.
[58] Whether price be defined as a quantity of goods given for a good, or as the ratio between the two quantities of goods exchanged, is for present purposes immaterial.
[59] Positive Theory, p. 132.
[60] See chapter vi, infra.
CHAPTER V
DEMAND CURVES AND UTILITY CURVES
Much of the foregoing would be needless were it not for the fact that there has been, and is, in the writings of the Austrians and those who have followed them, a confusion of two very different things: on the one hand, the curve of utility for a single individual of a given good, measured in terms of money, on the assumption that the marginal utility of money remains constant to him; and, on the other hand, the demand-price curve of that commodity for a whole community or a "trading body,"[61] made up of many individuals, differing in wealth and in tastes.[62] The former curve does express a diminishing scale of absolute feeling-magnitudes,[63] concerned with the consumption of the good. The latter does not. The latter is not necessarily a diminishing utility curve at all, for the poor man whose price offer is lowest may easily desire the good more intensely than does the rich man whose demand price is highest. These confusions, in the writings of Böhm-Bawerk and Wieser, especially, have been adequately commented on by Professor Davenport,[64] who adheres pretty carefully throughout to the distinction drawn above, and to the strictly individualistic, subjectivistic conception of price determination, with its correlate of relativity. Jevons's confusion on this point has been noted by Marshall.[65] It is amazing, really, when one sets about to find them, how numerous are the occasions on which leading economists have been guilty of this confusion—a confusion that utterly vitiates very many of the conclusions based upon it. In truth, Professor Davenport is not far wrong when he asserts that "the general understanding of Austrian theory has come to be that it explains market value by marginal utility, and resolves market value into marginal utility."[66]
To go through the roll of the economists in pointing out this confusion is a needless task here, but a few representative names must be called, in addition to those mentioned above. Thus, Pierson:[67]—
There is nothing to prevent our treating a group of persons as a unit, and examining the position which commodities occupy in relation to that unit. If we do this, we shall see that the above diagram [the regular diminishing utility diagram of Jevons], depicting the position which they occupy in many cases in relation to the individual, must depict the position which they occupy in a still larger number of cases in relation to the group. And the truth of this statement is greater in proportion to the size of the group.
Similar confusions appear in Professor Patten's Theory of Prosperity, in a number of places.[68] President Hadley's discussion of "Speculation" falls into this confusion, also.[69] Professor Ely's confusion on this point is instanced in his Outlines of Economics, 1908 edition, pp. 358-59.[70] Schaeffle, in his Quintessence of Socialism,[71] treats utility as if it were demand. With Professor Flux it seems more a deliberate identification than an unconscious confusion, as he recognizes very clearly the complication which differences in wealth bring in, and yet none the less declares, "The measure of the exchange value is, then, the utility which is on the margin of not being realized, or the marginal utility," and "The series of marginal-demand-prices, corresponding to all the varied possible scales of supply, register, in fact, the utility of the marginal supply for each such scale."[72] It is somewhat disheartening, however, to find Professor Marshall, who has pointed out the confusion on the part of Jevons, allowing his marginal notes to speak of "utility and cost" when the body of the text, to which they refer, is discussing demand and supply.[73] And still more disheartening to find Professor Davenport, at the end of his cautiously written volume, marked throughout by the greatest clearness of thought, and by especially painstaking care in the criticism of this confusion in the writings of others, saying:—
Limitation upon the supply of goods relatively to the need gives value. Thus value in producible goods is ultimately explained by human desires over against a limitation of supply due either to the shortage of instrumental goods or to the irksomeness of effort, or to both.
With great esteem for good singing, and with the rarity of good singers, the high gains of prima donnas find sufficient explanation.
This, as a separate, unqualified proposition in the "Summary of Doctrine,"[74] is hardly to be counted anything but a lapsus, even though recognition is later accorded to the necessity of backing up "utility" with "purchasing power."
But it cannot be too strongly insisted, in the first place, that only particular ratios, market relations, can come out of the individualistic analysis of satisfactions of consumption and dissatisfactions of production, and that, in the second place, these ratios, and this relativity, are but surface explanations, that point to, and are based upon, something underlying and definite—without which they would be hanging in the air.[75]
FOOTNOTES:
[61] See Jevons, Theory of Pol. Econ., 3d ed., pp. 88-90; 95-96.
[62] See, especially, Pareto, op. cit., vol. i, pp. 36-37.
[63] Our question here is primarily a logical, and not a psychological, one, else I should choose a different term from "feeling-magnitude." For the present, I am accepting the Austrian psychology, and attacking the Austrian logic. Cf. the chapter in this work on the psychology of value.
[64] Op. cit., pp. 300, 312, 313 et seq., 320, 325, n., 327, 328 n., 329, and chap. xvii.
[65] Principles, 1898 ed., p. 176.
[66] Op. cit., p. 300.
[67] Principles of Economics, London, 1902, p. 57.
[68] Page 18, "The consumption of all the individuals in a community or nation can also be represented by this diagram if their feelings, sentiments, and habits are nearly enough alike to create a normal type."—A statement which is defensible only if "habits" be stretched to include incomes! See, also, pp. 28 (diagram) and 82.
[69] Economics, 1904 ed., pp. 101-104.
[70] See supra, p. 17, n.
[71] English edition, London, 1889, pp. 90-91
[72] Flux, A. W., Economic Principles, London, 1904. Compare pp. 4, 29, and 27.
[73] Principles, 1907 ed., pp. 348-50.
[74] Op. cit., p. 569.
[75] As shown in chapter ii. An interesting illustration of this general conclusion as to the significance of the results based on the individualistic analysis is found in the reformulation of the law of marginal utility by Professor Irving Fisher in his "Mathematical Investigations in the Theory of Value and Prices," Trans. of the Connecticut Academy of Arts and Sciences, vol. ix, p. 37. The theory of marginal utility in relation to prices "is not, as sometimes stated: 'the marginal utilities to the same individual of all articles are equal,' much less is it: 'the marginal utilities of the same article to all consumers are equal;' but the marginal utilities of all articles CONSUMED [capitals mine] by a given individual are proportional to the marginal utilities of the same series of articles for each other consumer, and this uniform continuous ratio is the scale of prices for those articles." This conception of Professor Fisher's is clear as far as it goes, but it by no means explains the action of individual desires upon prices. It rather explains how an already established set of prices controls individual expenditure and consumption. Compare, however, Böhm-Bawerk's view, "Grundzüge," Conrad's Jahrbücher, N. F., xiii, 1886, pp. 516 et seq.
CHAPTER VI
THE VICIOUS CIRCLE OF THE AUSTRIANS
The great and permanent service of the Austrian analysis is in the fact that it looks for the explanation of value—a psychical fact—in human minds. Its essential defect is that it takes only a small part of the human mind for that explanation. It makes two abstractions, neither of which is allowable: first, it abstracts the "individual mind" from its vital and organic union with the social milieu; and second, it abstracts from the "individual mind" thus abstracted, only those desires and thoughts which are immediately concerned with the consumption and production of economic goods—really, in the narrower analysis of "market price," only those concerned with the consumption of economic goods. Now it is at once conceded that a science, in explaining its phenomena, must ignore some of the relations which those phenomena bear to other phenomena. No science is called upon to link its facts with all the other facts in the universe. Some abstraction,[76] much abstraction, is legitimate and necessary. Where to draw the line is often a perplexing question, and I do not intend to lay down a general rule here. But there is one familiar canon which the Austrians have violated in drawing the line so narrowly as they have done: we must include enough in our explanation phenomena to enable us to explain our problem phenomenon in terms other than itself. Concretely, in explaining value, we have not solved the problem if the explanation assumes value. Rather, we are reasoning in a circle. Now have the Austrians done this? Wieser explicitly rejects the older circle in the definition of value,[77] which made the value of A equal to what it would exchange for, B, the value of B being in turn equal to what it would exchange for, namely, A, and does point out that the value of a good must be treated as an absolute thing, independent of the particular exchange that happens to be made. He even works out an explanation of value in purely psychical terms,[78] as it would exist in a hypothetical individual economy, or in a hypothetical "natural" communistic society, where all men's wants are equally regarded. But when the Austrians come to the explanation of value as it exists in society as actually organized, the attempt to explain value in terms of individual desires for economic goods (or individual aversions in connection with their production) fails, and a circle again emerges: Why has the good, A, value? Because men desire it? No, that is not enough: the men who desire it must have other economic goods, i.e., wealth, with which to buy it. And why will these other goods buy it? Because they have value! For the power is proportioned, not to the quantity of their wealth in pounds or yards or other physical units, but simply to its amount in value.—The explanation of the value of these goods then becomes another problem, for which the Austrian analysis can offer only the same solution, with the same circle in reasoning, and the same problem of value at the end. This circle is made explicit in Wieser's treatment:—
The relation of natural value to exchange value is clear. Natural value is one element in the formation of exchange value. It does not, however, enter simply and thoroughly into exchange value. On the one side, it is disturbed by human imperfection, by error, fraud, force, chance; and on the other, by the present order of society, by the existence of private property, and by the differences between rich and poor,—as a consequence of which latter a second element mingles itself in the formation of exchange value, namely, purchasing power.[79] [Italics mine.]
This purchasing power can only be either the inaccurate name of the English School for value itself, or else a consequence of the possession of goods which have value in the sense in which Wieser uses the term value, in the note on page 53 of his Natural Value already quoted.[80] The circle becomes still more explicit in Hobson.[81] Hobson attempts to coördinate the Austrian theory with the older cost theory, and in this connection gives a table analyzing the forces that lie back of value, or "importance," from the supply side, and from the demand side. And there, apparently oblivious of the obvious circle, he places "purchasing power" as one of the ultimate factors on the demand side! If the Austrian analysis attempt nothing more than the determination of particular prices, one at a time, on the assumption that the transactions are, in each particular case, so small as not to disturb the marginal utility of money for each buyer and seller, and on the assumption that the values and prices of all the goods owned by buyers and sellers are already determined and known, except that of the good immediately in question, it is clear that it but plays over the surface of things. If it attempt more it is involved in a circle.
FOOTNOTES:
[76] The extreme abstraction of the utility school is made very clear by Pareto, op. cit., introductory chapter. He is concerned only with "the science of ophelimity" (p. 6), and ophelimity is a "wholly subjective quality" (p. 4).
[77] See supra, chap. ii.
[78] But as later indicated (infra, chap. xiii), the apparent simplicity of his analysis simply covers up, and does not eliminate, the complexity of the situation.
[79] Op. cit., pp. 61-62.
[80] See supra, chap. ii.
[81] Economics of Distribution, p. 81.
CHAPTER VII
PROFESSOR CLARK'S THEORY OF SOCIAL VALUE
And all attempts to explain value in terms of these abstract factors must become similarly entangled. The Austrians themselves have pointed out that the explanation of value from the standpoint of individual costs involves a circle, that costs resolve themselves into value-complexes, and that the cost theorists are really explaining value by value.[82] I have shown that the same is true of the Austrian attempt to reduce values to terms of individual utilities. It is also true of Hobson's attempt to combine the two explanations, as shown, and the same could be shown of at least the earlier writings of Professor Marshall.[83] There is another attempt to work out the explanation of value, still in terms of sacrifices in production and satisfactions in consumption, but no longer from the same standpoint, which deserves special attention here. Professor Clark, in the Yale Review for 1892, in the article above referred to, "The Ultimate Standard of Value" (since reproduced as chapter xxiv of the Distribution of Wealth), has attempted so to add up individual units of cost and individual units of utility, as to get absolute social units of utility and cost either of which might serve as the ultimate standard of value. It will be remembered that I have already quoted from this article with reference to the quantitative nature of value, and that Professor Clark stands as the leading exponent of the conception that value is a social fact, "is social and subjective," the value put on goods by the social organism. In this article, he is seeking the unit of social value, the measure of the importance of a good to society. Either the unit of social utility or the unit of social detriment would serve, but it happens, he holds, that the unit of detriment is the more available for purposes of measurement, and so the final unit[84] of value is the sacrifice entailed by a quantity of distinctively social labor (p. 261). Professor Clark avoids the complication that labor and capital work together, by isolating labor at the margin, in the manner made familiar in his Distribution of Wealth. Assume capital constant, introduce or subtract a small quantity of labor, and whatever of product is added or subtracted is due to that labor only (p. 263).
This virtually unaided labor is the only kind that can measure values. Attempts to use the labor standard have come short of success, because of their failure to isolate from capital the labor to which products are due.
Work, however, is miscellaneous and heterogeneous. There is needed "a pervasive element in the actions, and one that can be measured." This is "personal sacrifice," which is "common to all varieties of labor." An isolated worker, making and using his own products, readily finds an equilibrium point, where utility and sacrifice are equal, and where he stops his day's work (pp. 364-65). If the product of any hour's labor be destroyed (p. 366) he will not suffer the loss of anything more important than the product of the last hour's labor, for he will forego that, and re-create the good with the higher utility. The utility of the last hour's product and the pain of the last hour's labor are equal. Either is his unit of value.
Of society regarded as a unit the same is true.
Take away the articles that the society gains by the labor of a morning hour,—the necessary food, clothing and shelter that it absolutely must have,—and it will divert to making good the loss the work performed at the approach of evening, which would otherwise have produced the final luxuries on its list of goods.
(It might be questioned parenthetically here whether all are fed before any begin to enjoy luxuries, or, if not, just what is considered the "socially necessary" amount of food, and whom does social necessity require that we feed before we devote an hour to making luxuries?) Professor Clark finds the final hour of social labor-pain to be a compound, the sum of the final hour's dissatisfactions of all the laborers. This sum is the ultimate standard of value. It is in equilibrium with the sum of the utilities of the final hour's products to all the laborers considered as consumers. This is illustrated by a diagram on page 271. But the problem still remains as to the value of particular goods. Granted that the sum of the satisfactions got from the total amount—a vast amount—of the final hour's product is equal to the sum of the pains incurred in producing this giant composite, and granted that the pain incurred by each man in making his part of the composite is equal to the satisfaction gained by him in consuming his part of the composite—not the same part!—the problem still remains as to the connection of the marginal utility and the value of the particular goods that make up the composite, with social labor. Professor Clark concedes at once that there is no necessary connection between the utility of the good to him who enjoys it, and the pain of making it to him who makes it. What connection is there than, between the value of the good and social labour? It is at this point, I venture to suggest, that Professor Clark's argument fails. I shall not follow his argument in detail, but shall quote a couple of paragraphs which seem to exhibit the failure (pp. 272-73):—
The burden of labor entailed on the man who makes an article stands in no relation to its market value. The product of one hour's labor of an eminent lawyer, an artist, a business manager, etc., may sell for as much as that of a month's work of an engine stoker, a seamstress or a stonebreaker. Here and there are "prisoners of poverty," putting life itself into products of which a wagon load can literally be bought for a prima donna's song. Wherever there is varying personal power, or different position, giving to some the advantage of a monopoly, there is a divergence of cost and value, if by these terms we mean the cost to the producer, and the value in the market. Compare the labor involved in maintaining telephones with the rates demanded for the use of them. Yet of monopolized products as of others our rule holds good; they sell according to the disutility of the terminal social labor expended in order to acquire them.
But suppose they are bought with monopolized products, and suppose that a monopoly element enters, at some stage or other, into every product of the market, and in varying degrees in each, either in the form of control of raw material, or special native mental or physical aptitude, or patent right, or any other of the innumerable forms that monopoly takes? Can these monopoly products then call forth a definite amount of social labor? Or can they merely call out a definite amount of value?[85] "Differences in wealth between different producers cause the cost of products to vary from their value." (Italics mine.) But surely this is our old circle again. If differences in wealth, which is the embodiment of value, are to modify the working of the "pervasive element" of "personal sacrifice" (p. 263), it is difficult to see how that pervasive element can in any way be an ultimate explanation or measure of value.
The rich worker stops producing early, while the sacrifice entailed is still small; but his product sells as well as if it were costly.
If we say that the prices of things correspond with the amount and efficiency of the labor that creates them, we say what is equivalent to the above proposition. The efficiency that figures in the case is power and willingness to produce a certain effect. The willingness is as essential as the power.... Moreover, the effect that gauges the efficiency of a worker is the value of what he creates; and this value is measured by the formula that we have attained.
But surely the circle is very clear here: the price (the expression of the value) of the good depends on the efficiency of the labor that produces it; and the efficiency of the labor depends on the value (of which price is the expression) of the good produced. Our "pervasive element" is complicated, as a determinant of social value, with several factors, among them the value of the wealth of the different producers, and the efficiency, which can be defined only in terms of value product, of the workers. Value is an ultimate in the explanation of value, and the effort to make individual costs and utilities an ultimate explanation of value has failed—as it must needs fail—even in the hands of Professor Clark.
The validity of this criticism, assuming it valid, in no way invalidates Professor Clark's contention that value is, after all, the work of the social organism, and that the value of a good, at a given time, measures its importance to the social organism at that time. The difficulty with the analysis just criticized is that it has not been an analysis of an organic process, but rather, a mathematical study of sums. The individuals have been treated, not as interacting in their mental processes, but as isolated atoms, each of whom has a definite individual quantum of pain or pleasure, and the social unit of pain or pleasure has been treated as simply a sum of these. But it is characteristic of an organism that the simple rules of arithmetic do not hold precisely in its activity. The whole is more than the sum of its parts, and something different from that sum. Professor Clark elsewhere says:—
But the owner is a part of the social body, and is the organic whole indifferent to his suffering? If so, society is an imperfect and nerveless organism. It ought to feel, as a whole, the sufferings of every member, and what makes or mars the happiness of every slightest molecule, should make or mar the happiness of all.
A sympathetic connection between members of society exists, etc.[86]
True: and indicative of the true line of study for the conception of value as a product of an organic society. But in the foregoing analysis we have no hint of "nerves" or social sympathy or other manifestation of a collective mental activity. The "social psychology" promised on page 261 of the article just reviewed, turns out not a social psychology at all, but simply a summation of the results of many individual psychologies. But the line along which the true nature of value is to be found is clearly indicated in the general conception of the psychical organic unity of society, and it remains for the present writer to make use of the studies in social psychology of Tarde, Cooley, Baldwin, and others,[87] not available, for the most part, when Professor Clark's article was written, in an effort to get nearer the heart of the problem.