[21] _Natural Value_, p. 53, n.

[22] "The Concept of an Economic Quant.i.ty," _Q. J. E._, May, 1907.

Professor Carver insists on the quant.i.tative 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 quant.i.ty 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) h.o.m.ogeneous 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) quant.i.ty 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 cooperated 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 t.i.tle, "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 ma.n.u.script, 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 pa.s.sion 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 quant.i.ty, 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 quant.i.tative 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'economie 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 Quant.i.ty 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'economie 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 Quant.i.ty," _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 quant.i.ties of "utility,"

which may properly be called values, or quant.i.ties of sacrifice which may be properly treated as exactly measuring values.[45] But when applied to a compet.i.tive 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 quant.i.ties of value, but only particular ratios between such quant.i.ties, or prices. An examination of the Austrian procedure will make this clear.

If the Austrian a.n.a.lysis be taken as meaning anything more than a method of determining surface ratios of exchange, difficulties at once arise. What quant.i.tative relation is there between the satisfaction which an individual man gets from a good and the value of that good? What quant.i.tative 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 quant.i.tative 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, _quant.i.tatively_ related to value in the market?

Let us consider the inadequacy of the old Austrian a.n.a.lysis for this quant.i.tative determination. I a.s.sume, without trying to prove here, the h.o.m.ogeneity 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 Bohm-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 a.s.sumption 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 a.s.sume the market as treated in the usual Austrian a.n.a.lysis (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 a.s.sume 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 a.s.sume, 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 a.n.a.lysis--if the a.n.a.lysis 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 a.n.a.lysis 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 a.n.a.lysis, 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 quant.i.tative 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. Bohm-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 a.s.sumption that emotional states in different minds can be compared is very clear in this pa.s.sage. _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] Bohm-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 Bohm-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 BoHM-BAWERK