Professor Clark develops a theory that the ultimate standard of the value

of a good is the “effective social disutility” cost of its acquisition.

Thus he presents a theory of distinctively social valuation.[235] But

we also find as a part of his doctrines a theory of purely individual

valuations. Professor Clark distinguishes clearly between these two,

and in fact develops the theory of social from the theory of individual

valuation. In drawing the reader’s attention to these doctrines, it will

suit our purposes best to emphasize as much as possible the distinction

between value in the individual economy and in the social economy. We

may, therefore, adopt the device of “Crusoe economics,” and consider the

relation of subjective cost to value in the isolated individual economy.

In the theory of value, the pursuit of this plan does not involve a

waste of time, but on the contrary it is an excellent measure for which

there is precedent at some point or other in the writings of nearly

all theorists. The plan corresponds to the artifice of the primitive

society of hunters and fishers so frequently used and also abused by the

classical economists. It is in a peculiar degree a device of what Roscher

called the “idealistic method.” We are, of course, now dealing with a

problem entirely outside the possible sphere of the “historical method.”

We find in the Crusoe economy the prototype, as it were, of many a

complex value relation in advanced social conditions, and an appreciation

of certain simple and highly generalized principles true of this economy

may greatly facilitate our understanding of the difficult subject of cost

and value under real conditions. But the strongest reason of all for

considering consciously and explicitly the case of Crusoe by himself, is

because there are many examples in the literature of value where certain

doctrines are laid down ostensibly as universal principles, which are in

reality conditioned upon the unconscious assumption of Crusoe conditions.

The case of Crusoe should be discussed if only to show what principles

are limited to the conditions of his economy.

Crusoe might possess various articles of value which cost him no labor,

or cost him an entirely negligible amount, such as certain scarce fruits;

but the major part of Crusoe’s wealth, let us suppose, is produced, and

is freely reproducible, by his labor. The amount of labor power which

he expends upon his island is variable at his pleasure within wide

limits. If he choose to work only a few hours a day through the year, he

will produce only a certain limited amount of the most useful things.

If he add more hours per day, he will produce more of the old kinds of

goods and also other different articles, luxuries as contrasted with

necessities, but at any rate things of lower utility. Thus as Crusoe

increases the hours of labor power put forth per day, he finds that

there is a decline in the additional utility produced by each successive

increment of labor. On the other hand, he finds that the pain cost or

disutility of labor increases as he toils longer and longer. Crusoe will,

for his average day, work until the increasing disutility of labor comes

to an equality in his judgment with the decreasing utility of the things

being produced. It would not be rational for him to stop at an earlier

point, for then further labor would produce him a means of satisfaction

greater than the “pain” of the labor itself. Nor would he labor beyond

this point so that the pain would exceed the pleasure gain. Thus the

utility produced by, and the disutility of, the final increment of labor

in the working-day counterbalance, or we have the “marginal equivalence

of utility and disutility.”

The most important part of Professor Clark’s teaching is that the

disutility of labor expended in producing goods is the ultimate standard

of their value. To establish this thesis, it is necessary for him to

show that the “effective” disutility of an increment of labor is always

the actual disutility of the final increment, and that the “effective”

utility produced by any increment is the actual utility produced by the

final increment. If Crusoe works ten hours a day, any hour of the day’s

labor will have the same effective disutility as the tenth hour. Thus

if it costs one hour of labor to produce the article A, the pain cost

of A is always _in effect_ the disutility of the final or tenth hour

of labor, no matter in what part of the day the good A happens actually

to be produced. For if Crusoe should decide to go without this article

in order to avoid the hour of labor which it costs, his day would then

consist of nine hours spent upon the rest of his products, and the effect

would be to save himself the disutility of the tenth or last hour.[236]

By shortening the working-day an hour he cannot do otherwise than save

himself from suffering this marginal disutility.

In a similar way it can be shown that the _effective_ utility of a

product A produced by the first hour of labor is the same as the actual

utility of the product B produced by the tenth hour. For if A were to

be lost, destroyed, or traded away, another A could be produced in its

stead through the sacrifice of a B, by turning the tenth hour from B to

the production of an A. In effect, then, upon the possession of A is

_dependent_ merely the utility of B. The utility of a good is defined as

its power to afford satisfaction, but the “effective utility” of a good

as conceived by Professor Clark is, we may say, the power of that good

over a man’s satisfactions, taking into consideration the adjustments he

may make in his productive activities in case of the loss of that good.

If he produces this same good over again, and instead goes without some

other good, _in effect_ he foregoes the utility of the latter, and this

is precisely the _effective utility_ of the first good.[237] Thus, in

Professor Clark’s view, the utility produced by the last increment of

a man’s labor affords a unit for measuring the effective utility to him

of any and all the freely producible products of his labor. But it has

already been shown that the _disutility_ of this last increment of labor

is equal to the utility produced by it. Thus terminal disutility becomes

also an available unit of “subjective” or esteem value, and Professor

Clark adopts this as the “ultimate standard of value” upon the ground

that pain is a more convenient measure than pleasure.[238] The theory

signifies that the subjective value to the isolated producer of any good

whose supply depends on labor can be most conveniently measured by the

labor cost of that good. To quote:

It follows that, in the case of an isolated man, we may

measure the subjective value of goods by the mere duration

of the work that creates them. All goods made in an hour are

equal in effective utility and all hours of labor are of equal

effective disutility. Destroy the product of an hour’s work,

and you injure the man by a fixed amount; make any hour’s work

unnecessary, by making nature freely supply what is produced in

that period, and you benefit the man by a fixed amount.... The

product of two hours’ work will always be of just twice as much

subjective value as is the product of one.[239]

Professor Clark has in some place defined subjective value as the

“measure of effective utility.” Menger defined this kind of value as

the significance attained by a good in our estimation when we know that

some satisfaction of ours is conditioned upon command of this particular

good. Value, as an amount, is the measure of the quantity of satisfaction

conditioned. The present writer has already expressed his opinion[240]

that Menger’s mere definition of value gives the solution to the great

riddle of the relation of value to usefulness and satisfaction, and

that virtually from the mere proposition contained in this definition

a large part of the theory of value can be deduced directly. It is of

great interest to note, therefore, that Professor Clark’s definition

of subjective value is in entire harmony with Menger’s. The definition

of Menger explains value universally, wherever there is value. Clark’s

definition, though conceived quite independently by him, is but an

extension of the principle in Menger’s definition, but an application

of it to a certain special case. This case, though logically a special

instance, is however typical of most of the goods we imagine a Crusoe

to be producing, consuming and reproducing. This is the case of freely

reproducible goods. Here, if a good be destroyed, its value will be

revealed by the satisfaction that must be given up because of its

destruction, which is the satisfaction finally conditioned upon it. In

the end, what Professor Clark points out is merely that this good may

be replaced by diverting to its making labor which otherwise would have

been employed in producing some other good which Crusoe chooses to resign

instead. The satisfaction in effect, or in the end, conditioned by good

A is the satisfaction directly conditioned by or afforded by good B, the

good given up.[241]

As it appears to the present writer, Clark’s theory of esteem value is

to this point so well founded that even the most uncompromising opponent

of labor theories can find no ground to deny it. We have here explained

a labor measure of esteem value, perfectly justified at least under the

conditions of the isolated economy, and Professor Clark’s analysis has

disclosed the inner reasons why this measure can be employed. Indeed,

while speaking of reproducible goods in the Crusoe economy, it may be

affirmed that cost is not only a “measure” of esteem value, but is also a

joint _regulator_ of value. To be precise, the costliness of a good acts

jointly with the utility of the good in regulating its value. To say that

one thing regulates another is, of course, asserting more than that it

measures that other. A regulator is a measuring cause, whereas a mere

measure is not a cause of the thing estimated.[242]

In what precise sense is costliness here a co-determinant of value?

When a good both costs pain or discomfort in its production and affords

pleasure in its use, it is common custom to speak of the “cost” of the

good as the exact opposite of its “utility.” But these concepts are not

direct opposites. Cost consists in the subjective experiences of the

producing man, and its precise opposite is pleasure or, specifically

in our economic usage, satisfaction of want. But “utility” never is a

precise equivalent for satisfaction. On the contrary, utility is another

kind of opposite of satisfaction, being always conceived to belong to

the good and not to lie within the man, except in the treatises of

certain unconscious metaphysicians. In virtue of a certain combination of

physical properties a good possesses a power to produce a satisfaction

in a man.[243] This power, due to its physical properties, is the best

conception of the good’s utility. The precise opposite of utility cannot

be designated by cost, but the word “costliness” fits the need. In virtue

of their physical properties, or physical and chemical relations with

other external things, some goods require a large amount of change of

man’s external surroundings to be effected by him in order that they may

be produced. We give these goods the attribute of costliness, similar to

the attribute of utility, and the relation between costliness and cost

is similar to the relation between utility and satisfaction.[244]

The question which now concerns us is whether in the case of freely

producible goods the supply of which can be augmented at will by the

application of more labor, the costliness of a good takes an equal part

with its utility in determining its value. If the marginal utility of a

good determines its value, marginal utility is still the mere creature

of the supply of the good. The larger the supply, the lower the marginal

utility. Putting the matter the way it is often stated in present-day

treatises, the supply that will be produced depends upon the cost of the

good, and thus at bottom cost determines value. Making a more careful

statement we may say that the supply depends upon both the costliness

and the utility, since Crusoe will increase the supply—the _average_

yearly supply, we should say if speaking of a crop—until the marginal

cost and marginal satisfaction become equivalent. For the normal case,

the increase of the number of increments of the good will entail an

increase of marginal cost and a decrease of marginal utility. Both the

marginal cost and the marginal utility vary when the supply is changed,

but the supply tends to rest at the point of equilibrium of these two

quantities, and is thus determined by them jointly.[245] If the general

costliness of this grain should fall, its value would soon be lowered,

for Crusoe would be led to produce more of it in order to reach the

point of supply which equilibrates final cost and satisfaction. Thus

the marginal utility and value would be lowered. Conversely if the

costliness be increased, value will be raised. Under Crusoe conditions

we are considering the relations of costliness, utility and value in

the simplest of circumstances we can imagine. Even here the question

arises, is it correct to affirm that costliness is _precisely coördinate_

with utility in determining value? To me it seems apparent that utility

exercises a more direct and intimate control over value than cost, even

in the simplified case now before us.[246] In the first place, value is

still _derived_ solely from utility.[247] Cost influences value only

by way of influencing the value-determining utility itself. Thus cost

is more remote from value than is satisfaction or utility. Even in the

case of goods valued according to their “effective utility,” that is,

according to a foreign utility, there is no violation of the principle

that value is derived solely from utility. Cost or costliness is never

the source of value. No amount of cost endured for a good without utility

will confer value upon it. There can be no discrepancy between utility

(here we are speaking of the utility that is the counterpart of the

satisfaction _conditioned_ upon the good, _i. e._, the marginal utility

in the cases of goods divisible into increments) and value, whereas there

may be between costliness and value. If anything prevents the supply of

a good from being increased to the point of marginal equivalence of

utility and costliness, then of course the value follows the utility

and not the costliness. Costliness is thus not a more fundamental cause

of value, but merely a more remote cause than utility, and in any event

can influence value only by affecting the utility itself, by helping to

determine supply.

7. Turning to social conditions, we meet the new problem of exchange

value. It is true, certain value comparisons may be made in the entirely

isolated economy which afford a kind of prototype of the exchange value

of the market. Crusoe might, perhaps, have occasion to make mental note

that ten bushels of his wheat supply possess the same esteem value to him

as one cord of his firewood. This comparison involves a ratio between

valuable goods, and if Crusoe only had reason to trade with himself we

might find the phenomenon of purchasing power—the true conception of

exchange value—and ten bushels of wheat would have the purchasing power

of one cord of wood. This kind of exchange value—if we dare call it

such—would be most simple; for it would be directly determined by, and

be in exact proportion to, esteem value. Just as Crusoe will be able to

carry the esteem values of reproducible goods in mind most readily in

terms of disutility cost, so would he be able to strike value ratios

between such goods most easily by comparing the disutility costs of their

physical units of measure. Thus, if one cord of wood should exchange for

ten bushels of wheat, the reason would be that a bushel of wheat costs

one-tenth as much labor as one cord of wood. This thought need not be

pursued further. If the exchange value of a good in the social market

depended in the same direct manner upon the esteem value of that good to

all society or to “society as a unit,” the final theory of exchange value

would be much simplified. But, unless the present writer is mistaken,

a good cannot possess an esteem value to society as a whole, but can

merely have a separate value to each individual member of society.

Though it is questionable whether we can apply the theory of final

equivalence of utility and disutility directly and in an unmodified

form to all kinds of social value, we still find generally that

each individual in society values his personal consumption goods

substantially in the same manner as Crusoe. Under the division of

labor, the individual does not produce his own consumption goods, but

renders certain productive services to society for which he receives

remuneration in the shape of a money income. Money income may also be

derived from capital acquired at the cost of abstinence on the part of

the individual receiving it. But again, it may as well be the result

of gift or inheritance, in which case it represents no subjective cost

to the recipient. When a dollar costs a man subjective sacrifice to

acquire it, and the dollar is spent for a commodity, this commodity thus

indirectly costs that sacrifice. The commodity is bought by the consumer

because it possesses esteem value. It derives this esteem value from the

satisfaction conditioned by it, but this value may well be carried in

mind by the consumer in terms of his own subjective cost. Crusoe spends

units of disutility, as it were, to obtain from nature certain utilities;

the man under social conditions spends dollars, which may represent

disutility, to obtain utilities from the social warehouse. Professor

Clark’s theory of “effective disutility” as the measure of value may

be applied to the individual economy within society as well as to the

individual economy in isolation.

Everywhere in society among individuals who earn a part or all of their

money incomes,[248] we may expect to find pure “esteem values” being

measured by subjective costs. But the relation of subjective cost

to _exchange value_ is a different matter. Two parlor tables of the

same make and pattern will possess the same exchange values, but the

esteem values of the two to their separate owners are not comparable

quantities. Each of these owners, for himself, may estimate the esteem

value of the table in terms of its indirect _cost of acquisition_ in his

own disutility. The dollars cost him disutility and the table cost him

dollars. But this is not at all the same as saying that the “exchange

value” of a table is measured by the disutility _cost of production_ of

that commodity. Exchange value can have no such intimate relation with

disutility cost as esteem value. Furthermore, the cost of production

of tables is experienced only by makers of tables, and not by their

consumers. The exchange values and pain costs of commodities can have

no closer relation than one of mere proportionality. It is possible

that, if one A has an exchange value of two B, an A has cost twice as

much disutility to produce as a B. In this case the exchange values of

these commodities, each in terms of the other, are proportional to their

subjective costs. It is permissible to predicate equality of subjective

cost and esteem value, but to say that the subjective cost of an article

_equals_ its exchange value would, of course, convey no meaning. The

unqualified classical labor theory asserted that exchange values were

determined in proportion to relative labor costs. The aim of this chapter

has been, therefore, to prepare to answer this question: Are the

exchange values of commodities in the social market in proportion to the

subjective costs of production of these commodities? Is there any way of

defining, or method of reckoning, the pain cost of a good, which will

enable us to show this proportionality?

Before attending directly to these questions, it is best to consider

whether it is possible to compare the subjective costs of commodities

produced by different persons or groups of persons. A ton of coal may

exchange for six bushels of wheat. The subjective cost of the coal

consists chiefly in the labor of certain miners; that of the wheat in

the labor of certain farmers. To assert that the subjective costs of

production of these commodities either are or are not in proportion to

their respective exchange values, implies that we are able to compare

these costs as quantities. To assert proportionality requires that we be

able to say that the disutility experienced by the miners in producing

a ton of coal is equal to that experienced by the farmers in producing

six bushels of wheat. To assert disproportionality, we must be able to

state that these disutilities are unequal. If these disutilities are

quite incommensurable, we can assert nothing regarding the relation of

these costs to the corresponding exchange values.[249] Men as scholars

are accustomed to maintain that the pleasures or pains of different minds

cannot be compared as quantities, while in every-day life the same men

are equally accustomed to state that John _enjoys_ music _more_ than

Paul, or that Primus _suffers more_ or works _harder_ than Secundus.

May or may not we affirm that the stoker works harder, or in our own

jargon, suffers more disutility, than the dining-room steward? In the

hope of settling part of the issues raised in these questions, let us

consider the meaning of one of Adam Smith’s statements regarding wages

in different employments. I refer to the doctrine that wages tend to be

higher than the average in employments where there is a higher degree of

disutility. This tendency is operative only under perfect competition,

and the existence of numerous non-competing groups occasions a result

much changed from that to be expected from this tendency, which is

sometimes described in the “evil paradox” that the harder the work, the

lower the wages. The question which concerns us here is, how much does

either of the above statements imply with respect to the possibility of

comparing the pains or pleasures of different persons. It seems to the

writer that neither necessitates a direct quantitative comparison of the

subjective experiences of different persons. I may, perhaps, say that

the persons in occupation A are suffering more disutility and receiving

higher wages than those in employment B, but all I can be supposed

really to know is that if I were in occupation A, I would suffer more

discomfort than if I were in occupation B. If I am a person of “average”

(_i. e._, typical) constitution, I may infer legitimately that this

is true also of any average person. While making no affirmation that

John suffers more disutility than Paul, either when these persons are

in the same or in different employments;[250] we may be able to state

that either John or Paul will suffer more in occupation A than in B.

The upshot of the matter is that Adam Smith’s proposition implies only

our ability to compare the _disutility_ (using this word in the sense

it ought to have) of different tasks. A task is objective, consisting

in certain objective results to be effected under certain objective

conditions. When the objective characteristics of a task necessitate

subjective discomfort in the person who performs it, the task or

employment possesses _disutility_, which is thus a concept the opposite

of _utility_. If within a competing group employment A affords a higher

wage than employment B, because its _disutility_ is higher, the result

is brought about not, in the first instance, through the perception

by the workers that certain individual persons work harder than other

individual persons, but through the perception that any normal individual

for himself would work harder at the task A than at the task B. The

possibility of comparison is implied merely between the “pains” of the

same person, though there are common forms of expression which imply

more. We may conclude, then, that there is a perfectly legitimate sense

in which we can compare the subjective costliness of commodities produced

in society by entirely different groups of persons. And no one doubts

that the day’s product of a coal miner has a higher disutility cost than

the day’s product of a farmer.

When we find the statement in an economic treatise that the exchange

values of commodities are ultimately regulated by their subjective cost,

it is to be assumed that the meaning is the same as that which would be

expressed with greater precision by using the word costliness. With the

explanations already offered we may henceforth follow common usage and

employ the mere word cost. There are two distinct ways of reckoning the

pain cost of a commodity, namely, (1) as total cost; (2) as marginal

cost. Ricardo reckoned cost according to a hybrid method. The _total

subjective cost_ of a good consists in all the discomforts of labor

and abstinence actually endured in the past to produce it. Taking the

factor of labor alone for illustration, it includes the cost of the

labor directly applied to the good, and of the labor indirectly applied

by being directly applied to the raw material and machinery which are

used up in its making. The machinery, however, has always been made at

the combined expense of labor and of using up formerly existing tools

and machinery; and the latter tools and machines had a labor cost. A

product’s total cost may include, perhaps, one one-hundredth of the labor

cost of the first generation of certain machinery used in its production,

and as we go back, one one-millionth of the second generation;[251] and

the total labor cost of any commodity thus goes back no man knows how

far. Therefore, the total labor cost alone of a good (to say nothing

of the abstinence element) is an extremely indefinite quantity; and

it is impossible to know anything very definite about the comparative

total labor costs of different articles. But beyond this, we do know

that the existence of differential rents destroys the possibility of

proportionality between total labor costs and exchange values.

The concept of the _marginal cost_ of a good appears in the Ricardian

theory of rent, and has been involved more or less clearly in the

reasonings of most modern economists, but it is almost entirely to J. B.

Clark that we owe the consistent development of this idea. The marginal

subjective cost of a good may consist either of labor or of abstinence,

but not of both combined. In this essay we will arbitrarily set aside

the problem of abstinence cost. The marginal labor cost of a good is,

of course, determined by ascertaining the marginal product of labor in

producing this good. To illustrate in the simplest manner possible,

we will follow the time-honored procedure of eliminating capital for

the moment, and suppose successive doses of labor to be applied to

a given piece of land.[252] Let the labor force applied stand at a

certain amount, and suppose the dose to consist of a labor day. Then,

if experimentation reveals the fact that the addition of one more dose

will increase the whole product by the amount of two bushels, we define

these two bushels to be the marginal product of a labor day. Professor

Clark frequently refers to this same quantum as the _specific_ product

of labor. The land in this case may have consisted of a 100-acre field

and the total labor applied may have amounted to, say, 300 labor days.

The total produce may have been 3,000 bushels of grain. By hypothesis,

capital being eliminated, the total labor cost of these 3,000 bushels is

300 labor days, or ten bushels cost one labor day, or the total cost of

a bushel is one-tenth of a day. On the other hand, the marginal cost of

a bushel is one-half of a labor day, since two bushels are the marginal

product of a day.[253] Ricardo, who so explicitly defined total labor

cost as consisting of the labor both directly and indirectly applied

to a commodity, also assumed that in one respect value-determining

cost is _marginal_, though he never used the word “marginal.” It was

for this reason that not far back we described his method of defining

cost as hybrid. His doctrine that rent does not enter into cost was

but one way of stating that _on land_, it is only marginal cost (as he

expressed it, the cost of the most costly portion of the supply) which

determines value. In real life, products are the result of combining

not land and labor alone, but land, labor and capital (in the sense

excluding land—our usage at present). When Ricardo was expounding and

illustrating the theory of rent which bears his name, he was forced

to suppose that the successive doses added to land were composed of

capital and labor jointly,[254] which left his marginal quantum the

product of both of these agents. This left him with the great interest

difficulty with which he occupied himself in his first chapter.[255]

It remained for J. B. Clark to point out that the marginal product of

labor could be disentangled from the product of capital as well as

from that of land.[256] Upon this possibility depends the important

productivity theory of wages. In order to explain the process by which

the pure marginal product of labor is found by the entrepreneur, Clark

adopts what is virtually the business man’s conception of capital, as

distinguished from concrete capital goods. The latter alone have been

designated capital by most economists in their formal and explicit

definitions. Professor Clark prefers to call the two concepts simply

capital[257] and capital goods. Capital is a “sum of productive wealth,

invested in material things which are perpetually shifting—which come and

go continually—although the fund abides.”[258] These material things are

the capital goods. Capital as an amount must be measured by its exchange

value. A capital of $100,000 may be prepared to employ say 40 men. Should

it be rearranged to employ 20 men, its concrete make-up would have to be

altered. A less number of machines and tools of better quality would have

to compose it. Now as the concrete tissue of a given capital perishes

or matures and frees its value for reinvestment in more concrete goods,

an entrepreneur has it open to him to alter the concrete constitution

of his capital. In this way, in the course of time, an entrepreneur may

be able to rearrange his capital so as to augment or decrease the labor

force employed with it. In many cases pretty large changes in the labor

supply employed with a given capital could be made with little or no

alteration of its technical concrete make-up. Somewhat slowly and under

this and that frictional difficulty, the experimentation is made which

reveals the marginal product of labor. The process which discloses this

must always in the end be one in which an increment of labor is added to

or removed from the force working with a given capital and an observation

made of the resulting addition to or subtraction from the total product.

The exposition of this process and the explanation why competition tends

to make the wages of labor (of whatever grade) equal to its specific or

marginal product, is probably the greatest contribution to economics

contained in Clark’s _Distribution to Wealth_, and occupies a large part

of that work.

As was virtually pointed out by Malthus,[259] the presence of rent and

interest charges in entrepreneur’s costs is an insuperable obstacle

in the way of the theory that a commodity’s total labor cost is

proportionate to its exchange value. If, however, an attempt is made to

correlate _marginal_ labor cost and exchange value, the difficulties of

rent and interest are eliminated. When we say that these difficulties are

eliminated, we do not mean that they are arbitrarily set aside, or that

we merely run away from them: but the marginal labor cost of a commodity

is not affected by the payment of rent and interest. For instance, if

wheat is being produced at the same time on land of the best and land

of the poorest grade, a large rent will be paid out of the total wheat

product on the former soil, and little or no rent may be paid out of the

total product on the latter, and yet the cultivation will be carried to

the point which makes the marginal product of labor and the marginal

labor cost of wheat the same on both grades. The same observations may

be applied to rent of capital (or interest, as we call it when it is

calculated as a percentage of the value of the rent-bearing agent).[260]

The great difficulty in the way of the theorem that the marginal labor

costs of commodities are in proportion[261] to their exchange values,

is the problem of skilled labor. The best way to show the effect of

skilled labor upon comparative marginal costs is first to eliminate it

temporarily from the problem, and show what the relation of marginal

labor cost would be to exchange value, if there were only common labor

throughout society. If all labor were of a single grade, all commodities

which are products of labor would have exchange values in proportion to

their respective marginal disutility costs. This would be true whether

the products are consumption goods or are merely production goods which

are used in making further products. Some valuable goods are not products

of labor. Such are bodies of ore lying in their natural state, standing

timber, _etc._ These production goods have no disutility cost, marginal

or total, and consequently their exchange values have no relation to

cost. Their supplies are determined independently of human agency. Ore at

the surface, crushed or smelted ore, are, however, products of labor, and

so long as only a part of the known existing ore of mines is removed—a

part remaining untouched because of too high cost—the supply of any

product resulting from the combination of labor and native ore-bodies,

will depend upon marginal labor cost.[262]

The homogeneous labor force (which we have assumed temporarily)

will distribute itself among all the various industries in society

in proportions determined by the marginal product in each industry.

Capital will also distribute itself throughout the system of industries,

tending, of course, in the long run, to appear in each industry in such

proportions as will, apart from inequalities of risk, produce everywhere

an equality of its returns. Assuming the distribution of capital to have

reached a condition of equilibrium—it being no part of our present

task to follow out a theory of interest—let us try to show that labor

will distribute itself over the field of industry in such a manner

that exchange values will be proportionate to marginal labor costs. If

labor flows from one industry to another, the total output of the first

industry will decline and that of the second will increase. The change

in the supplies of the respective products of these industries will

alter the exchange values of these articles. Different distributions of

labor among industries will give rise to different relative supplies

of commodities and different exchange values. As the supply of labor

in any industry increases, its marginal product decreases. If all

occupations possessed the same disutility, the supply of labor would be

so distributed that its marginal product would have the same exchange

value in all industries. But if some occupations necessitate higher

disutility costs than ordinary, the supply of labor obtainable for

those industries will decrease until the exchange value of the marginal

product is raised till it compensates for the superior disutility.[263]

If one commodity is produced at a higher disutility cost (to the labor

directly employed upon it) than another, the marginal product of labor in

it will have a higher exchange value. If 6 A in one industry and 1 B in

another make the marginal product of a labor-day, 6 A will exchange for

1 B, provided the disutility of labor is the same in both employments.

But if it costs more disutility to produce 6 A than 1 B, the relative

supplies of A’s and B’s would be so adjusted that 6 A will exchange for

more than 1 B. Thus a superior disutility cost raises the exchange value

of a commodity, in order that this commodity may afford a superior value

product to labor. Labor-power is a peculiar production good. Like other

production goods of manifold productive uses, its expenditure constitutes

potentiality cost; but it is unlike others in that human pain cost is an

ever-present incident to its expenditure. The distribution of labor power

among different productive uses is not governed solely with reference to

its share of value derived from the product, but is governed in part with

reference to the pain-cost involved in the production of the product. A

higher disutility necessitates a higher share of exchange value. Thus

it comes to pass that this most disposable and important of production

goods will distribute itself among products in such a manner that these

products will have exchange values in proportion to their marginal pain

costs. This result is brought about solely by control of the relative

supplies of these products, the exchange values of which are all derived

from utility solely after the method described in the utility theory.

When we introduce the question of skill into the problem, we find that

the supplies of many kinds of labor are limited not with reference to the

disutility of the tasks performed, but are limited solely because the

requisite brain-power, ingenuity or strength are scarce. The marginal

product of such labor is raised by the limitation of its supply. Thus, it

is a truism that many occupations of the lowest disutility afford very

high wages, and that in the vast majority of cases high wages are not

caused by high disutility, but by scarcity of competent persons. Suppose

the commodity A is scarce, is of high exchange value, and is the marginal

product of a skilled labor day. Article B is the product of a day of

the lowest kind of labor. One A may well exchange for three or four B.

Yet the marginal labor cost of A is, in the typical case, even less than

that of B, for the skilled laborer ordinarily suffers less pain cost per

day than the unskilled. Hence, the exchange values of these products are

quite out of proportion to their comparative marginal disutility costs.

The existence of non-competing groups, first emphasized and named such

by Cairnes, is then a fatal obstacle in the way of the adjustment of

exchange values to comparative marginal costs.

8. We may now essay a partial summary of the results which have been

reached up to this point. The end of the theory of value is primarily

to explain exchange value. The only workable definition of this term

is purchasing power. The purchasing power of a commodity is measured

objectively in terms of the physical units of some other particular

good, except when we are speaking of the concept of an article’s

_general_ purchasing power. This, its purchasing power over all other

commodities,[264] is measured as some kind of mean or average of all its

particular purchasing powers. What mean, it is no part of our task to

enquire. All goods which possess exchange value also possess that other

kind of worth which we termed “esteem value.” Every commodity derives

its exchange value solely from its esteem value, or, speaking with

precision, from its esteem values. For a commodity has a separate esteem

value to each individual person who can utilize it. If society were as

one man,[265] the exchange values of goods would be but the exponents of

their relative esteem values. In other words, if a physical unit of one

commodity exchanged for two units of another, the reason would be merely

because the first possessed twice as much esteem value to all society

as a unit of the second. But the esteem value of an article is a much

more definite thing than a social estimate, _i. e._, an “average” (or

typical) estimate of worth. The esteem value of a good to a person is

the measure of the amount of that person’s satisfaction conditioned upon

the enjoyment of the good. Goods existing in superfluous abundance give

satisfaction but do not condition it, and hence lack esteem value. Taking

for granted the amount of an individual’s income, the esteem value which

a good has for him determines his price equivalent for that good.[266]

The market price, or exchange value, of a good is a _resultant_ from

(never in any sense an average of) the individual price equivalents

placed upon it by the body of individual consumers.

The exchange value of a good varies inversely with the supply of it

presented to the body of consumers. The larger the supply, the lower is

the price equivalent which must be reached as the marginal determining

point of its market price.[267] A change of supply alters exchange

value only because it changes the marginal price equivalent.[268] In

the social market, the purchasing powers of all the various products

over one another depends upon their relative supplies. So far as cost of

production in any form exercises any degree of control over the value of

a good, it can act solely by way of influencing the supply of the good.

The phenomenon of the apparent regulation of the exchange values of

products by their entrepreneur’s costs, is but a part of a large process

in which cognate (or “fellow”) products adjust their relative supplies

and their exchange values to one another, to the end that the common

production goods entering into all of them may produce equal productive

contributions or shares of exchange value per unit in all of their

productive applications.[269] The relation of the pain costs of products

to their exchange values is limited to one of mere proportionality.[270]

The pain cost of a product may be calculated in two very distinct ways,

giving total pain cost or marginal pain cost. The total pain cost of a

good, consisting in all the labor and abstinence ever endured to bring

it into existence, is quite an indeterminate quantity,[271] and its

influence upon the exchange value of a good is very remote and irregular.

The larger part of total labor cost, the part which includes the labor

directly applied to commodities, plus the labor indirectly applied by

being directly applied to the raw material and machinery immediately

used in their production, and so on for the few nearest generations of

machines, this being the part which excludes the infinitesimal bits of

labor cost expended far in the past, can be shown positively not to be in

proportion to their exchange values. For commodities produced at a higher

expense of rents of all kinds (as opposed to wages) have exchange values

out of proportion to this calculable part of their total costs.[272] We

find that the control of _marginal_ cost over value is closer than that

of total cost. If it were not for the existence of innumerable grades

and classes of skilled labor, the supplies of produced goods would be

so adjusted that their exchange values would be in proportion to their

respective marginal costs. But on account of skill, we must here again

characterize the influence of subjective cost as remote and irregular.

In conclusion, it is true, speaking in very loose and general terms, we

may say the exchange value of a good depends both upon its utility and

its costliness to mankind. But it would not be proper to say that cost

and utility are equal and coördinate regulators of value. Therefore,

Professor Marshall’s shears simile is not to be commended. The most

noteworthy changes in exchange values have been produced by discoveries

which reduced the labor cost of goods. But the amount of the reduction

thus produced in the exchange value of a particular commodity could

have only the roughest correspondence with the amount by which its

relative pain cost was reduced. Also, for reasons already shown, we

know that neither before or after these changes was it possible for

exchange values to be in proportion to relative pain costs, whether total

or marginal costs be taken. Furthermore, all alterations of exchange

values produced by cost changes are effected solely by alteration of the

value-determining utility itself. Utility has a much more direct and

intimate relation with value in either form than cost. Value may exist

without cost and cost may be expended without occasioning value. Value

never exists without utility and utility (not in the sense of Smith’s

“use-value,” but the effectual utility, the utility which measures the

satisfaction conditioned by a good) never exists without value. Cost

affects value solely by influencing utility itself. From this comes the

all-important conclusion that whenever any of the numerous and permanent

forces are active which interfere with the influence of cost, value

follows the utility and not the cost.

FOOTNOTES

[1] Chap. xiv of book v, 4th ed., 1898, pp. 554-570.

[2] Value was in this connection used in another sense than pure exchange

value, but the difference of significance was never satisfactorily

explained.

[3] _Natural Value_, edited by Wm. Smart (London, 1893), pp. xxvii-xxix.

Von Wieser gives but three pages of the preface of _Natural Value_ to

the writings of Adam Smith and Ricardo on value. But in this brief though

profound passage, he has not only suggested what I believe to be the true

interpretation of the theories of Smith and Ricardo, but he has also made

the greatest single contribution to our understanding of the subsequent

course of English thought on the subject.

[4] Rent of land was excluded by Ricardo, but included by Smith and

Malthus, and also by J. B. Say.

[5] The Austrian writers are accustomed to call this the “empirical law

of costs.”

[6] The detailed history given in the following chapters will, it

is believed, substantiate this view. The development of the law of

entrepreneur’s costs will be traced only so far as is necessary in order

to understand the history of the labor theory, but it is indispensable

to follow the general lines of its progress if we are to perceive the

“setting” of the labor theory.

[7] Mill granted certain exceptions to the proposition that rent cannot

“enter into price,” but placed no emphasis upon them.

[8] _Wealth of Nations_, 2d Thorold Rogers ed., 1880, pp. 31-2. All

subsequent page references are to this edition, volume 1.

[9] P. 34.

[10] Referring to the words just quoted, Mr. Ingram says: “This sentence,

which on close examination will be found to have no definite intelligible

sense, affords a good example of the way in which metaphysical modes of

thought obscure economic ideas.” _History of Political Economy_, p. 94,

note.

[11] Chap. v. “Of the Real and Nominal Price of Commodities, or of their

Price in Labour and their Price in Money.” Chap. vi. “Of the Component

Parts of the Price of Commodities.” Chap. vii. “Of the Natural and Market

Price of Commodities.”

[12] P. 49. At the same time many important assertions in the

“philosophical account” are not restricted to primitive conditions.

[13] It is true that an article’s cost in labor may instead mean its cost

in productive power. The cost in this case is at bottom the utility of

some other article which might have been created by this productive power

had it not been employed in making the first article. In the same sense

we speak of a thing as costing money.

[14] P. 29, in chap. iv.

[15] It has been suggested by many writers that the germ of practically

every theory of value is found in the _Wealth of Nations_. That is

probably true, if we except the utility theory, which associates quantity

of value with _quantity of utility_, a conception absolutely foreign to

Adam Smith’s thought.

[16] P. 31.

[17] P. 49.

[18] P. 34.

[19] P. 30.

[20] In this instance the word “standard” is used in a sense sufficiently

general to include a regulator (_i. e._, a measuring cause) and a mere

measure. A standard is “1. Any measure of extent, quantity, quality or

value.” ... “2. Any fact, thing or circumstance forming a basis for

adjustment and regulation.” _Standard Dictionary._

[21] What Adam Smith has to say of the relation of these standards, one

to the other, comes in connection with the account for advanced society,

where he discards the labor-cost standard but retains the labor-command

measure.

[22] P. 32.

[23] _Ibid._

[24] Chap. x, of book i.

[25] P. 106.

[26] In one place Smith puts forward a naive and uncritical explanation

of the reward to skill, comparable to his explanation of the division

of labor as due to a propensity of men to truck and barter. “If ... one

species of labour requires an uncommon degree of dexterity and ingenuity,

_the esteem which men have for such talents will naturally_ give a value

to their produce superior to what would be due to the time employed about

it.” P. 49.

[27] P. 34.

[28] _Ibid._

[29] P. 35.

[30] In criticising the labor-command standard of Smith, Ricardo has made

virtually the same point as the above (pp. 8-14, Gonner ed. Ricardo’s

_Principles_). By _riches_ Smith cannot mean what Ricardo means by this

term in his famous chapter on the antinomy of value. (Chap. xx, “Value

and Riches, their Distinctive Properties.”) If by reason of scarcity,

wine should come to command in exchange more labor than formerly, Smith

would have to say that a given quantity of wine becomes more riches. This

Ricardo would not say.

[31] _Principles_, p. 8.

[32] P. 36. The following passage (p. 38) exhibits perfectly Smith’s

general theory of the relation of labor, the precious metals, and grain

to value as a dynamic problem. “Labour, therefore, it appears evidently,

is the only universal as well as the only accurate measure of value,

or the only standard by which we can compare the values of different

commodities at all times and at all places. We cannot estimate, it is

allowed, the real value of different commodities from century to century

by the quantities of silver which were given for them. We cannot estimate

it from year to year by the quantities of corn. _By the quantities of

labour we can, with the greatest accuracy, estimate it both from century

to century and from year to year._ From century to century corn is a

better measure than silver, _because_ from century to century equal

quantities of corn will command the same quantity of labour more nearly

than equal quantities of silver. From year to year, on the contrary,

silver is a better measure than corn, because equal quantities of it will

more nearly command the same quantity of labour.”

[33] P. 52.

[34] P. 52.

[35] McCulloch and James Mill were but satellites of Ricardo.

[36] P. 49. Torrens, in his _Essay on the Production of Wealth_, has

worked out with great pains a form of proof of this proposition. It is

exhibited in a series of dialogues between primitive producers to show

that an exchange of goods at a ratio out of proportion to labor-costs is

incompatible with recognized motives of trade. His proof is good enough

under the tacit assumptions which he makes, including all the conditions

of the perfect type of fictitious primitive society used by classical

writers.

[37] P. 30.

[38] P. 32.

[39] When Smith speaks of “exchangeable value” as being measured by power

to command labor, he is using the only term he has to stand for any

or every concept of value distinct from the “value in use” or general

utility of free goods.

[40] Its relation to pure objective exchange-value is another question.

In Chapter xi of this essay will be found a summary discussion of the

relation of disutility cost to value.

[41] The thought in the “final disutility” theories of Gossen, Jevons and

Clark, independently worked out by these writers.

[42] These very words were later used by Malthus in his defense of the

labor-command standard.

[43] In this sentence we do not assume the commensurability of

disutilities incurred by different persons, but the commensurability of

the disutilities incident to different occupations. Thus we should all be

willing to say that the steamship stoker’s position means harder labor

than that of the chief steward of the dining room, but we may be supposed

to judge this by comparing our own (imagined) labor as a stoker with our

own labor as steward.

[44] _Political Economy_, p. 115.

[45] _Letters of Ricardo to McCulloch_, p. 153.

[46] _Ibid._, p. 132.

[47] _Letters to McCulloch_, p. 153. This shows that Ricardo was not

satisfied in principle with his treatment of the value of scarcity goods.

[48] _Natural Value_, Author’s Preface, p. xxviii.

[49] _Principles_, Gonner ed., p. 6.

[50] J. B. Say, _Mélanges et Correspondance d’Économie Politique_, Paris,

1833, pp. 93-4.

[51] _Principles_, p. 6.

[52] Dietzel, _Theoretische Socialökonomik_, Leipzig, 1895, pp. 228-30.

[53] Quoted in _Letters of Ricardo to Malthus_, p. 165, n.

[54] For this he is accused of reasoning in a circle. As far as any

defense by Marx himself is concerned the charge goes home. Assuming the

productivity theory of wages (which is entirely inconsistent with Marx’s

theory of wages) it is quite permissible to say that labor which has a

higher wage (or value) contains more units of productive power, more

efficiency units, than that receiving a lower wage.

[55] P. 13.

[56] P. 14.

[57] P. 16.

[58] This explanation of the workings of competition is beautifully

written both by Smith and Ricardo—is _classic_ in fact.

[59] P. 65. The italics are the present writer’s.

[60] “It is necessary for me to remark that I have not said because one

commodity has so much labour bestowed upon it as will cost £1,000 and

another so much as will cost £2,000 that therefore one would be of the

value of £1,000 and the other of the value of £2,000, but I have said

that their value will be to each other as two to one, and that in those

proportions they will be exchanged. It is of no importance to the truth

of this doctrine whether one of these commodities sells for £1,100 and

the other for £2,200, or one for £1,500 and the other for £3,000,” _etc._

Gonner ed., p. 39.

[61] _Principles_, p. 39, n. The same statement is made in _Letters to

Trower_, p. 153.

[62] The difficulty of rent is escaped through the Ricardian theory of

rent. The present writer is persuaded that the classical theory of rent

is unsound in this respect.

[63] Pp. 24-6.

[64] The distinction between the two kinds of capital was stated to be a

question of degree in the first section on this subject.

[65] P. 24.

[66] P. 35.

[67] Ricardo’s theory that a rise of interest must accompany a fall

of wages and _vice versâ_ is not an essential part of the present

problem. Interest acts as a cause of deviation of exchange value from

proportionality to wages cost, whether this particular theory of wages

and interest be adopted or not.

[68] Compare the same unconscious shifting of ground in the discussion of

skilled labor.

[69] P. 5. _Principles._

[70] See also Ricardo, himself: “The value of almost all commodities is

made up of labor and profits.” _Letters to Malthus_, p. 225.

[71] _i. e._, wages.

[72] P. 34.

[73] _Letters to McCulloch_, p. 71.

[74] _Das Kapital_, 1st ed., pp. 285, 286, 508, n. See Böhm-Bawerk, _Karl

Marx and the Close of his System_, p. 24.

[75] Böhm-Bawerk, _op. cit._, p. 26.

[76] The writings herein referred to are his _Principles of Political

Economy_, 4th ed., Edinb., 1849, and his extensive notes on Adam Smith’s

text in the McCulloch edition of the _Wealth of Nations_, 4 vols.,

Edinb., 1828.

[77] In his _Capital and Interest_, pp. 97-102, Böhm-Bawerk devotes a

few pages to McCulloch’s theory of interest, which is interwoven with

his theory of value. Böhm-Bawerk concludes: “McCulloch’s utterances on

the subject are one great collection of incompleteness, irrationality

and inconsistency.” The examples of McCulloch’s reasonings cited by

Böhm-Bawerk show the above judgment to be scrupulously just.

[78] _Letters of Ricardo to McCulloch_ (_Pub. Am. Econ. Assn._, Vol. 10),

pp. 131-2.

[79] See passage from a letter to McCulloch, quoted _ante_, p. 42.

[80] McCulloch’s edition of the _Wealth of Nations_, vol. iv, note 1, p.

75.

[81] _Ibid._, p. 77.

[82] Malthus, _Definitions_, pp. 100-101.

[83] McCulloch ed. _Wealth of Nations_, vol. iv, pp. 77-78.

[84] _Principles_, 4th ed., pp. 371-3.

[85] We omit the qualification regarding “socially necessary” labor, and

the theory of skilled labor as “condensed labor,” as not required for our

present point.

[86] If one granted, for the sake of argument, both the labor-cost law

of value and the iron law of wages, we should still lack the slightest

justification for deriving the latter as a corollary from the former. The

only theoretical basis of the iron law of wages is a rigid Malthusian law

of population, or labor supply, the alleged law so greatly abhorred by

Marx and all socialists.

[87] The elaborate special terminology developed by Marx for the problem

(not followed here) will be found explained in full in Böhm-Bawerk’s

excellent essay previously cited. This little book presents Marx’s theory

of value, the “contradiction” and the outcome, in the clearest possible

form. It would be useless to infringe on the territory covered by this

work, but Dr. v. Böhm-Bawerk did not mention the existence of the same

“contradiction” in classical English theory.

[88] _Das Kapital_, v. iii, p. 131; quoted by Böhm-Bawerk, _op. cit._, p.

49.

[89] “Die organische Zusammensetzung des Kapitals,” _Das Kapital_, vol.

iii, p. 124.

[90] Vol. iii, p. 138. See Böhm-Bawerk, _op. cit._, p. 67 _et seq._ There

are other arguments advanced by Marx for the redemption of his theory,

considered in order by Böhm-Bawerk, but that given is the first and

principal one. The second is that the law of value governs the _movement

of prices_. This is analogous to, if not identical with, Ricardo’s claim,

that changes in labor-cost are the causes of changes of values. See

_ante_, pp. 54-5.

[91] Pp. 55 _et seq._

[92] _Principles_, 4th ed., p. 371 (1849). The italics are mine.

[93] McCulloch edition of the _Wealth of Nations_, vol. iv, note viii, p.

200.

[94] “Dass die Abweichungen vom Werth ... sich gegeneinander aufheben.”

_Das Kapital_, vol. iii, p. 140. James Mill, in _Elements of Political

Economy_, pp. 112-113 (1826), said the same thing. When the general rate

of wages varies, for “the aggregate of commodities, taken all together,

there is neither fall nor rise.”

[95] _Elements of Political Economy_, London, 1826. This statement

probably came from Malthus, who laid down the general lines of the theory

of value in this same way in 1820.

[96] P. 96.

[97] Pp. 96-7.

[98] Pp. 99-100. The italics are mine.

[99] Pp. 102-3.

[100] P. 104.

[101] _Essay on the Production of Wealth_, London, 1821, p. 51. Torrens

considered his theory of “exchangeable value” quite original, (Preface,

p. 7.)

[102] P. 51.

[103] P. 53.

[104] P. 50.

[105] “Empirical,” in the particular sense of this term, adopted in the

opening chapter of this essay.

[106] Pp. 39-40. See also Preface, p. 7. This theory does not occupy a

prominent place in his book. The sum of accumulated and immediate labor

is what Ricardo considers to be the total labor cost of a good—under the

name of labor indirectly and directly applied.

[107] Presumably, in its turn, “_accumulated_.”

[108] Explanation of this follows shortly.

[109] In his _Principles_, 1st ed., 1820, and 2d ed., 1836, which was

considerably altered from the first. _The Measure of Value Stated and

Illustrated_, a pamphlet of 1823, and the _Definitions in Political

Economy_ may be mentioned, but the text of the two editions of the

_Principles_ suffices for any except the most minute investigation of his

views.

[110] Ricardo’s part is contained in his published letters to Malthus,

as well as those to McCulloch and Trower, but the letters of Malthus to

Ricardo have not, to my knowledge, been found for publication, except one

given in _Letters of Ricardo to McCulloch_, (_Pub. Am. Ec. Assn._, 10,

Nos. 5-6) p. 161.

[111] The law of supply and demand is not so simple as to preclude a

variety of ways of stating it, and the meaning of such conceptions as

_intensity of demand_, _equilibrium_ or _balance_ of supply and demand,

_etc._, requires careful reasoning to define. The history of the law in

English political economy would be concerned mainly with Malthus, J. S.

Mill, Cairnes and Marshall.

[112] _Principles_, 1st ed., pp. 73-4.

[113] _Ibid._, 74-5.

[114] _Ibid._, 76.

[115] _Ibid._, p. 83.

[116] The claim regarding the subordination of the law of costs is set

forth emphatically as follows: “If it appears generally that the cost of

production only determines the prices of commodities, as the payment of

it is the necessary condition of their supply, and that the component

parts of this cost are themselves determined [_i. e._, as values] by the

same causes which determine the whole, it is obvious that we cannot get

rid of the principle of demand and supply by referring to the cost of

production. Natural and necessary prices appear to be regulated by this

principle, as well as market prices, and the only difference is that the

former are regulated by the ordinary and average relation of the demand

to the supply, and the latter when they differ from the former depend

upon the extraordinary and accidental relations of the demand to the

supply.” _Principles_, 1st ed., pp. 84-85.

[117] Gonner ed., p. 376.

[118] _Letters to Malthus_, p. 176. Malthus’s contrary opinion is

defended at length by him in Sec. 11 of Chap. xi, on value, in the

_Principles_, 1st ed.

[119] Gonner ed., p. 6. The same thought is expressed in the first

paragraph of Chapter xiii, p. 171.

[120] The case is not presented by Malthus as one of two main arguments

with seven counts in total, but all except this division and the

numbering are his.

[121] 1st ed., pp. 104-5. This passage happens not to reappear in the 2d

ed., but all the points in it are still maintained there.

[122] As Malthus said in another place, “The effects of slow or quick

returns, and of the different proportions of fixed and circulating

capitals, are distinctly allowed by Mr. Ricardo, but in his last edition

he has much underrated their amount. They are both theoretically and

practically so considerable as entirely to destroy the position that

commodities exchange with each other according to the quantity of labour

which has been employed upon them, but no one that I am aware of has ever

stated that the different quantity of labour employed on commodities is

not a much more powerful source of difference of value.” _Measure of

Value Stated and Illustrated_, pp. 12-13.

[123] We have not happened upon a passage by Ricardo referring to the

third count, respecting good and bad crops, but Ricardo would undoubtedly

have considered that it did not invalidate his position. If agricultural

capital and labor remain the same in quantity while good and bad crops

alternate, the _cost of production per unit of crop_ varies as well as

the price. When the wheat crop is good the cost per bushel is low. The

price per bushel would also be low. If good crops mean low cost and low

value at the same time, they probably do not mean sinking of value and

cost in the same degree. The consequent deviation of value from cost is

probably what Malthus had in mind.

[124] 1st ed., pp. 102-3.

[125] The strange attempt of James Mill to show that the interest

element stands for labor also, mistook, as we showed in Chapter vi, the

replacement fund of an entrepreneur for his interest fund.

[126] In his notes in a French edition of Ricardo’s _Principles_, “_Des

Principes de l’Economie Politique et de l’Impôt_,” 2d ed. Paris (1835),

note, p. 12.

[127] _Essay on the Production of Wealth_, p. 65.

[128] The principle of this choice had very little in common with the

principle of the various “multiple standards of value” since proposed.

[129] 1st ed., pp. 128-9.

[130] 1st ed., p. 129.

[131] See _ante_, p. 27, n.

[132] 2d ed., p. 96.

[133] 2d ed., p. 57.

[134] Prepared as the article on “Political Economy” in the _Encyclopædia

Metropolitana_, 1836, but appearing as a separate work in numerous

reprints from this. Page references are good for any edition. The table

of contents looks systematic at first blush, but study of the text,

especially the part on the theory of distribution, soon dispels any

illusions concerning this point.

[135] Senior was, in my judgment, indebted fully as much to Malthus and

Say as to Ricardo. To all appearances much of interest in the writings of

Cairnes must have been suggested by the work of Senior.

[136] _Political Economy_, p. 6. These are the three constituents of

_wealth_, but things composing wealth are defined to be the same as

things of value. Curiously the qualification of transferableness is

held not to exclude personal talents from the category of wealth, for

these are considered to be things “imperfectly transferable.” A lawyer

transfers his talents to me when I hire him to plead my case. See pp.

9-10.

[137] P. 24. A similar passage, not so well expressed, is found in

Malthus, _Principles_, 1st ed., p. 74.

[138] P. 101.

[139] See _ante_, chap. vi, § 2.

[140] P. 58. Scrope, an English writer, 1833, said: “Profit is to be

viewed in the light of a compensation for abstaining for a time from

consumption in personal gratification.” Mentioned by Böhm-Bawerk,

_Capital and Interest_, p. 271. “But,” continues Böhm-Bawerk, “this same

idea which his predecessors merely touched on, Senior has made the center

of a well-constructed theory of interest.”

[141] P. 100.

[142] P. 97.

[143] P. 97. _Cf._ p. 105.

[144] But yet of all English writers previous to Jevons, he develops the

explanation most compatible with the utility theory of value.

[145] P. 101.

[146] P. 101.

[147] Pp. 91-2. P. 128, the question of nomenclature is discussed all

over again. Rent is “the revenue spontaneously offered by nature or

accident.”

[148] Pp. 91, 128-135. For general argument to justify inclusion of

personal qualities within _wealth_, see pp. 9-10.

[149] _Ibid._, pp. 129-30. Some of the extraordinary earning power or

ability of the laborer may be the result of education and training

for which sacrifices have been made. Such abilities are “_immaterial

capital_,” and the part of the whole wages due to them is really profit

on this capital (p. 130). Then wages of skilled or professional labor may

contain rent for inborn talents, _profit_ for abilities acquired through

the sacrifice called abstinence, and _wages_ for the real disutility of

labor incurred. “Forty pounds a year would probably pay all the labour

that [a lawyer] undergoes in order to make, we will say, £4,000 a year.

Of the remaining £3,960 probably £3,000 may be considered rent” (p. 134).

“The intellectual and moral capital of Great Britain far exceeds all her

material capital, not only in importance, but even in productiveness.”

_Ibid._

[150] P. 114.

[151] P. 112. The payment of rent in every case is but the wedging in of

a slice between value and the remuneration for cost of production.

[152] Pp. 100-101.

[153] P. 129.

[154] In an unobtrusive position further on in the book he adopts the

labor-command standard, but without discussion. “The best standard of

value for philosophical purposes appears to be the command of labour.”

This appears to be an uncritical and passing acquiescence in the views of

Malthus.

[155] _Principles_, 6th ed., vol. i, pp. 546-7. The language is

uncritical. Absolute limitation of supply is not a case of difficulty of

attainment, but a case of value apart from questions of difficulty of

attainment. Senior’s analysis was superior.

[156] Vol. i, p. 552.

[157] Vol. i, p. 561.

[158] Vol. i, p. 589.

[159] Vol. i, p. 568.

[160] The socialists’ attacks upon abstinence as a cost are really

directed against the _ethical_ coördination of it with labor.

[161] Vol. i, p. 574.

[162] Vol. i, pp. 569-70.

[163] Vol. i, p. 507.

[164] Mill emphasizes the fact that he is considering the causes of

variations in values. It remains true that both he and Ricardo should

have considered the causes of statical aberration of values from the

standard of labor cost.

[165] It may be useful to recall the explanation Ricardo made of his

position with regard to this point. “I have not said, because one

commodity has so much labour bestowed upon it as will cost £1000 and

another so much as will cost £2000 that therefore one would be of

the value of £1000 and the other of the value of £2000, but I have

said that their value will be to each other as two to one.... It is

of no importance to the truth of this doctrine, whether one of these

commodities sells for £1100 and the other for £2200, or one for £1500 and

the other for £3000.” (Gonner ed. Ricardo’s _Principles_, p. 39.) The

interest qualification signifies that the commodities may exchange at

other ratios than two to one.

[166] Vol. i, p. 566.

[167] Vol. i, pp. 566-7.

[168] Vol. i, p. 590.

[169] See Ricardo, _Principles_, p. 83. “Let us suppose that all

commodities are at their natural price, and consequently that the profits

of capital in all employments are exactly at the same rate, or differ

only so much as, in the estimation of the parties, is equivalent to any

real or fancied advantage which they possess or forego.”

[170] _Some Leading Principles of Political Economy Newly Expounded._

London, 1874.

[171] A third point might be taken up were it not for the fact that

Cairnes’s treatment of it is hardly worthy of consideration. This is

his rebuttal against the then newly appeared utility theory of Jevons.

Cairnes seems to have had virtually no understanding of the point Jevons

was trying to make.

[172] P. 9.

[173] See Marshall’s _Principles_, 3rd ed., p. 172, note, and also the

reference there cited, _Fortnightly Review_, April, 1876.

[174] P. 41. Cairnes claims, with great justice, that his term “normal

value” or “normal price” is superior to the old terms “natural” and

“necessary” price (p. 46).

[175] P. 82.

[176] P. 88. It is a waste of terms to call the duration and quantity of

labor the same thing, and consequently to consider the quantity of labor

cost and quantity of labor different things. Smith and Ricardo merely

touched on this matter, but the former says in a passage incorporated

also by the latter in his text: “There may be more labour in an hour’s

hard work than in two hours early business;” or quantity of labor is the

product of duration multiplied by disutility per unit of time; and this

is the preferable usage.

[177] P. 97. Abstinence is described as a “negative” sacrifice except for

the “small positive element of risk.”

[178] P. 50.

[179] P. 58.

[180] P. 95.

[181] Pp. 62-3.

[182] Pp. 65-70.

[183] P. 74.

[184] Pp. 72-3. Cairnes makes the same classification of the industrial

population into groups that Mill made. For criticism and a new

classification see Giddings, “The Persistence of Competition,” _Political

Science Quarterly_, vol. ii, p. 69 _et seq._; and J. B. Clark, “The

Limits of Competition,” _ibid._, p. 45 _et seq._

[185] P. 76. “Very frequently” ought really to be “nearly always.”

[186] P. 76.

[187] P. 80.

[188] P. 80.

[189] P. 98.

[190] Pp. 105-6. The italics are mine except for the word “average.”

[191] That is to say, for Senior and Cairnes, interest is no longer an

unexplained difficulty in the way of the cost philosophy of value, but

the conception of cost has been widened so as to include and explain the

case of interest. Cairnes has no longer a labor-cost philosophy, but a

subjective cost philosophy of value.

[192] P. 84.

[193] P. 78.

[194] _Principles_, chapter i, section iii. _Cf._ chap. v, sec. iv of the

present essay.

[195] The validity of a theory is not proved if _some_ tendency can

be shown to be in keeping with it. The tendency must be _effective_.

When the forces that oppose a tendency are relatively great, or the

mere obstacles in its way relatively immovable, the tendency cannot be

assigned the rank of a force or be laid down as an economic law, not

even a static law. True, the difference between an effective and an

inoperative tendency is only one of degree. This makes it difficult to

decide upon the claims of a proposed law in the particular case, but

this is a difficulty which cannot be avoided. The weaker the tendencies

taken cognizance of in a given static theory, the more idealistic or

refined is that theory. And, at least after a certain point is reached,

the more refined the theory becomes, in this sense, the less its degree

of validity. To illustrate this, we need but to refer to the present

question of skilled labor. Throughout the classical economics runs the

idea that the superior remuneration of skill really rewards the extra

disutility necessarily undergone in acquiring the skill. Now, if the

movement of men among occupations were calculated solely with reference

to this disutility, and were free enough, the actual wage of skilled

labor could be said to be adjusted to the disutility of the occupation,

including the past disutility of acquiring the skill. The extra part of

the wage would be a sort of interest on disutility already expended,

as suggested expressly by Adam Smith and by Senior. But we need not

pursue this idea into its minor complications. The point desired to be

made is that the tendency for actual wages of skilled labor to adjust

themselves to the disutility of the skilled labor is so submerged

(permit a questionable metaphor) beneath other forces, that it makes a

theory over-refined to recognize it as a law. I believe it possible to

justify nearly all the older theories of value by making a static state

to order for each writer, that is, by making one over-refined enough.

Put in other words, so far as the older economists were not guilty of

self-inconsistencies, their theories could be justified by granting them

sufficient _assumptions_. The latter is what we refuse to do. An example

of a legitimate static law is that wages tend to equal the specific

value-product of labor, as contrasted with the theory that wages tend to

adjust themselves to the disutility _of the task_ performed.

[196] “On Some Neglected British Economists,” _Economic Journal_, v.

xiii, pp. 357-363.

[197] _Ibid._, p. 527.

[198] See _ante_, pp. 44-5.

[199] Adam Smith nevertheless retains the “labor-command” measure of

value as applicable to the conditions of advanced society, for criticism

of which see _ante_, pp. 30 and 39.

[200] Since the chapter on Ricardo herein contained was written, it has

been suggested to the writer that he is mistaken in attributing any

“philosophical” account whatsoever to Ricardo, that in fact Ricardo’s

whole treatment is purely empirical. The writer cannot concur in this

judgment. It is admitted that Ricardo virtually takes this philosophy

for granted, instead of endeavoring to establish it, but the almost

appalling confusion into which his exposition of value falls when the

difficulty of interest is reached (see _ante_, chap. v, §§ 5-9) can be

explained, so it is believed, only according to Wieser’s interpretation

of Ricardo’s work. This is, namely, that he is endeavoring to force the

empirical principles, or the “facts” of entrepreneur’s cost, to fit the

labor philosophy. A thinker who confined himself to a purely empirical

analysis would never reach the labor-cost thesis with which Ricardo opens

at once his chapter on value and his _Principles of Political Economy_.

The thesis is _a priori_, that is, as contrasted with the theory of

entrepreneur’s cost. If Ricardo were working with merely an empirical

account of value, and were not embarrassed by an uncertain philosophy of

value, how would he ever come to speak of the cost of production, which

determines value, as consisting of “labor and profits!” He should say

“wages and profits.” Again, how would he be led to commence his chapter

on “Natural and Market Price,” by the assertion that the market price

of a commodity can deviate temporarily from its “natural price, or the

quantity of labor which it has cost!” No empirical theory would lead

to the statement that the normal price toward which competition forces

actual prices is a _quantity of labor_. This natural price is Adam

Smith’s “philosophical” natural price or “first price,” namely, labor.

[201] He stated it in the form of an admission that, besides changes in

labor cost, there can be a second cause of _variations_ of the exchange

ratios between commodities, namely a rise or fall of the general rate of

interest. He first stated the second cause to be a fall or rise of the

general rate of wages, but in his view this is equivalent to a rise or

fall of “profits,” _i. e._, interest. See _ante_, chap. v, §§ 7 and 8.

[202] Senior—the attacks of Marx upon him notwithstanding—was far from

assigning to these two elements equal ethical importance.

[203] Senior’s rent to skill is an entirely different form of surplus

from that due to the excess of utility produced above disutility incurred

in the “earlier” parts of the working day of all labor. So long as the

length of the working day is left to the worker himself, he will stop

when the terminal utility and disutility are equivalent. All previous

parts of the day produce a surplus of utility. This is the surplus which

occupies an important place in J. B. Clark’s theory of value. Compare

Marshall’s “producer’s” and “consumer’s rents.” Senior’s “rent to

scarce natural talents” is explicable only on the supposition that the

disutility endured and the return of utility enjoyed by a skilled laborer

can be compared with the same quantities for an unskilled laborer.

Senior means merely that skilled laborers obtain higher returns at lower

sacrifices as compared with unskilled. A certain part of the return

enjoyed by the skilled laborer is equivalent to that enjoyed by the

common worker; the part in excess of this is the rent. Senior considers

it analogous to the rent which goes to lands of superior fertility.

Further consideration will be given in a later section to the relation of

skill to the labor theory of value.

[204] January, 1894, p. 218.

[205] In the _Journal of Political Economy_, vol. ii, p. 561.

[206] _Theoretische Socialökonomik_, 1895, vol. i, p. 205.

[207] _Theoretische Socialökonomik_, 1895, vol. i, p. 233. Dietzel

supposes that Smith conceived of labor solely as “_Unlust_,” but in this

he is clearly mistaken. See _ante_, chapter iv.

[208] See _ante_, p. 86.

[209] For an excellent discussion of the term “esteem value” see Walsh,

_The Measurement of General Exchange Value_, pp. 1-6. The writer is

greatly indebted to Walsh’s discussion of the value concept. The two

kinds of value here distinguished are the same as those designated

objective exchange value and subjective value by the Austrian writers.

[210] As, for instance, by Pantaleoni, _Pure Economics_, p. 123.

[211] This definition by itself does not of course make clear the

ultimate source of this power. For proximate and practical purposes the

weight of a pound nugget of gold might well be defined as its power to

counterbalance in the scales a certain piece of metal, the standard troy

pound. This definition contains no hint of the common source of the

counterbalancing power of both weights. In the same way the above-given

definition of exchange value ignores a certain common source of all

exchange values.

[212] For a discussion of certain avoidable objections that have been

made to the concept of purchasing power, see Walsh, _op. cit._, pp. 7 and

8.

[213] It takes little discernment to see that this statement is

not equivalent to saying that the formulation of a theory of value

is a greater accomplishment than was the formulation of the law of

gravitation. The writer does not plead guilty to implying that.

[214] See _Grundsätze der Volkswirthschaftslehre_, Wien, 1871, p. 78.

“Der Werth ist die Bedeutung, welche concrete Güter oder Güterquantitäten

für uns dadurch erlangen, dass wir in der Befriedigung unserer

Bedürfnisse von der Verfügung über dieselben abhängig zu sein uns bewusst

sind.” Menger gives this as a definition of value simply, but it is of

course a definition of that particular kind of value which we have agreed

to call “esteem value.”

[215] Of course this power in the good exists only in relation to some

human being. It is perfectly true that the good would have no such power

if there were no man to use it, and that its power may change as the

condition of the man using it is changed, and that its power over one

man is different from its power over another. For these reasons, utility

has often been declared to be subjective, as if it resided in the mind

of the man. Whether it is subjective or objective depends precisely upon

what one means by these terms. Practically we may say that our habitual

thought correctly refers the utility to the good and conceives it as

an attribute belonging to the good in virtue of its common physical

properties. The utility of the good does not exist in the mind except

in the sense in which all things exist in the mind. We should at least

say that utility has objective reference. The satisfaction belongs to

the mind, the utility to the good. The utility is a sort of objective

counterpart or projection of the satisfaction.

[216] “Gossen’s law.”

[217] That is, it applies only where goods are held in stocks by

individual consumers. Thus the “esteem” value of a piano commonly has

nothing to do with “marginal” utility. Only if consumers were to own

pianos in stocks—to use several at once—would there be grounds for

speaking of the marginal utility of a piano. For further consideration of

this point see the next section.

[218] Professor v. Wieser explains that the reason why we attribute a

superior importance to a good that has marginal utility as compared with

a good that is superabundant, is because we have a “natural indifference”

toward goods in general, which can only be overcome when the good is

so scarce that its absence would decrease our satisfactions. _Natural

Value_, p. 29. This would seem to be explaining the thing by itself.

The ultimate origin of this “natural indifference” is what calls for

explanation.

[219] _Positive Theory of Capital_, book iv, especially chap. iv.

[220] As Professor Macvane exclaims, the Austrians seem to reason as if

the good fairies determined what the supply of commodities shall be. See

_The Quarterly Journal of Economics_, vol. v, p. 24. Concerning Professor

Macvane’s general attacks on the Austrian position, it is only fair to

say, however, that he appears in the main issues entirely to miss the

point of the utility theory. See also the same journal, vol. vii, p. 255,

and the _Annals of the American Academy of Political and Social Science_,

vol. iv, p. 348.

[221] This enquiry must constitute the first part of the theory of

exchange value, since it is quite beyond dispute that cost in any form

can influence exchange value only by influencing supply. Value will rest

at the level of cost only when the supply of the good is at just the

proper point. When the supply is at any other point, as in the case of

monopolies, value no longer rests at the level of costs. But value is

still determined by certain other influences. The description of these is

the first problem.

[222] If the good be of a kind held by consumers in stocks, it should go

without saying that instead of a buyer being entirely excluded by a rise

of price, only the marginal increments of his purchases may be excluded.

[223] Employing Professor Marshall’s terminology we would say that

the “social demand schedule” is a _resultant_ from combining all the

“individual demand schedules.”

[224] See his _Introduction to the Theory of Value_, p. 37.

[225] See his _Theoretische Socialökonomik_, 1895, p. 282.

[226] As pointed out in section 2 of this chapter.

[227] Or at any rate, if not by decreasing their marginal utility,

by decreasing their marginal price equivalent. See the section just

preceding.

[228] Explanation of the principles in accordance with which the various

classes of production goods share in the value of the product is but a

part of the theory of distribution viewed in a particular way.

[229] The use of some kinds of production goods cannot be increased

without increasing to the same extent the use of certain other kinds in

the same production, but it can be shown that this does not change the

general principle of the case.

[230] When a single-use production good is short-lived instead of

durable, so that it receives its value from its product in one payment,

instead of a series of payments in time, we do not call its value return

a “rent.” Its value is nevertheless “price-determined” in the same sense

as the rents just discussed and belongs to the same category as these

rents.

The term “price-determined rent” has, among professed followers of

Ricardo (such as Professor Marshall who holds to Ricardo’s theory in the

main), come to mean the income to a durable single-use production good.

In the most unfortunate terminology of the Ricardian school—which the

writer believes can be traced back to their ultimately false philosophy

of value—a “price-determined rent” is one which “does not enter into

price.” But the leading exponents of present-day Ricardian doctrine

are now agreed, it seems, that when a production good is capable of

more than one application—as land to wheat or fruit or pasture—its rent

_does enter_ into the price of its product. Therefore they mean by a

price-determined rent, not the rent of such a good, but the rent of a

single-use production good.

[231] A plausible argument could be made to show that we have Ricardo’s

authority for maintaining that price-determined rents must not be

considered a part of entrepreneur’s cost. For Ricardo said “rent cannot

enter in the least degree into price.” But there can be no question that

by this he meant that rent cannot enter into cost of production. As was

frequent with him, he did not say precisely what he meant. Malthus had

said that cost of production includes wages, “profits,” and rent, and

that profits and rent, not being paid for labor, prevented the regulation

of value by pure labor cost. Ricardo admitted that profits enter into

cost but minimized the difficulty thus granted in the labor theory. On

the contrary he denied that rent enters into cost. The first paragraph of

his chapter on rent shows it to be his purpose in that chapter to justify

this denial. Later he stated his contention as being that rent cannot

enter into “price,” instead of cost.

Now Ricardo frequently thought of cost as being composed of “labour

and profits”! In most places we can make his reasonings clear only by

substituting for this hybrid concept a plain concept of entrepreneur’s

cost. If Ricardo habitually meant entrepreneur’s cost by the words

“cost of production,” then his famous doctrine comes to signify that

price-determined rents are not properly a part of entrepreneur’s costs.

As far as the present writer can see, our decision in this regard is

purely a matter of arbitrary choice between two possible definitions of

entrepreneur’s cost. As far as Ricardo is concerned, he had no clear

and definite concept or concepts of cost. Into _potentiality cost_, a

price-determined rent assuredly does not enter.

[232] The value of the iron may fall earlier in time than the value of

its products, because entrepreneurs using it know beforehand that the

increased products of pig will have to be sold lower.

[233] _Principles of Economics_, 4th ed., 1898, p. 428.

[234] Professor Clark’s theory appeared first in the _New Englander_ for

1881. Gossen’s statement of the same fundamental idea was much earlier,

but the strange fate of his work is known to all. Professor Clark’s

theory of value was developed by him independently of Gossen and of

Menger and Jevons as well.

[235] See the _Distribution of Wealth_, chap. xxiv.

[236] So large an increment as an hour is taken merely as a matter of

convenience. There is a certain form of attack upon all marginal methods

of theorizing in economics which is always met by making the increments

infinitesimal. It is hardly necessary to guard against that attack here.

[237] The curious reader would find it of interest to compare Professor

Smart’s statement that the value of a good is almost always in the end

measured by a “foreign utility.” “The value of a horse may be measured

by the foreign utility of a summer vacation.” See _Introduction to the

Theory of Value_, pp. 37-8. Much dialectical exercise of interest could

be had by comparing fully the precise formulæ of “marginal” utility

developed by the Austrian economists and Prof. Clark’s formula. Clark’s

theory is at bottom in harmony with the Austrian, but goes further.

[238] See _op. cit._, p. 380.

[239] _Ibid._ p. 389.

[240] _Cf._ _ante_ p. 145.

[241] A brief comparison of the Austrian concept of “marginal utility”

with Clark’s concept of “effective utility” may be of interest. Many

kinds of goods are divisible into parts without changing their economic

nature. Grain is a good example. A piano is an example of the other kind

of good, the unit good. When a given good is divisible into increments,

the Austrians point out that the value of any or every increment depends

purely upon the satisfaction afforded by the last used or least useful

increment. Putting it in another way, they say the marginal utility of

the good is the actual utility of the last increment, and value depends

on marginal utility. The very essence of this principle is that the value

of a thing, as for instance first increment, does not depend on its own

exact utility. Professor Clark, developing his thought in his own way,

and using a different terminology, goes further than the Austrians, but

along the same line. The “effective” utility of a good is not its own

utility, but is that other least utility produced by the same amount of

labor. The Austrians state that the value of any bushel of wheat depends

on the utility of the “last” bushel, because if any bushel is removed the

result will be that the last bushel is really given up, or any bushel

is in effect the last. Clark points out that among goods which are all

freely reproducible, the value of the product of any unit of labor time

depends on the utility of the least useful product produced by a unit

of labor time, though this other least useful product be an entirely

different kind of good and not an increment of the same kind of good.

Many minute questions in this connection we may pass for lack of space.

[242] Without attempting a systematic classification of kinds of causes,

we all know that such is our notion of cause that we can conceive of many

causes which bear no assignable quantitative relation with their effects

(_i. e._, effects for which they are partly responsible). The pressure of

an electric button “caused” the Hell Gate explosion (after conditions—_i.

e._, other causes—were prepared) but the amount of pressure put upon this

button, or the size of this button, had nothing to do with the quantity

of the explosion or the amount of work done in the explosion. We are

permitted to speak of the act of pressing the button as a cause, but not

as a regulator (except with respect to the _time_ of the explosion, an

irrelevant consideration here), for a regulator is a cause the quantity

of which determines the quantity of the effect. It should be noted that

when the quantity of the cause is compared with the quantity of the

effect, to show that the former regulates the latter, the quantity of

the cause must be established independently of the quantity of this same

effect; otherwise the fallacy of reasoning in a circle is committed. This

digression does not lead us so far astray from the theory of value as

might be supposed. This precise fallacy has been committed time and again

in the reasonings that have been brought to the support of the labor

theory of value. For instance when the term “labor” is used to signify

disutility or cost (instead of productive power) by the expounders of

the “difficulty of attainment” philosophy of value, and it is asserted

that the labor cost of a good regulates its value, the objection is

soon encountered that skilled labor produces a greater value per day

than common. Thereupon it is frequently explained that skilled labor is

condensed, or counts as more labor per day than common. As a matter of

fact, we all know that in the vast majority of cases, skilled labor,

measured independently of the value produced by it, and measured as a

quantity of labor in the sense of disutility, is less labor per day than

common toil.

[243] Whenever, of course, the man acting for himself, places himself in

the relation with the good which permits its power to become effective.

Compare the discussion in section ii of this chapter. No apology is

offered for the present “discussion of mere words” as it might be termed

by the hostile. These discussions contribute to clearness of thought

upon questions of theory, and clearness of thought in theory is certain

from time to time to be of benefit to discussions of many proximate and

practical issues. For instance, we find recently a well known writer

explaining that “scientifically” the distribution of money among nations

is so governed that money reaches the level of equal “marginal utility”

in the different countries. See a paper entitled “The Distribution of

Money,” _Journal of Political Economy_, vol. ix, p. 49. This proposition

has no meaning, and is authorized by nothing in the Austrian theory,

though the writer quotes the Austrians freely. A little “word discussion”

by “practical” writers might enable them to see when they are covering up

the absence of an explanation by mere conjuring with formulæ whose real

meaning has not been ascertained.

[244] The term “disutility” is almost universally used as equivalent

to “discomfort,” that is, as being purely subjective. This makes it

available as an opposite of satisfaction (or of utility according to the

usage of those writers who use the latter as a subjective term) but the

same usage debars its employment as the opposite of utility in the sense

advocated in the present essay.

[245] The determination of Crusoe’s supply of a good at this point, which

fixes the subjective value of the good, bears a few obvious analogies to

the determination of competitive exchange values in the social market at

the point of “normal equilibrium of supply and demand,” as described by

Professor Marshall.

[246] Reasons will appear later, it is believed, to show that when we

reach the complex case of real social industry and exchange value the

control of cost over value will be much more impaired than that of

utility.

[247] It has already been shown why it is quite impossible to hold to the

opinion that cost is the essence of value. _Cf._ _ante_ pp. 34-5.

[248] A man may receive part of his income by gift or inheritance and

earn a part. The latter part becomes in this case a sort of marginal

portion. Though all of his dollars have not cost him disutility, some

of them have, and upon principles already discussed, any dollar has the

“effective” disutility cost of the most costly dollars. This is just as

true as the fact that the first hours of labor may sometimes be play and

yet their product always counts as having a disutility cost because of

the disutility of the final hour.

[249] The reader should bear in mind that the “theory of price,” in

which exchange value is explained according to the utility theory of

value, involves so comparison whatever of the satisfactions of different

persons. See _ante_, § 4.

[250] This kind of affirmation is, however, very common, and hence the

presumption is that it has a legitimate meaning.

[251] Suppose a machine is destroyed in the making of 100 units of

a certain product. Then the total labor cost of each of these units

contains ¹⁄₁₀₀ of the total labor cost of this machine. This is explained

by Ricardo and by recent followers of Ricardo, as for instance by

Professor Macvane in his text book. Another earlier machine was partly

used up in making this first one. Perhaps it contributed ¹⁄₁₀₀₀₀ of its

total labor cost to this first. Then each of our products contains in its

total labor cost ¹⁄₁₀₀ of ¹⁄₁₀₀₀₀ of the total labor cost of the machine

of the second generation back.

[252] Using capital here in the sense of means of production that are

themselves products of labor. We will go so far in our illustration as to

suppose that the land has never had labor expended upon it to drain it,

or in any other way to “fix an element of capital in it.”

[253] In this illustration the marginal cost is five times as high as the

“total cost” or total average cost of a bushel, but this ratio could have

no significance even if the data of our illustration were approximately

true with respect to the _direct_ labor cost of wheat on good land, for

we have eliminated from the real total labor cost all of what Ricardo

called the “indirect” labor cost, by eliminating capital.

[254] Ricardo frequently supposed his doses to consist of sums of money

expended by the farmer, or to consist of increments of money capital.

These doses of money, however, would be expended for capital goods and

labor power conjointly.

[255] Traced in the fifth chapter of the present essay.

[256] That is to say, when we affirm that in our theory we can

disentangle the specific product of labor, we mean that entrepreneurs in

practical effect do ascertain the marginal product of labor in making up

their labor forces.

[257] Sometimes “pure capital.”

[258] _Distribution of Wealth_, p. 119.

[259] See _ante_, chap. vii, §§ 4 and 5.

[260] Adopting the view of the income of capital taken by Professor Clark

and advocated with so much force by Professor F. A. Fetter.

[261] By this phrase we mean always _in relative proportion_, so that the

value of A is to that of B, as the cost of A is to that of B.

[262] Put in proximate and practical language, the amount of ore that can

be taken profitably from a mine depends jointly on the price of the ore

at the surface and the wages of labor.

[263] A rise of the exchange value of the specific product of labor

compensates for superior disutility by enabling the laborer to purchase

things of higher esteem value with his enhanced wages. In other words,

we have been explaining the familiar doctrine that wages tend to be

higher in employments of higher cost. If a laborer were free to choose

the precise length of his own working day, he would stop when the final

disutility of the labor and the utility of the commodities purchased by

the marginal increment of wages are equivalent.

[264] Or, as Walsh states, it may also be defined as the article’s

purchasing power over all goods including itself. This is not the same

concept, but is one equally entitled to the name “general purchasing

power.” _Op. cit._, p. 13.

[265] The meaning of this condition, it is hoped, will be apparent from

the discussion in section 6.

[266] See p. 151.

[267] See p. 151.

[268] This proposition is stated loosely as being that an increase of

supply lowers value by reducing marginal utility. In many cases, exchange

value is lowered by a decline of marginal utilities, but not always. See

p. 152-4.

[269] Compare p. 160.

[270] See p. 179.

[271] Even as economic quantities go. For concept of total pain cost see

p. 182.

[272] See p. 183.

INDEX OF AUTHORS MENTIONED.

Böhm-Bawerk, 62, 68, 95, 135, 147-9.

Cairnes, 9, 14, 29, 80n, 93n, 111, chap. x, 128, 134.

Clark, J. B., 37, 59, 108, 120n, 133n, 166-71, 178, 183-7.

Davenport, H. J., 136.

Dietzel, H., 45, 136, 137, 138n, 153.

Fetter, F. A., 187n.

Giddings, F. H., 120n.

Gossen, 37, 128, 166.

Green, D. S., 136.

Ingram, J. K., 18n.

Jevons, 37, 98, 114, 128.

Lauderdale, 89.

Lloyd, W. F., 128.

Longfield, Mountifort, 128.

Macvane, S. M., 149n, 183n.

Malthus, 9, 11, 12, 14, 15, 21, 26, 37, 41, 50, 52, 63, 74, chap.

vii, 93n, 94, 95, 102, 104-5, 112, 132, 139, 163n.

Marshall, 9, 14, 80n, 115, 133n, 150, 151n, 163n, 165n, 175n, 194.

Marx, 36, 42, 47, 61, 64-70, 129, 132n.

McCulloch, 9, 11, 31n, 42, chap. vi, 93, 95, 101.

Menger, 20, 89, 128, 143, 145, 171.

Mill, James, 9, 11, 31n, chap. vi, 87n, 93.

Mill, J. S., 9, 14, 15, 56, 80n, 89, chap. ix, 115, 116, 121, 133-4.

Pantaleoni, 141n.

Ricardo, 9, 10, 11, 14, 15, 21, 26, 27, 31, 35, 36, chap. v, 61, 62,

64, 68, 69, 73, 74, 79, 80, 82-8, 89, 90, 91, 93n, 94, 101,

102-3, 104-5, 106, 108, 109, 110, 111, 112-13, 124-6, 129,

130-2, 133, 137, 163n, 182, 185.

Roscher, 167.

Say, J. B., 14, 44, 46, 89, 93n, 94, 97, 101, 129.

Scrope, 95n.

Seligman, 128.

Senior, 9, 41, chap. viii, 104-5, 106, 112-13, 114, 116, 123, 133.

Smart, Wm., 152, 169n.

Smith, 9, 11, 13, 14, 15, chaps. ii-iv, 41, 43, 44, 45, 50, 56, 80,

81, 87, 88, 89, 90, 91, 98, 128, 129-30, 137, 138n, 139, 181.

Torrens, 9, 11, 32n, chap. vi, 89, 93, 95, 138.

Walras, 128.

Walsh, C. M., 140n, 141, 191n.

Wieser, 12, 43, 131n, 135, 146n, 156.

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