ECONOMIC SOCIAL VALUE
How are we to get out of our circle:[163] The value of a good, A, depends,
in part, upon the value embodied in the goods, B, C, and D, possessed by
the persons for whom good A has "utility," and whose "effective demand" is
a _sine qua non_ of A's value? The most convenient point of departure seems
to be the simple situation which Wieser has assumed in his _Natural
Value_.[164] Here the "artificial" complications due to private property
and to the difference between rich and poor are gone, and only "marginal
utility" is left as a regulator of values. But what about value in a
situation where there are differences in "purchasing power"? How assimilate
the one situation to the other?
A temporal _regressus_, back to the first piece of wealth, which, we might
assume, depended for its value solely upon the facts of utility and
scarcity, and the existence of which furnished the first "purchasing power"
that upset the order of "natural value," might be interesting, but
certainly would not be convincing. In the first place, there is no unbroken
sequence of uninterrupted economic causation from that far away
hypothetical day to the present, in the course of which that original
quantity of value has exerted its influence. The present situation does not
differ from Wieser's situation simply in the fact that some, more provident
than others, have saved where others have consumed, have been industrious
where others have been idle, and so have accumulated a surplus of value,
which, used to back their desires, makes the wants of the industrious and
provident count for more than the wants of others. And even if these were
the only differences, it is to be noted that private property has somehow
crept in in the interval, for Wieser's was a communistic society. And
further, an emotion felt ten thousand years ago could scarcely have any
very direct or certain quantitative connection with value in the market
to-day. Even if there had been no "disturbing factors" of a non-economic
sort, the process of "economic causation" could not have carried a value so
far. It is the living emotion that counts! Values depend every moment upon
the force of live minds, and need to be constantly renewed. And there would
have been, of course, many "non-economic" disturbances, wars and robberies,
frauds and benevolences, political and religious changes--a host of
historical occurrences affecting the weight of different elements in
society in a way that, by historical methods, it is impossible to treat
quantitatively.[165]
What is called for is, not a _temporal regressus_, which, starting with an
hypothesis, picks up abstractions by the way, and tries to synthesize them
into a concrete reality of to-day, but rather a _logical analysis_ of
existing psychic forces, which shall abstract from the concrete social
situation the phases that are most significant. This method will not give
us the whole story either. Value will not be completely explained by the
phases we pick out. But then, we shall be aware of the fact and we shall
know that the other phases are there, ready to be picked out as they are
needed, for further refinement of the theory, as new problems call for
further refinement. And, indeed, we shall include them in our theory, under
a lump name, namely, the rest of the "presuppositions" of value.
Our reason for choosing a logical analysis of existing psychic forces
instead of a temporal _regressus_--instead, even, of an accurate historical
study of the past--is a twofold one: first, we wish to coordinate the new
factors we are to emphasize with factors already recognized, and to emerge
with a value concept which shall serve the economists in the accustomed
way--it is illogical to mix a logical analysis with a temporal _regressus_.
But, more fundamental than this logical point, is this: the forces which
have historically _begot_ a social situation are not, necessarily, the
forces which _sustain_ it. The rule doubtless is that new institutions have
to win their way against an opposition which grows simply out of the fact
that we are, through mental inertia, wedded to what is old and familiar. We
resist the new _as_ the new. Even those who are most disposed to innovate
are still conservative, with reference to propaganda that they themselves
are not concerned with. The great mass of activities of all men, even the
most progressive, are rooted in habit, and resist change. When, however, a
new value has won its way, has become familiar and established, the very
forces which once opposed it become its surest support. Or, waiving this
unreflecting inertia of society, as things become actualized they are seen
in new relations. What, prior to experiment, we thought might harm us, we
find beneficial after it has been tried, and so support it--or the reverse
may be true. The psychic forces maintaining and controlling a social
situation, therefore, are not necessarily the ones which historically
brought it into being.[166]
We turn, therefore, to a logical analysis of existing social psychic forces
for our explanation of social economic value, and for the explanation of
the motivation of the economic activity of society. It will still pay us,
however, to halt for a moment in Wieser's hypothetical "natural" community,
for we shall find there that many of the concrete complexities which he
sought to eliminate have really persisted in slight disguise. Really there
is no such simplicity as Wieser supposes. The "natural" society has,
indeed, no private property, or differences between rich and poor, but it
has, none the less, _legal_ and _ethical_ standards of _distribution_,
which are just as efficient in the determination of economic values as are
the results of our present system of distribution. The term, "natural," has
misled Wieser, when it leads him to say that marginal utility alone will
rule. For "natural" here means, not "simple," but "ethically ideal." The
word has--as Wieser and others who have used it often fail to see--a
positive connotation of its own: a definite set of legal and ethical values
are bound up in it in this case. That such a society should exist, and that
in it "marginal utility" should be the only _variable_ affecting value
(apart from the limitations of physical nature), implies the legal rule of
equality in distribution, and such a set of moral values actually ruling
the behavior of the people as to make this legal rule effective,--or else
the most extraordinary activity on the part of the government to maintain
the rule. Wieser himself fails to see this, for he concedes that the
"moral" principle of distribution in such a society would recognize the
superior merits of the leaders who furnish ideas and direction, as
entitling them to a higher reward than the merely mechanical laborers.[167]
But this, it is evident, would give them an excess of that same vexatious
"purchasing power"[168]--whether embodied in gold or commodities or
labor-checks matters little--and so would destroy the efficiency of the
principle of "marginal utility" as the ruler of values.
As phases in the "presuppositions" of economic value, then, coordinate with
"marginal utility," our theory puts the legal and ethical values concerned
with distribution, which rule in a community at a given time. Reinforcing
and validating the values of _goods_ are the social values of _men_.
President F. A. Walker[169] defines value as "the power an article confers
upon its possessor _irrespective of legal authority or personal
sentiments_, of commanding, in exchange for itself, the labor, or the
products of the labor, of others." [Italics are mine.] In our view, this
definition is precisely wrong. A change in laws or in morals respecting the
social ranking of men, respecting property rights, will at once affect
economic values. Earlier economists often wrote as if distribution were
primarily a physically determined matter, and so we got from them an "Iron
Law of Wages," etc. But it is pertinent to quote from one who, though in
many ways allied to the older school, and in value theory avowedly their
follower, still stands as a bridge between the theories I am criticizing
and my own. John Stuart Mill[170] says:--
The laws and conditions of the production of wealth,
partake of the character of physical truths. There is
nothing optional or arbitrary in them.... It is not so
with the Distribution of Wealth. That is a matter of
human institution solely. The things once there,
mankind, individually or collectively, can do with them
as they like. They can place them at the disposal of
whomsoever they please, and on whatever terms. Further,
in the social state, in every state except total
solitude, any disposal whatever of them can only take
place by the consent of society, or rather of those who
dispose of its active force. Even what a person has
produced by his individual toil, unaided by any one, he
cannot keep, unless by the permission of society. Not
only can society take it from him, but individuals
could and would take it from him, if society only
remained passive; if it did not either interfere _en
masse_, or employ and pay people for the purpose of
preventing him from being disturbed in the possession.
The distribution of wealth, therefore, depends on the
laws and customs of society. The rules by which it is
determined, are what the opinions and feelings of the
ruling portion of the community make them, and are very
different in different ages and countries; and might be
still more different, if mankind so chose.
The distribution of wealth, then, depends on social psychic forces. And
among these are the social, ethical and legal values of men and of social
classes. Economists of an earlier school took these factors for granted,
when they thought of them at all, and assumed that they are constant,
relatively unchangeable things, a sort of fixed framework within which the
forces of a Malthusian biology, or the forces of "self-interest" might
work. Commonly, indeed, they thought of them not at all, and wrote as if
the factors which they allowed to vary told the whole story. Such is,
indeed, still the procedure, in our present day "pure economic" theories of
distribution, which either exclude the non-economic factors,[171] or else
relegate them to the "pound of '_caeteris paribus_.'"[172] If ours were a
stagnant civilization, this procedure might be safe, but in a highly
"dynamic" society, where laws, morals, class relations, the very
fundamentals of organization, are being made the subjects of scrutiny,
agitation, class struggle, etc., are being subjected to "transvaluations,"
and are continually changing them with the principles, machinery and
results of distribution, and so one of the biggest factors lying back of
economic values, no study of value can afford to ignore them.
It is of course recognized that a purely ethical and legal theory of
distribution would be as much an abstraction as the "_reinwirtschaftlich_"
theory of distribution--and probably a much less useful abstraction. Either
abstraction is legitimate, if it do not seek to abolish the other factors.
We may safely enough define a set of legal and moral values, concerned with
the organization of society and industry, and, assuming them constant, a
sort of frozen framework, let man's values with reference to the immediate
consumption and production of economic goods ("utilities and costs" in
current phrase) vary, and see what the consequences, both on the ranking of
men, and the ranking of goods, will be. Or, assuming "utilities and costs"
constant, we may let the legal and moral values vary, and see what
consequences would follow. Or, assuming all other factors constant, we may
vary the size of the population, or vary the proportions between labor and
productive instruments, or between land and population, or pick out any
other factor of the concrete situation we happen to be interested in, as
the "standard of living," and let it change, and see what consequences
flow therefrom. But, in doing this, we must not forget that the other
factors remain essential, equally potent in the general situation with the
one on which we have centred our attention. And we must not forget that
changes in one factor, while we may in thought allow it to occur alone,
cannot occur without bringing in changes in the others as well. An increase
in the number of laborers, e.g., may also mean an increase of _voters_ of a
given political tendency, and may mean a change in the political power of
classes, and a change in the laws. And it may be tremendously significant
whether the increased number of laborers consists of Irish Catholics, or of
Russian Jews, or of native Americans, or of negroes,--significant from the
standpoint of distribution, of the values of economic goods, and the
direction of economic activity.[173] Reduce your labor force to "efficiency
units," so that from the standpoint of productive power of the additions no
difference is made whether they be of the one class or the other, and still
it is a matter of consequence, from the standpoint of distribution, and
ultimately of the values of goods, whether they belong to one class or the
other. One sort of laborer may be capable of efficient labor-union
organization, with the result that a large share of the product goes to
labor. Another sort of laborer may be incapable of much organization, may
work at cross-purposes with the rest of the labor force, and may be an easy
victim of exploitation. "Other things equal," we may concede that
productive efficiency, or "standard of living," or other abstract
principle, determines the share that goes to labor--but many indeed are
"the other things." The distribution of wealth is not an "arbitrary"
matter--if by that it be meant that no scientific laws can be worked out to
describe it. Mill himself would be first to protest against any
metaphysical "freedom of the will" here. But it is a matter into which law
and morals and personal friendship and monopoly privilege and charity and
benevolence and statesmanlike purpose and selfish struggle--in a word, the
whole intermental life of men in society--are involved. And any principle
of distribution that we may select is only true, not only if other things
are "equal," but also if other things are in a particular set of relations.
We have seen the assumptions of a non-economic sort that are implicit in
Wieser's conception of a "natural society." It may be interesting to note
what is involved in the situation which Professor Clark treats in his
_Distribution of Wealth_. That his system should hold, we must have, of
course, private property, and personal freedom. We must have perfectly free
competition. We must have absolutely no monopoly privilege of any sort. We
must have such rapid and free communication of ideas that no monopoly of
knowledge should exist. But imagine the moral values that must rule in a
society where such a situation holds! How are men to be prevented from
getting monopolies? How prevent laws in the interests of the alert and
influential? How prevent the monopoly of ideas? A very different moral
situation must obtain in such a society from that we know. And a very
different system of laws. In saying this, of course, I say nothing that was
not obvious enough to Professor Clark when he constructed his system on the
basis of "heroic abstraction," but still it cannot be neglected. Not every
one who has undertaken to interpret Professor Clark, and to make practical
application of his theories, has seen these limitations.
Or, again, what does the system of competition mean? Why do we have such
varied estimates from different writers? Why do some see in it a benevolent
influence, while for others it is a ghastly nightmare? The answer is, I
think, that competition is an abstraction, which each makes in his own way.
If we look on competition as a system where each is free to follow his
"pure economic" tendencies in the shortest and simplest manner, I think
there can be no question but that we must condemn it. The "pure economic
impulse," namely, the impulse to get the maximum of wealth with the
minimum of effort, left unchecked and unguided by any other social forces,
would lead, by the shortest and simplest path, to theft, robbery, and
murder. They are easier than work! And more sensible than work, if one be
"_reinwirtschaftlich_," and live in a society where there is little chance
that he who creates wealth will enjoy it. Or, partly checked by social
constraints (thinking of these as "external" matters solely), the "economic
tendency" may lead--as it has led--to the dynamiting of rival plants, to
the securing of preferential rates from common carriers, to the corrupting
of legislatures and judges, to the spreading of false rumors, etc. On the
other hand, if the "rules of the game" are high, if competition be limited
to doing things which result in a better commodity with a decreased outlay
of human effort and physical resources, and with kindly feeling among
competitors (or even without this last), we may see in it a great source of
justice and progress. It all depends on what Professor Seligman calls the
"level of competition."[174] That is to say, it depends on the extent to
which the system includes factors of moral, legal and social nature, other
than the "pure economic"--a thing "that never was on land or sea."
And what shall we say of "inevitable economic tendencies"? A good many of
them--leading in diverse directions--have appeared in the literature of
economics. On the one hand, inevitable tendencies towards a divine
"economic harmony." On the other hand, inevitable tendencies toward
monopoly; toward ever more numerous panics; toward greater concentration of
wealth; toward proletarian misery of an ever more hopeless sort--all
bringing us finally to a socialistic state. I see no inevitable economic
tendencies anywhere. The "economic motive," as already indicated, if left
free to work in vacuo, would lead us to anarchy. But it doesn't work _in
vacuo_. And the question as to where the infinite complex of social forces
may lead us is not one that can be settled "_reinwirtschaftlich_." We can
only say that economic values, at a given moment, are the focal points at
which the laws and moral values and loves and hates, and "utilities" and
"costs" directly connected with economic goods, and the multitudinous other
values of concrete social life exert their motivating influence on the
economic activities of society. Then, given these economic values, and
assuming that they alone are of significance for the activity of society,
we may see where they would lead us. But we should still be in a world of
abstractions if we did so. For the economic social values do not exhaust
the social forces of motivation. Very much of social activity is
non-economic in character. And the force of a given moral value--say that
of elevating the condition of a degraded class--may be divided, tending
indirectly by raising the value of a certain sort of economic good, to
encourage its production, and tending directly to prevent its production.
Let us assume, for example, that this moral value leads to an increase in
the income of the degraded class, and so tends to increase the demand for
liquor; but assume, further, that this same moral value is the force
leading to a prohibition law, that forbids the production and sale of
liquor. Ethical, religious, legal, esthetic, and other values may
indirectly motivate the economic activity of men through entering into
economic values, or they may directly, in their own form, antagonize these
economic values, by constraining those who do not "participate" in them,
and by impelling those who do feel them to activities in lines other than
those where the greatest surplus of economic value is to be gained. Even,
then, though we have a theory of economic value which includes these other
social forces, we have no right to speak of "inevitable economic
tendencies." Social life is one organic whole. There is no phase of social
activity which is wholly directed by one set of values, and there is no one
set of values that exclusively depends on one sort of motive. And when we
give exclusive attention, in our study, to one set of values, as it is
often necessary to do, we must recognize that we are handling an
abstraction, that the other forces remain, and must be dealt with before
our conclusions have any validity for practice.
FOOTNOTES:
[163] See chaps. VI and VII, _supra_.
[164] Bk. II, chap. VI.
[165] _Cf._ Davenport, _op. cit._, p. 560. "For, in truth, not merely the
distribution of the landed and other instrumental, income-commanding wealth
in society, but also the distribution of general purchasing power ... are,
at any moment in society, to be explained only by appeal to a _long and
complex history_ [italics mine], a distribution resting, no doubt, in part
upon technological value productivity, past or present, but in part also
tracing back to bad institutions of property rights and inheritance, to bad
taxation, to class privileges, to stock-exchange manipulation ... and, as
well, to every sort of vested right in iniquity.... _But there being no
apparent method of bringing this class of facts within the orderly
sequences of economic law, we shall--perhaps--do well to dismiss them from
our discussion...._" [Italics are mine.] It may be questioned if the
"orderly sequence" is worth very much if it ignore facts so decisive as
these. It is precisely this sort of abstractionism which has vitiated so
much of value theory. Most economists slur over the omissions; Professor
Davenport, seeing clearly and speaking frankly, makes the extent of the
abstraction clear. I venture to suggest that the reason he can find no
place for facts like these within the orderly sequence of his economic
theory is that he lacks an adequate sociological theory at the basis of his
economic theory. A historical _regressus_ will not, of course, fit in in
any logical manner with a synthetic theory which tries to construct an
existing situation out of existing elements. Our plan of a _logical_
analysis of existing psychic forces makes it possible to treat these facts
which have come to us from the past, not as facts of different nature from
the "utilities" with which the value theorists have dealt, but rather as
fluid psychic forces, of the same nature, and in the same system, as those
"utilities."
[166] I do not, of course, mean to question the immense light which history
throws upon the nature of existing social forces.
[167] Wieser, _op. cit._, pp. 79-80.
[168] _Ibid._, p. 62.
[169] _Pol. Econ._, 1888 edition, p. 5.
[170] _Principles_, bk. II, chap. I.
[171] Professor Clark seems to desire to exclude all phases of social life
except the "pure economic," from his static conception, as indicated by the
footnote which follows, taken from page 76 of his _Distribution of Wealth_:
"The statement made in the foregoing chapters that a static state excludes
true entrepreneurs' profits does not deny that a legal monopoly might
secure to an entrepreneur a profit that would be as permanent as the law
that should create it--and that, too, in a social condition which, at first
glance, might appear to be static. The agents, labor and capital, would be
prevented from moving into the favored industry, though economic forces, if
they had been left unhindered, would have caused them to move to it. This
condition, however, is not a true static state, as it has here been
defined. Such a genuine static state has been likened to that of a body of
tranquil water, which is held motionless solely by an equilibrium of
forces. It is not frozen into fixity; but as each particle is impelled in
all directions by the same amounts of force, it retains a fixed position.
There is a _perfect fluidity, but no flow_; and in like manner the
industrial groups are in a truly static state when the industrial agents,
labor and capital, show _a perfect mobility, but no motion_. A legal
monopoly destroys at a certain point this mobility [so would a law
forbidding the manufacture of, say, opium or liquor, or any law or moral
force that prevents the individual's using his labor and capital in the
manner most advantageous to himself regardless of public consequences], and
is to be treated as an element of obstruction or of friction that is so
powerful as not merely to retard a movement that an economic force, if
unhindered, would cause, but to prevent the movement altogether." This
would seem to leave economic forces working _in vacuo_ in Professor Clark's
static state--if "unhindered" is to be taken literally. It is probably a
juster interpretation, however, to hold that Professor Clark has in mind a
constant legal situation, in which absolutely free competition is assured
by law. But even in his scheme for an economic dynamics, there is no place
for legal or ethical changes. There are five general sets of dynamic
changes which Professor Clark mentions, whose operation is to constitute
the subject matter of economic dynamics. They are (_Essentials_, p. 131,
and _Distribution_, pp. 56 _et seq._): (1) population increases; (2)
capital increases; (3) methods of production change; (4) new modes of
organizing industry come into vogue; (5) the wants of men change and
multiply. These five categories are all, primarily, at least, economic in
character. While legal and ethical changes would doubtless influence them,
they certainly cannot comprehend the full influence of these legal and
ethical changes, especially those affecting the ranking of men, and the
distribution of wealth. There seems to be a marked difference between
Professor Clark's point of view in his _Distribution of Wealth_ and that of
his earlier _Philosophy of Wealth_, and I must confess my preference for
the earlier point of view. In saying this, of course, I am far from
impeaching the masterly economic analysis which the later book
contains--rather, I join heartily in the general estimate which counts that
book as of altogether epoch-marking significance. My point is, rather, as
will be indicated more fully in the chapters on the relation between
value-theory and price-theory, that the presuppositions and significance of
such a study as Professor Clark's need clarification and interpretation in
the light of a theory of value which takes account of the rich complexity
of social life.
Professor Joseph Schumpeter, of Vienna, carries out economic abstractionism
to its logical limits, both in "statics" and in "dynamics." For an estimate
of his statics, _vide_ Professor Alvin S. Johnson's review of Schumpeter's
_Das Wesen und der Hauptinhalt der theoretischen Nationaloekonomie_
(Leipzig, 1908), in the _Journal of Political Economy_, 1909, pp. 363 et
seq. His dynamics is also to be "_reinwirtschaftlich_." An essay in
economic dynamics, the introduction to which sets forth his general point
of view, appears in the Austrian _Zeitschrift fuer Volkswirtschaft_, etc.,
1910, under the title, "Das Wesen der Wirtschaftskrisen." In this Professor
Schumpeter narrows, by a process of exclusion, the conception of what would
constitute a "pure economic" explanation of crises virtually to a
pinpoint--and then fails to carry out his program of giving us a
"_reinwirtschaftlich_" theory. For, in order to get any _periodicity_ into
his economic movement, he is obliged to bring in, from the field of
sociological theory, the factor of _imitation_--he does not use the term,
imitation, though he does use the verb, "_kopieren_." (_Vide_ esp. pp.
298-99.) Professor Schumpeter very explicitly recognizes the existence of
factors other than the "_reinwirtschaftlich_," but counts them as
"external" factors.
[172] Cf. Professor Marshall's discussions in his sections on economic law
and method, and Professor Davenport's classification of the factors in the
economic environment (_Value and Distribution_, pp. 514-15).
[173] The danger of the abstract individualistic study, from the
entrepreneur's viewpoint--a useful enough method within limits--is well
illustrated by Professor Davenport's contention that "men as employees are
passive facts, mere agents under the direction of managing producers, and
are therefore only potentially directing forces. The problem of production
and of marginalship is, accordingly, an entrepreneur problem." (_Op. cit._,
p. 279, n.) This is set forth as a limitation on the doctrine, stated in
the paragraph which precedes it, that "man is to be conceived as the
subject and centre of economic science, etc." Surely Professor Davenport's
contention is an impossible abstraction from the rich facts of social
control. The managing entrepreneur knows better, when he deals with union
rules and walking delegates. And the economist, tracing the subtler forces
that underlie values, and so motivate the direction of industry, should
know more, rather than less, than the entrepreneur.
[174] _Principles_, 1905 ed., pp. 147 _et seq._