THE THEORY OF VALUE AND THE THEORY OF PRICES (_concluded_)
My strictures upon the Austrian, or "utility" theory of value in what has
gone before seem to call for further qualification here. As a theory of
_value_, as a theory to explain the nature and origin of value, I am
convinced that the Austrian theory is utterly and hopelessly inadequate.
And yet, for the work of the Austrian economists, taken by and large, I
have the highest admiration. Their treatment of margins, their conception
of the motivating function of value, and their new stress on the demand
side of the price-problem, constitute a marked advance over the point of
view of the earlier English School, even though perhaps too extreme a
reaction. And their detailed work in the price analysis, despite the
utterly inadequate basis which the utility theory of value affords for it,
has been marvelously accurate, sound, and useful. Having no logical warrant
for an objectively valid quantitative value concept, they have none the
less assumed and used one--and used it marvelously well. Sometimes that
objective value is called by the name, "objective value." Sometimes they
call it "marginal utility," and yet it is clearly anything but the feeling
of an individual, for it is broken up into different parts, and reflected
back and back through different productive goods of remoter and remoter
rank till it has got very far from the individual who may be supposed to
feel it. Production is the production, not of material things, but of
"utilities"--and yet these utilities, as treated in the analysis, are
anything but individual feeling-magnitudes, and the actual reasoning on the
basis of them would not be different if they were called quantities of
value outright. By logical leaps, by confusing "utility" with demand, or by
confusing "marginal utility" with objective value,[210] the Austrians have
got what the practical exigencies of price theory demand. A detailed
estimate of the work of the Austrian School is, of course, out of place
here, but I do not wish to be understood as failing to recognize the
immense value of the work of men who have given so great an impetus to
economic thought as has been the case with the Austrian masters.
There is a further topic in connection with the relation between value
theory and price theory that calls for more explicit attention here, though
frequent reference has been made to it already. What is the relation of the
distributive problem to value theory and to price theory? Is distribution a
price problem or a value problem?
It may be looked at from either angle, and treated in either way. A
complete theory of distribution involves many of the most fundamental
social values. Indeed, it is through the machinery of distribution that
the non-economic values most vitally affect economic values. Wages,
interest, competitive profits, are surely legal categories, and are
possible only in a society where there is free labor and private control of
industry. We may agree with Wieser[211] that, as categories of economic
causation, interest, rent, and wages will remain even in a communistic
society (and, doubtless, also profit and loss), but that is far from saying
(as Wieser of course recognizes) that they would remain as distributive
shares. Each social system has its own distributive scheme.
But, in a system like that of Western civilization to-day, where human
services and the uses of land and instrumental goods are offered in the
market like other commodities, we may treat them in terms of the price
analysis with as much propriety as the other commodities. The prices paid
for them measure a complex of social forces, but we cannot always
disentangle these social forces and measure them separately. It is hard to
tell precisely how much influence on the price of labor has been exerted by
a speech from Mr. Gompers, or a Federal injunction, or a law for the
exclusion of certain classes of immigrants. If we wish to handle
distribution quantitatively, we must do it superficially, studying in the
market the effects which the underlying social forces manifest there with
reference to the rewards of the different factors of production. This has
been increasingly the case with later theories of distribution. If, on the
other hand, we take the discussion which J. S. Mill gives in book II of his
_Principles_, we shall find that the price analysis plays relatively little
part, and that he considers chiefly the influence of the more fundamental
social values.[212]
A failure to recognize the distinction between value theory and price
theory seems to lie behind the complaint which Professor Davenport makes
against the "Social Value School" in his criticism of Professor Seligman:
"As soon as we turn from the value problem to the separate treatment of the
distributive shares, we find ourselves to have descended from the
cloud-land mysteries of transcendental economics to the old and beaten
paths of the traditional analysis."[213] To this complaint the obvious
answer is that we have turned from fundamental value theory to abstract,
quantitative price analysis. And the social value theorist has as much
right to do this as has any other economist--in fact, if our theory be
true, only on the basis of a social value doctrine has any economist a
right (logically) to take up price analysis.
The theory of value, as I conceive it, is, then, not a substitute for
detailed price analysis, but rather a presupposition of it. The theory of
value is to interpret, validate, and guide the theory of prices. If the
theory here outlined be true, it will have significant consequences for the
theory of prices, in that it will open up new problems for the price
analysis to attack. There are many social forces which can be measured with
substantial accuracy, and many more which can be, for purposes of theory,
disentangled from the complex in which they appear, and treated by the
methods of price analysis already discussed, which economic theory has not
yet thought it worth while to attack. The economist must emulate the
practical business man, in trying to treat in price terms the various
social changes which affect economic values. There is much left for the
theory of prices to do. The theory defended here, with its sharp sundering
of values and prices, will, of course, criticize the mixing of the two. One
chief criticism of the Austrian theory, and also of the theory of the
English School in so far as it attempts to give a "real cost" doctrine, is
that they are attempts to give both a theory of value and a theory of
prices at the same time. Certainly we must object to Boehm-Bawerk's
contention that the solving of the price problem _ipso facto_ solves the
value problem.[214] The purpose of this book is, not _destructive_, but
_reconstructive_. A detailed criticism of the various economic theories
that have appeared, as theories of prices, is manifestly too big a task to
be undertaken here. All of them cannot, of course, be accepted _in toto_,
for there are, doubtless, irreconcilable differences among them at points.
But it is the belief of the writer that the great bulk of what has been
done in the study of the quasi-mathematical laws of prices is of
substantial worth, that a recognition of the distinction between value
theory and price theory, and of the confusions that result from mixing the
two, will remove many seemingly irreconcilable differences between opposing
schools, and that existing price theories are less to be criticized for
what they affirm than for what they ignore and deny.
Much of the significance of the theory of value for the interpretation of
price theory has been indicated from time to time, in what has gone before.
Prices have _meanings_. They express _values_. To understand the meanings
of prices, we must know what the values mean. There is one further point in
this connection which is so important that we shall give a separate chapter
to it.
FOOTNOTES:
[210] _Vide supra_, chaps. V and XI.
[211] _Natural Value_, _passim_.
[212] Mill's self-congratulation on having written two books of his
treatise without taking up the theory of value has been commented on by
many economists. He was able to do this, because value theory meant price
theory for him. Value theory in the sense of the theory of the forces of
social control and motivation does appear in plenty in Mill's first two
books, and also the wealth concept, which he connects with the idea of
value, and a quantitative value concept, not formally defined, but probably
all the more useful on that account. It was a sound instinct that led Mill
to take up the problem of distribution before taking up the problem of
"value." Really, in discussing distribution as he did, he was making a very
real contribution to the ultimate value problem.
[213] _Value and Distribution_, p. 451.
[214] _Vide supra_, chap. IV.