THE INSTITUTIONAL CHARACTER OF PECUNIARY VALUATION
A PHASE OF SOCIAL PROCESS—PECUNIARY VALUES INSTITUTIONAL—INADEQUATE
IDEA OF VALUATION IN ECONOMIC TREATISES—INTERACTION BETWEEN THE
INDIVIDUAL AND THE MARKET—ECONOMIC VALUES AN OUTCOME OF ECONOMIC
HISTORY—THE FACTOR OF CLASS—INFLUENCE OF UPPER-CLASS IDEALS—POWER
OF THE BUSINESS CLASS OVER VALUES
Pecuniary valuation is a phase of the general process of social thought,
having its special methods and significance, but not peculiar in nature;
the pecuniary estimates people set upon things are determined in a
movement of suggestion and discussion, varying with the group and the
time, like other phases of the public mind.
This is apparent _a fortiori_ if we take what appear to be the simplest
and most essential commodities. The estimation of wheaten bread as a
necessity of life, that prevails with us, is a matter of opinion and
custom; whether grounded in sound hygiene or not is irrelevant. Other
countries and times have thought differently, and we know that foods may
be regarded as necessary whose hygienic value is doubtful or negative,
like beer in Germany or coffee with us. Consider in this connection the
prepared foods known as cereals, for which vast sums are spent by all
classes of our people; their vogue and value is clearly a matter of
current, possibly transient, opinion, largely created by the
psychological process of advertising.
I need hardly go further into this. It is plain that even among the most
necessitous an existing scale of pecuniary values can be explained only
as a product of the same social forces which create other phases of
tradition and sentiment; and no one will expect anything different in
values prevailing among a richer class. I do not mean, of course, that
these forces work wholly in the air, but that, whatever physiological or
mechanical factors there may be in demand and supply, these become
active only through the mediation of a psychological process.
It is a common saying that values were formerly determined largely by
custom, but that competition has supplanted the latter; and no doubt
this is true in the sense that the stability of local custom is broken
up. In a somewhat different way, however, custom—the influence of the
past—is as great a factor in the market now as it ever was. Now as
always it is the main source of the habits of thought that control
demand and supply, and so value. An obvious case is that of funerals.
Why is it that so large a part of the expenditure of the poor goes for
this purpose, so large that a special branch of insurance is carried on
to meet it? Evidently the reasons are historical, reaching back in fact
to prehistoric society. And although this case appears exceptional,
because this particular convention has lost most of its force among the
educated classes, it is none the less true that we draw our values from
the current of historical influence. What we are willing to spend money
for, as individuals, as classes, as nations, can be understood only by a
study of historical influences and of their interaction and propagation
at the present time.
I have explained the distinction which I think should be made between
human-nature values and institutional values, the latter being those
which have social antecedents of so complicated a character that we
cannot understand them except as the outcome of a special institutional
development. It is apparent that the values of the pecuniary market fall
under the latter head. Their immediate source is a social mechanism,
whatever their indirect relation to human nature may be. You do not find
them wherever man is found, but only where there is a somewhat developed
system of exchange, a commodity recognized as money, and an active
market.
Pecuniary values, however, are by no means all upon the same level as
regards the degree in which they are institutional. All are so in the
sense just indicated—that they require the mechanism of the market to
define and develop them. But if we go back of this we find that some are
based (so far as demand is concerned) upon rather simple human-nature
values, in which the factors of special tradition and organization play
no very great part. It is remarkable, when you come to think of it, how
few such values there are; but those of meat and flour, of lumber, fuel,
and the simpler kinds of clothing are relatively of this sort. Some, on
the other hand, are the outgrowth of a complex institutional history
through which it is difficult to trace the threads which connect them
with the permanent needs of human nature. Such are the values of
ornamental or ceremonial dress, of many of our foods, of our more
elaborate houses and furniture, our amusements and dissipations, our
books; and those connected with our systems of education, our churches,
political institutions, and so on. The same difference runs through the
values set on the services of different kinds of men. Why society should
pay a substantial price for farmers and carpenters is obvious; but when
you come to lawyers, stock-brokers, promoters, men of science,
advertising men, and the like, not to speak of the holders of capital,
who seem to be paid large sums for doing nothing at all, it is clear
that the explanation is institutional, not to be reached without a study
of the organic growth and interaction of social forms. And it seems
clear also that values of this latter sort greatly and increasingly
preponderate in our social system.
There is a fallacious kind of reasoning often met with in discussions of
value, which consists in taking the simplest conceivable transactions,
generally those of an imaginary primitive life, noticing the principles
upon which they may have been based, and then assuming that the same
principles suffice for a general explanation of the complex transactions
of our own life. “It is the same thing now, only more intricate,” is the
supposition. This, of course, overlooks the fact that even granting that
such analyses are otherwise sound, which is very questionable, the
social complexity is for many purposes the essential thing in the actual
value process. It involves an institutional character, which changes
with the social type, which may be understood only through a knowledge
of institutional organisms, and which can be reformed only by working
upon and through such organisms. The study of value-making institutions
becomes, then, the principal means of arriving at practical truth.
The market (meaning by this the system of pecuniary transactions
regarded as one organic whole) is as much an institution as the state or
the church, which indeed it somewhat overshadows in modern life. I mean
that it is a vast and complicated social system, rooted in the past,
though grown enormously in recent times, wielding incalculable prestige,
and, though manned by individuals like other institutions, by no means
to be understood from a merely individual point of view. It would be as
reasonable to attempt to explain the theology of St. Thomas Aquinas, or
the Institutes of Calvin, by the immediate working of religious instinct
as to explain the market values of the present time by the immediate
working of natural wants.
This is one of many points of view from which we may see the
insufficiency of the usual treatment of the value-making process in
treatises of political economy. This treatment starts with demand as a
_datum_, assuming that each individual has made up his mind what he
wants and how much he wants it. There is seldom, I believe, any serious
attempt to go back of this, it being assumed, apparently, that these
wants spring from the inscrutable depths of the private mind. At any
rate it has not been customary to recognize that they are the expression
of an institutional development. From most of the standard works the
student would get the impression that if institutions and classes exist
at all they have nothing to do with valuation.
The truth, I suppose, is that the idea of institutions, classes, and the
like as organic forms or processes, having a significance and power not
to be grasped from the standpoint of individuals or of general human
nature, is alien to the philosophy underlying orthodox economics, and
hence difficult of assimilation with orthodox theory. So far as such
ideas are recognized they are, I should say, rather patched on, than
woven into, the original stuff of the garment.[66] Economists, however,
are latterly becoming aware of the somewhat obsolete character of the
philosophy involved in the orthodox tradition.[67]
At any rate the result of the individualistic treatment of pecuniary
value has been to saddle the whole institution—the market—upon human
nature. Commercialism as we find it had to be explained, and as there
was nothing else available poor human nature had to bear it. The simple
formula, “The people want it, and the law of supply and demand does the
rest,” will explain anything. But if we allow ourselves to ask why the
people want it, or just who the people are that want it, or why they can
make their wants effective, we discover that we have everything to
learn. The accepted economic treatment would seem to be equivalent to a
renunciation of any attempt to understand the relation of value to
society at large; or, in other words, of any attempt to understand value
itself, since to understand a thing is to perceive its more important
relations. I do not deny that the method of analysis in question has its
very important uses, but if it is allowed to be the only method it
becomes the source of the gravest errors.
Just what does it mean, from the individual’s standpoint, when we say
that the market, as a historical institution, is a main factor in
values? Not merely that pre-existing individual estimates are summed up
and equilibrated in accordance with the formulas of economic science,
though this is one phase of the matter, but also that the individual
estimates themselves are moulded by the market, at first in a general
way and then, in the process of price-making, drawn toward a somewhat
mechanical uniformity. The individual and the system act and react upon
each other until, in most cases, they agree, somewhat as in fashion, in
religious belief, and the like. The influence of the market is not
secondary either in time or importance to that of the person; it is a
continuous institution in which the individual lives and which is ever
forming his ideas. The actual transactions are potent suggestions for
new ones, and the actual transactions are the latest expressions of an
institutional development in which class rule and a confused and
one-sided commercialism have been chief factors. Thus the institution
largely dictates the valuations which it afterward equilibrates.
To neglect this and treat demand and supply as a summation of original
individual estimates involves an inadequacy of the same nature as there
would be in explaining fashion as due to a summation of individual ideas
about dress. The explanation would be true at a given instant, in
fashion as in the market, but in the case of the former no one could
fail to perceive how superficial, how delusive, it would be. This is
obvious in the case of fashion because its changes are so rapid and
conspicuous that we are compelled to notice them, and to see that the
individual takes his ideas from the social current. The slower movement
of ideas which determines our more stable wants is, however, of the same
character, and the superficiality of treating it as originating in the
individual is quite as great, amounting to no less than ignoring the
historical factors in pecuniary value. The relation of the individual to
the system is not essentially different in this case from what we may
see in any institution. The ordinary man is a conformer; he lives in the
institution and accepts its established valuations, though not without
impressing some degree of individuality upon them. In this way we get
our ideas and practices regarding religion, marriage, dress, and so on.
So in pecuniary matters one accepts in a general way the current values
but has a certain individuality in his choices which makes him to some
extent a special factor in the market. There is no absolute conformity;
we do everything a little differently from any one else; but this does
not prevent our being controlled, in a broad way, by the prevailing
institutions. This is what the usual economic analysis ignores, or
perhaps omits as beyond its proper range.
Along with this we have the phenomenon of non-conformity. Individuals of
special natural endowment, or unusual situation, or both, depart widely
from the type, and initiate new tendencies which, under favorable
conditions, may grow, and modify or destroy the old type. These new
movements are likely to derive more directly from human nature than the
old, and it is commonly true, though not always, that non-conformity
represents human-nature values in conflict with those that are more
institutional. We can see this process at the present time in the
church, in politics, and in the family. It is taking place no less in
pecuniary relations, and our expenditure is being humanized as
radically, perhaps, as anything else. Things that seemed indispensable
twenty-five years ago no longer seem worth while, and claims unthought
of then have become irresistible. What changes have come over the budget
of the household, of philanthropy, of the state and the church, during
this period!
One might say much on this topic, but it would amount simply to an
exposition, in this field, of the general relation between institutions
and human nature.
Without taking into account this life of the individual in the
institution we can never do justice to the general sway of the market,
as a historical organism, over society at large. It is, as I have
suggested, a structure as imposing as the political state itself,
filling the eye with the spectacle of established and unquestioned power
and impressing its estimates upon every mind.
We have to recognize, then, not merely that pecuniary value is, in
general, a social value which derives from the social development of the
past, but that it is the outcome, more particularly, of a special phase
of that development, namely, the comparatively recent growth of industry
and business, including also the growth of consumption. This is the
special institution from which, for better or worse, the pecuniary
values of to-day draw their character, very much as ecclesiastical
values draw theirs from the history of the church. The phenomena of any
institution are moulded in part by the general conditions of the time,
but they are moulded especially by their particular institutional
antecedents, which may be somewhat incongruous with the more general
conditions. If you attend a service of the Established Church you become
aware of points of view which may seem to you, as a man of to-day,
absurd and incomprehensible, except as you know something of their
history. The same may very well be true in the pecuniary world, though
we may not notice it because we are more used to it, because we are
ourselves members of this church.
And the method of criticism, in the market as in the church, is to take
as large a view of the institution as possible, discover in what
respects it is failing to function adequately in the general life, and
strive to bring about such changes as seem to be required.
It seems probable that the more we consider, in the light of an organic
view of society, the practice of discussing values apart from their
institutional antecedents, the more sterile, except for somewhat
narrowly technical purposes, this practice will appear. Certainly it
should have but a secondary place in inquiries which seek to throw light
upon ethics or social policy. It is, for example, but a frail basis for
a theory of distribution. The latter I take to be essentially a
historical and institutional phenomenon, economic technique being for
the most part only a mechanism through which social organization
expresses itself. I do not question the technical value of the current
treatises on distribution which more or less cut it off from its roots
in the social whole, but perhaps the time is coming for a treatment
which takes technical economics for granted and elucidates the larger
actualities of the question.
The principle that any social institution, and consequently any system
of valuation, must be administered by a class, which will largely
control its operation, is rather an obvious one. It was long overlooked,
however, in political theory, at least in the theory of democracy, and
is still overlooked, perhaps, in economic theory. At any rate it is a
fact that pecuniary valuation is by no means the work of the whole
people acting homogeneously, but is subject, very much like the
analogous function in politics, to concentration in a class.
Class control is exercised mainly in two ways: through control or
guidance of purchasing power, and so of the demand side of the market,
and through the actual administration of the business system, which
gives the class in possession command of the large personal (pecuniary)
values incident to this function, and the opportunity to increase these
by the use, direct and indirect, of their commanding position.[68]
The process of definite pecuniary valuation, the price-making function,
is based upon “effective demand” or the offer of money for goods;
perhaps we ought to say for consumers’ goods, as the value of producers’
goods may be regarded as secondary.[69] It is, therefore, the immediate
work of those who have money to spend. Just how far spending is
concentrated in a class I cannot pretend to say, but current estimates
indicate that about one-fifth of the families in the United States
absorb half the total income. No doubt, however, the proportion of
saving in this fifth is somewhat greater, and that of spending somewhat
less, than in the rest of the population.[70] In this respect pecuniary
value is, on the face of it, much more the work of a restricted class
than political value, in determining which all voters are nominally
equal. In either case, however, it would be most erroneous to suppose
that value-making power can be measured in any such numerical way. There
is always a psychological process of suggestion and discussion which
works underneath the market transactions.
By virtue of this the power of the richer classes over values is far
greater than that indicated by their relative expenditure. As people of
leisure and presumptive refinement, they have prestige in forming those
conventions by which expenditure is ruled. We see how cooks and
shop-girls dress in imitation of society women, and how clerks mortgage
their houses to buy automobiles. It is in fact notorious that the
expenditure of the poor follows the fashions of the rich, unless in
matters of the most direct and urgent necessity, and in no small degree
even in these.
If what has just been said is sound it would be necessary, in order to
understand contemporary values, to investigate, historically and
psychologically, the ideals, such as they are, now prevalent in the
richer classes.[71] It might be found, perhaps, that these are largely
of two sorts: ideals proper to commercialism—especially ideals of
pecuniary power and of display as an evidence of it—and caste ideals
taken over by the commercial aristocracy from an older order of society.
Commercialism tends to fix attention rather on the acquisition than the
use of wealth, and for ideals regarding the latter the successful class
has fallen back upon the traditions, so well-knit and so attractive to
the imagination, of a former hereditary aristocracy. We very
inadequately realize, I imagine, how much our modes of thought, and
hence our valuations, are dominated by English social ideals of the
seventeenth and eighteenth centuries. We get these not only through the
social prestige, continuous to our own day, of the English upper
classes, but through history, literature, and art. Speaking roughly, the
best European literature, and especially the best English literature,
was produced under the dominance of an aristocratic class and is
permeated with its ideals. Thus culture, even now, means in no small
degree the absorption of these ideals.
They are, of course, in many respects high ideals, embracing conceptions
of personal character, culture and conduct which it would be a calamity
to lose; and yet these are interwoven with the postulate of an upper
class, enjoying of right an enormous preponderance of wealth and power,
and living in an affluence suitable to its appointed station. Thus it
happens that as a man acquires wealth he feels that it is becoming that
his family should assert its right of membership in the upper class by a
style of living that shall proclaim his opulence. He also feels, if he
has in any degree assimilated the finer part of the tradition, that a
corresponding advance in culture would be becoming to him, but this is a
thing by no means so readily purchased as material state; the general
conditions are not favorable to it, and his efforts, if he makes any,
are apt to be somewhat abortive.
Along with the preceding we have also a hopeful admixture of ideals
which reflect the dawn of a truly democratic régime of life—ideals of
the individual as existing for the whole, of power as justified only by
public service, compunctions regarding the inequalities of wealth and
opportunity, a lowly spirit in high places.
This sort of inquiry into the psychology of the upper class as a social
organism—however unimportant these suggestions may be—appears to be
indispensable if we are to form even an intelligent guess as to where we
stand in the matter of valuation.
Coming now to the control over values incident to the administration of
the business system, we note that the class in power, in spite of
constant changes in its membership, is for many purposes a real
historical organism acting collectively for its own aggrandizement. This
collective action is for the most part unconscious, and comes about as
the resultant of the striving of many individuals and small groups in
the same general direction. We are all, especially in pecuniary matters,
ready to join forces with those whose interest is parallel to our own:
bankers unite to promote the banking interest, manufacturers form
associations, and so on. The whole business world is a network of
associations, formal and informal, which aim to further the pecuniary
interest of the members. And while these groups, or members of the same
group, are often in competition with one another, this does not prevent
a general parallelism of effort as regards matters which concern the
interest of the business class as a whole. The larger the group the less
conscious, as a rule, is its co-operation, but it is not necessarily
less effective and it can hardly be denied that the capitalist-manager
class, or whatever we may call the class ascendant in business, acts
powerfully as a body in maintaining and increasing its advantages over
other classes. Nothing else can result from the desire of each to get
and keep all he can, and to exchange aid with others similarly
inclined.[72]
When I say that the class is, for this purpose, a historical organism, I
mean that its power, prestige, and methods come down from the past in a
continuous development like other forms of social life. This would be
the case even were individual membership in it quite free to every one
in proportion to his ability, for an open class, as we can see, for
instance, in the case of a priesthood, may yet be full of a spirit and
power derived from the past.
In fact, however, membership in the upper economic class is by no means
open to all in proportion to natural ability, and the command it enjoys
of lucrative opportunities contributes greatly to its ascendancy. It
controls the actual administration of the market much as the political
party in power used to control the offices, with the influence and
patronage pertaining to them—only the ascendancy in the economic world,
based largely on inherited wealth and connections, is greater and more
secure. The immediate effect of this is to enhance greatly the market
value of the persons having access to the opportunities: they are
enabled by their advantageous position to draw from the common store
salaries, fees, and profits not at all explicable by natural ability
alone. This effect is multiplied by the fact that limitation of the
number of competitors gives an additional scarcity value to the services
of the competent, which may raise their price almost incredibly. Thus it
is well known that during the period of rapid consolidation of the great
industries enormous fees, amounting in some cases to millions, were paid
to those who effected the consolidations. It may be that their services
were worth the price; but in so far as this is the fact it can be
explained only as an exorbitant scarcity value due to limitation of
opportunity. No one will contend, I suppose, that the native ability
required was of so transcendent a character as to get such a reward
under open conditions. Evidently of the thousands who might have been
competent to the service only a few were on hand with such training and
connections as to make them actual competitors. And the same principle
is quite generally required to explain the relatively large incomes of
the class in power, including those of the more lucrative professions.
They represent the value of good natural ability multiplied by
opportunity factors.[73]
The fact usually urged in this connection, that these lucrative
opportunities often fall to those who were not born in the upper class
but have made their way into it by their own energy, is not very much to
the point. It is not contended that our upper class is a closed caste,
nor does it have to be in order to act as a whole, or to exercise a
dominating and somewhat monopolistic influence over values. Though ill
defined, not undemocratic in sentiment, and partly free from the
hereditary character of European upper classes, it is yet a true
historical successor of the latter, and dominates the weaker classes in
much the same way as stronger classes have always done. Power is
concentrated about the functions of the dominant institutions, and the
powerful class use it, consciously or otherwise, for their individual
and class advantage. Surely one has only to open his eyes to see this. I
doubt whether there is a city, village, or township in the country where
there is not a group of men who constitute an upper class in this sense.
There is, it seems to me, a growing feeling that class, which the
prevalent economics has relegated to oblivion under some such category
as “imperfect freedom of competition,” is in fact at the very heart of
our problem.
It appears, then, that pecuniary valuation is a social institution no
less than the state or the church, and that its development must be
studied not only on the impersonal side but also in the traditions and
organization of the class that chiefly administers it.