But whatever the form in which the social energy of control and motivation manifests itself, its functional character is the same. It has its origin in, and receives its vitality from, the social will--or better is a phase of the social will--as steam power, electric power, and the energy in human muscles, are species of the same generic force.
The effort has not been made to put the whole of our argument into these obviously uncongenial terms. The mechanical a.n.a.logies, often useful for particular purposes, fail to bring out the rich complexity, the organic nature, of the social processes, and, by their very simplicity, often lead to the ignoring of essential factors. For the purposes of the practical economist, however, concerned with price a.n.a.lysis in a situation which is so complex that he can give attention to only one set of forces, or tendencies, at a time, and where quant.i.tative measurement is essential, it is often highly necessary to abstract from the organic complexity, to a.s.sume that other forces than those he is measuring are constant, and to put his argument into mechanical terms. My conception involves no radical revision of economic methodology in this matter. It is primarily concerned with the interpretation and validation of this methodology. To this topic I shall return in the chapters on the relation between the theory of value and the theory of prices.
FOOTNOTES:
[179] _Social Organization_, p. 264.
[180] Professor J. R. Commons has made some interesting comments in a note ("Political Economy and Business Economy," _Quar. Jour. Econ._, Nov., 1907), as to the extent to which intangible objects have come to have economic value. The legal and psychical nature of such values is, of course, very manifest.
[181] Moral values, like economic values, in the sense in which I use the term here, are actual facts, and not mere ideals. A moral value _is_ a value, to the extent that it is an effective _power in motivation_, to the extent that the social will backs it up, and punishes with its disapproval and with the subtle penalties which social disapproval involves, infractions of the moral standard in question. I am not here pa.s.sing judgment on moral values themselves in the light of any ideal standard, but simply describing the manner in which moral values function.
[182] Intrinsically, there is no more reason why the economist should concern himself with measuring quant.i.tatively the effect of tariff laws than with a similar treatment of other legal values. Tariffs do not affect industry any more intimately than hosts of other laws. The obvious reason why the economic laws of taxation have been worked out and the others ignored, in our economic a.n.a.lyses, is that the tax laws, being themselves expressed in money terms, are more easily handled by the economist.
CHAPTER XVI
PROFESSOR SELIGMAN"S PSYCHOLOGICAL DOCTRINE OF THE RELATIVITY OF VALUES
Professor Seligman"s discussion of value theory has been extremely fertile in suggestions for me, and I find the spirit of the positive theory outlined in this book much closer to the general point of view of his doctrines than to those of any other economic writer. His recognition of the generic character of value, of the fact that economic value is but a species within a genus,[183] his contention that, while ethical principles depend on economic considerations in primitive life, they still, in later and higher stages, attain a relative independence, and react on economic life,[184] his recognition of the essentially social nature of even the individual"s wants,[185] his discussion of the legal and moral "level of compet.i.tion,"[186] and, in general, his insistence upon a sociological point of view, especially in the treatment of all practical problems, have been of marked a.s.sistance to me in freeing my mind from the individualistic bias of the narrow price a.n.a.lyses, and in making clear the gap between existing theories of value and the function of the value concept in economic science. At certain stages, as already indicated in part, his theories differ pretty radically from that set forth in the preceding pages. For one thing, I find no place in my scheme for the notions of social utility and social cost[187] which are prominent in his discussions, as, indeed, in the discussion of most of the adherents of the social value school. There is one further point of difference, however, to which I wish especially to call attention, as criticism of Professor Seligman"s view brings to light certain significant points in the theory I am defending.
The following quotation is from his article, "Social Elements in the Theory of Value," from the _Quarterly Journal_ of May, 1901:[188]--
Progress consists in reducing costs, so that we gradually approach gratuity. But, in reducing the value of certain things, we necessarily increase the value of other things. By diminishing the efforts required to satisfy one want, we liberate the efforts needed to satisfy a new want; it is only when we can satisfy this new want that the means of satisfaction acquires value. For the pioneer who with difficulty is able to clothe and feed himself a piano has no value. It is only as clothing and food take up less of his energy--that is, become of less value to him--that he will appreciate the new want, until finally in civilized society a piano is worth far more than a suit of clothes. Since value, as we know, is simply an expression for marginal utility, we cannot affirm that value in general ever increases or decreases. As pianos are worth more, clothing is worth less.
The relativity of value is here made to depend on a ground different from that which lies at the basis of the English School"s doctrine of relativity. The ground of the latter is _logical_; the ground for Professor Seligman"s view is _psychological_. Values considered as mutual relations between two goods cannot both fall--a fall in one means that it goes lower _than the other_, whence inevitably the other must rise, as a matter of logical definition. For Professor Seligman, on the other hand, value is a quant.i.ty of marginal utility. So far as the logic of the situation is concerned, an increase in the supply of good diminishes _their_ marginal utility, and so their value.[189] But, as soon as that is done, a new want springs into existence, a new object receives value therefrom, and the total quant.i.ty of value remains as before. In the article from which the quotation is taken, the doctrine is merged to some extent with the English doctrine of logical relativity, as indicated by the discussion on page 343, and by the footnote on page 344. The English doctrine is also suggested by the treatment in the _Principles of Economics_ (pp. 184-85), where it is stated that "prices may rise or fall with reference to this standard, but we cannot speak of a general rise or fall of values, because there is no fixed point." It is clear, however, that the argument for relativity in the pa.s.sage first quoted, is wholly distinct from, and independent of, the logical relativity of definition. Professor Seligman, in conversation with the writer, has so distinguished it, and has indicated that, rejecting the logical doctrine of relativity, he now holds this psychological doctrine of relativity, as distinct, both from the absolute conception of Professor Clark, and the relative conception of the English School.
As preliminary to a criticism of Professor Seligman"s doctrine, certain distinctions must be made. Values may be relative in Professor Seligman"s sense without being relative in the sense in which the English School uses the term: the English School thought only of the relations among, say, a _unit_ of wheat and a unit of corn, a unit of woolen goods, a unit of wine, etc.: Professor Seligman is thinking of the _total stocks_ of these various commodities. a.s.sume, for simplicity, that the stocks of all commodities were doubled, and that the demand curves for all the commodities have the same shape, and that form is the rectangular hyperbola,[190] so that the absolute value of each unit of each commodity would be exactly cut in half.
The English School would say that there had been no change in the values of the units; Professor Seligman would say that there had been no change in the value of the _stocks_, but would concede at once that every unit has had its value cut in half.[191]
Another distinction must be made. There is, to be sure, at any given time, a pretty definitely limited[192] amount of social _productive energy_. This energy can be distributed among only a limited number of products. Hence, there can be only a limited number of objects to receive value from the mental energies of society. But does it follow from this that what we may call the social energy of value-giving is a limited thing? Or, granted that it is limited, does it necessarily follow that the limits are fixed and rigid? Cannot circ.u.mstances arise which will make it vary in amount? If a new want arises, does it necessarily follow that all the old wants become less intense in the exact degree that the new want is intense? Must a quantum of value be withdrawn from the old objects precisely equal to that which is attached to the new object? This doctrine is deliberately affirmed, so far, at least, as the individual is concerned, in the article on "Worth"[193] in Baldwin"s _Dictionary of Philosophy_, etc.:--
The struggle for existence among dispositions, which are at once the objects of ethical valuation and the source of value reactions, springs out of the nervous conditions of these dispositions. While there dwells in each the tendency to utmost activity under the given conditions, yet, since the valuing subject is master of only a limited energy of valuation, i.e., nervous energy, the increase of value of any given disposition must necessarily cause others to decrease. In any case increase of values is always relative.
Now two lines of criticism suggest themselves. In the first place, the concluding sentence of the quotation is a _non-sequitur_. If there be a definite, absolute quant.i.ty of energy, then its distribution among objects can give absolute quant.i.ties of value. Reservoirs connected by pipes may among them contain a definite quant.i.ty of water, and increase in the volume of water in one may be at the expense of all the others. But still the amount of water in each is an absolute amount. This criticism, I may note, Professor Seligman concurs in. Conceding that a definite amount of value may exist in each object, he holds that there is, none the less, a relativity about value in the sense that increase in the value of one item can only come from a decrease in the value of another, and _vice versa_.
The other line of criticism calls attention to the identification of "energy of valuation" with "nervous energy." That the two are identical would be maintained only by the crudest materialism. The one is a physical force; the other is a psychical force. While nervous energy and energy of valuation may be connected, the nature of the connection is surely not so well known as to justify the a.s.sumption that definite limitation in the one implies a precisely corresponding limitation in the other.[194] There is no justification--at least in the present state of psychological knowledge--for holding that the law of the "conservation of energy" applies to psychical energy.[195]
Some concrete ill.u.s.trations will make clearer the difficulties of the doctrine, as applied to economic life. a.s.sume a group of men on board a whaling vessel, who suddenly discover that they will be obliged to spend the winter in the ice-zone, instead of reaching home in the fall as they had planned. Will not the value of everything in their store of provisions be increased? Will not their whole stock of wealth have a greater value?
But this, Professor Seligman objects, is because they are in a situation such that opportunity for reproduction is lacking, and he raises the question as to whether the same situation is possible in economic life on a large scale, where wealth is being constantly produced. Well, a.s.sume that a crop failure on a large scale occurs. Will not the value of the total existing supply of the articles in which there is a failure be raised? And will not other competing articles of food have their values increased also?
But, Professor Seligman would retort, these increases would be at the expense of the values of the half-grown fields of grain, and at the expense of articles other than food. Granted: but what evidence is there of exact equivalence? And further, a.s.sume that half of every existing stock of commodities, of every sort, were suddenly wiped out. Would the sum total of values remain the same? Only on the a.s.sumption that the social value curve for this totality of commodities is a rectangular hyperbola.[196] That this particular shape of the curve holds for any particular commodity would be difficult to prove. That it does not hold at all for the necessities of life is one of the commonplaces of economic a.n.a.lysis. Initial items in a stock of necessities have a very great value, when there are no other items of the stock, and the curve often descends very abruptly. Gregory King has undertaken to show, in terms of money, the shape of this curve for wheat in the England of his day. Other commodities have curves which behave very differently. While the argument from the part to the whole is not a valid argument in the presence of specific reasons making the whole obey different laws from the parts, it still, in the absence of such special considerations, does raise a strong presumption. And I must confess that I see no reasons why the curve for the totality of commodities should take the particular form of a rectangular hyperbola, instead of some other form.
_A priori_, the presumption would seem to be that its form would be irregular.
There is another point of view which seems to support Professor Seligman"s contention, and that is the money-price viewpoint. At a given moment, each man has a definite quant.i.ty of money--or of bank-credit--which he can use in purchasing commodities. If he spends it for some commodities, he cannot spend it for others. As he joins one group, demanding one commodity, he must--at least to the extent of that amount of money--withdraw from other groups demanding other commodities. At a given instant, therefore, there is a definite demand-situation with reference to every item of every stock, and one can increase its money-price only by drawing upon the demand for others. But let a panic now come. Let these bank credits become unstable: let _social confidence_ be wiped out, and what happens to general prices and values? Does the value that leaves the general range of commodities all betake itself to the gold supply? That cannot be, for the supply of gold, as compared with the supply of other commodities, is well-nigh infinitesimal, and if the whole of the values that left the commodities went into gold, then every unit of gold would be tremendously increased in value, and prices in terms of gold would fall, not two-thirds, but a thousandfold. What has become of the values? They have simply been wiped out. A psychical change has taken place, a malady has afflicted the social mind, its integrity is shattered, doubt has taken the place of confidence, panic fear has replaced buoyant expectation, demoralization and disorganization have lessened the social psychic energy--or dissipated it in inchoate, unorganized individual activities. The sum total of values is lessened. Of course, the reverse may happen. Let confidence be restored, let the social psychic organization function normally once more and values rise again. As we have indicated in our discussion of the psychology of value, _belief_, as well as desire and feeling, may often be a very significant phase in the value situation, and have a motivating power quite as great as the other phases. _Credit_, while it exists, is a real addition to the sum of values--has, that is to say, a real power in motivating economic activity, calling forth new productive efforts, and directing labor, capital, and enterprise to new channels. This is not, of course, a.s.serting the doctrine of John Law. Credit cannot be manufactured out of whole cloth. Beliefs, at least to some extent, follow rational laws, and, except in moments of hysteria, there must be something for people to believe in before strong belief can emerge. Sometimes, of course, an unstable but momentarily powerful belief, based on nothing rational, may dominate a situation, and radically upset the existing scale of values--with a sad reaction following shortly after. And, in the absence of belief, the most rational justification for belief is impotent. Witness the bankruptcies, in times of panic, of men whose a.s.sets turn out later perfectly adequate, but who are unable to liquidate them at the time of the panic. Note, too, in this connection, the tendency in times of panic to turn to government for aid in sustaining values--to subst.i.tute for the waning social force of belief the power of a new legal force.
A case parallel to the panic, as inducing a diminution of the total psychic energy of control, is presented by widespread epidemics. Gabriel Tarde, criticizing Mill"s contention that all values cannot rise or fall, instances the general fall in all values which an epidemic occasions, and the recovery of values after the epidemic.[197] This criticism of Tarde"s will not, of course, hold as against Mill"s doctrine (indefensible on other grounds) which bases the relativity of values upon a logical definition, but it will hold as against the psychological doctrine of relativity under discussion.
A further point is to be noted. Even granting that the sum total of social power of motivation is definitely limited, it still does not follow that the sum total of economic value is so limited. For not all of this social psychic energy goes into economic values. Religious, aesthetic, patriotic, moral values, all call for their share of this energy, and the amount given to each varies from time to time. This phase of the matter is discussed in detail by Professor Ross, in the chapter on "The Social Forces" in his _Foundations of Sociology_, and I shall not expand the discussion here.
The doctrine that there is a definite, unchanging sum of economic values, therefore, cannot, in my judgment, be maintained. And yet, it must be conceded, there is a substantial element of truth in Professor Seligman"s contention. At a given time, or through a considerable period, a.s.suming social conditions to change slowly, there are fairly definite amounts of social energy, both of production and of control over production (value-giving energy). The surface fact here is that men have definite incomes. If this energy is disposed of in one way, it cannot be disposed of in another. If men elect to have one good, they must dispense with something else. And in using their control over social forces to increase the value of one good, they must refrain from using it to increase the value of another. In the long run, these quant.i.ties are subject to change.
At a given moment, a sudden disturbance may radically change them. But, as a statement of tendency, Professor Seligman"s doctrine must be admitted.
Professor Seligman"s view differs from that of Professor Clark simply in that it adds an element. On its logical side, it conceives value in the same way. Value is a quality, with degrees, i.e., a quant.i.ty. This quant.i.ty in a particular good is an absolute fraction of an absolute quant.i.ty. It is not changed merely in consequence of being compared with some other good--it remains the same, regardless of what price-ratio it is put into.
On its formal and logical side, therefore, Professor Seligman"s concept is to be cla.s.sed with that of Professor Clark--with which, as indicated in chapter II, I am in hearty accord, in so far as the issues raised in that chapter are concerned.
FOOTNOTES:
[183] _Principles_, 1905, p. 174.
[184] _Economic Interpretation of History_, _pa.s.sim_.
[185] _Principles_, p. 175.
[186] _Ibid._, pp. 147-48.
[187] It might be possible to put the argument into terms which would give an a.n.a.logical meaning to "social utility" and "social cost." The diagram representing the intersection of the demand curve and the supply curve, fixing price, may be taken equally well to represent the balance of social forces which lies back of the market phenomena in the case of a given commodity. The demand curve might then be called a "social utility" curve, and the supply curve a "social cost" curve, if only it be remembered that cost and utility here have only a vague, a.n.a.logical meaning, and cover up a host of factors which, while they fall conveniently into two opposing groups, like the individual"s "cost" and "utility," are yet much more than the latter. But they are really so very much more than the latter, that it seems to me misleading to continue the use of the terms, utility and cost, when the a.s.sociations of these terms in economic theory are remembered. The tendency would be to make the student feel that value depends on two abstract phases of social-mental life, instead of being an outcome of the organic whole.
[188] Pp. 342-43.
[189] The reader will understand that I am using accustomed phraseology and making customary a.s.sumptions, not because I approve of them, but because the point at issue here is not affected by the question as to the relations between value and utility, etc. The distinction between a utility curve and a price curve does not affect the argument here.
[190] a.n.a.lytically expressed _xy_ = _c_. This curve, by definition, leaves the "value area" (_xy_) constant.
[191] A complication must be noticed here, due to my use of the term, "demand curve." I am tacitly a.s.suming that the absolute value of the money unit remains the same in this process, and so must say that the English School would concede that the value of the money unit has doubled even though holding that all the other values remain unchanged, except with reference to the money unit. For Professor Seligman, the value of money (_i.e._, the total stock) has not changed.
[192] But the limitation is not absolute. New incentives may call out substantial increases in productive activity.
[193] Written by Professor W. M. Urban, author of _Valuation_, to which frequent reference has been made. _Vide Valuation_, p. 4, n. The article was, of course, written several years before the book.
[194] In this view I am sustained by Professor John Dewey.
[195] _Cf._ Stuart, "Valuation as a Logical Process," in Dewey"s _Studies in Logical Theory_, pp. 328, n., and 330.
[196] See _supra_, p. 165, n.
[197] "La psychologie en economie politique," _Rev. Philosophique_, vol.
XII, p. 238.
CHAPTER XVII
THE THEORY OF VALUE AND THE THEORY OF PRICES
In most English treatises on economics, a price means a sum of money given in exchange for a commodity, or the ratio between the money and the commodity, or the ratio between the value of the money and the value of the commodity. In any case, price as a rule involves the idea of money. With the Germans, on the other hand, _Preis_ means any exchange ratio (or a quant.i.ty of commodities of any sort given in exchange for a good), whether or not one of the terms of the ratio involves money, and the distinction between price and value (_Preis_ and _Wert_) is, commonly, the distinction between the measure and the thing measured, or between "relative value" and "absolute value" in Ricardian phrase.[198] The conception of price has been broadened by some later writers in English, however, to correspond with the German usage, notably by Professor Patten,[199] and by Professor Schumpeter,[200] in an English article contributed recently to the _Quarterly Journal_. I do not care to argue a merely terminological question, and I readily concede that there are disadvantages in departing from familiar usage. But, on the other hand, since I am convinced that ratios of exchange in general, and money prices in particular, are generically the same, while ratios of exchange and values are generically as unlike as it is easily possible for two things to be, I shall use the term price in this wider meaning, and confine the word value, in the exposition of my own theory, to the non-relative meaning.
The distinction between prices in this sense and absolute values appears in Adam Smith and in Ricardo. These writers do not adhere very strictly to either meaning of the term, value, however.[201] The conception of absolute values is lost by J. S. Mill, and the distinction which he draws in connection with the problem of the standard of deferred payments (not so called by Mill) is between values (relative) and _cost of production_.[202]