CHAPTER XI

THE ULTIMATE RELATION OF COST TO VALUE

1. The history contained in the preceding ten chapters covers but a limited number of English writers. At the time of writing, a short list of economists was drawn up in advance, which enumerated the thinkers at that time generally regarded as the leaders in the development of the old English political economy. It was stated at the outset that the purpose was to review the opinions of these writers only. An endeavor was made to define this purpose as being to make an _intensive_ rather than an _extensive_ study of the history of English theory. By an extensive study we should mean the effort to discover writers who have made important contributions to the thought the history of which is being traced, but have been previously unrecognized or insufficiently accredited. Such examinations into the history of English economic literature will probably in the immediate future result in important alterations in what might be called our accepted lists of chief writers. It will be found that thinkers now supposed to have expressed the doctrines of their time with the greatest clearness and power were in some cases surpassed in these points by writers at present almost or quite forgotten. Or it will be found perhaps that new ideas—such for instance as the conception of marginal utility—really originated earlier than at present supposed.

A brief time elapsed between the writing of the tenth and the eleventh chapters of this essay. But in this period there has been published a discussion of the work of some earlier British economists, which establishes beyond a doubt that the marginal utility theory of value was conceived and formulated in most excellent fashion by an English writer as early as 1833, two decades before Gossen and a generation before Menger, Jevons and Walras. The English writer was W. F. Lloyd, Professor of Political Economy at Oxford. A full description of Lloyd’s theory, with citations showing the excellence of its statement, appeared in _The Economic Journal_, over the signature of Professor Seligman, of Columbia University.[196] Professor Seligman has called attention to still another writer of great consequence because of his contributions to the theory of value. This is Mountifort Longfield who, as Professor Seligman states, in 1833 gave an able exposition of what is now the modern doctrine of marginal demand and marginal cost.[197]

Avoiding the larger task involved in the extensive study of the history of the theory of value in England, the present monograph has endeavored to interpret the labor theory as it passed through the minds of some nine economists beginning with Smith and ending with Cairnes. The history is that of a subjective-cost philosophy of value and the difficulties of its application to explain the facts of industry. According to this philosophy, or this ultimate explanation, utility is a condition essential to the existence of value, but cost or difficulty of attainment is the _essence_ of value. The idea was elucidated by a variety of figures of speech. Utility was conceived as a sort of resting-ground for value, but the height of value upon this ground, the value as an _amount_, was held to be determined by or measured by cost of production. Thus Ricardo wrote to J. B. Say:

The utility of things is incontestably the _foundation_ of their value, but the degree of their utility cannot be the measure of their value.... The difficulty of [a thing’s] production is the sole measure of its value.[198]

Karl Marx was accustomed to speak of value as “a congelation of human labor,” and to speak of a useful object, or an object made useful in the process of production, as a sort of receptacle for value.

In his involved “philosophical” account of value, as we termed it, Adam Smith taught that the value, or “real worth,” of a good is measured equally well by the amount of labor which it has cost to produce, or by the labor which it can command in exchange. When, however, Adam Smith turns his attention to the proximate principles of value in the actual competitive market, we find him confessing that the theory which he first developed applies without modification only to a primitive state of society, without land rent and interest on capital. In this primitive state the amount of labor which a commodity costs determines the amount of labor which it can command in exchange. Under the conditions of advanced society, the rent of land and the “profits of stock” must come out of the exchange value of the product, and the labor cost of the latter, which is paid for by wages, no longer determines its value.[199] If we take advantage of modern terminology, and throw Adam Smith’s theory into our own words, we make its precise significance clearer. It means virtually that the exchange value of a good in the fully developed social economy is determined by its _entrepreneur’s_ or _money_ cost of production, so far as it is determined by cost at all. Competition must be perfect to enable cost to determine actual values. Entrepreneur’s cost is composed of expenditures for wages of the labor, rent of the land, and “profits” of the capital necessary for production. The labor cost of producing the commodity determines only the amount of the wages cost to the entrepreneur. The other elements helping to make the total of entrepreneur’s cost are not determined by the labor cost of producing the commodity. Thus the exchange value of a good is determined by its entrepreneur’s cost, but this latter is not determined by labor cost, and consequently the exchange value of the good is not determined by labor cost. The existence of rent and interest destroys the regulation of exchange values by labor cost. It must be kept in mind that all this is very much more explicit than what Adam Smith said. It signifies that the labor-cost philosophy of value cannot be true—perhaps Smith would say only that it is imperfect or not precisely true—because it is in conflict with a more certain empirical law of value, namely, the law of entrepreneur’s cost.

Ricardo adopted the labor-cost philosophy of value virtually as a premise, and the most important parts of his reasoning on the subject are concerned with removing or minimizing the empirical difficulties with this philosophy.[200] In the end he admitted that interest is an element in that form of cost which exercises the most direct and compelling influence on exchange values. He made concessions, which pursued to their logical outcome, signify that the existence of interest throws the exchange values of goods out of proportion to their pure labor costs of production. We have seen how he put this concession in a peculiar and misleading manner.[201] As for rent of land, Ricardo hastens to repudiate Adam Smith’s admission that it also is a source of difficulty to the labor theory. He gets rid of rent by explaining that the exchange values of commodities are regulated by the quantity of labor required for production on the least fertile land in use, or the quantity required to produce the most expensive portions of the supplies. In modern phraseology, he urged that it is not the actual labor cost of a good but its marginal labor cost, which regulates its value. Ricardo himself used that fatally ambiguous formula, “rent does not enter into price.” Having removed rent by making the value determining cost marginal, and having minimized the difficulty of interest, Ricardo proceeded as if the labor theory were, for the sake of argument, intact.

The chief purport of the work of Malthus was, first, to deny Ricardo’s right to disregard the interest difficulty and, second, to reaffirm Adam Smith’s opinion that land rent also throws values out of relation to labor costs. Turning now to Senior, who was the next writer to suggest a worthy and new idea, we find that in the view of this economist the existence of land rent and interest as elements in entrepreneur’s cost is fatal to the labor theory. But Senior explained interest as the reward for abstinence, just as wages are the reward for labor. In his view labor and abstinence are independent, co-ordinate elements in subjective cost.[202] However, the more important idea that can be extracted from Senior’s reasonings is that wages as actually paid are not in proportion to the quantities of labor engaged in different employments. For in his view all skilled labor gains a wage which really includes a rent to “scarce natural talents.”[203]

Summing up the results of Senior’s argument for ourselves (since he himself did not make the present applications of his doctrines), the labor theory requires that the entrepreneur’s costs of commodities should be in proportion to their labor costs, but entrepreneur’s costs are out of proportion to labor costs, not only because they include rent of land and interest on capital, but because the very payments of wages themselves may be out of proportion to the comparative amounts of labor employed and remunerated. When we say that entrepreneur’s costs are out of proportion to labor costs, we do not mean that they are in excess of wages cost, though they are this, but that for commodity A to cost the same quantity of labor as commodity B, is not a sign that the two commodities have the same entrepreneur’s costs. In other words, relative entrepreneur’s costs are not determined by relative labor costs.

John Stuart Mill took Ricardo’s view of land rent and of interest, but took Senior’s view that skilled labor occasions the entrepreneur an expense out of proportion to the _quantity of labor_ remunerated. That is to say, he held that the higher wages of skill do not represent a higher labor cost. This opinion he adopted without at the same time taking up Senior’s particular use of the term, “rent to talents.” As we concluded at the end of Chapter IX, it may be said that Mill followed Ricardo more closely than any other of his predecessors on the question of the relation of labor to value. Turning to Cairnes we note that this writer gave one sentence in his book to the doctrine of land rent, and in this he acquiesced in the judgment of Ricardo and J. S. Mill. But Cairnes adopted a position with reference to interest identical with that assumed by Senior, and his theory of “non-competing groups” merely emphasizes the claim that the amount of wages paid in different employments is not a test of the quantities of labor employed.

Taking the whole period covered in this history, we see that a goodly number of points of criticism were raised against the pure labor-cost theory. The reader may have noted that all these points were implicit in the work of Senior, and in his alone. Does the entrepreneur’s payment of land rent, of interest on capital, and his payment of a superior wage to skilled labor (a wage out of proportion to the disutility of skilled labor), make impossible the theory that labor cost regulates value? Is it not possible that labor cost may be conceived in some way, perhaps as “marginal cost,” or “social marginal disutility,” such that the exchange values of the products of industry can be shown to depend upon the labor cost of these products? In the following pages the writer will try to give an answer to this question, so far as it lies in his power. It will be indispensable to bear with a considerable number of preliminaries. The ultimate relation of cost (in any or all of its forms) to value, cannot be discussed with any success, unless the parties to the discussion have reached some understanding as to the relation of utility to value and as to the meaning of other proposed laws of value than cost laws. Merely a moderate acquaintance with the contemporary literature of economic theory gives complete assurance that the necessary understanding just mentioned cannot be presumed to exist, but must be established as carefully as possible.

2. Historically, there have been two distinct conceptions of cost—at least in English political economy—namely, (1) labor cost, and (2) entrepreneur’s cost. Logically, there are two elementary forms of cost, (1) pain cost, and (2) potentiality cost. The first consists in the human discomforts or undesirable feelings incidental to the production of wealth, whether the disutility of labor, or that of “abstinence” or “waiting.” This is also frequently called “true,” “real,” or “subjective” cost. The terms “true” and “real” are hardly commendable, for the other elementary form of cost is quite as real as this. The word “subjective” is genuinely distinctive, but probably less so than the generic term “pain.”

The second elementary form of cost is that emphasized chiefly by the Austrian writers. In the making or acquisition of economic products, certain scarce agents are either destroyed, or else for the time being employed in a way that excludes their employment in the production of other goods. We may say that the production of any given good involves the destruction of certain productive agents, or, permitting a convenient liberty of expression, of the uses of agents from which other goods might have been produced. Thus with the emergence of one good the possibility of some other good is excluded. Professors von Wieser and Böhm-Bawerk, who have written the best explanations of the relation of this form of cost to value, have suggested no distinctive name for it. The reason appears to be that they consider this as the only form of cost which requires especial explanation, since, as they hold, it is the only kind of cost which can be correlated with value. In an article in the _Quarterly Journal of Economics_,[204] Professor D. S. Green has suggested the term “opportunity cost” for the Austrian conception. Professor H. J. Davenport, having in mind the same conception, refers to it as “sacrifice cost.”[205] Professor Heinrich Dietzel speaks of the same cost as “_Nutzeneinbusse_.”[206] This concept has also in various places been designated “social cost.” Though this cost is social in a certain comparatively irrelevant sense in which the other kind of cost is not social, the term “social cost” is not a good one because it lacks distinctiveness. There is nothing intrinsically social about potentiality cost, nor would the other elementary form of cost, that is, pain cost, be best designated “individual cost.” Both forms would appear in an isolated individual economy, for instance in our fictitious but highly useful Crusoe economy. “Sacrifice cost” is ambiguous, because the word “sacrifice” is used as often as not, though perhaps improperly, to signify the discomfort or pain endured in production. A term is needed to distinguish a form of cost from pain cost. “Potentiality” cost appeals to the writer as being a term somewhat better than “opportunity” cost. When certain common production goods, capable of being turned to the making of more than one kind of thing, are used up to make a given thing, their potentiality to make an alternative thing is destroyed. The potentiality cost of a commodity is measured by the highest other value that might have been obtained if this commodity had not been produced from the productive agents entering into it.

If it be correct that pain cost and potentiality cost are the two elementary kinds of cost, what is the relation of the two historical forms of cost, labor and entrepreneur’s cost, to these? Just as the word labor stands for two distinct things, toil and productive power, so may “labor cost” mean either pain cost or potentiality cost. If the term labor cost is used without a qualifying adjective or explanatory phrase, it would naturally call up in most minds the conception of pain cost. But labor force is the most disposable of all productive agencies, and when the productive power of labor (what the entrepreneur buys) is used up in the production of a given commodity, we have a perfect example of potentiality cost. As we have seen, Adam Smith used labor at different times, both in the sense of toil or disutility and in the sense of productive power or potential commodity. Ricardo, to the best of the writer’s knowledge, said nothing to indicate definitively which of these concepts he designated by the term labor. In the writer’s judgment the presumption is that by the labor cost which regulates the exchange value of commodities, Ricardo meant what we call pain cost. At one place, Ricardo said “difficulty of attainment” is the true measure of value. It seems almost assured that this must mean “pain cost.” When cost is conceived as the ultimate essence of value, the cost will almost certainly be pain cost or “real cost.” It is interesting to note that Professor Dietzel, in arguing that the Ricardian labor theory of value is perfectly reconcilable with all that holds good in the utility theory, states that labor cost must be conceived solely as “_Nutzeneinbusse_,” _i. e._, utility-sacrifice, or potentiality cost. When the labor theory is founded upon the conception of labor as toil (“Unlust”), he considers it to be “built upon sand.”[207]

We see that it is possible to mean either pain or potentiality cost by the words “labor cost.” Labor as “pain” and labor as productive power are not the same thing but the first is incident to the second. It remains to consider the relation of entrepreneur’s expense to the two elementary forms of cost. Torrens desired to exclude the money outlays of the entrepreneur in interest charges from the money cost of production of a good. That is, he maintained that what he called “profits,” the chief constituent of which was interest, is no part of cost of production. This view was never adopted by any subsequent economist of weight. The very simple reasons why it is indefensible were mentioned in the chapter on Torrens. Conceding then that interest is a part of entrepreneur’s cost, the relation of the latter to “pain cost” can be stated in a few words. The total “pain cost” of any article, which is produced by entrepreneurs, finds its remuneration in those payments which go to make up _cost_ from the view-point of the entrepreneur. The point to be held fast, a point already emphasized, is that the subjective costs of goods so produced can influence their exchange values only by way of influencing their entrepreneur’s costs.

The relation of entrepreneur’s expense to potentiality cost is less simple and familiar than the foregoing. It will best be taken up in a subsequent section after we have endeavored to state the gist of the utility theory of value. We may conclude the present discussion of cost concepts by noting that there are several ways of reckoning or analyzing entrepreneur’s cost. (1) Adam Smith’s method, adopted by Malthus, is set forth in the following definite words written by the latter: “The cost of producing any commodity is made up of all the wages, all the profits, and all the rent which ... are necessary to bring that particular commodity to market in the quantity required.”[208] (2) Perhaps the most approved modern method of analyzing the elements in entrepreneur’s cost is merely into wages and interest. In this case rent paid for the use of land is treated in the same way as rent paid for buildings or for machinery or power. (3) The most direct treatment of entrepreneur’s cost defines it shortly as including the prices of all the productive agencies used up in the making of the product, or as the value of raw material, machinery, and labor power “entering into” the product. It is always necessary to explain immediately that some production goods are in no sense consumed in the making of the product. Such are the land and buildings. Some production goods are consumed only in very small part in the making of a single product. The total money cost of a product is according to one system divided into “prime cost” and “establishment cost.” The former includes the prices of all those elements which are entirely used up in making the product. The latter includes the product’s due share of the money cost of the rest of the establishment, worn to a certain extent or occupied for a time in its making. Numerous practical formulæ are in use to aid in the difficult problem of imputing to the product its due share in the various general charges. A second necessary explanation connected with the third form of calculating entrepreneur’s cost is that, since the prices of the production goods have to be paid before the product is finished, each price must be increased by interest for the time of its advance, to give the complete cost of the product. In order to state the relation of entrepreneur’s expense to potentiality cost, it is not necessary to discuss in full the mutual relations of the various modes of calculating entrepreneur’s cost. Such a discussion would, it seems to the writer, involve us in the theory of interest and indeed in the entire theory of distribution. Fortunately it is sufficient for our present ends to point out that all forms of analyzing entrepreneur’s cost must be based upon the third, or, as we might call it, the practical method. If it is desired to reduce the cost of a product to wages and interest, the practical cost of the article as defined above will have to be ascertained as a starting-point. We will be content in a later section to trace the connection between potentiality cost and the practical form of entrepreneur’s cost.

3. It is impossible to give the term _value_ any one meaning. The word is so ambiguous that Jevons advocated its abandonment. The central thought of the value concept seems to be _capacity to excite desire_, but there are two grand kinds of economic value which are best designated, (1) exchange value and (2) esteem value.[209] The exchange value of an article has often been defined as a ratio—or specifically, as the ratio in which the unit of measure of the article exchanges for a multiple, or fraction, of the unit of measure of any other determinate thing[210]—and again as the quantity of that other thing for which it exchanges. But both of these conceptions are involved in metaphysical difficulties which make them impossible to employ in actual reasoning, and all writers are accustomed to make assertions about exchange value which are not in the least true of these, their purely formal, definitions. Walsh has shown most clearly that the only conception of exchange value free from difficulty is that of _power_ in exchange. Exchange value is the power in a thing by means of which its owner is enabled to command other things possessing a similar power.[211] This power is measured objectively by the physical quantity of some other thing selected for the purpose, but the value is not that quantity, though speaking elliptically we may say the value of a coat is twenty bushels of wheat or twenty dollars. The exchanging power in our daily thought is always and properly referred to the thing and not to the man or owner. When the thing is gone the power is gone. The purchasing power of a twenty-dollar piece does not reside in the holder.[212] It goes without saying that this power can exist in an article only when there is another thing for which it can be exchanged and when there are men to effect the exchanging. It is not implied that articles of commerce have the power to exchange themselves in market places without human intervention. But the purchasing power resides in the article; it is always referred to the article in our thought, and it leads to nonsensical results to run counter to our commonest and most practical forms of thought and endeavor to locate it elsewhere.

The end of the theory of value is to explain the causes which govern exchange values, or practically, market prices. Other conceptions of value than exchange value derive their just importance in political economy only from the aid they may render in this explanation. This defines the place of the conception of esteem value. A finished explanation of exchange values is impossible without a theory of esteem values, just as an ultimate explanation of the counterbalancing powers of different objects in the scales is vain without the general law of gravitation. The power of an apple to counterbalance two eggs might have been thought of as a matter purely relative between apples and eggs, before the general conception was framed of the common attraction exerted by the earth upon both apples and eggs. Exchange values were once stated to be “purely relative.” The objectionable point in the statement lies in the adverb “purely.” For exchange values are derived from esteem values very much as weights, or powers to counterbalance, are derived from the earth’s attraction. That is, these two derivations are generally similar. Here as elsewhere analogies can be pressed too far. The derivation of the exchange values of different goods in the social market from the esteem values put upon these goods by the consumers, or purchasers in the society, is a process indefinitely more difficult to explain than the relative weights of ponderables.[213] Given the gravity of separate objects it is but a step to explain their relative weights, but given the esteem values of different economic commodities it is a long road to follow the process through which these determine the exchange values of the same commodities. If esteem value be the gravity behind exchange value, the case is rendered complex in that each good possesses a separate esteem value for every different consumer whereas there is but one earth to attract each object whose relative weight we desire to explain.

In the judgment of the writer, the best definition of esteem value is “the significance (_Bedeutung_) which concrete goods attain in our estimation when we realize that we are _dependent_ upon them for the satisfaction of some want.” This is a loose translation of the definition formulated by Carl Menger in 1871.[214] The individual good attains value not simply when it is capable of affording us satisfaction, but when it _conditions_ the satisfaction. Goods existing in superfluity give satisfactions but do not _condition_ them, hence any unit of such goods possesses no value. The removal or destruction of a unit occasions the loss of no satisfaction. Menger’s definition was a triumph of theory in stating the relation of value to human satisfaction and to utility.

The law of marginal utility is but a corollary of the principle involved in this definition. The utility of a good is its power to afford satisfaction.[215] When goods occur in stocks of like units the phenomenon of “marginal” utility emerges. As the stock of such goods to be used by a consumer within a given time is increased, the satisfaction afforded by each successive unit declines.[216] The actual utility of each successive increment is lower than the actual utility of the preceding increment. The actual utility of the last or marginal increment is the “marginal” utility of any of the increments. The reason why the value of any such increment is determined at the height of its “marginal” utility is only because any one increment conditions merely the satisfaction afforded by the last or marginal increment. Remove or destroy any increment and rationally only the satisfaction of the marginal increment will be given up. In effect any increment is the marginal one. Thus the law of marginal utility is not the fundamental law of value. Menger’s definition contains this fundamental law and gives a universal principle of value. The theorem that value depends upon marginal utility is merely a deduction from this fundamental principle, and is of limited scope, since it applies only where there are goods in stocks.[217]

An absolutely essential point to be kept in mind is that the value of an object is not derived from the sacrifice made to obtain it. On the contrary we make the sacrifice because the object has this value. The value is first, the sacrifice second. The only means of estimating how much sacrifice or discomfort we can afford to undergo to obtain an object is by judging its value to us _previously_ to and _independently_ of the sacrifice. If the labor cost, say, determined the value, we could expend labor cost regardlessly in producing any objects whatsoever. But this is just what we cannot do. We must have a care when we expend labor. A care for what? For the value of the result. The value of the object is derived from the satisfaction which it can afford, but it is attributed to the object only when it is the indispensable condition of that satisfaction.

When a particular object conditions some satisfaction of ours, it possesses a superior power over our welfare to that possessed by a good which, while it affords us satisfaction, does not condition it. It would be a waste of energy to spend it in producing or conserving the thing of inferior power. The ultimate reason why our minds instinctively assign a superior importance to the things of higher power over our welfare is that such instincts contribute to our fitness in the struggle for existence. The things of lower rank possess merely utility. The things of higher rank possess a superior power which we recognize and distinguish as _value_. Lack of this distinction would lead to a waste of energy in the modifications which we effect in our environment.[218]

4. Let us consider now the essential features of the utility theory of value. According to this doctrine the sole source of value is human satisfaction. The thought is well conveyed, though the expression may be somewhat loose, by saying that the only inherently valuable thing is satisfaction, and that the value of satisfaction is passed out to, or attributed to, any external object upon which the satisfaction is dependent. Human satisfactions are quantities, for they are capable of being _more_ or _less_. But they are inexact and wavering quantities. Similarly, the esteem values of goods, derived from the satisfactions conditioned by these goods, are quantitative, but are incapable of exact or constant numerical expression. The exchange values of goods are exact and relatively constant quantities. Nevertheless, exchange values are assuredly founded upon esteem values. The description of the process by which these wavering and more or less uncertain esteem values determine the exact and definite exchange values of goods, is perhaps the most difficult part of the utility theory. But without this part—commonly called the “theory of price”—the utility doctrine remains a mere torso.

Böhm-Bawerk’s theory of price is the only attempt that has been made to complete the utility theory in this direction, which is at once well known and authoritative.[219] Though the fundamental lines of this explanation are correct, it is in externals at least defective in two noteworthy respects. In the first place, one of its principal assumptions is untrue to the typical conditions of exchange under the division of labor. This assumption consists in supposing that sellers’ subjective valuations are effective factors in determining price in the market of an organic society. In Böhm-Bawerk’s theory, the reader will recall, the miniature but supposedly typical market is assumed to consist of a number of sellers owning horses and a number of buyers desiring them. The first step in the argument is to assign a money expression to the esteem or “subjective” value of a horse to each buyer and each seller. Then if these money expressions, or “price equivalents,” are higher for some one buyer than for some one seller an exchange of money for a horse is possible between the two. If buyer B values a horse at $45 and seller S at $40, B can afford to part with, and S can afford to take for a horse any sum of money over $40 and under $45. By considering all the price equivalents of sellers on one side and of buyers on the other side, Böhm-Bawerk shows us that for every given combination of such figures in a market there is a certain definite number of sales possible, and these sales must take place at a price fixed between the price equivalents of the last buyer and the last seller. In other words, the market price will be fixed between the money valuations set upon a horse by the “marginal pair.” The region so delimited by the marginal pairs becomes narrower as the number of buyers and sellers entering the market increases. Thus, in a large market the price is virtually determined to a point. The difficulty with this theory is that under the division of labor, sellers make products for the market, in view of the market price, and make them in numbers and keep them in stocks far in excess of their own needs. Under the division of labor, the lowest price at which a seller will part with a commodity is not set by the marginal utility or subjective value of the commodity to him. A theory of price applicable to the modern market must not employ the subjective valuations of sellers as a factor in price determination.

In the second place, Böhm-Bawerk’s theory of price is misleading, since it obscures the fact that the Austrian theory of value always assumes the supply of the goods whose value it is to explain. The Austrian writers themselves teach us that the value of a good depends upon the supply of it. The theory of marginal utility explains very well why an increase of supply lowers value or a decrease raises value. But if there should be any cause which limits or regulates the supply of goods with reference to their value, _by some kind of an adjustment to value_, this cause would be both a cause and a regulator (or at least a part regulator) of value. Cost of production in some ultimate form is by many writers supposed to be such a cause. The human “pain cost” of producing goods is of equal importance in theory with the human pleasure gain had from utilizing the goods. The value of an addition to the stock of a given sort of goods always furnishes a motive for the increase of the stock. Any cause which limits the supply at a certain point in the face of this human desire for the increase is a cause of value. True, it is a cause more remote than utility, but still a cause of value. Since the Austrian writers virtually ignore the cause or causes governing supply (and thus governing or helping to govern marginal utility itself), the doctrine of price which they advance ought to rest openly and squarely upon the assumption that the supply of the good is taken for granted. In Böhm-Bawerk’s theory of price, the total supply of horses in the miniature market is simply assumed, not accounted for.[220] If horses were more plentiful in this market the sellers’ price equivalent would be lowered and the market price would turn out lower. It is a fair criticism that Böhm-Bawerk obscures the important point of the dependence of price upon supply, by assigning sellers and buyers an arbitrary series of money valuations as the very first step in his argument.

The “theory of price,” as the Austrians call that part of their theory which traces the connection between consumers’ “subjective” values and market exchange values, must begin with a clear recognition that the pure utility theory of value assumes outright the extent of the supplies of all goods. Let us, then, inquire first how the price of a given supply of consumption goods is determined.[221] If a certain supply of some consumption good is presented for sale in the social market, there is theoretically some one price at which just this amount of goods can be sold. Following Professor Marshall, we may call this the “social demand price.” At a higher price, only a less supply could be disposed of. At a lower price more could be sold. The competition of buyers ultimately prevents this lower price being set. The dependence of the social demand price of a given supply of goods upon the esteem value of these goods to the consumers in the social market may be traced as follows:

(1) From _esteem values_ to _price equivalents_. The sum of money which a consumer would pay for the addition of an article to his possessions rather than go without that article is called its price equivalent. The price equivalent must not be confused with the price he may pay actually to buy the article, namely, the market price. A piano may have a market price of $600, but have a price equivalent of $1,000 to A. If the market price of pianos were to ascend to $1,000, A would still purchase one. But more than $1,000 he would not pay. When A assigns to a piano a price equivalent of $1,000, this sum of money, of course, has significance merely as the representative of the indefinite variety of other goods which A supposes to be within the command of $1,000. Thus A’s ability to think out price equivalents depends upon the already existing exchange value of money, or, in other words, upon prices themselves. If the market prices of carpets, carriages, wines and other things were different from what they are, the amount of other things commanded by $1,000 would be altered, and assuredly A’s price equivalent for a piano would change. Thus the price equivalent of one thing can be named only in view of previously existing scales of market prices of other things. A consumer comes to form a conception of the significance of a unit of money to his welfare. Into the question of the inner nature of this conception we cannot afford here to push our inquiry. Without this conception he could not set price equivalents. It is merely a matter of experience that in fact consumers do set price equivalents. The sole possible explanation of the fact that when a monopoly raises the price of a consumption good the sales of it decline, is that some buyers have been excluded because the price asked for has passed above their price equivalents.[222] The worth of money to a consumer depends upon the extent of his money income. Thus the price equivalent set upon a good by any consumer depends (1) upon the esteem value of that good to him, and (2) upon the extent of his money income. Given a consumer’s money income, his price equivalents for various articles will be determined by, and be in proportion to, the esteem values those articles have for him.

(2) From _price equivalents_ to _market-price_. The price at which a given supply of a certain good can be sold to a body of consumers is a _resultant_ from their individual price equivalents for this good. It is in no sense an average or mean of these price equivalents.[223] This is best understood by imagining the supply of the good offered in the market to be increased by one unit. This extra unit must be added to some person’s stock. It will go normally to the person who will pay the most for it, but the price of the unit will have to be lowered sufficiently to bring it down to this person’s price equivalent for a unit. In the open market, then, the prices of all units will have to be lowered to the level of the price of this unit. This illustrates the way in which the social demand price of a given supply of goods is determined at some individual price equivalent. The price of a given supply is determined at the point of a marginal individual price equivalent.

In the last section it was asserted that unless a good is possessed in a plurality of units, that is, in a _stock_, by the individual consumer, its value will not be determined by _marginal_ utility. The Austrian writers have made this perfectly clear, but there are innumerable places in the literature which has sprung up about the Austrian theory, either expounding or criticizing it, where the value of such a good as a piano or a furnace is said to depend on marginal utility. Let us suppose that no person possesses more than one piano. In this case, properly speaking there is nothing marginal about the value-determining utility of a piano. There are, however, two methods in vogue of discovering an alleged marginal utility in such a single unit commodity. The first is to point out that a piano may serve several uses. For instance, it may be used to produce music and also as an ornamental piece of furniture. It is then suggested that one of these uses is greater or less than the other and is marginal. Some suggest by implication or directly that it is the least use to which a piano is put which determines its value to the owner. If it should be suggested in reply that a piano might be used to conceal a discolored place in the wall, which could equally well be done by a two-dollar screen, the probable reply would be that it is only the least use to which the piano can be put _economically_ which determines its value. Even so acute a writer as Smart[224] is guilty of this perversion. When it is in the pursuit of such margins, the mind is far adrift from the true logic of the utility theory. When a piano is actually used to cover a piece of wall, this is assuredly an “economic” use of the article. This use does not exclude or hamper any of its other uses. It is true no one would pay $600 for a piano merely to cover a bad piece of wall, but very likely few would pay that sum for any one use of the piano. The truth is, the value of a piano to its user depends upon the sum of its uses to him. The value of the piano measures the total amount of satisfaction _conditioned_ upon its possession. When goods are used in stocks any one unit _conditions_ only the satisfaction had from the last unit. Thus only does _marginal_ utility—the actual total utility of the marginal increment—determine value. It is quite futile to attempt to distinguish between the different uses of a unit commodity and arrange these in a descending scale and choose a marginal use. When the unit is taken away all these uses would be sacrificed. Professor Dietzel, an undiscerning critic and imitator combined of the Austrians, has stated that it is the “highest use,” the use on the upper margin, which determines the value of a unit commodity.[225]

A second method of discovering a marginal utility for a piano is to conceive of the utility of a piano to that possessor who has just been able to afford the price as the marginal utility of pianos. All men pay the same price for a given grade of piano, but the rich men have much higher price equivalents than the poor. If the supply of pianos to be sold in a given social market be increased, the price will fall. This fall is interpreted as being caused by a decline in the “marginal utility” of pianos. There is no justification for this logic in the utility theory. It is not possible to compare the satisfactions had from pianos by different persons. It is not possible to imagine the pianos in society arranged in a series, the pianos of highest utility being those held by the persons who could afford to pay most and so on. The price of a piano depends upon the _marginal price equivalent_ of a piano, but neither the exchange value nor the esteem value of a piano depends upon _marginal_ utility.

To conclude, all goods derive their exchange values from the esteem values placed upon them by consumers. The exchange value of a good in money is determined in a marginal manner by the price equivalents set upon the good by the consumers. Since the extent of a consumer’s money income helps determine the price equivalents placed upon all articles by him, it is impossible to show that these price equivalents depend solely upon esteem values. But it is still proper to say that the esteem value of a good is the sole source of its exchange value. A consumer will assign no price equivalent to a good unless it possess esteem value, and when he does assign a price equivalent, it will be precisely in proportion to the esteem value of the good as compared with other goods which he values.

The price of a commodity is a definite and fairly stable quantity, _e. g._, the price of an oil-stove is $4.50. Is it possible that this definite price can be said to be determined by the utility of oil-stoves to consumers? Consumers cannot reduce their estimates of the utility of articles directly to figures. But, nevertheless, a consumer can determine upon a sum of money whose general purchasing power he considers approximately equivalent to the value of an oil-stove to him. The value of the oil-stove is a wavering quantity, but having struck a money estimate on the basis of that value, taking it for what it is at the instant of the decision, this money sum is a definite something that will be carried in mind as such though the value is indefinite and wavering. Given these definite “price equivalents” the definite market price is a resultant from them. The market price of a good is a sort of social institution and has the momentum or stability of such an institution. Being once determined, it will not waver as do the numberless individual estimates of “esteem value” upon which it is founded.

5. If a commodity fetching a definite and exact price, as for instance an oil-stove selling for $4.50, is produced under competitive conditions, the apparent and proximate reason why the article has this particular price is because it costs its manufacturer about this sum of money to produce it. Putting aside the complications due to the fact that competition frequently takes place between firms producing at different costs, the commonest law of exchange value, stated in the usual language, is that price is “determined by” entrepreneur’s cost of production. Whether entrepreneur’s cost is reckoned in terms of wages, interest, and rent; wages and interest alone; or in terms merely of the prices of all the production goods “entering into” the product, the law of entrepreneur’s cost, as stated above, reduces itself to the proposition that the exchange value of production goods “determines” the exchange value of products. For all forms of calculating entrepreneur’s costs are based on the simple, practical, or first method of reckoning costs, as the prices of labor, raw material, machinery, power, _etc._[226]

There is seeming antagonism between the law of entrepreneur’s cost and the utility theory of value. For, according to the latter, the value of production goods is derived solely from the value of their products. Value originates in human satisfaction, flows out to those consumption goods upon which the satisfaction is immediately dependent (_i. e._, by which it is conditioned), from these flows out to the production goods upon which the consumption goods as products are dependent for their existence. From these on, the flow of value continues to those production goods which are still farther removed, and so on, rank by rank, until unproduced agents are reached. Put in other words, raw material, machinery and similar goods, have value solely because the entrepreneur can afford to pay for them, and this he can do solely because his products have value. If value conduction runs from product to production goods, how can value determination run in the reverse direction, from production goods to product? If the stream runs from the spring, we know that the volume of the spring must determine the volume of the stream and not the contrary. But does not the law of entrepreneur’s cost assert that the value of production goods _determines_ the value of products? The solution of the enigma of this apparent conflict of the utility theory with the great empirical law of cost (in its common form of statement) is one of the most interesting and important products of the acute thinking of the Austrian economists.

The difficulty exists solely because many single production goods, such for example as iron and wood, or pre-eminently common labor, enter into a variety of products. When several various products are related to one another by reason of the fact that a common production good enters into all of them, we may, following von Wieser, call them “cognate products.” If cognate products A, B, and C are made in part from the common production good P, P will derive its value from the values of A, B, and C, but the value of P itself will have a peculiar reactionary effect, yet to be described, upon the value of these products taken individually. This reaction is the phenomenon really at the foundation of the law of entrepreneur’s cost. For an instant permit a supposition quite contrary to fact. Suppose that A, B, and C are made entirely from P so that no other production good enters into them. Then the exchange values of A, B, and C will be derived solely from the “marginal” utility of these products, but their exchange values are peculiar in this, that they will be related, will be adjusted, each to the others by reason of their common origin in P. If a unit of P entering into A attains in that form a higher value that when entering into B or C, then more A’s will be made from P and less B’s and C’s. The increase in the supply of A’s will decrease their value _by decreasing the marginal utility_ of A’s.[227] This process keeps the values of A’s, B’s, and C’s in a mutual adjustment. If we carelessly confine our view to a part of this process of adjustment, we see what appears to be a determination of the value of A, the product, by the value of P, the production good. If the value of A is out of adjustment with its cost in P, and then the adjustment is effected, it is the value of A which seems to move to that of P. The value of P may seem to be the independently determining factor. As a matter of fact, in the first place, the value of A moves only when its marginal utility has been altered by a change of its supply, and in the second place, when it does move toward the value of P, that of P also moves toward it. It depends on the relative importance of A’s in comparison with all of the rest of the products of P, how far the value of A moves and how far the value of P moves in their mutual adjustment. If it is discovered that the two stars in a “double star” are approaching each other, we easily conceive that both take part in the moving. But when an apple falls to the earth it is more difficult to realize that the earth also falls toward the apple, moving its due proportion of the distance between them. In the same way, when we see that the value of some relatively unimportant product remains equal to its cost of production, we are inclined to state the case as one of pure determination of value by cost. But this “determination” is but a part, viewed by itself, of a larger process by which the supplies, and consequently the values, of cognate products are being adjusted to one another. The whole truth is that the value of production goods is determined by the value of their products. Because of the existence of great common production goods of manifold productive uses, we have the peculiar reaction of the value of production goods on the value of products, a part of which process is described in the law of entrepreneur’s cost.

The case of real life is more complex than the one considered above in that a plurality of common production goods always enters into a product. In this more complex case we find an entirely new problem, which rejoices in the name of the “imputation of the productive contribution,” but the explanation of the law of entrepreneur’s cost remains exactly the same in principle as that given for the artificially simplified case. When a product is made from several production goods, as a carriage from wood, iron, leather and labor, the value which by anticipation the production goods derive from the product is divided among them. The share of value of each production good is called its productive contribution. The different solutions of the problem of imputing the productive contribution already offered in the literature of value and distribution, will not be discussed here.[228] One principle, however, will be taken for granted. It will be assumed that the productive contribution of any kind of production good in the value of a particular kind of product varies inversely with the supply of this production good which is turned to the making of that kind of product. If product A is made from production goods P, Q and R, and the amount of P used in producing A’s is increased—with or without an increase in the amount of Q’s and R’s used[229]—the productive contribution of a unit of P in the value of A’s will be decreased.

Considering now the reaction of the value of production goods on the value of particular products, we may represent the more complex case, corresponding to real life, by supposing products A, B and C to be made from production goods P and Q, P and R, and P and S respectively. In this case the products are cognate only by reason of their relationship through P. The production goods Q, R and S are not common. Here as before the supplies and values of the products A, B and C are in a relation of mutual dependence. The dependence is, however, not so close as in the first artificially simplified case considered above. In the present case it is not the values of A, B and C themselves which are brought to an equilibrium, but it is merely the _productive contributions of P_ in the values of A, B and C that must reach an equality. If a unit of P obtains a higher productive contribution in A than in B and C, more P will be put to the making of A’s and less to the making of B’s and C’s, until a unit of P attains the same productive contribution in each of these products. If the amount of P put to the making of A’s is increased, the supply of A’s will be increased and A’s will decline in value. But the decline in the value of A’s caused in this manner will fall entirely upon the productive contribution of P. The decline of value takes place merely to bring the contribution of P’s in A’s to an equilibrium with the contribution of P’s in B and C. Abstract as the foregoing formulæ are, they are nevertheless real. If entrepreneurs were not able to ascertain, at least approximately, the productive contributions of the various production goods entering into the product which they manufacture, they would be unable to tell either how much of each productive factor they can afford to buy or what price they can pay for it.

When we call to mind the fact that in actual industry most production goods are themselves products, and that into the majority of final products nearly all the great common production goods enter, we realize the stupendous complexity of the relationships of cognate products in actual life. It is no wonder that ordinarily a whole half of the process by which the values of all these fellow products are brought to mutual adjustment escapes our notice. Pig iron derives its value from a thousand and one kinds of products. When the value of one of these alone is being brought into adjustment with the value of pig iron, the mass is all on the side of the pig iron, if we may so express it. In this movement the single product is seeking a value-equilibrium with all the vast multitude of other products of pig-iron. It seems itself to effect all the adjusting. As a matter of fact, it contributes its due share to the determination of the value of the raw iron. Thus far, we may safely affirm, the difficulty which, at first sight, the law of entrepreneur’s cost seems to present to the utility theory has been quite surmounted.

It is a matter of some interest to define as exactly as possible the relation of potentiality cost to entrepreneur’s cost. When an entrepreneur, in making his product, uses a production good capable of other applications, by other entrepreneurs, his product is made at the expense of potentiality cost. Whether in the isolated or in the social economy, there is waste whenever a good is produced at a potentiality cost which is higher than the value of the good itself. A greater value will be sacrificed to obtain a less. In the isolated economy Crusoe will easily guard himself against this form of waste. In the social economy, the competition of entrepreneurs for the supplies of production goods prevents the same form of waste. Competition being granted, nowhere will there be found an entrepreneur who uses up production goods to make a value less than the highest value that these goods could produce elsewhere. For otherwise the entrepreneurs located at the other points of higher return would be able to command the production good for their purposes, and the possibility of profits would furnish them with the motive to bid for it. If entrepreneurs’ costs always consisted solely in the value of production goods capable of manifold applications, we could say that the potentiality cost of a product determined its entrepreneur’s cost. For the former cost consists in the highest other values that these production goods may be made to produce elsewhere, and the entrepreneur will normally have to pay that value for them and no more. His necessary outlay for a product is thus regulated by its potentiality cost.

But sometimes in the making of a product certain valuable production goods may be used whose employment does not involve potentiality cost. These are, of course, production goods capable of being used in this one product alone. A production good may be capable of making but one kind of product and yet receive from that product a certain share of value as its productive contribution. A mineral spring may be so situated as to be such a production good. A mine is a perfect example. Here a new question confronts us. Does or does not an entrepreneur’s outlay in the value of such a production good constitute a part of entrepreneur’s cost? This is solely a question as to how we choose to define entrepreneur’s cost. It may be defined either way. But in the event that we define this cost to include outlays for single-use production goods, it will no longer be possible to assert that potentiality cost governs entrepreneur’s cost wholly and in all cases. Let us give an illustration of the question. If the bottled water of a mineral spring can sell for ten cents in a neighboring city, and it costs five cents for the bottle and labor and two cents for transportation, is or is not the three cents per bottle which remains as the rent (“price-determined surplus”) to the spring a part of the entrepreneur’s cost of producing bottled mineral water? If the vender of the water did not own the spring, he would be inclined to reckon the rent paid for it to its owner as a part of his money costs. But economists are agreed that the distinction between costs and surpluses does not hinge on relations of legal ownership. If the producer of the bottled water owned the spring, he would merely pay the rent of it to himself. To the present writer it seems that entrepreneur’s cost may be defined either to be coextensive with potentiality cost, or to exceed this cost by the inclusion of “price-determined” rents,[230] provided a consistent usage be maintained. In the one case, entrepreneur’s cost is determined by potentiality cost; in the other case it is principally determined by potentiality cost.[231]

In accounting for the value of consumption goods the Austrian theory takes their supply for granted. In the same way, when the Austrians come to their explanation of the law of cost they take the supplies of production goods for granted. If the supply of pig iron brought every year to the iron market be increased, the supply of the products of iron will be increased and the exchange values of these products will fall. The exchange value of pig iron will fall in consequence.[232] At this point a question—a criticism in behalf of the cost theories of value—naturally suggests itself. Is not supply ultimately regulated by cost of production in some form, and is not cost of production thus either the ultimate regulator of value itself, or at least a joint regulator with utility? We have suggested here the famous question of the “reconciliation” of the cost and the utility theories of value. It is certain that the only form of cost which can exercise ultimate control over the supply of any produced good is what we have called by the generic name of “pain cost.” The potentiality cost of a product is measured in the value of the production goods entering it. But this value itself depends on the supply of these production goods. The ultimate cost regulator of the value of both the products and the production goods cannot be potentiality cost. The influence of potentiality cost causes the supply of the individual kind of product merely to be adjusted to the supplies of its cognate products. But potentiality cost has no influence whatever over the total supply of the production goods or the absolute supply of the total mass of cognate products. To appeal to a simple illustration, if a flow or stream of some production good be supposed to divide into several branches as it proceeds, each branch representing one of the several cognate products of that good, the influence of potentiality cost may determine the _relative volumes of the different product-streams_, but only pain cost—if any cost at all—can influence the volume of the parent stream, and thus govern the _absolute volume of all the branches_. Entrepreneur’s cost also, most obviously, fails as an ultimate regulator of supply. This cost is but the proximate agency through which the two elementary forms of cost exert their influences upon the relative and absolute supplies of products. Undoubtedly the recognition that pain cost is the only form of cost capable of exerting any ultimate control of value, helps to suggest that it be called “real cost” or “true cost.” Professor Marshall, for instance, analyzes cost into two forms, (1) real, and (2) money costs.

6. There is to-day a large following for the doctrine that cost and utility are joint and equal regulators of value. Professor Alfred Marshall, for instance, states that “we might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production.”[233] Historically, there have been developed by economists two distinct and apparently antagonistic theories professing to afford ultimate explanations of value; the earlier or cost and the later or utility theory. But if it can be shown that in reality cost and utility are but joint regulators of value, recent thinkers hold this equivalent to a demonstration that the two apparently hostile doctrines are after all but the two parts of a larger harmonious whole. It is, therefore, maintained by many that the two opposed schools of value merely failed to take a broad enough view of the problem. Thus we have ever before us the interesting question of the reconciliation of the cost and utility theories. If it be desired to effect a fundamental reconciliation, what appears to be the most propitious starting point is found in the theory of the “marginal or final equivalence of utility and disutility,” a doctrine which originates purely as a theory of “subjective” or esteem value in contrast with exchange value. The first writer to give this theory a definite formulation was probably Gossen, but it was J. B. Clark’s later but entirely independent statement of the same idea which was first to bring it to the notice of economists generally.[234]

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.

VOLUME XII, 1899-1900. 586 pp.

Price, $3.50; bound, $4.00.

1. History and Functions of Central Labor Unions. By William Maxwell Burke, Ph. D. Price, $1.00

2. Colonial Immigration Laws. By Edward Emberson Proper, A. M. Price, 75c.

3. History of Military Pension Legislation in the United States. By William Henry Glasson, Ph. D. Price, $1.00.

4. History of the Theory of Sovereignty since Rousseau. By Charles E. Merriam, Jr., Ph. D. Price, $1.50.

VOLUME XIII, 1901. 570 pp.

Price, $3.50; bound, $4.00.

1. The Legal Property Relations of Married Parties. By Isidor Loeb, Ph. D. Price, $1.50.

2. Political Nativism in New York State. By Louis Dow Scisco, Ph. D. Price, $2.00.

3. The Reconstruction of Georgia. By Edwin C. Woolley, Ph. D. Price, $1.00.

VOLUME XIV, 1901-1902. 576 pp.

Price, $3.50; bound, $4.00.

1. Loyalism in New York during the American Revolution. By Alexander Clarence Flick, Ph. D. Price, $2.00.

2. The Economic Theory of Risk and Insurance. By Allan H. Willett, Ph. D. Price, $1.50.

3. The Eastern Question. A Study in Diplomacy. By Stephen P. H. Duggan, Ph. D. Price, $1.50.

VOLUME XV, 1902. 427 pp.

Price, $3.00; bound, $3.50.

Crime in its Relations to Social Progress. By Arthur Cleveland Hall, Ph. D.

VOLUME XVI. 1902-1903. 547 pages

Price, $3.00; bound, $3.50.

1. The Past and Present of Commerce in Japan. By Yetaro Kinosita, Ph. D. Price, $1.50.

2. The Employment of Women in the Clothing Trade. By Mabel Hurd Willett, Ph.D. Price, $1.50.

3. The Centralization of Administration in Ohio. By Samuel P. Orth, Ph. D. Price, $1.50.

VOLUME XVII. 1903. 635 pp.

Price, $3.50; bound, $4.00.

1. Centralizing Tendencies in the Administration of Indiana. By William A. Rawles, Ph. D. Price, $2.50.

_Vol. XVII, no. 1, may also be obtained bound._ Price, $3.00.

2. Principles of Justice in Taxation. By Stephen F. Weston, Ph. D. Price, $2.00.

VOLUME XVIII. 1903. 753 pp.

Price, $4.00; bound, $4.50.

1. The Administration of Iowa. By Harold Martin Bowman, Ph. D. Price, $1.50.

2. Turgot and the Six Edicts. By Robert P. Shepherd, Ph. D. Price, $1.50.

3. Hanover and Prussia. By Guy Stanton Ford, Ph. D. Price, $2.00.

VOLUME XIX. 1903-1904.

Price, $3.00; bound, $3.50.

1. Josiah Tucker. Economist. By Walter Ernest Clark, Ph. D. Price, $1.50.

2. History and Criticism of the Labor Theory of Value in English Political Economy. By Albert C. Whitaker, Ph. D. Price, $1.50.

3. The Hemp Industry in the United States. By Thomas B. Moore. (_In Press._)

VOLUME XX. 1904. 514 pp.

Price, $3.00; bound, $3.50.

1. The Office of Justice of the Peace in England. By Charles Austin Beard, Ph. D. Price, $1.50.

2. A History of Military Government in Newly Acquired Territory of the United States. By David Y. Thomas, Ph. D. Price, $2.00.

VOLUME XXI. 1904.

Price, $4.00; bound, $4.50.

1. Treaties, their Making and Enforcement. By Samuel B. Crandall, Ph. D. Price, $1.50.

_Vol. XXI, no. 1, may also be obtained bound._ Price, $2.00.

2. The Sociology of a New York City Block. By Thomas Jesse Jones, Ph. D. Price, $1.00.

3. Pre-Malthusian Theories of Population. By Charles E. Stangeland, Ph. D. Price, $2.50.

VOLUME XXII. 1904.

Price, $3.50; bound, $4.00.

1. The Historical Development of the Poor Law of Connecticut. By Edward W. Capen, Ph. D.

The set of twenty-two volumes (except that Vol. II can be supplied only in unbound nos. 2 and 3) is offered for $68. Volumes I, III and IV can now be supplied only in connection with complete sets.

For further information apply to

Prof. EDWIN R. A. SELIGMAN, Columbia University or to THE MACMILLAN COMPANY, New York, London: P. S. KING & SON, Orchard House, Westminster