Social Value
Chapter 17: The Theory of Value and the Theory of Prices
Benjamin McAlester Anderson Jr.
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IN most English treatises on economics, a price means a sum of money given in exchange for a commodity, or the ratio between the money and the commodity, or the ratio between the value of the money and the value of the commodity. In any case, price as a rule involves the idea of money. With the Germans, on the other hand, Preis means any exchange ratio (or a quantity of commodities of any sort given in exchange for a good), whether or not one of the terms of the ratio involves money, and the distinction between price and value (Preis and Wert) is, commonly, the distinction between the measure and the thing measured, or between "relative value " and "absolute value" in Ricardian phrase.[1] The conception of price has been broadened by some later writers in English, however, to correspond with the German usage, notably by Professor Patten, [2] and by Professor Schumpeter, [3] in an English article contributed recently to the Quarterly Journal. I do not care to argue a merely terminological question, and I readily concede that there are disadvantages in departing from
(176) familiar usage. But, on the other hand, since I am convinced that ratios of exchange in general, and money prices in particular, are generically the same, while ratios of exchange and values are generically as unlike as it is easily possible for two things to be, I shall use the term price in this wider meaning, and confine the word value, in the exposition of my own theory, to the non-relative meaning.
The distinction between prices in this sense and absolute values appears in Adam Smith and in Ricardo. These writers do not adhere very strictly to either meaning of the term, value, however.[4] The conception of absolute values is
(177) lost by J. S. Mill, and the distinction which he draws in connection with the problem of the standard of deferred payments (not so called by Mill) is between values (relative) and cost of production. [5] In Cairnes, the two conceptions are hopelessly confused on a single page, [6] while Marshall's whole treatment runs in terms of price.
In what follows, I wish to generalize the conception of price, to show the function of the price concept in economics, to distinguish carefully between the theory of value and the theory of prices, and to see what light the theory of value outlined in this book throws upon the problems of the price analysis.
In chapter II, the distinction between "absolute and relative values," or, in our present phrase, between values and prices, was sufficiently indicated not to need further elaboration here. The relation between them was made clear - the absolute value must first exist before the price, which is the expression of the value of a good in terms of some other valuable object which is chosen as a measure, can be determined. In fact, two values, the value of the good measured, and the value of the good which is to serve as the measure, must first exist, as absolute quantities, before a price-ratio can be made
(178) between them, and their "relative values " shown. In the chapter on the psychology of value, the notion of price was generalized, and we spoke of the price measure of values of noneconomic sort. This notion is one of very general application and one of significance for the whole realm of social and psychical phenomena: not merely where the question of exchanging economic goods is involved, but wherever choice among alternative goods, or courses of action, or men, or institutions, or works of art, or other objects of value, is necessary, we compare them with each other, we measure them by each other, we price them in terms of each other. We arrange them in scales of value, or in series, seeing which is higher and which lower. Where only two goods are involved, we may call either the measure, depending on the point of view. But where many goods are to be compared, it is highly convenient to pick out some one as the common measure of all, so that they may be reduced to common terms. For measuring economic goods, money is, of course, the standard, or common measure par excellence, for most purposes. If we are measuring the value of the political institutions of various countries, we usually take the institutions of our own country, with which we are most familiar, as the common measure or standard. Or, in measuring the moral systems, or the literary masterpieces, of other countries, we again find those of our own people the most convenient standard. But it is significant of the correctness of our general point of
(179) view that values of different species may be measured in terms of each other. Money, in particular, is a very general measure, which may serve for many values outside the economic sphere. Thus, I have pointed out how legal values may be measured in terms of money, as when the fine for one offense is five dollars, and that for another twenty-five. Gabriel Tarde[7] points out that by comparing the theatre receipts of theatres representing different dramatic schools we may compare the vogues of each, or that by comparing the income of the clergy in different periods we may get some index of the variations of religious sentiments. He suggests that while money as a measure of economic values usually functions in exchange, it may, as a measure of beliefs or other social forces, function through gifts, through popular subscriptions to build this or that statue, for the support of scientific work or philanthropies, or even through thefts: "Quelquefois même c'est par des vols où se montre la perversion d'un esprit sectaire, l'aberration et la profondeur de ses convictions passionées."
Commonly, indeed, money performs even this function, that of measuring -currents of belief, passion, enthusiasms, etc., through the process of exchange, and, ordinarily, it is difficult to get any single current separately. We simply get the resultant of an equilibrium of a complex of forces in economic values. But sometimes a single factor stands out so prominently that we can
(180) abstract from the rest, and let money changes measure changes in it alone. For example, during the three days of the battle of Gettysburg, the premium on gold, as measured in terms of Federal paper, fell from forty-five per cent to twenty-three and a fourth per cent.[8] For the market, this means simply a change in the economic value of Federal paper. But for one who cares to look even superficially behind the scenes, it means an increased volume of belief in the triumph of the Federal arms - a belief that at once affected economic values, and was measured in terms of money. Or, the economist may abstract a single legal factor, as a tax law, and measure its influence on the assumption that the rest of the situation is constant, in the well-known laws of shifting and incidence.
Such clean-cut instances are not the rule, however. The organic complexity of the social forces lying back of economic values makes it difficult to disentangle single elements, and measure their force. For one thing, variations in one factor usually mean movements in the others. If we may borrow terms from chemistry, while the economist may give us a qualitative analysis of these forces, it is hard for him to give us a quantitative analysis. And the characteristic of pure economic theory has been its effort to get quantitative, quasi-mathematical laws. The "pure theorist," therefore, does well to start with a quantitative value concept (a convenient shorthand or symbol for the infinite
(181) complexity that lies behind it), a value quantity in which the net outcome of social interactions does precisely manifest itself, and study the laws which it manifests. His chief interest is, not in the origin of economic value itself, but in the changes in quantities in value in different goods and services as these manifest themselves in the market , and submit themselves to economic measurement. In a word, his chief interest is, not in value, but in prices.[9] And the great bulk of pure economic theory, and practically all that is of greatest importance in pure theory, is in the theory of prices, and not in the theory of value. Lest I be misunderstood, the qualification must be repeated: prices here mean, not money-prices, but prices in the generic sense. In this sense of the word price, it is just as accurate to speak of the price of money in terms of commodities, or of a composite of commodities, as to speak of prices of commodities in terms of money.
That is to say, the economist gives himself little concern, in his quasi-mathematical study, as to the ultimate nature of the social forces that manifest themselves in the market. A host of forces lie back of demand, but the economist,/ puts the phenomena of demand into a curve which is the function of two variables, one a quantity of money, and the other a quantity of goods. Lying back of these quantities of goods and money, and giving weaning to the curve, are the more fundamental quantities, the value of
(182) the goods and the value of the money. Further than this, for the purposes of his quasi-mathematical, pure theory, the pure economist has no real occasion to go - in proof of which it need be remarked simply that the most divergent theories as to the nature of value, none of them adequate if the theory set forth in this book be true, have not prevented the development of a vast, highly organized, and immensely useful body of price doctrine, shared by economists of many schools. If only the economist have a quantitative value concept, he can do wonders. And, if the question be regarding relations between factors where the question of the value of money may be ignored, he may often safely abstract from the idea of value, and speak simply of money quantities, and relative changes in these money quantities. Such is, indeed, Professor Marshall's procedure in a large part of his great work. Professor Davenport's contention that, from the standpoint of the entrepreneur, the whole thing may be looked at in pecuniary terms, is true of many problems. Cost for the entrepreneur is simply a money matter. And while, for the more fundamental analysis, we of course must insist that a host of psychic forces determine what those money costs shall be, our analysis will justify the contention that it is impossible to treat them in any but price terms, in a precise and quantitative manner. They are too complex. Certainly labor-pain and abstinence, looked on as abstract individual feeling-magnitudes, will not explain the supply
(183) prices of labor and capital, any more than individual "utilities" will explain demand-sched-" ules. And we may add that the terms " social cost " and " social utility " can, in our scheme, get no meaning that will make them useful. The social value concept seems to us absolutely essential for the validation of the whole procedure of the price analysis, and to be implied in every step in it, but the only meaning we can find for the concept of social marginal utility would be one which would make it identical with social value; and against that there are two objections: first, it would be superfluous, and second, it would be misleading. " Social utility " can get only a vague, analogical meaning in our scheme. Instead of explaining social value, it would itself present a problem.[10] A measure of social economic value in terms of a feeling-magnitude which an individual can appreciate is not to be had. Value can be measured and quantitatively handled only in terms of price.
In saying this, I do not mean to impeach that more abstract procedure which speaks of abstract units of value, and uses arithmetical numbers which designate no particular commodities, or algebraic symbols, or even ordinary speech, to indicate quantitative relations among different sums of these abstract units. Such procedure is thoroughly correct, and often highly convenient, if one be dealing with highly general laws, or if one wish to avoid any Complications from changes in the value of any concrete
(184) commodity which might be chosen as the standard of value. Only, I would insist, such procedure is simply an abstraction from the price concept, and so presupposes it. A unit of value, in the concrete, must be the value of some particular concrete good, which is chosen as the standard. What good is chosen is a purely arbitrary matter, determined by convenience. Abstract value, apart from valuable things, is an utter impossibility - only a Platonic idealism or mediveval realism could hold the contrary view. And, in order to show how many units of value there are in a good, we must compare it with another good, whose value is the unit, unless, indeed, we arbitrarily choose as our unit the good in question, and say that its value is one unit, or several units, in case we arbitrarily define the unit as a fraction of its value. But clearly this latter procedure would tell us nothing after all as to the amount of the value in the good. It would be a purely formal process - like renaming a " hocus-pocus " and calling it two " Abracadabras. " Any real measuring -and real measuring is essential for any quantitative manipulation - implies two things, one of which shall serve as the measure of the other. The conception of abstract units of value, therefore, is an abstraction from the price conception, and presupposes it.[11]
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A valid price procedure, in my view, is essentially this: we take our quantitative value concept, summing up the multitudinous social forces which determine values: then we assume a given set of ethical, legal, and social values of a noneconomic sort,[12] as a sort of frozen framework within which our economic values are to operate, and which shall remain constant during the investigation: then, measuring the economic values in terms of a common unit, we let them exert their influence on the situation, and see what results follow. We vary first one and then the other, and see what readjustments any change involves. Since the situation is so infinitely complex, we bring about this artificial simplicity in thought, that we may study the tendencies one by one. But a given economic change will work out its consequences fully only on the assumption that other economic changes are not occurring. We can in thought let them vary one by one, but they do in fact all vary at once. And further - and for this fact price theory has made no allowance - the "frozen framework" of legal, moral, and other non-economic social values, is not "frozen." Changes in economic values lead to readjustments, not only in the other economic values, but also in the legal, ethical, and other values of the framework. These last are fluid, psychic forces, just as truly
(186) as are the economic values. They change because of changes in the economic values; they initiate changes in the economic values; and they initiate changes which deflect the tendencies of changes in the economic values. So that, even though we premise a thoroughly organic theory of social value, in which the influence of the non-economic social values, working through the economic values, is carefully provided for, we still have to correct the results of our price analysis, before applying it to practice, to account for changes in the non-economic values working to deflect the tendencies which the economic values would lead to if the other values had remained constant.
This last, of course, most economists in practice constantly try to do. Present day discussions of practical economic problems are rich in data of a non-economic sort. In practice the economist recognizes that his mission is, not to see how far a few abstract factors will go in the explanation of economic life, but rather, to explain that economic life by any means in his power, though he ransack heaven and earth in the process.
Of course, it is but a commonplace to add that the economist, in practice, does try to take account of the extent to which his assumptions as to the legal and social "framework" hold: how far there is real freedom of competition, how far real "intelligent self -Interest," how far mobility of labor and of capital, how far monopoly privilege, etc. Or, at least, he usually tries to make
(187) himself think that he has done so. It still remains lamentably true that a great deal of reasoning even on practical problems is an effort to apply theories without any adequate understanding of the extent to which the theories grow out of abstractions made for purposes of study, or any effort to put back the concrete facts from which the abstraction was made. The practical business man knows how these various forces operate on values. He studies them, tries to estimate their force in quantitative price terms, and adjusts his plans to them. If a religious wave sweeps over a large section of the country, the wholesaler sends in larger orders for Bibles, and smaller orders for playing cards. If a rate-reduction agitation is going on, the manufacturer of steel rails and railroad supplies plans to cut down his output. If trades-unionism grows strong, employers of labor recognize that they must readjust their budgets.
