Social Value
Chapter 18: The Theory of Value and
the Theory of Prices (concluded)
Benjamin McAlester Anderson Jr.
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My strictures upon the Austrian, or "utility " theory of value in what has gone before seem to call for further qualification here. As a theory of value, as a theory to explain the nature and origin of value, I am convinced that the Austrian theory is utterly and hopelessly inadequate. And yet, for the work of the Austrian economists, taken by and large, I have the highest admiration. Their treatment of margins, their conception of the motivating function of value, and their new stress on the demand side of the priceproblem, constitute a marked advance over the point of view of the earlier English School, even though perhaps too extreme a reaction. And their detailed work in the price analysis, despite the utterly inadequate basis which the utility theory of value affords for it, has been marvelously accurate, sound, and useful. Having no logical warrant for an objectively valid quantitative value concept, they have none the less assumed and used one -and used it marvelously well. Sometimes that objective value is called by the name, "objective value." Sometimes they call it "marginal utility," and yet it is clearly anything but the feeling of an individual,
(189) for it is broken up into different parts, and reflected back and back through different productive goods of remoter and remoter rank till it has got very far from the individual who may be supposed to feel it. Production is the production, not of material things, but of " utilities" - and yet these utilities, as treated in the analysis, are anything but individual feeling magnitudes, and the actual reasoning on the basis of them would not be different if they were called quantities of value outright. By logical leaps, by confusing "utility" with demand, or by confusing "marginal utility" with objective value,[1] the Austrians have got what the practical exigencies of price theory demand. A detailed estimate of the work of the Austrian School is, of course, out of place here, but I do not wish to be understood as failing to recognize the immense value of the work of men who have given so great an impetus to economic thought as has been the case with the Austrian masters.
There is a further topic in connection with the relation between value theory and price theory that calls for more explicit attention here, though frequent reference has been made to it already. What is the relation of the distributive problem to value theory and to price theory? Is distribution a price problem or a value problem?
It may be looked at from either angle, and treated in either way. A complete theory of distribution involves many of the most fundamental social values. Indeed, it is through the
(190) machinery of distribution that the non-economic values most vitally affect economic values. Wages, interest, competitive profits, are surely legal categories, and are possible only in a society where there is free labor and private control of industry. We may agree with Wieser[2] that, as categories of economic causation, interest, rent, and wages will remain even in a communistic society (and, doubtless, also profit and loss), but that is far from saying (as Wieser of course recognizes) that they would remain as distributive shares. Each social system has its own distributive scheme.
But, in a system like that of Western civilization to-day, where human services and the uses of land and instrumental goods are offered in the market like other commodities, we may treat them in terms of the price analysis with as much propriety as the other commodities. The prices paid for them measure a complex of social forces, but we cannot always disentangle these social forces and measure them separately. It is hard to tell precisely how much influence on the price of labor has been exerted by a speech from Mr. Gompers, or a Federal injunction, or a law for the exclusion of certain classes of immigrants. If we wish to handle distribution quantitatively, we must do it superficially, studying in the market the effects which the underlying social forces manifest there, with reference to the rewards of the different factors of production. This has been increasingly the case
(191) with later theories of distribution. If, on the other hand, we take the discussion which J. S. Mill gives in book ii of his Principles, we shall find that the price analysis plays relatively little part, and that he considers chiefly the influence of the more fundamental social Values.[3]
A failure to recognize the distinction between value theory and price theory seems to lie behind the complaint which Professor Davenport makes against the " Social Value School" in his criticism of Professor Seligman: "As soon as we turn from the value problem to the separate treatment of the distributive shares, we find ourselves to have descended from the cloud-land mysteries of transcendental economics to the old and beaten paths of the traditional analysis."[4] To this complaint the obvious answer is that we have turned from fundamental value theory to abstract, quantitative price analysis. And the social value theorist has as much right to do this as has any other economist - in fact, if our theory be true, only on the basis of a social value doctrine has any economist a right (logically) to take up price analysis.
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The theory of value, as I conceive it, is, then, not a substitute for detailed price
analysis, but rather a presupposition of it. The theory of value is to interpret,
validate, and guide the theory of prices. If the theory here outlined be true, it will
have significant consequences for the theory of prices, in that it will open up new
problems for the price analysis to attack. There are many social forces which can be
measured with substantial accuracy, and many more which can be, for purposes of theory,
disentangled from the complex in which they appear, and treated by the methods of price
analysis already discussed, which economic theory has not yet thought it worth while to
attack. The economist must emulate the practical business man, in trying to treat in price
terms the various social changes which affect economic values. There is much left for the
theory of prices to do. The theory defended here, with its sharp sundering of values and
prices, will, of course, criticize the mixing of the two. One chief criticism of the
Austrian theory, and also of the theory of the English School in so far as it attempts to
give a " real cost" doctrine, is that they are attempts to give both a theory of
value and a theory of prices at the same time. Certainly we must object to Bohm-Bawerk's
contention that the solving of the price problem ipso facto solves the value
problem.[5] The purpose of this book is, not destructive, but reconstructive.
A detailed criticism of the various economic theories that have ap-
(193) -peared, as theories of prices, is manifestly too big a task to be undertaken here. All of them cannot, of course, be accepted in toto, for there are, doubtless, irreconcilable differences among them at points. But it is the belief of the writer that the great bulk of what has been done in the study of the quasi-mathematical laws of prices is of substantial worth, that a recognition of the distinction between value theory and price theory, and of the confusions that result from mixing the two, will remove many seemingly irreconcilable differences between opposing schools, and that existing price theories are less to be criticized for what they affirm than for what they ignore and deny.
Much of the significance of the theory of value for the interpretation of price theory has been indicated from time to time, in what has gone before. Prices have meanings. They express values. To understand the meanings of prices, we must know what the values mean. There is one further point in this connection which is so important that we shall give a separate chapter to it.
