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We have no time to describe the manner in which the interval affects the rate; but it is the fact that, if wages are to rise rapidly, they must lag, by a certain distance, behind the rising standard. If they were to pursue it too closely, the two rates would both move upward only very slowly. The interval means profits. The improvement that will one day put additional earnings into everyone's pocket should, for a time, put a profit into the pocket of the men who make it. Instantaneous diffusion of this benefit would mean that the entrepreneur would have had no inducement to make the improvement at all;if he made it, it must be from altruism or scientific enthusiasm. The generally potent motives appeal to the entrepreneur's selfinterest. It must pay and pay well to make improvements. The more numerous they are, and the greater they are, the more rapidly will wages rise.

Profits, as secured by the interval between rising wages and the rising standard of wages, insures additions to capital. All these additions to capital have the effect of increasing the rise in wages that is traceable to mere improvement itself. They also have the effect of counteracting the rise in the rate of interest that mere improvement would occasion. As a resultant of these two causes, it might be shown, if we had time, that wages are pursuing the static standard upward and that the rate of actual interest is closely accompanying the static standard downward. There is not much of an interval to be taken into account in the case of interest. Genuine monopoly is the great disturber and obstructor. It means profits that are extorted from the public, rather than created. Among the more difficult tasks that dynamic theory must undertake is the untangling of the threads of unlike influence exerted by the great masses of capital that are loosely termed monopolies.

Movement, not position, is of supreme importance in connection with the standard of wages. The direction and the rate of the movement of that standard test the character of an industrial system; and the influences that determine the direction and the rate of it are to be the chief subject of the Political Economy of the future.

Columbia University, New York.

JOHN B. CLARK.

DR.

VALUE AND ITS MEASUREMENT.

R. FRIEDRICH VON WIESER says that "in economy value decides everything."1 It is the controlling force in industrial life, determining in what direction labor and capital shall be expended, and in what proportion the products of industry shall be divided. The theory of value, therefore, must be the foundation of economic science, and as the main volume of economic study passes over from the methods of logic to the methods of natural history-the investigation of actual phenomena,—some change in the conception of value is to be expected.

Professor Patten describes2 the progress of economic thought from the exclusive consideration of physical environment on the part of the Physiocrats, through the various stages of transition to the present tendency to make the differences in the wants and actions of men the corner-stone of economic theory. This increased consideration of the human element is causing a change in the idea assigned to the word value by economic writers.

The old method of regarding wealth as the result of physical environment, and of measuring it in terms of commodities, led to an abstract science, and economic terms were robbed in part of that personal color and life which they have retained in popular usage. Value has been commonly defined as "the ratio of exchange between commodities," or "purchasing power." If a bushel of wheat exchanges for a hat, each is said to express the value of the other, and, to tell whether any object has risen in value, we must simply ascertain whether it exchanges for more of other things than it did before. On the other hand, in popular language value is more directly connected with human feeling. Anything is valuable which satisfies want and cannot be replaced without effort or sacrifice. The more

1 Economic Journal for March, 1891.

"Wie man über den Werth urtheilt, muss man aber, wenn man folgerichtig bleibt, letztlich über die Wirthschaft urtheilen."-Der Natürliche Werth, p. vi. Theory of Dynamic Economics.

urgent the want whose satisfaction is dependent upon a particular object, the greater is the value of the object. Economic theory has maintained that a dollar has the same value to one man as to another so long as it purchases the same amount of goods, while everyone has an instinctive sense that a dollar is more valuable to a poor man than to a millionaire.

Professor Perry noticed the difficulty arising from this disparity, but saw no remedy for it. He says:1

"The notion of value is not conceivable except by a comparison of two things, and what is more, of two things mutually exchanged. Political Economy, therefore, is based on a relative idea, and has to do from beginning to end with a relation. Now in this there is an inherent difficulty, and a difficulty too which can never be obviated. It lies in the very nature of the subject. Men much more readily apprehend an absolute idea than a relative one. They more easily follow a discussion touching the independent attributes of single objects than a discussion touching value, which is not an attribute of any one thing, but a relation subsisting between two things."

Grant that value is merely the ratio of exchange and we have for the foundation of economic theory only unstable commodities for each of which our esteem is constantly changing; fluctuating with every change of environment, and with every step of progress.

This colorless concept of value as a mere relation between commodities was not established by the founders of modern economic theory, and its introduction has been, I believe, a hindrance to the progress of economic science rather than a necessary step in its development. Adam Smith recognized that the values of commodities are essentially variable, and looked for a standard of value which would have a constant relationship to human well-being. This standard he found in human labor:

"What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people." The

1 Elements of Political Economy, p. 54.

employer purchases labor "sometimes with a greater and sometimes with a smaller quantity of goods, and to him the price of labor seems to vary like that of all other things. It appears to him dear in the one case and cheap in the other. It is the goods which are cheap in the one case and dear in the other."

Ricardo, at the opening of his discussion, accepts Adam Smith's definition of value in exchange of an object as "the power of purchasing other goods which the possession of that object conveys," but like Adam Smith he at once discards the commodity standard in estimating the goods:

"If any one commodity could be found which now and at all times required precisely the same quantity of labor to produce it, that commodity would be of an unvarying value, and would be eminently useful as a standard by which the variations of other things might be measured."

"The labor of a million of men in manufactures will always produce the same value, but will not always produce the same riches."

"That commodity is alone invariable which at all times requires the same sacrifice of toil and labor to produce it."

994

Malthus was still more clear and emphatic in his rejection of the commodity standard of value. A change in purchasing power, he maintains, is not a change in value unless it arises from causes intrinsic with the article under consideration:

"It has often been stated that the value of a commodity is determined by the sacrifice which people are willing to make

1 Wealth of Nations, Book I, chap. 5.

"Wealth of Nations, Book I, chap. 4. Ricardo's Political Economy, chap. i,

sec. I.

The statement that value in exchange is "the power of purchasing other goods" does not define the term. If the "other goods" for which the object exchanges are reckoned simply by number and size the definition seems meaningless, for there is no limit to the number of different things for which a valuable object may be exchanged. But if, as seems often to be vaguely understood, the "other goods" are to be estimated not by their number but by their values, we find the term which we wished to define involved in the definition.

We must either look deeper for the real meaning of value or accept the ratio concept.

3 Political Economy, chap. i, sec. I.

▲ Political Economy, chap. xx.

in order to obtain it. It is obvious, therefore, that the sacrifice which we are willing to make in order to obtain a particular commodity is not proportioned to the quantity of any other commodity for which it will exchange, but to the difficulty with which such quantity, whether more or less, is attained. Now labor can measure this difficulty, but nothing else can."1

Malthus, like Adam Smith, looked upon exchange value as a token of subjective estimation, and sought for a standard by which the value of commodity (e. g. the monetary unit) at different times and places could be measured and compared. The command over labor, of which the ordinary agricultural labor should be the unit, was considered the most exact standard.

Ricardo, on the other hand, disregarded the subjective nature of value and directed his efforts to the explanation of the relative values of commodities. On the ground that commodities tend to exchange on the basis of the amounts of labor which they embody, Ricardo took the labor necessary for the production of a commodity as the foundation and therefore the measure of its value. Just what Ricardo meant by measure of value is by no means clear; but his position toward the value problem prevailed among English economists, and soon led to the ratio concept as set forth by Mill and his followers, who declared values to be entirely relative to each other, and a general rise or a general fall in values, therefore, to be logically impossible. To speak simply of the value of an ounce of gold, says Jevons, is as absurd as to speak of the ratio of the number seventeen. Mill seems to have been more acute than the most of his followers when from his definition of value he deduces2 the fact that a "measure of exchange value" is "impossible";

1 Definitions in Political Economy, pp. 211, 212.

"Intrinsic value in exchange, which may be defined to be the power of purchasing arising from intrinsic causes, in which sense the value of an object is understood when nothing further is added. This definition is precisely equivalent to the estimation in which a commodity is held, founded on the desire to possess, and the difficulty of obtaining possession of it."-Political Economy, 2d edition, p. 60.

? Political Economy, Book III, chap. xv.

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