Social Value Part 1

Social Value.

by B. M. Anderson.

PREFACE

This series of books owes its existence to the generosity of Messrs. Hart, Schaffner, and Marx of Chicago, who have shown a special interest in directing the attention of American youth to the study of economic and commercial subjects, and in encouraging the systematic investigation of the problems which vitally affect the business world of to-day. For this purpose they have delegated to the undersigned Committee the task of selecting topics, making all announcements, and awarding prizes annually for those who wish to compete.

A NOTE

The following study is the outgrowth of investigations in the "Quant.i.ty Theory" of money, carried on in the seminar of Professor Jesse E. Pope, at the University of Missouri, during the term 1904-5. That a satisfactory general theory of value must underlie any adequate treatment of the problem of the value of money, and that there is little agreement among monetary theorists concerning the general theory of value, became very evident in the course of this investigation; and that the present writer's conception of value, as expressed in a paper written at that time on the "Quant.i.ty Theory," was not satisfactory, became painfully clear after Professor Pope's kindly but fundamental criticisms. The problem of value, laid aside for a time, forced itself upon me in the course of my teaching: my students seemed to understand the treatment of value in the text-books used quite clearly, but I could never convince myself that I understood it, and the conviction grew upon me that the value problem really remained unsolved.

Hence the present book. It was begun in Dean Kinley's seminar, at the University of Illinois, in the term 1909-10. The first three parts, in substantially their present form, and an outline sketch of the germ idea of the fourth part, were submitted, in May of 1910, in the Hart, Schaffner & Marx Economic Prize Contest of that year. Part IV was elaborated in detail, and minor changes made in the first three parts, during the year 1910-11, at Columbia University. The book is submitted as a doctor's dissertation to the Faculty of Political Science of that inst.i.tution.

My obligations to others in connection with this book are numerous. I cannot refrain from thanking my old teacher Professor Pope, in this connection. I owe my interest in economic theory, and the greater part of my training in economic method, to the three years I spent in his seminar at Missouri. I am also indebted to him for substantial aid in the critical revision of the proofsheets. At the University of Illinois, Dean Kinley and Professors E. L. Bogart and E. C. Hayes were of special service to me, as was also Mr. F. C. Becker, now of the department of philosophy at the University of California. Dean Kinley, in particular, criticized several successive drafts, and made numerous valuable suggestions. My chief obligations at Columbia University are to Professors Seligman, Seager, John Dewey, and Giddings. My debt to Professors Seligman and Dewey is, in part, indicated in the course of the book, so far as points of doctrine are concerned. Both have been kind enough to read and criticize the provisional draft, and Professor Seligman has supervised the revision at every stage.

My wife's services, in criticism, in bibliographical work, and in the mechanical labors which writing a book involves, have been indispensable.

It is due Professor J. B. Clark, since I discuss his theories here at length, to mention the fact that, owing to his absence from Columbia University during the year 1910-11, I have been unable to talk over my criticisms with him, and so may have misinterpreted him at points. Of course, there is a similar danger with reference to every other writer mentioned in the book, but the reader will not be likely to think, in the case of others, that the interpretations have been pa.s.sed on by the writers discussed, in advance of publication. I must also mention here Professor H.

J. Davenport, whose name occurs frequently in the following pages. Chiefly he has evoked criticism in this discussion, but it goes without saying that his _Value and Distribution_ is a most significant work in the history of economic theory, and my indebtedness to it will be manifest.

THE AUTHOR.

COLUMBIA UNIVERSITY, May, 1911.

PART I

INTRODUCTION

SOCIAL VALUE

CHAPTER I

PROBLEM AND PLAN OF PROCEDURE

Recent economic literature has had much to say about "social value." The conception, while not entirely new,[1] has become important only of late years, chiefly through the influence of Professor J. B. Clark, who first set it forth in his article in _The New Englander_ in 1881 (since reproduced as the chapter on the theory of value in his _Philosophy of Wealth_). The conception has been found attractive by many other American writers, however, and has become familiar in many text-books, and in periodical literature. Among those who have used the conception may be named: Professors Seligman, Bullock, Kinley, Merriam, Ross, and C. A.

Tuttle.[2] Gabriel Tarde, the brilliant French sociologist, has independently developed a social value doctrine, different in many respects from that of the Americans named, which we shall later have occasion to consider.[3]

In its most definite form, the theory a.s.serts that the value of an economic good is determined by, and precisely accords with, the marginal utility of the good to society, considered as a unitary organism. Professor Clark, as is well known, makes use of the a.n.a.lysis of diminishing utility in an individual's consumption of goods in much the same fashion that Jevons does, but while Jevons makes this simply a step in the a.n.a.lysis of market ratios of exchanges, Professor Clark treats it as a.n.a.logical, representing _in parvo_ what society does, as an organic whole, on a bigger scale.[4]

The precise relation of social value to social marginal utility is variously stated by the writers named: for Professor Clark, value is the _measure_ of effective, or marginal, utility;[5] for Professor Seligman, social value is the _expression_ of social marginal utility;[6] for Professors Ross, Merriam, and Kinley, value _is_ that social marginal utility itself.[7] These statements are more different in words than in ideas, though some significance is to be attached to Professor Seligman's formulation, as will later appear.

This conception is a bold one. It has, moreover, never been adequately developed or criticized. Its friends have found it a convenient and useful working hypothesis, and Professor Clark, especially, has built a great system upon it, but, with the exception of an article in the _Yale Review_ of 1892,[8] has made no serious efforts, either to make clear its full meaning, or to vindicate it--except that, of course, his whole system may be considered such a vindication. Professor Seligman, in an article in the _Quarterly Journal of Economics_, vol. XV, and also in his _Principles of Economics_, has espoused the conception, and has shown how, a.s.suming its truth, a great many antagonistic theories may be harmonized; but he, also, has failed to treat it with that detail which full demonstration requires.

In particular, he has omitted a treatment of the problem of the relation between the value of a good for the individual and for society, and the relation between individual and social marginal utility.[9] The most searching investigation of the theory has come from unfriendly critics, among whom may be especially named Professor H. J. Davenport, and Professor J. Schumpeter of Vienna.[10]

For the purposes of this discussion, Professor Clark will be considered as the representative of the Social Value School, for the most part, though attention will be given to some of the other writers named as well. It is worth while, consequently, to make clear at this point the relation between Professor Clark and the Austrian School, with which he is sometimes a.s.sociated by economic writers. His extensive use of the marginal principle, his use of the term, "utility," and his deduction of value from utility, seem to place him at one with them. Professor Clark has pointed out, however, in the preface to the second edition of his _Philosophy of Wealth_, that his theory is to be distinguished from that of Jevons by "the a.n.a.lysis of the part played by society as an organic whole in the valuing processes of the market." And the Austrians, for their part, have rejected the conception that value and social marginal utility coincide, or that society, as an organic whole, puts a value on goods. Thus, Bohm-Bawerk:--

Man pflegt den objektiven Tauschwert im Gegensatz zu dem auf individuellen Schatzungen beruhenden subjektiven Wert haufig auch als den _volkswirtschaftlichen Wert_ der Guter zu bezeichnen.

Ich halte diesen Gebrauch fur nicht empfehlenswert.

Zwar wenn man durch ihn nichts anders hervorheben wollte, als da.s.s diese Gestalt des Wertes nur in der Gesellschaft und durch die Gesellschaft hervortreten konne, da.s.s er also das volks- und sozialwirtschaftliche Wertphanomen _per eminentiam_ sei, so ware dagegen nichts zu erinnern. Gewohnlich mischt sich aber mit jener Benennung auch die Vorstellung, da.s.s der Tauschwert der Wert sei, den ein Gut _fur_ die Volkswirtschaft habe. Man deutet ihn als ein uber den subjektiven Urteilen der einzelnen stehendes Urteil der Gesellschaft, welche Bedeutung ein Gut fur sie im ganzen habe; gewisserma.s.sen als Werturteil einer objektiven hoheren Instanz. Dies ist irrefuhrend.[11]

Equally emphatic is Wieser:--

The ordinary conception, which makes price the social estimate put upon goods, has to the superficial judgment the attraction of simplicity. A good A whose market price is 100 is not only ten times as dear as B whose market price is 10, but it is also absolutely and for every one ten times as valuable. In our conception the matter is much more complicated....

Price alone forms no basis whatever for an estimate of the economic importance of the goods. We must go further and find out their relation to wants. But this relation to wants can only be realised and measured individually.... And the question how it is possible to unite those divergent individual valuations into one social valuation, is one that cannot be answered quite so easily as those imagine who are rash enough to conclude that price represents the social estimate of value.[12]

Sax, likewise, expresses his dissent:--

Da fur die exacte Forschung die Psyche einer fabelhaften Collectiv-Personlichkeit nicht existirt, so kann der Ausgangs.p.u.n.kt unserer Untersuchung auch wieder nur der Individualwerth sein.[13]

Whatever the worth of the conception of social value, it is not the same as the Austrian theory. It is proper to remark here that these strictures of the Austrian writers are probably directed, not against Professor Clark, but rather against the social use-value concept as it had appeared in Germany, in the writings, say, of Rodbertus, and of Adolph Wagner, who accepts Rodbertus' notion.[14]

It may be well, at the outset, for the writer to define his own position briefly. We shall find the notion of social marginal utility, and the companion notion of social marginal cost (considering the latter as a "real cost," or pain-abstinence cost, concept), unsatisfactory and unilluminating. Social marginal utility, as a determinant of value, cannot be the marginal utility of a good to some particular individual who stands out as _the_ marginal individual in society, nor can it be an average of individual marginal utilities, nor a sum of individual marginal utilities, nor any other possible arithmetical combination of individual marginal utilities, if our conclusions are true. For the term, social marginal utility, we can find only a vague, a.n.a.logical meaning, if any at all, unless we identify it outright with social value, in which case it is a superfluous term, which itself not only explains nothing, but rather presents complications which call for explanation. We shall find no use for the social utility concept in our a.n.a.lysis. On the other hand, we shall find the conception of social value a necessity for the validation of economic a.n.a.lysis, and a conception which present-day psychological and sociological theory abundantly warrant us in accepting.

I do not desire, at the outset of a comparatively short book, to antic.i.p.ate my arguments in detail, but a statement of the plan of procedure may aid the exposition somewhat. I shall first, through an examination of the logical necessities of economic theory, and of the function of the value concept in economics, set up certain logical and formal qualifications for an adequate value concept. Then I shall examine the efforts made by current theories of value to attain such a value concept, by means of the elements of individual utilities, individual costs, or combinations of the two, and show that such procedure gets into invincible logical difficulties. We shall find the source of these difficulties in the faulty epistemology, psychology, and sociology which const.i.tute the avowed or implicit presuppositions of the economic theory of to-day. Criticizing these faulty presuppositions, we shall endeavor to reconstruct them in the light of later epistemological, psychological, and sociological doctrine, and then, on the basis of the new presuppositions, we shall endeavor to develop a truly organic doctrine of social value, and to link it with what seems valuable--that is to say, the greater part--in the economic theory of to-day.

FOOTNOTES:

[1] The value concept of Marx is not, strictly speaking, a social value concept. _Cf._ Pareto, V., _Cours d'economie Politique_, vol. I, p. 32.

Rodbertus, however, has a doctrine of social use value, based on the organic conception of society. "Nemlich so: es gibt nur Eine Art Werth und das ist der Gebrauchswerth.... Aber dieser Eine Gebrauchswerth ist entweder individueller Gebrauchswerth oder _socialer_ Gebrauchswerth.... Der zweite ist der Gebrauchswerth, den ein aus vielen individuellen Organismen bestehender _socialer Organismus_ hat.... Damit glaube ich also bewiesen zu haben, da.s.s der Tauschwerth nur der historische Um- und Anhang des socialen Gebrauchswerths aus einer bestimmten Geschichtsperiode ist. Indem man also dem Gebrauchswerth einen Tauschwerth als logischen Gegensatz gegenuber stellt, stellt man zu einem logischen Begriff einen historischen Begriff in logischem Gegensatz, was logisch nicht angeht." From a letter to Adolph Wagner, published by Wagner in the _Zeitschrift fur die Gesammte Staatswissenschaft_, 1878, pp. 223-24. Wagner indicates his approval of this concept, though he makes little use of it, in his _Grundlegung der politischen Oekonomie_, Leipzig, 1892, pp. 329-30. Ingram, in his _History of Political Economy_ (New York, 1888), although he takes no account of social value theories of other writers, suggests one of his own--which is, however, a vague one, mixing technological, ethical, and economic categories. See p. 241.

[2] Seligman, E. R. A., _Principles of Economics_, New York, 1905, especially pp. 179-82 and 192-93. Bullock, C. J., _Introduction to the Study of Economics_, especially pp. 162-64. There is no attempt at a psychological treatment in this work, and no clear statement of the meaning of the concept, social. Kinley, David, _Money_, New York, 1904, pp. 125-26.

The social value conception runs through the book. Merriam, L. S., "The Theory of Final Utility in its Relation to Money and the Standard of Deferred Payments," _Annals of the American Academy_, vol. III; "Money as a Measure of Value," _ibid._, vol. IV; an unfinished study in the same volume, pp. 969-72, described by Professor J. B. Clark. Ross, E. A., "The Standard of Deferred Payments," _ibid._, vol. III; "The Total Utility Standard of Deferred Payments," _ibid._, vol. IV. These articles by Professors Ross and Merriam were written in the course of an interesting controversy between the gentlemen named, Tuttle, C. A., "The Wealth Concept," ibid., vol. I; "The Fundamental Economic Principle," _Quarterly Journal of Economics_, 1901.

[3] See chapter XII.

[4] See especially Professor Clark's _Essentials of Economic Theory_, New York, 1907, pp. 41-42.

[5] See especially _The Philosophy of Wealth_, 1892 ed., pp. 73-74.

[6] _Principles_, pp. 179-82.

[7] The general references for Ross and Merriam have been given _supra._ _Cf._ p. 62 of Dean Kinley's _Money_.

[8] "Ultimate Standard of Value." This article is substantially the same as chap, XXIV of _The Distribution of Wealth_, New York, 1899.