The Value of Money Part 3

CHAPTER III

COST OF PRODUCTION AND THE VALUE OF MONEY

When the cost theory was a labor theory, as with Ricardo, the expression, cost of production of money, could have a definite meaning.

It meant the labor-cost of producing the money metal. Even in this form, it is recognized that cost of production has a looser connection with value in the case of money than in the case of most commodities, because the supply of money metal is large and durable, and the annual production affects it slowly. But cost of production theories, in the form of labor theories, or labor-abstinence-risk theories, have little standing in modern economic theory. Ricardo himself saw the break-down of the pure labor theory; and Cairnes, Ultimus Romanorum, so limited and modified the "real costs" doctrine as to leave little validity in it, even on his own showing. The prevalent doctrine of cost of production runs in terms of "money-costs"--and hence is of no use when the problem of the value of money itself is to be solved.

A brief historical sketch of the cost theory will be helpful. Costs are sometimes conceived as a cause of value, and sometimes as a measure of value. Often these two aspects are mixed, and writers shift from one notion to the other. This is particularly true of the labor theory. In Adam Smith the contention sometimes is that labor is unvarying in value, hence an admirable measure of values, and an excellent standard of long-time deferred payments. Smith compares wheat and silver from the standpoint of the constancy of their relation to labor, and concludes that wheat is the better standard in the long run, because it remains more nearly fixed with reference to labor than does silver. Sometimes Smith thinks of labor as a cause of value, and thinks of the labor that enters into the production of a good as the significant thing. At other times, the labor that goods will command or purchase is the significant thing--and here one is not clear whether he thinks of labor as a cause or as a measure. Whether labor is to be funded as labor-pain, or as labor-time, Smith does not state. Sometimes labor seems to be considered as h.o.m.ogeneous in its efficiency. At other times, he makes comparison between different kinds of labor as to their efficiency, and compares the efficiency of labor in different occupations. One can find nearly anything one pleases in Adam Smith on these points. At times he speaks of "labor and expense," rather than labor alone, as governing prices.

Labor-cost to the laborer would take the form of labor-pain or labor-time. To the employer, it would take the form of outlay in wages.

Adam Smith never makes any definite statement of point of view here, and shifts back and forth from one to the other. He recognizes variations in labor-pain, in danger, etc., in different kinds of labor when discussing wages.

Ricardo elaborated the labor theory of value, and tried to think it through. He was too keen a logician to shift view-points with Smith's facility, and he tried to make a completed system.[55] There is some shifting from the theory of labor as a cause of value to labor as a measure of value, as in the following pa.s.sage: "If the state charges a seigniorage for coinage, the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole seigniorage charged, because it will require a greater quant.i.ty of labour, or, which is the same thing, the value of the produce of a greater quant.i.ty of labour, to procure it." (_Works_, McCulloch ed., 213.) In general, however, Ricardo developed a causal theory of value, quant.i.ty of labor being the basis of the absolute values of goods, their _relative_ values depending on the relative amounts of labor involved in the production of each. I shall not go into the matter fully, but shall call attention to the rock on which the system split, as Ricardo himself admits. A greater or less proportion of capital works with labor in producing different things, and the value of product, in that case, varies not merely with the labor, but also with the amount of capital, and the length of time the capital is employed. How say, then, that labor alone governs value?

How reduce labor-cost and capital-cost to h.o.m.ogeneous terms? James Mill tried to do it for him by making capital merely stored up or petrified labor, which gives up its value again in production. But this doesn't meet the difficulty, because there is a _surplus_ value, over and above that explained by all the labor, including the labor which produced the machine, and the labor which produced the raw materials which entered into the machine, etc. The case of wine is a particularly obstinate case. Wine increases in value merely with the pa.s.sage of time, at a rate which corresponds to the profit on capital. Ricardo finally, in correspondence with McCulloch, definitely abandons the case, stating that there are many exceptions to the proportionality between exchange value and labor-cost. "I sometimes think that if I were to write the chapter on value again which is in my book, I should acknowledge that the relative value of commodities was regulated by two causes instead of one, namely, by the relative quant.i.ty of labor necessary to produce the commodities in question, and by the rate of profit for the time that the capital remained dormant." (Davenport, _Value and Distribution_, p.

41.) But this is a "dualistic" rather than a "monistic" explanation--one element is a money-expense, or at all events a pecuniary item, while the other is a "real cost" item. The two are incommensurate and incommensurable.

Senior seeks to supply the unifying principle. "Abstinence" and labor have pain as a common element, and so are commensurable. Costs, reduced to labor and abstinence, become h.o.m.ogeneous again. Monism is restored.

Cairnes completes the doctrine by adding risk to the real cost elements: a triune cost concept, sacrifice being the generic fact in the three manifestations.

With John Stuart Mill, in general, we have an entrepreneur view-point.

Money-expenses of production, entrepreneur outlay, plus wages of management, or including wages of management, are the factors with which Mill reckons. He is no longer concerned with psychological ultimates, or real costs. Cairnes criticised Mill sharply for this. No distinction is more fundamental he holds, than that between costs or sacrifice on the one hand, and rewards on the other. Labor, abstinence and risk are sacrifices; wages, interest, profits are rewards. None the less, in cost doctrine, as in supply and demand doctrine, it is Mill's view which has prevailed. Cost as conceived by Mill is a superficial, pecuniary notion.

It tells little as to ultimate causation. But it is virtually only as a pecuniary doctrine, costs from the entrepreneur view-point, that the cost doctrine is met in modern theory.

Why is this? Well, first, the real-cost doctrine simply does not square with the facts. The hardest labor does not produce the most valuable goods. Value in fact does not vary either with labor-pain or labor-time.

In fact, whatever the explanation, it would seem to be truer that the relation is an inverse relation. Nor does the abstinence that pinches hardest produce the largest amount of capital. And while there is some correlation between risks and profits, the correlation is at best low and is not a correlation between psychological sacrifice and profits.

Even "marginal abstinence" for a Rothschild or a Rockefeller causes no pain. It is absurd to seek to find a common element in the "abstinence"

of a rich man and the pain of a poor and aged laborer. I pa.s.s over the supposed difficulty that abstinence is, in general, suffered by one set of minds, and labor-pain by a different set of minds, and hence, since men cannot compare their own emotions with the emotions of other men, there is no comparability. This subjectivistic psychology would, of course, make it equally impossible to fund labor-pains of different laborers, or to get any common denominator at all.[56] It is enough to point out that differences between rich and poor, between successful and unsuccessful, between efficient and inefficient, (apart from acquired differences which may be smoothed out by the "stored up labor-of-training" principle) make labor-pain, and marginal labor-pain, vary greatly from value, and make labor-pain, abstinence and risk quite incommensurable, and quite without fixed relation to value. Cairnes saw this in part, and developed his doctrine of non-competing groups to deal with it. Labor-pain and value vary together only when we are comparing goods produced by laborers within a competing group. Laborers in one group do not compete with laborers in another group. There is perfect compet.i.tion in the capital market, however, and so capital costs ("abstinence") are perfectly correlated with value, to the extent that capital enters. Cairnes seems to think that the whole difficulty with his real cost doctrine comes from the failure of compet.i.tion. In fact, however, it comes also from the inequalities in wealth. And even in his highly compet.i.tive capital market it is equally true that abstinence, or even marginal abstinence (a term which Cairnes does not use) has no constant relation to amount of capital acc.u.mulated, value produced, or interest received. The cost theory breaks down at every point when it runs in labor-abstinence-risk terms. So generally has this been recognized, that the cost theory has generally given way to the utility theory, and cost doctrine when it appears in modern economics is either the very superficial money-outlay notion of Mill, or else the Austrian cost doctrine, later to be discussed, which is still a pecuniary concept. I have elsewhere undertaken to show (_Social Value_, chs. 3-7, and the ch. on "Marginal Utility," _infra_) that these defects of the "real-cost" theory, are just as much in evidence in the utility theory.

The failure of the real cost theory of value is by no means a vindication of the utility theory. Both have the same vice--the effort to combine into a h.o.m.ogeneous sum a lot of individual psychological magnitudes measured in money, when the money-measure has a different psychological significance for each individual, and so comparison and addition are impossible. But in any case, the real cost doctrine of the Cla.s.sical School has failed, and so cannot serve as the basis of the theory of the value of money.

Obviously the money-outlay cost theory of Mill cannot explain the value of money itself. The marginal cost of producing twenty-three and twenty-two hundredths grains of gold will always be a dollar, however the dollar may vary in value. Indeed, in general, the a.s.sumption of a constant value of the money-unit is implied in the monetary cost concept. Cost curves are _supply_-curves and the reasoning already given as to the need for a.s.suming constant value for money in the supply and demand concept will apply here. Costs function in value-determination only by checking supply. Rising costs tend to mean a lessened supply.

But if the cost-curve is rising _because_ of a fall in the value of money, then the demand-curve will be rising also, and production will not be checked. The general law as to the relation of cost to demand and supply a.s.sumes a fixed value of the unit of cost, the dollar.

To the Austrian economists we owe a rational theory of costs which gives the money-outlay concept more than a merely empirical basis. First, they see in costs not causes, but results. Value causation comes ultimately, not from the side of supply, but from the side of demand. I shall not now undertake a criticism of their explanation of demand. I have elsewhere criticised their confusion of demand-curves and utility-curves, and pointed out that marginal utility gives no explanation of demand. I shall recur to the utility theory of value at a later point. For the present, it is enough to point out that the Austrian theory of costs is independent of their utility vagaries, and rests best on the notion of supply and demand, as expressed in the modern curves, with the a.s.sumption of a fixed value of the money-unit.

Costs consists of entrepreneur money outlay of various kinds, chiefly wages, interest, and rent. Rent is, for the Austrians, as much a cost as any other item of entrepreneur outlay. But these items of cost are not ultimate data. They are rather reflections of the positive values of the products. Value runs from finished product to agents of production, labor, and instrumental goods, and land. Avoiding needless complications from a discussion of interest as a factor in cost--a doctrine on which the Austrians, say Wieser and Bohm-Bawerk, are not agreed,--it is enough to point out that high wages or high rents, which limit production in any given industry or establishment, are high _because_ the land and labor in question have _alternative_ uses, because other industries, or other compet.i.tors in the same industry, bid for them. Cost-curves, then, are reflections of demand-curves. The cost-curve of wheat, _e.

g._, is what it is because of the demand-curve for corn, for cattle, and for every other commodity that could be produced with the same labor and land. Cost doctrine thus becomes part of the general doctrine of supply and demand, and runs in pecuniary terms, a.s.suming money, and a fixed value of money, and hence is incapable of serving as a theory of the value of money itself.

That some vaguer form of cost doctrine, where the unit of cost is, not money, but some composite commodity of things used in the production of the standard money metal, or a unit of abstract value, might be worked out, is doubtless true. Gold production, like other industry, is part of the general economic scheme, and there is some sort of equilibrium reached which draws labor and capital now away from, and now back to, the gold mine. To bring this equilibrium into the general scheme of the modern theory of costs, however, in terms precise enough to make a satisfactory theory of the value of money, is a thing which has not so far been done, and I do not have high hopes of its early accomplishment.

In any case, such a theory must rest upon a positive theory of value.

Cost doctrine is negative, and can never be fundamental.[57]

CHAPTER IV

THE CAPITALIZATION THEORY AND THE VALUE OF MONEY

Money is capital. A dollar is a capital-good. Money is, moreover, a durable form of capital, which gives forth its services bit by bit, and indeed, in a community where the state bears the burden of wear and tear, never ceases to give forth those services. In any case, from the standpoint of a given individual, so long as there is a limit of tolerance prescribed for legal tender, it is a matter of accident if he ever incurs a loss from the wastage of the capital instrument, money, through wear and tear. Moreover, the fact that money is "fungible," and that its use is to be found in a process which commonly returns to the owner, not the same coin, but a different coin, we may, in general, abstract from the wear and tear of the dollar, and look upon the dollar as a capital instrument which promises its owner, if he chooses to use it as capital, a perpetual annuity. The nature of this money service will be more fully described later. For the present it is sufficient to say that exchange is a productive process, that exchange creates values, in as true a sense as manufacturing does, and that money facilitates exchange in as true a sense as coal facilitates manufacturing. There is, at any given time, a demand-curve for this money service, manifesting itself in the money market, a demand for the short time use of money as a tool of exchange, and the "prices" which come out of the interaction of demand and supply in the money market are the short time "money rates" including the "call rates." These are properly to be conceived, not as pure interest on abstract capital, but as rents[58] which are to be attributed to money as a concrete tool.

Now, in general, when such rents appear, they may be capitalized. And the price of the instrument of production that bears these rents, will be the sum of the rents, discounted at the prevailing rate of interest, with considerations of risk, etc., allowed for. The reasoning of the capitalization theory is really quite simple. Take, for example, a piece of urban site land, which is expected to bring a perpetual annuity of one hundred dollars. The whole economic significance of the land is contained in its services, present and prospective. The possession of land under certain circ.u.mstances brings other services, as social prestige, than the services which can be alienated to a lessee. But in this case I am abstracting from considerations of that sort, and also from the factor of risk. The whole value of the piece of land under consideration comes from the value of the one hundred dollars a year.

But these annual incomes are not all equally valuable, even though all expressed as one hundred dollars. The first one hundred dollars is due one year hence, the tenth ten years hence, the thousandth, a thousand years hence. The principle of perspective comes in--I abstain from any detailed discussion of the theory of interest, simply stating that in a general way I agree with the contention that _time_ const.i.tutes the essence of the phenomenon, or rather, the tendency to discount the future. The capital price of the land is the sum of an infinite convergent series of the "present worths" of the incomes. The formula is as follows: capital price of land = $100/1.05 + $100/(1.05)^2 + $100/(1.05)^3 ... + $100/(1.05)^n when the rate of interest is 5%. The limit of this series, a.s.suming the series to be infinite, is $2000, and a simple formula for calculating it under the a.s.sumptions, is to divide $100, the annual income, by .05, the rate of interest. Given the annual income, given the prevailing rate of interest, the capital price is determined. The relation may be ill.u.s.trated, roughly, by the figure of a candle, a disk, and the shadow of the disk on the wall. The disk represents the annual income, the shadow on the wall the capital value, and the distance between the flame and the disk the rate of interest.

Increase the distance between the flame and the disk, the rate of interest, and the shadow becomes smaller; shorten the distance, and the shadow is increased. Similarly, enlarge the disk, and the shadow is enlarged. The capital value varies directly with the annual income, and inversely with the rate of discount. Now my purpose here does not involve a detailed examination of the validity or limitations of the capitalization theory. For the present, the only question is, has this theory any application at all to the problem of the value of money? It offers itself as a general theory of the values of durable bearers of income. Money is a durable bearer of income.

The capitalization theory, however, is of no use for the purpose in hand. Money does not obey the general law in the relation which the magnitude of the income bears to the rate of interest. In general, the income and the rate of discount are independent variables. Their influence, operating in opposite directions, fixes the capital value, increasing income increasing the capital value, increasing discount rate reducing it. In the case of money, however, the two factors are not independent. The short time money rate is not, to be sure, identical with the long time rate of interest, which is the rate of discount for the purpose in hand. But the two tend to vary together in the long run average in fact, and they are related in the _expectation_ of those who are concerned in the capitalization process.

In our chapter on the "Functions of Money," in Part III, it will be shown that normally there tends to be a difference between the money rates and the long time interest rates, the long time rates tending to be higher than the rates on short loans, the rate on very short loans being lower than the rate on somewhat longer short time loans, and the call loan rate being lowest of all. The explanation of this must be deferred till we have a.n.a.lyzed the functions of money. But the important thing, for present purposes, is that the money rates, though lower than the "pure rate" of interest, tend to vary, in long time averages, with that "pure rate,"[59] and that, consequently, the income from renting money, and the discount rate to be applied in capitalizing that income, are not independent magnitudes, but tend to vary together. They thus tend to neutralize one another. If money rates go up, and if they are expected to stay up long enough to justify (on the ordinary capitalization theory) a rise in the capital value of money, we have a counteracting influence in the long time interest rate, which also rises, and tends to pull down the capital value of money. To recur to our ill.u.s.tration of the candle and the disk, as the disk increases in diameter, the distance between the candle and the disk grows greater, and so the _shadow_ tends to remain the same.

There is a further difficulty, to which attention will be called more fully in later chapters, particularly the chapter on "Dodo Bones," and the chapter on the "Functions of Money." In other cases, in general, the capital value is, as the capitalization theory requires it to be, a true shadow, a pa.s.sive function of the income and the discount, of the disk and the distance between the candle and the disk. In the case of money, however, the income is causally dependent, in part, upon the capital value. Money can function as money only by virtue of having value. The shadow becomes substance in the case of money. It is the _value of money_ which makes possible the _money work_. The capitalization theory, thus, if applicable at all, must be radically modified before being applied. We shall subsequently, in the chapters above referred to, take account of this fundamental complication. For the present, we can state it merely as a problem: how can we construe the interaction of the income value of money and the capital value of money in such a way as to avoid a circular theory?

But further, the capitalization theory, as heretofore formulated, like the doctrines of supply and demand and cost of production, a.s.sumes _money_, and a _fixed absolute value_ of money. This a.s.sumption must be made if we are to be able to predict, on the basis of the capitalization theory, that a given annual income, at a given rate of discount, will give a specified capital value. This may be shown by the following considerations: If men antic.i.p.ate that the value of the income, which is a fixed sum of dollars, is to grow less in the future, then the present worth of the bearer of that income will shrink to an extent greater than the "pure rate" of interest would call for. The principle of "appreciation and interest" comes in. The nominal interest, in times of falling value of money, tends to exceed the pure rate by an amount which compensates for the loss in value of future income as the dollar falls in value. We have here, however, a principle different from the principle of time discount. It is not the influence of time, which makes a _given_ value appear smaller as it is further removed in time, but it is an antic.i.p.ated lessening in the value of the income itself, that counts. In terms of our candle and disk ill.u.s.tration, it is a factor affecting the size of the disk, rather than a factor affecting the distance between the disk and the candle. For the purposes of calculation, the two elements in the nominal rate of interest may be lumped together, and the nominal rate, rather than the pure rate, may be taken as the rate of discount for capitalization purposes. But for theoretical purposes, the two must be kept distinct. The capitalization theory rests on the a.s.sumption of a fixed value of the money unit.

That the fixed value of the money unit a.s.sumed is an absolute value, and not a mere "reciprocal of the price level," may be proved by some further considerations regarding relations among these same factors.

a.s.sume a fall in the rate of interest. Then, on the capitalization theory, prices of lands, stocks and bonds, houses, horses, and all items of wealth which give forth their services through an appreciable period of time, will rise, and with them the average of prices, or the general price level, will rise.[60] If one hold the _relative_ conception of value, according to which the value of money necessarily falls when prices rise, because the two are merely obverse phases of the same thing, then this rise in the price level is, _ipso facto_, a fall in the value of money. But we have seen that a fall in the value of money means, on the "principle of appreciation and interest," a rise in the interest rate! Hence, we would have proved that a fall in the interest rate causes a rise in the interest rate--which is absurd. If, however, we recognize that prices can rise without a fall in the value of money, if, _i. e._, we use the absolute conception of value, this difficulty disappears. The capitalization theory and the theory of appreciation and interest can be reconciled only on the basis of the absolute conception of value.

The capitalization theory, then, in its present formulation, a.s.sumes money, and a fixed absolute value of money. It is, therefore, inapplicable to the problem of the value of money itself.

In general, none of the polished tools of the economic a.n.a.lysis,--neither cost of production, the capitalization theory,[61]

nor the law of supply and demand,--is applicable to the problem of the value of money. The reason is that they get their edge from money itself. The razor does not easily cut the hone. It is to this fact, I think, that we owe the widespread and long continued vogue of a theory so crude and mechanical as the quant.i.ty theory. In the next chapter we shall show that the utility theory of value--which we shall not recognize as a polished tool!--has also failed to give us help in explaining the value of money.

CHAPTER V

MARGINAL UTILITY AND THE VALUE OF MONEY

A good many writers have attempted to apply the marginal utility theory to the value of money. Among these, I may particularly mention Friedrich Wieser, Ludwig von Mises, Joseph Schumpeter, and, in America, David Kinley, and H. J. Davenport.

The marginal utility theory is ordinarily merely a thinly disguised version of supply and demand doctrine. As usually presented in the text-books, we have an a.n.a.lysis of the phenomenon of diminishing utility of a given commodity to a given individual, ill.u.s.trated by a diagram, in which the ordinates represent diminishing psychological intensities.

Often a money measure is given to these diminishing intensities, and the curve is presented as the demand schedule of a given individual. Then, with little further a.n.a.lysis, a leap is made to the market, and it is a.s.sumed that the market demand-curve, of many individuals, differing in wealth and character, is a utility-curve, and value in the market is "explained" by means of marginal utility. I need not here repeat my criticisms of this procedure.[62] It gives simply a confused statement of the doctrine of supply and demand. The a.n.a.lysis of utility which precedes the discussion of market demand is wholly irrelevant, and merely mixes things up. That such a conception is of no use in solving the problem of the value of money has been sufficiently indicated in the chapter on supply and demand.

Sometimes the contention is made that money is unique among goods in having "no power to satisfy human wants except a power _to purchase_ things which do have such power."[63] This contention, in Professor Fisher's view, precludes the application of the marginal utility theory to the problem of the value of money, and he makes no use of marginal utility in his explanation. Indeed, in the pa.s.sage from which this quotation is taken, Professor Fisher says that the quant.i.ty theory of money rests on just this peculiarity of money. Not all writers who contend that money has no utility _per se_, however, have felt it necessary to give up the marginal utility theory as a theory of money, as we shall later see.

On the other hand, writers of the "commodity school" (or "metallist school"), writers who see the source of the value of money in the metal of which it is made, can apply the utility theory readily to the value of money, making the value of money depend on the marginal utility of gold, or the standard metal, whatever it is. To the writers of this school, it is incredible that anything which has no utility should become money. Money must be either valuable itself, or else a representative of some valuable thing. The value of money comes from the value of the standard of value, and that value may, so far as the logic of the situation is concerned, be as well explained by marginal utility as the value of anything else. Typical of this view is Professor W. A.

Scott's discussion in his _Money and Banking_[64], though the emphasis there is not on marginal utility as the explanation of the value of the standard, but on the value (conceived of as an absolute quant.i.ty) of the standard as essential to the existence of money, and the performance of the money functions. Professor Scott attacks vigorously and effectively Nicholson's exposition of the quant.i.ty theory,[65] where the a.s.sumption is made that money consists of dodo-bones (the most useless thing Nicholson could think of). Most quant.i.ty theorists would share Nicholson's view that dodo-bones would serve as well as anything else for money--or, to put the thing less fantastically, that the substance of which money is made is irrelevant, that the only question is as to the quant.i.ty, rather than the quality, of the money-units, and the quant.i.ty of the money-units, not in pounds or bushels or yards, but in abstract number merely. For writers who seek the whole explanation of the value of money in its monetary application, and who see that money, _qua_ money, cannot administer directly to human wants, the view that Professor Fisher expresses, namely, that money has no utility, and is unique among goods in this respect, seems on the surface, to have justification. On the surface merely, however. Money is not unique among goods in being wanted only for what it can be traded for. Wheat and corn and stocks and bonds and everything else that is speculated in is wanted, by the speculators, only as a means of getting a profit[66]--they are remoter from the wants of the man who purchases them than the money profit he antic.i.p.ates. Ginsing, in America, has value, though consumed only in China. And there are people, particularly jewelers, who often want money as a raw material for consumption goods.

The difference is at most a difference of degree--and of slight degree indeed in the case of such things as bonds, which count on the "goods"

side of the quant.i.ty theory price equation, but which really are in all cases remoter than money itself from human wants. Money really stands, for the purpose in hand, on the same level as any other instrumental good.[67] It does not give forth services directly, as a rule. Neither does a machine, or an acre of wheat land, or goods in a wholesaler's warehouse. Exchange is a productive process, an essential part of the present process of production. Money is a tool which enormously facilitates this process. It has its peculiarities, no doubt. One of them is--and money is not unique in this as will later appear--that it must have _value_ from non-monetary sources[68] before it can perform its own special functions, from some of which it draws an increased value. But there seems to me to be nothing in the contention quoted from Professor Fisher, to justify setting money sharply off from all other things, or to justify the view that marginal utility is inapplicable to the value of money, if it be applicable to the value of anything at all that is not destined for immediate consumption. I do not believe that the marginal utility theory is valid for any cla.s.s of goods, not even those for immediate consumption. Where marginal utility theory is,--as in the conventional text-book expositions--merely another name for supply and demand theory, it is, as already shown, not applicable to the value of money, and it is useful in the surface explanation of market-prices of goods. But where marginal utility theory really seeks to get at value fundamentals, it is precisely as valid for money as for goods of other sorts--invalid, in my judgment, in both places, and for the same reasons in both.

Among the writers who would apply the utility theory to money, while still insisting that money, as such, has no utility, are Wieser, Schumpeter--who accepts Wieser's theory in its main outlines--and von Mises, who develops a notion very different from that of the other two.

Wieser's doctrines are set forth in two expositions, separated by five years, the second representing a considerable development in his thought, though resting in part on the first. The first is an address upon the occasion of his accession to the professorship at the University of Vienna, in 1904, and is published in the _Zeitschrift fur Volkswirtschaft, Sozialpolitik und Verwaltung_, vol. 13 ent.i.tled, "Der Geldwert und seine geschichtlichen Veranderungen." The second is a discussion, partly written and partly spoken, "Der Geldwert und seine Veranderungen" (written), and "Ueber die Messung der Veranderungen des Geldwertes" (spoken), in _Schriften des Vereins fur Sozialpolitik, Referate zur Tagung_, no. 132, 1909. For the purpose in hand, a brief statement of one or two points would suffice to show the futility of Wieser's effort to get an explanation of the value of money _via_ marginal utility, but I think that readers may be interested in a fuller account of Wieser's doctrine, just because it is Wieser's, and so shall undertake to give a more systematic account of it. For brevity, in the exposition which follows, I shall refer to the first article as "I," and to the second as "II."[69]

Wieser holds that it is possible to have money wholly apart from a commodity basis (I, p. 45), citing the Austrian _Staatsnoten_ as a case in point. The reason for giving them up is that they do not circulate in foreign trade. Gold fulfills its international money-functions the more easily because of its various employments, but, after it is thoroughly historically introduced, as money, it could fulfill its money functions even if all these employments be thought away (46). Wieser gives no argument for this contention, and its validity will be examined later.[70] There are, he says, two sources for the value of gold, the money use and the arts use, interacting. Money is further removed from wants, not only than consumption goods, but also than production goods, which are but consumption goods in the seed. The latter are technically destined for definite goods. But money may be used to procure whatever good you please, in exchange. (The absoluteness of this distinction, also, may be questioned. Pig iron is almost as unspecialized as money in its relation to wants, since tools enter into the production of almost every service that human wants require, from surgical operations, through instrumental music, to wheat and horse-shoes. On the other hand, money is not the only thing by means of which other things are purchased. The extent of barter in modern life will wait for later discussion.[71] I do not think that _any_ sharp distinction between money and all other things is valid.) Wieser complains of the older economics which treats money as a commodity. And he contends that as money and commodities show a contrast in their essence (_Wesen_), they should also manifest a contrast in the laws of their values, even though the fundamental general theory of value applies to both (I, 47). He finds in representatives of money (_Geldsurrogate_) and in velocity of circulation of money, factors which are lacking in commodities. (Again a question must be interjected by the writer. Are not corporation securities essentially like _Geldsurrogate_ from this angle? And do not goods vary greatly in the number of times they are exchanged? What of the speculative markets, where more sales are made in an active market, at times, than there are commodities or securities of the type dealt in in existence?) The value of money is essentially bound up with the money-service. Wieser indicates that he is not talking about the subjective value of money, but its objective value, using the popular meaning of the term, which, he says, is not strictly logical, but is useful: the relation of money to all other goods which are exchanged, the purchasing power of money. This depends on goods as well as on money. In the second article, Wieser refines and elaborates his conception of the objective value of money, seeking to get away from the notion of relativity which is involved in the conception of purchasing power, and to get an absolute conception, which shall be a causal factor in the determination of general prices, rather than a mere reflection of them. It is to be a coefficient with the objective values of goods in determining prices. A change in general prices may be caused by a change in the value of money, and may be caused by a change in the values of goods (II, p. 511). In explaining this objective value concept (which, in its formal and logical aspects, is in many ways similar to the absolute social value concept maintained by the present writer, though, in the present writer's judgment, inadequately accounted for by Wieser, so far as a psychological causal theory is concerned) Wieser objects to the term, "objective value" which he had used in the earlier article. He prefers "volkswirtschaftlicher Wert." (This term is perhaps best rendered "public economic value," for present purposes, to distinguish it, on the one hand, from individual or personal value, and, on the other, from the social economic value concept of the present writer. At the same time, the connotation of a communistic or authoritive value must not be read into the term. It is, in its formal and logical aspects, really the most common of all the value notions, and may, best of all perhaps, be translated simply "value," or "economic value," or "absolute value." But for the present discussion, we shall call it "public economic value.") This public economic value, in the case of goods, is not a mere objective relation between a good and its price-equivalent. It is a subjective (psychological) value, like personal value. If one wishes to call it objective value, one is using objective in the sense of the general subjective as distinguished from the personal individual idiosyncracy (II, p. 502). The objective exchange value of goods (here Wieser uses "objektiver Tauschwert" as the equivalent of his "volkswirtschaftlicher Wert" above mentioned) is the common subjective part of the individual valuations leaving out the remainder of individual peculiarities ("der allgemein subjective Teil der personlichen Wertschatzungen mit Verschweigung des individual eigenartig empfundenen Restes").[72] Wieser does not seem to me to think out clearly the distinction between absolute and relative value in this connection. He wishes to get something more fundamental than a mere relation between goods and money; he wishes a psychological phenomenon.

He wishes to have a value of goods which can be set over against the value of money, the two, in combination, determining prices. And yet, he wishes somehow to get these out of the prices themselves. "We must seek a concept of the public economic value of money which, to be sure, proceeds from the general price-level (_Preisstand_), but which excludes from its content everything that comes purely from the value of goods"

(II, 511). To the public economic value of money, however, Wieser gives no independent definition. The definition runs in terms of the values of the goods. "The value of money rises when the same inner values (_innere Werte_) of commodities are expressed in lower prices; it falls, when they are expressed in higher prices" (II, 511-12). "Inner value" of goods is not defined, but I take it that Wieser uses it as meaning essentially the same thing as the public economic value already described--an absolute value. (_Cf._ the usage of Menger and von Mises, _infra_, in this chapter, with respect to the terms, "inner" and "outer"

value.) The definition is not strictly circular, perhaps, but at least it is pretty empty. Nothing appears to give the value of money, as distinct from its purchasing power, an independent standing. The reason for this will later appear. It should be noted, however, that the definition is not in terms of prices or purchasing power. Prices might remain unchanged, in Wieser's scheme, and yet the value of money sink, if the inner values of goods should sink.