CHAPTER XXIV

WHAT IS VALUE?

Exchange a part of the division of labor. In the chapter on The Division of Labor it was pointed out that there is a great advantage to be gained from specialization. When the whole industrial society is so organized that each person can do that for which he is best fitted by nature, training, inclination, and location, the general quality of the work is better than it would be if everyone had to learn a great many things. It was also pointed out that the division of labor necessitates the exchange of products and services. In the economics of the private family the subject of exchange is so unimportant as to be ignored altogether. Within the family a sort of primitive communism exists, so that even though there may be a division of labor among the members, there is practically no trading or bartering among them. In the larger industrial society, however, unless it is organized also on a communistic basis, there is a great deal of trading, bartering, and exchanging. Therefore exchange has come to be one of the most important departments of the subject of public economics or political economy. Our whole system of trading, transporting, and merchandising is a necessary part of an industrial system which is characterized by the division and specialization of labor.

Valuation a part of exchange. An important part of this intricate system of exchange is the process of evaluating goods and services. It would be difficult to do very much exchanging without beginning to think in terms of value. In fact, even in the simplest case of barter, as when boys swap marbles, each barterer in his mind compares the desirability of the objects that are to be exchanged. To compare the desirability of the

objects is to think in terms of value. In its original and individual sense the value of a thing was the esteem in which it was held; in a somewhat more highly developed, or social, sense the value of a thing was the esteem in which it was held by all those who were interested in it. When men in considerable numbers were evaluating and comparing the same group of commodities and exchanging them a market was said to exist. Where a market existed for an object its value was the esteem shown for it on the market. The sign, or symptom, of that esteem is the fact that men were making sacrifices in order to get the object; that is, they were either laboring to get it or they were giving up other desirable things in exchange for it. Value in exchange. This willingness to give somethingeither labor or another desirable object-in exchange for a thing has finally come to be regarded by most writers as the value of the thing, instead of being, as originally, regarded merely as the sign, or symptom, of the esteem in which it was held. A brief but satisfactory definition of market value, or of value as it is understood on the market and in commercial circles, is "power in exchange." Under this definition the value of an article is the power which it confers upon its owner to command other desirable things in peaceful and voluntary exchange. There has come, therefore, a change in the popular meaning of the word "value." In modern usage the esteem in which the object is held or the desire which is felt for it is that which gives it value instead of being the value itself.

When value is defined as "power in exchange," it must not be confused with a mere ratio of exchange. A thing which confers upon its owner the power to command other things in peaceful and voluntary exchange has power or influence over the minds of men; it influences their choice and induces them to do things which they would not otherwise do. It may, in a physical sense, cause goods to move from one possessor to another. Within certain limits it exercises control, or at least influence, over motives. Of course, when things exchange against one another it must always happen that they exchange in certain

ratios, but the ratio is merely incidental and is not the essential characteristic of value. The weights of any two objects must bear some ratio to each other, but it would be a mistake to say that weight was in itself a mere ratio. It is equally wrong to say that value is a mere ratio.

To value is to esteem. The purchasing power, or value in exchange, of a specific object is not always proportional to the esteem which is felt for it or to the intensity of the desire for it. Among wanderers on a desert a small portion of water would be exceedingly precious, but if none of them had anything to give in exchange for it, it would not have much purchasing power or market value; that is, its owner would not realize very much from its sale. It would, however, be held in the very highest esteem; it would be intensely desired; it would have great power over human motives; men would go to any length to get it; and if they chanced to have many things to give in exchange for it, it would have great power in exchange. The situation of some thirsty men on a desert with nothing to give in exchange for water is, however, very unusual. In the ordinary market place men have something. to give for whatever they desire most. The thing which is intensely desired, esteemed, or appreciated will, under such circumstances, always command many other desirable objects in peaceful and voluntary exchange. The tendency of later writers is to do away with the distinction between value in use and value in exchange. Value in use is nothing except utility, whereas value in exchange is simply value. There is, however, a very close connection between utility and value. Utility is sometimes defined as the power to satisfy a want or gratify a desire (in which case it is synonymous with desirability), but value is the power to command other desirable things in peaceful and voluntary exchange. Value depends upon desirability, since nothing could have value unless it had the power to satisfy a desire of some kind. In other words, nobody would give anything in peaceful and voluntary exchange for the article in question unless he desired it. On the other hand, however intensely he might

desire it, if he had nothing to give in exchange for it, and everyone else were in the same condition, it would not have much power in exchange. The water in the foregoing illustration would have great utility and desirability but no great value,— certainly no great market value.

Censorious criticisms upon market value. There is, however, still another sense in which both "value" and "utility" are sometimes used. One who has strong ideas on the subject will sometimes assert that a given commodity is "really worth" very little, even though everybody seems to desire it and to be paying a high price for it, or that it is "really worth" a great deal, even though no one else seems to esteem it or to be willing to pay much for it. In this case the speaker is passing judgment upon the desires of the people. His judgment may be sound and that of the multitude unsound, or vice versa. There are, however, always those who have ideas on the subject of "real" value or utility as opposed to the popular idea of value or utility. Their idea of "real" utility is the power to satisfy a commendable desire, whereas economic writers have generally, though not universally, defined utility as the power to satisfy any sort of desire. There could be no possible objection to defining desirability in that way.

Distinction between value and price. Value should also be distinguished from price. The price of an article, as has been explained many times by economists, is merely its value expressed in terms of some single commodity which the community has generally agreed upon as the measure of value and the medium of exchange. This commodity is usually money. Whenever the word "price" is used nowadays, if it is used properly, it means value expressed in money, or the amount of money which will be given in exchange for a certain article. Wherever the word "value" is used, at least in connection with the general conditions of the market, it means its general power in exchange against other articles, of which money is only one. The cheapening of money tends to create a general rise in prices but not a general rise in values.

To summarize, the economic value of an object is variously

defined as

1. Its price; that is, the amount of money for which it sells (wrong) 2. Its utility (inaccurate), which may mean either

a. Its power to satisfy any desire, or

b. Its power to satisfy a commendable desire 3. Its power to increase well-being (inaccurate) of a. An individual, or

b. The nation

4. Its power over human motives (correct):

a. Causing men to exert themselves in order to get it, and

b. Causing men to give other desirable things in exchange for it, because of

(1) The intensity of their desire for it, and

(2) The abundance of other desirable things in their possession

Value is power in exchange. Since we are here concerned with the general problem of exchange and market value in the civilization of which we are a part and under the conditions in which we have to make our living, the last of these four definitions will be used in this chapter. In this sense value is "power," it causes bodies to move; that is, it causes men to exert themselves and causes things to move from one owner to another. It is, however, power over human motives and not mechanical power. We may therefore accept "power in exchange" as a good working definition of market value, or value as it is used on the market and in our general system of exchange. Under this definition several questions will at once arise. One of these is, Why do some things possess this power and others not? Another is, Why do some things possess more of it than others? Or, again, Why does the same thing possess more of it at one time or place than at another?

Value attaches to concrete things. Not much headway can be made in answering any of these questions until we clear the way by certain necessary explanations. Some of these explanations can be understood only after some very hard and clear thinking. In the first place, we must distinguish between