developed by later writers, is that, in general, utility and cost of production jointly determine value. Utility, however, is always a determinant of value, while in certain cases cost of production is not. Thus the value of labour is not determined by its cost of production, nor is the value of land or other natural resources, nor that of irreplaceable or unique articles, such as works of art, nor, except indirectly, that of goods sold under conditions of monopoly. Jevons, therefore, is nearer to the truth than Ricardo, but still some distance away. Moreover, as Marshall points out, he unconsciously admits that cost of production does help to determine value. For he argues that cost of production determines supply, that supply determines marginal utility, and that marginal utility determines value. And this is equivalent to saying that cost of production determines value. Jevons held that "the whole subject of the distribution of wealth is nothing but a result of the theory of value. Wages, profit, interest, rent, are but the prices at which the owners of diverse kinds of property are able to sell them." Distribution is effected by exchange, utility, and the law of indifference. From " the law of indifference, " which "is to the effect that like may serve for like" and "is but another name for the principle of competition which underlies the whole mechanism of society," it follows that "a similar commodity cannot be exchanged at the same place and time at two different ratios of exchange."5 From this law also, Jevons considers, Ricardo's theory of rent may be derived without difficulty and he accepts it as substantially correct. He is likewise "in funda 1 Indirectly, in the sense that an absolute monopolist can raise price as high above cost of production as he chooses, whereas, under competition, price is continually tending to equal cost of production. • Principles, pp. 817-8. Theory, p. 179. • Principles, p. 50. • Principles, pp. 59-60. Theory, Chapter VI. mental agreement with Ricardo " as regards the rate of interest, but rejects both Ricardo's theory of the natural rate of wages and Mill's theory of the wages fund. “The wages of a working man are ultimately coincident with what he produces after the deduction of rent, taxes, and the interest of capital," and the competition of employers may raise wages indefinitely. The great achievement of the Theory is the development of the law of diminishing marginal utility. From this law a practical conclusion of the greatest importance follows, namely, the extreme wastefulness from the point of view of economic welfare of large inequalities of income. It is obvious to the modern economist that, from this point of view, a considerable equalisation of incomes is desirable, provided that production is not checked thereby. But before Jevons wrote, this was by no means obvious, or at any rate it was not widely perceived. Jevons admits that he was not the first to discover the law of diminishing marginal utility, but he claims to have discovered it independently of others, and no other stated it more clearly than he. Gossen's Entwickelung der Gesetze des Menschlichen Verkehrs, published in 1854, contains it, but this book remained unnoticed till Jevons drew attention to it in the preface to his Theory. Fur 1 Ibid, pp. 241-2. 2 Ibid, p. 292. dx du form of dt dx, Elsewhere (pp. 199-200) Jevons gives a mathematical formula for "the amount of the reward of labour" in the where x is the product, « its utility, and t the time spent in labour. This is equivalent to the formula of later economists that wages are measured by the marginal net product of labour. This matter has already been referred to in Part I., Chapter II. above. • Compare Cannan, Economic Outlook, p. 60. Theory, pp. xxxv-xli. A full statement of Gossen's chief propositions is contained in Pantaleoni, Pure Economics, pp. 28 ff. Professor Pantaleoni observes (Ibid, p. 28) that "in psychology" ther, by a remarkable coincidence, Menger in his Grundsatze der Volkswirtschaftslehre, published in 1871, and Walras, in his Eléments de l'Economie Pure, published in 1874, also arrived independently at similar conclusions. §3. The work during this period of the Austrian school, led by Menger, Wieser, and Böhm-Bawerk, occupies an important place in the historical development of the theories of value and of interest, but has no very direct bearing on distribution between persons, and will not, therefore, be considered here. §4. In Germany, the Historical School continued dominant. Their leader, Schmoller, may most conveniently be regarded as falling within this period, though his Grundriss, in which the leading ideas of many earlier writings are brought together, did not appear till 1901. He did little for general theory; that he did not consider to be his business. But, from one who attached such importance to a study of institutions from a juristic and comparative standpoint, one would expect some valuable thoughts on the influence of property laws on distribution. Yet we find little beyond a quantity of statistics and a few vague and unhelpful generalisations. Out of the three large volumes of the Grundriss, five pages are given to the institution of inheritance. The inheritance of property, we are told, originated in the constitution of the family or clan, and the rights of very distant relatives to inherit are a regrettable survival of the ancient clan organisation. Schmoller believes that the superior, that is to say the richer, social classes possess superior personal qualities, which are transmitted along with their wealth from generation to generation. He approves, therefore, of the prevailing laws of inheritance, for these give the freest play to the superior the law of diminishing marginal utility "has been known since the time of Aristotle," and he discusses the history of its gradual emergence in economic theory in footnotes to pages 28 and 78. qualities of the upper classes. Such laws are a means of maintaining an unequal distribution of property, and even of increasing it when one child gets more than the rest, but they must not, he insists, be regarded as a cause of this unequal distribution, for the superior qualities chiefly found in members of the upper classes would enable the latter to acquire great wealth in any case. It is likely, Schmoller admits, that from time to time stray members of the upper classes will become degenerate. These unfortunates will have few children, or even none at all, and are certain to dissipate their fortunes. In the course of a generation or two they will sink back into the ranks of the lower classes, and others will rise to take their place. There is thus " a process of natural purification" always at work in society, but this process does not satisfy "the brutal impatience of democracy." Chance, he sententiously observes, which in the form of health or illness, life or death, affects the destiny of all of us, is a grievance to the democracy only when it takes the form of inherited wealth or poverty. This is deplorable, for statistics show that for the majority of families inherited wealth is a great benefit. Rich men should, however, be encouraged by public opinion to leave some of their property for public purposes. Such are Schmoller's weighty opinions on this subject. §5. In France, Leroy-Beaulieu's Essai sur la répartition des richesses et sur la tendance à une moindre inégalité des conditions was published in 1880. As its title suggests, its thesis is that the inequality of incomes is diminishing in modern states. The argument is specially directed against those Socialists who assert the contrary. In spite of its obvious defects, this book is an interesting landmark in the development of economic thought. On the one hand, it recognises, as most of the older writers did not, that an enquiry into the causes, and degree, of inequality in individual incomes is one of the most important tasks confronting the economist. But on the other hand, it does not recognise that discussions, such as the older writers conducted, on the subject of wages per head, interest per cent., and rent per acre, have very little bearing on such an enquiry. Leroy-Beaulieu's argument, which is supported by a great array of somewhat unconvincing statistics, may be summarised as follows. Under the influence of free competition and natural laws, inequality and poverty are both diminishing1 and "the real danger of civilised societies in the future is, not that there will be too great an inequality of conditions, but that there will be too little, and that, in a few decades, a dreary uniformity of incomes and ways of life will produce apathy and stagnation." Owing to the progressive development of new countries and the progressive cheapening of transport by land and sea, the prices of foodstuffs, and hence agricultural rents in Europe, are likely to go on falling for several centuries.3 The rise of urban rents, on the other hand, will be checked by the cheapening of transit and by the fact that large towns will grow less rapidly in the future than in the past. The rate of interest is likely to fall continuously, since the increase of saving and the increasing security of investments may be expected to outweigh the effects of the migration of capital from old to new countries, and the effects of new inventions, upon the demand for new capital. 5 This fall in the rate of interest makes it more difficult to build up new fortunes, while fortunes already made are gradually divided on the death of their possessors, or dissipated by imprudence, thriftlessness or ill-luck in 1 Essai, pp. xv-xvi. a Ibid, p. iii. • Ibid, pp. 246 ff. • Ibid, pp. 78 ff. • Ibid, pp. 226 ff. |