the late Simon N. Patten: "In Germany he perceived that, though much poorer in their command of commodities than the farmers of Illinois, the professional families he met in Halle were in many ways better off. Through varied and coöperative habits of consumption the Germans in great measure overcame their disadvantages in production. Halle was well provided with public parks and playgrounds. There was a municipal theater and opera house. Inexpensive restaurants were everywhere, making possible easily arranged excursions to the country and pleasant evenings of social intercourse for the relief of overworked housewives. Observation of the way in which the Germans utilized these advantages made him realize that social welfare depends quite as much on the way in which wealth is used as on its amount, a conviction which influenced all his economic thinking."6 As a result of these observations, Patten's interest centered largely in the doctrine that improvements in consumption may contribute to further progress quite as much as improvements in production.

Economists have associated the phrase "pleasure-gain" with the process of satisfying wants. But a survey of modern consumption reveals the fact that a great deal of want satisfaction yields neither pleasure nor gain. The pains and ills of consumption surround us at every hand. The problem before economics is to promote the art of living, the wisdom of choosing, the skill of consuming. From the same product, much greater human benefit can be derived. From the same wealth, much greater contribution can be made to the good life.

Conclusion. The logic of our analysis of consumption may be divided into three main steps. First, we attempted to observe what consumption is. This step in analysis involved a factual and descriptive treatment of what actually occurs in the process of consumption. Second, we attempted to find why we consume as we do. This step involved an explanation of the forces which control the choices made by consumers. The third step, taken up in the ensuing chapter, treats the following problem: Given wants as they are, what theory of value logically follows? This step will involve an analysis of the classical economic theories of utility and value.

First, a factual statement of what consumption is; second, a theory of choice making, explaining why consumption has come to be what it is; third, a theory of value which, taking consumption as we find it, explains the process of exchange in modern economic life. Such is the chain of logic which unifies the various phases of the theory of consumption.

Henry R. Seager, in Introduction to Essays in Economic Theory, by Simon N. Patten, p. xiii.

BIBLIOGRAPHY

ANDREWS, B. R., Economics of the Household.

BARNES, HARRY, Housing.

BERRIDGE, W. A., The Purchasing Power of the Consumer.

CARVER, T. N., The Economy of Human Energy.

CHASE, STUART, The Tragedy of Waste.

CLARK, D. W., Child Labor and the Social Conscience.

CLAY, HENRY, Economics for the General Reader, Chapters XXI-XXV. DICKINSON, Z. C., Economic Motives, Chapters XV-XVII.

FILENE, E. A., The Way Out.

FLORENCE, P. S., Economics of Fatigue and Unrest.

KYRK, HAZEL, Theory of Consumption.

OGBURN, W. F., Social Change.

PRUETTE, L., Women and Leisure.

SNOW, A. J., Psychology in Business.

SUMNER, W. G., Folkways.

TUGWELL, R. G., and others, American Economic Life, pp. 393-587.

VEBLEN, T., Theory of the Leisure Class.

WALLAS, GRAHAM, The Great Society.

Our Social Heritage.

PART III

VALUE AND EXCHANGE

CHAPTER VIII

VALUE THEORY

The problem of value is to explain why goods exchange at various rates. It must explain, for instance, why a suit of clothes may be equal in exchange to perhaps ten pairs of shoes, or why a loaf of bread may be equal in exchange to only one-fifth of a pound of a certain kind of meat. What determines the countless rates at which goods exchange for each other?

The explanation of value is limited to one definite phase of choice making or want satisfaction, namely, to the overt act of purchase. The cause of the decision to purchase is dealt with separately in a theory of choices. The source and origin of the want for goods is a part of the same theory of choices. This previous theory of choices brings the matter up to the stage where the overt act of choice has been committed. No longer are we concerned with the question: Why did the individual make such and such a choice? Our whole concern now is with the question: The choice having been made and acted upon, what is the process of valuation which governs the rate at which goods exchange? Our starting point in value theory is a unit of behavior, of performance, of conduct. For the present we need not go back of the act, to question why the act occurred. We will abstract from the whole experience simply one definite, concrete aspect, namely, the act of purchase itself. The problem of value has taken on increasing importance with every advance in the division of labor and in specialization of tasks. Each individual produces for others. The result of his toil is a commodity which will be offered for sale. Production for sale instead of for self has immensely complicated the exchange of goods and the range of values. Practically all goods must be thrown upon the market and taken from the market before they reach the final user or consumer. Consequently ratios of exchange between goods have to be built up on a vast scale. Specialization in production multiplied enormously the valuations required before goods are consumed.

Theories of value have occupied a leading part in practically all attempts at economic analysis. Many economists have maintained that value theory is the exclusive subject matter with which economics is concerned. From this standpoint, whatever cannot be put in some

logical niche of value theory does not belong in economics at all. Value theory is claimed to be the whole of economics. This somewhat extreme view has largely dominated the science of economics during the past generation. Textbooks of economics have made the backbone of their . analysis merely a theory of value and exchange. It is true that nominally they gave space to such subjects as production and consumption, but always their analysis of these subjects was limited to phases which served simply to bolster up value theory itself. All other matters were subordinated to the great central matter of value theory.

At the same time that economists placed overwhelming emphasis upon value theory, they could not agree as to the content of that theory. The master minds of the science were continually embattled in brilliant disputation over the premises and details of value logic. Antagonistic schools of thought ranged themselves on opposite sides of the argument, and created a magnificent volume of literature dealing with the fine points of the logical system of value. The history of value theory is a story of opinion against opinion, absolute laws assaulted by heresies, intricate systems of logic no sooner established than demolished.

The younger generation of economists have often revolted against the traditional doctrines of value. Some have rejected such theory bag and baggage, as being a worthless mass of argumentative junk. Others have seen fit to ignore value theory, on the assumption that it is possible to avoid the embarrassment of either rejection or acceptance by simply letting the matter alone. Others have tried to reform the older value theory and to bring it up to date. And still others have loyally accepted the faith of the forefathers without complaint. The present writer takes the position that orthodox value theory is useful within limits. For certain purposes, it affords explanations which are of real use. It is not desirable to make value theory the all-important center of the science, and to exclude from economics other matters of great importance. But for many imperative purposes, value theory is utterly and hopelessly inadequate. It is decidedly insufficient as an explanation of the technology of production or of the guidance of consumers' choices. It is decidedly insufficient as an explanation of the pecuniary ways of modern business or of the fluctuations up and down of practically all parts of economic activity. Value theory is essential within limits, but is inadequate as a whole and complete basis for the science of economics. It is the purpose of the author, therefore, to state the principles of value and to use them for what they are worth, but positively not to be bound and handicapped in all other departments of economics by the fault of making value theory the end all and be all of the science.

The Value Concept.-In order to be classed as an economic good, an article must have the power to satisfy human wants. Goods which are not wanted do not come within the economic category. This want satisfying power of goods is called their utility. The utility of a good is measured by the extent to which it is capable of satisfying a person's wants.

The utility of a good indicates the value placed upon the good from the standpoint of its usefulness. The term, "value in use," refers to this positive quantity of desirability or appeal in any commodity. Value in use is different from value in exchange. The latter is a ratio of comparison. It is the ratio at which goods may be exchanged. It may be defined as the power of a good to command other goods in exchange for itself. This power to command depends of course upon the relative strength of desire for different articles. The ratio of value in exchange depends upon the positive quantity of desirability which each article possesses. The word value, as used in value theory, refers to value in exchange. When value in use is the idea to be conveyed, the term utility may be employed.

The term utility does not connote any ethical worth. Opium has economic utility as well as bread. Vice has economic utility as well as virtue. The test of economic utility is strictly that somebody wants the good. Whether the want be good or bad, it equally reflects the economic utility of the good. Utility is strictly neutral on the moral aspects of want satisfaction. This attitude may at first seem cold blooded and ruthless, but in fact it is not at all a proof of indifference to questions of welfare. In previous chapters dealing with consumption, we have already freely discussed welfare aspects of want satisfaction. But in dealing with value theory, it is an advantage to confine attention definitely to the results of choice upon value, no matter what the welfare consequence of the choice may be. Whether a want be good or bad, it has precisely the same effect upon value in exchange. Whether a choice lead to glory or disaster, it has the same effect upon value in exchange. Given wants as they are, regardless of their ethical implications, we may, therefore, seek to trace the process of valuation.

Value in use or utility is the subjective phase of value. These concepts refer to the psychic experience of desire, want, and satisfaction. Value in exchange, on the other hand, is the objective phase of value. It refers to ratios at which goods exchange each for the other.

Diminishing Utility and Marginal Utility.-Our desire for a commodity diminishes as we increase the number of units available for consumption. The utility becomes less and less with each successive installment of the commodity. The satisfaction derived from each unit decreases with each additional unit. To an assumed individual, one pair of shoes is essential, a second is convenient, a third is a luxury, a fourth is superfluous. One loaf of bread is a necessity to a family, a second loaf could be enjoyed, a third loaf would not tempt the appetite, a fourth would be wasted. Repeated doses of the same article yield gradually decreasing enjoyment. Desire becomes appeased, and wants become satisfied.

If the stock of a given commodity be increased indefinitely, the point is reached where utility is nil. Wants are, therefore, satiable, provided a sufficient increase in the number of units of goods is made. A free good, such as water, is present in such abundant quantities that