SOCIAL VALUE

A STUDY IN ECONOMIC THEORY CRITICAL AND CONSTRUCTIVE

BY

B. M. ANDERSON, Jr., Ph.D.

Instructor in Political Economy Columbia University

BOSTON AND NEW YORK
HOUGHTON MIFFLIN COMPANY
The Riverside Press Cambridge
1911


COPYRIGHT, 1911, BY HART, SCHAFFNER & MARX

ALL RIGHTS RESERVED

Published November 1911


TO MY FATHER

BENJAMIN M. ANDERSON

OF COLUMBIA, MISSOURI

MY FIRST TEACHER OF

POLITICAL ECONOMY

PREFACE

A first prize of six hundred dollars, and a second prize of four hundred dollars, were offered for the best studies presented by class A, composed chiefly of graduates of American colleges.

The present volume was awarded the second prize.

Professor J. Laurence Laughlin,
University of Chicago, Chairman.

Professor J. B. Clark,
Columbia University.

Professor Henry C. Adams,
University of Michigan.

Horace White, Esq.,
New York City.

Professor Edwin F. Gay,
Harvard University.

A NOTE

The following study is the outgrowth of investigations in the "Quantity 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 "Quantity 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 institution.

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 passed 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.

ANALYTICAL TABLE OF CONTENTS

PART I. INTRODUCTION

CHAPTER I

PROBLEM AND PLAN OF PROCEDURE

Social Value concept recently become important, chiefly in America, and primarily through the influence of Professor J. B. Clark—Value and "social marginal utility"—Relation of social-value theory to Austrian theory: Professor Clark's view; views of Böhm-Bawerk, Wieser, and Sax—Statement of the author's position: conceptions of social utility and social cost unsatisfactory, but social value concept a necessity for the validation of economic theory—Plan of procedure: study of logical requirements of valid value concept; failure of current theory to justify such a concept; cause of this failure in faulty psychology, epistemology, and sociology presupposed by current economic theory; reconstruction of these presuppositions; on the basis of the reconstruction, a positive theory of social value 3

PART II. CRITIQUE OF CURRENT VALUE THEORY

CHAPTER II

FORMAL AND LOGICAL ASPECTS OF THE VALUE CONCEPT

Value as ideal, and value as market fact—Value as absolute, and value as relative—Value as quantity—Relation between quantity and quality—Relative conception of value involves a vicious circle, if treated as ultimate—Every "relative value" implies two absolute values—Ratios must have quantitative terms—But physical quantities cannot serve as these terms—Value and evaluation: confusion of the two responsible, in part, for doctrine of relativity—Value in current economic usage: value and wealth; money as a "measure of values" 13

CHAPTER III

VALUE AND MARGINAL UTILITY

Individualistic method of Jevons and the Austrians—Such a method, applied to value problem in concrete social life, yields, not quantities of value, but rather, particular ratios between such quantities—Value cannot be identified with marginal utility of a good to a marginal individual, even though we assume the commensurability and homogeneity of human emotions—Clark's Law 28

CHAPTER IV

JEVONS, PARETO AND BÖHM-BAWERK

When individualistic methods and assumptions are pushed to the extreme, the problem of a quantitative value becomes still more hopeless—Jevons' psychological and epistemological assumptions—No objective value quantity for Jevons—The same true of Pareto—Böhm-Bawerk, trying to find law of value in law of price, reaches results no more satisfactory—Austrian analysis, even with Professor Clark's correction, is simply an explanation of the modus operandi of determining particular ratios between values in the market—It tells us nothing of value itself, and assumes a whole system of values predetermined 34

CHAPTER V

DEMAND CURVES AND UTILITY CURVES

Constant confusion of demand curves and utility curves in current economic literature has made necessary much of the foregoing criticism—Confusions in the writings of Jevons, Böhm-Bawerk, Wieser, Pierson, Patten, Hadley, Ely, Schaeffle, Flux, Marshall, and Davenport 40

CHAPTER VI

THE VICIOUS CIRCLE OF THE AUSTRIANS

Extreme abstractness of the Austrian theory—Abstraction legitimate and necessary, but must not be carried so far that the explanation phenomena are obliged to include the problem phenomenon—Austrians explain value in terms of value,—a vicious circle—Circle explicit in Wieser—Also explicit in Hobson's attempt to combine Austrian theory with cost theory of English School 45

CHAPTER VII

PROFESSOR CLARK'S THEORY OF SOCIAL VALUE

All attempts to explain value in terms of the highly abstract factors of individual utility and individual cost, or any combination of them, must become similarly entangled—Austrians have shown this of English theory—Professor Clark's value theory, set forth in the Distribution of Wealth, intended to justify social value concept, really uses only these abstract individual factors, combined in arithmetical sums, and similarly falls into a circle—Differences between Professor Clark's point of view in his Philosophy of Wealth and that of his later writings—The point of view of the earlier book, supplemented by later studies in social psychology, will afford the basis for an organic conception of society, and a valid doctrine of social value 49

PART III. THE PRESUPPOSITIONS OF ECONOMIC THEORY

CHAPTER VIII

THE PHILOSOPHICAL AND PSYCHOLOGICAL PRESUPPOSITIONS

Connection between social philosophy and metaphysics and epistemology always close—Three stages in history of philosophy: dogmatic, skeptical, critical—Ancient and modern philosophy have each gone through these three stages—Each philosophic stage characterized by distinctive social philosophy: individualism and sociological monadism go with skeptical philosophy, while organic conception of society goes with critical stage—Economics to-day based on skeptical philosophy of Hume—Doctrine of sociological monadism: Marshall, Pareto, Jevons, Veblen, Davenport—Critique of sociological monadism, from standpoint of epistemology and psychology 59

CHAPTER IX

THE SOCIOLOGICAL PRESUPPOSITIONS

Conceptions of the social unity: mechanical, biological, psychological—DeGreef's criticism of mechanical and biological analogies—Hierarchy of sciences: Comte and Baldwin—Baldwin's psychical abstractionism—Cooley's psychological conception of the nature of society seems most useful for purposes of this study—Cooley's view—Relation between Cooley and Giddings: the Social Mind—Summary of sociological doctrine—Critique of Davenport 72

PART IV. A POSITIVE THEORY OF SOCIAL VALUE

CHAPTER X

VALUE AS GENERIC—THE PSYCHOLOGY OF VALUE

Economic value a species, coördinate with ethical, legal, æsthetic, and other values—Psychology of value, as manifested in individual experience—Values as "tertiary qualities"—When we reflectively break up the experience, values thrown from object to subject's emotional life, but this an abstraction from concrete experience—Feeling and desire in relation to value: hedonism; Ehrenfels and Davenport; Urban and Meinong—"Presuppositions" of value—Feeling and desire both phases in value, but neither is the worth-fundamental, and each may vary in intensity without affecting amount of value—Value and reality judgment: Meinong and Tarde; Urban—On structural side, feeling, desire, and "reality feeling" are all significant phases in value—But real significance of value lies in its functional aspect: the function of value is the function of motivation—Essence of value is power in motivation—For concrete experience, this power a quality of the object—Positive and negative values—Complementary values—Rival values: two cases: qualitatively compatible, and qualitatively incompatible values—In first case, quantitative marginal compromise often possible: generalization of Austrian analysis—So-called "absolute values" ("absolute" here used as in history of ethics)—No sharp lines between different sorts of values, as ethical, economic, æsthetic—Different sorts of values do not constitute self-complete, separate systems—Generalization of notion of price—Suggestions as to analogues in the field of the social values 93

CHAPTER XI

RECAPITULATION—THE SOCIAL VALUES—FUNCTIONS OF THE VALUE CONCEPT IN ECONOMICS

Conclusions reached both in economic analysis and in sociological analysis point to values which correspond to no individual values, great social forces of motivation—To individual, economic, legal, and moral values appear as external forces, over which his control is limited, and to which he must adapt his individual behavior—Economic theory, often unconsciously, has assumed objectively valid, quantitative value, and economic theory valid only on the basis of such a concept: value the homogeneous element among the diversities of physical forms of goods, by virtue of which ratios, sums, and percentages may be obtained among them, and comparisons made—Process of "imputation" assumes such a value concept—Value used by economists to explain motivation of economic activity—Such a value concept essential for the theory of money—Implied in the term, "purchasing power"—Such a concept has never been justified, but economists, more concerned about practical results than logical consistency, have found it essential, and used it—Impossible to develop a social quantity by synthesis of abstract individual elements—Correct procedure the reverse of this 115

CHAPTER XII

SOCIAL VALUE: THE THEORIES OF URBAN AND TARDE

Neither Urban nor Tarde primarily concerned with economic value—Urban's important contributions—Insists on conscious feeling as essential for social value—But feeling may vary in intensity without affecting the power in motivation of the value—Feeling significant when values are to be compared—Social weight of those who feel a value a highly significant phase which Urban ignores—Tarde recognizes this phase, but errs in treating it as an abstract element, which obeys the laws of simple arithmetic 124

CHAPTER XIII

ECONOMIC SOCIAL VALUE

How get out of Austrian circle?—Temporal regressus vs. logical analysis of the concrete whole of the Social Mind—Even in Wieser's "natural" community, psychic elements other than "marginal utility" significant for the determination of economic values, especially legal and moral values concerned with distribution—Quotation from Mill—Critique of "pure economic" theories of distribution—They presuppose as a "framework" a set of legal and moral values which, in modern times, especially, are little more stable than "pure economic" forces, and which, in any case, are of same nature as economic forces,—fluid, psychic forces—"Pure economic" forces, working in vacuo, would lead to anarchy; any concrete economic tendency depends on legal and moral forces quite as much as on "pure economic" forces—Illustrations 132

CHAPTER XIV

ECONOMIC SOCIAL VALUE (continued)

Abstract elements of the Austrian and English schools, individual "utilities" and "costs," have their place in the concrete whole of social intermental life—Social causes largely determine them—But this not enough for a theory of social value—Intensity of a man's feelings or desires has no relation whatever to value in market till we know social rankings of men—Conflicts of values concerned with these social rankings—Prices express results of court decisions as well as results of changing individual desires for economic goods—We break the circle by turning to the concrete whole of social-mental life—Economics has failed to profit by example of other social sciences here—No social science can explain its phenomena by reference to one or two abstract factors 148

CHAPTER XV

SOME MECHANICAL ANALOGIES

Mechanical analogies of limited use in revealing full complexity of social control, but of use for certain purposes—Our argument can be put, in part, in terms of mechanical analogies—Transformations of social forces—Illustrations—Marginal equilibria among social forces—Illustrations—Social forces of control take different forms under different conditions—Mechanical analogies useful enough for economic price-analysis—Our thesis involves no radical revision of economic methodology—It is rather concerned with interpretation and validation of economic methodology 156

CHAPTER XVI

PROFESSOR SELIGMAN'S PSYCHOLOGICAL DOCTRINE OF THE RELATIVITY OF VALUES

Professor Seligman's contributions to value theory—Points of difference between his views and those here maintained—His psychological doctrine of relativity—Different from doctrine of English School, which is a matter of logical definition—Values relative because there is fixed sum of values, and increase in one value can come only through decrease in other values—Criticism: psychological difficulties; diminution of all values in times of panics and epidemics; decrease of economic values through increase of religious and other values—Element of truth in Professor Seligman's doctrine—Relation between Professor Seligman's view and that of Professor Clark 162

CHAPTER XVII

THE THEORY OF VALUE AND THE THEORY OF PRICES

Price and Preis—Price broadened to include all relations between values, whether money be involved or not—History of price-concept in English economics—Distinction between prices and values—Generalization of notion of price—Measurement of beliefs, etc., in terms of money—"Qualitative analysis" and "quantitative analysis"—Great bulk of economic theory, and virtually all that is valid and valuable in economic theory, has so far been in theory of prices, and not in theory of value—Methods of price analysis—Abstract units of value—Price theory and practical problems 175

CHAPTER XVIII

THE THEORY OF VALUE AND THE THEORY OF PRICES (concluded)

Great work of Austrians really done in field of price theory—They have, without logical right, but with excellent results, assumed and used a quantitative, objective value concept—Distribution in relation to theory of value and theory of prices—Mill's treatment primarily from standpoint of fundamental value theory; later theories, as a rule, chiefly concerned with more superficial, but also more exact, price analysis of distributive problems—Theory of value not a substitute for detailed price analysis, but, rather, a presupposition of it—Prices have meanings, which only theory of value can explain 188

CHAPTER XIX

THE THEORY OF VALUE AND THE SOCIAL OUTLOOK—SUMMARY

Belief that social optimism and social pessimism are connected with theory of value—Views of Fetter, Schumpeter, Wieser, and Davenport—No such implications, either optimistic or pessimistic, in theory here maintained—Theory of value does not contain justification of existing social order—Summary of main argument of book 194

INDEX OF NAMES 201

PART I

INTRODUCTION

SOCIAL VALUE

CHAPTER I

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 asserts 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 analysis 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 analysis of market ratios of exchanges, Professor Clark treats it as analogical, 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, assuming 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 associated 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 analysis 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, Böhm-Bawerk:—

Equally emphatic is Wieser:—

Sax, likewise, expresses his dissent:—

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, analogical 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 analysis. On the other hand, we shall find the conception of social value a necessity for the validation of economic analysis, 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 anticipate 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 constitute 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.

PART II

CHAPTER II