VALUE AND DISTRIBUTION 
 
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Value and Distribution 
 
 A CRITICAL AND CONSTRUCTIVE 
 STUDY 
 
 By 
 
 HERBERT JOSEPH DAVENPORT 
 
 Associate Professor of Political Economy 
 The University of Chicago 
 
 CHICAGO 
 
 THE UNIVERSITY OF CHICAGO PRESS 
 
 1908 
 

 '■i^'l.,. 
 
 Two Copies rttxei-^. j 
 
 FEB 20 iy08 
 
 Copyright 1907 Bv 
 The University of Chicago 
 
 Published February 1908 
 
 Composed and Printed By 
 
 The University of Chicago Press 
 
 Chicago, Illinois, U. S. A. 
 
To J. Laurence Laughlin: 
 
 In a field so controversial as this of value doctrine, 
 identity of interest is no pledge of agreement ; much, there- 
 fore, in the following pages must fail to command your 
 acquiescence. Nevertheless, I venture to hold you in some 
 sort responsible for the existence of this book, by virtue of 
 the very fact that it has been only through the freedom 
 of thought and of teaching which you have fostered that it 
 has been made possible. 
 
 The Author 
 
PREFACE 
 
 Were it ever important to decide in what degree, if at 
 all, a writer may claim priority in the development of doc- 
 trine, the task would be a peculiarly difficult one in the case 
 of the present book. The truth, however, rather than any 
 personal ascription of it being the important matter, it 
 becomes worth while to reflect that for several decades and, 
 indeed, in the main since the time of Adam Smith, economic 
 theory has been in possession of doctrines enough for a 
 reasonably complete, consistent, and logical system of 
 thought — if only these doctrines had been, with a wise 
 eclecticism, properly combined and articulated. 
 
 The emphasis in the present volume upon the entre- 
 preneur point of view in the computation of costs and in 
 the analysis of the process by which distributive shares are 
 assigned, has nothing new in it; it was necessary only that 
 the point of view be clearly distinguished, consistently held, 
 and fully developed. 
 
 The present writer has emphasized opportunity cost; 
 but this doctrine is everywhere implied in economic dis- 
 cussion; the marvel is that it has been there only uncon- 
 sciously or half consciously. As far as the present writer is 
 informed, D. I. Green was the first to formulate the doc- 
 trine in entire definiteness — the present writer the first to 
 give it systematic application. 
 
 To making precise the concept of profit and to elucidat- 
 ing the relations of profit to cost some contribution has 
 perhaps been made in the present book. 
 
 The insistence that rent is a part of cost of production, 
 in full parallel with other outlays, follows necessarily from 
 the acceptance of the entrepreneur point of view; the doc- 
 trine is as old as entrepreneurship. Nor is it new in 
 economic discussion; political economy began there, but 
 
viii PREFACE 
 
 wandered afield in search of labor determinants of value 
 and of labor standards of value measurement. Cannan has 
 perhaps best led in the return to the better way. 
 
 The cancellation of the distinction between value-deter- 
 mined and value-determining costs was inevitable when 
 once this return was accomplished. 
 
 Likewise there is little in the marginal analysis that can 
 be offered as new; Ricardo applied it fractionally; the 
 moderns have merel}^ extended the applications : it only 
 remained to point out some aspects and limitations of its 
 service. 
 
 Precisely so of utility and of its modern refinements; 
 but the relativity of utility on the demand side, and of cost 
 on the supply side, of the market equation, has seemed in 
 especial need of emphasis. But on the demand side all this 
 was fully worked out by Marshall twenty years since. 
 
 The competitive entrepreneur rendering of the capital 
 concept was fairly well held as far back as the work of 
 Say and of Malthus : Clark, Fisher, and Fetter have con- 
 tributed greatly to the widening of the concept of capital 
 socially considered; Cannan and Veblen to the individualis- 
 tic emphasis : the elaboration of the loan- fund doctrine was 
 perhaps left still to be done. 
 
 Interest theory, in that formulation which, by title of 
 adequate recognition, systematization, and development, 
 Fetter has rightly made his own, is traceable at least as far 
 back as Say; was adequately formulated — but the result of 
 it unseen — by Wieser and by Clark, and was by the latter 
 valiantly battled for. But, as it seems to the present writer, 
 the relations of concrete productivity to time discount are 
 impossible of explanation otherwise than with the accept- 
 ance of the competitive rendering of the capital concept, 
 and with the recognition of the loan- fund subdivision of 
 competitive capital. 
 
 Something also has perhaps been accomplished in these 
 pages toward the elucidation, for working purposes, of the 
 distinction between the primary and the secondary dis- 
 
PREFACE IX 
 
 tributive processes and of their interactions ; nothing very 
 serious appears to be the matter with present society from 
 the point of view purely of the traditional production dis- 
 tribution; the difficulties mostly relate to the secondary 
 process. 
 
 Evidently, then, if anything worth the doing has been 
 accomplished here, any implication of which the author 
 would disclaim further than is inevitably implied in getting 
 oneself published, this cannot be so much in any contribu- 
 tion of new doctrine as in the selection, delimitation, and 
 articulation of the old. To this end the necessary thing 
 has, in the main, seemed to be to rid the science of doctrines 
 that do not belong in it, e. g., labor-time, labor-pain, utility, 
 and marginal-utility determinants or measures of value; 
 real costs; marginal fixation of price or of distributive 
 shares; price-determined and price-determining costs or 
 distributive shares; instrument margins; marginal-produc- 
 tivity distribution; price measures of utility; the social 
 organism; fundings of productive agents; the tripartite 
 classification of productive factors. 
 
 And if all, or any considerable part of this, has really 
 been accomplished, it is enough. 
 
 Chicago, August io, 1907 
 
TABLE OF CONTENTS 
 
 CHAPTER PAGE 
 
 I. Vamous Cost Concepts i 
 
 II. Adah Smith 8 
 
 III. RiCARDO 29 
 
 rv. Senior : . 44 
 
 V. John Stuart Mill 53 
 
 VI. Cairnes 62 
 
 VII. Further Cost Doctrines 84 
 
 VIII. Profit Depined: Profit and Risk as Related to 
 
 Cost . 94 
 
 IX. Early Utility Theory: Say 107 
 
 X. The Capital Concept 121 
 
 XI. Capital as a Competitive Concept . . . . 141 
 XII. Competitive Savings and Social Capital: Loan 
 
 Fund and Abstract Capital 157 
 
 XIII. The Standard of Deferred Payments . . . 175 
 
 XIV. Interest 189 
 
 XV. Interest — Concluded 217 
 
 XVI. Rent and Cost — Marginal Cost — Relative Cost 262 
 
 XVII. The Modern Movement 296 
 
 XVIII. Classical vs. Modern 334 
 
 XIX. The Positive Theory and Natural Value . . . 353 
 
 XX. The Attempt at Reconciliation: Marshall . 372 
 
 XXI. The Attempt at Reconstruction: Hobson . . 405 
 
 XXII. Distribution by Value Productivity: Clark . 439 
 
 XXIII. The Laws of Return 480 
 
 XXrV. The Dynamics of Value and Distribution . . 512 
 
 XXV. The Adjustment of Price 53^ 
 
 XXVI. Distribution 554 
 
 XXVII. Summary of Doctrine 569 
 
 Index 577 
 
CHAPTER I 
 VARIOUS COST CONCEPTS 
 The scientific development of economic theory began 
 with the attempt to solve the value problem. Almost all 
 early doctrine was cost doctrine in some one or other of its 
 protean aspects. With the earlier writers of the classical 
 school, cost was prevailingly interpreted in terms of labor; 
 but in the detailed working-out of ^the value problem and 
 of its further development, the notion of cost came to be 
 presented in practically all of its different and conflicting 
 senses. A brief analysis of the various ways in which the 
 cost concept was employed in classical discussion will, then, 
 afford a serviceable introduction to the value problem. The 
 work of Adam Smith will be found surpassingly well 
 adapted to the purposes of this analysis. 
 
 Labor-purchase cost. — The doctrine of the earlier 
 economists that labor is the original source of value con- 
 tained, even at that time, nothing especially novel or 
 recondite ; so much had been announced long aforetime and 
 upon very excellent authority: "In the sweat of thy brow 
 shalt thou eat bread." He that will not work neither shall 
 he eat. Labor and the hire of labor appear both ideally 
 and practically to have an intimate association. What one 
 gains at fishing or hunting depends mostly or largely on the 
 quality and zeal of the quest. Give Crusoe his island, and 
 what he will get from it will depend upon the sort of 
 person that Crusoe is — his industry and intelligence, in 
 short, the quality of his work. Set a group of colonists 
 upon its newly found island or continent ; what gets accom- 
 plished there, the results achieved, the well-being attained, 
 will depend upon the more or less of productive effort 
 applied. Product is readily thought ©f as so much commod- 
 ity purchased at the price of effort, a primitive transaction 
 
2 VALUE AND DISTRIBUTION 
 
 in exchange — in the long run also, a method espe- 
 cially satisfactory in character and naive in its simplicity of 
 justice, where deserving and receiving tend to fall out in 
 strict proportion. At any rate, such is the gist of the doc- 
 trine stated by Adam Smith: "The annual labor of every 
 nation is the fund which originally supplies it with all the 
 necessaries and conveniences of life." Therefore, accord- 
 ingly as this output "bears a greater or smaller proportion 
 to those who are to consume it," is the nation better or 
 worse o&} 
 
 Labor was the first price, the original purchase money, that 
 was paid for all things. It was not by gold or by silver, but by 
 labor that all the wealth of the world was originally purchased; 
 and its value to those who possess it and who want to exchange 
 it for someone's production is precisely equal to the quantity of 
 labor which it can enable them to purchase or command.^ 
 
 It must be noted, however, that his view of the case may 
 be taken to express merely a social or collective aspect of 
 the labor-value doctrine, the national income being regarded 
 as the return upon the national productive energies applied 
 as a unit to the national environment. The terms of pro- 
 curement, the purchase outlays, are the efforts applied. 
 This reasoning is equally applicable to a Crusoe economy ; 
 the income, the wage, the remuneration, is obtained as a 
 result of the labor put forth; nothing need be implied, 
 possibly nothing can safely be deduced, as to the exchange 
 relations to be established between different portions of the 
 product obtained; but conceiving this product as a unit 
 total, the labor stands as the cost with the product as the 
 produced value. This may be termed the labor-purchase 
 concept of cost. 
 
 Labor-time cost. — But if a basic measurement of value 
 and a method of comparison of different value items be 
 sought, and if it be asked by what method, in this sense, is 
 labor to be taken as cost, other notions emerge. Measure- 
 ment by the hour or by the day lies most readily at 
 hand. The isolated producer would find time the most 
 
 ^ Wealth of Nations, "Introduction." 
 ^ Ibid., chap. iv. 
 
VARIOUS COST CONCEPTS 3 
 
 simple and practicable common denominator of costs. So a 
 collectivist community, especially were it of a democratic 
 habit of thought, would incline to apply the labor power at 
 its disposal, and to distribute the product, according to 
 units of time. 
 
 Labor-pain cost. — But whether or not a collectivist 
 society could practically do better than this, and whether 
 for ordinary purposes Crusoe would attempt anything 
 further, it is certain that in exceptional cases the isolated 
 producer would add some modifications; the crude time 
 reckoning would be amended to allow for considerations of 
 especial hazard or severity or irksomeness. Combinations 
 of the hazardous with the pleasant, e. g., the hunt as against 
 the safe but tedious processes of agriculture, would inevi- 
 tably present themselves. For, after all, the essential fact of 
 time cost is not the time aspect pure and simple, but the 
 burdensomeness involved or the disinclination overcome. 
 As soon, therefore, as the concept of cost receives a more 
 careful analysis, pain cost will, at least in the individual 
 computation, be found fundamental to time cost. 
 
 Put in other form, the form which, as we. shall see, 
 Ricardo would have especially chosen, the notion would run 
 something as follows : the purpose of productive activity is 
 the attainment of the means of pleasure ; pain is the cost of 
 getting pleasure and may therefore serve adequately to 
 express the relative values of these pleasures obtained or of 
 the facts or media through which the pleasures are 
 obtained. And it is thus that Ricardo came to distinguish 
 so sharply between riches and value; with riches the 
 emphasis is upon utility ; with value it is upon cost.^ 
 
 ^ "Value depends .... on the difficulty or facility of production. 
 The labor of a million men in manufactures will always produce the 
 
 same value, but will not always produce the same riches A 
 
 million of men may produce double or treble the amount of riches, of 
 "necessaries, conveniences and amusements," in one state of society 
 that they could produce in another, but they will not on that account 
 
 add anything to value Riches do not depend on value." — 
 
 Ricardo, Political Economy (Conner), chap. xx. 
 
4 VALUE AND DISTRIBUTION 
 
 Labor-value cost. — But inasmuch as labor involves, or 
 at all events commonly implies, some degree of pain, is it 
 not logical to conceive of the attendant pain as the neces- 
 sary condition to the existence of labor — the purchase 
 price on terms of which one comes into possession of his 
 own labor power? Just as, in getting control of the 
 services of others' labor, one makes a sacrifice of purchasing 
 power — good or money — precisely so one may be conceived 
 to hire or buy his own labor effectiveness on the terms and 
 at the charge of the pain attendant upon labor. Based, 
 therefore, upon its cost, it has been found possible to 
 ascribe a value to labor itself irrespective of the value of the 
 product, which basic value may be conceived as carried over 
 to the commodity produced, and as incorporated as a cost 
 therein, the value of the product being the incorporated 
 labor value consumed in the process of production. Obvi- 
 ously this view goes further than the labor-pain-cost 
 theory: the labor-value-cost theory explains value not 
 merely by the pain of labor but by ascribing to the labor 
 itself, because of the pain, a value fundamental as cost to 
 the value of the thing produced. 
 
 Closely related to the foregoing, and with difficulty dis- 
 tinguishable from it, is another concept of labor value: 
 Life being essentially activity in conjunction with con- 
 sciousness, and economic products being the concrete and 
 objective resultant of this activity with its associated and 
 attendant pain, labor appears to take on value by virtue of 
 the fact that labor is the very expression and incorporation 
 of life itself. Value in products is thus conceived as tracing 
 back, through the value of labor as cost, to the thought 
 of draft against life and of expenditure of life; product 
 thereby bears value as the simplest case under the doctrine 
 of costs. 
 
 All of these computations of cost are, however, open to 
 the objection that they are over-simple in the conditions 
 
VARIOUS COST CONCEPTS 5 
 
 assumed: no provision is made for production under the 
 capitalistic wage system ; on the contrary, each case is taken 
 as one of independent production, of self -employment. A 
 new classification of costs is therefore to be made, accord- 
 ingly as the case is one of employer cost or of employee 
 cost. The concept of labor-pain cost does not readily find 
 place for itself under the system of entrepreneur produc- 
 tion. Typically and at its simplest, employer cost is outlay 
 cost; employee cost, on the other hand, must, if it apply 
 at all, resolve itself into some one or other of the aspects of 
 labor cost. 
 
 But even for cases of independent production, the fore- 
 going analysis fails of adequacy in omitting to take account 
 of capital-use and instrument-use costs and of other 
 charges not necessarily included under the head of outlays. 
 What disposition shall, for instance, be made of the item of 
 compensation for the time use of that part of the entre- 
 preneur's circulating or floating capital employed as wage 
 fund in the hiring of laborers ? Here, then, we have also a 
 capital-use cost, whether this be regarded as risk cost or as 
 interest cost or as a composite of both. 
 
 But if, outside of risk and upkeep, a compensation is to 
 be computed for the owner of saved wealth, upon what basis 
 shall this computation be made? If the capitalist entrepre- 
 neur is, so far as his capital is concerned, to be remunerated 
 for the restraint implied in non-consumption, for the saving 
 involved in capitalization, we arrive at the notion of absti- 
 nence cost. If, however, the rewards are better figured 
 upon the basis of what the capital might have earned if lent 
 out, we must take account of a loan-interest-displacement 
 or an investment-opportunity cost. 
 
 And if, on the other hand, the capital charge, in the 
 given employment, is to be rated at what the capitalist 
 entrepreneur could have made the capital yield him in some 
 
6 VALUE AND DISTRIBUTION 
 
 alternative productive use, we must make room for capital- 
 product-opportunity cost. 
 
 And bearing in mind that the entrepreneur might as 
 employee have applied his personal powers on terms of 
 salary or wages, or might under self -employment have 
 applied himself to some other line of production, we are 
 compelled to catalogue, as possible cost concepts, these 
 further cases of personal-zvage-displacement and personal- 
 product-displacement (opportunity) costs. 
 
 And now under the general head of employer costs are 
 to be catalogued some further concepts acceptable accord- 
 ingly as cost notions have received modification through 
 various theories regarding the determination of wages, 
 rent, and interest. 
 
 Wealth having been conceived as the product of labor, 
 and capital as stored-up wealth devoted to further produc- 
 tion, interest has sometimes been regarded as the indirect 
 payment of wages; and the different notions of labor cost 
 — time, pain, and value — have been employed as the ulti- 
 mate explanation of interest, thus reducing it to the com- 
 mon denominator of pain. 
 
 But evidently there must cut across this line of analysis 
 the distinction between employer cost and employee cost — 
 that is, between cost to the borrower and cost to the lender. 
 If interest is indeed wages in disguise, that which is time or 
 pain or value cost to the producer of the capital must be 
 outlay or investment-opportunity or product-opportunity 
 cost to the borrower. 
 
 In this last sense, also, there is room for argument for 
 the establishment of an investment-opportunity or product- 
 opportunity cost with reference to rent outlays; more than 
 mere mention of this notion is, however, impracticable at 
 this point in the discussion. 
 
 So far as outlays in wages are concerned, it may be 
 forcibly urged that cost-of -production influences underlie 
 
VARIOUS COST CONCEPTS 7 
 
 and determine the wage level : to the extent, therefore, that 
 labor is directly or indirectly the source of value, this view 
 would make the subsistence-cost value of labor the deter- 
 minant both of the labor value to the laborer and of the 
 wage outlay to the employer. Under this head of subsist- 
 ence-value cost would fall the two doctrines of standard- 
 of-living-wage cost and minimum-of-existence-wage cost. 
 
 Without venturing to assume that no other cost con- 
 cepts can be recognized in classical discussion, it may be 
 confidently asserted that all of the foregoing concepts are 
 to be found therein. Nor is it at present attempted to make 
 the catalogue of cost concepts and cost distinctions exhaust- 
 ive. But it is especially necessary to call attention at this 
 point to the distinction between individual (competitive) 
 and social (collective) costs, as of fundamental and far- 
 reaching significance. These concepts, while not readily 
 presented at this time, will come in later for a deal of 
 discussion. 
 
CHAPTER II 
 ADAM SMITH 
 
 After making it clear in his introductory chapter that 
 the population of a country is better or worse off accord- 
 ingly as the total product "bears a greater or smaller pro- 
 portion to those who are to consume it/' Adam Smith goes 
 on to assert that, for the most part, the average share of 
 consumers must depend upon the skill and dexterity of the 
 labor, but also, in some part, "on the proportion between 
 the number of those employed in useful labor and of those 
 who are not so employed. Whatever be the soil, climate, 
 etc., the abundance or scarcity of its annual supply must, in 
 that particular situation, depend upon these two circum- 
 stances," And so, with any particular situation given or 
 assumed, the labor of a nation "is the fund which originally 
 supplies it with all the necessaries and the conveniences of 
 life." This we have termed the labor-purchase doctrine of 
 cost. 
 
 But it is fair to say that Adam Smith does not, at this 
 particular point, make much of this doctrine, or attempt to 
 apply it as an explanation of the value relations between 
 goods. But in chapter v the step is fully taken : 
 
 Labor was the first price, the original purchase money that 
 was paid for all things. It was .... by labor that all the wealth 
 of the world was originally purchased; and its value to those .... 
 who want to exchange it for some new productions, is precisely 
 equal to the quantity of labor which it can enable them to purchase 
 or command. 
 
 It is, however, to be noted that the reasoning according 
 to which labor is the first purchase price holds only when the 
 "particular situation" is assumed; so much as this must be 
 taken for granted as somehow given in the reckoning, a con- 
 tinent, or island, or country, in which the labor is put forth ; 
 and only such degree of "originality" in production can be 
 imputed to the labor as may be worked out by regarding 
 the situation, the habitat, as a passive rather than as an 
 
 8 
 
ADAM SMITH 9 
 
 active fact — as opportunity rather than as productive 
 power. For whatever value there is in the distinction 
 between condition and cause, the environment must, in this 
 view, stand as the condition and labor as the cause. But 
 none the less must the productive output differ with differ- 
 ences in environmental opportunity; the terms of the 
 exchange between man and nature must vary with the 
 varying opportunities for production, labor having a greater 
 or less producing power with the varying bounty or nig- 
 gardliness of the environment. And so, while, socially 
 speaking, the labor- fund-purchase idea is a cost doctrine 
 of the labor sort, it is such by the very fact that it is social 
 in character and treats the whole product as a unit pur- 
 chased by the whole of the labor applied. But evidently, 
 so far as the product is taken as a whole, as a. unit, and as 
 set over against the total of labor producing it, no key is 
 given to the exchange relations between different portions 
 of this product. Even for the Crusoe case, his 
 different units of effort could be represented in 
 products of equal utility, only upon the assumption 
 of absolute uniformity of advantages in the conditions 
 of production, that is, upon the assumption of no extensive 
 or intensive land differentials, and so of no law of diminish- 
 ing returns of any sort. And likewise also, Crusoe himself 
 must always remain at one level of vigor, alertness, and 
 intelligence. That is to say, not merely homogeneity in 
 environmental conditions, but absolute homogeneity in 
 labor quality must be assumed, in order that either for an 
 individual or for society the labor-fund-purchase doctrine 
 could, as a cost doctrine, be adapted for service either as a 
 measure or as a determinant of exchange relations. And it 
 may be remarked in passing and as awaiting a more exhaust- 
 ive discussion later, that precisely the same defects inhere 
 in all applications of labor time, labor pain, or labor value, 
 as cost measures or as cost determinants, unless possibly as 
 somehow worked out from the point of view of the employer 
 rather than of the isolated or self-employed producer. 
 
 And precisely this change in point of view is to be 
 remarked in the chapter immediately following upon Smith's 
 introduction. This is the chapter containing the famous 
 pin illustration of the advantages of division of labor : per- 
 haps, it is said, the larger application of this principle to 
 manufactures explains the higher productivity of these as 
 
lo VALUE AND DISTRIBUTION 
 
 against agriculture, and the greater opulence of advanced 
 and manufacturing peoples as against backward and agri- 
 cultural peoples. 
 
 The most opulent nations, indeed, generally excel all their 
 neighbors in agriculture as well as in manufacturing; but they are 
 commonly more distinguished by their superiority in the latter 
 than in the former. Their lands are in general better cultivated 
 and, having more labor and expense bestowed on them, produce 
 more in proportion to the extent and natural fertility of the 
 ground. 
 
 But oddly enough, Smith remarks, the products are not 
 cheaper with these better methods and time-saving devices : 
 despite the fact that corn lands are better cultivated in 
 England than in France, and in France than in Poland, 
 corn in Poland is as cheap as in France, and in France as 
 in England: "This superiority of produce is seldom more 
 than in proportion to the superiority of labor and expense." 
 But note the phrase, "labor and expense." Does Smith 
 mean more labor in point of time, or merely more expensive 
 labor, labor paid on a higher wage level? Surely — ques- 
 tions of density of population aside — it cannot be more 
 labor in point of time. In fact, in view of the especially 
 marked productiveness of manufacturing industries, it is 
 only the choicer grades of land or of land power that can 
 profitably be utilized; the return per unit of labor should 
 thereby be of still more marked superiority. Thus, on any 
 basis of labor cost in terms of time or of pain, lower rather 
 than higher values must obtain. There is nothing for it 
 but to shift the point of view to that of employer's outlay, — 
 as Smith does, — to labor-value cost under competitive pro- 
 duction, where labor value appears under the guise of wage 
 payments commanded by labor as a productive fact. But 
 note that, in this view, labor-value cost is not a pain or a 
 life value, imposing as cost its value upon the product, but 
 is merely the market value of labor as an agent of produc- 
 tion. The case is more nearly one where the product is 
 reflecting value back upon the labor agent. 
 
ADAM SMITH II 
 
 And yet, if such is the case, it must be- difficult, as Smith 
 sees, to explain the undoubted fact that agricultural prod- 
 ucts bear often the higher price in the opulent country. 
 The high value of the labor when employed in agriculture 
 must find its explanation not merely in the high value of 
 the agricultural product, but in the high productiveness of 
 labor employed in manufactures. 
 
 The labor of the rich country .... is never as much more 
 productive (in agriculture) as it commonly is in manufac- 
 tures The corn of the rich country, therefore, will not 
 
 always come cheaper to market than that of the poor. 
 
 The ultimate reasoning for all this is as follows : The 
 high value productivity in manufactures necessitates that 
 such agriculture as is followed should also be highly value 
 productive; this high alternative productiveness imposes 
 upon the employer a high wage outlay. Thus, in terms of 
 employers' outlay, the higher "labor and expense" bestowed 
 in the more opulent country affect the greater product to 
 such a degree that the prices are often the higher in the 
 opulent country. 
 
 That Smith worked out fully all the steps of the argu- 
 ment, or was conscious of all the implications of the situa- 
 tion as he outlined it, is obviously not to be asserted ; but it is 
 clear that he is within the field of competitive costs and of 
 exchange values as distinguished from collective cost and 
 social income. More than half consciously he is employing 
 the notion of outlay cost; impliedly, but not consciously, he 
 is making use of the principle of displacement-opportunity 
 cost, in one of its most typical forms. He has, in truth, 
 outlined a situation in which, as a question of labor invest- 
 ment, or of social and collective efifort, labor-purchase cost, 
 corn is cheap instead of dear, but where as a question of 
 competitive cost it is, because of the displacement condi- 
 tions, high in cost and dear in price and in exchange value. 
 
 It is doubtless on some such basis as this that, after 
 mentioning use value, he distinguishes between value in 
 exchange and real value; by real value is meant labor- 
 burden value as the norm of value, that value which traces 
 back to the ultimate cost — the real price, the natural price — 
 
12 VALUE AND DISTRIBUTION 
 
 a concept which seems to waver between the labor-purchase 
 idea of cost and the labor-value idea. 
 
 But later, in chapter v, there is a distinct enunciation of 
 labor-pain cost, expressed as a value quantity, as the deter- 
 minant of the real value of labor. Whatever difficulties 
 market values may offer, Smith takes it as clear that, in the 
 isolated economy, equal volumes of labor must always be of 
 equal value to the laborer, because, possible variations in his 
 personal equation aside, "he must always lay down the 
 same portion of his ease, his liberty, and his happiness." 
 One might suppose that with the assumption of a necessary 
 uniformity of labor pain attendant upon equal quantities 
 of labor, there is assumed a uniformity in opportunity and 
 in product; such, however, is not the thought; no matter 
 how great the volume of product in a day, the aggregate 
 value will be invariable ; it is the commodity units that must 
 do the varying, since "it is their value which varies, and 
 not that of the labor which produced them." Labor is their 
 real price and having in itself a value, it carries this value 
 over to the product. Here there is a distinct announcement 
 of the labor- value-cost doctrine, and an implied and uncon- 
 scious, but equally distinct, repudiation of the doctrine of 
 opportunity cost; that is to say, the real value of the 
 product, being irrespective of the volume of it, must the 
 more clearly be uninfluenced by any question of possible 
 alternative product. 
 
 In this fifth chapter, there is also some foreshadowing 
 of the distinction between riches and value later made so 
 prominent by Ricardo. Smith says that "every man is 
 rich or poor according to the degree in which he can afford 
 the necessaries, conveniences, and amusements of human 
 life." Possibly he would himself have been puzzled to say 
 whether the term "afford" implied the concept of fund or of 
 flow, possessions or income ; but in any case, the thought of 
 riches rests upon enjoyment utilities as the test. How- 
 ever, he believes that inasmuch as under division of labor 
 each man produces but the smallest part of what he con- 
 
ADAM SMITH 13 
 
 sumes, obtaining through exchange the results of others' 
 labor, one "must be rich or poor according to the quantity 
 of labor which he can command." That is to say, the 
 amount of necessaries, conveniences, and amusements is, 
 after all, reducible to terms of command of labor — a labor- 
 purchase rather than labor-origin basis for value. So the 
 value of any commodity that one has produced to sell "is 
 equal to the quantity of labor which it will enable him to 
 purchase or command. Labor, therefore, is the real meas- 
 ure of the exchange value of all commodities." 
 
 Noting carefully that we are now arrived at a doctrine 
 of exchange value and not of real value, the perplexity pre- 
 sented by the very first line of the next paragraph will dis- 
 appear ;the thought here reverts to the primary, the real-value 
 concept: "The real price of everything, what every- 
 thing really costs the man who wants to acquire it, is the 
 toil and trouble of acquiring it" — labor cost of some sort: 
 but "what everything is really worth to the man who has 
 acquired it is the toil and trouble which it can save to him- 
 self and which it can impose upon other people." 
 
 Here is a definite enunciation of his antithesis of real 
 price to exchange value. Real value is the labor it took; 
 but when once you have the thing and are estimating the 
 quantum of it as riches, its wealth to you as a salable thing, 
 its utility in exchange, you look simply to the toil and 
 trouble which you can make it shield you from by imposing 
 this toil and trouble on someone else. When you command 
 from another his money or his goods, you are, in final 
 analysis, levying on his labor. "What is bought with money 
 or with goods is purchased by labor, as much as what we 
 
 acquire by the toil of our body These things contain 
 
 the value of a certain quantity of labor which we exchange 
 for what is supposed .... to contain the value of an 
 equal quantity." 
 
 Thus, so far as all this may be made consistent, it means 
 that real price or real value is always the labor of attain- 
 ment; but whether this labor is conceived as in itself a 
 
14 VALUE AND DISTRIBUTION 
 
 value, or merely as burden, is not so clear. Exchange value 
 is the labor that a thing will by sale protect the owner from, 
 or that in purchase it will cost the buyer, in inducing him to 
 let go of a product produced by his own labor. And thus 
 exchange value seems to have a real and ultimate basis in 
 real value. 
 
 Sometimes also Smith seems to talk of a fourth sort of 
 value, a value which covers the temporary disturbances and 
 variations from exchange value. And it is added that 
 "though labor be the real measure of exchangeable value of 
 all commodities, it is not that by which their value is com- 
 monly estimated." Labor is so different in intensity, skill, 
 and direction, that it is not easy to find any accurate meas- 
 ure; but a sort of rough equality in kind is worked out 
 through the higgling and bargaining of the market. Popu- 
 lar thought, however, does not make any recourse to labor 
 as the measure, at least no conscious recourse ; most people 
 can understand commodities, concrete palpable objects, but 
 labor is "an abstract notion which, though it can be made 
 sufficiently intelligible, is not altogether so natural and 
 obvious." 
 
 All of which seems to mean that, rightly understood, it 
 is possible to reduce labor to a homogeneous fund. Of 
 time? Evidently not. Of pain? This also will not serve 
 Of value? But if this be a value dependent upon the 
 product, and derived from the product, it is clear enough 
 that homogeneity is attainable and is actually attained, but 
 homogeneity only in terms of the very value that it is sum- 
 moned to explain, a view which would, in the last analysis, 
 conceive labor as receiving value rather than as determin- 
 ing it. And upon the basis that labor derives its value from 
 the value of the product, labor is not competent to give 
 value, unless possibly through some opportunity-cost 
 analysis, later to receive attention. 
 
 And now we are called upon to note that Smith uses his 
 labor doctrine or doctrines for three different purposes, 
 purposes essentially distinct in nature, though almost hope- 
 lessly confused in the course of his discussion. At one time 
 
ADAM SMITH I5 
 
 labor is treated as the determinant source of all value, pre- 
 cisely as, in the mechanical sense, it is the creative source 
 of some commodity products. At another time attention 
 is directed primarily or exclusively to the discovery of a 
 medium of measure, a mode of expression, a common 
 denominator, into which values may be resolved and by 
 which they may be made homogeneous and comparable, a 
 standard of value expression. Or, finally, the investiga- 
 tion directs itself toward the discovery of a standard of 
 deferred payments, a medium of comparison over wide 
 intervals of time. 
 
 Selecting the third of these aspects as first in the order 
 of discussion, it would perhaps be fair that not much be 
 expected from a writer of the eighteenth century, in view 
 of the confusion of tongues lasting without amelioration 
 well over into the twentieth. 
 
 Proceeding from the general point of view of the doc- 
 trine that labor is the source and the measure of value in 
 ordinary relations, Smith declares for labor as the ideal 
 standard of deferred payments. But since some concrete 
 and tangible fact, in terms of which payment can readily 
 be made, is regarded as desirable, Smith inclines to advise, 
 for long-time purposes, corn, and, for short-time purposes, 
 silver, as the standard commodity. 
 
 Equal quantities of labor will at distant times be purchased 
 more nearly with equal quantities of corn, the subsistence of the 
 laborer, than with equal quantities of gold and silver, or perhaps 
 with any other commodity. Equal quantities of corn, therefore, 
 will, at different times, be more nearly of the same value, or enable 
 the possessor to purchase or command more nearly the same 
 quantity of the labor of other people.^ 
 
 It is, indeed, true "that equal quantities of corn will not 
 do it exactly," for standards of consumption vary; other 
 commodities, however, hold command over labor by virtue 
 
 ^Adam Smith, Wealth of Nations, chap. v. 
 
1 6 VALUE AND DISTRIBUTION 
 
 solely of their command over the subsistence of labor and 
 in proportion thereto. Thus 
 
 a rent reserved in corn is liable only to the variations in the 
 quantity of labor which a certain quantity of corn can purchase. 
 But a rent reserved in any other commodity is liable, not only to 
 the variations in the quantity of labor which any particular quan- 
 tity of corn can purchase, but to the variations in the quantity of 
 corn which can be purchased by any particular quantity of that 
 commodity f 
 
 the dangers of departure from the labor standard are there- 
 fore squared. 
 
 Evidently this might do, if only it were safely to be 
 assumed not only that all that laborers earn they spend in 
 subsistence, but also that corn is the only subsistence com- 
 modity; it would then be true that other commodities could 
 command labor only in the measure that they were exchange- 
 able for corn; corn would, then, fall short of an ideal labor 
 standard only in the degree that the laborer's dole of corn 
 were a varying one. 
 
 At any rate, as Smith believes, since corn spells sub- 
 sistence, corn must approximate more closely to the labor 
 standard than would any other commodity. 
 
 Nothing is made here of a doctrine of some currency 
 later, that wages in terms of money must rise or fall with 
 every rise or fall in the price of corn, to the result that the 
 laborer's corn wages must remain a practicably unvarying 
 quantity. It is, indeed, held that in short-time relations real 
 wages in terms of command over subsistence necessities 
 vary widely. "The subsistence of the laborer, or the real 
 price of labor, as I shall endeavor to show hereafter, is 
 very different upon different occasions ;" and so, while "the 
 real value of a corn rent" — its labor significance — "varies 
 much more from year to year" than that of a money rent, 
 
 it varies much less from century to century But the value 
 
 of silver, though it varies greatly from century to century, seldom 
 varies much from year to year, but frequently continues the same, 
 or very nearly the same, for half a century or a century 
 together In the meantime the temporary and occasional 
 
 ^ Adam Smith, op. cit., chap. v. 
 
ADAM SMITH i? 
 
 price of corn may frequently be double, one year, of what it had 
 been the year before. 
 
 Thus, in general purchasing power, as tested by the labor 
 standard, "from year to year silver is a better measure than 
 corn," while "from century to century corn is a better 
 measure than silver." ^ 
 
 But the attempt to find in labor a common denominator 
 of value had this much at least in its favor — that if labor 
 would not serve for the purpose, nothing else was at hand 
 
 ^Ibid., chap. v. 
 
 This is not the place for an adequate discussion of the general 
 problem of the standard of deferred payments ; little more, indeed, 
 can be attempted here than to put in the interrogation points. It is, 
 however, evident that Smith's reasoning assumes the long-time tend- 
 ency of wages to approximate either to the subsistence-minimum 
 requirement, or to the standard-of-living requirement. His argu- 
 ment rests upon the assumption that, over long periods of time, corn 
 varies little in its command over labor. Presumably this stability of 
 relation is due to the assumed connection between population increase 
 and the necessities of subsistence or the established requirements of 
 existence. Thus, while by improvements either in technique or in the 
 conditions of environment, labor might for a considerable period be 
 more generously rewarded in products, this condition, it is thought, is, 
 after all, certain to be a temporary one, population tendencies being 
 safely to be relied upon to take up the slack, whether that slack be 
 reckoned as a differential above the absolute requirements for living, 
 or above some standard of consumption below which laborers will 
 refuse to reproduce themselves. 
 
 There may be reasons enough to condemn this attempted justifi- 
 cation of the corn standard by the labor standard, consistently with 
 retaining faith in the labor standard itself; it therefore remains to 
 inquire to what extent Smith's acceptance of the labor standard was 
 justifiable in the light of the theoretical equipment of his time, and to 
 what extent and with what modifications it may serve for the purposes 
 of more modern theory. 
 
 There was for Smith, at all events, this much of justification for 
 the acceptance of the labor standard — that, in his view, to refuse it 
 would be abandon all hope of any standard, while the acceptance of 
 it would assimilate the standard of deferred payments to the standard 
 of value for current exchanges — a consummation still (though per- 
 haps for no very evident reason) devoutly desired by many monetary 
 theorists. To Smith, as to most economists of later years, the prob- 
 lem of deferred payments presented itself as a value problem. Con- 
 ceived as such, the degree of development of theory in Smith's time 
 could possibly have afforded nothing better or other than this labor 
 standard ; nor, indeed, has later theory achieved anything more, so far 
 as, for deferred-payment problems, cost and value solutions have been 
 the object of search. For it is clear that value conceived merely as a 
 ratio of exchange affords no clue to a deferred-payment standard. Only 
 when, as the essence or significance or determinant of value, some 
 
1 8 VALUE AND DISTRIBUTION 
 
 that would. It may not yet be clear on precisely what 
 grounds this common denominator was so pronouncedly a 
 desideratum; but, for whatever it was worth, the labor 
 measure was the only thing possible for the time. And it 
 may fairly be questioned whether later thought, in its 
 endeavor to substitute utility for labor cost as a value deter- 
 minant, thus stating the payment problem in terms of utility 
 truly, but only of utility as working itself out in terms of 
 value expression, has been able to do more upon the utility 
 side than to repeat the error made upon the cost side, that, 
 namely, of seeking to compare things which in their funda- 
 mental nature offer no basis of comparison; with value 
 
 underlying principle is discovered, is it possible to adopt as a deferred- 
 payment basis a value standard. Whether or not the multiple standard 
 or some variable subsistence or standard-of-living standard may not 
 now be regarded as preferable, it is perhaps sufficient for present pur- 
 poses to point out that these are standards of utility, rather than of 
 cost or of value, and therefore do not, in strictness, concern this 
 stage of the discussion. 
 
 But it may none the less be possible to justify the labor standard 
 as held by Smith without appeal to value categories. 
 
 It is evident that the labor and the standard-of-living standards 
 must in the long run come to coincide, or at all events must always be 
 in process of approaching coincidence. The total consumption of 
 wealth depends upon the total productive efficiency of society : average 
 consumption is the derivative of average production. Standards of 
 living express the general or average efficiency in production, as 
 reflected in the habits and customs of consumption. It is, no doubt, 
 true that if the increase in the per-capita output of wealth is rapid, the 
 felt necessities of adequate living may somewhat lag behind the oppor- 
 tunity afforded by the level of production ; but it remains true that the 
 new level of production is all the while in process of becoming fixed 
 as a new level of requirement. In the meantime, however, as the 
 history of the last hundred years abundantly shows, there is, because 
 of this phenomenon of lagging — this slack between the lately acquired 
 power and the earlier established need — room for some shortening of 
 the labor day. None the less a commodity standard of payment which 
 should coincide with the labor standard must be a standard expressive 
 of the changes taking place in labor productiveness ; not, however, 
 productiveness in terms of corn alone, but productiveness in terms of 
 those commodities, whether corn or other, for which incomes are 
 expended — that is, productiveness expressed in terms of the derived 
 consumption. 
 
 What bearing has all this upon the proposal that the money pay 
 ment should be adjusted at that sum of money affording a command 
 over commodities equal to that of the money loaned — that is to say, 
 the acceptance of the principle of the multiple standard ? 
 
 Recalling once more the fact that this computation is entirely out- 
 side the value field, that the proposed payment is in terms a utility 
 standard, it is obvious that if, between loan and payment, time enough 
 has elapsed for an appreciable change in the standard of living, in the 
 
ADAM SMITH 19 
 
 conceived as a mere ratio of exchange, the assertion of 
 equality or of inequality between two values can have, for 
 the purposes in hand, no possible meaning, unless and until 
 some basis of homogeneity between the quantities in the 
 respective value ratios has been established. Thus, in last 
 analysis, equality for deferred-payment purposes will have 
 to be worked out by somehow appealing to concepts of 
 quantity rather than always to mere ratios between quan- 
 tities. 
 
 So much, for the time being, for the deferred-payment 
 problem ; there remain for discussion Smith's concepts of 
 
 felt necessities of consumption, payment in an equal command over 
 commodities cannot be a full equivalent for the benefits received, or an 
 adequate indemnity for the benefits foregone. The want-satisfying 
 quality of objective units of goods has fallen ; something must be 
 allowed here not only for changes in the direct service, the want-satis- 
 fying power, afforded by similar items of goods, but more, also, for 
 changes of service consequent upon the rising level of requirement 
 for the maintenance of social position and relative well-being. It is 
 here distinctly to be recognized that in large measure consumption is 
 itself a competitive thing. 
 
 Neither in theory, therefore, as a value computation, nor in its 
 practical working out as a utility computation, does Smith's labor 
 standard afford an entirely satisfactory basis for the solution of the 
 deferred-payment problem. "Ultimately speaking, things are not useful 
 because they cost effort, but the effort is put forth because the things 
 are useful. It was usefulness and not effort that the debtor borrowed, 
 it was the product of his effort and not effort that the creditor loaned. 
 It is, then, in terms of usefulness that payment should be made. Labor 
 is the producer of utility and not the substance of it. 
 
 "But it must be remembered that by this very measure of useful- 
 ness, payment must be made in something more than an equivalent 
 command over commodities. The increased effectiveness of labor has 
 brought about a higher level of consumption, a raised standard of 
 comfort and of life. This is a gain to such members of society as are 
 able to attain to this new level ; it is the reverse to those who fall 
 [too far] short of it. A new need plus the ability to satisfy the need 
 is an advance in well-being ; without the ability the need is a mis- 
 fortune. The line then of compensation — of equality in sacrifice — 
 must be found somewhere above equality in purchasing power, some- 
 where below equality in command over human effort. Something must 
 be added to payment on account of the greater necessities of the lender ; 
 something also on account of greater requirements for the maintenance 
 of social position and relative well-being. The point of fair adjustment 
 is to be found where the direct gain from larger satisfactions is offset 
 by the disadvantage of increased requirements and decreased com- 
 mand over social distinction." — Davenport, Outlines of Economic 
 Theory, p. 229. 
 
 More extended discussion of this problem must be postponed to a 
 later chapter. See pages 175 to 188. 
 
20 VALUE AND DISTRIBUTION 
 
 labor, (i) as determinant of value, and (2) as measure or 
 denominator of coexisting values. 
 
 (i) That things are valuable more or less in proportion 
 to the labor required in their production is matter of com- 
 mon observation; the Crusoe analysis sets this truth forth 
 in simple form. But the principle is equally manifest in 
 more complex conditions; the more the labor required for 
 the production of any commodity the higher the wage 
 outlay. 
 
 Not merely this; but for the simpler aspects of produc- 
 tion, and in large measure for production generally, it may 
 be said that products trace their origin to human labor; 
 labor is, technologically speaking, a cause, and, in careless 
 thinking, is prone to be taken as the sole technological 
 cause of the existence of things possessing value. The con- 
 clusion thus lies readily at hand that the quantity of labor 
 content is the determinant of exchange value. Labor is in 
 this view conceived not merely as the mechanical cause 
 of product, but as the quantitative cause of value, just as, in 
 later thought, the utility doctrine has been applied to eluci- 
 date the causal sequence : utility being conceived as neces- 
 sary condition to value, there is constant temptation to 
 explain the quantity of value by the quantity of utility. But 
 in either case, or in any event with labor, the necessity 
 presents itself of arriving at some basis of homogeneity; 
 and to serve as explanation of value this homogeneity 
 must be something other than a homogeneity derived from 
 the value product. 
 
 Nevertheless, the affairs of ordinary business life, the 
 commonplace facts of the wage relation, make it sufficiently 
 evident that labor has a value, and that in many cases, if not 
 in all, the value of the product is somehow concerned with 
 the value of the labor agents required in its bringing forth. 
 The labor-value-cost doctrine is unquestionably true in the 
 sense that the value of labor takes some part as a determi- 
 nant, whether intermediate or ultimate, of value relations. 
 But precisely here was and is the problem ; is this labor 
 value ultimate and self-sufficing, or is it merely an inter- 
 mediate term in some longer chain of causal sequence? 
 So far as Smith formulated any answer to this question, it 
 was to ascribe to labor a non-derivative homogeneity and 
 a non-derivative value, and to make this value serve as the 
 explanation, in terms of causation, of exchange relations. 
 
 And so in chapter vi it is argued that if among a nation, 
 
ADAM SMITH 21 
 
 say, of hunters, it usually costs twice the labor to kill a 
 beaver that it costs to kill a deer, one beaver will naturally 
 exchange for — will be worth — two deer. It seems, 
 indeed, to go almost without saying that what is usually the 
 product of two days' or two hours' labor should be worth 
 the double of that which is the product of one day's or one 
 hour's labor. 
 
 But the further discussion makes it fairly evident that 
 the hunter case was chosen by Smith as one of approximate 
 homogeneity of labor power, a nation of hunters, and also, 
 be it remarked, as a case of the relatively minor importance 
 of capital or land considerations. And upon this assump- 
 tion of the approximate or complete homogeneity of pro- 
 ductive agents the doctrine sums up in a statement of 
 proportionality : as quantity of labor is to quantity of labor, 
 so is value of product to value of product; labor: labor: : 
 value : value. And neither in Smith's nor at any later 
 time has this been open to question, upon the assumptions 
 made. But the truth admittedly contained in the proposi- 
 tion does not of necessity impose the labor-value explana- 
 tion. The non-mathematical statement of the case is equally 
 exhaustive ; unless the hunter could get as much out of his 
 labor with one sort of game as with the other, he would 
 trap for only one sort, and all of this irrespective of any 
 question of whether hunting be a pleasure or a hardship, 
 or whether labor has or has not in itself a value by its own 
 right. In point of fact this doctrine of proportion is 
 nothing more or less than an example of opportunity cost 
 applied under the assumption of homogeneous agents of 
 production. 
 
 In the next paragraph, however, it is said: 
 
 If the one species of labor should be more severe than the 
 other, some allowance will naturally be made for the superior 
 hardship; and the produce of one hour's labor in the one may very 
 frequently exchange for that of two hours' labor in the other; 
 
 all of which is correct as matter of everyday fact; but 
 note that in just so far does the proportion doctrine fail ; 
 and at the same time there disappears the last vestige of 
 time cost. Indeed, there appears some suggestion of pain 
 cost. And yet, by the sentence next following pain cost is 
 excluded : 
 
 Or if the one species of labor require an uncommon degree of 
 dexterity and ingenuity, the esteem which we have for such talents 
 
22 VALUE AND DISTRIBUTION 
 
 will naturally give a value to their produce superior to what would 
 be due to the time employed about it — 
 
 the old labor-cost doctrine, but supplemented by a new and 
 non-cost explanation for the evident and perplexing incre- 
 ment of value, the esteem in which talents are held. But in 
 the succeeding sentence the pain-value doctrine is rehabili- 
 tated : 
 
 Such talents can seldom be acquired but in consequence of long 
 application, and the superior value of the produce may frequently 
 be [no?] more than a reasonable compensation for the time and 
 labor which must be spent in acquiring them. In the advanced 
 state of society allowance of this kind for superior hardship and 
 superior skill are commonly met in the wages of labor. 
 
 That is to say, the greater wage must at least counter- 
 balance, for the individual worker, the greater hardship of 
 the work or the greater expense of preparation, else the 
 occupation will not be undertaken or will be abandoned. 
 But evidently this gives no explanation for the superior 
 wages of native skill. The discussion continues : "Over 
 and above what might be sufficient to pay for the price of 
 the materials and the wages of the workmen" — employer's 
 outlay cost — "something must be given for the profits of 
 the undertaker of the work who hazards his stock in the 
 venture." Risk cost? "The value which the workmen add 
 to the materials, therefore, resolves itself, in this case, into 
 two parts, of which one pays their wages, the other the 
 profits of the employer." But that, in Smith's thought, 
 this profit includes something more than risk profit is not 
 open to doubt: though there is not yet any necessary sug- 
 gestion of wages of superintendence: "two parts, of which 
 the one," etc., 
 
 the other the profits of the employer upon the whole stock of 
 materials and labor which he advanced. He could have no interest 
 to supply them unless he expected from the sale of their work some- 
 thing more than what was sufficient to replace his stock to him, 
 and he could have no interest to employ a great stock rather than a 
 small one, unless his profits were to bear some proportion to the 
 extent of his stock. 
 
 This might well be justified as a doctrine of opportunity 
 cost, but such seems not to be Smith's thought ; he appears 
 to have in mind merely abstinence cost, as a quantity addi- 
 tional to risk cost. 
 
ADAM SMITH 23 
 
 In every great work almost the whole labor .... is committed 
 to some principal clerk. The owner of the capital, though he is 
 thus discharged of almost all labor, still expects that his profits 
 should be a regular proportion to his capital. In the price of 
 commodities, therefore, the profits of stock constitute a compo- 
 nent part altogether different from the wages of labor and regu- 
 lated by different principles.* 
 
 Here Smith, perhaps with good justification, argues 
 that abstinence cost cannot, at all events proportionately, be 
 explained or defended as pain cost. But later this position 
 was abandoned ; and it is clear enough, if the case is looked 
 at from the point of view of the employer — whether as 
 outlay cost to the borrowing entrepreneur, or as either 
 investment-opportunity or production-opportunity cost to 
 the capitalist employer — that interest and wages must be 
 regarded as upon the same footing. 
 
 And as we have seen, this is not infrequently the point 
 of view of cost adopted by Smith. For example, in chap- 
 ter vii he sets forth natural price (normal exchange 
 value) as the general average of "what it really costs the 
 person who brings it to market." But at the same time this 
 price must cover the profit which the producer could else- 
 where have made; "If he sells at a price which does not 
 allow him the ordinary rate of profit in his neighborhood, 
 he is evidently a loser by the trade ; since by employing his 
 stock in some other way he might have made that profit ;" — 
 opportunity cost.^ 
 
 His profit, besides, is his revenue, the proper fund of his sub- 
 sistence. As, while he is preparing and bringing the goods to 
 market, he advances to his workmen their wages, or their subsist- 
 ence; so he advances to himself, in the same manner, his own 
 subsistence Unless they yield him this profit, therefore, they 
 
 *Adam Smith, op. cit., chap. vi. 
 
 ^ While there is no doubt that Smith in many places adopts — and 
 never in terms repudiates — this entrepreneur-cost point of view, it is 
 equally clear that at other times he as definitely accepts and emphasizes 
 the labor-pain and the labor-value doctrines. Whittaker certainly goes 
 much too far in the following: "As a theory of value .... Adam 
 Smith left us an early form of the law of entrepreneur's cost and a 
 labor-command measure of value. But he disowns what is naturally 
 thought of as the genuine classical theory of value, that labor cost 
 regulates market value. This theory was Ricardo's and really his 
 alone." — Albert C. Whittaker, History and Criticism of the Labor 
 Theory of Value in English Political Economy, Vol. XIX, No. 2, of 
 "Columbia University Studies," p. 31. 
 
24 VALUE AND DISTRIBUTION 
 
 do not repay him for what they may very properly be said to have 
 cost him. 
 
 The natural price must, then, also recoup him for these 
 expenses of living — an employer's subsistence or standard- 
 of-living cost. True, he may not get this price, but this is 
 the lowest price "at which he is likely to sell — for any con- 
 siderable time." 
 
 But this subsistence-cost doctrine does not, after all, 
 appear to Smith quite to suffice; the price is set forth as 
 safely to be assumed as the lowest long-time price only 
 upon the assumption that there is freedom of changing 
 occupations. But where such freedom exists, it is really the 
 principle of displacement that is being appealed to; these 
 possible alternatives of employment offer a typical example 
 of opportunity cost. 
 
 In this chapter vii consistent account first begins to be 
 taken of the fact that capital and land are important agents 
 in the productive process. Henceforward, the talk of 
 homogeneity in productive powers ceases ; henceforward, 
 the discussion mostly goes on the basis of employer's cost 
 as against pain or time cost; the doctrine, so far as con- 
 sciously formulated, is that of outlay cost, and in the main, 
 impliedly as well as consciously, is outlay cost as against 
 opportunity cost. 
 
 And so, in addition to the claims of the capitalists, "as 
 soon as the land of any country has all become private 
 property, the landlords .... demand a rent even for the 
 natural produce. The laborer .... must then give up to 
 his landlord a portion of what his labor either collects or 
 produces." 
 
 Now here, again, the land is conceived as passive oppor- 
 tunity rather than as productive agent ; the laborer is repre- 
 sented as giving up a part of what in its entirety his own 
 labor has produced. "This portion, or what comes to the 
 same thing, the price of this portion, constitutes the rent of 
 the land, and in the price of the greater part of commodities 
 makes a third component part." So, from the point of view 
 of outlay cost and of exchange value, rent, like interest, 
 disturbs the labor-cost principle as a causal and determi- 
 
ADAM SMITH 25 
 
 nant fact for exchange relations, unless, indeed, it be pos- 
 sible to regard land and capital as substitutes for labor and 
 as, so far, making labor unnecessary to be done or to be 
 paid for. Formally, this would, perhaps, imply no lack of 
 loyalty to the labor standard, loyalty, however, not to labor 
 in terms of pain, but solely to labor in terms of pain or of 
 something instead of pain ; nor, indeed, is it, in last analysis, 
 an insistence upon labor in any aspect, but only upon some- 
 thing, production-wise, a substitute for labor. And if this 
 interchange between labor and substitutes is accepted as 
 possible, it should be equally open to reverse the process and 
 to regard labor as the substitute for land or capital services, 
 thus reducing all costs to equivalents in rent or interest. 
 But this comes perilously near to surrendering the whole 
 labor-cost position, and to adopting in its entirety the out- 
 lay-cost point of view. 
 
 But — and now we come to an example of Smith's treat- 
 ment of labor as value standard or measure — nothing of all 
 this necessarily bears to disturb labor as the best and per- 
 haps the only medium of expression and common denomi- 
 nator of real value. 
 
 The real value of all the different component parts of price, it 
 must be observed, is measured by the quantity of labor which they 
 can, each of them, purchase or command. Labor measures the 
 value, not only of that part of price which resolves itself into 
 labor, but of that part which resolves itself into rent, and of that 
 part which resolves itself into profit. 
 
 Here evidently, the thought is simply and purely one of 
 measure — of standard — and not of cause. But a shift in 
 concepts has nevertheless taken place — a shift later to be 
 exploited at the full by Malthus — from labor as the basis of 
 value by virtue of the labor-pain investment, to labor as 
 basis in tenns of pain-purchasing power or of pain-avoid- 
 ing power — ultimately, therefore, of service-rendering 
 power.^ 
 
 * Thus the following states only one of the two positions held by 
 Smith with regard to the labor standard: "To Smith, labor is the 
 great, homogeneous, undiflferentiated common denominator to the 
 wonderfully diverse mass of goods which come into existence out of it, 
 and the value or 'real worth' of each of these goods follows the 
 quantity of the source-stuff turned to its production." — Whittaker, 
 op. cit., p. 34. 
 
26 VALUE AND DISTRIBUTION 
 
 In chapter vii it is written that, 
 
 when the price of any commodity is neither more nor less than 
 what is sufificient to pay the rent of the land, the wages of the 
 labor, and the profits of the stock employed in raising, preparing, 
 and bringing it to market, according to their natural rates, the 
 commodity is then sold for what may be called its natural price. 
 
 There is here no attempt to explain these natural rates, 
 either as costs to the employer or as incomes to the owners ; 
 they are simply normal or natural rates, and the produced 
 commodities incorporate these rates into the natural cost, 
 with the result that the corresponding price is the natural 
 price. There is here, however, unconsciously but neces- 
 sarily implied an opportunity-cost analysis, as the explana- 
 tion of these existing rates of compensation to which, as 
 costs, the production of every particular commodity is 
 subject. And this opportunity doctrine is, in fact, recog- 
 nized, so far as the employers' profits are concerned: 
 
 Though in common language what is called the prime cost of 
 any commodity does not comprehend the profit of the person who is 
 to sell it again, yet if he sells it at a price which does not allow 
 him the ordinary rate of profit .... he is evidently a loser by 
 the trade; since by employing his stock in some other way he might 
 have made this profit. 
 
 But in the paragraph next following appeal is made, 
 as we have already seen, to the doctrine of subsistence cost : 
 
 While he is preparing and bringing the goods to market he 
 advances to the workmen their wages, or their subsistence; so he 
 advances to himself in the same manner his own subsistence which 
 is generally suitable to the profit which he may reasonably expect 
 from the sale of his goods. 
 
 It is now to be remarked that here the standard is one 
 not of necessary subsistence, nor accurately one of permanent 
 and established standard of Hving, but a sort of short-time 
 standard based upon the expected profit: but the stand- 
 ard serves for the purposes in hand as does the laborer's 
 wage ; it is the amount necessarily paid, or at all events the 
 amount actually paid to one of the producing agents — out- 
 lay cost. However, Smith is not faithful to this concept; 
 nor can he well be so, for evidently one is not held to con- 
 sume all of his profits; and whether he does or does not 
 consume them all, and whether they are great or small, it is 
 
ADAM SMITH 27 
 
 probable that he will take them if they are the best that he 
 can get. 
 
 If at any time it [the supply] exceeds the effectual demand, 
 some of the component parts of the price must be paid below the 
 natural rate. If it is rent, the interests of the landlords will 
 immediately prompt them to withdraw a part of their land; if it 
 is wages or profits, the interests of the laborers in the one case 
 and of their employers in the other, will prompt them to withdraw 
 a part of their labor or capital from this employment.'' 
 
 This is opportunity cost so extended as to include all 
 forms of outlay of productive goods or for productive goods, 
 rent included ; and the same argument is applied in reverse 
 order to higher prices. Smith proceeds : "The natural 
 price is, as it were, the central price, to which the prices 
 of all commodities are naturally gravitating." 
 
 However, Smith's ideas as to the relation of rent to cost 
 and to price were especially and notoriously vague and 
 vacillating. In chapter ix, the rent of land, these notions 
 of outlay cost and opportunity cost get, so far as rent out- 
 lays are concerned, a serious back-set : 
 
 Rent enters into the composition of the price of commodities 
 in a different way from wages and profit. High or low rent is 
 the effect of it. It is because high or low wages or profit must be 
 paid in order to bring a particular commodity to market that its 
 price is high or low; but it is because its price is high or low, a 
 great deal more or a little more or no more than what is sufficient 
 to pay the wages and profits, that it affords a high rent or low 
 rent or no rent at all. 
 
 This distinction between rent outlays and other outlays 
 can evidently not greatly signify from the point of view of 
 outlay cost. But there is another point of view from which 
 the distinction is important. Rent arises only as a question 
 of individual and competitive cost. Socialized production 
 would meet with land differentials, but the aggregate prod- 
 uct would stand as the aggregate remuneration for the 
 total social outlay and effort : some of the product would, it 
 is true, have required less outlay than other ; but if any sys- 
 tem of exchanging, by barter or otherwise, existed, these 
 differences in land quality could have no significance for 
 the terms of the exchanges ; nor could they figure as addi- 
 tions to cost; at the most, as differentials, they would only 
 
 ^ Adam Smith, op. cit., chap. vii. 
 
28 VALUE AND DISTRIBUTION 
 
 be differentials of saved cost. But in a competitive society 
 these differentials of productivity have to be paid for under 
 the guise of outlays made for the privilege of enjoying 
 them. So again, but for a different purpose, we return to 
 the distinction between competitive and collective cost. 
 Every improvement in production, whether of developing 
 technique, or of better land, or of more abundant land, or 
 of better capital or more abundant capital, is, from the 
 social point of view, the occasion and cause of diminished 
 labor cost — a larger product for a given total of production 
 burden.^ 
 
 * Note, however, that this discussion of collectivist labor cost 
 has in view only such productivity differentials as concern only one 
 line of products. But commonly, of course, differentials of quality for, 
 say, wheat production are accompanied by differentials for other lines 
 of product. In such cases another cost computation requires attention 
 in the collectivist reckoning. Displacement cost — opportunity cost — 
 is really the leading and almost the exclusive form of cost for 
 collectivist economics. Labor cost is, in fact, of extremely small 
 significance, excepting in this aspect of alternative applications. All 
 that the text intends to assert is that instrumenal differentials of 
 productivity for any one line of production can have no significance 
 in collectivist computations. 
 
CHAPTER III 
 RICARDO 
 
 At the present day it is a task neither of great difficulty 
 nor of great merit to convict Adam Smith of inconsistency 
 and even of direct contradiction. Were the purposes here 
 in view essentially those of criticism, it would thereby be 
 the more necessary to keep in mind that the strength of 
 Adam Smith lay in his breadth of information, his accuracy 
 of observation, his suggestiveness of comment, and his 
 catholicity of doctrine. He was not in his time, and could 
 hardly have been in any time, a close worker in systematic 
 theory: He failed to see the town for the houses, the 
 forest for the trees ; but he knew wondrous well the houses 
 and the trees. His habit of mind was concrete and prac- 
 tical. Despite, however, this consistent practicality, almost 
 every theoretical aspect of every question struck him at one 
 time or another. In economic doctrine, as has been said of 
 Shakespeare in observation of life, the ocean of his sympathy 
 lapped all the isles of thought. For the present purposes, 
 therefore, which are, in the main, expository and analytic 
 rather than historical or critical, Adam Smith offers an 
 incomparable field for profitable discussion and illustration. 
 
 Not precisely so with Ricardo or with his contem- 
 poraries, Malthus, James Mill, and MacCulloch. Ricardo 
 was in purpose and method a systematizer, with a theorem 
 to expound and a theory to establish; consistency and logi- 
 cal coherence were parts of the task to which, despite slight 
 equipment in style and in expository skill, he had set him- 
 self ; and in this purpose, so far as consistency and logical 
 unity were concerned, he was, on the whole, surprisingly 
 successful. His defects of exposition, however, render the 
 task of interpretation especially difficult: it may thus be 
 possible that one more attempt at restatement and reinter- 
 
 29 
 
3© ' VALUE AND DISTRIBUTION 
 
 pretation of his doctrine may be serviceable, even after the 
 sympathetic and masterly and, in the main, definitive study 
 of Mr. E. C. K. Gonner.i 
 / 
 
 Very confusing in Ricardo's discussion is the fact that 
 there are two senses for each of the terms value and value 
 of labor; value meaning (i) real value, in the sense of 
 labor-investment value — concreted pain cost; (2) power 
 in exchange. Value of labor sometimes means (i) mere 
 exchange power, market value of labor; (2) labor as a 
 ratio to profit, a distributive fraction, a relative share in a 
 product the absolute value of which is irrelevant to the 
 concept. 
 
 And thus with regard to the famous proposition that 
 neither wages nor profits can rise or fall unless to the 
 corresponding loss or gain of the other factor, James Mill 
 makes it clear that this is never asserted by Ricardo except 
 in the sense of relative shares : 
 
 If a change in the amount of commodities is meant, it will 
 not be true, in that sense, that profits so depend upon wages as to 
 fall when wages rise, and rise when wages fall; for both may fall 
 and both may rise together. And this is a proposition which no 
 political economist has ever called in question.^ 
 
 But note that in the sense neither of exchange power nor 
 of ratio shares does Ricardo commit himself to the doctrine 
 that the value of the labor is derived from the value of the 
 
 ^ All references are to Conner's edition of Ricardo. 
 
 ^ James Mill, Elements of Political Economy (3d ed., London, 
 1844), chap, ii, sec. 3. 
 
 "Ricardo never asserts or imagines that wages and profits cannot 
 increase together, so far as the amount of commodities that measure 
 
 them is concerned What he denies is that one can obtain a 
 
 larger share of the total value without the other experiencing a 
 diminution in its share." — Conner (Ricardo) : "Introductory Essay," 
 sec. 15. 
 
 "Each commodity represents a certain amount of force, and thus 
 the total quantity produced represents the total force of the country. 
 Should invention facilitate production .... each commodity subject 
 to the invention must cease to represent as great an amount of 
 force ; .... in other words, its real value would be less." — Ibid,, 
 sec. 9. 
 
RICARDO 31 
 
 product. His is consistently a cost-of-prnduction view. 
 But he equally carefully avoids making the exchange value 
 of the labor the cause, through costs, of the exchange rela- 
 tions of the products. He does not deny that labor has 
 value; this is as clear as that land has value: but with 
 land he denies, and with labor he declines to assert, any 
 cost-causal relation. To grasp this point is crucial to any 
 right understanding of Ricardo. He has no explanation 
 for the value of labor excepting by the necessities of living 
 according to the established standard, a sort of cost doc- 
 trine for labor. He terms labor the "foundation of 
 exchange value;" it is the very essence and significance of 
 real value. Exchange values are merely proportional to 
 real values. "The connection between exchange value and 
 so-called real value is simple. On the degree to which a 
 commodity as compared with other commodities is pos- 
 sessed of the latter, depends its position in the ratio of 
 exchange." ^ 
 
 Labor is conceived by Ricardo as a leveler of exchange 
 value, and this solely through the efforts of holders of it or 
 of purchasers of it to apply it at the maximum of advan- 
 tage. It is true that the working-out of this by entrepre- 
 neurs is in terms of cost to them but, according to Ricardo, 
 their computations do not express the ultimate fact; cost 
 is not decisive excepting in this sense of proportionment ; 
 production costs in the ordinary sense depend upon real 
 costs, that is, upon the quantity of labor applied; and so 
 the doctrine formulates, value : value : : cost (=labor) : 
 cost (=labor). And it thus comes about that labor, the 
 basis and essence of real value, may serve as a standard and 
 common denominator of exchange value. In final analysis, 
 labor does not determine value through its own value, but 
 merely determines, by the proportion of it incorporated in 
 different commodities, the relations of exchange value 
 between these commodities. Labor might halve or double 
 in productive power, and yet no effect be felt in the ratios 
 
 ^ Ibid., sec. 9. 
 
32 VALUE AND DISTRIBUTION 
 
 of exchange. So wages might vary indefinitely in rise or 
 fall without modifying these market relations: 
 
 No alteration in the wages of labor could produce any altera- 
 tion in the relative value of these commodities The same 
 
 reasons which should make the hunters and fishers endeavor to 
 raise the value of their game and fish would cause the owner of the 
 
 mines to raise the value of his gold The relative situation 
 
 being the same before and after the rise of wages, the rela- 
 tive .... value would remain unaltered.* 
 
 But if the labor quantities change relatively, changes 
 will follow in value. 
 
 Every improvement in machinery, in tools, in buildings, in rais- 
 ing the raw material, saves labor and enables us to produce the 
 commodity to which the improvement is applied, with more facility, 
 and consequently its value alters." 
 
 In what direction Ricardo would look for the explana- 
 tion of all this may not be clear; but it is certain that he 
 does not find it in any invariability in the value of labor. 
 Labor does vary both in ratio value, its share relative to 
 profit, and in commodity-purchasing power, its exchange 
 value : 
 
 Therefore it cannot be correct to say with Adam Smith "that 
 as labor may sometimes purchase a greater and sometimes a 
 smaller quantity of goods, it is their value that varies," — ^but it is 
 correct to say that the proportion between the quantities of labor 
 necessary for acquiring different objects seems to be the only cir- 
 cumstance which can afford any rule for exchanging them for one 
 another.' 
 
 Nor would Ricardo have concurred in the assertion of 
 an invariable real value in labor; but only of invariability 
 in the exchange relations of things invariable in their rela- 
 tive labor content. Labor value as reality in contra-distinc- 
 tion to labor value as an exchange fact, Ricardo did not 
 recognize, or, for that matter, deny ; he had no need for the 
 distinction. For any purpose of his the value of labor is 
 
 * Ricardo, Political Economy, chap, i, sec. 3, par. 16. 
 
 ^ Ibid., chap, iv, par. 18. 
 
 ^ Ibid., chap, i, sec. i, par. 10. 
 
RICARDO 33 
 
 variable ; "being not only affected as other things are by the 
 proportion between supply and demand .... but also by 
 the varying prices of food and other necessaries on which 
 the wages of labor are expended." '^ 
 
 But how does this proportion doctrine, this function of 
 labor as a leveler of values, come to be in any sense a cost 
 doctrine, or justify the repute of Ricardo as the great cost- 
 of-production theorist? As generally interpreted, and by 
 his own express assertion, he holds that the value of any 
 given article depends upon its cost of production; but the 
 connection between labor cost and cost of production in 
 the sense of outlay cost comes about through the entrepre- 
 neur working-out of the proportion principle. As regards 
 the value of any one commodity, its cost, its selling-price, 
 the mere outlay investigation would be an adequate solu- 
 tion ; with wages so much, materials so much, etc., the price 
 would have to be so much. But Ricardo was attempting 
 to see the value problem whole, not merely as a question of 
 this commodity or that, considered separately — a purely 
 individualist-entrepreneur standpoint — but of all commodi- 
 ties taken together in their interrelations of exchange. For 
 this purpose the various cost outlays would not serve as a 
 basis of explanation, but would themselves be simply so 
 many more items of fact awaiting each its separate explana- 
 tion. 
 
 Summarizing, therefore, the case as thus far stated, we 
 may say that Ricardo makes labor important only as the 
 basis and inner meaning of real value. The doctrine of 
 
 ''Ibid., chap, i, sec. i, par. 9. 
 
 In view of Ricardo's distinction between value and riches, as set 
 forth in chapter xx, it must be admitted that the above interpretation 
 might fairly be questioned. But in a letter to Say, dated January 2, 1820, 
 Ricardo writes : "You seem to me to have misunderstood one of my 
 propositions. I do not say that it is the value of labor that determines 
 the value of the product ; this is a view which I am trying with all my 
 power to refute. I say that it is the comparative quantity of labor 
 necessary to production which determines the relative value of prod- 
 ucts." [This is translated from the French ; I have not been able to 
 place my hand upon the original, which I take to have been in 
 English.] 
 
34 VALUE AND DISTRIBUTION 
 
 real value is still everywhere a cost doctrine of the labor 
 sort; the purpose of activity is to secure pleasure or to 
 avoid pain ; in either case, pain is the method and the price 
 of attainment, the cost, and thereby an expression of the 
 value of the thing or fact attained, or of the external agent 
 or implement affording it. Thus it comes about that 
 Ricardo distinguishes sharply between riches and ' real 
 value; with riches the emphasis is upon quantity of utility, 
 of weal ; with value, upon cost. 
 
 All of this, as we have seen, falls under the head of 
 real value. But for exchange value he recognizes that, 
 even in the simplest cases, labor gives only a method of 
 arriving at relations between commodities, their exchange 
 ratios ; it is a measure in this sense only, and comes to serve 
 as such only through the leveling influence of costs, by 
 virtue of the constant tendency on the part of producers to 
 apply labor at its greatest advantage. Pain cost has here 
 nothing to do with the case, excepting as pain may have 
 something to do with the sums which must be paid for 
 labor in order to get it. Neither labor, nor pain as in 
 some way implied in labor, has any significance for 
 exchange value otherwise than as standard or measure or 
 common denominator. An indirect significance is worked 
 out only through the leveling or proportioning mechanism.* 
 
 In point of fact, with all the Ricardian group, as with 
 Smith, the desideratum in the exchange-value prob- 
 lem was to get at a measure ; the real-value doctrine was 
 
 * In the light of the foregoing, sharp dissent must be expressed 
 from the view of Ricardo held by Whittaker : "Ricardo contributed 
 very little to the advancement of the empirical, that is, the entre- 
 preneur account as such. The direct line of descent of this doctrine is 
 traceable from Smith's Wealth of Nations through the Principles of 
 Malthus and J. S. Mill to Marshall. Neither Ricardo nor Cairnes can 
 
 be considered to stand in the line Ricardo never stated a law 
 
 of entrepreneurs' cost plainly, formally, as such, though he gave it an 
 obscure recognition as a source of difficulty to the pure labor theory 
 of value" (Whittaker, op, cit., pp. 14, 15). 
 
 The following appears to be by much the more accurate state- 
 ment : "Ricardo's real conception of normal value is this : the total 
 cost of a commodity determines the total wages charges that must be 
 paid by the entrepreneur, or series of entrepreneurs, producing it" 
 (ibid., p. 51). 
 
RICARDO 35 
 
 sufficient for more fundamental consideration of causes, 
 and as bottoming economics upon some final, definitive, and 
 underlying substratum of reality. If land, the Physiocratic 
 basis, was discarded, what else could serve, if it were not 
 labor? In view of the comparative utility of water and 
 wine, or of corn and gold, and in the absence of any notion 
 of marginal utility, utility could not serve for the case — 
 whether or not we shall now say that the required homo- 
 geneity has later come with the marginal notion. And even 
 if utility could have been made to apply, this was not that 
 bed-rock of reality which was in quest. And so much the 
 more this search for the ultimate could not content itself 
 with simple exchange ratios. Ratios of what? Determined 
 by what? A mere ratio of exchange was as if a man should 
 stand firmly, resting neither on one leg nor on the other, 
 but held upright by the mutual support of the two. Possibly 
 the situation was of this sort for the moving equilibrium of 
 the heavenly bodies — tied to nothing and upheld by nothing 
 — but if so it was admittedly not greatly to their credit. 
 The only exit from the dilemma appeared to be by the 
 way of labor, as definitive and real, causal and determi- 
 native. 
 
 But for exchange value, nothing of the sort was claimed 
 for labor, but only that it was adapted to serve in the 
 second of Adam Smith's roles, that of value denominator.^ 
 
 It must now be admitted that Ricardo's essential posi- 
 tion that commodities rise or fall in exchange value in 
 
 ° Malthus concurring in this notion that a common measure for 
 value must be discovered, and that labor offered the only hope, was yet 
 disposed to disagree with Ricardo and to adopt not the common 
 denominator of labor in the cost aspect — ^by test of what had been 
 done, a system of byegones — but by the forward-looking method of 
 what the product, once produced, would command in labor or in the 
 products of labor. 
 
 For clearly, said Malthus, if a manufacturer really makes a 
 profit, he must get back for his product the power to control more 
 productive energies than he put into his commodity. If the less labor 
 of today will now do the work of the more of yesterday, an equal con- 
 trol of labor must imply a profit. It is the purchasing power of any 
 product that really signifies to the producer of it, and if labor is agreed 
 to be the measure-medium, it should be so in the sense of labor- 
 purchase rather than of labor-investment. True, these quantities may 
 commonly coincide, but if the coincidence fails, the preference should 
 be accorded to purchasing power. — T. R. Malthus, Political Economy, 
 chap. i. 
 
 Possibly so ; but it is sufficient, for our present purposes, to point 
 out that Malthus is here vaguely feeling toward the utility measure of 
 value ; that is to say, his doctrine is fundamentally not a cost doctrine. 
 
36 VALUE AND DISTRIBUTION 
 
 proportion to the rise or fall in the labor requirement in 
 their production would hold, if (i) labor could be reduced 
 to homogeneity excepting in terms of value productivity, 
 and if (2) the doctrine could be made to account adequately 
 for the roles of land and of capital in production. 
 
 As to land, Ricardo felt no considerable difficulty. He 
 ruled rent out of the problem, by a course of reasoning 
 familiar to all economists and still commonly accepted. It 
 is unnecessary to inquire here whether modern theory has 
 done well in accepting this Ricardian doctrine as to the 
 relation between rent costs and values — there is much wait- 
 ing to be said in this regard, — but it is certain that Ricardo 
 did not do well in attempting to fit this doctrine into his 
 general system. His doctrine of cost was one of competitive 
 and not of collectivist cost; it was worked out in terms of 
 entrepreneur competitions by the sheer necessity of its 
 character as competitive; the doctrine of the proportion- 
 ment of value to labor, the leveling doctrine, finds its basis 
 in the principle that each entrepreneur will use his costs, as 
 a total, in the way to get from them the greatest total of 
 exchange power. In short, Ricardo's doctrine of propor- 
 tion was worked out through the entrepreneur mechanism 
 and was nothing more or less than competitive opportunity 
 cost; and had he only furnished the doctrine forth with an 
 apparatus of margins and of producers' differentials, and 
 had he disposed of rent, as well as of interest, by frankly 
 and freely making room for both within his formula, much 
 in modern value theory might have been other — and better 
 — than it is today.^** 
 
 However, there would of course have remained the old 
 difficulty about the homogeneity of labor; and a new diffi- 
 culty would forthwith have arisen — how to make land costs 
 homogeneous with labor costs, otherwise than on the seem- 
 ingly question-begging value basis. And then, again, 
 
 " Malthus' view was more consistently in line with the entre- 
 preneur-cost concept : "It appears to me essential .... to say that 
 the cost of producing any commodity is made up of all the wages, all 
 the profits, and all the rents which .... are necessary to bring that 
 particular commodity to market in the quantity required" (Malthus, 
 op. cit., I St ed., pp. 102, 103). 
 
 "Malthus proceeds to a thorough criticism of Ricardo's law of 
 
 labor cost There are (i) the temporary alterations of prices 
 
 too rapid to be met by changing the volume of production ; (2) 
 monopoly in the product itself, or some raw product used in its 
 making; (3) seasonal fluctuations in all products of the soil . . . . ; 
 (4) the different proportions of fixed capital employed, the different 
 
RICARDO 37 
 
 finally, the same questions would immediately have pre- 
 sented themselves with regard to capital. 
 
 But they presented themselves as it was. Ricardo was 
 perfectly well aware that, in getting rid of rent, he had 
 merely postponed his difficulty, and that in point of fact, 
 this difficulty was insurmountable. But he had done his 
 best; and then, with his customary candor, a candor which 
 would have done credit to a trained scientist, admitted that 
 this best was not well. 
 
 Not so with his disciples, MacCulloch and James Mill. 
 Ricardo's argument appealed to them as wholly satisfac- 
 tory; they were unable to appreciate the difficulty which 
 Ricardo himself felt with it. For is it not clear that mid- 
 way between man and environment, labor and land, there 
 are those modifications in environment — new items of 
 environment — due to the activity which men have exerted 
 in their traffic with the original endowment? Genetically 
 speaking, capital is mere stored-up labor, and that part of 
 the entire productive output of society that is due to capital 
 is, in last analysis, it was said, rightly to be ascribed to 
 labor; interest is therefore indirect wages. 
 
 Taking the hunter illustration, Ricardo had formulated 
 the argument as follows : 
 
 Value is regulated not solely by the time and labor [directly] 
 necessary, .... but also by the time and labor necessary for pro- 
 viding the hunter's capital, the weapons ; [so if] the weapon neces- 
 sary to kill the beaver was constructed with .... more labor 
 
 than, etc., the beaver would be of more value than two deer 
 
 The same principle would hold true, that the exchangeable 
 value of the commodities produced would be in proportion to the 
 labor bestowed on their production; not on their immediate pro- 
 
 quickness of the returns of the circulating capital; (s) the quantity 
 of foreign commodities used in manufactures ; (6) the acknowledged 
 effects of taxation; (7) and the almost universal prevalence of rent 
 in the actual state of all improved countries ; . . . . it is certainly not 
 the quantity of labor which has been employed in the production of 
 each particular commodity which determines their relative values in 
 exchange, at the same time and at the same place (Malthus, op. cit., 
 pp. 104, 105). Ricardo acknowledged all this, but the claim that 
 rent," etc. — Whittaker, op. cit., p. 85. 
 
38 VALUE AND DISTRIBUTION 
 
 duction only, but on all those implements or machines required to 
 give effect to the particular labor to which they were applied;" 
 
 and he enumerates as among these other applications of 
 labor, 
 
 a portion of the labor bestowed on building the ship in which it 
 [the cotton — taking the stocking industry as an example] is con- 
 veyed, .... a portion of the labor of the engineer, smith, and 
 carpenter who erected the buildings and machinery, .... and 
 of many others whom it is unnecessary further to particularize. 
 The aggregate sum of these various kinds of labor determines the 
 quantity of other things for which these stockings will exchange, 
 while the same consideration of the various quantities of labor, 
 which have been bestowed on these other things, will equally 
 govern the portion of them which will be given for stockings." 
 
 And to show that these same concltisions apply to the com- 
 modities exchanged against the stockings, he inquires what 
 effect would be felt upon prices, if any of the labor 
 processes were shortened. 
 
 But in paragraph 17 of the same section he finds it 
 necessary to take account of the influence of time; he 
 recognizes that where the capitals applied are not of equal 
 durability or of similar sorts, changes will be worked in 
 exchange ratios — as, for example, by differences in propor- 
 tions of fixed as against circulating capital, subsistence 
 goods, etc., where time becomes an important element in 
 fixing profits on stock. And he points out that if different 
 commodities require different proportions of labor and 
 capital in their production, changes in the value of labor 
 must affect one commodity more than another. 
 
 But note that while this might appear to regard labor 
 not only as an equalizer and leveler of exchange values, 
 but also as somehow independent and as possessing in its 
 own right a value in such wise as to make it definitely and 
 ultimately a cost, this would not be a fair interpretation of 
 Ricardo's position. He is reasoning merely that as sheer 
 matter of time and of the corresponding interest charges, or 
 
 ^^ Op. cit., chap, i, sec. 3, pars. 14, 15. 
 ^Ibid., par. 15. 
 
RICARDO 39 
 
 as a question of some departure — due perhaps to changing 
 conditions with lapsing time — of the fixed capital from the 
 value level of its labor cost, which departure he does not 
 attempt to explain, or through changes in wage require- 
 ments, due, we will say, to subsistence influences, — com- 
 modities may differ in exchange value, because of the larger 
 or smaller share of fixed-capital outlays as compared with 
 wage outlays, or of fixed-capital outlays as compared with 
 circulating-capital outlays. And labor, as he often says, 
 may vary both in exchange and in ratio value. But this 
 variability, as Ricardo thought of it, is especially of the 
 ratio sort; but in any event this variation in the relative 
 share in the productive output must be allowed for by 
 employers in combining labor and capital as productive 
 agents, precisely because a difference in cost must obtain 
 with different combinations of these agents. And thus it 
 appears that labor and capital, while they may have been 
 shown to be homogeneous in origin, are not necessarily 
 under this argument reducible to labor homogeneity for 
 purposes of cost computations. 
 
 It is worthy of remark that Ricardo does not at this 
 point very closely distinguish how much of his difficulty is 
 due to time, as it expresses itself in interest charges, as 
 against time as offering opportunity for changes in the 
 exchange value of labor or in the exchange value of the 
 capital goods — ^machines, buildings, etc. — or in the ratio 
 value of labor and capital — wages and profits. 
 
 James Mill, however, approached the problem without 
 misgiving and left it in entire contentment : This reduction 
 of capital and labor to homogeneity may, he says, be 
 attempted either (i) by the method of reducing labor to 
 terms of capital, or (2) by reducing capital to terms of labor. 
 The first method is declared impracticable; true, the capi- 
 talist pays the wages of labor and reckons the wage pay- 
 ment as a capital outlay ; but this is only to say that laborers 
 and capitalists in co-operation have produced the com- 
 
40 VALUE AND DISTRIBUTION 
 
 modity in question [as technologically they have, but as 
 cost-wise they have not], and that the product should 
 belong to them both, except for the fact that one partner 
 has bought out the other before the returns are in; this, 
 however, it is said, does not transform the case into a 
 production by capital alone. 
 
 The second method of arriving at homogeneity is 
 accepted upon the line of argument falteringly and dubi- 
 ously worked out by Ricardo. But how about the diffi- 
 culty as to time interest? Interest, Mill replies, is merely 
 the slow payment for the wearing-out of capital; all the 
 partial payments will equal the whole value of the stored- 
 up labor. But even so. Mill asks, what shall be said of the 
 increase which comes with time to the value, say, of wine? 
 Where is the labor in this? There is no more capital by 
 which to explain the increase. "It is no solution to say that 
 profit must be paid, because this only brings us to the ques- 
 tion, why must profit be paid?" This must be because the 
 capital applied elsewhere, e. g., upon the land, would 
 during the same time have earned a profit, and so must 
 have a profit here. The wine which works is like a 
 machine which works without superintendence, and pay- 
 ment for the work of the machine is really payment for 
 the work which made it.^^ 
 
 And so, having said nothing of why the capital would, 
 in agriculture, have had any better right to command inter- 
 est, he dallies sentence-long with the principle of oppor- 
 tunity cost, and finally, having reduced the working of 
 wine, and logically as well the energy of all the winds and 
 tides, and, indeed, of every labor of the whole universe 
 groaning and travailing in pain together, to terms of 
 human labor, goes on his way unafraid and rejoicing. 
 And so with MacCulloch, though not quite so humorously so. 
 
 But with Ricardo the petrified-labor interpretation of 
 capital was not completely satisfactory. In his corre- 
 
 ** James Mill, Elements of Political Economy, chap, iii, sec 2. 
 
RICARDO 41 
 
 spondence with MacCulloch," he regretfully admits, but 
 none the less stoutly argues, that exceptions must be recog- 
 nized to the general doctrine of proportionality between 
 exchange value and labor cost ; but 
 
 all the exceptions to the general rule come under the one of time — 
 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 quantity of labor necessary to produce the 
 commodities in question, and by the rate of profit for the time 
 
 that the capital remained dormant I am not satisfied, as I 
 
 have often told you, with the account I have given of value, 
 because I do not know exactly where to fix my standard/'' 
 
 [He is] sure that the general idea is right, [but] I cannot get 
 over the difficulty of the wine which is kept in the cellar for 
 three or four years, or that of the ash tree which perhaps originally 
 had not 2s. expended upon it in the way of labor, and yet comes to 
 
 be worth iioo There is no difficulty in measuring all this in 
 
 a standard such as ours, but the difficulty is in showing why we 
 fix on that measure, and in proving it to be, what a measure of 
 value must be, itself invariable." 
 
 And on August 2, 1823, Ricardo wrote to Malthus: 
 
 As far as I have yet been able to reflect upon MacCuUoch's and 
 Mill's suggestion, I am not satisfied with it. They make the best 
 defense for my measure, but do not really get rid of all the objec- 
 tions. I believe, however, that though not without fault, it is 
 the best {ibid., p. 160) . 
 
 That is to say, Ricardo believed that the variations due 
 to capital influences are, in short-time adjustments, rela- 
 tively unimportant, labor thereby remaining "for many 
 commodities a fairly good standard, and with many more 
 an excellent standard." 
 
 And now, very briefly, attention must be called, not to 
 the confusion of cost concepts involved in including inter- 
 est in cost while excluding rent, for this has already occu- 
 pied us overlong, and will later call for still more of time 
 
 ^* Publications of the American Economic Association (J. H. Hol- 
 lander), Vol. X, Nos. 5, 6, pp. 70, 71, 177, 178. 
 " Ibid., p. 96. 
 ^^ Ibid., p. 153. 
 
42 VALUE AND DISTRIBUTION 
 
 and attention, but to the confusion of capital concepts 
 necessarily associated with this cost discussion. How much 
 of truth is there, for example, in James Mill's notion that 
 labor cost cannot be translated into capital terms, since, 
 despite the fact that the employer must reckon his wage 
 payments as capital outlays, it remains true that both capi- 
 tal and labor have co-operated to produce the value in 
 question, capital having simply bought out the laborer 
 before the goods are marketed? And if it is true that the 
 production was not by capital alone, but by capital and 
 labor in co-operation, is this equivalent to asserting that in 
 point of cost the production process was shared? And if 
 so, in what sense are these co-operating costs commensu- 
 rable and homogeneous ? The employer has incurred outlay 
 and abstinence costs, and possibly, also, as Mill blunders 
 into recognizing, opportunity costs. As for the wage- 
 earner, he has undergone his labor burden, and having 
 received his wages therefor, would appear to have disap- 
 peared, for the purposes in hand, from the cost reckoning. 
 His wages, while costs to his employer, are not cost, but 
 compensation to himself. To the employer they are not 
 pain quantities, but outlays, and as such enter for him into 
 the cost reckoning solely under the capital denominator. 
 And his are the only costs which have to do with the sale 
 aspect of the goods. The truth is that, under competitive 
 production, costs are mostly outlay costs, and, whether out- 
 lay or other, are mostly or entirely reduced to the capital 
 denominator,^'' 
 
 This is the sense in which Ricardo and Mill were, for 
 the time being, using the term capital, viz., in the com- 
 mercial, competitive, acquisitive sense, inclusive of moneys, 
 credits, supplies, in short all forms of labor-employing or 
 gain-acquiring funds. But this is not at all the sense in 
 which the capital notion must sound, if anything is to be 
 done with the proposition that capital is stored-up labor in 
 such wise that interest may thereby be conceived as redu- 
 cible to wages. For in the competitive-acquisitive sense, 
 capital, so far at least as it is of the circulating sort, is 
 something that is constantly changing its form ; it is merely 
 basis for expenditure, and may be invested in labor or in 
 materials, or as the hire of capital goods, or as interest on 
 
 " But outlay costs themselves express in turn one aspect of 
 opportunity cost, or may do so, viz., the value of the agents in hand 
 for their best alternative application; but all this must wait its time. 
 
RICARDO 43 
 
 credit loans, or as rent of land, or for that matter in pretty 
 much anything else; that is to say, it is a form of capital 
 not at all corresponding to capital taken in the techno- 
 logical sense, as one of the three primary categories of 
 socially productive factors, but is a form now labor, now 
 land, now materials, now machinery, now subsistence 
 goods, everything by turns and nothing long, with only 
 one unifying and constant characteristic, that it is all the 
 while a basis of charge in the individual computation of 
 costs, thereby a competitive category of the purest quality. 
 And, indeed, it may as well be noted in passing, that this 
 tripartite division of productive agents is (i) purely social, 
 (2) purely technological. Competitive society has entirely 
 different categories. But the various concepts of capital 
 must await their turn for discussion ; see chapter xi. 
 
CHAPTER IV 
 
 SENIOR 
 
 Any other cause limiting supply is just as efficient a cause of 
 value in an article as the necessity of labor in its production. And, 
 in fact, if all the commodities used by man were supplied by nature 
 without any intervention whatever of human labor, but were sup- 
 plied in precisely the same quantities that they now are, there is no 
 reason to suppose either that they would cease to be valuable, or 
 would exchange in any other than the present proportions.'^ 
 
 No writer of the cost school is fairly to be charged 
 with overlooking the fact that utility is a fundamental 
 condition to the existence of value; utility and the market 
 demand resting upon it are merely assumed — taken for 
 granted — as reasonably going without saying. But water 
 and wine, iron and gold, etc., are taken as cases demon- 
 strating that the fixation of value — all the while inside the 
 limits set by utility — must be found on the cost side of the 
 value investigation. True, there are goods of a distinctly 
 scarcity sort, but these Ricardo and his associates left out 
 of the reckoning, as exceptional in quality and relatively 
 unimportant in volume; the investigation confined itself 
 mostly or entirely to cases of freely reproducible goods. 
 
 But Senior has something to add here; he puts the 
 causes of value as utility and scarcity. Ricardo, less accu- 
 rately, had said: "Possessing utility, commodities acquire 
 value from two causes, labor and scarcity." - 
 
 But evidently the truth was with Senior; the necessity 
 for the labor is in the scarcity; labor and scarcity point to 
 one and the same fact. If goods were supplied gratui- 
 tously but in precisely the same quantities as now, the 
 exchange relations would be in no wise affected; the labor 
 requirement is purely an influence affecting the supply side 
 of the value equation. 
 
 'Senior, Political Economy, 6th ed. (London), p. 24. 
 ^ Op, cit., chap, i, sec. i, par. 3. 
 
 44 
 
SENIOR 45 
 
 Ricardo had regarded labor cost, in the pain aspect, as 
 the essence and ultimate significance of real value, but had 
 regarded exchange value not as a question of labor content 
 but only of proportion to labor content. And he had 
 found infinite difficulty in getting interest costs into this 
 formulation — to say nothing of rent. Senior purports to 
 find a solution for this perplexity. Homogeneity between 
 capital cost and labor cost can, to his thinking, be worked 
 out through his discovery of abstinence pain as the condi- 
 tion to which the existence of capital is subjected. There- 
 by labor and saving are conceived to be reducible to a 
 common denominator of pain. 
 
 Just how much this doctrine would have profited 
 Ricardo is not altogether clear. It is to be remembered 
 that Ricardo employed pain cost only as, in terms of 
 ultimate content, the explanation of real value; and so far 
 as real value was concerned, he was not conscious of 
 needing more for the further strengthening of his doc- 
 trine. Exchange values were not, in his view, a question 
 of pain cost in any other sense than that, through wage- 
 cost outlays, exchange values become proportional to 
 labor pains. But could he not have made exchange value 
 a proportion resting upon the combined pain of labor and 
 of abstinence? 
 
 Recalling, however, that Ricardo worked out his doc- 
 trine only through the medium of outlay cost, as a question 
 of employers' wage expenditures, and was able to formu- 
 late his proportion only upon the assumption of such 
 homogeneity in labor as would require employers to pay 
 wages for it in precise proportion to its quality of burden, 
 it becomes evident that capital-saving, pain of abstinence, 
 can be fitted into the proportion only upon the twofold 
 assumption, (i) that saving is homogeneous in pain qual- 
 ity so that interest payments can be safely regarded as pro- 
 portionate to savings pains, and (2) that savings pain and 
 labor pain are in such wise homogeneous that labor pain 
 and savings pain command equal remuneration per unit of 
 pain. But whether or not, in close analysis, all this would 
 have turned out to be thoroughly practicable, it is certain 
 that Senior himself did not attempt the necessary analysis; 
 nor is it clear that he adopted Ricardo's distinction between 
 real value and exchange value. 
 
46 VALUE AND DISTRIBUTION 
 
 Senior makes labor and natural agents the primary 
 factors of production; abstinence, while not primary, is 
 none the less important: 
 
 The power of labor and of the other instruments which 
 produce may be indefinitely increased by using their products as the 
 
 means of further production By the word abstinence we 
 
 seek to express that agent, distinct from labor and the agency of 
 nature, the concurrence of which is necessary to the existence of 
 capital, and which stands in the same relation to profit [interest] 
 as labor does to wages. ° 
 
 And plainly enough, from the point of view of laborer 
 and saver — in purpose and possibly in moral deserving — 
 interest is the reward of abstinence as wages are the reward 
 of labor. But equally plainly, from the point of view of 
 borrowers and employers, this identity of relation does not 
 hold; wages are paid for the services of labor as a pro- 
 ductive agent ; interest is not paid for the services of absti- 
 nence as productive agent, but for the services of capital. 
 
 To the objection to calling abstinence an active agent 
 of any sort. Senior replies : "To abstain from the enjoy- 
 ment which is within our power, or to seek distant rather 
 than immediate results, are [sic] among the most painful 
 exertions of the human will." * 
 
 However, even if it be true that abstinence is painful, 
 this is world-wide from showing that it is productive, and 
 still farther from showing that remuneration according to 
 productiveness and remuneration according to pain fulness 
 must lead to one and the same result. But in point of fact 
 it is not clear that abstinence is an independent fact of 
 pain. When one has produced wealth the question before 
 him is when and how to spend it; the wealth is a good 
 thing to have; whatever grief there may have been in its 
 getting is all past, and the time for the other side of the 
 account has arrived. How to take one's enjoyment, the 
 manner as well as the time of it, may be a puzzlesome 
 matter and may give occasion to a deal of doddering. And 
 it is true that the abstinence may involve the denial of 
 satisfaction to a present and pressing want; it is equally 
 true, however, that the choice may lie between positive 
 
 ' Senior, op. cit., p. 59, 
 
 * Senior, op. cit., p. 59. Precisely in the same sense and for the 
 same argumentative end, Courcelle-Seneuil uses the term travail de 
 I'epargne. 
 
SENIOR 47 
 
 gratifications; it would be a waste of sympathy to grieve 
 with one who has to choose between two pleasures, and to 
 call either pleasure a pain because it is conditioned on 
 going without the other pleasure. The term sacrifice 
 might be serviceable here for expressing the truth of the 
 case, though the cost argument, as one of pain, would 
 not thereby be greatly strengthened. But all of this has, 
 of course, nothing to say as to the proposition that, with- 
 out some compensation, the considerations making for 
 present as against deferred enjoyment might be the stronger, 
 and the saving fail to take place: nor is anything to be 
 inferred as to this or any other justification, mor- 
 ally speaking, for the receipt of interest. But, in itself, 
 abstinence is not pain, and may not remotely imply pain; 
 it is often only one of the different data in a choice between 
 pleasures. Whether or not, were it always a pain, it could 
 be reduced to a common denominator with labor pain is, 
 therefore, not a pressing problem. 
 
 Bearing in mind the sense in which Senior stands for 
 the proportionality of value to cost, there need be no sur- 
 prise in meeting his assertion that neither profits nor 
 wages are costs, but only abstinence and labor.^ 
 
 In a sense and as bearing on the concept of real value, 
 Ricardo would have assented to this; and as bearing on 
 market value also, Ricardo would have been keen to insist 
 that wages and interest are not ultimate determinants of 
 value but only that values are proportioned to them ; but it 
 would have sounded strange to Ricardo to hear it denied 
 with reference to market value that wages and interest are 
 costs. This doctrine of Senior is, in fact, a definite aban- 
 donment of the notion of outlay cost;® his doctrine of pro- 
 portionality does not perhaps thereby of necessity fail, but 
 it certainly awaits the making of its case. If labor and 
 abstinence cannot be made homogeneous and commensu- 
 rable as items of pain cost — and particularly, if abstinence 
 (or, for that matter, labor) is not necessarily a pain cost at 
 
 "Senior, op. cit.j p. loo. 
 
 • "Want of the term sacrifice, or of some equivalent expression, has 
 
 led Mr. Malthus into inaccuracy of language When he termed 
 
 profit a part of cost of production, he appears to have meant, not 
 profit, but that conduct which is repaid by profit ; an inaccuracy pre- 
 cisely similar to that committed by those who term wages a part of the 
 cost of production ; meaning not wages, which are the result, but the 
 labor for which wages are the remuneration." — Senior, op. cit., p. loo. 
 
48 VALUE AND DISTRIBUTION 
 
 all, and if the common denominator of market value under 
 the entrepreneur outlay-cost analysis is abandoned, it only 
 remains to wonder what the solution will be. 
 
 But after all. Senior has a proportion doctrine ; he says : 
 When the only valuable agents employed are those which are 
 universally accessible and are therefore practically unlimited in 
 supply [that is, when there is neither capital nor land, or where 
 there are unlimited capital and land, and so no differentials of 
 advantage], the utility of the produce, or, in other words its 
 power [in exchange?], must be in proportion to the sacrifice made 
 to produce it, ... . since no man would willingly employ a given 
 amount of labor or abstinence in producing one commodity, if he 
 could obtain more advantage by directing them .[it] to the produc- 
 tion of another.' 
 
 This is one of Senior's italicized theorems; it is to be 
 objected that there is no reason why the utility of products 
 should be proportional to the sacrifices of production, 
 unless upon the assumption not only of the homogeneity 
 of labor pain, but also of the reduction of utility to a mar- 
 ginal basis. Otherwise it must merely be true that, if a 
 producer could, with a given sacrifice, produce something 
 of greater utility than the thing in hand, he would change 
 his direction of production. 
 
 But in essentials Senior's doctrine is really a doctrine 
 of opportunity cost — requiring, however, some modifica- 
 tion. Opportunity cost may as well lie in some alternative 
 between pleasures or benefits, as between pains or burdens ; 
 at the day's-end margin, labor may be still a pleasant thing, 
 and yet be abandoned, if only the attractiveness of recrea- 
 tion be such as to outweigh the pleasures of the labor 
 process taken in conjunction with the advantages of the 
 resulting product. Among those different possibilities of 
 activity in which products outweigh burden, that one will 
 be selected in which the ratio of product to effort is most 
 favorable, or, more accurately, in which the surplus of sat- 
 isfaction is greatest.® The opportunity cost involved in 
 the case would be found in the advantages of that course 
 
 ' Senior, op. cit,, p. 97. 
 
 * Patten and Clark have, perhaps, best elaborated this truth. And 
 it may be remarked that this also is not quite accurate ; we are not 
 necessarily committed to any homogeneity-and-quantity calculus of 
 pleasure. All of the requirements of the case would be met — and 
 better met — ^by substituting the clause : in zvhich the surplus of satis- 
 faction is the most desirable. 
 
SENIOR 49 
 
 of activity between which and the selected course the prob- 
 lem of choice was actually presented — that is, in the most 
 attractive course among the competing and vanquished 
 alternatives. 
 
 But Senior makes it clear that commodities may be of 
 sorts that cannot be reproduced, or that can be had only at 
 remote and uncertain intervals; here the values "are sub- 
 ject to no certain rule, and depend altogether on the wealth 
 and taste of the community." ® That is to say, the supply 
 term being inelastic, the value is left to be determined by 
 the utility, or by the demand, or, at all events, by some- 
 thing taken for granted and unanalyzed on the demand 
 side. But, for most commodities — ^the kind that we are 
 considering — "the obstacle to the supply .... con- 
 sists .... in the difficulty of finding persons ready to 
 submit to the labor and abstinence necessary to their pro- 
 duction. In other words, the supply is limited by the cost 
 of production." ^° 
 
 Here it is evident that Senior abandons the opportunity 
 computation and goes back to pain cost. For with him 
 abstinence is not intended to carry its possible implication 
 of the foregoing of products alternatively producible. He 
 is talking about the grief and groan of saving and the 
 burden and backache of labor; and in this absorption he 
 neglects to ask himself the very simple question why in 
 actual society so many men are indisposed to enter the 
 business of hat production. Is it really true that the dis- 
 comforts of the occupation are an adequate explanation of 
 the facts? 
 
 Senior admits that, to be accurate for short periods, 
 his cost doctrine must presuppose perfect mobility in capi- 
 tal and labor ; but it is to be noted that even this inadequacy 
 would disappear if his doctrine of cost really rested on the 
 sacrifice of alternative opportunities. But admitting these 
 temporary variations, he reflects : 
 
 Political Economy does not deal with particular cases, but 
 with general tendencies; and when we assign to cost of production 
 
 • Op. cit.j p. 97. 
 ^Jbid., p. 97. 
 
50 VALUE AND DISTRIBUTION 
 
 the power of regulating prices in cases of equal competition, we 
 mean to describe it not as a point to which price is attached, but as 
 a center of oscillation which it is always endeavoring to approach." 
 
 And then he goes on to show that production in which 
 no appropriated natural agent has been concerned is the 
 only case of perfectly equal competition; all others are 
 cases of monopoly more or less marked. 
 
 Just why, from the point of view of outlay cost — the 
 only tenable point of view for the proportion doctrine — it 
 should be alleged that free competition fails, so long as, on 
 terms of paying the market charge, all competitors have 
 equal opportunity of enjoying the advantages attending 
 the control of appropriated natural agents, is not clear, 
 though it is clear enough from the point of view of pain 
 cost. But Senior makes full and frank admission that, in 
 actually existing conditions, his doctrine of pain cost leads 
 nowhere, so far as explaining market values is concerned; 
 he has arrived at the very impasse that Ricardo faced : 
 
 It is difficult to point out an article, however simple, that can 
 be exposed to sale without the concurrence, direct or indirect, of 
 many hundred, or, more frequently, of many thousand, different 
 producers, almost every one of whom will be found to have been 
 aided by some monopolized agent. There are few things of which 
 the price seems to consist more exclusively of wages and profits 
 than a watch [MacCulloch's favorite example] ; but if we trace 
 it from the mine to the pocket of the purchaser, we shall be 
 struck by the payment of rent .... at every stage of its progress. 
 Rent was paid for the privilege of extracting from the mines the 
 metals of which it is composed; for the land which afforded the 
 materials of the ships in which those metals were transported to 
 an English port; for the wharves at which they were landed, and 
 the warehouses where they were exposed for sale; the watch- 
 maker pays a rent for the land covered by his manufactories, and 
 the retailer for that on which his shop is situated. The miner, the 
 shipwright, the housebuilder, and the watchmaker, all use imple- 
 ments formed of materials produced by the same processes as the 
 materials of the watch, and subject also in their different stages to 
 
 similar payments of rent When we speak, therefore, of a 
 
 class of commodities as produced under circumstances of equal 
 competition, or as the result of labor and abstinence, unassisted 
 by any other appropriated agent, and consider their prices as equal 
 
 " Op. cit.j p. 102. 
 
SENIOR 51 
 
 to the sum of wages and profits that must be paid for their pro- 
 duction, we do not mean to state that any such commodities exist 
 but that, if they did exist, such would be the laws by which their 
 prices would be regulated." 
 
 All of which may fairly be described as a dissertation, by a 
 great labor-value authority, upon how labor does not regu- 
 late value. But note that by some method of swift trans- 
 formation the point of view has now become that of 
 competitive-outlay cost, and that rent as well as interest 
 outlays are now included in the charges that go to make up 
 market price. 
 
 Nevertheless, Senior in his discussion of rent implies 
 his acceptance of the Ricardian doctrine that rent is not a 
 part of value-regulating cost. Still it must be said that he 
 does not so declare in terms; he does, however, point out 
 that Ricardo, in his controversy with Say, committed the 
 fault of inaccuracy; Ricardo should have made his stand 
 for price-determining cost at the intensive margin. And 
 with this amendment Senior appears to acquiesce in the 
 Ricardian doctrine, so far as it asserts that price tends to 
 coincide with the cost of that part of the product pro- 
 duced at the greatest expense : nor does he seem to recog- 
 nize that, from the point of view, not of social, but of outlay 
 cost, there is no reason why costs on better land should 
 be either greater or smaller than costs on poorer or on 
 marginal land. 
 
 But there is possibility or misinterpreting Senior at this 
 point — for it is hard to see how he can regard interest as 
 a value-determining cost and still exclude rent. For he 
 makes it clear that the distinction between rent and interest 
 ceases to have significance, as soon as the capital has 
 become the property of someone to whose exertions and 
 abstinences it did not owe its origin. And he rightly 
 remarks that there is, of course, abstinence in not selling 
 property, of no matter what sort or origin, and in not 
 spending the proceeds in current enjoyment. Evidently, 
 however, if this were fully worked out, all rent would 
 become interest. And Senior finds also great difficulty in 
 
 "Op. cit.^ pp. 1 12-14, passim. 
 
52 VALUE AND DISTRIBUTION 
 
 drawing the line between wages and rent, and inclines to 
 regard as rent all cases of extraordinary compensation for 
 unusual ability.^^ 
 
 " "We may be asked, then, whether the improvements which form 
 the greater part of the value of the soil of every well-cultivated district 
 are all, and forever, to be termed capital ; whether the payments 
 received from his tenants by the present owner of a Lincolnshire 
 estate, reclaimed by the Romans from the sea, are to be termed not 
 rent, but profit on the capital which was expended fifteen hundred 
 years ago. The answer is, that for all useful purposes the distinction 
 of profit from rent ceases as soon as the capital, from which a given 
 revenue arises, has become,.whether by gift or by inheritance, the property 
 of a person to whose abstinence and exertions it did not owe its creation. 
 The revenue arising from a dock, or a wharf, or a canal, is profit in 
 the hands of the original constructor. It is the reward of his absti- 
 nence in having employed capital for the purposes of production instead 
 of those of enjoyment. But in the hands of his heir it has all the attri- 
 butes of rent. It is to him the gift of fortune, not the result of a 
 sacrifice. It may be said, indeed, that such a revenue is the reward 
 for the owner's abstinence in not selling the dock or the canal and 
 spending its price in enjoyment. But the same remark applies to every 
 species of transferable property. Every estate may be sold, and the 
 purchase money wasted. If the last basis of classification were 
 adopted, the greater part of what every Political Economist has termed 
 rent must be called profit." — Op. cit., p. 129. 
 
 Professor Whittaker does not appear to experience the difficulty 
 that I have met in interpreting Senior's position as to the relations of 
 rent to cost. To me it seems impossible, upon any classical level of 
 discussion, to include rent payments within pain cost ; it is equally diffi- 
 cult to exclude rent payments from outlay costs, unless the distinction 
 is set up between value-determining and value-determined costs. 
 Whittaker writes (Whittaker, op. cit., pp. 102-4) : 
 
 "According to Senior, land rent enters into price. So far both 
 'profits' of stock and rent of land exist to destroy the proportionality 
 of values to labor cost. This is the result to which Malthus' criti- 
 cism of Ricardo led. But Senior's criticism goes beyond Malthus'. 
 Wages, as an element in entrepreneur's cost, are not even in proportion 
 to the labor remunerated. That is to say, that is what Senior says, 
 if we keep his thought while reforming his language. He states that 
 the actual income, which we always call wages, is really composed in 
 many cases of wages, profits, and rent. He says this because he wishes 
 to define wages as that remuneration which is in proportion to sacri- 
 fice Senior's rent to skill is really an excess of wages over the 
 
 amount required to be in proportion to disutility" (pp. 102, 103). 
 
 "Piecing together for ourselves what Senior says, it is his position 
 that the value of commodities must include (if the commodities are to 
 be produced) rent, profits, and wages ; rent and profits, being different 
 percentages in the whole entrepreneur's cost of different goods, make 
 values out of proportion to labor cost ; there is no necessity of consid- 
 ering profits as an element in entrepreneur's cost approximately in pro- 
 portion to wages ; and lastly, wages are not in proportion to labor, 
 which is disutility" (p. 104). 
 
CHAPTER V 
 JOHN STUART MILL 
 
 With John Stuart Mill the transition is approxi- 
 mately complete to the point of view of entrepreneur 
 cost. 
 
 We need delay long neither upon his doctrine of the 
 determination of wages — the wage- fund theory for short 
 periods, and the population-subsistence doctrine for long- 
 time tendencies — nor upon his determination of interest 
 payments according to the cost-abstinence analysis as 
 related to the supply of capital; no matter how these 
 outlays get determined, it is sufficient, for present pur- 
 poses, to note that, accepting them as the market gives 
 them, Mill treats them as items of outlay cost, and finds 
 market values to be fixed according to the law of costs as 
 formulated in the entrepreneur sense — but all the while 
 with two modifications, one of addition and one of sub- 
 traction : for, following Ricardo's doctrine, rent is made 
 no part of price, and wages of superintendence, as an 
 element in minimum profit, are included in price. Mini- 
 mum profit is defined as "that which is barely adequate, 
 at the given place and time, to afford an equivalent for 
 the abstinence, risk, and exertion implied in the employ- 
 ment of capital." ^ After covering all outlays, and after 
 remunerating the capitalist owner for forbearing to con- 
 sume, there must be something left to recompense the 
 labor and skill of the person who devotes his time to the 
 business; but how much? The amount is variable 
 depending on the amount necessary to compensate the 
 abstinence, and still more variable to compensate the 
 risk. "That portion, too, of the gross profit which forms 
 the remuneration for the labor and skill of the dealer or 
 
 ^ John Stuart Mill, Principles of Political Economy, Book II, chap, 
 XV, sec. 2. 
 
 S3 
 
54 VALUE AND DISTRIBUTION 
 
 producer is very different in different employments." ^ 
 Mill does not say why, but cites apothecaries as an exam- 
 ple of a trade where "a considerable amount of labor and 
 skill is required to conduct a business necessarily of limited 
 
 extent A higher than common rate of profit is 
 
 necessary to yield only the common rate of remunera- 
 tion After due allowance is made for the various 
 
 causes of inequality" giving greater or less wages of super- 
 intendence or of risk, "the rate of profit [interest] on capi- 
 tal in all employments tends to an equality." ^ 
 
 There is certainly no hint of opportunity cost here; so 
 far as any determinant of minimum profit is indicated, it is 
 one of pain or burden. But at any rate, as it is elsewhere 
 said, "the cause of profit is that labor produces more than 
 is required for its support." * 
 
 Still it is not clear whether this phrase, "required for its 
 support," points to a minimum-of-subsistence principle, or 
 to a standard-of-living principle, or whether the proposi- 
 tion is a mere mathematical truism. "The reason why 
 capital yields a profit is because food, clothing, materials, 
 and tools last longer than the time which men take to pro- 
 duce them:" so that there is a surplus to the capitalist. 
 This might appear to look toward some subsistence doc- 
 trine, if only Mill had not elsewhere repudiated that doc- 
 trine, — at all events for short-time adjustments, — setting up, 
 instead, the capital limitation and wage- fund determination : 
 but the better interpretation seems to be merely that, prod- 
 ucts having exceeded outlay, there is a remainder left over 
 for the employer. "If the laborers of the country collect- 
 ively produce twenty per cent, more than their wages, 
 profits will be twenty per cent., whatever prices may or may 
 not be." ^ This is Ricardo's ratio idea. 
 
 Outlays for materials and implements are resolved into 
 wage payments : "he thus repays to a previous producer the 
 wages which that previous producer has paid." ^ True, 
 there is a profit with it, but had the present em- 
 ployer produced these supplies for himself, there would 
 
 ^Mill, op. cit.j sec. 3. ''Ibid., sec. 5. 
 
 " Ibid., sees. 3, 4. * Ibid., sec. 6. 
 
 * Ibid., sec. 5. 
 
JOHN STUART MILL 55 
 
 also have been, to be reckoned in the cost, a profit for him- 
 self (but how much is again not said) ; and so in the sum- 
 ming up, "all the advances have consisted of nothing but 
 wages," excepting what have already gone for profit. 
 Note that profit in Mill's use here includes not only interest, 
 but something more than interest, something for superin- 
 tendence and risk. 
 
 The gains of the capitalist employer depend, then, on 
 
 the magnitude of the produce; .... secondly, the proportion of 
 that produce obtained by the laborers themselves; the ratio — the 
 rate of profit, the percentage on the capital — depends on the 
 second of the two elements, the laborers' proportional share, and 
 not on the amount to be shared Wt thus arrive at the con- 
 clusion of Ricardo and others, that the rate of profit depends on 
 
 wages However, .... instead of saying that profits 
 
 depend on wages, let us say — what Ricardo really meant — ^that 
 they depend on the cost of labor.'' 
 
 It is well to note in passing that this was not what 
 Ricardo meant: Mill is hesitatingly and gradually deserting 
 the doctrine of relative shares in the product — the ratio- 
 value concept — and is going over to the notion of profit, 
 not as fraction but as absolute residuum, — surplus above out- 
 lay : "What labor brings in to the laborer and what it costs 
 to the capitalist, are ideas quite distinct, and which it is of 
 the utmost importance to keep so." ^ True, there are all 
 levels of wages, but if at the same time the efficiency is of a 
 sort to correspond, the cost of labor to the capitalist may be 
 no greater. 
 
 And note again that there is still nothing here about 
 causes; the reasoning is entirely mathematical; the prob- 
 lem is not treated as distributional in the sense of looking 
 for the ultimate forces of determination, and one is left 
 to wonder how, efficiency remaining the same, etc., the 
 wages should so rise or fall, or why the supplies which the 
 laborer buys with his wages become more or less costly. 
 If one resorts to the wage-fund doctrine for help, he is 
 confronted by the suspicion that this doctrine also is merely 
 mathematical, and as such, is a truism. Thus far, then, the 
 entire discussion has amounted to a descriptive treatment 
 of wages, interest, and profits, as elements entering into 
 cost of production; and so far as the exposition has yet 
 
 ''Ibid., sec. 7. ^ Ibid., sec. 7. 
 
56 VALUE AND DISTRIBUTION 
 
 proceeded, these remunerations stand as ultimate opaque 
 unyielding facts, unexplained and irreducible data, furnish- 
 ing the basis for entrepreneur cost. 
 
 Turning now to Mill's formal discussion of value in 
 the chapter under that caption, and especially to his dis- 
 cussion of "Cost of Production in Its Relation to Value,"^ 
 we find it said that value, no matter under what law of 
 return, is always the result of demand and supply. The 
 minimum price must be sufficient to pay the cost and the 
 ordinary expectation of profit, else capitalists will not go 
 on producing the commodity. 
 
 Note that profit is here treated as something over and 
 above cost, cost being regarded as substantially the equiva- 
 lent of expenditure. "They will not even go on producing 
 at a profit less than they can live upon" — seemingly a doc- 
 trine of subsistence minimum for employers; but what will 
 they do instead? Doubtless, as it is said, they may submit 
 to temporary loss in hope of better times, but, broadly, "the 
 cost of production together with the ordinary profit may be 
 called the necessary price." 
 
 And here, again, we remark there is as yet nothing to 
 indicate how much must be this necessary profit, or what 
 are the ultimate forces in its determination. But Mill 
 shows that by the influence of prices upon the outflow and 
 inflow of capital, profits are always tending toward equal- 
 ity; and precisely this trend toward equality is presented 
 as the guarantee that things will exchange against one 
 another in the ratio of their costs. Perhaps, after all, this 
 may, for present purposes, be accepted as a sufficient 
 explanation for the determination of profits, so far as 
 profits are held to mean interest only ; but as so under- 
 stood, the doctrine, fully worked out, will resolve itself into 
 a case of opportunity cost. 
 
 Mill's "Ultimate Analysis" " is most difficult of ade- 
 quate summary or even pf fair paraphrase. 
 
 Tracing capital to its ultimate origins, ]\Iill finds that 
 labor is "so much the principal cost of production as to be 
 
 ' Mill, op. cit.. Book III, chaps, i-iv. 
 " Mill, op. cit., Book III, chap. iv. 
 
JOHN STUART MILL 57 
 
 nearly the sole cost." And so it is approximately accurate 
 to resolve interest into wages ; so cost, as regarded from 
 the employer's point of view, is a question of wage out- 
 lays, — wages, and not labor, being from this standpoint the 
 basis of cost. But wages are cost only as modified by 
 considerations of efficiency, that is, only with reference to 
 the quality and quantity of product. In substance, the doc- 
 trine is that a given sum of products costs the wages 
 directly or indirectly paid out to produce it. But, after all, 
 values of commodities are exchange relations of commodi- 
 ties with one another ; values are, then, purely relative ; and 
 therefore costs of production as bearing on value are not 
 absolute but relative quantities. So value relations are 
 independent of influences of cost, whether of rise or of fall, 
 if only the commodities under comparison are proportion- 
 ally affected. "Otherwise, there could be no such thing 
 as a real rise of wages ; for if wages could not rise without 
 a proportionate rise in the prices of everything, wages could 
 not rise at all." But if wages are higher in one industry 
 than in another, values will be affected through costs. 
 
 Note that these differences in wages are not explained 
 as due to differences in the values of the products ; it is just 
 the other way about. "Things .... which are made by 
 skilled labor exchange for the products of a much greater 
 quantity of unskilled labor, for no reason but because the 
 latter is more highly paid." Thus there is no proportion 
 of value to labor, but only to entrepreneur costs; and these 
 costs are presented as causal and ultimate. "So wages do 
 enter into value; the relative wages of the labor necessary 
 for producing different commodities affect the value as 
 much as the relative quantities of labor The abso- 
 lute wages paid have no effect upon value, but neither has 
 the absolute quantity of labor." But, in substance and 
 effect, values are nevertheless proportional to quantity of 
 labor: "In considering, however, the causes of variations 
 in value, quantity of labor is the thing of chief impor- 
 tance," for that varies now with one commodity and now 
 
58 VALUE AND DISTRIBUTION 
 
 with another, but variations in wages are usually general, 
 and thus, by the very fact of being general, have no signifi- 
 cance for value. 
 
 Note, however, that this proposition really goes no 
 farther than to say that variations in value come, not 
 through a rise in general wages, but through changing 
 methods of applying labor to production. But changes in 
 machinery and appliances are at least as frequent and as 
 radical as changes purely of the labor sort; it therefore fol- 
 lows that variations in values due to causes working on the 
 side of profits (interest) are at least equally important with 
 those working on the side of wages. 
 
 But all of this must allow for modification through the 
 bearing of profits (interest+risk-charge4- wages of super- 
 intendence) on value, in so far as some industries are more 
 capitalistic than others in their methods of production. 
 But here also it is evident that not absolute profits but only 
 relative profits have significance for exchange relations. 
 And, as Mill rightly insists, profits are found to differ in 
 this relative way, butchers, for example, gaining higher 
 profits than bakers. And time, with its correlative of inter- 
 est, also becomes of great importance, as in the aging of 
 wine. 
 
 [If to] attain the desired quality, the wine requires to be kept 
 five years, the producer or dealer will not keep it, unless at the 
 end of five years he can sell it for as much more .... as amounts 
 to five years' profit, accumulated at compound interest. Here, then, 
 is a case in which the natural values . . , . do not conform to cost 
 of production alone, but to cost of production plus something else. 
 Unless, indeed, for the sake of generality in the expression, we 
 include the profit which the wine merchant foregoes during the five 
 years, in the cost of production of the wine : looking upon it 
 as a kind of additional outlay, over and above his other advances, 
 for which outlay he must be indemnified at last. 
 
 Evidently Mill is not entirely clear as to the basis on 
 which this time charge is to be counted a cost, if, indeed, it 
 is to be so counted at all ; in a sort, values seem to conform 
 "to their costs of production plus something else. This, 
 however, disturbs the general consistency of the theoreti- 
 
JOHN STUART MILL 59 
 
 cal formulation ;" there may, then, after all, be nothing for 
 it but to recognize opportunity cost in this exceptional case. 
 
 Mill does not, however, in terms commit himself abso- 
 lutely to this view; but "all commodities made by waiting 
 are assimilated, at least approximately, to the wine in the 
 preceding example." And he closes with regarding these 
 time-charge items as, in the relative bearing, very impor- 
 tant influences upon values, although nothing further than 
 this suggestion of opportunity cost is accomplished in the 
 direction of telling why. At any rate, it is clear that "in 
 comparison with things made wholly by immediate labor, 
 profits enter more largely into the cost of production" of 
 all commodities made by machinery; whereupon there fol- 
 lows an excellent example of all this, under cover of which 
 the explanation meanwhile gets forgotten; which, by the 
 way, is precisely as far as Ricardo got, the only difference 
 being that Ricardo was perfectly aware that something 
 was the matter, while Mill is not. In general. Mill appears 
 to hold by pain or abstinence cost as the ultimate explana- 
 tion of interest. But if neither of these things is adequate, 
 perhaps, he thinks, opportunity cost may have some efficacy 
 for the case.^^ 
 
 But whatever may be the explanation, it stands for true 
 that, because of the differing degrees in which production 
 is capitalistic, "every rise or fall in general profits will 
 have an effect on values; not, indeed, by raising or lower- 
 ing them generally, but by altering the proportions in which 
 the values of things are affected by the unequal lengths of 
 time for which profits are due." 
 
 But to return to the cause underlying the values of these 
 cost items of outlay : In the main the explanation is found by 
 Mill in the fact that these items themselves depend for their 
 value on their respective costs of production. When, how- 
 ever, these are not cost but scarcity values, they are equally 
 and similarly carried over as costs into the value of the 
 product. The typical case of this sort of cost is found with 
 limited natural agents, as water-powers and the like. But 
 these cases, not being marginal, have, as Mill appears to 
 think, no bearing upon value. And this brings us to the 
 
 ""[With Mill] the profit of capital is stated explicitly to be the 
 remuneration of abstinence, but nothing is made to depend on this. 
 Abstinence is not elevated into a position logically co-ordinate with 
 labor, nor are the two conceived of together as constituting subjective 
 costs, as distinguished from entrepreneur's costs, consisting in profits 
 and wages." — ^Whittaker, op. cit., p. io6. 
 
6o VALUE AND DISTRIBUTION 
 
 question — does rent enter into cost? "No one can deny 
 that rent sometimes does enter into cost of production; if I 
 buy or rent a piece of land and build a cloth manufactory 
 on it, the ground rent forms legitimately a part of my 
 expenses of production which must be paid by the product." 
 
 But this does not necessarily imply that the value will 
 thereby be the greater, that is, that these costs are value- 
 determining. And in chapter v, on "Rent in Its Relation 
 to Value," Mill writes: "Rent forms no part of the cost 
 of production which determines the value of agricultural 
 products" — an assertion which must stand either as setting 
 up an entirely indefensible distinction between agricultural 
 and other products, or as imposing the conclusion that not 
 all outlays involved in production may be ranked as value- 
 determining costs, but only those involved in marginal 
 production — which opens up questions too wide-reaching 
 for present discussion, viz., whether the marginal product 
 has any peculiar value-determining quality, and whether, if 
 it has, we shall find this marginal item of product to be a 
 marginal-man item or a marginal-land item. 
 
 Mill, however, elsewhere says : "But when land ca- 
 pable of yielding rent in agriculture is applied to some other 
 purpose, the rent which it would have yielded is an element 
 in the cost of production of the commodity which it is 
 employed to produce," ^^ — a most important and much-dis- 
 cussed admission — still, however, leaving it possible that no 
 influence upon value need be inferred, if only it be defen- 
 sible to distinguish between different outlays in their bearing 
 on costs; or, if it be somehow possible to exclude these 
 cost rents from marginal, price-determining outlays. But 
 for our present purposes it is sufficient to remark that this 
 case of rent cost, accepted by Mill, is distinctly an illustra- 
 tion of the opportunity-cost principle. 
 
 In point of fact, also, all this proof that cost is impor- 
 tant only as relative cost is, in last analysis, merely another 
 opportunity-cost doctrine. The main difference in this 
 regard between Mill and Ricardo is that Ricardo attempted 
 far more than did Mill in the way of explaining the reduc- 
 tion of wages and interest to a basis of homogeneity, 
 and of tracing the proportionality of outlay cost and of 
 market value to the labor costs of real value. Ricardo 
 can hardly be said to have succeeded : Mill hardly tried. 
 But it is, at any rate, sufficiently evident that capital and 
 
 " Mill, op. ctt., Book III, chap, vi, prop. 9. 
 
JOHN STUART MILL 6i 
 
 labor services, under the form of interest and wages, by 
 the very fact that they are producers' outlays reckoned in 
 terms of money, have somehow for the purposes in hand 
 been reduced to a common denominator of value. The 
 sheer obviousness of it all suffices, in Mill's view, to excuse 
 him from all labor of attention or examination. 
 
 But this homogeneity being assumed as a datum, some- 
 thing is done by Mill toward tracing out the determination 
 of these costs, non-relatively, that is, as costs in the ordi- 
 nary sense rather than as ratios or distributive fractions. 
 Interest is explained as determined through abstinence as 
 cost, — wages by the proportion between capital and the 
 laborers employed by capital, — profit by what is left from 
 price after the expenses of production are covered. 
 
 Nor does the mechanism by which market value 
 becomes proportional to outlay cost, or, more accurately, 
 to entrepreneur cost as a whole — rent, however, excluded — 
 receive further elucidation than is contained in the doctrine 
 of the mobility of capital, which, by the way, is a simple 
 application of the principle of opportunity cost. The pro- 
 portionality of value to profit, so far as profit is some- 
 thing other than interest, is left to be explained by 
 "normals." 
 
CHAPTER VI 
 CAIRNES 
 
 Cairnes's special task was the rehabilitation of the labor- 
 cost theory of value, after the damage visited upon it 
 through the half-hearted support or the semi-abandonment 
 of John Stuart Mill. In the Leading Principles Restated, 
 labor cost is set up as the value determinant — not, however, 
 labor cost in terms of time, but in terms of pain, burden, 
 irksomeness. Nor does the doctrine appear to conceive 
 labor as having in itself and in its own right, as an expres- 
 sion of pain, an independent value of its own, which value 
 is, as cost, carried over into the exchange value of the 
 commodities produced by it. Often the thought is more 
 like that of Ricardo, in recognizing, though not with full 
 consistency, the principle of proportionment of value to out- 
 lay cost; occasional recourse, that is to say, appears to be 
 made to the mechanism of entrepreneur expenditure. But 
 on the whole Cairnes's doctrine seems rather to be that of 
 labor-purchase cost. 
 
 Cost means sacrifice, .... and the problem of cost of produc- 
 tion as bearing on the theory of value, is to ascertain how far and 
 in what way the payment thus made by man .... in the barter 
 between him and nature, determines or otherwise influences the 
 exchange value of the products which result.^ 
 
 Under Cairnes's treatment the issue between labor-pain 
 cost and entrepreneur cost is for the first time in English 
 economics clearly drawn. Ricardo, it is true, had worked 
 out a doctrine of entrepreneur cost based upon labor cost 
 as its underlying determinant, but had too often failed both 
 of clarity and of strict consistency in preserving the sepa- 
 rateness and the antithesis. Senior had taken the pain-cost 
 point of view, but, scarcely attempting the reconciliation, 
 had over and again lapsed into entrepreneur-cost analysis. 
 
 ^ J. E. Cairnes, Some Leading Principles of Political Economy 
 Newly Expounded, chap, iii, sec. 5. 
 
 62 
 
CAIRNES 63 
 
 Mill, while in the main an exponent of entrepreneur cost, 
 had, at fairly frequent intervals, made some more or less 
 vague appeal to labor-pain cost as basis. But, whatever 
 else may be said in criticism of Caimes, it must be admit- 
 ted that, in full consciousness of this confusion, he sets 
 himself earnestly at work to avoid it and to make the appli- 
 cations and the limitations of the labor-cost doctrine clear 
 and precise. 
 
 But following upon this preliminary sketch of Cairnes's 
 position, some detail of exposition and criticism is now 
 called for. It is, indeed, to be admitted that as cost items, 
 choice must be made between labor as against wages, and 
 between abstinence as against interest: 
 
 Of all ideas within the range of economic speculation, the two 
 most profoundly opposed to each other are cost and the reward of 
 cost — the sacrifice incurred by man in productive industry, and the 
 
 return made by nature to man upon that sacrifice Cost and 
 
 remuneration are the economic antitheses of each other; so com- 
 pletely so that a small cost and a large remuneration are exactly 
 equivalent expressions.* 
 
 But if, on the other hand, wages and profits are to be 
 accepted as the ultimate items, costs, as Cairnes argues, 
 must increase as product increases, since wages and prod- 
 ucts increase with product and exhaust the product; an 
 increase in the general productiveness of industry would 
 require 
 
 that wages and profits .... as an aggregate would rise exactly 
 in proportion as industry had become more productive, and the cost 
 of producing a given commodity, measured in wages and profits, 
 
 would then remain precisely as before There would be less 
 
 labor and abstinence exerted, but this smaller exertion being more 
 highly remunerated, the cost, measured in the remuneration, would 
 suflFer no change: (ibid.) 
 
 all of which, it is to be remarked, is equally serious for 
 labor as the value determinant; costs, from any point of 
 view, are significant, for value purposes, only as ratios, as 
 purely relative facts. 
 
 * Cairnes, op. cit., chap, iii, sec. 3. 
 
64 VALUE AND DISTRIBUTION 
 
 But that solely in this relative sense are entrepreneur 
 costs conceived by Mill to be relevant to value is not appre- 
 ciated by Cairnes ; though he later makes it quite clear that 
 in no other than this relative sense has labor cost any bear- 
 ing on the case.^ 
 
 But his objection to the wages-and-profit method of 
 explanation goes deeper than this ; he rightly condemns the 
 method as fundamentally explaining nothing; wages and 
 profits are mere remunerations for productive services; as 
 later thought would term them, they are mere distributive 
 shares. The various distributive shares do, of course, 
 exhaust the value product. But to call them, or any of 
 them, costs, and to suppose that thereby the value of the 
 costs is explained, is the sheerest of circular reasoning — if, 
 indeed, it is not worse: 
 
 If it be true that the wages and profits received by the pro- 
 ducer of a commodity are the measure of its cost of production, 
 then it follows that all commodities whatever, it matters not under 
 what circumstances produced, whether of competition or of monop- 
 oly, exchange and cannot but exchange, in proportion to their costs 
 of production In truth, the principle that "cost of produc- 
 tion determines value" becomes, when thus understood, little more 
 than an assertion of an identical proposition, since it merely amounts 
 
 ^ This, as is well known, is emphasized by Cairnes with reference 
 to international values and international trade, under the principle of 
 comparative costs. In this connection, however, the case is put by him 
 much more strongly than it will stand : "International values .... are 
 admittedly, or at all events are demonstrably .... not governed by 
 cost of production, and we have thus- normal values which are not con- 
 nected with cost, but come under the influence of some other prin- 
 ciple What, for instance, is now the grand argument with the 
 
 people of the United States for the maintenance of protection? Why 
 the high cost of production in that country? And what is the evi- 
 dence of this high cost of production? Simply the high rates of wages 
 which prevail. How, they ask, can we, with our high-priced labor, 
 compete with the pauper labor of Europe? I must frankly own that 
 accepting the point of view of the current theory of cost, I can find no 
 satisfactory reply to this question, and I am quite sure that Mr. Wells, 
 who implicitly adopts this point of view, has wholly failed to furnish 
 one" (Cairnes, op. cit., chap, iii, sec. 4). Without doubt, the doc- 
 trine of comparative labor cost may often, — perhaps commonly and 
 adequately, cover this case ; but so does the doctrine of comparative 
 entrepreneur cost ; and so, for that matter, would the doctrine of 
 displacement or opportunity cost. 
 
CAIRNES 65 
 
 to saying that values are in proportion to the aggregate of the 
 elements of which they are made up.* 
 
 It must, of course, be held in mind that all of this dis^ 
 cussion assumes, in conformity with the classical doctrine 
 and with Mill's version of it, that rent may be and must be 
 excluded from the cost category. But even so, Cairnes's 
 attack looks to be more serious than it really is; this is in 
 part due to the ambiguous use of the term profit: Cairnes 
 is using the term as the equivalent of interest, the reward 
 of abstinence. But limited to this meaning, Mill would not 
 and could not have assented to the proposition that wages 
 and profits exhaust the value product; only when the 
 unnecessary profits- as well as the necessary — the quasi-rent 
 share as well as the cost share in the remunerations of 
 entrepreneurship — are accounted for, can it be said that 
 wages and profits exhaust the total value product. In Mill's 
 use of terms, cost of production commonly falls considerably 
 short of the full value of the product; that is to say, there 
 are unnecessary profits ; there are, as later thought would 
 put it, non-marginal producers to whom are accruing quasi- 
 rents of production. 
 
 But for the purposes of the present issue, the general 
 nature of cost, Cairnes correctly interprets Mill's position 
 and makes admirably clear the contrasted points of view : 
 • Mr. Mill discloses with perfect clearness the line of thought by 
 which the view in question has been reached : "What the produc- 
 tion of a thing costs to its producer, or its series of producers, is 
 the labor expended in producing it. // we consider the producer 
 the capitalist who makes the advances, the word labor may he 
 replaced by wages: what the produce costs to him is the wages which 
 he has had to pay." In other words the point of view is shifted 
 from the ground of human interests to the partial and limited 
 standpoint of the capitalist employer; and the cost of producing an 
 article, which really consists of the sacrifices required of human 
 beings for its production, is only considered so far forth as it is 
 "cost to him," that much more important portion of the cost which 
 is cost to the laborer being put altogether out of view. This point 
 of view being once taken, the rest follows simply and naturally. 
 What is cost to the capitalist, that is to say, his advances, consist- 
 ing of the profits of previous producers as well. as of the wages of 
 laborers, profits as well as wages, must evidently be included in 
 cost; and not only the profits of previous producers, but .... the 
 
 * Cairnes, op. cit,, chap, iii, sec. 3. 
 
66 VALUE AND DISTRIBUTION 
 
 profits of the producer of that particular commodity whose cost 
 is considered — an extension of the theory which involves this 
 curious consequence, that among the elements of the cost of pro- 
 ducing a commodity is counted [part of] the profit obtained on that 
 commodity by the producer, a profit which I need scarcely say is 
 
 not realized till after the commodity is produced That the 
 
 laborer's share in the industrial sacrifice is by the current doctrine 
 excluded from the conception of cost of production does not 
 appear to have been seen, or, if seen, to have been adequately 
 appreciated by its adherents. Mr. Mill's language seems to imply 
 that the wages advanced by the capitalist, .... though he admits 
 that they only represent "the cost of producing to him," may yet in 
 some way be taken to represent the cost to the laborers also, for, 
 having dealt with this portion of the case, he leads on to the 
 next with the words : "Thus far of labor or wages, as an tkment of 
 
 cost of production There is also capital, etc." But I must 
 
 absolutely deny that wages can in any way be taken to represent 
 the labor element in cost of production. Wages, as Mr. Mill 
 observed in the passage already quoted, may be regarded as cost 
 to the capitalist who advances them; though it would perhaps be 
 more correct to say that, so far as they go, they measure his cost, 
 which really consists in the deprivation of immediate enjoyment 
 implied in the fact of the advance. But to the laborer wages are 
 reward, not cost; nor can it be said that they stand in any constant 
 relation to that which really constitutes cost to him." 
 
 Cairnes's affirmative position also is clearly set forth : 
 
 Cost means sacrifice, and can not, without risk of hopelessly 
 confusing ideas, be identified with anything that is not sacrifice. It 
 represents what man parts with in the barter between him and 
 nature, which must be kept eternally distinct from the return made 
 by nature on that payment. This is the essential nature of cost: 
 and the problem of cost of production as bearing on the theory of 
 value is to ascertain how far and in what way the payment thus 
 made by man to nature in productive industry determines or other- 
 wise influences the exchange value of the products which result.* 
 
 Bearing in mind, then, that labor-pain cost is here set 
 up as the determinant of value, it remains logically open to 
 Cairnes to take the position that wages and profits are 
 results of value and not causes — are distributive shares 
 and not costs. This is, in fact, his view; product — in the 
 sense of value product — is the source and determinant of all 
 
 "Cairnes, op. cit., chap, iii, sec. 3. ^ Ibid., chap, iii, sec. 4. 
 
CAIRNES 67 
 
 remunerations. This, of course, leaves it the more neces- 
 sary to discover the determining causes of value. Whether 
 the fact that value is proportional to labor fully satisfies 
 this requirement must for the present be left as an open 
 question. At any rate, Cairnes declines to admit that 
 wages and profits are in any sense determinants : 
 
 The value of the product resulting from industry forms .... 
 the source from which .... industry is remunerated. Nor is this 
 conclusion invalidated by the fact that .... the laborer commonly 
 receives his reward in the form of wages advanced by the capitalist 
 before the product is completed; since what he receives is subse- 
 quently recouped to the capitalist, the sum being drawn from the 
 value of the product; so that it is still the value of the product from 
 which the remuneration of all concerned in the creation of that 
 product ultimately comes. Wages and profits in each branch of 
 industry are thus derived from the value of the commodities pro- 
 ceeding from that branch of industry, and, as ... . wages and 
 profits also absorb the whole of that value, it follows that, other 
 things being the same, the aggregate of wages and profits received 
 by any given group of producers will always vary with the aggre- 
 gate of the value of the commodities which they produce.'' 
 
 And then follows this remarkable and important passage: 
 Where wages and profits, therefore, in different occupations are 
 in proportion to the sacrifices undergone, the value of the com- 
 modities proceeding from those occupations will always be in pro- 
 portion to the same sacrifices, that is to say, the commodities will 
 exchange in proportion to their [labor-pain] costs of production. 
 
 Precisely how much does this mean? Since it is prod- 
 uct which fixes compensations, it must follow that to assume 
 wages to be in proportion to the sacrifices undergone is 
 merely another way of asserting a proportionality of pro- 
 duction results to labor burdens ; and so it is, for example, 
 true enough that where in two different industries the value 
 products are equal, and the pains of production are equal, 
 the exchange relations will be those of equal values for 
 equal labor pains. This is susceptible of being interpreted 
 as a mere mathematical re-expression of the assumptions 
 made. But is there more in it? Does the thought go upon 
 the Ricardian principle of proportionment of entrepreneur 
 cost to labor-pain cost? Have we here any attempt to 
 explain entrepreneur costs, or to make use in any way of 
 
 ^ Ibid., chap, iii, sec, 5. 
 
68 VALUE AND DISTRIBUTION 
 
 the entrepreneur mechanism for the purposes of the value 
 problem? The thought is difficult of interpretation — per- 
 haps impossible of interpretation — in this regard. 
 
 But when and how far will this proportionality between 
 the labor burdens invested in commodities and the exchange 
 relations of these commodities hold? To the extent that the 
 proportionality is found to hold, and only to this extent, and 
 for the conditions under which it holds, and only for these 
 conditions, does Cairnes stand for the determination of 
 value by labor cost. It may, indeed, turn out that this 
 labor-cost determinant applies only within very narrow 
 limits ; but, at any rate, so far as it may be made to apply, 
 something will have been done toward attaining an expla- 
 nation of value in terms of this ultimate cost; for in 
 -^Cairnes's view there is no justification for talk of any other 
 kind of cost than this of labor pain. Pain is presented as 
 the condition on which all commodities, or, at all events, all 
 freely reproducible commodities, arrive at man's disposal — 
 it is their purchase price, their cost in the barter of labor 
 for product between man and nature. Mill's fallacy in calling 
 the entrepreneur's outlays costs of production lay, Cairnes 
 insists, in the patent fact that the entrepreneur is not the 
 producer, excepting, of course, to the extent that he is him- 
 self a laborer. Not the employer in the shade, Cairnes 
 urges, but the wage-earner sweating in the sun is the 
 person submitted to the pains of production. True, the 
 laborer gets a reward, a wage, more or less adequate ; but 
 this reward is not his cost; he is the producer — actually, 
 visibly, mechanically, technologically — and his pain is the 
 cost through which and on terms of which human society 
 obtains possession of its store of consumable goods. And 
 it is hopeless to attempt the justification of the entrepre- 
 neur notion of cost as, in terms of expenditure, a market 
 expression of the underlying and ultimate labor-pain reality. 
 Ricardo, it is true, had attempted this, or, more accurately, 
 had assumed it out of hand ; but neither to Mill nor to 
 Ricardo was it open; the pains are not in any constant 
 
CAIRNES 69 
 
 or necessary relation to the wages received, else in differ- 
 ent occupations and in different countries, and at different 
 times in the same country, wages could not vary as they are 
 found to vary. 
 
 If wages stood in any constant relation to that which really con- 
 stitutes [the laborer's] cost, .... wages in all occupations, in all 
 countries, and in all times would be in proportion to the severity of 
 the toil which they recompensed.* 
 
 * Ibid., chap, iii, sec. 3. 
 
 Ricardo had assumed without argument, that, as a general proposi- 
 tion and in broad averages, wages are paid in proportion to the pain- 
 fulness of the employment : thus the entrepreneur outlays and the 
 attendant market values become proportional to the pain costs of real 
 value. 
 
 In full sympathy with this general point of view, and in the full 
 conviction that the only definitive and really explanatory concept of 
 cost is the pain-cost concept, Cairnes is yet conscious that wages^ — labor 
 cost to the employer — are in many cases far wide of proportionality to 
 labor pain. He therefore sets himself to Ricardo's unfinished task, that 
 of finding out when and why and with what necessity of supplementa- 
 tion, the labor-cost theory may still be regarded as tenable. 
 
 Ricardo had said that the remuneration must be proportionate to 
 the disutility — the pain — of labor, else the laborer would change to 
 other lines of production, and thereby a readjustment of supplies of 
 product and supplies of labor take place so as to bring the situation 
 back into nearer approach to the normal. That, at the best, this 
 doctrine could go no farther than to assert that the compensation must, 
 at the minimum, be proportional to the disutilities, neither Ricardo nor 
 Senior had ever perceived : nor by either had allowance been made 
 for differences in skill and productiveness relatively to the pains of 
 productive effort. 
 
 Cairnes, however, makes this allowance. He sees plainly that the 
 rate of remuneration is derivative from the value product, and the 
 distinction is clear in his mind between mere weight-and-tale produc- 
 tiveness and value productiveness : "Under a system of separation of 
 employments, industrial rewards consist for each producer, or, more 
 properly, for each group of producers, employed on a given work, in 
 the value of the commodities which result from their exertions, I say 
 
 in the value of the commodities not in the commodities themselves 
 
 The value of the product resulting from industry forms thus the source 
 from which .... industry is remunerated. The laborer commonly 
 receives his reward in the form of wages advanced by the capi- 
 talist What he receives is subsequently recouped by the capi- 
 talist, the sum being drawn from the value of the. product ; so that it is 
 still the value of the product from which the remuneration .... 
 comes." — Cairnes, op. cit., chap, iii, sec. 5. 
 
 But all of this being true — and all of it is in point of fact true — •' 
 what have costs, in the sense of pain, to do with the case ? How can 
 they fee determinant of value or value be proportional to them ? The 
 labdr may be the mechanical cause of the product, but with all the 
 existifig- differences in skill, and with all the differences in the felt 
 
70 VALUE AND DISTRIBUTION 
 
 But how far can the principle that values are propor- 
 tional to the pains of production be extended? Not far 
 certainly, and Cairnes did not claim it to be far : 
 
 Wages and profits will be in proportion to the sacrifices under- 
 gone wherever, and only so far as, competition prevails among 
 producers — wherever, and so far only as, laborers and capitalists 
 have an effective choice in selecting among the various occupations 
 presented to them in the industrial field.* 
 
 No perplexity need be caused by the fact that the dis- 
 cussion refers here only to the proportion between remun- 
 erations and pains, since, as Cairnes has sufiEciently shown, 
 and as, in fact, all cost theories assume, values of products 
 and remunerations of agents are parallel, and indeed, sub- 
 stantially identical facts. But in order that the remunera- 
 tions be proportionate to the pains must there not also be 
 necessarily implied an equality of productive powers? 
 Otherwise it will not be true that "each competitor, aiming 
 at the largest reward for his sacrifices, will be drawn toward 
 the occupations which happen at the time to be best 
 remunerated," ^^ but only to the occupations in which his 
 remunerations are his best, which is, by the way, precisely 
 the manner and the direction in which each and every man 
 in actual society is now drawn. True, the supply of prod- 
 burden of labor, how can labor be determinant or measure of value ? — 
 that is, be that kind of cost which will express itself in exchange values 
 and determine them ? For this Cairnes's answer is that among men of 
 the same grade of skill, and under substantially similar conditions — 
 and only here — can it be said that painfulness of employment commands 
 wages to correspond : so only here are "wages and profits .... in pro- 
 portion to the sacrifices undergone," and therefore here only is it true 
 that "the value of the commodities proceeding from these occupations 
 will also be in proportion to the same sacrifices, that is to say .... 
 will exchange in proportion to their costs [pain costs] of production." — 
 Cairnes, op. cit. 
 
 But, nevertheless, Cairnes was, in point of view, essentially right ; 
 entrepreneur cost is at the best a superficial explanation of value, and, 
 as explanation of any sort, is valid only for a competitive, pecuniary, 
 exchange economy. Cairnes was groping toward a general value doc- 
 trine which should base the supply category upon cost in terms of 
 charge or draught upon the life and the life values of the human race ; 
 if, over against this life cost, on the supply side, there could be worked 
 out, on the demand side, a value-in-use or utility calculus expressive of 
 service for the life processes and life purposes of the genus homo, 
 value, as the point where human utility-demand forces are equated 
 against pain-supply resistances, could fairly present itself as ultimate 
 interpretation and explanation of the economic process in society. 
 
 " Ibid., chap, iii, sec. 5. " Ibid., chap, iii, sec. 5. 
 
CAIRNES 71 
 
 ucts proceeding from "the better paid employments will 
 then be increased, and that from the less remunerative 
 reduced," but only upon the assumption of equal skill and 
 effectiveness in production will this process continue "until 
 supply, acting on price, corrects the inequality" : otherwise 
 than upon this assumption these inequalities can never be 
 corrected so as to make A's reward stand to A's sacrifice 
 as B's reward is to B's sacrifice, that is to say, so as to 
 bring "remunerations into proportion with the sacrifice 
 undergone." 
 
 But it is further to be noted that in order to make this 
 pain-proportion doctrine tenable it must not only be assumed 
 that all men concerned in it are alike in their productive 
 capacity and in their aversion to productive effort, but also 
 that they are alike with respect to the forces of temptations 
 playing upon them to divert them toward non-productive 
 activity; and — what is still more difficult — it must be 
 assumed that each man taken separately is always at one 
 and the same level of skill, of feeling-attitude toward labor, 
 and of feeling-attitude toward the diverting temptations. 
 Free and unlimited competition is, therefore — but in a 
 much more limited sense than Cairnes had in mind, and 
 perhaps hardly even then — "the security for the correspond- 
 ence of industrial remunerations with sacrifice, and also, 
 and because it is so, the security for the correspondence 
 of the value of commodities with their costs of production."^^ 
 
 But how far and under what conditions did Cairnes 
 believe his principle of labor cost adapted to function as the 
 determinant of values? 
 
 Only under conditions of free and equal competition — 
 that is to say, only within certain industrial groupings 
 termed by him non-competitive groups — non-competitive in 
 the sense, that is, that this free and equal competition is 
 not to be found across group lines and between the differ- 
 ent groups, but only inside each group and between the dif- 
 ferent members of that group: "What we find, in effect, 
 is, not a whole population competing indiscriminately for 
 all occupations, but a series of industrial layers, within 
 each of which the various candidates for employment pos- 
 sess a real and effective power of selection, while those 
 
 " Ibid., chap, iii, sec. 5. 
 
72 VALUE AND DISTRIBUTION 
 
 occupying the several strata are, for all purposes of effective 
 competition, practically isolated from each other." And 
 inside these different non-competitive groups Cairnes 
 believes competition to be an effective fact, with the pro- 
 duced values and their remunerations proportionate to the 
 pains of production. The foregoing criticism is, therefore, 
 not, for the most part, to be understood as bearing upon the 
 doctrine of non-competitive groups, but only upon the 
 incompleteness and inaccuracy of the description thus far 
 given of the nature of the group within which the competi- 
 tion proportion holds. Surely, for whatever it is worth, it 
 must be admitted that groups of this product-and-sacrifice 
 equality sort could be imagined, and, indeed, may be theo- 
 retically constructed, in which the doctrine set up by 
 Cairnes might find itself illustrated. 
 
 Possibly enough, also, the proportionality of remuneration 
 to sacrifice might be established, were sacrifice interpreted 
 to include not merely the burdens and pains of pro- 
 duction but as well the foregoing of alternative opportuni- 
 ties of product or of recreation. This, however, is not 
 ,/Cairnes's thought, but only that the exchange ratios must 
 be conformed to the direct disutilities of production, else 
 such a readjustment would take place in the application of 
 productive powers as to allow of a larger result in utility 
 relatively to the discomforts imposed. And, as we have 
 seen, there are cases in which the doctrine would, at first 
 sight at least, appear to hold ; and other cases also might be 
 admitted, if only still other conditions were accepted as 
 limitations ; no serious difficulty would, for example, attach 
 to the doctrine when applied to the Crusoe case, if only 
 Crusoe's environment were homogeneous in opportunity 
 and Crusoe were himself, on all days and during each hour 
 of every day, a constant in strength, in zeal, and in need; 
 or the doctrine would be adequate for a collectivist society, 
 if together with homogeneity of opportunity there were a 
 society made up of men each unchanging as an individual, 
 and absolutely like all of his fellows in his feeling-attitude 
 toward labor and toward the products of labor — or ade- 
 quate for a competitive society made up of precisely similar 
 human beings, each of whom was self-employed as an inde- 
 
CAIRNES 73 
 
 pendent producer, in an environment affording no differ- 
 entials of advantage from either land or capital. 
 
 And now we inquire as to the basis upon which, in 
 Cairnes's view, the non-competitive group is constituted 
 and as to the extent to which these groups may be regarded 
 as actual facts in modern competitive society. For a 
 society of this sort to fulfil Cairnes's requirements, more is 
 necessary than that there exist what is commonly regarded 
 as freedom of competition; for both capitalists and labor- 
 ers not merely the legal right but the practical power must 
 exist of effective choice between occupations, without 
 obstruction of law, ignorance, or povert}'^, so that the pro- 
 ducer may pass freely from the less to the more lucrative 
 occupation; otherwise "there can be no security .... 
 that remunerations shall be brought into correspondence 
 
 with sacrifice How far does competition in this 
 
 sense prevail in this and other industrial communities?"^^ 
 It is admitted by Cairnes that a great measure of immobility 
 attaches to both capital and labor — that capital, "once em- 
 bodied in a form suited to actual work .... is for the 
 most part incapable of being turned to other uses," and 
 that "the dififiLCulty of transferring labor .... is even 
 greater, since we are here in contact with mental as well as 
 physical obstacles." But while all this is true, it is likewise 
 true that not all labor need be mobile in order to have 
 sufficient mobility for the case ; new laborers are all the while 
 maturing. So with capital; enough is mobile to make, in 
 conjunction with the streams of new supply, a total of 
 mobility sufficiently large to care in a reasonably short time 
 for irregularities as they arise. 
 
 And it is further admitted that this new labor is not in 
 nature, in intelligence, or in acquired skill, adapted to all 
 occupations equally; at the best the choice is within certain 
 tolerably well-defined limits; and it is as subject to these 
 limitations and restrictions, and by virtue of them, that non- 
 competitive groups are constituted; and it is only within 
 
 ^ Ibid., chap, iii, sec. 5. 
 
74 VALUE AND DISTRIBUTION 
 
 these groups that competition is effective and that the prin- 
 ciple of cost of production as a pain quantity can be traced 
 in the determination of value. This limitation or failure in 
 the cost principle does not, however, manifest itself with 
 capital, but only with labor. 
 
 "Thus all the products of unskilled labor will," it is said, 
 "exchange for each other in proportion to their costs ; as will 
 also all the products of ordinary artisan labor as among 
 themselves." ^^ This equality may extend from one depart- 
 ment of production to another, e. g., from barometers to 
 watches, if the lines of exclusion are not applicable. It is 
 only within such relations of equality that cost can be a 
 proportioner of value. 
 
 Cairnes has now to take account of the fact that many 
 commodities are the product of labor belonging to differ- 
 ent industrial circles or levels : What then ? 
 
 So far as the two commodities are the products of workers in 
 competition with each other, their values will be governed by cost 
 of production; but so far as they proceed from workers not in com- 
 petition, they must be governed by that other principle" 
 
 yet to be expounded — demand and supply. 
 
 And here again we stop to question, not the group idea, 
 for this is perhaps intelligible, but the basis of the grouping 
 as it lay in Cairnes's mind. Is it a grouping of laborers 
 according to lines of occupation precisely or substantially 
 similar? Or is it a grouping cutting across these occupa- 
 tion classifications and conforming to levels of ability? And 
 what shall be the test of grading for ability, if not the 
 wages ? And as to the equality of laborers inside the group 
 or the equality in the pain quality of their labor — the group 
 homogeneity — one doubts. And in view of the fact that, 
 
 the bulk of the value of each commodity follows one law — say the 
 law of cost, or what we shall afterward find to be the law of 
 reciprocal demand, while a small remaining portion is governed by 
 a different principle," 
 
 the determination of value gets passably indeterminate. 
 ^^ Cairnes, op. cit. " Ibid. " Ibid. 
 
CAIRNES 75 
 
 Certainly, as Cairnes explicitly admits, it cannot be that 
 we are 
 
 justified in asserting that the commodities in question exchange .... 
 in proportion to their costs of production We can only say- 
 that they [the values] are so mainly and in their chief ele- 
 ments The true conception of a law of costs is thus, not a 
 
 law governing universally the values of any class of commodities, 
 but that of one governing the values of certain commodities 
 in certain exchanges." 
 
 The pain of labor is treated by Cairnes partly as a" 
 matter of duration; but the product must also compensate 
 in value for the dangerous quality of the labor required; 
 otherwise, one infers, the labor will change to less hazard- 
 ous employments. But Cairnes deliberately takes no account 
 of skill as value-determining: "Skill is no part of cost; 
 and I add that no article is dearer than another simply in 
 virtue of the skill bestowed upon it." ^'^ But, of course, 
 skill may be the result of labor or of abstinence in its 
 acquirement, and in such case it would be an element of 
 cost. Cost-wise, the increase in value is not in proportion 
 to the skill, but to the cost of acquisition of the skill. And 
 thus the group appears to contract yet more and to include 
 only those producers who, experiencing equal disutility in 
 labor, and reaping equal returns in product, fulfil also 
 the condition that their qualities and capacities were obtained 
 through a training — or lack of training — of precise equality 
 in point of pains and burdens. But, Cairnes says, 
 
 As a matter of fact the products of most kinds of skilled labor 
 exchange against those of unskilled in a proportion much more 
 favorable to the former than cost of production .... would pre- 
 scribe. But .... when the products of skilled labor command 
 these high terms of exchange, the conditions of production are not 
 those in which cost of production would give value." 
 
 And sometimes, it is remarked, works of high literary 
 and scientific excellence get lower compensations than 
 lower degrees of skill command. 
 
 But here as elsewhere there is no intimation of the 
 
 "/fcid. "Ibid., chap, iii, sec, 6. ^^ Ibid. 
 
76 VALUE AND DISTRIBUTION 
 
 manner by which abilities are rated as higher or lower. 
 "No more is this elevated value due to the skill which such 
 products represent, but to the circumstances which limit the 
 possession of the skill to a small number of persons as com- 
 pared with the demand for these services." ^^ 
 
 But in a note attention is called to the fact that the dis- 
 cussion "relates to skill of different kinds as existing in the 
 different departments of industry. Within the limits of the 
 same trade or profession, differences of skill will, in gen- 
 eral, be accompanied with corresponding differences of 
 remuneration." But here again no notice is taken of the 
 difficulty of measuring skill otherwise than according to 
 the amount of remuneration. And there seems to be entire 
 unconsciousness that in admitting this difference of 
 remuneration inside the same industry, it must follow, either 
 (i) that differences in skill always correspond to differ- 
 ences in cost of attainment, or (2) that the group contem- 
 plated by the doctrine is an ability-and-pain rather than an 
 occupation-and-pain classification. Surely, if the classifi- 
 cation is one of ability, remunerations will be the same, if 
 ability is measured according to remuneration ; but is it to 
 be assumed that the remuneration is proportional to costs 
 of attainment? And if the group is constituted by those 
 only whose costs correspond at the same time with their 
 ability and remunerations, whence shall such a group be 
 selected? But in point of fact, Cairnes appears to admit 
 that all cases where values remunerate forms of skill not 
 acquired through labor burden are cases where the labor- 
 pain-cost principle does not apply — that is to say, are cases 
 falling under the principle of "monopoly." Seemingly also, 
 rent remunerations fall under the monopoly principle, and 
 capital remunerations would do so but for the fact that the 
 creation of capital is presented as having a homogeneous 
 pain cost in the abstinence involved. 
 
 To Cairnes, as we have seen, it seems clear that the 
 principle of outlay based upon the market value of the pro- 
 ductive agents employed cannot be an ultimate basis and 
 explanation of the market value of the commodity product. 
 "Employers, we are told, cannot afford to pay any class of 
 workers more than their services are worth. Now what is 
 the standard of worth here adopted?" It cannot fairly be 
 
 ** Cairnes, op. cit. 
 
CAIRNES 77 
 
 replied that the services are worth what they command, if 
 this is offered as an explanation of cost, for this would be 
 to explain value by cost and then cost by value, — the old 
 difficulty of how to stand firmly with both feet in the air: 
 
 According to this conception of "worth" the statement that wages 
 are low because the services they remunerate are of little worth, 
 and high because the worth of the services is high, merely means 
 that wages are high or low because they are high or low, which 
 does not greatly elucidate ^he problem.^" 
 
 Or if the standard of worth is referred to "the actual 
 terms of the exchange, it amounts to saying that employers 
 cannot afford to pay their workmen more than they actually 
 do pay them." It seems clear to Cairnes that the notion of 
 "worth as something varying with the utility embodied in 
 the services or ... . with the skill which is productive 
 of utility," ^^ is, as an explanation of cost or of value, the 
 sheerest of circular reasoning ; as, indeed, it is, unless some- 
 thing can be done for the case from some other point of 
 view. And yet Cairnes applies the same notion to explain 
 the different wages "within the limits of the same trade," 
 but refers it all to the monopoly principle working through 
 demand and supply, and- denies that it is a question of cost 
 in any sense. All of which seems to mean that this principle 
 of pain cost is a good working principle wherever it will 
 apply — which is, as Senior showed, passably rare,-- even 
 upon the assumption that the severity and irksomeness of 
 labor are not as variable in quantity and quality as are men 
 in industry, capacity, and feeling. 
 
 There is, however, one resource for the case still untried, 
 and to this Cairnes proceeds to appeal ; it is the principle of 
 averages, with especial reference to capital costs. Those 
 who deny the actuality of abstinence pain and the necessity 
 of its remuneration, if capital is to be had for productive 
 purposes, must be supposed 
 
 to regard the act of abstaining from present enjoyment as in itself 
 agreeable, and, coupled with the risk which always attends abstinence 
 
 '"Ibid. '^Ibid. "^ See page 50, ante. 
 
78 VALUE AND DISTRIBUTION 
 
 when practised for industrial purposes, as constituting, in some 
 inscrutable way, irrespective of the gains which flow from it, its 
 own reward'^ — 
 
 as, we may remark, is sometimes the case, though clearly 
 not to an extent to supply the full existing amount of capi- 
 tal. And even assuming the saving, it does not follow, 
 Cairnes rightly insists, that these savings would be placed 
 at the disposal of industry. So self-denial is posited as the 
 underlying fact, whereby the furnishing of capital becomes 
 a cost in the pain sense of the term. 
 
 But of the fact that "the sacrifice involved in a given 
 act of abstinence is very different in the case of different 
 persons or at different times for the same persons," Cairnes 
 says we are to take no account: "The sacrifices .... 
 which govern exchange value are, not those undergone by 
 A, B, or C, but the average sacrifices undergone by the 
 class of laborers or capitalists to which the producers of 
 the commodity belong." ^^ 
 
 But one stops here to object that in this application of the 
 group idea we have a sort of group-abstinence jelly, as 
 before we found for labor — as qualified by skill — a group- 
 labor jelly: 
 
 We may therefore state broadly that differences in the sacri- 
 fices incident to production, whether of labor or of abstinence, 
 which are due to peculiarities either in the physical, mental, or 
 moral circumstances of individuals, are to be excluded from consid- 
 eration in estimating cost of production. What we have to do with 
 is, not individual sacrifice, but the average sacrifice of each indi- 
 vidual class.^° 
 
 But precisely how average sacrifices could assign indi- 
 vidual men to this or that line of activity or to this or that 
 industrial group, is not discussed; and why the average 
 sacrifice should, as a question of cost, have anything to do 
 with the individual remuneration is not clear. Nor evi- 
 dently would the case be better for Cairnes's purposes if 
 the concept of margins were substituted for that of aver- 
 ages; the same or greater inequality of ratios between 
 padn and remuneration would still obtain. 
 
 *^ Cairnes, op. cit., chap, iii, sec. 6. " Ibid. *" Ibid. 
 
CAIRNES 79 
 
 But Cairnes's answer to all this would probably be that 
 within the group a more detailed and accurate distribution 
 takes place; the discussion, at the point in hand, having 
 only to do with that cost which bears upon market value, 
 and the thought facing not in the direction of distribution 
 but of cost. In fact, all the way along in this part of the 
 argument, criticism is especially difficult because of diffi- 
 culties of interpretation; it is, as we have seen, impossible 
 to make out of what sort these groups are — whether con- 
 stituted on the basis of the class of commodities produced, 
 or of the pains of production, or of the skill applied, or of 
 the rate of remuneration received. If distribution inside 
 the group is made to depend upon relative pain, it is hard to 
 see how the grouping can be either by skill or by product ; 
 and yet it is clear that the grouping cannot be by compen- 
 sation or by pain. So, precisely of what constitution the 
 labor jelly must be in order that the average of sacrifice 
 should govern the exchange ratios is — at all events to the 
 present writer — incapable of determination. 
 
 And in any case, the detail by which values come to be 
 proportional to sacrifices — for after all the doctrine seems 
 to be essentially one of proportions — needs elucidation. 
 Whether we have labor as direct determinant through pain, 
 or as proportioner, or as common denominator measure, is 
 past making out with anything approaching certainty. 
 Sometimes there is a suggestion of opportunity cost, but 
 referring strictly to the laborer or to the abstainer as against 
 the employer or the borrower; that is to say, the relative 
 attractiveness of different industries is calculated, not 
 purely on the basis of burden, but in part upon the basis of 
 the remuneration as somehow related to the burden. 
 
 What at bottom maintains the connection between value and 
 cost of production is, it must always be remembered, the power of 
 choice residing in laborers and capitalists to decide between dif- 
 ferent occupations. Now what is it determines the choice? No 
 doubt the prospects of the pursuit, the remuneration being com- 
 pared with the sacrifice. But what sacrifice? .... Each takes 
 account of the incidents of the course proposed, as it bears upon 
 himself, and considers how it stands with others equally open to 
 him.^" 
 
 But here it must be objected that just so far as the 
 question is one of remuneration it is not one of burdens — 
 
8o VALUE AND DISTRIBUTION 
 
 that is, it is not a question of cost in Cairnes's sense of the 
 word, but at best is only for each individual a question of 
 the most desirable ratio between burden and remuneration — 
 this ratio of pain to compensation differing with each dif- 
 erence "in the physical, mental, or moral circumstances of 
 individuals." And if, for the case, refuge should again 
 be taken in the doctrine of averages, the reply would be a 
 fair one that men do not choose occupations or change 
 occupations on this average basis. 
 
 At any rate, Cairnes puts it that "carried over into any 
 field of industrial competition," individuals are not remun- 
 erated in conformity with the sacrifice which each under- 
 goes ; but the conformity holds 
 
 among the aggregates of those engaged in the several competing 
 occupations ; so that the total remunerations falling to each branch 
 of industry shall bear the same proportion to the total 
 sacrifices undergone in that branch as the total remunera- 
 tion falling to any other in the same field .[industry? grade of 
 labor?] bears to the sacrifices in that other.^' 
 
 ,/ The total remuneration is, as we have seen, the value of 
 the total product; "this value, therefore, will bear the 
 same proportion to the sacrifices undergone in producing 
 it, as the value proceeding from any other industry within 
 the same field of competition bears to the sacrifices of 
 which it is the result." ^^ So the sacrifices constituting cost, 
 in any field, class, or group, are average sacrifices.^® 
 
 But after all we are inclined to ask ourselves whether 
 the clue to all this is not in the fact that a group means 
 
 ^ Cairnes, op. cit. ^* Ibid. 
 
 '' "The relation which competition establishes between cost and 
 value is one, not between the value of particular commodities and the 
 sacrifices of the individual .... but one between commodities taken 
 
 as sorts and their costs of production We cannot, for example, 
 
 assert that a particular pair of shoes will exchange against a par- 
 ticular coat in proportion to the sacrifices undergone respectively by 
 the shoemaker and the tailor in the actual case ; but we may assert 
 that, within a given field of competition, shoes, as one sort of com- 
 modity, will exchange against coats in this proportion. The costs, 
 therefore, to which the values of particular commodities correspond are 
 not the particular sacrifices undergone in producing each commodity, 
 but the average sacrifice undergone in producing each sort of com- 
 modity .... what we have to do with is, not individual sacrifice, but 
 the average sacrifiice of each individual class." — Ibid., chap, iii, sec. 6. 
 
CAIRNES 8i 
 
 nothing more than those producers with whom there exists 
 the same ratio between sacrifices and remunerations. 
 Surely, for a group of this sort, values would be propor- 
 tionate to sacrifices. 
 
 But finally, it is to be remembered that Cairnes does 
 not claim any very wide field for his doctrine: it holds 
 simply where it holds, and where it does not hold the law 
 of demand and supply — reciprocal demand, as Cairnes terms 
 it — is adequate; perhaps also, we may add, for the cases, 
 if any, where it does hold.^** 
 
 If, then, this review of Cairnes is adequate,^^ and if this 
 attempt at rehabilitation of the labor-cost doctrine of value 
 is really the best that can be done, as it is the last important 
 and systematic attempt among English economists, an 
 impartial judgment will probably declare that the effort 
 has served merely to give the doctrine its coup de grace; 
 a dogma already in its last gasp has been unkindly done 
 to in the house of its friends. 
 
 If, however, any faith should still remain in it for any , 
 purpose there is in reserve a seemingly final and crushing 
 argument against it, if once there can be established the 
 possibility of values and exchanges without anything 
 
 ^^ "The law of reciprocal demand fails completely of being a 
 principle co-ordinate with, and similar to, that of costs. Instead of 
 ruling exchange values in the same way as cost of production, only in 
 another field, it turns out that the force of reciprocal demand is 
 incapable of determining the value of any single good The pur- 
 port of the argument of Cairnes is no more than this : the law of 
 reciprocal demand merely requires the general level of international 
 exchanges to be such that in the long run the exports of a nation just 
 discharge its liabilities, or, in other words, that its exports and imports 
 will be led to balance, except for the payment of interest on foreign 
 debts, cost of carriage to foreign ship-owners, etc. Cairnes applies the 
 law without changing line or point to interchange between non- 
 competing groups Cairnes's famous doctrine merely adds 
 
 emphasis to a point already made by Senior, namely, that the wages of 
 skilled labor are out of proportion to the amount of labor cost 
 remunerated. Though Cairnes rejected the definition of cost as entre- 
 preneur's cost, his whole argument signifies that subjective cost, or 
 pain-cost, can control market value only by way of controlling the wages 
 
 and interest elements which compose entrepreneur's cost The 
 
 doctrine of non-competing groups signifies that the comparative wages 
 cost of different commodities may fail to represent their comparative 
 labor costs, or specifically, that they do so fail, when we compare the 
 costs of commodities produced by different non-competing groups." — 
 Whittaker, op. cit., p. 123. 
 
 ^^ I am not, however, sure that it is adequate. I confess to a deal 
 of bewilderment. I can only claim to have tried to understand, but 
 this without much confidence in my accomplishment. 
 
82 VALUE AND DISTRIBUTION 
 
 remotely resembling labor-pain cost in the Senior-Cairnes 
 interpretation of the term, or in any interpretation yet con- 
 sistently formulated. Let us see: 
 
 In view of the fact that each independent producer has 
 his evening limit of labor at which more product is at the 
 point of indifference as against more effort, and in view of 
 the old-time doom that, for society as a whole, it is only 
 by the sweat of the brow that bread may be had, there 
 might appear to be, for some purposes, force in the labor- 
 cost doctrine. And if it is objected that work is oftentimes 
 pleasant, that there are countless producers happy in their 
 work — a veritable bliss of toil — it is none the less evident 
 that as long as the desire for product remains unsaturated, 
 as long as more would still be desirable, as long, that is, 
 as the product still retains utility to the individual pro- 
 ducer, so long work must be sharply distinguished from 
 play; so long must work be carried beyond the point to 
 which it would go for the mere joy of the working. And 
 it may thus be argued that a positive pain cost will still at 
 the margin bar the way against any possible pleasure 
 economy in the productive process. 
 
 But even so, the theory of labor cost by averages or by 
 any scheme of proportion between pains and values, could 
 derive small support from this marginal development of 
 the labor doctrine, so far as it should purport to serve as a 
 method of explaining the terms of exchanges in a com- 
 petitive, unhomogeneous, wage-earning society. Some- 
 thing, however, might be made out of the doctrine as apply- 
 ing to an isolated — a Crusoe — economy, or, by averages, to 
 a collectivist economy. 
 
 But it has by different later writers ^^ been made clear 
 that cessation of labor is something more than surcease of 
 the sorrows of working — that leisure has a positive quality, 
 in the recreation that it offers and in the opportunity that it 
 presents of enjoyment through the consumption of those 
 goods to which labor has created the right. Thus, the 
 eight-hour day with its possibly lower wage will reckon, as 
 part offset against this possible loss, an added two hours of 
 leisure. So the artist may have enjoyed every hour of his 
 productive activity, and may leave it, not at the behest of 
 health or eyesight, but at the call of some greater alterna- 
 tive pleasure awaiting him. The choice, indeed, for many 
 workers is — and for all workers conceivably might be — a 
 
 ** Notably by Patten, Clark, and MacFarlane. 
 
CAIRNES 83 
 
 choice between pleasant productive activity, on the one hand, 
 and pleasant leisure on the other; and even at the margin, 
 therefore — for even the labor-cost doctrine will have to 
 adopt the marginal analysis — there is no necessity of pain 
 cost. 
 
 That is to say, the positive aspect of leisure, in its 
 significance for the cessation of commodity productivity, 
 serves merely to lead us to a newly discovered application 
 of the principle of opportunity cost. But, in truth, a new 
 difficulty here presents itself, though a difficulty with which 
 the present argument has no concern : Is not recreation to 
 be regarded as, in the personal estimate and reckoning, an 
 alternative method of utility production? Is not play pro- 
 ductive? And where is the true line of distinction between 
 work and play? (See chap, xxvi.) 
 
CHAPTER VII 
 FURTHER COST DOCTRINES 
 
 Labor cost in non-competitive production. Opportunity 
 cost. — Attention will later be directed to the fact that, for 
 the analysis of exchange value, there is obvious danger 
 in the identification of desire with market demand: only 
 when purchasing power attends desire can economic demand 
 be said to exist. But pushed back into the field of produc- 
 tion the difficulty vanishes; here desire and demand are 
 one, since the problem is merely what shall be produced; 
 the ability to produce attends the desire for product. True, 
 the disposition to produce may be wanting; but if so, the 
 case is one which for present purposes requires no consid- 
 eration. All this is corollary to the fundamental principle 
 of economic science, that for questions of production, need 
 and desire are fundamental, control supply and direct it. 
 
 Not merely this, but, in the isolated economy, produc- 
 tion includes within itself the essential phenomena of 
 exchange. Inasmuch as not all the things desired can be 
 had in the quantity desired, there must be a choice between 
 the things to be had and the things to be postponed or fore- 
 gone. Each product costs some other, and the sequence of 
 production follows item by item the course of the demand- 
 desire curve. 
 
 Interpreted thus — in the sense of sacrificed opportunity 
 — the labor-pain cost doctrine of value, as applied to an 
 isolated economy, and applied upon the assumption that 
 land and other instruments are non-existent or of incon- 
 siderable influence, is not very seriously wide of the truth. 
 Whatever differences in utility may possibly exist between 
 two products attainable by the same quantity of labor, the 
 more useful can have a power of displacement — of exchange 
 against another — only upon the basis of the equality pre- 
 scribed by the similar labor costs. Marginal production, 
 
 84 
 
FURTHER COST DOCTRINES 85 
 
 in the sense of the point of cessation from work, is reached, 
 when, in each line of product, more product will possess 
 utility not greater than the disutility attending the further 
 production of it, whether the disutility take the form of 
 pain, or of pleasure displacement, or of both. And thus, 
 while the value determinant may conceivably be found in 
 the utility quantum of the marginal product instead of in 
 its pain price, it is still true that this marginal quantum can 
 equally well be expressed, in point of significance, in either 
 of the two ways: (i) as a quantity of utility enjoyed — 
 the hither side of the cessation margin, or (2) as a quantity 
 of advantage foregone — the further side of the margin, 
 since the two quantities are, by the terms of the analysis, 
 equal. And so, while the utility of Crusoe's marginal prod- 
 uct could not be stated in terms purely of pain — unless, 
 indeed, Friday were altogether a tiresome companion, the 
 island a savorless island^ and Crusoe himself vacant of 
 resources for self -amusement — the utility could always be 
 stated in terms of marginal disadvantage, which marginal 
 disadvantage would serve equally well with marginal utility 
 as the value measure and common denominator of the 
 derived value relations. 
 
 But it is important to remark that this equation between 
 the importance of the product and the importance of the 
 items of resistance — whether of disutility or of foregone 
 utility or of both — could convey to no second person any 
 information as to the absolute nature or volume or quality 
 of the opposing and balancing items, but would speak only 
 of the relation between them. The value of the ratio at the 
 margin could be asserted as unity, but nothing could be 
 implied or inferred as to the importance of the terms in the 
 ratio. And evidently with different producers, no basis of 
 comparison could be found either for the utility of the 
 respective products, or for the burdensomeness of the 
 respective efforts, or for the attractiveness of the recrea- 
 tions respectively foregone. Abandonment of production 
 might, for one person, be consistent with great signifi- 
 
86 VALUE AND DISTRIBUTION 
 
 cance of product as against great aversion to labor or 
 great disposition toward recreation, while with a second 
 person, the same hours of work and the same commodity- 
 output might obtain, consistently with small pains of labor, 
 low appraisal of product, and with little or no interest in 
 the alternatives of pleasure. Only the ratio between the 
 two opposing quantities can be inferred, which ratio is 
 always to be expressed as, at the margin, one of equality, 
 whether the opposing quantities are 5 : 5 or 2 : 2 or J^ : J^. 
 And, in fact, not even as much as this may seem to 
 imply, is legitimately to be inferred. The principle of 
 homogeneity, precisely as it is inapplicable to the individ- 
 ual's entire day's activity, and is serviceable only as a 
 day's-end margin and measure, fails as a method of com- 
 parison over intervals of time. That is to say, Crusoe on 
 different days is, for the purposes of the present analysis, 
 so many different men, with different levels of zeal, vigor, 
 capacity for pleasure, and sensitiveness to pain. Nothing 
 but the equality of ratios holds. 
 
 Collectivist production would, for the most part, pro- 
 ceed parallel-wise with production in the isolated 
 individual economy. Production would of necessity accommo- 
 date itself to the principle of diminishing item utility with 
 increasing product, and of increasing resistance to produc- 
 tive effort with lengthening hours of labor; the day's-end 
 margin of cessation would be fixed where the group aver- 
 age and aggregate of utility from added effort should 
 appear to be at balance against the effort pain and recrea- 
 tion loss incident to further production. 
 
 But here again, not all the product obtained, and con- 
 ceivably none of it, would be at the cost of pain. In a loose 
 group way, by an estimate of some sort, a margin of effort 
 would be established at which the desire for more product 
 should be equated against the resistance to further pro- 
 duction; but this resistance would be in part, and might 
 be in its entirety, the expression of the pull of recreation 
 
FURTHER COST DOCTRINES 87 
 
 utility; that is to say, the retirement margin would rarely, if 
 ever, be entirely a weariness margin, and might be in no 
 measure due to weariness. 
 
 Thus, interpreted broadly enough to include not merely 
 labor pain but also — if the case is of the sort so to require 
 — all labor sacrifice reckoned in terms of displacement, 
 whether of pleasure or of product or of both, — a value 
 determinant, or at all events, a value denominator in terms 
 of cost may be found, either for the isolated or for the 
 collectivist economy, if and when the problem can be taken 
 as presented clear of instrument complications ; but equally 
 clearly, the denominator may also be stated in terms of the 
 utility product against which the cost stands equated as the 
 purchase price.^ 
 
 Opportunity cost and outlay cost in competitive produc- 
 tion. — In no case can the pains or the pleasures of produc- 
 tion have significance for market value otherwise than as 
 they bear upon supply — that is, upon the relative volumes 
 of goods seeking exchange against one another. All market- 
 
 ^ But the labor-cost margin — in no matter what ameliorated sense — 
 will not, as the only margin or as the margin of chief significance, apply 
 where allowance must be made for the presence of productive instru- 
 ments. 
 
 With land instruments and capital instruments, the problem is 
 evidently not one of pain, but of displacement. It is even questionable 
 whether the weariness margin is — even for the independent producer — 
 comparable in degree of significance with the margin of choice between 
 industries. Occupations are chosen each as an aggregate and total and 
 for long periods, and mostly by comparison of the totals of value 
 return. And during all the day, up to the marginal effort, the labor 
 product is affording a differential above its pain cost ; but the aggre- 
 gate magnitude of these quasi-rent quantities differs with different 
 employments, and renders any comparison between industries possible 
 only as employment units and totals : the problem, then, even were no 
 instrument complications involved, could never present itself in terms 
 of pain, but only — if a labor-unit or labor-item question of any sort — 
 as a question of how most advantageously to apply the total labor outlay 
 in view of the aggregate results. 
 
 Nor even at the margin can the cessation problem with the inde- 
 pendent farmer be one solely of weariness against product : if there is 
 no question of the hired men, their wages and their acquiesence, there 
 are, in any event, to be considered the comfort and welfare of the 
 work-animals. 
 
 No issue is intended to be offered here as to the right of pain to 
 stand as one among the many different cost considerations to be over- 
 
88 VALUE AND DISTRIBUTION 
 
 cost doctrines are supply doctrines, and explain value only 
 in the sense and to the degree that supply explains value — 
 that is, only upon the assumption that demand may, for the 
 purposes of the case, be taken for granted. 
 
 Taking as accepted this principle that, under the cost 
 problem, we are set to investigate exclusively those influ- 
 ences bearing upon supply to limit it, certain typical doc- 
 trines of cost, and of the relations of cost to price, await 
 examination. 
 
 Let it be assumed that a manufacturer of hats faces the 
 following situation : per unit of product he expends $i for 
 wages and 50 cents for raw materials ; the capital employed 
 in producing a hat would elsewhere earn him 15 cents; as 
 employee in someone's else service, he could earn 15 cents 
 for each hat now produced; transferring himself and his 
 productive equipment to the shoe industry, he could obtain 
 a product of $1.85 in place of each hat now produced; he 
 sells his hats at $2 each : What is his cost of production 
 and what his profit per hat? 
 
 According to the older reasoning and the older termi- 
 nology, the 50 cents accruing to the employer, after the 
 $1 in wages and the 50 cents in materials were covered, 
 
 born by the remunerations in prospect. Our wheat-producing farmer, 
 as we shall later more fully see, presents at the same time many differ- 
 ent supply margins ; e. g., a rent-outlay margin, a wage-outlay margin, an 
 indefinite number of seed, fertilizer, and implement margins, a corn- 
 displacement margin for some portions of his product, a bean-displace- 
 ment margin for other portions, capital-wear and land-wear margins 
 for some acres of his crop, and, among all the others, pity margins for 
 his draft cattle, his wife, and his children, a mixed decency-and-expedi- 
 ency margin for his employees, and, finally, a weariness margin for 
 himself. And all these margins may be effective at the same time to 
 set a limit, in different places and directions, to his production, and 
 might conceivably converge in influence to dictate the non-production 
 of any particular line of product, or of any particular item of that par- 
 ticular line. And at different price levels for products, and with 
 different producers, new and different combinations of margins would 
 be presented ; different supply volumes have different supply prices. 
 
 And among all these different margins, no one seems to be more 
 distinctly supply or price determining than any other, excepting in 
 degree of influence ; and in fact no one of them appears, from the 
 individual producer's point of view, quite so emphatically price-deter- 
 mining as price-determined : but more of this later. 
 
FURTHER COST DOCTRINES 89 
 
 would be capitalist's profit. But what part, if any, of this 
 profit should be reckoned within cost of production? 
 
 Keeping closely in touch with the habit of thought of 
 business men, Hadley would, as the present writer under- 
 stands him, regard profit as that which remains over and 
 above cost of production, and would confine the cost reckon- 
 ing to outlays.^ There is room for question as to the 15 
 cents for interest: if this were paid for borrowed capital, 
 the cost would certainly, in Hadley's view, be $1.65, and 
 the profit 35 cents; perhaps it should be inferred that the 
 same result would present itself were the capital that of the 
 manufacturer himself. 
 
 It appears, also, to have no bearing upon the present 
 problem that interest outlays are, in Hadley's thinking, to 
 be regarded as mere wages of past labor and to be ranked 
 under the general head of wage payments. 
 
 Recurring, however, again to the principle that cost, 
 for the purposes of economics, whatever may be the 
 preferable view for purposes of bookkeeping, is important 
 only as the master-key to the supply problem — that our 
 quest is the determination of what the French call the prix 
 de revient — it becomes evident that $1.50 or $1.65 bears not 
 the slightest relation to cost when conceived as the point 
 
 ^ "The excess of return above cost is known as proiit. The profit 
 of an individual is the difference between money advanced in produc- 
 tion and money received from the sale of the product Profits 
 
 are neither more nor less than the excess of the selling price of the 
 products of industry above the money advanced as wages. It is true 
 that some of the investments of an individual capitalist are not made 
 in the form of wages, but in payments for materials and machinery 
 which other capitalists have made ready for use. But if we look at the 
 relation between capitalists as a class and laborers as a class, we 
 shall find that the capitalists as a body advance wages, and appro- 
 priate the difference between the price paid to the laborers and that 
 received from the customers." — Arthur Twining Hadley, Economics, 
 p. 124. 
 
 This appears to leave the question of interest in about the condi- 
 tion that James Mill left it ; but the problem in hand is another prob- 
 lem ; were it true, however, that our present concern led us in the 
 direction of interest theory, it would be worth while to point out that 
 Hadley's definition of interest as commuted profits is open to this same 
 line of criticism — that it leaves the time-discount aspect of interest 
 inadequately accounted for. — Ibid., p. 270. 
 
^o VALUE AND DISTRIBUTION 
 
 below which the producer under consideration will decline 
 to produce; he could do better than $1.65 as wage-earner 
 and better yet in shoe production. 
 
 Mill's view, while confused in terminology and not 
 fully consistent in reasoning, approaches more nearly to a 
 formulation of the influences affecting the producer's choice 
 between his different industrial openings. Profit is dis- 
 tributed by Mill into interest, wages of superintendence, 
 and compensation for risk. It is true that in one chapter 
 Mill speaks of profit as the excess of receipts over cost of 
 production,^ while, in another place, he treats minimum 
 profit as a part of necessary price,* but as this necessary 
 price is the money magnitude for which we are seeking, 
 and as, in the general trend of his doctrine. Mill identifies 
 cost of production with necessary price, it is in the spirit 
 of his doctrine to regard minimum profit as a constituent 
 part of cost of production. It is in this sense that we are to 
 interpret his statement that the necessary price must be an 
 amount sufficient to cover cost and the ordinary expectation 
 of profit. Nothing very satisfactory is offered as to the 
 quantum of this ordinary profit: In one place a subsist- 
 ence-minimum determinant is suggested for capitalists : 
 "They will not even go on producing at a profit less than 
 they can live upon." ^ But not much is made of this view. 
 In general, the doctrine runs : 
 
 The cost of production, together with the ordinary profit, may- 
 be called the necessary price or value of all things made by labor 
 and capital." .... The latent influence by which the values of 
 things are made to conform to cost of production is the variation 
 that would otherwise take place in the supply of th"e commodity.'' 
 
 That is to say. Mill divides profit into the two parts, 
 one, a minimum or necessary profit, the other, a surplus 
 
 ^Principles, Book III, chap, iii, sec. i. 
 * Ibid., Book II, chap, xv, sec. 2. 
 ^ Ibid., Book III, chap, iii, sec. i. 
 ^ Ibid., Book III, chap, iii, sec. i. 
 ^ Ibid., Book III, chap, iii, sec. 2. 
 
FURTHER COST DOCTRINES Qi 
 
 over this necessary minimum. Some part, therefore, of the 
 35 cents left over after outlays and interest have been cov- 
 ered, is included within the necessary price, the true cost, — 
 enough to allow to the entrepreneur the ordinary rate of 
 profit. Here, it may be noted, is a distinct foreshadowing 
 of the concept of producer's quasi-rent. But Mill makes 
 nothing further of it. 
 
 Walker, on the contrary, regards these producers' dif- 
 ferentials as of controlling importance in the problem of 
 necessary price. Marginal cost of production is taken as 
 the determinant of price, and precisely as land rent is con- 
 ceived as a surplus over and above cost — a price-determined 
 distributive share and not a cost — so producers' differen- 
 tials are computed as surpluses above the price-determining 
 margin of production and as such are made irrelevant to 
 price fixation. For, in order to find the price point with 
 manufactured goods, we must, it is said, find the marginal 
 producer's cost, just as with agricultural products we are 
 supposed to find the cost upon marginal land — a point at 
 which there is no differential to be computed.® 
 
 Entrepreneurs are evidently of differing capacities, pre- 
 cisely as lands are of different grades of fertility; thus, to 
 find the cost-determining production, we must, it is said, 
 find the marginal entrepreneur, the lowest paid among all 
 those producers who can afford to remain in production. 
 Whatever the more skilful entrepreneurs get above this mar- 
 gin is unnecessary, or differential, or surplus profit, or pro- 
 ducers' quasi-rent, accordingly as one's choice of terms 
 may dictate. 
 
 And thus — returning to our hat manufacturer and his 
 cost problem — it would seem that, in Walker's view, we 
 have not yet sufficient data, either for determining the cost 
 in the sense of the profit necessary to keep the manufac- 
 ture in the business of production, or for measuring his 
 surplus, his differential gain; we must, it seems, first know 
 
 * Walker, Advanced Course, sees, 1 19-143, 297-299. 
 
92 VALUE AND DISTRIBUTION 
 
 how much his less skilful competitor is making, before we 
 can fix upon the lowest price at which he himself will con- 
 tinue to produce. 
 
 But according to the principle of opportunity cost, the 
 best alternative open to our hat-producer is not to lend out 
 his capital and to accept a salaried position ; this would give 
 him but 30 cents as his total of interest and personal 
 remuneration, whereas in the shoe industry his unit of 
 product would have a market value of $1.85, permitting 
 35 cents of return to himself and his capital holdings — that 
 is, 20 cents for his personal remuneration. In the hat 
 industry, however, he is getting $2 of market product; his 
 return in the hat industry may fall to the $1.85 limit before 
 he will decide to change from hat to shoe production. And 
 it is evidently beside the point to urge that his least skilful 
 competitor is deriving, from this market price of $2, only — 
 say — 10 cents of personal remuneration. This fact, clearly, 
 gives no basis for arriving at the first man's occupation 
 differential. Nor, more important still, does it necessarily 
 imply that the second man is the man upon the margin of 
 withdrawal or nearest to it. If, getting in the hat business 
 only 10 cents of personal remuneration, his best alternative 
 were yet one cent in shoes, he would still be nine price 
 points distant from withdrawal, whereas another man of 
 very considerably higher absolute profit might be fewer 
 points distant. It is, in truth, entirely credible that the 
 largest profit-maker in the industry should be the marginal 
 producer in that industry. All producers' cost dift"erentials 
 are reckoned from this alternative basis, as quantities deriva- 
 tive from the opportunity-cost margin. 
 
 Obviously, only the most general notions and the simplest 
 of the applications of opportunity cost can be presented at 
 this time. One caution, however, appears to be immediately 
 called for; the doctrine of opportunity cost, rightly under- 
 stood, does not point fundamentally to the question of how 
 much could be realized of gain in some alternative occupa- 
 
FURTHER COST DOCTRINES 93 
 
 tion or activity, but only to how much must be realized in 
 the occupation or activity under consideration in order to 
 insure its continuance. Opportunity considerations, alter- 
 natives, are mere data, among others, in the computation, 
 and may or may not be controlling — that is to say, questions 
 of taste, of health, of reputabihty, of strain or severity of 
 requirement, all may be important factors in the choice. 
 Again, the choice may not lie between two gainful occupa- 
 tions, but between some one gainful occupation and 
 idleness. In short, each man's cost is simply his 
 prix de revient, the price requirement upon which the con- 
 tinuance of production by him depends. And evidently his 
 price may differ for differing volumes of product.^ 
 
 * The relations of opportunity cost to price, as presented by several 
 of the later writers, will best be examined in connection with the concept 
 of profit — and its relation to cost ; see note at close of the next chapter. 
 
 So far as the present writer is informed, David I. Greene is 
 entitled to the credit of first having given adequate formulation to this 
 doctrine of opportunity cost — see an article published by him in the 
 January (1894) number of the Quarterly Journal of Economics. With- 
 out acknowledgment of this contribution, and, indeed, in entire igno- 
 rance of it, an article covering very much the same ground was, by the 
 present writer, published in the September (1894) number of the 
 Journal of Political Economy, under the title of "The Formula of 
 Sacrifice;" see also, by the present writer, the May (1902) number of 
 the Quarterly Journal of Economics, "Proposed Modifications in Aus- 
 trian Theory and Terminology;" and the November (1905) Yale 
 Review, "Doctrinal Tendencies — Fetter, Flux, Seager and Carver." 
 
CHAPTER VIII 
 
 PROFIT DEFINED : PROFIT AND RISK AS RELATED TO 
 
 COST 
 
 Risk profit. — Mill's formulation that necessary price 
 must cover, among other things, compensation for risk, is 
 incontestable for all cases where risk is really a fact of cost; 
 but when, if ever, is this the case? Is it, indeed, clear that 
 it is ever the case? And where, then, is the room for risk 
 profit ? 
 
 If the risk compensation is only sufficient to cover the 
 risk, there is no room for profit. The unharvested crops 
 form, in the long run, part of the cost of the harvested. So 
 the bad debts of the merchant are a part of the cost of get- 
 ting goods into the hands of the paying customer. Here 
 is evidently a class of risks that are to be included within 
 production costs ; and the compensation, being the correla- 
 tive of a risk assumed and not a reward of personal skill 
 or effort, is, by this very fact, not a part of profit. It is 
 only when the risk remuneration is more than the risk 
 burden that profit can be derived from taking risk. 
 
 And in some cases, doubtless, profits of this sort are 
 obtained, as with insurance contracts typically, and with 
 well-organized businesses in the speculative markets. But 
 what shall be said of the risk to which the wholesaler is 
 submitted when he buys his supplies, that prices may fall, 
 or of his hope that prices will rise? Is the gain, if gain 
 befalls, more than compensation for the risk, or is the loss 
 other than the equivalent of the gain which was equally in 
 prospect when the purchase was made? 
 
 In point of fact, analysis of risk must distinguish two 
 cases, (i) where the danger of loss has no correlative of 
 gain, and where, therefore, the question is solely as to who 
 shall carry the hazard,— cases which easily lend themselves 
 to the business of making profit off the carrying of risk; 
 
 94 
 
Profit defined 95 
 
 (2) where profit and loss are equally in prospect, or are 
 somehow in the market equated against each other. 
 
 It is probable that in this second case, utility falling per 
 item with increased supplies of goods, the chance of gain 
 must, as a computation in terms of dollars, outweigh the 
 appraised money equivalent of the chance of loss, else the 
 falling utility attaching to each dollar would leave the 
 balance slightly one of loss in the individual utility schedule. 
 
 But it is only in cases falling under the first class that 
 risk is properly to be reckoned as appreciably an item of 
 cost. 
 
 Risk interest. — The relations of risk to interest and of 
 risk interest to profit are perhaps not more intricate in 
 theory, but are even more disastrously confused in tradi- 
 tional economic discussion. Viewed as the reward of absti- 
 nence, interest cannot include the risk share in the amount 
 received. Viewed as any sort of compensation to the 
 owner for investment opportunity foregone, risk must be 
 excluded. And as the difference between the present value 
 of goods and their future value, interest cannot cover risk; 
 only as the difference between a certain present value and a 
 contingent future value could the risk charge be included in 
 interest. Adopt, however, the standpoint not of the lender 
 but of the borrower, and the question takes on another 
 aspect. Dishonest borrowing aside, interest becomes a pay- 
 ment for the use of wealth, or, more accurately, a payment 
 for the difference in desirability, to the borrower under 
 consideration, of present over future goods — or, more 
 accurately still, of present over future purchasing power as 
 reckoned in the prevailing standard. For the marginal 
 borrower the interest is the approximate equivalent of this 
 difference. 
 
 That is to say, the risk payment is received by the lender 
 in one character and is paid by the borrower in another. 
 It advantages the marginal lender nothing or nearly noth- 
 ing; the risk fact may, in truth, diminish his net or pure 
 
96 VALUE AND DISTRIBUTION 
 
 interest, by its effect to retire some part of the total demand; 
 it burdens the borrower as a cost; it is Hke a tax imposed 
 on the loan relation. 
 
 To whom, then, goes the gain to correspond with the 
 aggregate of loss to borrowers and lenders? It does not 
 necessarily follow that the entire benefit of this intermediate 
 quantity — this tax — accrues to defaulting borrowers. 
 There is room for lenders' quasi-rents in the relation, — 
 that is to say, there may be, in favor of the non-marginal 
 lenders, differentials between what it really costs to carry 
 the risk and the compensation which the market premium 
 upon risk allows.^ And this is the only case of true risk 
 profit in the interest relation; subject to this modification, 
 the premium is the precise equivalent of the loss danger 
 accepted. 
 
 But it remains to ask what name shall be given to this 
 equivalent. It is commonly regarded as a portion of profit ; 
 but as it is evidently not remuneration for the personal fac- 
 tor in production or in business activity of any sort — ^not 
 pay, that is, for labor of superintendence or for any other 
 form of effort, but only compensation for the danger 
 incurred of failing to get compensation — there is force in 
 the view that the special category of risk profit should be 
 recognized. The objection to this is that, just as when one 
 lends his capital he charges something extra for risk, and 
 calls it interest or risk interest, so when he puts his own 
 capital at risk in his own business, he should, it would seem, 
 reckon his risk gain as compensation for the hazardous 
 capital use — another form of risk interest. The losses of an 
 enterprise must ordinarily be paid out of the operator's 
 wealth. Profit-makers pay losses, when losses come, in the 
 capacity of wealth-owners and not of mere operators. 
 
 But it has still to be recognized that the thing at hazard 
 is not necessarily and solely the capital invested. The 
 operator may, indeed, be investing nothing but his time and 
 effort; or his hazard may be such as not to extend farther 
 
 ^ Cf. Carver, Quarterly Journal of Economics, March, 1891. 
 
PROFIT DEFINED 97 
 
 than, the value of the time and effort devoted by him to the 
 enterprise. 
 
 There is, then, room for a concept of risk wage; and 
 for this there could be no valid objection to the term risk 
 profit, were the term profit not already overweighted in 
 point of duties and overclouded with accumulated ambigui- 
 ties. 
 
 The question, then, whether there is any place for the 
 term risk profit is to be decided by the meaning intended to 
 be attached to the term profit itself; and in regard to the 
 precise meaning of this term there exists lamentable uncer- 
 tainty. There is, however, a general consensus of opinion 
 for the exclusion of interest from the concept; and some 
 disposition must be recognized toward the exclusion of 
 wages of superintendence; and if the foregoing analysis of 
 risk be accepted, there is small justification for continuing 
 to include anything commonly indicated under the term risk 
 profit; and for whatever need really exists the term risk 
 profit and not profit recommends itself. 
 
 Risk interest should be extended to cover not merely 
 the hazard compensation of actual lenders but also the 
 hazard compensation of him who adventures his own 
 resources under his own management.^ 
 
 The question remains whether the term profit shall serve 
 (i) merely for exceptional, unclassified, lawless gains — 
 conjuncture profits as they have sometimes been called, or 
 whether, on the contrary, the term should stand (2) for. the 
 broader notion of compensation for the independently work- 
 ing human factor in production, or (3) for the still broader 
 notion of compensation for the independently gain-acquir- 
 ing human factor in economic activity. 
 
 For it must be noted that here as elsewhere there is 
 danger of confusing the technological and socially produc- 
 
 ^ Cf. Veblen, Theory of Business Enterprise, pp. 120-30, as to the 
 difficulty of finding a time unit for the hazards and gains of high 
 finance. 
 
98 VALUE AND DISTRIBUTION 
 
 tive aspects of business with the competitive and gain- 
 making aspects. Number (2) would conceive profits as 
 compensation for independent productive activity, and 
 would thus make no place for a large part of what fall 
 under the general head of conjuncture gains, but would 
 stand, rather, as an opposed and alternative notion. Num- 
 ber (3), the competitive view, would harmonize (i) and 
 (2) by including them. 
 
 It has been the writer's preference to use the term 
 profit in this third sense, as denoting, that is, the residual 
 compensation falling to independent business activity after 
 such apportionment as is possible has been made for rent, 
 interest, wages, and other outlays. In this sense, profit 
 stands as merely one form of the remuneration of labor and 
 is thereby a subhead under the broader interpretation of the 
 term wages.^ It points to gain without the intervention 
 of an employer; it is, then, remuneration to the entrepre- 
 neur for entrepreneur activity as such. This profit goes, 
 truly, to him who takes the risk, but does not, therefore, go 
 as compensation for the risk or in proportion to it.^ 
 
 ' For wages, it should be remembered, are not derivative solely 
 from technological or other productive activity. I may pay my wage- 
 earner to destroy your property or to besmirch your reputation. 
 
 *The concept here presented is believed to be, in a general way, in 
 harmony with the later trend of economic thought. Taking the recently 
 published works of Professors Carver, Fetter, Flux, Seager, and Seligman, 
 as representative in this regard, it will be profitable to glance at their 
 respective usages. Thomas Nixon Carver, The Distribution of Wealth, 
 Macmillan, 1904; Frank A. Fetter, The Principles of Economics, The 
 Century Co., 1904 ; A. W. Flux, Economic Principles, Methuen & Co., 
 1904; Henry Rogers Seager, Introduction to Econom.ics, Henry Holt 
 & Co., 1904 ; Edwin R. A. Seligman, Principles of Economics, Long- 
 mans, Green & Co., 1905. 
 
 Professor Fetter's notion of profits is more easily arrived at than 
 that of any one of the other writers under examination : "Profits are 
 the net gain of the enterpriser after counting the rent of material 
 
 agents and contract wages Profits are the income attributable 
 
 to the enterpriser's services Economic profits are not contract 
 
 wages, not Tjeing paid by agreement, but being yielded impersonally by 
 the industry. Profits are, however, economic wages or the earnings of 
 
 services Profits are due, not to risk, but to superior skill 
 
 in taking risk. They are .... earned in the same sense that the 
 wages of skilled labor are earned." — Fetter, The Principles of Eco- 
 nomics, chap, xxxi, passim. 
 
 This is not, one infers, a denial that the taking of risk may be the 
 
PROFIT DEFINED 99 
 
 characteristic and distinguishing mark of entrepreneurship, but it is a 
 denial' that compensation for risk is profit, unless in the measure that 
 compensation is more than the value and burden of the risk. 
 
 This falls in with Professor Carver's view that the "profits of 
 insurance are a kind of risk-taker's rent. They owe their existence 
 to the fact that they are not the reward of risk-,taking, but that they 
 are a surplus over and above the real risk assumed. [The entrepre- 
 neur's risk rent] is due not to the risk he assumes, but to the risks that 
 
 he does not assume Stated more accurately .... his net income 
 
 or profit arises from the fact that he is able to reduce his own risk 
 below that which others would h-ave to bear." — Carver, Quarterly 
 Journal of Economics, May, 1901. 
 
 Professor Seager defines profits as "balances left over from the 
 sale of products after all of the expenses of production have been 
 paid," a production-category concept. — Seager, Introduction to Eco- 
 nomics, p. 55. 
 
 In a state of normal equilibrium the competition of entrepreneurs 
 would bring it about that "the profits of entrepreneurs would just cover 
 wages of management." — Ibid., p. 172. 
 
 It is thus evident that in arriving at the profit remainder, Seager 
 would conceive of compensation for one's own land and capital as a form 
 of expense, "virtually an expense," as he puts it elsewhere ; this leaves 
 profit substantially as Fetter conceives it, with some doubt possible as 
 to the precise relation in Seager's view between risk and profit, and, 
 for Fetter's case, with some ambiguity as to whether profit is a pro- 
 duction category or a gain category. 
 
 Professor Flux's notion of profit is more difficult to make plain : 
 but it is formulated in better recognition of the latter-day forms of 
 business organization. 
 
 Under entrepreneur, that is, under non-corporate management, 
 profits are seemingly regarded as in approximate parallel with wages : 
 
 "So long as the business man was in large degree owner and 
 manager at the same time, his remuneration naturally covered the 
 
 return to capital and to organizing effort The growing use of 
 
 capital by other than its owners required the separation of the 
 
 remuneration of the capitalist .... from that of the undertaker 
 
 Later we have seen the growth of a great system of joint stock enter- 
 prise The replacement of the independent owner of business 
 
 enterprises by a salaried manager seems to suggest a further analysis of 
 profit." 
 
 But under the non-corporate form of organization, "the capable 
 entrepreneur reaps a reward corresponding to his superiority over the 
 
 less capable man with whom he is in competition If he gets the 
 
 use of capital on better terms, it is because of the lower risk associated 
 with his control than with that of the others who pay a higher 
 
 rate The gains of the highly remunerated entrepreneur .... 
 
 are certainly not secured by enforcing harder terms on labor than labor 
 
 secures from rivals Whether the earnings of employers who 
 
 just maintain themselves as employers be regarded as made up wholly 
 of wages .... and in no degree of profits ; whether we call the whole 
 of the earnings, even of these entrepreneurs, profits, the important 
 implication of this view of the case will be substantially the same 
 
 tore 
 
100 VALUE AND DISTRIBUTION 
 
 [But] the later organization separates the remuneration of the manager 
 
 from that of the owner The distributive share known as profits, 
 
 then, has in practice, had the remuneration of the services of manage- 
 ment cut out of it. What is left, profits proper, represents the share 
 of those who take risks and assume the responsibility of directing the 
 general lines of policy which the manager is to carry out." — Flux, 
 Economic Principles, chap, x, passim. 
 
 Fully worked out, however, this more actual treatment would not 
 diverge, for theoretical purposes, and for terminology, from the wage- 
 view of profit. Doubtless different forms of personal activity are 
 included within the function of ordinary entrepreneur managership ; 
 some of the these activities are more detailed or more clerical in nature 
 than others ; but in any case all are personal activity and are remuner- 
 ated as such. That a part are delegated — the less responsible part — 
 to salaried employees, leaves the residuum of remuneration none the 
 less a remuneration for personal activity, a wage impersonally received 
 from the market without the intervention of an employer. The divi- 
 dends to stockholders are, then, in part true interest, in part higher 
 gains received because of the danger of not getting any gains or of 
 losing the principal, in part profit due to differentials between the 
 burdensomeness of the risk and its compensation, and in part reward 
 for the function of ultimate supervision. It is not to the point for 
 present purposes to ask whether, as an ethical or social problem, these 
 last are more or less than adequate. 
 
 Professor Carver's concept is more nearly in line with the later 
 German terminology ; wages of management are excluded. 
 
 Notwithstanding the fact that in one place he notes that "it would 
 be expensive . , . . to grow wheat on land worth $i,ooo an acre for 
 market gardening; such land is worth $i,ooo an acre for that purpose 
 because of the large profit that can be made in that business ; to grow 
 wheat would be a sacrifice of these profits" {ibid., p. 42) — a use of 
 profits in the sense of aggregate net return — his more careful formula- 
 tion restricts the notion to "only that which is left over after all the 
 other shares are paid" {ibid., p. 278). Risk profit, by which is meant 
 the excess in the payment for the risk over the actual burden of it, 
 and skill in bargaining whereby productive agents are "more fre- 
 quently employed at a price slightly under than slightly over their 
 marginal productivity, explain the fact that business men as a class 
 receive a share in addition to their net wages, rent, and interest" 
 {ibid., p. 269) ; that is to say, profits are something over and above 
 wages of management. 
 
 But on the whole, if these authors may be taken as representative, 
 there appears to be in economic usage some clearing-up of the old 
 indefiniteness in the meaning of the term profits, together with a marked 
 tendency to regard profit as merely a subhead under the general principle 
 of wages — one form of remuneration for the personal factor in 
 economic activity. 
 
 Professor Seligman's general notion of profit would appear to be in 
 line with this trend : 
 
 The remuneration of the entrepreneur, or the man who carries on the 
 enterprise, is called the profit. Among them, wages, interest or rent, 
 and profits exhaust the whole income. (Seligman, Principles of Eco- 
 nomics, p. 352.) Profits are the income from business enterprise. 
 
PROFIT DEFINED lOi 
 
 (Ibid., p. 353.) But on p. 427 it is said : "Profits .... are the chief 
 inducement to enterprise. The anticipated gains to be derived from 
 fluctuations in value constitute the real incentive to business activity, 
 and hence to modern production." 
 
 In this last it is implied, not only that profits cover merely such part 
 of entrepreneur income as is due to value fluctuations, but also that 
 modern productive enterprise would cease to function were these con- 
 juncture gains eliminated — if, that is to say, "a state of normal equilib- 
 rium" were realized. And with profit so defined, what becomes of that 
 part of the entrepreneur's share not due to value fluctuations? For 
 we are to remember that "wages, interest or rent, and profits exhaust 
 the whole income." This share must seemingly be regarded as falling 
 under the head of wages of mianagement. 
 
 What, according to Professor Seligman, ,is to be computed as 
 profit in the hat-and-shoe problem (p. 88) ? "The remuneration of the 
 entrepreneur, or the man who carries on the enterprise, is called 
 
 profit Wages, rent or interest, and profit exhaust the whole 
 
 income," Under this formulation 35 cents per hat is profit ; but 
 under the second formulation — "the gain to be derived from fluctua- 
 tions in value" — no answer is yet forthcoming. 
 
 If it may be assumed that the cost investigation is important only 
 as bearing on the supply term of the value equation, and that with any 
 individual producer the problem of cost is the problem of how much 
 pay he must receive in order not to abandon or restrict his production, 
 it must be clear that the hat-producer in our assumed case will submit 
 to a price of $1.85 before shifting to the shoe industry, and that the 
 wage opening of 15 cents has no immediate bearing on the case: $1.85 
 is the cost of production; 15 cents is a producer's differential, a "quasi- 
 rent of production," or an "unnecessary profit" — or an excess above 
 minimum profit, or whatever else it may be preferred to call it. 
 
 But how about the following formulation ? "Profits are always 
 a surplus ; they are the difference between the cost of production and 
 the selling price" (p. 353). "The excess of price above cost of pro- 
 duction constitutes profit" (p. 354). On p. 357, however, it is said that 
 "wages are a stipulated income, and profits a residual income" — suggest- 
 ing again the 35-cent solution ; but it is immediately added : "Wages 
 are part of cost; profits a surplus over cost." And likewise on p. 356 
 it is asserted : "Profits are the return from the conduct of business 
 enterprise" — a 3S-cent view ; but shortly afterward, upon the same 
 page : "Interest is a part of cost ; profit is a surplus above cost" — 
 probably, as it now looks, a 15-cent view. But this must finally depend 
 upon what cost of production is held to be. 
 
 But evidently a producer must have something for his services ; 
 only this something need not be called profit ; still it is, as we have seen, 
 sometimes so called. Sometimes, however, the usage falters : 
 
 "The gross earnings would suffice to give him a bare compensation 
 for his services, for otherwise he would enter some other employment 
 as a wage-earner. [Necessarily as wage-earner? or necessarily, if as 
 wage-earner, in some other line of employment?] Gross profits must 
 include interest and wages. But there would be no net profit, or 
 surplus profit, or profit in the real sense of the word" (p. 354). 
 
 Merely noting, in passing, that the necessary wage i? here made 
 part of cost, it becomes evident that this necessary wage is not made 
 a part of "net, or surplus profits, or profits in the real sense ;" profits 
 are, on the contrary, here presented as that part of personal compensa- 
 
I02 VALUE AND DISTRIBUTION 
 
 tion above the amount required for the continuance of the business ; 
 they are differential profits in the sense of that other terminology that 
 holds that "the remuneration of the entrepreneur, or the man who carries 
 on the business, is called profit" (p. 352) ; "Profits are the income from 
 business enterprise" (p. 353). This net, surplus, or real-proUt concept, 
 then, denotes a differential above necessary cost, and gives us 15 cents 
 as the solution of our problem ; and this goes logically along with the 
 doctrine that, "profits .... are the difference between the cost of pro- 
 duction and the selling price (p. 353). The excess of price over cost 
 constitutes profit (p. 354). At the bottom of the scale is the marginal 
 producer working under the least favorable circumstances, and who 
 can nevertheless get no more for his goods. With him price equals cost. 
 The excess of price over cost constitutes profits" (p. 354). 
 
 But still another concept of profits presents itself : "Profits are the 
 surplus of the intra-marginal over the marginal producer" (p. 353) ; not 
 now, be it noted, a surplus above what one must have to keep him in 
 the business, but a surplus above what someone else, the marginal pro- 
 ducer, must have to keep the marginal producer in the business. This, 
 as will be recalled, was Walker's view ; and profit with Walker was 
 likewise presented as no part of cost; what you get more than some- 
 body else gets is no part of your cost ; it follows that price is deter- 
 mined by the cost of the poorest incapable in the trade, it being irrele- 
 vant that he may also be so entirely worthless for any other possible 
 thing that he would not change occupations at any, no matter how 
 great, fall in price ; and the profits unyiecessary to hold in the trade the 
 master-minds of the entrepreneur world are whatever they are getting 
 more than this rear-guard good-for-naught. 
 
 And in line with this terminology it appears — as it consistently 
 ought — that this poor fellow is getting no profits ; which must mean, 
 according to the earlier formulation, that he is getting no differential 
 above his best alternative — which obviously may or may not be true, 
 and is, perhaps, as likely to be true of the most prosperous among his 
 competitors. 
 
 Consistently with this concept, no solution is possible for our 
 problem ; upon the data given, no single entrepreneur, other than this 
 single-footed incapable at the alleged margin, could ever by any possi- 
 bility determine his own or anyone's else cost of production. 
 
 Bearing in mind that "net or surplus profit, or profit in the real 
 sense," has been defined as surplus over cost — producer's differential 
 above necessary remuneration — we approach still another concept of 
 profit — a notion something like the German Conjuntur-Pro-fit. Those 
 compensations accruing to personal activity and management, over and 
 above what must be ascribed to the land and other equipment of the 
 entrepreneur, may undoubtedly be divided accordingly as they are or 
 are not due to changing conditions — to market fluctuations — tardy com- 
 petition — conditions which are, in any society, always in process of 
 coming not to be, and which in stationary conditions must in time be 
 canceled through the complete working of competition. That is to say, 
 there is one portion of the entrepreneur's income which may be said 
 to belong to him by a sort of permanent desert and right ; full and 
 complete competition would only serve to make this share more secure 
 and definite ; while there is another part which befalls irregularly, by 
 luck and hazard, and without ethical basis, or claim of any merit other 
 than, possibly, of farsightedness, and only through the perversities and 
 tangles of things. There are, we repeat, gains of this latter sort, as 
 
PROFIT DEFINED 103 
 
 truly as there are residuals which the disappearance of these fortuitous 
 influences would never reduce or menace. Our author's present concept 
 of proiits contemplates these fortuitous quantities : "Profits are a 
 result of price, not a cause of price. Products at a lower cost create 
 profit ; competition forces prices down to lower cost and eliminates 
 profits. Profits can be maintained only by the creation of a continually 
 
 newer cost-level lower than the new price (p. 357) For as soon 
 
 as profit appeared, the entrepreneurs in other fields who were just mak- 
 ing expenses would at once bid against each other to secure capital and 
 labor, until they would capture their share of the market, and the 
 profits would dissipate themselves, on the one hand in the higher rate 
 paid for the factors of production, and, on the other hand, in the lower 
 
 price of the product due to the greater supply (p. 354) It may 
 
 conceivably happen, indeed, that all the producers at a particular 
 moment are men of precisely the same abilities and subject to the same 
 
 conditions There would be only one identical cost for all units 
 
 of the supply. There could, then, .... not be any permanent profit 
 to all the producers, because prices could not permanently remain 
 above the mere cost of producing" (p. 245). 
 
 It is evident enough that, on this basis, no precise answer can be 
 given to the inquiry as to how much of the entrepreneur's gain is due 
 to his own productive activity, and how much to the gifts of fortune, 
 through the flux and change of processes and values. Neither our prob- 
 lem as stated nor any other problem could present materials from 
 which this notion of profit could arrive at a money statement. And 
 with this uncertainty as to the competitive share of the remuneration 
 there must go also an equal indefiniteness as to the other share — the 
 right, due, earned, just, enduring share. Thus this fifth or sixth variety 
 of profit appears to promise greater service in ethical — or possibly 
 sociological — discussion than in the field of economic analysis. It 
 remains, however, certain that something of this rightful and natural 
 share there must be — quantitatively and qualitatively vague doubtless, 
 but existent. But we find it written : 
 
 "Wages differ from profits in that wages are a stipulated income 
 
 and profits a residual income Wages are a part of cost, profits a 
 
 surplus above cost. The entreprenuer may think that he deserves a 
 return for his services, but whether he secures one depends upon his 
 competitors. There is always a certain level below which wages cannot 
 fall, because no work would otherwise be done ; but the very continuance 
 of competitive profit depends upon the abler producer cutting down 
 cost to the point where the marginal producer earns no profits (p. 357). 
 In society in a state of rest .... the marginal producer would hardly 
 make both ends meet, but would earn nothing above his cost" (p. 246). 
 
 This last statement seems to imply that all compensation that does 
 not accrue as gift of fortune is cost — that is, is necessary compensation. 
 Thus the doctrine which under stable equilibrium would deny to any 
 producer anything above his necessary remuneration would amount to 
 assigning to him in his best field of activity precisely what — and no 
 more than what — he would be worth in his next best field, this ethically 
 just ending in the strange perversity of measuring what one can do, 
 not by what he does, but by what he would do if he did not do so 
 much. 
 
 It is evident enough that we are thus far all the while within the 
 field of individualistic entrepreneur cost ; and in this field there is still 
 one more cost concept to be presented : 
 
I04 VALUE AND DISTRIBUTION 
 
 "To the employer cost means total cash outlay expended in produc- 
 tion ;" and it is added : "Here the cost is usually less than the price, 
 the difference between cost [cash outlay] and price being profit." This, 
 however, may possibly not be fairly interpreted as a fifth — or sixth — 
 profit concept, since the notion of profit here held would finally resolve 
 itself into total remuneration for entrepreneur activity. 
 
 Professor Flux's interpretation of the relations of profit to cost 
 is to be deduced from the following : 
 
 "The influence of cost is felt in determining whether it is profitable 
 to produce that supply in view of securing the price so determined, 
 
 whether the supply can be, economically speaking, maintained 
 
 The term 'supply price' here used means a price adequate to induce 
 producers to prepare, and offer for exchange, a supply corresponding 
 to that price. It must therefore be a price suificient to cover cost of 
 production, and, if competition be vigorous, the excess over cost of pro- 
 duction will not be more than sufficient to afford such profits as com- 
 petitors need to secure in order to continue in competition. Some 
 writers use the phrase 'necessary profits' to apply to the level to which 
 competition tends to reduce profits, and such 'necessary' profits are 
 often taken to be included in cost of production" (pp. 52 and 57). 
 
 Stopping merely to note that expenses of production and cost of 
 production are here used as interchangeable terms, we deduce from the 
 passage cited that the amount to be fixed as the cost requirement is not 
 necessarily $1.85 or $1.80, but is a sum "not more than sufficient to 
 afford such profits as competitors need in order to continue in pro- 
 duction," Profits which would content other producers are the "neces- 
 sary profits" for this producer, whether or not — one takes it — he finds 
 himself on any other ground able to be contented. 
 
 Fetter holds that, "the value of the product as a whole cannot be 
 related to the psychic cost or sacrifices ["pain, fatigue, irksomeness of 
 labor"] and therefore it cannot serve as a measure of cost in every- 
 day business. Alternative cost is any good or gratification that must be 
 given up when any other good is chosen. In this sense each thing is a 
 cost of every other thing that might be chosen in the place of it. 
 Alternative cost is, therefore, manifold and indefinite. The thought is 
 significant at the moment of choice, but is not constantly measurable 
 for practical purposes. Money cost is the practical cost generally 
 
 implied in the term cost of production The enterpriser's costs 
 
 determine the lowest price at which he can continue to sell, but if suc- 
 cessful, he may have a wider margin of profit" (p. 274). 
 
 Recalling that Fetter's definition of profit is "the income attribu- 
 table to the enterpriser's services," and remembering that displacement 
 costs must not be regarded, and that only the "money paid out by the 
 producer" is "practical cost," $1.50 or $1.65 must be Fetter's solution 
 of the problem in hand. And yet $1.65 is clearly not "the lowest price 
 at which he can continue to sell ;" it is much lower than the lowest. 
 
 With Seager the distinction between cost of production and expenses 
 of production is significant. In cost he reflects the old doctrine of pain 
 cost — ^psychic cost, as Fetter has it — ^but with the addition of some 
 modern doctrine about displaced leisure and displaced consumption- 
 time. "The sum of the efforts and sacrifices that are involved in 
 
PROFIT DEFINED 105 
 
 production constitute .... the cost of production Effort, .... 
 
 exercise which involves some discomfort or pain .... sacri- 
 fices, .... the doing of things that are less pleasurable than other 
 things that might have been done but free from any element of pain" 
 (P- 53)' Just what use or part this kind of cost has in Seager's system 
 of theory is not easy to get at ; but "contrasted with the costs of pro- 
 duction which are psychological or subjective, are the expenses of 
 production — advances made for materials and other things which 
 co-operate in bringing about productive results. The latter are objec- 
 tive and may be expressed as sums of money comparable with the 
 prices received for products" ,(?• 54)- 
 
 Whether these costs are confined to those technological facts which 
 aid in bringing about productive results — a social concept of produc- 
 tiveness — or whether "all other things" includes expenses for patents, 
 royalties, franchises, privileges, good-will, legislative and municipal 
 favors, etc. — that is, whether the production under consideration is 
 conceived private-wise and competitively, as matter of individual 
 acquisition, need not concern us here. At any rate, "the expenses of 
 production include every item of outlay which producers must 
 normally and regularly incur to put goods on the market and effect 
 their sale, and also such compensation as producers normally and 
 regularly require as the condition of their continuing to serve 
 industrial society in the capacity of entrepreneurs. These items are 
 as follows: (i) Outlay for materials, wear and tear of buildings and 
 machinery, etc., which may be included under the expenses of repla- 
 cing capital goods used up in production. (2) Premiums paid for the 
 insurance of capital goods, (3) Interest for the use of capital. (4) 
 Wages to laborers of all grades, (s) Rent of land and natural power 
 used in production. (6) Taxes. (7) Minimum profits to the entre- 
 preneur to remunerate him for his own time and trouble" (p. 157.) 
 
 What then would be Seager's answer to our hat-cost problem? 
 How much- as cost shall be allowed under the head of minimum profits ? 
 Seager has a displacement-cost doctrine ; but wage or salary alternatives 
 are the only ones admitted to consideration : "The amount that 
 should be charged as wages of management or minimum profit is what 
 the entrepreneur could obtain for his services if he worked for wages 
 or for a salary for a corporation or other employer" (p. 159). One 
 dollar and eighty cents is then the answer. But it is nevertheless clear 
 that at anything short of $1.85 he will shift to shoe production. 
 
 Now let the problem be modified somewhat ; let the raw materials 
 and the wages aggregate $1,50 as before, but assume an interest out- 
 payment of 10 cents, the employer using his own capital to the interest 
 value of 5 cents. Will this modify the solutions given? Not with 
 Seager : expenses are to be understood as including interest items of 
 this sort : "The item appears whether, in the particular business, bor- 
 rowed capital or capital belonging to the firm is used It is 
 
 virtual outlay," Precisely so : but expenses strikes one as a passably 
 poor term to denote the interest on one's own capital ; and it is outlay 
 of any sort only in the sense of a displacement fact — an opportunity 
 cost. 
 
 It is difficult to be certain of what Fetter would make of this case, 
 though it is fair to suppose that, by some sort of recognition of this 
 phase of displacement cost, he would somehow arrive at a conclusion 
 similar to that of Seager. And for him also the awkwardness would 
 
io6 VALUE AND DISTRIBUTION 
 
 present itself of making this cost fall within "the sum of money paid 
 out by the producer." 
 
 With Flux likewise the solution would probably be the same, 
 though it does not clearly appear how, unless upon the ground that 
 other and competing producers would not be satisfied were their 
 capital not earning a certain specified rate, which rate the shoe manu- 
 facturer is thereby justified in computing as within his expenses. 
 
 Carver's definition of profit as what is left over "after the other 
 shares are paid," these other shares including wages of superintend- 
 ence, obviously excludes profits from the case, but none the less leaves 
 it to be asked what relation entrepreneur activity holds to costs and to 
 value. 
 
 Accepting one formulation, "The amount of effort which is neces- 
 sary to produce a given quantity, say a pound, of one commodity may 
 be widely different from that which is necessary to produce the same 
 
 quantity of another When it requires a great deal of effort to 
 
 produce an article, no one will ordinarily be tempted to make that 
 
 effort unless the article has a great deal of value Speaking 
 
 generally, an article must have value enough to persuade men to 
 make whatever effort is necessary to its production, or it will not be 
 
 made at all That is to say, its value cannot be permanently 
 
 much above or below its cost of production" (p. 31) — we are far from 
 any answer to our problem ; the principle of value is here stated as one 
 of pain costs to the employed producer ; the doctrine is not an entre- 
 preneur money-cost doctrine in any sense ; the "efforts necessary to its 
 production" are not employer facts. For the purposes of the problem 
 in hand, this is an impasse. 
 
 But Carver has an opportunity-cost doctrine which promises 
 better : "If there are many and excellent opportunities for the employ- 
 ment of one's labor and capital, and their earnings consequently 
 large, much will be sacrificed in withdrawing them from those other 
 possible openings, and only the surplus above this large amount can 
 
 count as the earnings of the land If a certain individual 
 
 with a certain amount of labor and capital at his disposal can earn 
 $1,000 a year by working for other people .... a piece of land upon 
 which he with his capital could produce a total crop worth only 
 $1,000 would be worth nothing to him, but one upon which he could pro- 
 duce a crop worth $1,200 would be worth approximately $200 a year" 
 (p. 188). 
 
 Like Seager's view, this appears to conceive the displacement cost 
 as fixed by the wage or salary opportunity; $1.80 is therefore 
 Carver's solution. 
 
CHAPTER IX 
 EARLY UTILITY THEORY: SAY 
 
 Dr. Sewall ^ has made it clear that, in the main, early 
 value theory — for what there was of it — was of the labor- 
 cost tenor. Mercantilism, for the most part, conceived 
 labor as the basis of value, the notion standing, both for 
 labor and for product, as one of intrinsic or natural value 
 as an objective quality. 
 
 The Physiocrats also were pronouncedly objective in 
 their notion of value, identifying wealth with material 
 objects, and value intermediately with cost of production, 
 truly, — but finally and essentially, with the material land 
 product embodied in a commodity, and especially with the 
 subsistence material consumed by the artisans. And if it 
 be historically the fact that the wage level of French labor 
 left no surplus above the subsistence requirement of that 
 time, it must be admitted that the doctrine as held did not 
 seriously misinterpret the facts with which it had to do; 
 wages cost and subsistence cost must, under the conditions 
 assumed, be approximately equal. 
 
 But there were in Italy, even as early as the sixteenth 
 century, the beginnings of the other line of thought. Da- 
 vanzati (1588) recognized clearly the notion of utility as 
 subjective fact and as determinative of exchange value. 
 "A disgusting thing is a rat; but in the siege of Cesalino 
 one of them was sold for 200 florins, on account of the 
 great scarcity; and it was not dear, for he who sold it died 
 and he who bought it escaped." So Turgot (France, 1775), 
 following Galiani (Naples, 1750), explained value, 
 
 ^ Hannah Robie Sewall, Ph.D., "The Theory of Value before Adam 
 Smith," Publications of American Economic Association, 1901. 
 
 107 
 
lo8 VALUE AND DISTRIBUTION 
 
 psychologically and subjectively, as the effect of conditions 
 acting through feeling. 
 
 But the first systematic exponent of the utility school of 
 value was J. B. Say.^ 
 
 Inasmuch as the need of things must lie behind the 
 labor production of them, and the need of product lie 
 behind the esteem accorded to instruments of production, 
 desire being the psychological explanation for the putting- 
 forth of effort, it seemed clear to Say that the ultimate 
 explanation of value must be found, not in cost, but in 
 utility. From the point of view of motive, consumption is 
 fundamental to production; thereby the process of valua- 
 tion must, in the last analysis, be a question of the relation 
 of product to consumption, and not of product to produc- 
 tion. 
 
 But note that, accordingly as economic affairs are dif- 
 ferently conceived, this may or may not involve the propo- 
 sition that demand precedes supply and controls it. In the 
 collectivist or in the isolated-individual economy, desire 
 and demand, as we have seen, are one. And in a competi- 
 tive exchange-value economy, viewing society as a whole, 
 and regarding, for the purposes of the case, the existence 
 or non-existence of a money intermediate as irrelevant, 
 total supply is total demand; demand and supply are merely 
 different aspects of the same aggregate of commodities. 
 But if, on the other hand, commodities are regarded, not as 
 an aggregate but as made up of separate kinds and classes, 
 it must be true that only effective demand, demand coupled 
 with purchasing power, can control and direct supply; and 
 this is especially and obtrusively true under a money 
 economy. 
 
 Say, however, saw no occasion to trouble himself with 
 these refinements. He accepted the obvious truth that price 
 cannot continuously remain beneath cost of production ; 
 nevertheless, not the cost but the utility determines what the 
 purchaser may be made to pay; if the product is not useful, 
 no one will pay anything for it, no matter what the cost : 
 
 * Say, Traite d'economie politique; all references are to the 8th 
 edition, Guillaumin et Cie, Paris, 1876. 
 
EARLY UTILITY THEORY: SAY 109 
 
 Where a receptacle is placed under a fountain, the sides of the 
 receptacle do not determine the flow of the water, though they do 
 prevent the level of the water from falling below a certain point.' 
 
 Ricardo would, however, have taken no issue here. On 
 August 15, 1815, he wrote to Say, 
 
 The utility of things is unquestionably the basis of their value. 
 But the degree of their utility cannot be the measure of their value; 
 the measure is in the difficulty of production. 
 
 But Say, on his part, is careful not to assert that utility 
 measures value, but only that value measures utility.* His 
 position seems to be that the utility determines the value, 
 causes it, and thus, under the general principle that the 
 quantum of cause may be inferred from the m.agnitude of 
 its effect, gets measured in it; utility, being purely an indi- 
 vidual matter, cannot express or measure market value, 
 but, through demand, it determines the market value, which 
 market value is thus the sole medium of expression, the 
 sole common denominator, in which, whether accurately or 
 approximately, the social or general esteem for utility 
 receives its statement. 
 
 Thus interpreted, the issue between Say and Ricardo 
 may be formulated about as follows : 
 
 Ricardo, admitting the fundamental role of utility and 
 not at all denying the directive character of demand, treats 
 demand as practically a constant, and explains value varia- 
 tions through variations in the relative labor application. 
 
 Say emphasizes variations in demand as fundamental 
 and directive, but gives to variations in supply full account 
 by way of variations in entrepreneur cost : 
 
 The need of a thing causes the demand; the expenses necessary 
 to produce the thing limit the supply. If to the consumer the thing 
 is worth its cost, the thing gets purchased.' 
 
 ' Say, op. cit.. Book I, chap, i, p. 61. 
 
 * "You accuse me of saying that utility is the measure of value. 
 I thought I had always said that the value that men attach to a xning 
 is the measure of the utility that they find in it." — Letter to Ricardo, 
 December 2, 1815. 
 
 "Say to Ricardo, July 19, 1821. 
 
liO VALUE AND DISTRIBUTION 
 
 Value, in Ricardo's doctrine, is proportional to labor — 
 through entrepreneur cost, it is true — ^but exclusive of land 
 and capital disturbances. With Say, value is proportional 
 to entrepreneur cost inclusive of rent and interest outlays. 
 
 Ricardo would have labor measure value, labor itself 
 the while receiving no measure. With Say, value measures 
 utility, value receiving no measure. 
 
 In answer to Ricardo's vigorous denial that the value of 
 the labor determines the value of the product, "a view which 
 I strive with all my might to refute," and his insistence that 
 it is only the comparative quantity of labor that rules the 
 relative value of products,® Say objects that there is really 
 no distinction, since "you cannot determine the quantity 
 of labor except according to the price that you pay for 
 it"7 — that is to say, labor, unless it can be shown to possess 
 some basis of original and fundamental homogeneity, must 
 be rendered into terms of value before a proportion can be 
 based upon it; but thereby labor must itself have received 
 a measure. Still, it was not fairly open to Say to condemn 
 this for its question-begging quality, in view of the fact, 
 as we shall later see^ that his own course of argument ran 
 as follows: having traced value upon the demand side, to 
 utility, he appeals upon the supply side, as does Ricardo, to 
 the entrepreneur mechanism and explains the values of the 
 products by the values of the costs ; and then, to explain the 
 values of the costs, reverts to the value of the products.^ 
 
 'Ricardo to Say, January 15, 1820. 
 
 ''Say to Ricardo, November 2, 1820. 
 
 ^ It will, perhaps, be well to report the precise words of this 
 correspondence, in the terms of the authority from which it is taken ; 
 Ricardo's letters, were, however, originally written in English : 
 
 Ricardo to Say, August 15, 1815 : "L'utilite des choses est incon- 
 testablement le fondement de leur valeur ; mais le degre de leur utilite ne 
 saurait etre la mesure de Icur valeur. Une marchandise d'une pro- 
 duction difficile sera toujours plus chere que celle que Ton produit 
 aisement, quand meme les hommes conviendraient unanimement quelle 
 est plus utile que I'autre. II est bien vrai qu'il faut qu'un produit 
 soit utile pour avoir de la valeur ; mais la difUculte de sa production 
 est la seule mesure de sa valeur." 
 
 Say to Ricardo, December 2, 1815 : "II faut que je me sois bien 
 mal explique, puisque vous m'accusez d'avoir dit que l'utilite etait la 
 
EARLY UTILITY THEORY: SAY m 
 
 Ricardo in a letter to Malthus, October lo, 1820, says 
 of Say: 
 
 He pretends that a commodity is valuable in proportion to its 
 utility. This would be true if buyers only regulated the prices of 
 
 commodities But the buyers have the least in the world 
 
 to do with regulating the price; it is all done by the competition of 
 the sellers. 
 
 And again, on November 24, 1820: 
 
 I do not dispute the influence of demand on the price of corn or 
 on the price of other things, but supply follows close at its heels, 
 and soon takes the power of regulating price into its own hands.' 
 
 It is not, however, dear that Say asserts value to be in 
 proportion to utility. His position is merely that value 
 measures utility; in ultimate analysis, also- — though it is 
 not clear that Say recognized it — value cannot be in pro- 
 portion to utility, since being a purely personal category, 
 utility to one man is not commensurable with utility to 
 another man; only through affecting demand can utility be 
 relevant to market value. And the case stands the same if 
 
 mesure de la valeur ; tandis que je croyais avoir toujours dit que la 
 valeur que les hommes attachent a une chose est la mesure de I'utilite 
 
 qu'ils trouvent en elle Je conviens de meme, avec vous, que la 
 
 valeur d'un produit ne peut pas baisser audessous de ce que coutent les 
 difficultes de sa production. Si les hommes estiment que son utilite vaut 
 ce prix-la, ils le produisent ; s'ils estiment que son utilite ne vaut 
 pas ce prix-la, ils ne le produisent pas." 
 
 Ricardo to Say, January ii, 1820: "Vous me paraissez avoir mal 
 comprit une de mes propositions. Je ne dis pas que c'est la valeur du 
 travail qui regie la valeur des produits ; c'est une opinion que je 
 cherche, de tout mon pouvoir, a detruire. Je dis que c'est la quantite 
 comparative du travail necessaire a la production qui regie la valeur 
 relative des produits." 
 
 Say to Ricardo, March 2, 1820 : "Je vous avoue que je ne com- 
 prends pas trop la difference que vous etablissez entre la valeur du 
 travail qui ne determine pas la valeur des produits, et la quantite du 
 travail necessaire a leur production qui determine la valeur des 
 produits. II me semble que vous ne pouvez determiner la qtiantite et 
 la qualite du travail que par le prix que Ton paie pour I'obtenir. C'est 
 du moins ce que j'ai toujours entendu par la quantite de ce service 
 productif que j'ai appelle service industriel. Son prix fait partie des 
 frais de production, et vous-meme etablissez tres-justement que 
 I'ensemble des frais de production regie la valeur du produit." — 
 CEuvres diverses de J, B. Say, Paris, Guillaumin et Cie, 1848, Vol. IV, 
 pp. 409-15, passim. 
 
 • Bonar, Letters of Ricardo to Malthus, p. 1 72. 
 
112 VALUE AND DISTRIBUTION 
 
 carried out to the marginal analysis ; the marginal buyer 
 may consume at a very high rate of utility or at a very low 
 rate. At the margin, as elsewhere under the competitive 
 system, things go, not according to the highest utility, not 
 to those persons to whom the greatest service would accrue, 
 but to those whose estimate of utility is highest relatively 
 to other things, — to those persons, namely, who will forego 
 the largest market-value total; the rich man buys what the 
 poor man goes without. 
 
 But Say is nevertheless right in asserting the value 
 measure of utility to be a fact, in the sense that by price 
 some sort of appraisal of utility is expressed in terms of a 
 standard, no matter how wide of strict proportionality to 
 utility the price may fall, or how loose and inaccurate a 
 measure it may be, and no matter to what m.an, marginal or 
 other, it may be a measure — and would perhaps be right in 
 asserting that there can be no other rneasure ; and he might, 
 perhaps, have also done well to deny — if, indeed, he did 
 not deny — that there can be any measure of value, except, 
 of course, in some conventional standard, like this of money. 
 Has, in truth, value any other statement than by equiva- 
 lency in other things of value? Will values reduce to homo- 
 geneous utility? Say did not assert that they would; later 
 writers, fortunately or otherwise, have so asserted. 
 
 The value of a thing, in Say's view, rests upon the 
 fact that the thing has utility; this value indicates that "it 
 is esteemed as highly as a certain quantity of another indi- 
 cated thing." ^° But this value presents not the owner's 
 valuation nor that of any other individual : it is a fact of 
 general estimation, a question of what will be paid — seem- 
 ingly some sort of vague foreshadowing of the society-as- 
 an-organism concept. 
 
 "The price of products is established in each market at 
 the limit fixed by the cost of production, provided that the 
 utility which is ascribed to the products promotes the desire 
 to acquire them." ^^ It remains, then, to seek out the causes 
 
 " Say, Traite d'economie politique, Livre II, chap, i, p. 333, 8th ed. 
 Paris: Guillaumin et Cie, 1876. 
 
 ^ Ibid., p. 341. 
 
EARLY UTILITY THEORY: SAY 113 
 
 whicTi determine the prices of the productive agents (fonds 
 productifs) . ^^ 
 
 Say's doctrine is that utiHty is primary and cost the 
 resistance, which cost is determined by the values borne 
 by the productive agents employed. This makes value in 
 the agent a cause of value in the product; but directly the 
 value of the product will be made the source of value in the 
 agent. And it is not made clear what relation the entre- 
 preneur's services hold to the result. Do these also give 
 value at the same time that they receive it? 
 
 Say admits that if production were merely a matter of 
 labor, with all labor at one level of efficiency and of wage, 
 those products requiring equal amounts of labor would 
 have relative prices to correspond. But land and capital 
 come in, and different qualities of men and of land come 
 in, and products are the dearer the more and the dearer 
 are, in the aggregate, the productive energies employed in 
 bringing them to market. "The price will be the sum 
 necessary to pay the expenses indispensable to the creation 
 of the commodity." ^^ 
 
 Say has small regard for the view that all differences 
 in wages are explained by the different costs of rearing and 
 of preparation, so that, all the data being considered, all 
 wages are equal. And if exception is made of native talent 
 and of circumstances of environment, these exceptions, he 
 rightly insists, invalidate the rule.^* 
 
 It is interesting to note that Say has, nevertheless, a 
 doctrine of real value and of real cost. In general con- 
 formity with the reasonings of Smith and Ricardo, real 
 value and real cost are worked out as dependent upon the 
 pain conditions of production and expressive of them. So 
 real value may fall while exchange values are not affected 
 — a clear recognition of the fact that only relative costs 
 are important for exchange value.^^ 
 
 But to return to Say's explanation for the valuation of 
 
 *^ Ibid. J p. 342. 
 
 Fonds productifs are something more, in Say's thought, than the 
 
 mere objective physical facts : they are valued — funded — and thereby 
 capable of functioning as cost data. 
 
 ^Ibid., p. 342. ^^Ibid.j p. 343. ^ Ibid., pp. 343-52. 
 
114 VALUE AND DISTRIBUTION 
 
 cost goods : It is interesting to note that all of this discus- 
 sion falls, with him, under the head of distribution. Say, 
 like J. S. Mill, takes value and distribution to be parts of 
 one problem. And if wages and interest are costs and, as 
 such, influence value, this conclusion seems to be inevitable ; 
 incomes, while distributive shares to their recipients, are 
 costs to those who disburse them as production outlays. 
 There is no escape from this unless in denying that dis- 
 tributive shares are determined by values. And this seems 
 to say that it is only the classical school who can separate 
 value and distribution; and in the main they did not, 
 though it is true that subsistence cost for wages 
 and abstinence cost for interest were each, upon 
 occasion, appealed to as determinants of the com- 
 pensations fundamental to value. The later school can- 
 not logically make the separation — and yet, as we shall see, 
 they somehow make it. It is, however, to be said that, other- 
 wise than upon this separatist treatment, the position of the 
 later school would appear somewhat too obtrusively to 
 involve this circuity of explaining costs by value and value 
 by costs.^® 
 
 The current value of these productive agents (fonds) .... 
 is established according to the same principle as the value of other 
 
 things But the quantity demanded cannot have as motive 
 
 the satisfaction of consumption. A field or a factory does not 
 directly procure any satisfaction for its possessor. Their value 
 comes, then, from the value of the product which can be derived 
 from them, this depending, in turn, upon the use that can be made 
 of the product, the satisfaction that can be derived from it." 
 
 " Nor, if scientific explanation or intelligible exposition is the 
 end in view, is it a sufficient disposition of the case to declare it 
 organic, and thereby to assert or infer that circular reasoning is both 
 justifiable and inevitable. This is simply to throw up the hands, to 
 abandon the problem. There may, it is true, be nothing else for it, 
 but if this is so, let it be so said and an end made of the talking : 
 surely by those who assume explanation to be impossible, the offering 
 of further explanations is gratuitous. 
 
 In this connection, a note of Say's at the bottom of page 373 will 
 be of interest : "I have long doubted whether in the plan of this work 
 I should develop what relates to value before what relates to pro- 
 duction, that which shows the nature of the produced fact before the 
 manner of its production. It has seemed to me that in order to under- 
 stand the foundations of value it is necessary to know in what the 
 costs of production consist, and, to that end, to form in advance wide 
 and accurate notions of the agents of production and of the services 
 which may be derived from them." 
 
 " Say, op. cit., p. 367. 
 
EARLY UTILITY THEORY: SAY 115 
 
 The foregoing would seem to deny the influence of cost 
 and to place the determination of value entirely with utility. 
 And to assert, as does Say elsewhere, that each cost has its 
 value as such in proportion to the value that it produces, 
 does not, as has already been noted, appear greatly to help 
 the case. 
 
 But later, this doctrine receives a supplement which 
 may perhaps sufQce to save it; agents of production do not 
 get their value directly from the product, but as agents to 
 be combined with entrepreneur activity, and to function 
 with it and under the hire of it, in the production of value ; 
 their remuneration, therefore, is not precisely the market 
 value of their product, even if, as Say believes, this be, with 
 accuracy, separately ascertainable, but is merely the market 
 value of their co-operation in value production — a quite 
 distinguishable thing: 
 
 Whoever controls labor or land or capital is a merchant of that 
 
 commodity which we call a productive service Entrepreneurs 
 
 [note the term] are nothing but intermediaries who, according to the 
 demand there is for a product, bid for the productive services 
 necessary for the making of it. By comparing the prices with the 
 costs necessary to the production of this or that product, entre- 
 preneurs decide to produce this or that product, and establish the 
 demand for all productive services, and, on the demand side, 
 furnish the basis for arriving at the market value of these services. 
 
 The quantity of services offered is the supply basis for 
 this value.^^ 
 
 Sympathetically interpreted, nothing quite so modern as 
 this is to be found in any of the modern books : no doubt, 
 however, this sympathetic interpretation reads into Say's 
 doctrine more than he himself saw in it ; his explanation of 
 the value of the agent really errs in being over-direct — in 
 making the value of the agent to be in theoretically strict 
 proportion to the value of the product. Still, he does not 
 precisely say this ; according to him, the different distribu- 
 tive shares, however received — whether directly from pro- 
 duction, or as hire-paid, daily or weekly, or yearly, and 
 whether wages or rent or interest — are derived through the 
 entrepreneur, "but in whatever manner this revenue is 
 
 ^' Op. cit., p. 372. 
 
Ii6 VALUE AND DISTRIBUTION 
 
 received, it is always in the same right, and its source is 
 always a produced value:" in objection to which, or in 
 amendment of which in point of possible ambiguity, it is 
 to be remarked that when a remuneration is received 
 through an entrepreneur, there is no knowing precisely 
 what the value product of the agent is ; and were this know- 
 able, there is no theoretical warrant for believing that the 
 remuneration will equal the product or be proportional 
 to it. (See below, chap, xxii.) 
 
 Say's doctrine of rent also reads like some chapter out 
 of the latest of modern thought: Whether land be good 
 or bad, its annual revenue will be the same ratio to its total 
 value, — say the twentieth; this rent may be expressed as a 
 per cent, or as a per-acre quantity, and it is in the latter 
 sense only that good land may command rent a hundred 
 times greater than poor land. "Comparing the value of 
 the product with the sale price gives the rent of the land, 
 and the rent of good land cannot be higher than the rent 
 of poor land" (in this sense of ratio) .^^ 
 
 We must note, however, that this perfect equality of 
 ratio between the total value of different lands and the 
 term value productivity of these respective lands assumes, 
 not merely the distinguishability and separate appraisability 
 of the product, but also a perfect homogeneity in the quality 
 of the cultivators. Were these all alike in preferences and 
 
 ^^ Op. cit., p. 433. 
 
 This paragraph is so important as to call for the author's precise 
 words : "En comparant un bon terrain avec ce qu'il coute, on pour- 
 rait croire qu'il ne rapporte pas plus qu'un mauvais ; et, en effet un 
 arpent dont on retire cent francs et qui coiite d'achat trois mille 
 francs, ne rapport pas plus qu'un arpent dont on retire seulement dix 
 francs et qui ne coute que trois cent francs. Dans I'un et I'autre cas, 
 la terre rend a son proprietaire, chaque annee, le trentieme de sa 
 valeur. Mais qui ne voit que c'est le produit annuel qui a eleve la 
 valeur du f onds ? La valeur du produit compare avec le prix d'achat 
 fait la rente de la terre, et la rente d'une bonne terre peut n'etre pas 
 superieure a la rente d'une terre mediocre ; tandis que le profit 
 fonder est la valeur du produit annuel compare avec I'etendue du ter- 
 rain ; et c'est sous ce rapport que le profit que rend un arpet de bon 
 terrain peut etre cent fois superieur a celui d'un mauvais." 
 
 This, it will be noted, is the view in support of which Professor 
 Fetter has marshaled all the resources of wide historical research and 
 of keen theoretical analysis. It may now be hoped that this truth, 
 having so long awaited its second statement, may, in its later and more 
 scholarly presentation, have the good fortune not to be again forgotten. 
 
EARLY UTILITY THEORY: SAY n? 
 
 aptitudes and in cleverness of bargaining, or were all land 
 alike in point of adaptation to varying methods, e. g., to 
 intensive and extensive methods of cultivation, and alike 
 also in adaptation to the varying preferences, tastes, aspira- 
 tions, and skill of the cultivators, the proportion would, 
 truly, be a constant between the market value of the agent 
 and its value productivity. With facts as they are, this pro- 
 portion can be asserted only between the market value of the 
 land and the market value of its value productivity; 
 this last proportion, however, means nothing for the 
 present purpose, since the market value of the rent-bearer is 
 nothing but the capitalization of the prospective rentals 
 according to the current market rate for such invest- 
 ments. 
 
 Savings and capital applied to the land become part of it; ... . 
 they lose the nature of capital and become land funds.°° 
 
 One part of the national capital is diminished to the 
 corresponding increase of another part. It is thus evident 
 that Say cannot possibly concur in Ricardo's notion of the 
 relation of rent to cost and to value. Ricardo arrived at his 
 labor -proportion doctrine of value, first, by reducing capital 
 to labor and, second, by excluding rent from the computation 
 — that is, by placing value fixation at the land margin. 
 It is probable that this service to the labor-cost doctrine was 
 all or nearly all that, in Ricardo's mind, these tributary 
 doctrines were ever good for. Recalling, however, that the 
 labor-proportion theory was worked out by him through 
 the entrepreneur mechanism, the notion becomes untenable 
 that as a problem in entrepreneur cost the expense of pro- 
 duction is greater upon marginal land than upon other 
 land, or that as a question of entrepreneurship — of the 
 personal margin as against the instrument or agent margin 
 — the marginal cultivator is more likely to be upon mar- 
 ginal than upon other land. The question is, therefore, 
 ultimately — and we have finally arrived at it — whether in 
 the cost investigation we are concerned with social labor- 
 purchase cost as against competitive entrepreneur cost, or 
 with agent and instrument margins as against that marginal 
 entrepreneur in whose processes of choice all agents and 
 instruments, marginal or other, are mere data. And finally 
 — but as less difficult — there is the problem whether, upon 
 a value basis, marginal land or marginal capital or marginal 
 
 '"Op. cit., p. 435. 
 
Ii8 VALUE AND DISTRIBUTION 
 
 labor can mean anything more than valueless land, valueless 
 capital, or valueless labor — the equivalents of free land, 
 free capital, and free labor — economically, that is to say, 
 no land, no capital, no labor. 
 
 At any rate, it is clear that the argument that the rent 
 of better land does not enter into cost of production, since, 
 for whatever more is advanced as rent, there is a corre- 
 sponding increase of product, would equally well apply to 
 exclude wages or interest from cost. 
 
 As we have seen, there is never, in the crucible of entre- 
 preneurship, any accurate correspondence between the out- 
 lays of different entrepreneurs and the addition to product; 
 in truth, the varying proportions in which different entre- 
 preneurs employ the different productive agents should 
 suffice as proof of this ; but for the purposes in hand this 
 need not be insisted upon. Rent as a differential of price 
 paid for a differential of service is, as cost, not distinguish- 
 able from wages or interest. 
 
 Ricardo .... shows that the rent is not the cause but the 
 efifect of the need felt for wheat; and the reasons which he adduces 
 will serve to prove against him that the other expenses of pro- 
 duction, notably the wages of labor, are likewise not the cause but 
 the effect of the current price of the product.^ 
 
 And in summary Say remarks : 
 
 The ideas of David Ricardo have been of service to me in cor- 
 recting several parts of this treatise, principally in what has rela- 
 tion to money; but he has supplied me with no single improvement 
 to introduce in that which relates to rents (profits fonciers).^ 
 
 Verily Say was a modern of the moderns. 
 
 ^ Say, op. cit., p. 438, note. 
 
 ^Ibid., p. 438. 
 
 Malthus : Despite marked shrewdness of observation and great 
 originality of insight, Malthus' muddle-headed quality in theoretical 
 thinking leaves not much to be had from him for value doctrine. 
 Bearing in mind that the purpose of the work in hand is constructive 
 rather than primarily historical or critical, and therefore does not con- 
 cern itself with tracing the growth of theory, or with outlining the 
 systems of thought of different writers, excepting to the extent that — 
 as a method of presentation and mostly irrespective of the personal or 
 systematic interest, as such — these different positions may, illustratively 
 or by statement and criticism, be made to serve the purposes of expo- 
 sition, we shall decide that the views of Malthus need not long 
 detain us. 
 
 As has been already noted, he was by full and frank profession, 
 a disciple of the labor theory of value — ^but all the while with some 
 
EARLY UTILITY THEORY: SAY 119 
 
 misgivings and with some reservations. For even though, causally 
 speaking, labor was admittedly the determinant of value, yet, as a 
 question of exchange power, of relations between commodities, and 
 as a problem of the choice of a value measure, it appeared to him much 
 more relevant to ask how much a commodity will command of labor 
 wherewith to produce more commodities, than to inquire into the quantity 
 of labor invested some time in the past in its production. And so 
 Malthus stood for the labor measure of value, but this in terms of 
 labor purchasable instead of labor expended, and with the emphasis 
 upon service in terms of labor spared to the purchaser or of the 
 service offered through the purchased goods. 
 
 In Malthus' controversy with James Mill as to the possibility of 
 a general glut, this same issue is in the background and takes a position 
 of controlling importance. In that controversy Malthus restates the 
 issue as substantially whether commodities in general may be selling 
 at less than their costs of production. His argument {Definitions in 
 Political Economy, London, Johni Murray, 1827, pp. 44 ff.) pro- 
 ceeds upon distinctly entrepreneur cost lines, regards rent payments 
 as, for purposes of cost, precisely like other outlays, and finds the prac- 
 tical test, for that practical man who is trying to decide whether the 
 market is overdone, to be in the equality of money intake with money 
 outgo : "The hop planter who takes a hundred bags of hops to Wig- 
 hill fair, thinks little more about the supply of hats and shoes than 
 he does about the spots on the sun. What does he think about, then? 
 And what does he want to exchange his hops for ? Mr. Mill seems to be 
 of opinion that it would show great ignorance of political economy to 
 say that what he wants is money ; yet .... it really is money 
 which he wants and .... this money he must obtain, in the present 
 state of society, in exchange for the great mass of what he has brought 
 to market, or he will be unable to carry on his business as a hop- 
 planter ; .... he must pay the rent of his hop ground in money 
 
 [this being presumbaly so fixed by agreement] He must pay 
 
 for his poles, his bags, his implements, etc., in money He 
 
 must pay the .... laborers which he employs upon his grounds, 
 during the course of the next year, in money, and .... it is in 
 money alone of all the articles brought to the fair, that he can calcu- 
 late his profits True, .... the landlords and laborers 
 
 who are paid in money will finally exchange it for something else, as 
 no one enjoys money in kind except the miser: but the landlord .... 
 would be little likely to accept from the hop-planter the articles which 
 
 he could get at the fair in exchange for his hops And as 
 
 matter of fact, the laborer .... is paid in money. Foreign trade is 
 no doubt mainly a trade of barter. But the question whether British 
 woolens find an adequate market in the United States does not depend 
 upon their purchasing the same quantity of tobacco as usual, but upon 
 whether the tobacco, or whatever the return may be, will purchase the 
 British money or the British labor necessary to enable the woolen 
 manufacturer to carry on his business successfully. If both woolen 
 manufacturers and tobacco are below the cost of production in money 
 
 or labor, both parties may be carrying on a losing trade 
 
 This is the answer to the pamphlet which Mr. M. Say addressed to me 
 
 several years ago The power of replacing capital will mainly 
 
 depend on the power of commanding labor Commodities in 
 
 general, and corn most particularly, are continually rising or falling in 
 money price .... while the money price of labor remains much 
 
I20 VALUE AND DISTRIBUTION 
 
 more nearly the same What are the costs of production? 
 
 They are either the amount of money necessary to pay the labor 
 
 worked up in the commodity, and in the tools, etc with the 
 
 ordinary profit, etc or they are the quantity of labor in kind, 
 
 etc Now surely, it cannot be denied theoretically, that all 
 
 commodities produced in this country may fall in comparison with a 
 commodity produced in Mexico. As little can it be denied, theo- 
 retically, that all commodities produced by British labor may fall as 
 compared with that labor." 
 
 From another point of view, and for other purposes, Malthus' 
 doctrine of a general glut will later occupy us further. For the 
 present, the sole concern is to make clear the distinction, as it lay in 
 Malthus' mind, between labor as the cause of value and labor as the 
 measure of value — and particularly to make it clear that this labor- 
 purchase notion, this forward- rather than backward-looking view, is a 
 groping effort toward utility rather than cost as the basis of value. 
 The value of the goods is taken to rest rather upon the service to be 
 obtained from the goods than upon the labor expended in their 
 production. 
 
CHAPTER X 
 
 THE CAPITAL CONCEPT 
 
 Precisely why the distrihuendum in society should be 
 taken to be the produce annually to be divided, as against a 
 weekly or monthly or decennial division, is not clear ; but it 
 is clear that unless the distributive process is conceived as 
 carried on concurrently with the productive process, there is 
 no reason why the annual term is not as serviceable as any 
 other. / 
 
 We are not yet ready for a full consideration of the 
 notion and nature of the social dividend;^ broadly, how- 
 ever, it may be taken to indicate the aggregate social output 
 of consumption goods — commodities, benefits, enjoyments — 
 all things, in short, accruing to men as economic income, in 
 any given unit of time. It is, indeed, sufficiently difficult to 
 make precise the content and limitations of this social-divi- 
 dend concept and of the distributive-income concept; and it 
 may be inexpedient to attempt here even to place the inter- 
 rogation points. If the textile worker makes you a suiting, 
 and the tailor makes this into a suit, no one would question 
 that both the making of the cloth and the making-up of it 
 into a suit are services — items contributing to your real 
 income. But how if you make your own cloth? or mend 
 your own coat? These also are facts of income, results 
 enjoyed, but are they thereby the subject-matter of the dis- 
 tributive process ? Are they parts of the social dividend for 
 any purposes of theoretical analysis or of the practical 
 applications of doctrine? Are you a producer when you 
 cook your own food ? The restaurant-keeper and the board- 
 ing-house mistress render utilities of a highly important 
 order; their activities are productive, and the products 
 thereof are parts of the great distrihuendum. So the house 
 servant and the house cook are likewise productive 
 
 ^ See chap. xxvi. 
 
122 VALUE AND DISTRIBUTION 
 
 of distributed utilities — goods of attention, conven- 
 ience, comfort, or show, as well as of cleanliness, 
 palatability, and digestibility. It is, then, inadmissible 
 to deny productivity to the housewife equally with 
 the bread-winner; house-bound women are something 
 more than supervisors and directors of the consumption 
 process; they are producers. But, even so, does this avail 
 to include their products within the goods which get dis- 
 tributed? Or is there a line of distinction between pro- 
 duced goods and distributed goods, accordingly as these 
 goods do or do not go through the crucible of market valua- 
 tion? And if this be the dividing line, must not the home- 
 grown and home-consumed eggs and chickens and pork of 
 the farmer be set outside the distributive problem merely 
 because they never reach the market? 
 
 And this is not the only difficulty, nor is it, for theo- 
 retical purposes, the most perplexing difficulty. A goodly 
 part of each man's purchasing power is expended in the 
 direction of services, in the more limited sense of goods 
 not fixed and embodied in matter.^ One pays to be cured 
 
 ^ No one will today deny the productivity of the preacher or 
 singer or actor ; nor is today the distinction between material and 
 immaterial of great significance anywhere for economic science — 
 quite irrespective of the long-standing but lately much-litigated prob- 
 lem as to the philosophical justification for any such distinction. It is 
 well, however, to appreciate the aspect in which the question appealed 
 to the earlier economists. 
 
 Mercantilist thought had, it is true, abandoned the cameralistic 
 point of view, according to which all economic inquiry regarded solely 
 the prince's welfare in the administration of his private estate — the 
 ends proposed being simply the maximum possible revenue and the 
 highest level of dynastic prosperity. 
 
 But Mercantilism was none the less consistently national in its 
 point of view, as distinguished from individualistic and personal ; and 
 it was competitively national as distinguished from social or cosmo- 
 politan. How, indeed, shall any people grow in economic power as 
 against its neighboring enemies ? by piling up wealth, by goodly accu- 
 mulations of munitions and moneys and credits against the time of con- 
 flict. And how shall any man or nation become wealthy, except by sell- 
 ing more than is bought in, by keeping consumption under production? 
 And how so well extend your personal economic dominion over your 
 neighbor and over your neighbor's possessions — his desirable daughter 
 included — as by getting him into debt to you ? Or how so well render 
 yourself strong, and at the same time your competitor nation weak, as by 
 getting it into debt to you, or better yet, by getting its purchasing 
 
THE CAPITAL CONCEPT 123 
 
 of his ills, or of his ennui, to be passively exercised by the 
 masseur, to be solaced by the ministrations of the pianist, 
 the vocalist, and the elocutionist. Instead of our looking at 
 pictures, the orator or the actor paints pictures in our 
 minds. But suppose one plays the violin, not for another's, 
 but for his own enjoyment, and without monetary recom- 
 pense ; or provides his own exercise, paints revery-wise his 
 own dream pictures, cures his own ills, basks in the sun to 
 his own great warmth and enjoyment, and, in general, has 
 a good time; once again, is all of this production? Or, if 
 not, is the basis of the distinction that these activities or 
 passivities fail of getting valued in the market? Or is it 
 rather that they are entirely internal ? Or is it that they are 
 free goods to be had without any sort of sacrifice, by play 
 rather than by work? In truth, we are again in face of the 
 difficulty of defining play. Is the essential characteristic of 
 it in its non-productivity, or rather in its non-sacrifice char- 
 acter, the free-goods quality of its product? In fine, what, 
 accurately, do we mean by production? 
 
 Putting aside for the time being these more or less 
 
 power into your own control, through cornering its medium 
 of exchange? And how accomplish all or any of these things 
 unless by selling your victim neighbor or nation more than 
 you buy back? Thus conceived, with the nationalistic emphasis, 
 the whole question becomes not primarily one of income, 
 or of aggregate satisfactions and total consumption, but of accumula- 
 tion, and especially of growth in wealth under the form of foreign 
 credits or other ready international purchasing power. 
 
 Proceeding from substantially the same point of view, the physio- 
 cratic school seemed to itself to have discovered a method better 
 yet — accumulation truly, but accumulation rather of population than of 
 wealth. Artisans consumed as much wealth as they produced ; the 
 social cost of their product was as great as their product. Manu- 
 facturers were regarded as, in Dr. Franklin's phrase, "subsistence meta- 
 morphosed." Agricultural laborers also consumed all that they 
 produced or, at all events, all that they received in wages, and seemingly 
 must always command so small a wage as to make this a permanent 
 fact ; whatever the product of labor and land together might be, the 
 excess in produce over the laborers' wage and necessary subsistence 
 must go to the landowner as the equivalent and expression of the pro- 
 ductiveness of the land. So with agricultural, also, as with artisan 
 labor, the social cost canceled the social product ; only the land was 
 productive of net product. But even so, there was this difference 
 between artisan labor and agricultural labor, that artisan labor did not 
 increase the total population maintainable in the country, gave forth no 
 
124 VALUE AND DISTRIBUTION 
 
 gratuitous difficulties, it may be said that economic com- 
 modities — products for economic purposes — are restricted 
 to those desirable things which are not free. But especially 
 is it to our present purposes to note that this is not quite the 
 same thing as a restriction to those facts produced by labor 
 or attainable only through labor. For there is much value 
 no part of which, or but a small part of which, is labor-pro- 
 duced; and some of it is not labor-wise obtainable. The 
 productivity of what is broadly called land manifests itself 
 in part in values of this sort based upon qualities of origi- 
 nal fertility, or upon non-produced facts like scenery, loca- 
 tion, springs, mines, water-powers. It is the fact of limited 
 supply of products and of their value standing derivative 
 from this limitation, rather than of mere labor origin or 
 labor limitation, that gives any agent or instrument its 
 right to claim productivity for itself; environment is as 
 truly productive as is organism. 
 
 Utility and the necessity of sacrifice for its enjoyment 
 appear, then, to be the only requisites of value. All valuable 
 
 subsistence product, no life material, while the product of agriculture 
 may be regarded as population, expressed in the form of its raw 
 material. And it seemed clear that national supremacy was rather a 
 question of population than of accrued wealth. 
 
 It follows also that, inasmuch as the laborer received only 
 enough to live upon anyway, there was small use, and some harm, in 
 trying to tax him ; the only man who, having a product net, a surplus, 
 could pay, was the landlord, the rent-gatherer ; if the laborers paid 
 taxes, it must be at the expense of their number. It followed from 
 all this, then, that the program fundamental to national greatness was 
 to foster agriculture as a life-maintainer, the sole source of increasing 
 population, and to tax the land. 
 
 Adam Smith, coming into the national point of view as an inherit- 
 ance from earlier thought, set himself deliberately to the investigation 
 of the causes, and to the formulation of the rules, making for the 
 increase of the opulence of nations, and found that while manu- 
 factures were productive, they were not so in the same sense as agri- 
 culture, while labor as mere service was not productive at all. The 
 shadow of physiocratic reasoning was still over Adam Smith. 
 
 Not having arrived fully and consistently at the individual point 
 of view in economic analysis, John Stuart Mill followed substantially in 
 the footsteps of Adam Smith : Unproductive consumption is con- 
 sumption that does not furnish maintenance for productive labor ; 
 productive labor is, in turn, that labor which affords an addition to the 
 aggregate accumulated wealth possessions of society ; thereby he arrived 
 at the distinction between material and immaterial. But this distinction 
 
THE CAPITAL CONCEPT 125 
 
 consumption goods are products either of labor or of 
 environment; and the problem of distribution has ulti- 
 mately to do only with consumption goods. 
 
 If all consumption goods are products, it remains to ask 
 of what they are the products; and how many are the 
 factors of production, through which contribution is made 
 to the supply of things, facts, and conditions possessing 
 value ? 
 
 It is to be kept carefully in mind that even though the 
 question is stated as one of the factors making for value 
 product, this search for factors is none the less a search 
 for the objectively existing facts, means, intermediaries, 
 and instruments, conditioning the existence of the value 
 product, and standing, with reference to the product-result, 
 in a physical-causal relation as the first term in the force- 
 cause sequence. That is to say, the point of view and 
 method of approach are, in the more inclusive sense of the 
 terms, mechanical and technological in significance. Surely 
 in a sense, hut in a quite different sense, monopolies, patents, 
 good-will, trade-marks, etc., are productive; incomes go 
 
 between material and immaterial rested not at all upon considerations 
 of utility, of importance for consumption, in the aspect of service to 
 human needs, nor finally and fundamentally upon some test of con- 
 crete reality, or of tangibility, or of materiality in any philosophical 
 sense, but solely upon the aspect of permanency. For in a general 
 way, that which is material and tangible is enduring ; at any rate, that 
 which is not material, which has no substantiality, is evanescent ; in 
 coming to be it ceases to be. Thus only material things can add to 
 national wealth. And that some forms of material wealth are them- 
 selves very temporary in their existence, e. g., ice cream, leaves the 
 line between the material and the immaterial none the less an actual 
 line and, at the same time, a line which coincides practically with the 
 line between the things that add to national accumulated riches and the 
 things that do not. 
 
 All of which was excellent for its purpose, and need have occa- 
 sioned no perplexity or controversy, if only Mill had not fallen into 
 the error of following his predecessors in their bad choice of terms ; 
 for the line which he was really seeking was not that between the pro- 
 ductive and the non-productive, or between the material and the imma- 
 terial, or between the tangible and the intangible, but merely the line 
 between the accumulatable and the non-accumulatable. Interpreting his 
 terms productive and non-productive in this sense, no difficulty is pre- 
 sented, excepting, perhaps, with regard to the significance of the dis- 
 tinction, as seen from the point of view of a more modern analysis and 
 of its theoretical needs. 
 
126 VALUE AND DISTRIBUTION 
 
 with them, they are capitaHzed into market values, and are 
 sold in the investment markets ; that is, they are acquisitively 
 productive for the purposes of private interests and of indi- 
 vidual ownership; they are, in fact, differential opportuni- 
 ties reduced to private property, and enjoyed, as is the 
 essential fact of private property, under the right of exclu- 
 sion of all other claimants. These property rights, many of 
 them purely distributive in ultimate bearing, are neverthe- 
 less not readily distinguishable, excepting upon technologi- 
 cal grounds, from ownership in lands or other rentable and 
 productive instrumental goods. 
 
 But conceiving of the productive process technologically, 
 what different productive categories demand recognition? 
 
 The fundamental distinction would seem to be that 
 between man, as agent-laborer and producer, as over against 
 the aids, auxiliaries, and instruments employed by him. This 
 parallels the distinction between organism and environ- 
 ment, and corresponds accurately with the nature of income 
 as received (i) by virtue of personal activities, and (2) as 
 derivative from possessions. 
 
 Accepting, for the time being without question, this 
 first category, that of the human actor manifesting himself 
 in economic production under the aspect of human labor, 
 we turn to inquire whether the aggregate of productive 
 possessions is to be further distributed into the prevailing 
 land and capital categories, and, if so, whether the distinc- 
 tion between land and capital is to be rested solely upon 
 their different relations to the technology of industrial pro- 
 cesses, or is to be justified under some further and different 
 principle. 
 
 Waiving for the present the question whether, as factors 
 of production, any distinction other than technological is 
 admissible, we confine our inquiry to the validity of the dis- 
 tinction as based solely upon technological considerations. 
 For technological purposes, then, is land weath to be dis- 
 tinguished from other weath? 
 
THE CAPITAL CONCEPT 127 
 
 The extractive industries — the industries of raw ma- 
 terial, the industries primary and basic in human hfe — 
 depend upon the land, land in this sense being, of course, 
 taken to include seas and rivers and mines. This distinction 
 between extractive, or primary, and industrial, or secondary, 
 coincides for the most part with the distinction between 
 agriculture and manufactures, and is doubtless of very con- 
 siderable significance for certain purposes. But it evi- 
 dently will not serve as a basis for a distinction between 
 land wealth and other wealth, since not the extractive indus- 
 tries alone, but all industries, employ land; and since all 
 extractive industries make, under present conditions, use of 
 capital. Even as a distinction of degree it will not hold; 
 some of the extractive industries, mining for example, are 
 pronouncedly, even prevailingly, capital-using in their tech- 
 nique : and even the most simple and primitive of extractive 
 employments make appreciable use of non-land instru- 
 ments. 
 
 It is, however, none the less true that not merely food 
 and raw material, but building-sites, standing-room, air, 
 climate, scenery, neighborhood, etc., are markedly and em- 
 phatically of land character or of land origin. And it is 
 equally unquestionable that capital goods achieve some 
 things not attainable through any possible substitute, pre- 
 cisely as other commodities are in a peculiar degree, or exclu- 
 sively, dependent on labor. You cannot have timber from 
 labor or capital; neither land nor capital will dance you a 
 skirt dance ; and if you desire a certain peculiar quality of 
 screeching, you must resort to a phonograph or to a calliope 
 as against any form of land or labor. 
 
 But note once again how purely technological all of 
 this is; for while it is true that labor and capital, when 
 denied recourse to land in the non-value and purely con- 
 crete and physical sense, will yield no timber, it is at the 
 same time true that they will give timber plenti- 
 fully enough if strictly limited in their application to 
 valueless land, that is, if confined to what, in the economic 
 
128 VALUE AND DISTRIBUTION 
 
 and value sense, is no-land. And some day the technology 
 of timber production may make of timber a laboratory 
 product. 
 
 And it is all the while to be remembered that these tech- 
 nological differences and specializations, while of unques- 
 tionable actuality, are, in fact, as marked between one item 
 of land and another, or between one item of capital goods 
 and another, or between one laborer and another, as between 
 capital goods and labor, labor and land, or land and capital. 
 For market purposes agricultural machinery is more closely 
 akin to wheat land than to machinery for watch or chro- 
 nometer production; cotton lands are, from the same point 
 of view, more like sheep than like timber lands or iron 
 lands, or wheat lands; in point of products, violin and sea 
 are not more unlike than virtuoso and sailor, or than prima 
 donna and stoker. 
 
 In truth, also, if productive factors are to be distin- 
 guished according to technological considerations, not two 
 or three but countless categories of productive factors will 
 have to be recognized.^ 
 
 But in point of degree of technological ^ specialization, is 
 this threefold classification better founded? Capital is, for 
 
 'It must, however, be admitted that this does not quite cover the 
 difficulty ; nor at this stage of the discussion is adequate treatment of 
 the difficulty readily possible. 
 
 For, after all is said, it must remain true that, technologically con- 
 sidered, as mechanical and instrumental facts, a broad and general dis- 
 tinction between land and other production goods will require recogni- 
 tion. But it is the more necessary to determine the precise purposes 
 for which the distinction is important, and the extent and accuracy 
 with which the distinction applies. To perform this service fully 
 must, however, be left to a later chapter. (See chap, xxiii.) 
 
 That the law of diminishing returns applies only to land, or at all 
 events applies with some especial force or in some peculiar manner to 
 land, is a conviction appealing strongly to careful thinkers as warrant- 
 ing the distinction between land and other instrumental goods. 
 
 It is, for example, clear that Malthus was right in insisting that, 
 as long as the human race must depend upon agriculture for its food. 
 
 * Etymologically speaking, there are manifest objections to this 
 use of the term "technological" as referring especially to capital 
 regarded in the mechanical and industrial sense ; but no better term 
 seems to be at hand. 
 
THE CAPITAL CONCEPT 129 
 
 example, said to be mobile, not spatially alone, but in indus- 
 trial applications in general. In point of fact, no distinction 
 in this regard, other than of degree, has been anywhere 
 urged or attempted; and evidently any distinction along 
 
 so long population cannot continually multiply without somewhere 
 coming upon the harsh pressure of the subsistence limit. And it is true 
 also that this is due to the existing limitation upon the land supply — 
 elastic limits possibly, but none the less real and permanent. Land 
 cannot be harder and harder pushed for product excepting upon terms 
 of less and less generous response. 
 
 Postponing for a moment the question of why this is, it is first to 
 be noted that the fact is not only primarily social in significance, but 
 is also a fact the significance of which is purely by forecast or 
 prophecy. While the private and competitive cultivation of land is 
 interested solely in the value of the product, and is interested in the 
 volume of the product only as bearing upon its value, this Malthusian 
 discussion adopts purely a social point of view, regards the food 
 product not as value but as volume, and concerns itself not with the 
 present time, but with later centuries. That is to say, the law of 
 diminishing returns is, for Malthusian purposes, a social law in the 
 dynamics of production, and a law having no concern with value 
 problems or with any distributive problem present or future. 
 
 Doubtless, however, the botanical or zoological or agricultural facts 
 upon which Malthus based his doctrine in social dynamics may afford a 
 sufficient basis for inferring other laws for present problems of com- 
 petitive activities and of market values. 
 
 Surely there could be no such thing as land rent, were there no 
 limit upon the supply of land ; but this is merely to say that all value, 
 whether for land or for machines, or for shoes, or for hats, exists only 
 as dependent upon some degree of scarcity. 
 
 And surely, if, with any given piece of land, increased expenditure 
 in non-land directions were not attended with a costantly falling com- 
 pensation both in volume and in value, there could be no land scarcity 
 and no land value. But this is equally true of mowing machines or 
 horse rakes : so, if one pound of phosphate would suffice to fertilize a 
 continent of land, phosphate would be safe from ever becoming dear in 
 price ; or if one hour of labor would do all the work to be done, labor 
 and its products could manifest no rarity. 
 
 If the cultivator will apply all his outlays to land only infinitesimally 
 under the margin — that is, to land unlimited, rentless, and valueless — 
 no difficulty will be experienced in getting returns proportionate to out- 
 lays ; in truth, not in the value sense here but only in the technological 
 sense is land being cultivated ; as none is used, none is paid for. But 
 if, with land that is valuable, only the non-land expenses of production 
 are doubled, there must result less than a doubled product : the pro- 
 duction undertaking as a whole was not doubled. If this fact is all 
 that is intended to be formulated under the competitive rendering of 
 the law of diminishing returns, the law must be pronounced to be 
 axiomatically valid, but valid equally for capital instruments and for 
 labor agents in all their various combinations. Each case under the 
 
I30 VALUE AND DISTRIBUTION 
 
 this line must be of a most hazy sort, as applied to dis- 
 tinguish, one from another, land, capital, and labor. It is, 
 indeed, true that capital is commonly declared to possess 
 a mobility far surpassing that of labor or of land ; but capi- 
 
 law stands as mere illustration of the fact that if only a part of the 
 productive factors are increased, the product will not respond with the 
 same increase as if all the factors were doubled. 
 
 But the law is often formulated to assert that if the applications 
 of expense to the land are doubled, but not the land, the extra 
 returns will fail of proportion to the increased expense. And this 
 formulation of the law is also valid, even if not quite axiomatic ; 
 proper proportions of land value with other values must be maintained, 
 or the returns will be a disappointment ; a bad combination gives 
 bad results. 
 
 But this also all holds equally for capital goods and for labor. 
 Too much or too little of any productive factor, relatively to the others, 
 gives bad results. So far, then, nothing has yet presented itself in the 
 field of current, competitive value production to justify any line of dis- 
 tinction between land capital and other capital. And it is now to be 
 added that for most purposes in production, land, labor, and capital 
 may be used as substitutes one for another. Just as the original 
 qualities of the soil may be exhausted by withholding of upkeep, so 
 they may be replaced and renewed by capital expense ; the poorest of 
 land may be made into good land, if only sufficient capital expense be 
 applied. And precisely as machinery may take the place of labor, or 
 labor of machinery, so more labor may often be hired rather than 
 more land rented or more machinery purchased ; or, again, more 
 capital expense may be applied to a given holding of land rather than 
 more labor hired or more land rented. 
 
 This is constantly illustrated in actual farming ; one farmer rents 
 more land or better land and thus, through his larger rent outlay, 
 excuses himself from correspondingly large outlays for machinery or 
 fertilizers or labor ; another farmer iinds it to his advantage to restrict 
 himself in rent outlays and to extend his investment in the direction 
 of capital goods or labor. 
 
 But that at the margin this principle of substitution holds, and 
 even that transportation activity or improvements in agricultural tech- 
 nique may have the effect either to increase the land supply or to make 
 more effective the existing supply, does not prove that the principle 
 of substitution is indefinitely applicable at no matter how distant removes 
 from the margin of substitution ; for were such the truth, there could 
 be nowhere any disadvantage from an increase of capital expense upon 
 a fixed supply of land, or any loss from twenty laborers working with 
 one loom, or any reason why indefinite wagons should not dispense with 
 the need of horses or drivers. 
 
 For it is clear that in the main the relation between the different 
 production goods is one of complementarity and interdependence rather 
 than of the infinite possibility of substitution. More men and more 
 machinery may make call for more land rather than for less, or for 
 the old land at a higher rate of rental. Machinery does not displace 
 men indefinitely, but, under stable conditions of technique, calls instead 
 for men to fashion or to tend ; wagons furnish demand for drivers, ships 
 for sailors„horses for drivers, drivers for wagons, and so on without limit. 
 
THE CAPITAL CONCEPT 131 
 
 tal used in this connection points to something distinctly 
 non-technological in nature. Some of this capital mani- 
 fests its quality of mobility simply because it is unspecial- 
 ized in application ; it is money, demand credits, funds in 
 
 Stopping to note, however, that there is in these facts no war- 
 rant for the threefold division of productive factors, since it is 
 equally true that bricklayers furnish a demand for hod-carriers, car- 
 penters for masons, wagons for horses, sailors for cooks, engines for 
 cars, rails for ties, meadow land for pasture, and both of these last for 
 timber lands, and so on indefinitely, we return to our postponed ques- 
 tion, why does the point always arrive at which nothing serves as a 
 substitute for more land, — a point, that is, at which more and more 
 intensive cultivation gives more and more meager returns ? To what 
 particular attribute of land is this to be ascribed? And, for that 
 matter, to what quality or characterisitc of machinery is it due that 
 only so many men can work with one unit of capital goods? 
 
 The answer must be shortly given and be left to approve itself: 
 the one attribute of land which finally discourages all attempts at sub- 
 stitution and assures to land its ultimate relation of complementarity, 
 appears to be the spatial attribute, the impossibility of compressing 
 agricultural or building or climatic or scenic aspects of land utility 
 into ever-smaller compass and without limit of disadvantage. 
 
 With machinery as related to labor, the spatial fact seems to be 
 sometimes important ; but the complementarity more commonly traces 
 to the recurrent necessity, in all machine processes, for the interven- 
 tion of volition and direction. 
 
 In further enforcement of the truth that there is in this common 
 and general fact of complementarity no slightest support for the three- 
 fold division of productive factors, it may suffice to recall that a 
 parallel necessity exists for supervisory and directive labor to go with 
 unskilled labor, that many different occupations occupy the comple- 
 mentary relation one to another, and that in a general way each grade 
 of labor is complementary to most other grades. 
 
 Despite the consistently private-acquisitive nature of the capital 
 concept adopted by Professor Carver in his Distribution, and despite 
 his fundamental thesis that all agent remunerations are received upon 
 the basis and by the measure of their marginal value productivity, he 
 yet finds it possible to distinguish land from capital. The basis of his 
 distinction is technological so far as it is not imposed by certain doctri- 
 nal exigencies on the side of costs : and yet the following is from 
 Carver's Distribution : 
 
 "There are various kinds of labor, of land, and of capital. Two 
 different kinds of labor may be performing functions which differ 
 almost as widely as those performed by labor and capital, or by labor 
 and land. The work of a bookkeeper differs as widely from that of a 
 ditch-digger, as that of a ditch-digger does from that of a steam 
 shovel. Therefore, the same reasons which favor the separation of 
 labor and capital, in order that they be treated as distinct factors, will 
 also favor the separation of one kind of labor from another, or one kind 
 of capital from another, and of one kind of land from another" 
 (p. 8s). 
 
132 VALUE AND DISTRIBUTION 
 
 general — abstract capital in the accurate sense of the term, 
 mobile, fluid, unspecialized purchasing power — a capital cate- 
 gory of surpassing importance, and later to receive most 
 careful examination; other of this capital is such by the 
 fact that, like stocks of goods, it is readily, speedily, and 
 advantageously marketable, and so, private-wise viewed, is 
 easily, through sale, turned into the abstract condition as an 
 intermediate form, and thence into whatever else the private 
 owner may desire. 
 
 But evidently, in this last sense of mobility all forms of 
 capital and all wealth of any sort are mobile in different 
 degrees; all — as valuable — are salable on some terms and 
 at some time. 
 
 But as a technological fact, capital is not characterized 
 beyond land or labor by mobility; it is even questionable 
 whether it is not the most specialized, the least mobile, of 
 the three. Some machinery — indeed, much machinery — is 
 serviceable for only one purpose or in only one line of pro- 
 duction, and is only at great, or even at entire loss, to be 
 readapted to another use; and this is true, in varying 
 degrees, of all the different forms and conditions of capital 
 goods, of labor, and of land. Neither mobility nor immo- 
 bility can be, in this technological sense, regarded 
 as peculiarly a characteristic of any one class of productive 
 agents. 
 
 But how about spatial mobility? There is, possibly, a 
 distinction of degree : laborers do migrate, though so tardily 
 as to have given them the traditional stamp of marked 
 immobility. Land is, physically and spatially speaking, of 
 pronounced immobility ; capital is mobile in varying degrees 
 accordingly as it has become attached to the land or incor- 
 porated with it; improvements in mines or in water-powers 
 are prone to stay where they are originally placed; while, 
 on the other hand, by carting of loam and by grading, by 
 filling of swamps and of water fronts, to say nothing of the 
 action of winds, the seeming fixity of land is appreciably 
 disturbed. 
 
THE CAPITAL CONCEPT 133 
 
 This seeming fact of fixity in land appears, then, to 
 have Httle in it, otherwise than as a matter of mere extension 
 or superficies ; and as to this question of superficies it is fair 
 to say that it is in no sense the point at issue; for, in its 
 aspect of effectiveness for production — its technological 
 significance — land can be worn out, displaced, or renewed, 
 as readily, as capital, and sometimes much the more quickly.^ 
 
 There appears to be more in the notion that land pre- 
 sents an especial degree of fixity, or at all events of inelas- 
 ticity, in supply. And it must be admitted that, in any given 
 state of industrial technique, this fact of relative inelas- 
 ticity may hold. While it is true that there is today no poor 
 land that capital will not make into good land, that moun- 
 tains may by capital expense be razed, valleys filled, dry 
 land created out of swamp, or river, or lake, or ocean, it 
 remains true that this is merely a substitution of capital for 
 land, that it is a limited process by reason of the fact that 
 capital is at any time a limited quantity, and that, after all, 
 the opportunities for the profitable application of capital to 
 land are, by the very reason of this deficiency of capital, 
 limited both in quantity and in quality, and, as such, con- 
 tinue to be scarce and valuable. 
 
 But in last analysis all this is merely to assert that both 
 
 ^ With these spatial qualities of land are more or less closely 
 associated certain legal, jurisdictional, and territorial aspects possess- 
 ing great social and institutional significance. It is, in truth, a com- 
 monplace that the civil law of England, and in large measure the 
 economic, political, and social organizations, trace their origin back to 
 feudalism, a system in which land ownership was the controlling and 
 directing fact for almost all purposes, political and economic, theo- 
 retical and practical. The line of cleavage between real property and 
 personal property runs deep through all English jurisprudence. 
 
 It would, then, be a most interesting investigation — if only one 
 had the necessary learning — to trace out the manner and degree of 
 connection between the legal distinction of realty from personalty and 
 the economic distinction of land from capital. That the parallelism 
 is more than merely fortuitous may be taken as beyond doubt. 
 
 It only remains, then, to inquire whether the common-law distinc- 
 tion between real property and personal property recommends itself as 
 in any way essential or necessary, or can point to other than a purely 
 historical explanation or warrant ; Roman law and the derivative sys- 
 tems suffice for testimony to the contrary. 
 
134 VALUE AND DISTRIBUTION 
 
 land and capital are similarly limited in quantity, and are 
 thereby scarce and valuable, and that the device of substitu- 
 tion is not indefinitely applicable; if, then, any real distinc- 
 tion is to be established, it must be based upon the fact that 
 with the passing of time, differences of tendency with regard 
 to supply come to characterize land and capital respectively. 
 And it must be admitted that land appears likely, in the 
 long future, to manifest a peculiar degree of inelasticity in 
 supply, of which fact of inelasticity the law of diminishing 
 returns in its ordinary formulation will be a probable 
 expression, and the menace of overpopulation is a socio- 
 logical inference. 
 
 But it must be noted, (i) that all this is matter of 
 prophecy, and (2) that instead of approaching, as is ordi- 
 narily assumed, to moral certainty, it is not much better 
 than conjecture. The past three or four hundred years 
 appear to have presented the phenomenon of increasing 
 land-plenty relatively to labor and capital; with the forces 
 of exploration and of developing transportation, new sup- 
 plies of land have far outrun the increase of population ; 
 elasticity has, indeed, in a surpassing degree — probably, it 
 is true, hardly again to be duplicated — characterized the 
 land supply. Capital meanwhile appears not to have 
 increased beyond the expansion of demand afforded by the 
 increase of land supply and the growth of population, 
 since interest appears to have been, in some countries of 
 Europe, as low one hundred and fifty years ago as today, 
 then, with advancing capitalistic opportunities, to have 
 risen, now, with the progressive exhaustion of the new 
 opportunities offered by increasing population and enlar- 
 ging land supply, to be again falling. Thus, while it seems 
 probable that the future will meet an especial shortage in 
 land supply, this is not at all certain. Food may, for aught 
 we know to the contrary, one day become a laboratory prod- 
 uct. "It is ... . possible that chemistry may some 
 time solve the problem of food production without recourse 
 to agricultural methods. The secret once learned, the 
 
THE CAPITAL CONCEPT I3S 
 
 nitrogen in the air of the back yard and the ton of coal in 
 the bin may furnish food for an ordinary family for a 
 year." ^ And it is to be added that in the future, as in the 
 past, much will be accomplished by improving transportation 
 to mitigate, if not to prevent, the conjectural dearth of land. 
 
 But, having, for the time being, and in a very broad and 
 general way, accepted, for purposes of retrospect or of 
 prospect, the tenability of the distinction between land and 
 other instrumental goods, we have thereby the more to 
 recognize the difficulty that expanding knowledge, — develop- 
 ment in the human factor of production,— or improving 
 transportation — development in both the human and the 
 capital factors — may function technologically as substitute 
 for land. Bettering transportation is more land; true, geo- 
 graphically speaking, land is not made, but accessibility is 
 made, and upon an enormous scale: land sufficiency, like 
 land value, is in large measure positional. 
 
 But further : if, as technological facts, these probabilities 
 in the dynamic field are taken to justify, for purposes of 
 economic theory, a separate category of land wealth as 
 against other wealth, there is forthwith to be undertaken 
 an indefinitely large task of further classification or of sub- 
 classification ; for while grain land may be becoming seriously 
 scant, range lands, or champagne lands, or mines, or fish- 
 eries may disclose a contrary tendency. So, also, while the 
 provision of wooden implements is becoming increasingly 
 inadequate, the different sorts of machinery and tools of 
 metallic material may be growing progressively cheap; and 
 meanwhile electrical apparatus is likely to abound. And 
 similarly for the human factor ; as one quality of man, say 
 the athlete or the unskilled workman, is becoming relatively 
 scarce, doctors of philosophy may more than generously 
 multiply. 
 
 Technological classification, then, on the basis of the 
 supply outlook, is a hopeless undertaking. We have even 
 
 ' Davenport, Outlines of Economic Theory, p. 324. 
 
136 VALUE AND DISTRIBUTION 
 
 come to question whether, technologically speaking, human 
 labor itself is a tenable economic category. 
 
 A further argument in support of this threefold classi- 
 fication now requires attention — the retrospective and 
 genetic view, the argument from origins. 
 
 Pausing merely to question whether, as bearing upon 
 the classification of the factors of production — a techno- 
 logical problem — questions of origin are logically germane, 
 it is nevertheless to be recognized that the genetic view, 
 whether or not acceptable as a technological view, possesses, 
 for certain purposes, great importance. The only query is 
 whether these purposes are economic in bearing as dis- 
 tinguished from historical or sociological. 
 
 Not all wealth was created by man. It need not be 
 here disputed whether capital preceded labor, or the 
 other way about. It looks, truly, as if environment were 
 present as early, at least, as was man. At any rate, there 
 exist unproduced riches ; only the presence of man, his 
 needs or desires, and not his productive activity, is neces- 
 sary to the emergence of some forms of wealth. Utility 
 being a relationship between a human want and an objective 
 (external?) fact, it suffices that both terms of the relation- 
 ship be present in order that wealth come into being. 
 
 Land, then, according to this genetic view, is conceived 
 as the original environmental situation, capital as a human, 
 a labor-produced, addition. It is argued that man, in his 
 reactions upon his environment, has imposed some modifi- 
 cations upon the original situation; and it is urged that 
 such changes in the environment as have not been due to 
 environment itself are properly to be attributed to man; 
 capital is thus conceived as this intermediate term — this 
 aggregate of modifications, so far at least as these modifi- 
 cations have been advantageous. 
 
 There is no denying the logical adequacy of this point 
 of view; but from any other point of view than this of 
 logical and schematic accuracy, the distinction will not 
 
THE CAPITAL CONCEPT 137 
 
 serve; it leads nowhere when an attempt is made to apply 
 it. From among all the changes of all the ages, who can 
 assume to tell what environmental changes have been due 
 to environmental processes as against human agencies? 
 What part, for instance, of the fertility or the infertility of 
 the land has been due to its treatment at the hands of man, 
 to his fertilizings, his exhaustings, and his denudings ; what 
 part to fostering or wasting winds, to corals, to birds, to bugs, 
 to worms, to microbes ? What share of the value of the house 
 traces back to the timber values of the natural forest, and 
 what part to industrial processes? Even with the case of 
 machinery, the typical form of capital, human wisdom 
 would fall far short of distributing the final value between 
 the original ore value as against the labor value, the coal 
 value, and the timber value ; nor, for any one of these vari- 
 ous shares, would it be possible to determine how far land 
 rents, as expressed in warehouse and transportation 
 charges, have counted in the case. And finally, if anyone 
 could succeed in this allotment of origin-credits, either for 
 the land or for the warehouse, is it to be supposed that, as 
 shares in the total hire of the machine, these remunerations 
 would forthwith, either in the collective or in the competi- 
 tive reckoning, take on a new relation to the cost of the 
 product or to its value ? '^ 
 
 '' Senior was fully aware of all this — as a difficulty — but did not see 
 precisely what to do with it : "It is difficult to point out an article, 
 however simple, that can be exposed to sale without the concurrence, 
 direct or indirect, of many hundred, or, more frequently, of many 
 thousand, different producers, almost every one of whom will be found 
 to have been aided by some monopolized agent. There are few things 
 of which the price seems to consist more exclusively of wages and 
 profits than a watch [MacCulloch's favorite example] ; but if we trace 
 it from the mine to the pocket of the purchaser, we shall be struck by 
 the payment of rent .... at every stage of its progress. Rent was 
 paid for the privilege of extracting from the mines the metals of which 
 it is composed ; for the land which afforded the materials of the ships 
 in which those metals were transported to an English port ; for the 
 wharves at which they were landed, and the warehouses where they 
 were exposed for sale ; the watchmaker pays a rent for the land covered 
 by his manufactories, and the retailer for that on which his shop is 
 situated. The miner, the shipwright, the housebuilder, and the watch- 
 maker, all use implements formed of materials produced by the same 
 processes as the materials of the watch, and subject also in their 
 
138 VALUE AND DISTRIBUTION 
 
 But is there, after all, nothing for theoretical purposes, 
 in any of these technological distinctions, as bearing upon 
 the classification of productive factors? What, for example, 
 does the socialist mean in his demand that all capital be 
 owned by society? Note, however, that he as often insists 
 that all instruments of production be socialized, and in this 
 way of putting it denies, or at least ignores, all distinctions 
 between land wealth and other wealth. The line of distinc- 
 tion is substantially that of the traditional separation of 
 consumption from production goods; land and capital are 
 equally included within production goods and are equally 
 excluded from consumption goods ; they are intermediate 
 instrumental goods. 
 
 It may as well be said forthwith that this distinction 
 between production goods and consumption goods is 
 serviceful for many purposes : it will be the task of later 
 
 different stages to similar payments of rent When we speak, 
 
 therefore, of a class of commodities as produced under circumstances 
 of equal competition, or as the result of labor and abstinence, unas- 
 sisted by any other appropriated agent, and consider their price as 
 equal to the sum of wages and profits that must be paid for their pro- 
 duction, we do not mean to state that any such commodities exist, but 
 that, if they did exist, such would be the laws by which their prices 
 
 would be regulated We may be asked, then, whether the 
 
 improvements which form the greater part of the value of the soil of 
 every well-cultivated district are all, and forever, to be termed capital ; 
 whether the payments received from his tenants by the present owner 
 of a Lincolnshire estate, reclaimed by the Romans from the sea, are 
 to be termed not rent, but profit on the capital which was expended 
 fifteen hundred years ago. The answer is, that for all useful purposes 
 the distinction of profit from rent ceases as soon as the capital, from 
 which a given revenue arises, has become, whether by gift or by inherit- 
 ance, the property of a person to whose abstinence and exertions it did 
 not owe its creation. The revenue arising from a dock, or a wharf, or 
 a canal, is profit in the hands of the original constructor. It is the 
 reward of his abstinence in having employed capital for the purposes 
 of production instead of those of enjoyment. But in the hands of his 
 heir it has all the attributes of rent. It is to him the gift of fortune, 
 not the result of a sacrifice. It may be said, indeed, that such a 
 revenue is the reward for the owner's abstinence in not selling the dock 
 or the canal and spending its price in enjoyment. But the same 
 remark applies to every species of transferable property. Every estate 
 may be sold, and the purchase money wasted. If the last basis of 
 classification were adopted, the greater part of what every political 
 economist has termed rent must be called profit." — Senior, Political 
 Economy, 6th ed, (London), pp. 112-29, passim. 
 
THE CAPITAL CONCEPT 139 
 
 pages not to attack it but, through a more careful reformu- 
 lation of the productivity concept, to extend it. But mean- 
 while it is necessary again to point out that, as a 
 technological classification, the distinction holds only as 
 socially viewed. Private interests have little occasion for 
 the distinction; productivity for competitive purposes is 
 quite another thing from technological productivity. 
 
 But now, finally, even if it be possible, from the point of 
 view of origins, to establish between land wealth and other 
 wealth distinctions at once theoretically tangible and prac- 
 ticably workable — and even admitting that the techno- 
 logical outlook is so far clear and its problems so far 
 susceptible of present formulation, as to make the distinction 
 one of manifest relevancy to the welfare outlook and of 
 definite significance for the terms of the future situation 
 within which the value and distribution problems must one 
 day be worked out, — admitting, that is to say, that over long 
 intervals of time, in the dynamics of value and of distribu- 
 tion, important tendencies are especially associated with the 
 land category, is it at the same time at all to be admitted that 
 in any current investigation of the process of present value 
 fixation — the value problem in cross-section — these possible 
 or probable outlooks, these long-time prophecies, have any 
 bearing to suggest that, in a competitive society, the pro- 
 ductive powers of land are differently remunerated, or bear 
 a relation to costs and to values different from other 
 productive powers and agents ? If it were proved, or other- 
 wise accepted, that labor is likely to get more scarce, would 
 this suffice to exclude present-day wage outlays from 
 present-day costs? Some difficult problems with regard to 
 the capital concept and to the basis of interest may be 
 avoided through holding in mind that our problem is the 
 value problem, and that the correct formulation of the 
 capital concept is primarily and chiefly important as bearing 
 on this problem. Laborers may get more numerous and 
 more skilful or less skilful; capital goods may increase 
 
I40 VALUE AND DISTRIBUTION 
 
 relatively to other productive agents, or possibly decrease; 
 land may get better or worse with climatic or other changes, 
 and relatively to the situation become more or less abundant 
 or more or less adequate ; but in each new situation there 
 will be nothing new but the situation and the distributive 
 outcome; the value problem in its setting of new terms will 
 remain in principles, and in methods of analysis, the same 
 problem.® 
 
 * Not only with students, but in economic literature, does this dis- 
 tinction between the static analysis and the dynamic aspects of the 
 conditions under which the static analysis is to be applied, present 
 itself as the occasion of great perplexity. But if for no other reason, 
 the purely problematic quality of these dynamic forecasts should suffice 
 to deny them a controlling influence in value theory. Take it, indeed, 
 as true that during the last few centuries of exploration and of develop- 
 ing transportation, new supplies of land have far outrun the increase 
 of population, that elasticity has especially characterized the land 
 supply ; or take the contrary of all this for true ; what of it, for 
 purposes of rent as an element then or now in the cost computation? 
 or how does the past trend of the interest rate, or the probable future 
 trend, bear upon the question as to whether interest shall or shall not 
 at any given time rank as an element of cost ? By virtue of wars suffi- 
 ciently grievous and of plagues sufficiently decimating, population may 
 turn toward decrease ; would wages then become no part of cost, 
 though now, and for any probable future, they are accepted as properly 
 included? And how, again, if the late tendencies toward a restricted 
 birth rate become still more marked? Will then a new value doctrine 
 have to be recognized, or will it be merely true that the old doctrine 
 will remain valid for a new application under the new setting of the 
 changed conditions? 
 
CHAPTER XI 
 CAPITAL AS A COMPETITIVE CONCEPT 
 
 It is chiefly as bearing upon cost of production in its 
 relation to market values, that the concept of capital becomes 
 of surpassing concern in theoretical economics. And regarded 
 from this point of view, the field of investigation widens 
 surprisingly : What are the relations of capital hire to 
 market prices ? Is a tenable distinction to be drawn between 
 these and rent outlays on the one hand, and wage outlays 
 on the other? Or, so far as cost and value purposes are 
 concerned, might not rent or wages be logically extended 
 to cover all forms of remuneration to any sort of produc- 
 tive agent or instrument? In fact, is cost of production an 
 everyday business concept, or is it something peculiar to 
 economic analysis? And if this latter, are capital outlays 
 to be confined only to expenditures for the use of inter- 
 mediate goods in the time aspect, or are they to include all 
 forms of burden and subtraction imposed upon the capital 
 reserves of the entrepreneur producer in the business pro- 
 cess of supplying goods to the market? In sum, may we 
 not, for cost purposes, accept a point of view of capital 
 which regards it solely as the source of expenditure — 
 capital conceived in such fashion that interest payments are 
 to be regarded as paid from it rather than for the use of it, 
 and that rent outlays are as truly burdens upon it — and cost 
 elements under it — as were outlays ever burdens or 
 costs, whether under the later theory, or under the earlier 
 wage-fund capital notion, with its attendant wage-capital 
 cost outlay ? 
 
 And further: having recognized hires of labor, of land 
 instruments, and of all other instruments as equally cost 
 outlays, must we not likewise go on to recognize, as also 
 of cost relevancy, the question of when these various hire 
 
 141 
 
142 VALUE AND DISTRIBUTION 
 
 outlays have to be met, and of the time elapsing between 
 the expenditure and their recoupment by sale? 
 
 Not at all denying- that, for certain purposes, capital has 
 rightly been and must continue to be discussed as a social 
 category, as production goods, it is intended sharply to 
 raise the question whether this concept of capital has any 
 significance for the cost-of-production analysis or for any 
 purpose connected with the value problem — whether, also, 
 the social concept of capital, the purely industrial and 
 mechanical and non-competitive concept, is not entirely 
 irrelevant to the processes of competitive society and of 
 entrepreneur production, and to the thought and conduct 
 of the actual business world. 
 
 It is doubtless true that classical economics contains a 
 considerable number of distinct and antagonistic concepts 
 of cost, but it is none the less true that whenever the argu- 
 ment shifts from the Crusoe discussion to the competitive 
 market, and becomes definite in its analysis and tangible in 
 its applications, the concepts of time cost and pain cost 
 somehow shade off, as we have seen, into some aspect of 
 \ahor-value cost as the basis of employer's outlay; or, as 
 especially with Ricardo, by regarding pain cost as the basis 
 and explanation of the remuneration to the wage-earner 
 and thereby of the wage outlay to the entrepreneur, values 
 are made, through the mechanism of entrepreneur costs, to 
 be proportional to the labor-pain investment in produc- 
 tion. 
 
 Whether or not labor was thus susceptible of reduction 
 to a common denominator either of pain or of time, and, 
 even if so, whether labor could serve as the ultimate expla- 
 nation of the very evident market reduction of it to the 
 common denominator of money wages, and whether or not 
 Ricardo's marginal device for getting rent payments out of 
 the category of price-determining costs may in any view be 
 accepted, it remains in any case clear that Ricardo's reckon- 
 ing of costs is essentially a business man's computation as 
 
CAPITAL AS A COMPETITIVE CONCEPT 143 
 
 a question of money outlays — outlays of the sort 
 which a business man always reckons as demands upon 
 business capital, outlays of the sort which the trading or 
 manufacturing corporation provides for through its sub- 
 scribed capital or through capital-borrowings upon the 
 market. And it is in this sense, and rightly, but only in 
 this sense, that wages may be spoken of as paid out of 
 capital; but in this sense also raw materials are purchased 
 out of capital — office furniture purchased out of capital ; 
 business connections, insurance, and advertising paid for out 
 of capital; in this sense interest and rent are paid out of 
 capital; and so likewise with all other business expenses 
 incurred in the process of getting goods upon the market. 
 This concept of capital is now to be presented as the only 
 concept which can be articulated with the business world's 
 notion of cost of production, and the only concept which, in 
 the development of economic theory or in close economic 
 analysis, can be regarded as having any relevancy to those 
 cost-of-production considerations which have to do with 
 an inquiry into price and value. And again be it repeated 
 that it is chiefly as bearing upon the value problem that the 
 need exists for a re-examination of the capital concept. 
 
 Social capital and competitive capital. — Whatever might 
 be the accepted theory of value in a collectivist society — 
 whether a labor theory or a utility theory, or quite as possi- 
 bly no theory at all and no need of any — it is clear that 
 differences in land as used for productive purposes would 
 receive recognition; per item of product obtained, outlays 
 upon some land would be appreciably lower than upon other 
 land. It is equally clear that some of the product of this 
 society would need be saved as raw material or as tools for 
 further production; but it is not clear that' these saved 
 products would be exclusively traceable either to land or to 
 labor; in fact, it is certain that some labor product would 
 get embodied in the land, and that some land product would 
 be traceable in all or nearly all forms of collectivist wealth, 
 
144 VALUE AND DISTRIBUTION 
 
 whether of the production or of the consumption type. 
 Probably, however, in any given situation of environmental 
 conditions, distinctions between wealth as land product and 
 wealth as labor product would not, to this coUectivist 
 society, be especially interesting, — the problem all the while 
 remaining one of how to get the best results out of the 
 various forms of wealth at hand. If, however, the society 
 were semi-predatory in character, and were making com- 
 parison of different habitats to be contested for, it might 
 well find itself at indifference as between one habitat of 
 poor original quality and of medium ameliorations, but 
 with great store of agricultural appliances, as against 
 another of great natural fertility, an inferior measure of 
 land amelioration, and very defective agricultural appli- 
 ances. So, in the application of its labor power, land at one 
 time, and at another time the tools and appliances of culti- 
 vation, might lead in the call for reinforcement. In short, a 
 coUectivist society would not need to, and could not if it 
 needed, distribute its productive possessions into land and 
 capital categories. 
 
 As this society would be without competitive production 
 and without competitive markets, it would have no need for 
 exchange-value methods or measures. Production would 
 take place according to some sort of utility standard in 
 consumption, and productive agents would be rated in esteem 
 according to their efficiency in utility creation. Land agents 
 and capital agents would stand on a common basis of esti- 
 mation. The different members of the society being 
 regarded as substantially equal, both production and con- 
 sumption would necessarily be worked out according to 
 considerations of utility — marginal utility, of a vague and 
 average sort doubtless — instead of, as now, according to 
 exchange values, wherein purchasing power, and not utility 
 (excepting as utility may more or less affect the purchasing 
 disposition), selects the consumers and determines the 
 direction of production. 
 
 Under such conditions, what portion of the social posses- 
 
CAPITAL AS A COMPETITIVE CONCEPT 145 
 
 sions would rank as capital, and what would be the the 
 essential meaning of the concept? In accurate analysis, 
 would it be possible to accept the technological notion of 
 capital as comprising all wealth held for purposes of further 
 production — all technologically intermediate products — in 
 the ordinary industrial sense, productive wealth, non-con- 
 sumption goods? Would the time element count for any- 
 thing, in other than this industrial-mechanical aspect? Or 
 must all wealth be regarded as capital ? How about the ice 
 stored till summer; or the wine aging in the collectivist 
 vaults ; or the wheat stored for winter ; or the total of con- 
 sumption goods waiting the time of maximum service in 
 consumption ? 
 
 It is past question that, especially with capital socially 
 viewed, the earlier notions of capital, like the later, have 
 not merely referred capital to productivity, but have inter- 
 preted productivity in the light of technological applica- 
 tions, and as, on the whole or mainly, a technological 
 phenomenon, a category of instruments, tools, and appliances. 
 This test once accepted, and the attempt being at the same 
 time made to articulate it with the test of origins, capital 
 emerged as all non-land forms of instrumental goods. But 
 more and more the especial function of machinery was per- 
 ceived to be the utilization of the forces and energies of the 
 environment — of "nature." More and more Adam Smith's 
 naive handicraft view that "no equal quantity of labor 
 employed in manufactures can ever occasion as great a 
 reproduction as in agriculture ; in this nature does nothing, 
 man does all/' was seen to be misleading. A windmill is 
 merely wealth set where natural forces will achieve, in 
 > co-operation with it, or will enable it to achieve, desirable 
 results. But precisely this is the case with the cider matur- 
 ing to vinegar, or with the wine acquiring age and flavor, 
 or with the sapling reaching up to become a tree; whereat, 
 as we have seen, Ricardo was sorely puzzled, and James 
 Mill blundered into a great joke. 
 
 But it has now become clear enough that the techno- 
 
146 VALUE AND DISTRIBUTION 
 
 logical concept of capital takes account of only one aspect 
 of capital productivity. That the ice is melting away or the 
 wine falling off in point of gallon measures is not con- 
 clusive of the productivity problem. If the utility grows, 
 whether by one sheep growing into two, or one small 
 sheep to one large one, or one poor-mutton sheep to one of 
 good quality, or one superfluous sheep to a famine-time 
 sheep, there is, at least under a collectivist reckoning, eco- 
 nomic productivity. So long as either the objective good 
 changes its character so as to change its utility relation 
 to man, or so long as man so changes in needs and desires, 
 or in provisionment, as to modify the utility relation between 
 goods and men, there is room for value productivity. The 
 collectivist definition of capital would then run somewhat 
 as follows: wealth held for increment — zvealth in time. 
 
 However clear, then, for technological purposes, may 
 be the distinction between land wealth and other wealth, 
 the distinction remains mostly valueless for the theoretical 
 economics of a collectivist society.^ 
 
 Capital in the competitive sense. — Examining now some- 
 what more closely the capital concept as adapted to a com- 
 petitive society, we ask how far and with what modifications 
 the collectivist capital concept of wealth as fund, 
 wealth in time, can be made to serve for competitive pur- 
 poses. There will come, at all events, this change — that we 
 shall be talking in terms of exchange-value denominators, 
 exchange-value production, exchange value of agents, 
 exchange-value computations of gain, rather than in terms 
 of average service, or of some sort of group-marginal 
 utility. In a general way doubtless, technological produc- 
 
 ^ Perhaps it should go without saying that a collectivist society 
 would, for this purpose, have no concern with any question of absti- 
 nence, otherwise than as bearing upon the store of goods waiting to be 
 named. Abstinence, so far as it applied at all, would apply to all 
 forms of the society's wealth ; and all of the wealth would stand as 
 capital. Abstinence would bear only upon the volume accumulated. 
 But there would, of course, remain questions enough as to the forms 
 and uses into which this store of wealth should be distributed. 
 
CAPITAL AS A COMPETITIVE CONCEPT 147 
 
 tivity in terms of utility product will be paralleled in com- 
 petitive society by a technological productivity in value 
 product. But not everywhere; for it sometimes falls out, 
 in competitive society, that the short output commands an 
 aggregate sale value higher than the bountiful output; that 
 the spices have to be sunk — mechanical destruction, but 
 value creation — or that monopolistic combinations are 
 formed, to the result of diminished product and higher 
 prices — a plus in value, but a minus in utility. 
 
 But none the less, such and so many productive agents, 
 technologically considered, as there are in competitive 
 society will, under the value denominator, rank as capital, 
 whether these be land agents or other; all consumption 
 goods, also, will in strict logic be so included, since all are 
 held because an advantage, an increment, lies with post- 
 poned consumption. Even with goods deteriorating or 
 decaying, as objectively considered, the advantage is on the 
 side of delay; it is not conclusive that half the apples stored 
 in the cellar will rot, or that the ice in the shed will lose 
 half its weight before summer.^ 
 
 ^ Up to this point Professor Fetter's views seem to be in the main 
 worthy of acceptance. However, his formulation of capital as material 
 goods conceived in one aspect, their market value, does not quite accu- 
 rately apply, and, indeed, was not intended to apply, to the collectivist 
 economy ; market value is not a collectivist category. As applied to 
 competitive society, the formulation appears to be much too narrow, 
 the criticism centering mostly upon the word "material." — See Fetter. 
 Quarterly Journal of Economics, November, 1900; May, 1901 ; Novem- 
 ber, 1902. 
 
 But in his Principles, Professor Fetter occasionally manifests small - 
 faith in this requirement of materiality : "Capital today may be 
 defined as economic wealth expressed in terms of the general unit of 
 value" (p. 115) ; a definition wide enough to include immaterial goods 
 privately owned; and on page 129 it is said: "Men seek to convert into 
 marketable capital any increase of income in their wealth or busi- 
 ness The basis of capital value is income, and whatever be 
 
 its cause, political or economic, material income can and will be capi- 
 talized and added to the capital value of the privilege, wealth, or indus- 
 try on which the income is conditioned." 
 
 But, interpreting this definition given on page 115, it is said: "By 
 this definition, capital at any given moment of time includes all eco- 
 nomic goods in existence, when they are thought of in terms of 
 
 their value. But things have different durations Most capital 
 
 is composed of things durable in a large degree The things 
 
 composing capital are concrete things, scarce forms of wealth." 
 
148 VALUE AND DISTRIBUTION 
 
 Perhaps this is all that need be said for capital in a com- 
 petitive society, so far as there is occasion or justification 
 for a distinctly social concept for capital in a competitive 
 society; and doubtless there are for some purposes both 
 occasion and justification. But for most purposes the social 
 concept does not apply, simply because the activities of men 
 in society are competitively and not socially organized. 
 
 But, as a computation of competitive costs, regarded 
 from the point of view of supply-determining influences 
 and as having thereby bearing upon the value adjustments 
 of the market, another and quite different, and even a 
 radically inconsistent, concept of capital demands atten- 
 tion. Actual business computations of the expenses of pro- 
 duction include a wide range of expenditures made out of 
 what, in the individual reckoning, stands as the total busi- 
 ness investment, and functions in the terminology and 
 reckoning of the business world as business capital. It is, 
 for example, in the sense of Mill's doctrine, this sort of 
 capital that limits labor, this sort of capital out of which 
 wages are paid.^ 
 
 ^ Capital in the technological sense has evident bearing upon the 
 wages of labor, not indeed by determining whether or not labor shall be 
 employed — for this is in ordinary times certain, whatever may be the 
 volume of capital — ^but by determining the manner and effectiveness of 
 its employment, the productive equipment at its disposal, its outillage. 
 It is in this sense only that capital may rightly be said to limit labor 
 and to stand in causal relation to the wages of labor. But this is not 
 the sense in which the term "capital" is used in the wage-fund 
 doctrine ; it is there used in the sense of an employment fund, a sub- 
 division of- business capital, rather than as a technological quantity ; 
 in this business sense of capital, subsistence goods are properly included 
 only to the extent that they are actually a part of the entrepreneurs' 
 holdings ; that wage outlays, whether finally expended in subsistence or 
 in other goods, are made out of the cash or banking credits in the 
 employer's control, proves merely that from his point of view this cash 
 or these credits must be regarded as capital. There is little connection, 
 if any, and certainly no direct connection, between the volumes of 
 business capital or credit in society and the real wages of labor. True, 
 any one employer can hire more labor if he controls a larger business 
 capital, but only upon the assumption that competing employers have 
 not a like increase of capital. The old fallacy of reasoning from one to 
 all is well illustrated here. And in any case, it does not follow that 
 having more business capital, an employer can afford to pay, or will 
 for any reason pay, a higher wage rate. 
 
CAPITAL AS A COMPETITIVE CONCEPT 149 
 
 In the computation of competitive entrepreneur costs, 
 that is to say, interest charges are reckoned upon something 
 quite other than technological capital. Entrepreneur capital 
 — capital in the guise in which the type-form of modern 
 business, the corporation, presents it — includes not merely 
 consumption goods in stock, but banking balances, counter 
 money, funds tied up in customers' accounts and in bills 
 receivable of many varieties, corporate stocks and securi- 
 ties, whether held for sale or for investment, and generally 
 all that fund of working capital, more or less unspecialized, 
 requisite for the successful functioning of a business. The 
 manufacturing entrepreneur or the corporation manager 
 would find it a novel and perplexing doctrine which should 
 restrict the capital investment to the buildings, machinery, 
 and raw materials of the undertaking; the corporation really 
 possesses nothing that is not capital. 
 
 But it is still true that these non-technological forms of 
 capital deserve not so much greater recognition than they 
 have in the past received, as more careful analysis and 
 classification; for, as has already been pointed out, classical 
 discussion, as indeed all economic discussion, early or 
 modern, is full of this entrepreneur-capital concept. 
 
 Adam Smith, for example, rarely failing somewhere to 
 formulate or to employ the correct as well as the incorrect 
 doctrine on almost every economic question, is now and 
 then entirely satisfactory in his treatment of the entrepre- 
 neur-capital concept. Perceiving clearly that the funda- 
 mental and essential characteristic of capital is found in the 
 acquisitive purpose, the increment purpose, of its holding, 
 and observing that individuals often gain by lending to 
 others or by employing their wealth in some socially non- 
 productive application — on which question of non-produc- 
 tiveness he was notoriously much confused — it all the while 
 remaining true that communities as isolated aggregates can 
 gain only through productive processes of some sort, he 
 divided acquisitive goods into the two categories, social 
 
ISO VALUE AND DISTRIBUTION 
 
 and private. And out of this, as Boehm-Bawerk believes, 
 has grown up the idea that private capital is connected with 
 interest and is especially a category of distribution, while 
 social capital belongs rather within the field of production.* 
 
 And doubtless such an idea has developed ; but, so far as 
 Adam Smith had any choice between his different idea- 
 vistas, this could hardly have been the doctrine of his pref- 
 erence. For the most part he was talking of private 
 capital as a category of private — that is to say, of competi- 
 tive — business ; not of interest-getting, but of any sort of 
 gain-acquiring through business activities, whether indus- 
 trial or merchandizing or what not. 
 
 It is in this sense of entrepreneur capital that in the 
 Introduction he starts off the wage- fund doctrine on its 
 course with the remark: 
 
 The number of useful and productive laborers, it will hereafter 
 appear, is everywhere in proportion to the quantity of capital 
 stock which is employed in setting them to work, and to the 
 particular way in which it is employed. 
 
 So, likewise, in his comparison of corn prices in England, 
 France, and Poland, where he explains that, despite the 
 greater productiveness of agriculture in the more advanced 
 countries, the prices are rarely lower in the more advanced 
 countries, since the superiority of produce commonly not 
 more than balances, and often does not fully balance, the 
 "greater labor and expense bestowed on them," he is 
 employing a competitive, an entrepreneur, concept of cost, 
 in terms of wage payments and of all outlays and disburse- 
 ments in general. These outlays and disbursements are 
 never made in terms of technological capital, and rarely in 
 terms of laborers' supplies — consumption goods ; and for 
 the purposes of Smith's argument, as well as for the entre- 
 preneur's business computation, it does not at all matter in 
 what form or terms the payments are made. 
 
 And so again, in chap, vi : 
 
 Over and above what may be sufficient to pay the price of 
 materials and the wages of the workmen, something must be given 
 
 * Positive Theory of Capital, p. 27. 
 
CAPITAL AS A COMPETITIVE CONCEPT 151 
 
 for the profits of the undertaker of the work who hazards his 
 stock in the adventure .... the profits of the employer upon the 
 whole stock of labor and materials which he advanced. 
 No employer, however, can be regarded as advancing a 
 stock of labor in any other sense than that of advancing 
 the wages ; Adam Smith is plainly within the concepts of 
 entrepreneur cost and of entrepreneur capital. And again 
 in chap, viii, on "Wages," he explains that labor is rightly 
 treated as a commodity like any other; if capital is increas- 
 ing faster than population, wages get the benefit; 
 employers fall into sharp competition: 
 
 The demand of those who live by wages, it is evident, cannot 
 increase, but in proportion to the increase of the funds which are 
 destined for wages. 
 
 Ricardo, as we have seen, found his way over from 
 real value to market value through the mechanism of entre- 
 preneur competition, with its leveling and proportioning 
 effects; all of his reasoning on market value goes upon 
 entrepreneur costs, and thereby, tacitly or in terms, assumes 
 the entrepreneur concept of capital : 
 
 Whilst every man is free to employ his capital where he pleases, 
 he will naturally seek for it that employment which is most advan- 
 tageous; he will naturally be dissatisfied with a profit of 10 per 
 cent, if by removing his capital he can obtain a profit of 15 per 
 
 cent It is perhaps very difficult to trace the steps by which 
 
 the change is effected; it is probably effected by the manufacturer 
 not absolutely changing his employment, but only lessening the 
 
 amount of capital he has in that employment The monied 
 
 class .... are engaged in no trade, but live on the interest of 
 their money, which is employed in discounting bills or in loans to 
 the more industrious part of the community. The banker, too, 
 employs a large capital on the same object There is per- 
 haps no manufacturer, however rich, who limits his business to the 
 extent that his own funds will allow; he has always some portion 
 of this floating capital. When the demand for silks increases, and 
 that for cloth diminishes, the clothier does not remove with his 
 capital to the silk trade, but he dismisses some of the workmen, he 
 discontinues his demand for the loans from bankers and monied 
 men (Ricardo, Political Economy, chap, iii, sec. 33).'^ 
 
 " If further evidence is necessary that prevailingly throughout eco- 
 nomic discussion the working concept of capital is the entrepreneur 
 
152 VALUE AND DISTRIBUTION 
 
 With the acceptance of this entrepreneur concept of 
 capital — an acceptance not to be avoided so far as the capi- 
 tal category is to retain its significance for cost-of-produc- 
 tion purposes — there must evidently go the abandonment of 
 the threefold division of productive factors as essential or 
 important in the value analysis ; for while the technological 
 distinctions may and must, to a limited degree and for 
 certain purposes, hold their place, the services of the vari- 
 ous factors in value production are, in competitive business, 
 reduced to the common denominator of money price, stand 
 with regard to entrepreneur outlay in an entirely indistin- 
 guishable relation, and are paid for as costs out of one 
 common fund of resources, the capital fund of the entre- 
 preneur. 
 
 All things, then, that can be traded in, or valued, or 
 rented, or capitalized, may fall within the meaning of the 
 capital concept. In this sense of the term, capital includes, 
 in the price aspect, patents, copyrights, trade-marks, busi- 
 ness connections, reputation, good-will, privilege, govern- 
 ment favor, franchises, royalties, rights of toll and tribute, 
 rents, annuities, mortgage rights, personal claims ; ^ and 
 further, it includes monopolies of no matter how various 
 
 concept, the citation of authors to the required degree is evidently 
 impracticable here ; it remains true, however, that economic literature 
 is full of his concept, particularly in those directions showing the 
 strong influence of John Stuart Mill, practically all of whose cost 
 analysis is of the entrepreneur type. But perhaps it may be sufficient 
 again to point out that the wage-fund doctrine would be outside the 
 pale of possible discussion on any other basis than this of entrepreneur 
 capital. What force is there, on any classical plane of discussion, in 
 calling subsistence goods capital otherwise than from the employers' 
 point of view? Or what force in the distinction between fixed and 
 circulating capital? Or in the doctrine as expounded that labor is 
 limited by capital? At Mill's time it had become no longer possible 
 to be overlooked that society was in a regime of employer production ; 
 Mill accepted from the business world the business basis of reckoning — 
 a computation according to competitive entrepreneur costs. Since 
 Mill's time, with the exception of Cairnes's belated and reactionary 
 crusade, there has been practically no systematic cost doctrine that has 
 not sounded in terms of entrepreneur cost, with its implied recognition 
 of the underlying concept of entrepreneur capital. 
 
 * To deny the term "capital" to these immaterial value items, and 
 to call them merely property, as would (sometimes) Fetter, does indeed 
 
CAPITAL AS A COMPETITIVE CONCEPT 153 
 
 kinds and degrees, so far as they may become the subject 
 of invested cost in obtaining them, so far as they are 
 bought and sold as steps in competitive-productive invest- 
 ment, or are vendible upon the market as capitalized divi- 
 dend-paying properties. All of these are capital for our 
 present purposes, the value investigation, since they get into 
 costs in the actual competitive market production of such 
 commodities — hats, wheat, machinery, stocks, etc. — as are 
 actually marketed. All things which, from the entrepreneur 
 point of view, appear to be expedient expenditure for the 
 purposes of creating either a commodity or a situation of 
 market value are outlays of capital taking rank as costs of 
 production. When the purchase of machinery is an advis- 
 able move in business policy, capital goes into it, as at 
 another time into land or labor; when, in good busi- 
 ness policy, a franchise must be had or a patent procured, 
 capital is, in either case, so directed as to accomplish the 
 necessary thing. When, for equally cogent business rea- 
 sons, legislatures or city councils must be bought, the neces- 
 sary outlays are, for cost and value purposes, precisely like 
 expenditures for machinery or for the control of patented 
 processes ; tramway franchises and sugar-refining tariffs, as 
 situations business-wise obtained by the expenditure of 
 capital, disclose in the current market values of the stock 
 the present worth of the forecasted gains. So the expenses 
 of stifling competition are capital outlays, invested as the 
 costs of a monopoly to be obtained; so also the tribute paid 
 to escape cut-throat competition is a capital cost of pro- 
 duction,'^ 
 
 That for purposes of competitive production the only 
 important fact for cost is the outlay, and not at all the 
 
 obviate any necessity for distinguishing between social and private 
 capital, but the necessity still remains for doing something with this 
 property — a serious matter in itself, or of excluding it from economic 
 consideration — a still more serious matter. 
 
 ^ Cf. Veblen, "Modern Business Capital," The Theory of Business 
 Enterprise, chap. vi. 
 
154 VALUE AND DISTRIBUTION 
 
 direction of it — technological or other — may perhaps be 
 made clearer if we set ourselves to observe the different 
 ways in which different entrepreneurs in the same line of 
 production go about to achieve precisely similar ends. Of 
 six farmers, with substantially similar farms and inheriting 
 or borrowing an equal fund of purchasing power, one will 
 buy more land, another more machinery, a third will hire 
 more labor, a fourth will buy more draft cattle, a fifth will 
 increase his herds, a sixth will enlarge or improve his sheds 
 and barns; but all will, in essential similarity, be devising 
 ways of most gainfully putting product upon the market. 
 True, there would be room enough here, were it to the 
 purpose, for technological distinctions between the various 
 factors of production, but it is clearly not to the purpose; 
 no one of these productive outlays is any more or any less 
 a cost than any other ; and no one of them is a cost by virtue 
 of its labor or its pain content, or of its abstinence quality, 
 but only of its capital outlay. 
 
 Lest the argument seem to imply too much, or its con- 
 clusions to extend too far, it may be permissible again to 
 repeat that no abandonment of the technological concept of 
 capital is advocated or could be admitted to be desirable, 
 but only that this technological concept be accepted as such, 
 and that its distinctly social bearing and significance be 
 recognized. Nor is any attack intended upon the principle 
 that, from the social as well as from the individual point 
 of view, all wealth postponed in consumption is capital. 
 But it is here insistently urged that the category of private 
 capital must not be abandoned, but enlarged to be as wide 
 as the concept of competitive capital; and that this latter 
 concept needs not only recognition, but a markedly increased 
 emphasis as surpassingly important among capital concepts ; 
 and all this to the end that economics may preserve some 
 practical relation to the actual business life of a competitive 
 entrepreneur society.^ 
 
 * This concept of capital is substantially the same as that which, 
 from another point of view and for entirely different purposes, is set 
 forth by Professor Veblen in his Theory of Business Enterprise. 
 
CAPITAL AS A COMPETITIVE CONCEPT 155 
 
 In certain important particulars the foregoing argument and its 
 conclusions are obviously at one with the views of Professors Fetter 
 and Fisher. Social capital one may be content to define in harmony 
 with Professor Fetter's formulation ; but there must be sharp dissent 
 from the abandotmient of the private-capital concept. Professor 
 Fetter's formulation, while entirely adequate from the social point of 
 view, and important for theoretical doctrines as viewed therefrom, can 
 scarcely be regarded as of theoretical adequacy or of practical service 
 when carried over into the field of existing facts. 
 
 Nor does it appear possible to work out anything like approximate 
 coincidence, as does Boehm-Bawerk, between social and private capital, 
 private capital being held as somewhat the more inclusive concept. 
 Fetter and Fisher have sufficiently shown the arbitrary and illogical 
 character of this procedure. Private capital, if there is any such thing, 
 is widely different from a category collateral to and supplementary to 
 the social-capital concept. 
 
 But it is not so clear whether, under Professor Fisher's reasonings, 
 there may not be room for the entrepreneur-capital concept above set 
 forth. Certainly the citations from ante-Smith usage, as well as from 
 later usage, admit, if indeed they do not impose, the private business 
 concept ; e. g. : 
 
 161 2: "La sorte principale que e quella quantita di danari, che 
 pongono i mercatanti in sui traffiche." 
 
 1694: "Le sorte principal d'une dette." 
 
 161 1 : "Wealth, worth: a stocke, a nian's principal or chiefe sub- 
 stance." 
 
 1730: "Capital stock [in trade, etc.] is the stock or fund of a 
 trading company, or the sum of money they jointly contribute to be 
 employed in trade." And so, substantially. Rider, 1759; Dyche, 1750; 
 Nicholson, 181 8, 
 
 1859 : "On donne vulgairement ce nom a toute somme amasse, et 
 plus particulierement a celles qui, placees ou pretees, peuvent produire 
 interet." 
 
 1883 : "The amount of money or property subscribed or employed 
 in a joint-stock association ; the money assets invested in business by 
 a trading firm or individual ; the net worth of a party." 
 
 The foregoing citations are all from among those collected by 
 Professor Fisher and quoted by him in the Quarterly Journal of 
 Economics, May, 1904 ; which see. 
 
 Read with the necessary bias, also. Professor Fisher's formulation 
 is wide enough to admit of the entrepreneur concept : a stock (of wealth 
 or property, or the value of either) existing at an instant of time, as 
 distinguished from income, which is a ■flow through a period of time. 
 But inasmuch as this interpretation would make the formulation do duty 
 for two entirely distinct and inconsistent concepts, it is perhaps 
 not fairly to be claimed or imputed ; Professor Fisher's point of view 
 and reasonings are prevailingly social in character. So Processor 
 Tuttle's notion, "surplus wealth as a possession" (Quarterly Journal of 
 Economics, November, 1903), appears to be an unwarrantable joinder 
 of social and competitive considerations, or, perhaps better, an impos- 
 sible compromise between them. 
 
 In last analysis, however, the objections to Professor Fisher's 
 view are best appreciated by following out rigorously his distinction 
 between fund and flow, a distinction of unquestionably great value, 
 but made overdecisive for the purposes in hand: 
 
156 
 
 VALUE AND DISTRIBUTION 
 
 Capital and income being made correlative terms, all flow being 
 income, and the fund giving origin to the flow being capital, wages 
 thereby become a subhead of interest, and men, or their productive 
 power, become capital. Fisher himself accepts this conclusion, but 
 recognizes the awkwardness of it, and declines to regard it as essential 
 to his main position. But it is none the less true that giving up this 
 point necessitates the abandonment of the iund-vs.-How distinction, 
 at all events for the main purpose to which it is applied. 
 
 And there is really insuperable difficulty in the way of making men 
 capital, if the capital notion be taken to imply the reduction of the 
 productive good to the value denominator ; and this, it will be remem- 
 bered, is the view for which Professor Fisher has announced himself 
 to stand: "Professor Fetter .... seems to think that I restrict the 
 meaning of capital to concrete wealth rather than the value of wealth, 
 and that I do not admit 'services' under income. But these are 
 both prominent theses of mine" (Quarterly Journal of Economics, May, 
 1904, p. 388, note). But it is, then, impossible that men become capi- 
 tal, inasmuch as, while each man does give off successive productive 
 services, which, so far as they are salable — and sold — in advance 
 of their actual rendering, may each obtain, through the process of dis- 
 count, a present worth, it is not possible to attach a present worth to 
 the whole series in block, that is to the man entire ; that the difficulty 
 of giving the successive doses of upkeep expression in present worth 
 is not insurmountable, is seen in the fact that other productive agents, 
 subjected to upkeep expenses, obtain a net present value. The diffi- 
 culty is that, outside of slavery, no sale is possible, and that thereby 
 there is nobody to do the capitalizing ; free men have no market value. 
 Precisely as nothing is property that cannot be owned, so nothing is 
 capital that cannot be capitalized ; thus no income can be computed 
 as the flow from any fund, so long as the succession of incomes can- 
 not be funded. 
 
 It would, indeed, be possible, as Fisher rightly urges, for each or 
 any individual man to capitalize himself upon the basis of what his 
 future income was expected to offer as gratification balance over and 
 above the stress and burden of acquiring the income. But even this 
 does not meet the difficulty ; for if men are to be capitalized in such 
 manner as to permit that the concept of flow — interest — ^be articulated 
 with the concept of fund — capital — it must, upon such basis, follow 
 that all income, and not some share or balance of income, be taken as the 
 interest fact, and thereupon be subjected to the discount reduction 
 into terms of capital. Otherwise it will immediately become necessary 
 that all rents upon instrumental or other saved wealth be taken to be 
 capital only to the extent that the incomes therefrom afford a net 
 return over and above the burdens and protests of postponement. 
 
 Resting upon this view of man as capital, debts and franchises 
 are by Fisher included within the capital concept, as parts of the fund, 
 since they are liens against men, mortgage claims, so to speak, upon the 
 human-capital items. But if it be not permissible to regard men as 
 capital, there is logically no place for choses in action, unless upon the 
 acceptance of the private-capital concept — an outcome which both 
 Fetter's and Fisher's views are especially recommended as avoiding. 
 
CHAPTER XII 
 
 COMPETITIVE SAVINGS AND SOCIAL CAPITAL: LOAN 
 FUND AND ABSTRACT CAPITAL 
 
 We have seen that the cost-of-production and the value 
 problem here has to do not with capital as a social concept 
 but solely with competitive capital, capital as a fund for the 
 payment of the expenses of production, capital conceived in 
 such wise that interest payments are as correctly to be 
 regarded as paid from it as for it, capital, that is to say, as 
 the source of rent, insurance, tax, and advertising outlays, 
 and of all other costs of production as well. 
 
 All this follows from the truth that cost of production, 
 as a category in the investigation of market values in a 
 competitive society, is purely a private and competitive fact. 
 Elsewhere it may be our task to elaborate categories of 
 social cost, cost as it would present itself in a collectivist 
 economy, cost in terms of some sort of social labor pain 
 or of displacement of social product, — cost, that is 
 to say, unrelated to private capital and to competitive 
 outlay, and entirely exclusive of all the computations and 
 the detail and the organization of private initiative for 
 private gain. 
 
 But for competitive economics, and for cost of production 
 as a step in the investigation of competitive market values, 
 all concepts must be competitive in character; capital must, 
 for cost purposes, be taken as the fund out of which pro- 
 ductive expenditures are paid, or as the valued thing or 
 situation or agent into which these capital outlays have been 
 incorporated and value-wise expressed. 
 
 It follows, then, that competitive capital will comprise 
 not merely machinery and tools and improvements upon 
 land, but also stocks in trade, and counter money, together 
 with any and all cost-obtained means and agents of private 
 gain, land or other ; thus, diverging from the social concept 
 
 157 
 
158 VALUE AND DISTRIBUTION 
 
 even at its broadest, competitive capital must include such 
 non-social forms of wealth as debts, franchises, trade- 
 secrets, trade-marks, copyrights, good-will, influence, legis- 
 lative and administrative favor. 
 
 In sum, as has been pointed out at length, the entre- 
 preneur-capital concept abandons, as purely technological 
 and mechanical and as irrelevant to the computations of 
 competitive production, the traditional threefold subdivision 
 of productive factors; it places all productive outlays as 
 upon the same footing relatively to cost and to value, and 
 forsakes all attempt to make capital a subhead under the 
 category of social wealth. Private capital must logically 
 stand as merely another aspect of private wealth. 
 
 But it is to be noted that there remains always one 
 fundamental likeness between social capital and competitive 
 capital — the test by virtue of which any good or possession 
 considered from either point of view is entitled to be 
 regarded as capital — the characteristic mark and the essen- 
 tial fact in the capital concept, that of postponed ultimate 
 service. Capital always and everywhere, be it of the social 
 or of the private sort, is a case of wealth held by the owner 
 thereof for the advantage accruing with time. 
 
 Saving, then, means postponed service; always and 
 everywhere postponed service is the heart of the capital 
 concept. Privately postponed service is private capital; 
 socially postponed service is social capital.^ 
 
 Thus while, from the social point of view, the distinc- 
 tion between capital goods and land goods might possibly 
 be rested upon either technological or genetic considera- 
 tions, it is clear that, from the competitive point of view, 
 
 ^ It may be objected — a critical friend has indeed objected — that 
 the ideal and unmitigated miser postpones his consumption without 
 purpose of later consumption, and with the distinct purpose of mere 
 accumulation. This must be granted ; and it is obviously not a satis- 
 factory disposal of the case to term it abnormal, or to put it aside as 
 mere aberration or disease. But in reality no difficulty is presented 
 for the proposition advanced, which is merely that the satisfaction 
 offered by immediate consumption will not be foregone excepting upon 
 terms of a larger service obtained by way of income due to earning 
 power or through a continued and prolonged enjoyment of some sort. 
 
SOCIAL AND ABSTRACT CAPITAL iS9 
 
 all questions of derivation and origin and all questions of 
 probable or possible modifications of supply are equally 
 irrelevant as bearing upon the content of the term capital. 
 And likewise the distinction between production and con- 
 sumption goods takes on, under the private-capital con- 
 cept, quite a different aspect, if indeed it does not break 
 down altogether. All forms of merchandise must rank as 
 capital; rented pleasure boats serve as basis of acquisition; 
 technological and non-technological goods fall equally 
 within the classification; whatever commands, for the indi- 
 vidual, power of disposal over present goods may be the 
 subject of individual saving — of postponed service. 
 Whether this disposal rests upon the ownership of con- 
 crete and tangible facts or merely of some right or privilege 
 or claim, is for the purposes of the individual computation 
 entirely irrelevant; productivity for the individual reckon- 
 ing is in any case implied by the very fact that postponement 
 of service is decided upon; productivity thereby assumes a 
 new aspect; and consumption goods, technological goods, 
 and immaterial goods all take on, in their time aspect, the 
 character of capital, as in one way or another income-bear- 
 ing, increment-commanding items of ownership. 
 
 Viewed in the light of these considerations, some of the 
 confusions, both in earlier and in current capital discus- 
 sion, come to be readily explicable; the distinction between 
 the social and the competitive concepts has commonly been 
 but vaguely felt and never consistently worked out. Capi- 
 tal, in the sense of a wage-outlay fund, belongs exclusively 
 to the competitive concept; capital as instrumental goods 
 
 In ultimate analysis the miser is not indefinitely postponing his enjoy- 
 ment ; instead of this, he is immediately entering upon the preferable 
 alternative enjoyment, the long-time utility-income method. 
 
 Likewise it is no part of the argument to insist that the principal 
 sum of an investment must some time be consumed, but only that the 
 immediate total of satisfaction offered by the present utility of wealth 
 will be foregone only on the expectation of a larger total of service 
 through waiting, and that this could fail to be true only upon such 
 conditions as, making abstinence an indifferent thing, must make 
 production a motiveless thing. 
 
i6o VALUE AND DISTRIBUTION 
 
 falls equally well under either. Capital as distinguished 
 from other instrumental goods — land and natural agents — is 
 a possible social and technological concept ; but from the 
 point of view of private capital the distinction vanishes. 
 Credit rights, franchises, patents, good-will, privileges, have 
 no existence in the collective reckoning; but as competitive 
 facts they are among the most important of acquisitive 
 goods. The wage-fund doctrine is nonsense from the point 
 of view of social reasonings ; but from the private point 
 of view it is an entirely tenable, though admittedly a not 
 over-important or necessary, concept. Subsistence goods are 
 readily enough regarded as costs and as production items, 
 if only the private instead of the collective standpoint be 
 adopted. 
 
 That labor is limited by capital, taken in the sense of 
 technological equipment, is, if rightly interpreted, hardly 
 open to question; but the proposition means nothing or 
 worse if asserted with regard to private capital. 
 
 But, for our present purposes, the most significant of 
 the conclusions resulting from this constant and chronic 
 shifting in point of view is in the treatment of savings, loan 
 capital, and commercial credits. Under what concept are 
 we, indeed, proceeding, in our talk about fixed and circulat- 
 ing capital, the great centers of capital, great capital bor- 
 rowings, the growth of capital, the fluidity and mobility of 
 capital? And what is really the relation between savings 
 and capital? 
 
 What, for example, is Ricardo talking of in the follow- 
 ing passage, already quoted in part? 
 
 Capital is apportioned precisely, in the requisite abundance 
 and no more, to the production of the different commodities which 
 happen to be in demand. With the rise or fall of prices .... 
 capital is either encouraged to enter into, or is warned to depart 
 from, the particular employment in which the variation has taken 
 place. Whilst every man is free to employ his capital where he 
 pleases, he will naturally seek for it that employment which is most 
 advantageous; he will naturally be dissatisfied with a profit of lo 
 per cent., if by removing his capital he can obtain a profit of 
 
SOCIAL AND ABSTRACT CAPITAL l6l 
 
 15 per cent It is perhaps very difficult to trace the 
 
 steps by which this change is effected : it is probably effected by a 
 manufacturer not absolutely changing his employment, but only 
 lessening the quantity of capital he has in that employment. In all 
 rich countries there is a number of men forming what is called the 
 monied class ; these men are engaged in no trade, but live on the 
 interest of their money, which is employed in discounting bills, or 
 in loans to the more industrious part of the community. The 
 bankers too employ large capital on the same objects. The capital 
 so employed forms a circulating capital of a large amount, and is 
 employed, in larger or smaller proportions, by all the different 
 trades of the country. There is perhaps no manufacturer, how- 
 ever rich, who limits his business to the extent that his own funds 
 will allow : he has always some portion of this floating capital, 
 increasing or diminishing according to the activity of the demand 
 for his commodities. When the demand for silks increases, and 
 that for cloth diminishes, the clothier does not remove with his 
 capital to the silk trade; but he dismisses some of his workmen, 
 he discontinues his demand for loans from bankers and monied 
 men ; while the case of the silk manufacturer is the reverse : he 
 wishes to employ more workmen, and thus his motive for borrow- 
 ing is increased; he borrows more, and thus capital is transferred 
 from one employment to another, without the necessity of a manu- 
 facturer discontinuing his usual occupation.^ 
 
 Whence come these sums that Ricardo's manufacturer 
 is borrowing- from the moneyed classes? It is a common- 
 place that capital comes from saving; and it is unfortu- 
 nately almost as much of a commonplace that savings are in 
 the same sense capital. But as we have seen, saving is 
 merely the postponement of the consumable services of 
 private wealth ; the people who save, the people whose 
 steady streams of contribution flow into the loan market, 
 are ordinarily merely receivers of income, who, having held 
 their expenditures below their receipts, have something to 
 lend. Their decision to postpone their personal exercise of 
 their rights of consumption is carried into effect, either by 
 the method of holding their purchasing power in hand in 
 the form of money or by transferring this power to other 
 persons by some direct or indirect method of loan. The 
 
 * Ricardo, Political Economy, Conner's edition, chap, iv, sec. 33. 
 
1 62 VALUE AND DISTRIBUTION 
 
 borrower, whether for purposes of consumption or for 
 purposes of production, desires to obtain disposal over this 
 purchasing- power. It is only as a question of security that 
 it at all matters to the lender whether consumption goods 
 or raw material or machinery or land or labor be the 
 purchased fact. 
 
 Whether, as the final outcome of individual saving, the 
 productive equipment of society — its technological outillage 
 — will be increased, will depend upon the direction in which 
 the borrowed purchasing power is applied. Private saving, 
 by the very fact of non-consumption, ranks as private capi- 
 tal; but the salary or other income saved and lent may 
 never result in either social capital or social wealth ; socially 
 considered, the case may sum up as merely one of substi- 
 tuted consumption — as simply a different distribution of the 
 consumable products of industry, which in no way become 
 a part of the social technological equipment. 
 
 But by far the larger part of this loan-fund form of 
 savings capital is not thus easy of analysis ; it is, neverthe- 
 less, essentially of the same character of postponed con- 
 sumption seeking rental openings. Any owner of any form 
 of private wealth may by the sale of his wealth become the 
 possessor of some of this loan-fund form of capital. By 
 obtaining control of some form of purchasing power, 
 whether money or other, in which is expressed and embodied 
 his deferred right of service, he becomes a fact of supply in 
 the market for loan capital. Commpnly by deposit in a 
 bank, his loan-fund capital takes the form of an assign- 
 able demand right against the bank. 
 
 It is doubtless true that the saving and the lending 
 might possibly enough take place in terms of concrete 
 material wealth, instead of in the form of purchasing power 
 into which this wealth has been converted, were it not for 
 a lack of coincidence between demand and supply similar in 
 principle to that which renders barter so impracticable as a 
 system of exchange. Either the saved wealth may be in 
 the hands of an owner unwilling or unable to grant credit 
 
SOCIAL AND ABSTRACT CAPITAL 1 63 
 
 on any terms whatever, or the credit medium offered may- 
 be that of a purchaser not sufficiently well known or not 
 satisfactorily approved; thus, without some credit inter- 
 mediary or underwriter, the purchaser's medium of pay- 
 ment fails of the requisite degree of market-ability — is not 
 for the purposes of the case in hand a currency. 
 
 It is precisely at this point that banking methods take 
 on their great importance in furnishing an investment 
 opportunity for savings, and become also a practical neces- 
 sity for the converting of savings into a fluid and effective 
 loan fund. By the discount of the customer's note at the 
 bank, there is secured for him a medium of payment accept- 
 able to the seller of the property; by the method of check 
 transfer the seller then becomes himself a holder 
 of loan- fund capital, precisely as if the sale had been 
 made for actual cash, and this cash thereupon deposited in 
 bank. 
 
 For the purpose of making all this clear and of rein- 
 forcing the truth that the existence and the volume of 
 private-savings capital have no necessary connection with 
 the uses to which the borrower devotes the borrowed funds, 
 and no necessary connection with the total volume of 
 existing social wealth, the following illustration will be of 
 service : 
 
 Let there be assumed an isolated community of one 
 thousand farmers, nine hundred and ninety-nine of whom 
 possess each one thousand dollars of concrete wealth in 
 farms and implements, at the same time that the thousandth 
 man has for sale $999,000 worth of cattle. If now the capi- 
 tal be sought wherewith to finance the building of a rail- 
 road, the project must fail; it is true that there is one 
 wealthy man in the community, a m*an who would gladly, 
 on approved security, lend $999,000 worth — of cattle. 
 But railroad construction cannot be financed on this basis, 
 unless, indeed, to the extent that the cattle can be made to 
 serve as a form of currency. The difficulty is not that there 
 
164 VALUE AND DISTRIBUTION 
 
 is a lack of wealth in the community, but that this wealth is 
 not in practicably lendable form. 
 
 But if now these cattle can be sold out on credit among 
 these nine hundred and ninety-nine farmers, their notes 
 taken and discounted into deposit credits; or even if against 
 these farmers there are taken contracts or due-bills or 
 acceptances or orders dischargeable on demand in labor or 
 in produce, there will forthwith exist in this society $999,- 
 000 of loan-fund capital of a character suited to the needs 
 of the enterprise in hand. 
 
 And if it be objected that this really amounts to the 
 same thing as lending the cattle, only that the method is 
 roundabout and less simple, all this must be admitted, but 
 with the important modification that the other way is, for 
 the purpose of capital-borrowing, an impracticable or even 
 an impossible method; debts must exist, that is, collectible 
 rights in money or in other forms of wealth — for money is 
 for many purposes only a form of credit — must exist, 
 before these credit rights can be lent; and nothing else can 
 practicably be lent. 
 
 And there is this still more important modification also : 
 suppose all these cattle to have been, immediately after the 
 sale, swept away by disease; if the debtors are still solvent, 
 the loss is theirs and not that of the capitalist ; they are in the 
 aggregate $999,000 poorer, but he is as well off as before, 
 and has not a jot less "capital" to lend. That is to say, the 
 volume of loan fund in a society has no direct or necessary 
 relation — still less, proportion — to the wealth of the society 
 in question. It is true that if these farmers had nothing left 
 to pay with, the debts might be uncollectible and thereby 
 fall out of the lists of capital ; but so also might they not, 
 if only it were still true that the laws of the society or its 
 business code of morality made the debts collectible in 
 terms either of commodities or of services. A debt 
 that is secured by character is as good an investment and as 
 truly capital as any other debt, if only it be really 
 as secure. 
 
SOCIAL AND ABSTRACT CAPITAL 165 
 
 But this is not the whole doctrine ; from the theory and 
 the methods of discount banking, we are to make some 
 further deductions. It is worth noting that Bagehot, in 
 adopting to the full the Ricardian mix-up of the social- 
 with the private-capital concept, declares that capital 
 includes "two unlike sorts of commodities, co-operative 
 things which help labor, and remunerative things which 
 pay for it ;" ^ and further still — in full conformity with 
 Ricardo — remarks : 
 
 Suppose the corn trade to become particularly good, there 
 are immediately twice the usual number of corn bills in the bill 
 brokers' cases ; and if of the iron trades, then of iron bills. You 
 could almost see the change of capital if you could look into the 
 bill cases at different times.* 
 
 But note that Bagehot does not make it altogether clear 
 whose is the capital that is changing; but it is perhaps 
 fairly to be assumed that he takes it to be the capital of the 
 lenders. 
 
 Cairnes's statement upon this point is hardly more satis- 
 factory; but the loan- fund variety of capital receives 
 equally distinct recognition : 
 
 The existence of a large amount of capital in commercial coun- 
 tries in disposable form, or, to speak less equivocally, -in the form 
 of money or other purchasing power, capable of being turned to 
 any purpose required, is a patent and undeniable fact. Nor is it 
 less certain that this capital is constantly seeking the best invest- 
 ments, and rapidly moves towards any branch of industry that 
 happens at the moment to offer special attractions." 
 
 ^ Economic Studies, 2d ed., p. 55. 
 
 * Bagehot, op. cit., p. 45. 
 
 ^ Cairnes, Leading Principles, p. 63. 
 
 "Everyone is aware that England has much more immediately dis- 
 posable and ready cash than any other country. But very few persons 
 are aware how much greater the ready balance — the floating loan fund, 
 which can be lent to anyone for any purpose — is in England than it is 
 anywhere else in the world. A very few figures will show how large 
 the London loan fund is, and how much greater it is than any other. 
 The known deposits — the deposits of banks which publish their accounts 
 — are: in London (December 31, 1872), £120,000,000; in Paris 
 (February 27, 1873), £13,000,000; in New York (February, 1873), 
 £40,000,000; in German Empire (January 31, 1873), £8,000,000 ; and 
 the unknown deposits — deposits in banks which do not publish their 
 
1 66 VALUE AND DISTRIBUTION 
 
 But the interesting question still remains whether, when 
 the business man has borrowed from a deposit creditor of 
 a bank a share in this loan fund, this borrowed 
 portion becomes a part of the business man's bor- 
 rowed capital and constitutes an addition thereto. 
 Does the creation of new capital take place with 
 the coming into existence of a new promise to 
 pay? It must be agreed that the new loan has worked no 
 deduction from the capital of the lender; he now holds a 
 note or a right as valuable as was the thing or right with 
 which he parted. But has there been here a new creation of 
 capital, merely by the fact of a larger volume of cash 
 purchasing power ? The borrower has by assignment come 
 to hold a demand right against the bank — a right obtained 
 on terms of creating against himself an offsetting and 
 equivalent demand ; he has enlarged his cash bills receivable 
 on terms of increasing his time bills payable. If the note 
 signed is a liability, this deposit credit appears to rank 
 for him as a new property acquired to correspond; it is as 
 much an asset as will be any addition to his stock of 
 merchandise purchased through the intermediary of this 
 borrowed deposit credit. In the language of the business 
 world, he has "borrowed capital" for use in his business ; 
 the business now employs so much the larger capital total. 
 And yet if this deposit right is really capital, there is 
 necromancy somewhere; the lender also has not diminished 
 his capital holdings, but has simply exchanged debtors. 
 
 Something like a similar question arises where a bank 
 customer has had discounted his own note with the bank; 
 has he borrowed a share out of the existing loan fund? If 
 not, is whatever he has borrowed properly to be reckoned 
 
 accounts — are in London much greater than those in any other of 
 these cities. The bankers' deposits of London are many times greater 
 than those of any other country." — Bagehot, Lombard Street, chap, i, 
 p. 4- 
 
 A well-informed estimate in 1895 placed the bank deposits of 
 Great Britain at £700,000,000. In the United States at present the 
 deposit liabilities of the national banks alone run upwards of four and 
 one-half billions of dollars. 
 
SOCIAL AND ABSTRACT CAPITAL 167 
 
 capital? Has he increased his capital investment? or his 
 capital utilized in his business? What has really taken 
 place ? 
 
 Much confusion may be avoided by getting firm grasp 
 of the truth that a bank characteristically does not — prac- 
 ticably speaking, cannot — lend its deposits. Not that the 
 money deposited might not be lent, instead of, as is the 
 more common case, being retained as part of the cash 
 resources of the bank. But even so much as this can be 
 true only where the deposit is in the form of actual money. 
 Conceiving of the bank system as an aggregate, deposits 
 come mostly to be regarded as mere transfers of credit 
 from one branch to another; the clearing system is an 
 effective demonstration of this. In any case, however, 
 deposits in the sense of demandable rights, as distinguished 
 from the thing deposited — customers' accounts, the 
 things which total for so large a part in the aggregate bank- 
 ing liability — are made up of something not within the 
 disposal of the bank to lend, but solely within the disposal 
 of the depositing customer. Commonly, indeed, the 
 deposit liability running against the bank is the outcome of 
 banking accommodations already given; by just so much 
 it is a diminution from the accommodations remaining 
 possible. The lending power derivative from the accom- 
 modations already granted is that of the deposit customers. 
 But in any case, from whatever source the deposit liability 
 arises, not it — not the liability, but the deposited money, 
 if there be any, is the only thing lendable by the bank, 
 or usable as reserve basis for further lending. And com- 
 monly, as we have seen, no money is deposited, but only 
 an item of account against some other bank — a right of 
 defense against other claims upon which the other bank, 
 debtor in the case in hand, is creditor. 
 
 The rationale of borrowing from a bank is, as is 
 familiarly known, quite other than the borrowing of money. 
 True enough, money may be borrowed, but this is unusual 
 and incidental — or accidental — and, so far as it occurs, is 
 
1 68 VALUE AND DISTRIBUTION 
 
 precisely similar to non-bank borrowing; it is no part of 
 that which .is peculiar to banking methods and pertinent to 
 banking theory. The transaction of discount and deposit 
 is typically not a lending of cash ; it is commonly described 
 as a lending by the bank of its credit, either in the guise of 
 deposit credit, or of bank bills. In exchange for this 
 demand right the customer gives his note which, whether in 
 form a demand or a time obligation, is, in fact, more or 
 less pronouncedly, a time relation. The case has the 
 appearance of a mere interchange of obligations, the cus- 
 tomer passing over one which is not generally acceptable as 
 current purchasing power, and receiving one which is so 
 current. 
 
 Making no question of the correctness of this view so 
 far as it goes, it is nevertheless to be said that, despite all 
 the machinery and the terminology of the case to the con- 
 trary, all that the bank really does is to underwrite the 
 credit of the customer; it lends its own credit, truly, but 
 only in the sense of adding its guarantee to the customer's 
 undertaking to pay. 
 
 It therefore follows that the naive business view of 
 "bank capital" obtained through borrowing misconceives 
 the facts ; the process is merely writing over into acceptable 
 purchasing power the business man's own note. The result 
 may obviously be to place the business man in the posses- 
 sion of goods obtained on this underwritten credit; and for 
 present purposes it possibly does not greatly matter whether 
 the man's personal credit is itself called the capital, or 
 whether the pass-book claim, or the demand note against 
 the bank, be regarded as the capital, or whether finally the 
 goods obtained through the expenditure of the purchasing 
 power be regarded as the capital. It remains true that in 
 any case the business man's total investment, in the sense 
 of his net "worth," is not increased. 
 
 But whatever the terminology for all this may be and 
 however unclear the merits of the case as matter of termi- 
 nology, this much comes to stand forth clearly: whatever 
 
SOCIAL AND ABSTRACT CAPITAL 169 
 
 else has or has not been increased by the process of dis- 
 counting a note, the supply of loan funds, the media for the 
 making of exchanges or for the financing of enterprises, the 
 borrowable and lendable and usable current purchasing 
 power of the community, has been increased. The creation 
 and issue of current purchasing power is the chief business 
 of banking institutions. Loan funds — it begins to look as 
 if for some share of these the term capital is of doubtful 
 propriety — are even more intangible and incorporeal than 
 savings capital, since not all of the loan fund has even as 
 much as a previous saving behind it; but such as they are, 
 bank-made loan funds must be recognized as intangible and 
 incorporeal facts, a sheer matter of intricacy and com- 
 plexity in business relations — meshes of obligation — a mere 
 scaffolding of promises — a folding back one upon another 
 of successive layers of credit. And because not necessarily 
 representative of an increase of social capital or even of the 
 liquidated total of private capital, it seems necessary to 
 recognize the loan fund as a distinct economic category. 
 
 Some important conclusions now require attention as 
 to the nature of much of what is called circulating capital, 
 and as to the qualities of mobility and fluidity said to be 
 especially characteristic of capital as against land or labor, 
 and finally also as to the interpretation and the limitations 
 to be imposed upon the doctrine of abstract capital and of 
 capital as an abstract fund. 
 
 From the social point of view all technological goods and 
 indeed all social wealth have, in varying degrees, the quality 
 of fixedness. But from the private point of view all capital 
 is mobile, since all wealth facts are salable, and since all 
 wealth is capital in the measure and degree of its market 
 price. From the private point of view, therefore, every 
 possession, whether commodity or right, may be the subject 
 of abstinence,^ and this without reference to the degree of 
 
 ' See note on Senior, p. 137. 
 
1 70 VALUE AND DISTRIBUTION 
 
 its fixedness, when regarded from the point of view of its 
 technological adaptation, or of its quality as a consumption 
 good. Complete mobility for private purposes is, how- 
 ever, achieved only by the transformation of the vendible 
 item of private wealth into the form of money or of other 
 current disposable purchasing power — that is to say, into 
 the very commercial material or medium of which the loan 
 fund is composed^ 
 
 It should now be possible to estimate how great is the 
 promise of service and how serious the admixture of error 
 presented by the abstract-capital concept. 
 
 Looked at from the social point of view, there is no such 
 
 ^ Approached in this wise, the differences between Smith and 
 Senior, on the one side, and Ricardo and James Mill upon the other, 
 with regard to the nature and characteristics of circulating and of 
 fixed capital, are seen to be merely differences in the choice of point 
 of view. And here, as commonly, when Smith and Ricardo were 
 clearly and definitely at issue. Smith had the right of the controversy. 
 Smith was advocating the private-competitive point of view, while 
 Ricardo's line of distinction was prevailingly technological. 
 
 According to Smith, "Capital employed .... in such .... 
 things as yield a revenue of profit without changing masters or circu- 
 lating any farther .... may properly be called fixed capital 
 
 Circulating capital .... is constantly going .... in one shape 
 and returning .... in another, and it is only by means of such 
 circulation, or successive exchanges, that it can yield .... any 
 
 profit Circulating capital is composed of four parts 
 
 First, of the money by means of which all the other three are circu- 
 lated and distributed ; .... of the stocks of provisions in the 
 possession of the butcher, the grazier, etc. ; .... of the materials 
 whether altogether rude or more or less manufactured ; .... of 
 the work .... made up and completed but still in the hands 
 of ... . the manufacturer." — Wealth of Nations, Book II, chap. i. 
 
 So, with Smith, a tailor's needles are fixed capital no matter how 
 short-lived of service. The question is how the wealth is actually 
 handled under the guidance of private interests with reference to the 
 marketing of it — a matter of change of ownership. 
 
 With Ricardo the question is one of mechanical and technological 
 durability: "According as capital is rapidly perishable, and requires to 
 be frequently produced, or is of slow consumption, it is classed under 
 the heads of circulating or of fixed capital." — Political Economy, 
 chap, i, sec. 4. 
 
 Senior sides with Smith : "Mr. Ricardo might well remark that 
 the line of demarcation between the two sorts of capital cannot be 
 accurately drawn ; for what can be more vague or more void of posi- 
 tive meaning than such comparative terms as slow and rapid ? The 
 singular circumstance is that both he and Mr. [James] Mill should 
 
SOCIAL AND ABSTRACT CAPITAL 171 
 
 thing as abstract capital in any other sense than that 
 according to which all social wealth is subject to the value 
 measure and is wealth or capital under this test and measure 
 and expression. And neither from the social nor from any- 
 other point of view is there any "spiritual essence" of 
 value hovering over the material forms of capital ; nor from 
 the social point of view, or of necessity from the private 
 point of view, is it true that material things perish or wear 
 out, while the capital ghost of them is immortal; there is, in 
 fine, no capital entity as distinct from the capital goods 
 themselves, though there is such a thing as the sum of the 
 values of existing capital goods. This value or price aspect 
 of the goods is to be regarded as the attribute or character- 
 have supposed .... that their division followed that of Adam Smith, 
 It is obviously a cross distinction." — Senior, Political Economy, 2d ed., 
 pp. 62-73. 
 
 John Stuart Mill's use of the two terms hopelessly confuses tech- 
 nological and competitive considerations : "Of the capital engaged in 
 the production of any commodity, there is a part which, having been 
 once used, exists no longer as capital ; is no longer capable of rendering 
 service to production, or at least not the same service nor to the same 
 
 sort of production [a technological distinction] In the same 
 
 division must be placed the portion of capital which is paid as the 
 wages, or consumed as the subsistence of laborers. That part of the 
 capital of the cotton-spinner which he pays away to his work-people, 
 once so paid, exists no longer as his capital, or as a cotton-spinner's 
 capital. [Italics the present writer's. The money never had any 
 technological quality ; the reasoning is purely competitive, bearing on 
 private — entrepreneur — costs.] Such portion of it as the workmen 
 consume [money?] no longer exists as capital at all ; . . . . capital 
 which in this manner fulfils the whole of its office in the production in 
 which it is engaged, by a single tise [technological aspect and private 
 
 aspect mixed and confused] is called circulating capital This 
 
 portion of capital requires to be constantly renewed by the sale of the 
 finished product, and when renewed is perpetually parted with in buying 
 materials and paying wages ; so that it does its work, not by being kept 
 but by changing hands. [Mixed concept ; rests in part upon considera- 
 tions of durability, in part, of changes of ownership.] Another large 
 portion of capital consists of instruments of production, of a more or 
 less permanent character, which produce their effect not by being parted 
 with but by being kept, and the efficiency of which is not exhausted by 
 a single use." [Mixed concept ; rests in part on durability, in part on 
 non-change of ownership.] — Mill, Principles, Book I, chap, vi, sec. i. 
 
 For proof that this same confusion between the social-technological 
 and the private-acquisitive point of view is equally characteristic of 
 late and current discussion, reference may be had to an article by the 
 present writer published in the Yale Review for November, 1905, entitled 
 "Doctrinal Tendencies — Fetter, Flux, Seager, Carver." 
 
172 VALUE AND DISTRIBUTION 
 
 istic by which and according to which the g-oods possess the 
 capital quaHty.^ 
 
 But from the point of view of private competition and 
 competitive business, the only point of view, be it repeated, 
 which greatly concerns economic theory in general or 
 which at all concerns the cost and value investigation, the 
 question takes on a different aspect; here all capital, by 
 virtue of its quality of vendibility is, in a sense, unspecial- 
 ized, mobile, and fluid; and all stocks of materials and all 
 intermediate products are, as such, mobile in their varying 
 
 ® From this social point of view, therefore, Professor Carver's 
 analysis of the abstract-capital concept leaves nothing to be said : 
 "The effort to distinguish between capital and capital-goods seems to 
 be simply an attempt to distinguish between a quantitative measurement 
 for capital and the capital itself. Things are measured, of course, by 
 selecting a single property which they possess in common, such as 
 number, extension, or specific gravity, and comparing them on the basis 
 of this property. When we want to say how much there is of a certain 
 thing, we express it in terms of the property according to which it is 
 commonly measured. This is true of wealth and capital as of other 
 things. The primitive herdsman, if asked the amount of his wealth, 
 would doubtless have answered an hundred or two hundred head, as the 
 case might be. The primitive agriculturalist, whose wealth consisted 
 of wheat, might have answered in terms of cubic contents, as so many 
 bushels. It is conceivable, though improbable, that both might have 
 united upon specific gravity as the basis of measurement, and have 
 answered in pounds. But the change to specific gravity as the basis 
 of measurement and quantitative expression, would not have changed 
 one bit the nature of their wealth or their capital. Nor would it have 
 made either clearer or less clear the distinction between capital and 
 capital-goods. 
 
 "As a matter of fact, value, being the one property common to all 
 forms of wealth, has long since been selected as the property accord- 
 ing to which all wealth is to be measured, and in terms of which 
 quantities of wealth are always to be expressed. When asked how 
 much wealth they have, men will reply, so many dollars, just as the 
 herdsman would have enumerated his animals. Capital, being a form 
 of wealth, is measured, and its quantity is expressed, in precisely the 
 same way. Does this change in the basis of measurement change in the 
 slightest degree the nature of capital ? By no means. When asked how 
 much capital they have, men will express it in dollars : but, if asked in 
 what their capital consists, they will enumerate the instruments. The 
 instruments are the capital, and the amount of value in them is not the 
 
 capital Every distinction which Professor Clark has made 
 
 between capital and capital-goods can be made with equal clearness and 
 with equal justice between the herdsman's hundred head and the 
 animals composing it, between the farmer's bushels and the wheat which 
 they contain, or between the pounds of wealth on the one hand, and the 
 animals and wheat on the other." — Quarterly Journal of Economics, 
 Vol. XV ([August, 1901), p. 589. 
 
SOCIAL AND ABSTRACT CAPITAL I73 
 
 degrees; and even so-called fixed capitals, technological 
 instrumental goods, are mobile in more or less retarded 
 movement, accordingly as there is or is not a ready market 
 for them.^ 
 
 It is not, however, true that abstract capital at all coin- 
 cides in volume with the price expression of the aggregate 
 of social capital or of social wealth ; the characteristics of 
 abstractness, of homogeneity, of an entire fluidity and 
 mobility, belong to what we have described as the loan 
 fund, and to it solely. Nor is the size of this fund com- 
 mensurate with the existing fund or total of private capital ; 
 the loan fund is merely a portion or subdivision of private 
 capital. Nor, as we have seen, is the loan fund made up 
 of claims resting for their collectibility solely upon some 
 existing form of social wealth or capital; purely personal 
 claims, if they are enforceable, are as truly capital as are 
 rights secured by collateral or by mortgage ; many debtors 
 put in pledge their future earning power, precisely as may a 
 state its future revenues. So, also, precisely as the present 
 value of a city corner is the discounted value of the trade 
 privileges which it will in the long future control, so the 
 good-will of a business, and the market value of that good- 
 
 * The private reckoning being solely concerned with the price aspect 
 of the case, there is, from this point of view, in the abstract-capital 
 doctrine, a residuum of truth not quite adequately recognized in Pro- 
 fessor Carver's analysis as it continues : "As to the permanence of 
 capital. Does capital abide while capital-goods perish, or is it only the 
 quantitative expression for capital which remains, while capital, the 
 thing measured, perishes? Evidently, the latter. Though animals 
 perish, the amount of the herdsman's wealth, measured numerically and 
 expressed, for example, as an hundred head, may remain. Is it the 
 same wealth ? Not unless it is the same hundred head. Though wheat 
 perishes, the amount of the farmer's wealth, measured in cubic contents 
 and expressed, for example, as a thousand bushels, may remain. Is 
 it the same wealth ? Not unless it is the same thousand bushels. 
 Though animals and wheat perish, the wealth of both farmer and herds- 
 man, measured on the basis of specific gravity and expressed, for 
 example, as ten thousand pounds, may remain. Is it the same 
 wealth? Not unless it is the same ten thousand pounds. Though goods 
 of all kinds perish, the amount of wealth, measured on the basis of 
 value and expressed in dollars, may remain. Again, is it the same 
 wealth? The things measured, whose quality is expressed in dollars, 
 are evidently not the same ; and it is only by confusing the measure for 
 the thing measured that it can be said to be the same wealth." 
 
174 VALUE AND DISTRIBUTION 
 
 will, may rest, in large part, on the prospect of business 
 relations some day to be established with human beings not 
 yet born; the situation is none the less a present asset in 
 private capital. The essential and important kernel of truth 
 in the abstract-capital concept is, then, the obscure recogni- 
 tion of the loan- fund fact. Abstract capital is a subhead 
 under the private-capital concept, a competitive and not a 
 social fact, a share and only a share, out of the private- 
 capital aggregate.^'^ 
 
 ^" That for theoretical as well as for practical purposes there is 
 something at issue here will be evident from the following quotation 
 from an address by Professor Joseph French Johnson, delivered before 
 the Pennsylvania Bankers' Association during the year 1905 : 
 
 "The rate of interest in the last analysis has no relation what- 
 ever to the quantity of gold in the country. It is the product of the 
 demand for and the supply of capital. This word capital is used by 
 the economists to mean all those forms of wealth which are used in 
 production of more wealth ; such for example, as machinery and raw 
 materials. It includes all those goods which are not consumed directly, 
 but which are used to produce things which people desire. Among 
 business men and bankers the word has a different meaning. It 
 denotes a loanable fund for use in business, and consists in money and 
 credit in various forms. It is important for us to see that the business 
 men and the economists both have in mind the same thing when they 
 use the word capital. The loanable funds in the possession of banks 
 are all derived from the loanable capital in the country. When the 
 amount of loanable capital increases, the amount of loanable funds 
 increases in a corresponding degree ; and there can be no increases of 
 loanable funds brought about in any other way. Banks create nothing. 
 All their lending power is the product of industry. Every deposit of 
 money or credit in a bank represents actual wealth or capital that has 
 been saved in a community. The loanable capital and the loanable 
 funds in a country are practically the same thing ; the one a hetero- 
 geneous mass of value in the form of various goods ; the other the 
 same mass of value made homogeneous by the universal solvent, 
 money." 
 
CHAPTER XIII 
 THE STANDARD OF DEFERRED PAYMENTS 
 
 The purpose of the isolated producer is the production 
 of utility. Precisely the same statement holds, in a com- 
 petitive society, for the producer under specialization of 
 employments; but all these utility ends are, in this case, 
 worked out through the intermediary of market- value 
 adjustments; from the point of view of the final trade — the 
 consumer's point of view — not valuable things but useful 
 things are of ultimate importance; gain in utility is the sole 
 motive. What one pays less for a thing than he would, if 
 necessary, have paid, — what the thing is good for more than 
 it has cost, the quasi-rent of purchase, — while statable in 
 money, must yet finally resolve itself into goods obtainable 
 through money. Likewise the cost outlay is to the producer 
 ultimately a utility or disutility magnitude rather than a 
 value magnitude. Producers at the margin, like traders 
 at the margin, are such by the fact that the utility in prospect 
 and the utility sacrificed are at balance, — are at a ratio, one to 
 the other, of unit value, — and all this irrespective of how 
 greatly, for the different marginal traders respectively, the 
 absolute magnitudes of the balancing services and sacrifices 
 may diverge — irrespective, that is to say, of whether the 
 marginal case present a ratio of 5 to 5, or of 2 to 2, or of 
 Yz \-0 Yz, provided all the while, of course, that even this 
 much of comparability may be assumed between the feeling 
 magnitudes of different men. (See page 300.) 
 
 In view of this obvious fact that exchange is ultimately, 
 in individual motive, a problem of comparison between 
 alternatives of utility, that, for either trader in an exchange, 
 the case can have no other significance than this of utility, 
 and that market values are mere price relations — exchange 
 relations — between things of service, that is, between goods 
 
 17s 
 
176 VALUE AND DISTRIBUTION 
 
 subjectively viewed, — the invitation is strong, the temptation 
 great, the promise alluring, for the resolution of market 
 values into a common denominator of utility, and thereby 
 for somehow inferring a determination of value by utility 
 as expressed in terms of this common denominator. 
 
 But the attempt is foredoomed to failure. It is one 
 thing to assert, with Say, that utility — desire, want, need — is 
 the basis, through individual bidding, of the whole value 
 phenomenon — the cause, the motive, and the explanation of 
 price offer ; but it is quite another and a different thing to 
 assert, as sometimes Say appears almost to do, that all 
 market values can be resolved into this general, homogene- 
 ous, underlying utility jelly, or utility denominator. The 
 impossibility of all this was clear enough to Ricardo, though 
 it was not clear just why. He says in a letter to Malthus : 
 
 He ,[Say] certainly has not a correct notion of what is meant 
 by value when he contends that a commodity is valuable in propor- 
 tion to its utility. This would be true if buyers only regulated the 
 price of commodities.^ 
 
 But inasmuch as, in Ricardo's view, producers and not 
 buyers regulate price, Ricardo inclines to make value pro- 
 portional to labor — in the sense of labor pain — failing to see 
 that neither utility for different consumers, nor labor for 
 different producers, can be made homogeneous volumes. 
 But notice once again that Ricardo does not assert the 
 determination of the value of the product by the value of 
 the labor, or even that there is any primary value in labor ; 
 he merely asserts the proportionality of value to labor 
 content : 
 
 Our differences are becoming rather verbal than substantial. 
 Your chapter on value has, in my opinion, gained considerably. 
 You misrepresent me, however, on that subject when you say I 
 consider the value of labor to determine the value of commodities. 
 I hold, on the contrary, that it is not the value, but tlie comparative 
 quantity of labor necessary to production which regulates the rela- 
 tive value of the commodities produced." 
 
 ^Letters of David Ricardo to Thomas Robert Malthus, 1810, 
 1828, James Bonar, Oxford, 1887, p, 173. 
 
 ^Ricardo to Say, November 9, 1819, p. 165. 
 
THE STANDARD OF DEFERRED PAYMENTS 177 
 
 Whether Say also may not in some passages be reason- 
 ably interpreted to assert more than the mere proportion- 
 ality of value to utility, and to have attempted to give to 
 value a measurement in some sort of homogeneous utility 
 medium, may not be clear; but he, in terms, asserts only 
 the measurement of utility by value. Thus on December 
 2, 1815, he writes to Ricardo: 
 
 You accuse me of saying that utility is the measure of value. 
 I thought I had always said that the value that men attach to a 
 thing is the measure of the utility that they find in it. 
 
 And on July 19, 1821, with regard to the use of labor 
 as a measure of value, a measure which^ as we have seen, 
 Ricardo had, with some misgiving, adopted, as the best 
 at hand, but yet not altogether adequate, Say writes: 
 
 There are multitudes of different qualities of labor; the quan- 
 tity of each of these qualities cannot be measured. I measure the 
 utility incorporated in the product by the different quantities of 
 another product which one would pay. 
 
 But this seems to measure the utility of one thing by the 
 utility of another, or, what is worse yet, by the mere quantity 
 of another, which quantity is but a mere restatement of the 
 sheer market fact of the relation. And Say explains the 
 difficulty that, with gold and iron equal in utility, or even 
 with iron the more useful, volume for volume, the iron has 
 only 1/2000 part of the value of gold, — by saying that 
 1999/2000 of the iron utility is free goods, a gratuity of 
 nature. 
 
 None of this helps much. But it seems fair to say that 
 if value and labor are somehow always in proportion, it 
 must follow, as Ricardo held, that labor may measure value, 
 as it may equally well follow that value may measure 
 labor, and all this irrespective of whether the labor has any 
 primary and non-derivative value of its own; if not, the 
 proposition may be correctly held ; it simply awaits expla- 
 nation of its mystery. Ricardo left the proposition substan- 
 tially a mystery.^ 
 
 ^ And the socialists mostly accept it as such, and leave it there : 
 "Whenever by an act of exchange we equate as values our different 
 products, by that very act we also equate, as human labor, the different 
 kinds of labor we expended upon them. We are not aware of this ; 
 nevertheless we do it. Value, therefore, does not stalk about with a 
 label describing what it is. It is value, rather, that converts every 
 
178 VALUE AND DISTRIBUTION 
 
 Likewise, if value — or price — by virtue of the fact that 
 it is the effect of utiHty, may measure utility, the doctrine 
 ought to work the other way about. 
 
 But in point of fact, as should be already clear, neither 
 the labor measure or the utility measure, on the one hand, 
 nor the value measure of utility or of labor, on the other 
 hand, will work, in any other sense than that both labor 
 and goods get, visibly, constantly, obtrusively, a price 
 rendering in the market. Laborers differ in all possible 
 shades of feeling toward labor ; labor differs in all possible 
 grades and directions of effectiveness ; the only homogeneity 
 is the homogeneity of market value in terms of price. And 
 as widely as men differ in their attitude toward productive 
 effort they differ also in their attitude toward the products 
 
 product into a social hieroglyphic. Later on we try to decipher the 
 hieroglyphic, to get behind the secret of our own social products ; for 
 to stamp an object of utility as a value is just as much a social product 
 as language. The recent scientific discovery that the products of labor, 
 so far as they are values, are but expressions of the human labor spent 
 in their production, .... by no means dissipates the mist through 
 which the social character of the labor appears to us to be an objective 
 character of the products themselves." — Carl Marx, Das Capital 
 (Moore and Aveling trans.), Humboldt Publishing Co., New York, 
 p. 28. 
 
 "It is not money that renders commodities commensurable 
 
 It is because all commodities, as values, are realized human labor, and 
 therefore commensurable, that their values can be measured by one and 
 the same special commodity, and the latter be converted into the com- 
 mon measure of their values." — Ibid., p. 41. 
 
 "There is, of course, in present conditions, no possible means of 
 arriving at a definite, concrete labor coin, so to say, which shall 
 establish the value of commodities when and as they are produced. 
 The individual labor time it may take to produce a commodity is, as we 
 have seen, no test whatever of the length of social time necessary to 
 produce the same commodity. 
 
 "Nevertheless social labor time does measure the value of com- 
 modities with reference relatively to one another. How is this done? 
 
 "Take the case of weight. What is weight? To say 
 
 that it is ponderosity doesn't help us a bit. Yet we know well enough 
 what weight is by itself. Moreover, we weigh things relatively to 
 
 their weight in other things But what the unit of weight is in 
 
 the abstract we can no more tell than before we weighed the wheat. 
 
 "In chemistry likewise, .... what was the Daltonic atom? 
 Nobody knew and nobody knows What is a volume in chem- 
 istry? It is just as impossible to say as what is an atom. None the 
 less, though we do not know what they are — any more than we can 
 express in figures 1/ — i — volumes serve the purpose of a common 
 measure of the most diverse chemical compounds. So it is with simple, 
 abstract, social human labor." — H. M. Hyndman, The Economics of 
 Socialism, London, 1896, pp. 51-53. 
 
THE STANDARD OF DEFERRED PAYMENTS 179 
 
 of labor ; the only homogeneity is that expressed in the price 
 offer. The only utility relation possibly to be expressed by 
 market price is that, for some marginal man or men, com- 
 peting utilities, of unstable and unknown magnitude, are 
 at balance. 
 
 But what has all this to say for the standard of deferred 
 payments? If utilities cannot be reduced to homogeneity, 
 on any basis but that of price — the opaque market fact — it 
 would seem to follow that the problem of deferred pay- 
 ments must be worked out in terms of value rather than in 
 terms of utility. And especially would this appear to be 
 true, in view of the fact that equal market values are inca- 
 pable of expressing any equality of utility in terms of abso- 
 lute subjective magnitude, but only in equivalence of 
 control over those external objective goods which are the 
 bearers of utility. 
 
 But on the other hand what shall be done with the fact 
 that, carried over into individual interests, values have no 
 meaning but in terms of utility ? And after all, value being 
 a ratio of exchange, what does it mean to say that one 
 thing at one time has the same value as another thing at 
 another time? What, indeed, would it mean to say that a 
 certain thing at one time has the same value as the same 
 thing at another time ? Or finally what does it mean to say 
 that two things at any given time have the same value? 
 
 Value can be expressed only objectively, in terms 
 of something which is, for the time being, taken as the 
 medium or standard of expression. Thus, to say that two 
 things have today the same value might mean very differ- 
 ent things accordingly ( i ) as different men in different bar- 
 gains should variously choose some one or other particular 
 commodity as standard for the occasion; or (2) as a 
 certain group or congeries of objective goods should some- 
 how — more or less arbitrarily — come to be chosen as a 
 composite standard; or (3) as equivalence should be sought 
 through the intermediary of some conventionally adopted 
 depository of unspecialized purchasing power, a money 
 
i8o VALUE AND DISTRIBUTION 
 
 standard. It is this last case which actually is meant by 
 equivalence in value in practical affairs; and if, instead of 
 this, a group of commodities were chosen, the group 
 would most reasonably be selected as made up of those com- 
 modities into which, for the broad general average of 
 consumers, unspecialized purchasing power gets expended. 
 
 The possibility first mentioned is outside the pale of 
 consideration and the second case is a subhead under the 
 first, though somewhat modified to include provision against 
 the probable instability attending any particular commodity 
 as standard, where intervals of time intervene. The 
 necessity of providing for this case of time interval is, be 
 it remembered, the problem of the deferred-payment stand- 
 ard. 
 
 But possible instability in what? And here we are 
 back at our original question : In value ? But this is 
 meaningless, unless translated into command over useful 
 things — goods. And what goods? There is no an?wer 
 but to choose some group or complex of goods selected in 
 such fashion as to represent a sort of average budget. 
 That a of today equate in value against x of next year must 
 require that a hold today to every other good the same 
 exchange relations that x will hold next year. 
 
 And so, to say that two different things at one and the 
 same time have the same value is merely to assert their 
 actual equality in exchange power as referred to some 
 selected commodity or complex of commodities — a price 
 statement possible only by the temporary or conventional 
 adoption of a standard. And to assert that a certain thing, 
 at one time, has the same value as the same thing at another 
 time, must mean an unchanged control over the same con- 
 geries or budget of goods, — practically the same control over 
 some standard of payment, some medium assumed as main- 
 taining — or selected as nearest approximating — an un- 
 changed relation toward such a budget-complex. The 
 same solution would have to be given to the problem of 
 how to compare in value one thing at one time with another 
 
THE STANDARD OF DEFERRED PAYMENTS i8i 
 
 thing at a later time. Equality in price over intervals of 
 time is then intelligible and possible ; but equality in value — 
 as distinguished from price — between two commodities 
 would require that one at one time hold precisely the same 
 exchange relation to every other good as that of the other 
 at the other time.* 
 
 * It is worthy of note that in exchange relations between goods 
 of the same time, as distinguished from cases of deferred settlement, 
 it has been urged (for example, by most of the socialists, the Marxians 
 especially) that the price of any commodity expresses that the value 
 of it is as much as is the value of a certain quantity of the standard ; 
 the value of the standard and not the standard itself is thus held to be 
 the essential fact in money, or at all events, the essential fact of its 
 money function. And surely the standard itself cannot, in any other 
 sense than that of its value quantity, be held adapted to serve as a 
 measure of value. How much money shall be paid for a commodity 
 depends, of course, in part upon the value of the commodity, but in 
 part also upon the value of the money. 
 
 The better doctrine appears, however, to be that of Laughlin 
 (Principles of Money, pp. 14-16) : "A standard .... is not, and 
 
 cannot be, synonymous with a measure of value This is not 
 
 what we get by the use of a standard The exchange value of 
 
 gold varies with the number and kind of things priced in it. By pri- 
 cing an article in gold, the value of that article in relation to other 
 commodities is not thereby 'measured' by gold. In such a case, gold 
 serves only as common denominator, and not as 'a measure of value,' 
 because it does not thereby state the relationship of exchange which 
 that article bears to all other exchangeable goods. All that is obtained 
 is the exchange ratio between gold and that particular commod- 
 ity Moreover, there could, of course, be no absolute standard 
 
 for 'measuring' value, since any one article, chosen as standard, would 
 itself vary in value ; consequently the values of other goods would be 
 compared with a standard itself constantly varying. Not infrequently 
 one hears of an argument in favor of gold as a standard that it is as 
 'invariable as a yardstick,' This statement contains the fallacy of sup- 
 posing that exchange value is as absolute as linear length, when it is 
 only a relation of one article to another expressed quantitatively." (But 
 see, contra. Carver, Quarterly Journal of Economics, May, 1907.) 
 
 But however all this may be, it is evident that in deferred-payment 
 relations, merely a given amount of money is stipulated ; the amount 
 of value actually to be received cannot be stipulated, but must neces- 
 sarily depend upon the amount of value which, at the time of payment, 
 may happen to be contained in the amount of money paid. The 
 measure function of money is clearly not here ; a future unknown 
 value cannot be a value expression of the value of other things. 
 
 But whether, if at all, in current exchanges, and if so in what 
 sense, money may be regarded as a measure of value is a problem of 
 far greater perplexity. 
 
 It has mostly gone by common acceptance that in order that goods 
 exchange against each other they must be possessed of some common 
 quality by virtue of which they may be related to each other for the 
 
1 82 VALUE AND DISTRIBUTION 
 
 But after all, why bother, even for theoretical purposes, 
 with this budget matter? If the standard requires either 
 justification or rectification by the test of the budget, what 
 shall then serve to justify the budget? There can be nothing 
 for this but the attempt to obtain an average and 
 approximate equality of service through the construction 
 of a budget made up of a widely selected and carefully 
 proportioned variety of consumption goods. Indemnity to 
 the borrower for utilities parted with must be found in an 
 
 purposes of the exchange process : thus Marx, finding, as he thought, that 
 utility could not be this common quality, forthwith inferred that 
 labor cost must be the quality sought. 
 
 Recalling that only the two facts, utility and scarcity, must concur 
 for the emergence of value, and that scarcity is essential only because 
 solely on terms of it can all items of a stock possess utility, and recall- 
 ing also that some articles have scarcity and value irrespective of labor 
 cost and independent of it, it has seemed to follow that utility is that 
 common quality by virtue of which different goods come to be com- 
 parable in their appeal to human choice. 
 
 But that goods appeal to the individual only through their utility 
 to him does not imply the existence of some one aspect or quality of 
 utility common to all articles of value ; there are, indeed, no value 
 facts affording equal utility to all individuals, none that are constant at 
 all times in their service to any one individual, and none even that at all 
 times are serviceable to the same individual in even the slightest 
 degree. 
 
 But it none the less remains true that for the emergence of value 
 the supply of any good must icanifest some degree of scarcity relative 
 to the desire for it; otherwise there can be nowhere an individual 
 with reference to whom the stock can establish a marginal significance 
 by virtue of which it may impose upon that individual a sacrifice in 
 purchase cost or in productive outlay. 
 
 Thus the possession of marginal utility — ^but all the while as 
 dependent upon this relative scarcity — is sufficient for the existence of 
 market value. But this utility is in no sense a social or a common or 
 an objective utility, but is in every case purely a relation between the 
 good in question and the desires of an individual. The only fact both 
 constant and objective in the market-value phenomenon is that of com- 
 manding a price, money or other — that is, of possessing exchange 
 power. 
 
 But does this fact of exchange power, expressed as command over 
 some quid pro quo, imply in any sense, in either of the articles 
 exchanged, the possession of the measure function? 
 
 In a certain sense, doubtless, any comparison by an individual of the 
 utility to him of different items of goods implies a process of mental 
 measurement ; and it must be admitted that a comparison of utility with 
 utility is the very process and the only process through which the indi- 
 vidual trader arrives at the disposition to trade. But in this trader's 
 barter activity there is rarely for him an equality of utility between 
 the thing received and the thing parted with, never, indeed, an equality 
 
THE STANDARD OF DEFERRED PAYMENTS 183 
 
 equally important aggregate of utilities returned. Here, 
 as everywhere in the individual reckoning, money is an 
 intermediate between utility quantities and not between 
 value quantities. 
 
 It is possible that a change in point of view may aid in 
 the solution of this not oversimple and very important 
 problem. 
 
 Suppose the only products in society to be hats and 
 
 excepting in his marginal trade or in the case of the marginal trader; 
 and there is never in any case, marginal or other, any necessity or 
 occasion for the measure function or calculation, otherwise than to 
 the degree and in the sense that measure is implied in the mere fact 
 of comparison and choice, — a sort of mutual measuring of either com- 
 modity by the other. 
 
 Nor is the difficulty with the existence of a market-value measure 
 that utility may not be the measure of utility, if only the utility to 
 different persons were the same utility, a common and objective reality. 
 It is, in truth, the very essential of a measure that it possess in itself 
 the quality it is to measure in other things. Only something of length 
 can measure length ; only something of weight can measure weight. And 
 the choice of a measure is necessarily arbitrary ; to express any dimen- 
 sion of any given body is possible only in terms of relativity and only 
 by reporting it as such a part or such a multiple of the dimension of 
 some other body. So many pounds of weight is merely so many times 
 the weight of another chosen body, taken at a certain purity, under pre- 
 scribed conditions of temperature and of altitude. 
 
 Nor, seemingly, is Professor Laughlin correct in insisting that the 
 psychological necessities of the measure function prescribe that the 
 measure fact be a fixed and definite and unchangeable fact, but is only 
 correct in the implied insistence that, so far as the measure falls short 
 of this test, it so far loses its serviceability for the purposes in hand, 
 and must rank as a defective measure ; the quantity of utility or of 
 value fails of receiving accurate statement and definition in the pur- 
 ported measure. So, whatever the objective fact may be with regard to 
 the precise invariability of the accepted measure, it is fairly clear that, 
 thought of as a seriously variable measure, the measure thereby ceases 
 to be a practicable measure. No one thing of utility or of value can, 
 then, ever, market-wise, by its quantum, serviceably and adequately 
 express the utility or value quantum of another thing ; the first thing, 
 the purported-measure thing, has no stable quantum of its own, but is, 
 by its very nature, constantly varying ; thus it is, by this very fact, 
 not a practicable measure. 
 
 But there is a difficulty in the case which is decisive against the 
 presence of any measure function, good or bad : All measurement 
 whether vague or precise, is a quantitative comparison; the standard 
 must, then, contain a quantum of some certain quality or magnitude, 
 which certain quality or magnitude must in some degree be present in 
 the thing to be measured. To the individual, therefore, it is not impos- 
 sible that either item in a transaction of barter express in terms of its 
 
1 84 VALUE AND DISTRIBUTION 
 
 shoes, and that it somehow comes about that for each item 
 of either kind of goods today there are tomorrow two 
 items of goods : what does it mean to say that values have 
 increased and that thus there is room for the emergence of 
 interest ? Goods have increased, utihty has increased, goods 
 having value have increased; one hat will not buy more 
 shoes than one hat would buy yesterday, but two hats will 
 buy more than the one hat of yesterday would buy. There- 
 utility, more or less accurately, the utility of the other item. But not 
 so with market value ; here nothing is asserted or implied as to any 
 general or objective utility, nor can the mere brute fact of exchange 
 parity import a parity of utility for traders in general or any sort of 
 market-utility calculus or parity. Utility to whom? Market utility 
 parities or calculations are, indeed, ex vi termini, sheer absurdities. 
 
 The case is bad enough with any attempt to set up a market-price 
 or market-value measure of utility ; it is still worse with any attempt at 
 the market-value measure of market value. The difficulty here is that 
 value, in this market sense, fails in the requirement fundamental to the 
 notion of measurement, namely, that a measure must be quantitative 
 and must measure things of quantity. But market value is neither a 
 magnitude nor a quantity, but only a ratio. True, a ratio can be 
 restated as a fraction — J4 or J^^ or ^ of unity — ^but it becomes quanti- 
 tative only in becoming concrete, as J^ or ^ or % of something. 
 Thus, that the exchange ratio between hats and shoes is, say, 2 to i, 
 oifers no possibility of giving quantitative expression to the exchange 
 ratios of horses and wheat to each other or to anything else. Nor does 
 the selection of a conventional price commodity avoid the difficulty in 
 any other sense than that it makes possible of comparison the ratio of 
 horses to gold with the ratio of hats to gold — all to the conclusion that 
 while horses stand to dollars as 100 to i, hats stand to dollars as i to i. 
 This expresses merely the two different exchange ratios held by the 
 respective commodities to gold — asserts, that is, two different powers 
 of command over gold, and then declares that one power is one 
 hundred times as great as the other. But merely as different ratios to 
 gold no measure is disclosed: (i) the value of gold is itself possible 
 of expression not as a ratio of exchange to commodities in general, for 
 there is no such exchange possible and no ratio for its expression, but 
 only as one or another out of countless different possible ratios. 
 (2) This same ratio of 100 to i between horses and hats is equally 
 valid to express the ratios of countless other pairs of commodities 
 relative to gold, e. g., pianos to Idtchen tables, houses to sewing- 
 machines, shoes to laces. The ratios of things to one another in Brob- 
 dignag were the same ratios as in Lilliput. The real difficulty is again 
 that all these various ratios to gold are mere ratios of exchange, and 
 are comparable simply and only with this significance and as entirely 
 lacking in any ultimate basis or content. In this respect the case 
 differs from true measure ratios of weight or length. With weight the 
 reference is to the quantitative objective reality of pressure or stress — 
 with length, to the objective quantitative fact of extension. With the 
 value ratio, however, there is nothing but the ratio. 
 
THE STANDARD OF DEFERRED PAYMENTS 185 
 
 fore, measured in shoes, the hats, having increased in num- 
 ber, have more value. But this is to accept shoes as a 
 standard. Shoes Hkewise, since they have increased in 
 volume, can be shown to have proportionately increased in 
 value, if only hats be accepted as the standard: as why 
 should they not ? But, on the other hand, why should they ? 
 Are either hats or shoes invariable in any quality important 
 to value, and, if so, in what quality? There is no quality 
 other than utility that can have claim to consideration. But 
 with these expansions of supply, the utility quantity has 
 fallen, per item of supply. Value can in this case mean 
 nothing but the ratio of exchange between hats and shoes, 
 and this ratio has not changed. How talk about an increase 
 in the total of exchange ratios? By just so much as some 
 things gain in value others must lose; and those that gain, 
 gain only as stated in terms of others. It follows there- 
 fore that to return an equal sum of values means nothing, 
 unless it be merely a poor way of expressing the return 
 of an unchanged quantity of utility. 
 
 But equality of utility is not a relation capable of 
 expression in terms of value, either for contemporaneous 
 exchange or for exchange over intervals of time or space. 
 And inasmuch as utility is purely a fact of the individual 
 psychology, it is not susceptible of quantitative objective 
 expression of any sort. Thus the return of an equal sum of 
 utilities can be achieved only so far as this is possible — and 
 in the sense that it is possible — through the adoption of 
 some conventional standard or medium. True, price is a 
 special case of value ; and thus to resort to price in arriving 
 at equality of utility is, in this sense and so far forth, a 
 value process. But that gold, like any other commodity, 
 obtains its exchange standing through market-value adjust- 
 ments, and must, as exchange power, itself express a value 
 relation, proves simply that resort is being had to one sort 
 of value fact — and this a special and peculiar case — as 
 mere intermediate to the most expedient solution of 
 a pure utility problem. But no value equality is 
 
l86 VALUE AND DISTRIBUTION 
 
 possible in the case, and even were one possible, it would 
 be irrelevant. 
 
 Appeal to the fundamental principle that all saving is 
 merely postponed consumption enforces the conclusion that 
 the payment of a loan should be made upon the principle of 
 indemnity, that is, should be the return of rights of con- 
 sumption of equal importance with those parted with, which 
 is merely another way of saying that the standard of 
 deferred payments is ultimately a problem in utility rather 
 than in value. 
 
 Or the argument may be put in another way : 
 All cases of mortgages, notes and bonds, bank deposits, and 
 credits in general are protracted instances of exchange. The whole- 
 saler sells his groceries at three months time. Instead of receiving 
 his pay immediately in commodities, or in money with which to 
 buy commodities, the payment side of the trade is postponed for a 
 
 term of months When you lend money you really sell 
 
 the right to things ; when you are repaid, you get things in return. 
 Thus a loan is, in essence, a long-time barter. When you have 
 sold your hats, and allow X to take the money for which they sell, 
 it is the same as if you had sold X the hats, or the goods which he 
 buys with the money. When he pays you, he really returns to you 
 remuneration for the hats. If the payment is a fair one, the 
 money which he pays you must not have gained or lost in its 
 control over the means of satisfying human wants." 
 
 Clearly, also, this utility indemnity can rarely, if ever, 
 be attained through a return of goods specifically like in 
 kind and volume to the earlier sum. It again becomes evi- 
 dent, then, that to the extent that the equality is attainable 
 at all, the payment will have to be required in terms of 
 general purchasing power, and this according to some 
 standard, conventional or occasional. And while the pay- 
 ment for earlier money by later money is the return of a 
 thing of value in payment for another thing of value, and, in 
 this sense therefore, is a transaction in values, and while it 
 must be admitted that any equality in utility can, in any 
 particular case, be only approximate, it is still true that no 
 
 " Davenport, op. cit., sec 170. 
 
THE STANDARD OF DEFERRED PAYMENTS 187 
 
 assertion of an equality in values is in any way possible, 
 since the different money sums are rarely, if ever, exchanged 
 against the same sorts of goods ; and even were they so 
 exchanged, the same bulk, number, weight, or other meas- 
 ure of concrete commodities is, with varying times, a very 
 different and changing fact in its aspect of service, — not, 
 be it noted, to human needs in general — which would be a 
 strong enough case, but rather to the particular needs of the 
 specific human being under consideration.® 
 
 Thus — forestalling a little the interest problem — there 
 is, restated as a problem worked out in terms of money, 
 no great difficulty in explaining why, with the more goods 
 existing by the aid of capital, a higher price should be 
 obtainable therefor, and thereby a money premium be 
 chargeable and payable. But at what rate? And it should 
 
 ®A possible difficulty here requires to be provided for — the modi- 
 fications which changes in standards of living impose upon the principle 
 of utility indemnity, in the mere sense of objectively equivalent goods. 
 "With increasing effectiveness of labor, human needs have expanded. 
 That which was once relative comfort has become privation — privation 
 absolutely in view of higher standards of desire — privation relatively 
 in view of higher levels of comfort or luxury in society. The causes 
 which have served to make greater consumption possible have them- 
 selves made greater consumption necessary. Payment in an equal 
 amount of control over the objects of human desire is not an adequate 
 return for the earlier sacrifice. If even exchange of work would be 
 
 overpayment, even exchange of utility would be underpayment 
 
 That the creditor receive a volume of commodities — services included 
 — merely equal to the volume lent, would be enough, were the creditor 
 substantially the same creditor in needs and requirements — if, for 
 example, the advance in labor effectiveness had taken place in a night, 
 immediately after the loan was made and its proceeds consumed. By 
 this very measure of usefulness, payment must be made in something 
 more than an equivalent command over commodities. The increased 
 effectiveness of labor has brought about a higher level of consumption 
 
 — a raised standard of comfort and of life The line, then, of 
 
 compensation — of equality in sacrifice — must be found somewhere above 
 equality in purchasing power, somewhere below equality in command 
 over human effort. Something must be added to payment on account 
 of the greater necessities of the lender ; something also on account of 
 greater requirements for the maintenance of social position and rela- 
 tive well-being. The point of fair adjustment is to be found where the 
 direct gain from larger satisfactions is offset by the disadvantage of 
 increased requirements and decreased command over social distinction." 
 — Davenport, op. cit., sec. 16$. 
 
l88 VALUE AND DISTRIBUTION 
 
 now be clear that interest also is not a problem of value or 
 of value surplus but rather of price and of price surplus. '^ 
 
 ^ It is perhaps worth while, as illustrative of the general trend of 
 discussion with regard to the standard of deferred payments, to note 
 that Mr, C. M. Walsh, in his brilliant discussion in The Fundamental 
 Problem of Monetary Science, proceeds altogether upon the assump- 
 tion that the problem cannot be other than one of value ; takes this 
 as so far axiomatic as to require no proof, and devotes himself 
 entirely to the attempt to decide which form or concept of value — cost 
 value, esteem value, or exchange value — is best adapted to the needs of 
 the problem. 
 
 As early as upon page i he sets forth that "that is the best money 
 which approaches nearest to being stable in value." Any variety of 
 utility standard is foreclosed from consideration by the easy dictum 
 that "the idea of use value is of course to be left out of the discus- 
 sion" — page II — and it thereupon gets left out. Then, having ably and 
 convincingly driven the labor-cost standard from the field, and having 
 also, to his own satisfaction, disposed of esteem value — probably 
 meaning thereby subjective value in the Austrian sense — he finds that 
 exchange value, being the only thing left, affords the only possible 
 standard of deferred payments. Just how, finally, the desired equality 
 in exchange power between loan and payment could be ascertained or 
 proved is not, at least to the present writer, made fully manifest. 
 
CHAPTER XIV 
 INTEREST 
 
 While, as has already been argued, and as will later be 
 further argued, interest has its basis in the advantages 
 attaching to present goods over future goods, it is never- 
 theless to be defined, in a competitive economy, as the 
 premium which present purchasing pozver, as money< or in 
 terms of money, commands over future purchasing power 
 in terms of money. 
 
 But why does this premium exist ? Is it at all due to the 
 technological productivity which present wealth, in form of 
 instrumental goods, manifests with passing time? Or does 
 interest merely express the fact that some men find it to 
 their advantage, or at least to their choice, to promise, 
 against lOO dollars of command over present consumption 
 rights, the payment at the end of a given term of 105 
 dollars of this purchasing power? x^nd what bearing 
 upon the rate of premium has the common preference for 
 using purchasing power for purposes of immediate con- 
 sumption — the common indisposition to postpone consump- 
 tion — to save? And how about those people who, in their 
 rational or irrational solicitude for the future, would save 
 even without any money agio — persons to whom some 
 forecasted change of need is a sufficient present induce- 
 ment and premium upon saving, if indeed, any premium of 
 any sort is needed in their case ? 
 
 And what is the precise relation of technological 
 productivity to the problem? After all, is not the 
 entire interest relation one between present consump- 
 tion goods, or rights to consumption goods, as over 
 against future consumption goods, or rights to con- 
 sumption goods? The rate of agio, or of discount, having 
 been established in the consumption-goods market, have 
 
IpO VALUE AND DISTRIBUTION 
 
 these technological considerations more to do with the case 
 than this, that such technological methods and processes as 
 promise a productive agio sufficient to overbalance the 
 market discount to which the future product is to be sub- 
 jected in getting a present worth, are found practicable of 
 undertaking? Or put it as follows: the abstinence protest 
 being such in society that 105 units of purchasing power, 
 expressed in the conventional standard, due a year hence, 
 exchange today against only 100 such units for today's use* 
 — has technological productivity any other relation to the 
 case than this, that such technological uses as can promise 
 105 a year from today on account of the 100 now, are fea- 
 sible of undertaking? And what of the 100 that can regu- 
 larly and recurrently transform itself yearly into no? Must 
 it not, by this very fact, be said to be not 100 but 200, if, of 
 course, this 10 agio is to be imputed to it rather than to the 
 management of it? That is to say, are not all rentals and 
 all rent-bearers capitalized into a present worth upon the 
 basis of a discount rate which is obtained without reference 
 to them? 
 
 Land recurrently pays a rent ; machinery also commands 
 a hire : are these hires mere rents or are they time-discount 
 facts? If 100 of land rent is due a year from now, this rent 
 has a present worth of 95-(— And likewise if machinery 
 belonging to me, or a mortgage now running in my favor, 
 will bring 100 a year hence, this 100 suffers a discount to 
 95+ in the process of getting over into a present worth. If 
 this 100 were itself interest upon an invested principal sum 
 of 2,000, shall not the 5 of interest be taken to show that this 
 time-discount rate is itself based upon some underlying 
 time-discount rate? That is to say, if all rents and hires 
 themselves are subject to the principle of time discount, 
 what becomes of these rents and hires as themselves the 
 explanation of the phenomenon of time discount? Can this 
 discount fact be taken as a mere result of the fact that all 
 machines and farms worth 2,000 each are earning 100 each? 
 Or is it not rather true that if they each earn 100 annually. 
 
INTEREST 191 
 
 we therefore call them each worth 2,000? And why is this 
 the case? Whence is derived this rate of 5 by which to do 
 this capitalizing? For if the 5 per cent, rate is derived 
 from the fact that the 2,000 earned 100, it will not do to 
 invoke, in the same breath, this rate in order to explain that 
 the rented fact has 2,000 of value. 
 
 Proof that all instruments earn rentals for time use will 
 perhaps suffice to prove value productivity; but will it also 
 suffice or contribute to explain interest? Or is time dis- 
 count rather a phenomenon belonging exclusively to con- 
 sumption goods or to purchasing power in the time aspect — 
 which time discount is then applied to place a present worth 
 upon each recurring rent payment separately, and to make 
 possible a capital value as the sum of the present worths of 
 a series of rents? 
 
 It is not uncommonly said that each productive agent, 
 labor, for example, is paid according to its value produc- 
 tivity. But if the laborer is paid before his product is 
 marketable, the wage received must be lower by the measure 
 of the time discount. And it is likewise said of capital that 
 its remuneration is the equivalent of the value productivity 
 of the capital. But why is the total value of the capital 
 scaled down to correspond to the present worth of its 
 future returns? 
 
 Or to put the problem in still another way — for every 
 possible device must be invoked to the end of getting this 
 most elusive of problems adequately stated: All that the 
 distributive outcome of production can ever show is that, 
 out of the aggregate production, 105 is to be imputed to 
 capital where only 100 of capital originally went in; why 
 was the capital that was going in, and that was to emerge 
 as this 105 of result, worth only 100 in the beginning? 
 Why not originally worth 105? 
 
 But 100 what? And 105 what? Are these anything 
 but dollars, or purchasing power in terms of dollars as the 
 standard? Is interest anything more than a standard dif- 
 ferential due to the rents which instrumental goods. 
 
192 VALUE AND DISTRIBUTION 
 
 appraised in money, afford in money, and to premiums 
 which present purchasing power or present money com- 
 mands, for consumption purposes, over future purchasing 
 power expressed in terms of the standard? 
 
 And is there, after all, any problem of surplus value 
 with relation to interest, any more than, with the question 
 of the standard of deferred payments, there was found to 
 be a problem of equality in value? Is it possible to say, 
 because there is a physical net return upon instrumental 
 goods, that there therefore is or is not an increase of value 
 or a net return of value? The increased weight-and-tale 
 total of goods may sell for less as well as for more money; 
 but even in the case of an ad- itted increase capable of 
 being established as a physical net return attributable to a 
 particular and isolated instrument good — a case, we will 
 assume, of a cow worth at the beginning of the year $ioo 
 and represented at the end of the year by the sam^e cow in 
 equally good condition, and, together with her, a net gain of 
 $5 worth of calf ; even in this simplest of cases is it possible 
 to say that there has been any increase of value? The 105 
 dollars will not, ordinarily, indeed, ci nnot, be used to 
 purchase the same things ; some of the goods which would 
 have been bought and consumed by some one or other, had 
 the cow been sold or killed, its price spent, and its quid pro 
 quo consumed, have risen in price and some have fallen, 
 some are no longer in the market, the while that others, 
 before entirely unknown, have appeared in the market ; and 
 in any case, the utilities attached to the same objective 
 goods cannot be the same utilities; men change, seasons 
 change, temperature changes, food requirements change, 
 fashions change. Is the more of the 105 an increase in 
 point of value, or rather is it merely and purely a question 
 of change in the aggregate of service, a comparison of 
 the total of utility commanded by the 105 of standard as 
 against the earlier 100 of standard? Is interest truly a 
 value problem in any other sense than that, by the process 
 of discount, different and otherwise incomparable utility 
 
INTEREST 193 
 
 volumes are brought into relation for one and the same 
 time ? ^ 
 
 But even if all this is satisfactorily answered, there will 
 remain the difficulty of tracing out the process of determina- 
 tion of this rate of discount, and of deciding precisely what 
 parts, relatively to each other, technological productivity 
 and psychological time preference have in the determina- 
 tion. 
 
 Again, have we here a problem of present goods against 
 future goods, or rather only a problem in the field of 
 abstract capital, of the loan fund, an investigation of the 
 relation of a quantum of the standard, or of purchasing 
 power in terms of the standard, at one time, as against a 
 quantum of standard at another time — the problem of how 
 much of standard a year hence equates against 100 of 
 standard of today? and then, why? 
 
 If the solution is, indeed, along this last line, it is 
 perhaps easy to see why, with a premium offered by differ- 
 ent borrowers for the present standard for consumption 
 
 ^ But we may well stop to ask what all this, when resolved, will 
 have to do with the present status and the development of the argu- 
 ment. 
 
 As a cost-of-production computation, in the competitive reckoning, 
 all hires of productive instruments and all interest charges of any sort 
 must be included in the computation. That is to say, cost includes 
 wages, rent of land, all rents of all other instruments, and also the 
 interest-discount charge due upon the time employment of entre- 
 preneur capital. 
 
 The value problem, upon the cost-of-production level of analysis, 
 cannot do . otherwise than to accept the discount rate as a datum, an 
 underlying and definitive fact requiring no examination, precisely as 
 the cost-of-production analysis accepts without question and takes for 
 granted all value hires and value rentals upon instrumental or agent 
 facts. On this level we have no concern with the theory of interest ; 
 it is only when we come to the examination of the determinants 
 of entrepreneur cost — to the situation facts — and to a discussion of the 
 distributive process, and to an examination of the fixation of the 
 distributive shares, that the problem of interest is logically before us. 
 
 But practically speaking, in the exigencies of exposition, it has 
 seemed necessary to treat the problem of interest here, in order to 
 determine what interest payments really are, and upon what sort of 
 capital they are computed, and to justify their inclusion as they are in 
 costs ; and then finally to get out of our path all other associated 
 questions of the ultimate basis of interest and of the process of its 
 determination. 
 
194 VALUE AND DISTRIBUTION 
 
 purposes, and other premiums offered by different entre- 
 preneurs for the wherewithal to acquire present instru- 
 mental goods, and with varying dispositions on the part of 
 savers to save, and of possessors of wealth to abstain from 
 its consumption, and with varying dispositions on the part 
 of owners of wealth to exploit their own possessions, there 
 should result, through the value mechanism of the market, 
 a ratio of exchange, a discount rate, between the standard 
 as a present fact and the standard as a future fact. 
 
 But now, assuming that for the time we have questions 
 enough and possible solutions enough before us, it may 
 somewhat illuminate the problem, as well as somewhat 
 further the solution, the while, however, possibly raising 
 more questions, if we turn to examine for a little the details 
 of the treatment of the problem by several of those authors 
 who appear best to have appreciated its difficulty, and who 
 have most contributed to its solution. 
 
 Boehm-Bawerk's explanation of interest rests in part 
 upon the technological productivity of capital and in part 
 upon the principle of perspective in consumption — this 
 latter expressing the preference commonly, though not 
 always, felt for the present good as consumable item, over 
 against the future good — his definition of interest running 
 "a difference in value between present and future goods 
 in favor of the former." ^ 
 
 That "perspective" means merely the indisposi- 
 tion to postpone consumption, and is thus the same 
 thing, under another name, as abstinence, would per- 
 haps not be admitted by Boehm-Bawerk ; this would sound 
 too much like a cost view — whether pain cost or some other 
 type of cost — and thus would not fit well into the demand- 
 utility point of view in the explanation of value. In the 
 main, however, Boehm-Bawerk's emphasis is upon produc- 
 tivity, perhaps because the "perspective" doctrine has, 
 under its aspect of abstinence, been already sufficiently 
 emphasized. 
 
 'Positive Theory of Capital, p. 273. 
 
INTEREST 195 
 
 But, according to Boehm-Bawerk, all sorts of errors 
 have associated themselves with this principle of produc- 
 tivity. One hundred dollars' worth of capital, or one 
 hundred dollars' worth of labor, must be accounted produc- 
 tive even though productive of only fifty dollars worth of 
 product. Smart has thus summarized this particular aspect 
 of the argument: 
 
 Capital would still be productive though it produced no inter- 
 est, e. g., if it increased the supply of commodities the 
 
 price of which fell in inverse ratio The [productivity] 
 
 theory .... does not explain why capital employed in produc- 
 tion regularly increases to a value greater than itself 
 
 The theory that explains interest must explain surplus 
 
 value Labor by no means always produces more value 
 
 than it consumes. But the plausibility of the productivity theory 
 is the parallelism it assumes between labor and capital, the sug- 
 gestion that interest is wages for capital's work. But .... 
 value cannot come from production. Neither capital nor labor 
 
 can produce it What labor does is to produce a quantity 
 
 of commodities, and what capital co-operating with labor usually 
 does is to increase that quantity. [And the value may or may not 
 be more.] How .... can it be that capital employed in pro- 
 duction not only reproduces its own value, but produces a value 
 greater than itself ? ^ 
 
 Boehm-Bawerk accepts the distinction between land 
 instruments and non-land instruments, and rules out these 
 former, together with consumption goods, from the capital 
 category: "Objects of immediate consumption .... 
 and land, as not produced, stand outside our conception of 
 capital. It does not fall within our province to go into the 
 theory of land rent." * 
 
 Certainly the principle of "perspective" — of abstinence 
 — does not apply to land instruments directly, since they are 
 not consumption goods : but this would apply equally well 
 to cut out most other instrumental goods. True, the non- 
 land instruments could be marketed, or worn out, and their 
 price used for immediate consumption wants; but this is 
 
 ^ Eugen V. Boehm-Bawerk, Capital and Interest, translated by 
 William Smart, Introduction, p. ii. 
 
 *Ibid., p. 6. 
 
196 VALUE AND DISTRIBUTION 
 
 equally true of land. The notion of abstinence applies, 
 then, equally to either, unless in the sense of the original 
 labor of production — an argument from origins, and not a 
 technological argument — a line of distinction in no wise 
 applicable for competitive purposes, because beyond the 
 possibility of application. No one can possibly tell what 
 part of land fertility is or is not produced; and, for pur- 
 poses of competitive production, or of personal abstinence 
 in a competitive society, no one could have the slightest 
 interest to inquire. 
 
 But of course it may nevertheless be true that the theory 
 of land rent in no wise concerns the theory of interest; 
 possibly enough, no question of rentals of any sort and no 
 question of any hire or remuneration upon any kind of pro- 
 ductive instruments or agents can have any bearing upon 
 the rate of time discount ; this is, indeed, one of our diffi- 
 cult problems ; but if other rents and hires have this bear- 
 mg, so also have land rents; if others have not, land rents 
 have not. At any rate, next year's rent has to be discounted 
 in order to get it into a present value, and the entire series 
 of future rents have to be discounted to find a present 
 market value for the land or other instrument; and it is 
 clear that land is a future good as much as is any other 
 instrument, and is paid for as are other instruments, accord- 
 ing to the duration of the use granted. 
 
 Before productivity can be used to explain discount, 
 explanation must be found for the division of the gross 
 result of capital into original fact and surplus fact; and 
 this upon the face of it would not appear to be difficult. 
 We started with 100 in value — [price?] — and come out with 
 105 ; mere inspection would seem to suffice for the discovery 
 of a surplus of 5. Yes, but why is it that the 100 that 
 would accomplish this thing was worth only 100 in the 
 beginning? To get the 100 of present value as the capital 
 residuum after the surplus is deducted, we have to make 
 use of this 5 as the discounted surplus ; and it does not 
 then seem open to explain the existence of the 5 by deduct- 
 ing the 100 from the gross 105. 
 
 The adherents [of the productivity theory] .... understand 
 it as meaning that, by the aid of capital, more is produced; that 
 capital is the cause of a particular productive surplus result 
 
INTEREST 197 
 
 The words "to produce more" or "a productive surplus result" 
 may mean one of two things. They may either mean that capital 
 produces more goods or more value, and these are in no way 
 
 identical 
 
 That "capital is productive" .... may signify four things : 
 
 1. Capital has the capacity of serving towards the production 
 of goods. 
 
 2. Capital has the power of serving towards the production 
 of more goods than could be produced without it. 
 
 3. Capital has the power of serving towards the production of 
 more value than could be produced without it. 
 
 4. Capital has the power of producing more value than it has 
 in itself.' 
 
 Neither from the point of view of inadequacy nor of 
 irrelevancy need Boehm-Bawerk's criticism of proposition 
 I detain us long ; proposition 2 he rightly declares to be use- 
 ful only as subordinate to 3 and as somehow serving as the 
 basis of 3 ; and then must be confronted the difficulty of 
 getting 4 out of 3. 
 
 Capital does not produce alone; but it is certain that 
 capital and other production goods working together get a 
 greater total of results by weight and tale than can be had 
 without the capital. But the first difficulty (by Boehm- 
 Bawerk hardly touched, but by Wieser adequately recog- 
 nized) is to find out why, in the distributive process, capital 
 gets any part of this surplus, or does not get more or all 
 of it, and does get just what we find it getting. This, how- 
 ever, may be regarded as a problem in distribution, and, 
 perhaps, for the time being, may be taken, without further 
 ado, as solvable, and as solved; that is to say, the theory 
 of capital rent may possibly, for the purpose of the present 
 argument, be set out of the discussion, precisely as Boehm- 
 Bawerk has in fact declined to enter upon any consideration 
 of the theory of land rent. Even so, however, this other 
 work will have to be assumed to have been elsewhere done. 
 But Boehm-Bawerk does not, so far as non-land instru- 
 ments are concerned, appear to have assumed this, but 
 rather to have taken it as part of his problem, and then to 
 have omitted the necessary anaylsis ; but we shall see. 
 
 But at any rate, admitting that to capital, in the co- 
 operative production process, more goods or better goods 
 can be traced and ascribed and accounted, this falls a good 
 
 ^Ibid., pp. 1 1 3-1 5' 
 
198 VALUE AND DISTRIBUTION 
 
 way short of proving that the value of this larger sum is 
 greater than the value of the original holding. For (i) 
 how make sure that the 105 goods have the more of value 
 over the 100? and (2), this explained, how then explain 
 that the 100 of original holding did not forthwith take on 
 this 105 of value? 
 
 Does the fact that capital when employed is regularly followed 
 by the appearance of a surplus in value, actually contain a sufficient 
 proof that capital possesses a power to create value? .... Is 
 the appearance of the snow a sufficient proof that a magic power 
 resides in the summer snow to force up the quicksilver? .... 
 Value is not produced and cannot be produced. What is produced 
 is never anything but form, shape, material, combinations of 
 material ; therefore things, goods. These goods do not bring value 
 with them ready made, as something inherent that accompanies 
 
 production Value grows not out of the past of goods but 
 
 out of the future. It comes, not out of the workshop where 
 goods come into existence, but out of the wants which these goods 
 will satisfy. Value cannot be forged like a hammer or woven like 
 
 a sheet What production can do is never anything more 
 
 than to create goods, in' the hope that, according to the anticipated 
 relations of demand and supply, they will obtain value.® 
 
 That capital does not directly produce value or surplus 
 value, but only the things that have value, or that have 
 value in excess of the original value, must be — for what- 
 ever it is worth — admitted. Nor does it matter to the con- 
 trary that all of this insistence upon value being derived 
 from wants — from utility motiving demand, rather than in 
 any part upon the supply situation — is of most dubious 
 doctrinal validity. It still remains true that (i) the emer- 
 gence of a surplus in value needs more proof than the mere 
 existence of an increased volume of goods; and (2) this 
 value step being accomplished, the problem would then 
 exist of explaining why the greater value of the result was 
 not forthwith reflected back upon the instrument, to the 
 final cancellation of the surplus first established. But evi- 
 dently all of this discussion on the part of Boehm-Bawerk 
 must assume the quantitative comparability of an earlier 
 with a later value. But if there is, in the nature of the case, 
 as has been in earlier pages argued, no such thing possible 
 
 "Boehm-Bawerk, op. cit., pp. 133, 134. 
 
INTEREST 199 
 
 as this comparison of values, what then remain to be 
 compared ? 
 
 Is comparison more practicable between present goods 
 and future goods? This has also been shown to be 
 impossible, even were it not the fact that the case actually 
 presented by capital productivity is one of production 
 instruments at the beginning, and of consumption goods 
 at the close. This objection has been forcibly urged by 
 Wieser : 
 
 Do the arms, bows, and nets — the capital of von Thumen's 
 illustration — really reproduce themselves in the strictest sense of 
 the term? Certainly not. They produce nothing but fish and the 
 
 spoils of the chase The return which, in the first instance, 
 
 falls to be imputed to them is, consequently, a gross return in 
 foreign things .... things with which they may possibly be 
 compared in value but not in quantity The same argu- 
 ment holds for capital in the developed economy, only that here 
 
 the conditions are somewhat more complicated No 
 
 capital .... directly reproduces itself; each produces first a 
 gross value in foreign things, in which, physically, its productivity 
 cannot be seen. The capital of a baker produces bread, that of a 
 miller, meal, that of a peasant, grain. In order that the baker may 
 replace his capital again .... the gross return .... must be 
 exchanged against the gross return of other capitals, indeed, 
 against those returns which are attributed to land and labor, in 
 order that the capital may be replaced, and the net return physically 
 cognizable.' 
 
 Von Wieser's solution of the difficulty is, seemingly, 
 an appeal to the facts of distribution, to the rental remu- 
 neration apportioned to capital through the competition of 
 entrepreneurs. To the detail, the mechanism, and the 
 processes of this distributive imputation, Wieser especially 
 devotes attention. As for Boehm-Bawerk, as has been 
 already noted, this distributive result is taken for granted; 
 for us, however, the only fact of present importance is 
 this — that to explain rentals or to assume their explanation 
 is not to explain interest, although the explanation of 
 interest may — or, for that matter, may not — be somehow 
 hidden in the phenomenon of rentals.^ 
 
 ^ Friedrich von Wieser, Natimal Value, edited with a preface and 
 analysis by William Smart, translated by Christian A. Malloch. Mac- 
 millan, 1893 (original, Der natiirliche Wert, Prag, 1888). 
 
 ^ "The task of our theory is, in the last resort, to prove the value 
 productivity of capital ; but for this purpose it is necessary first to 
 
200 VALUE AND DISTRIBUTION 
 
 Our present quarrel is, however, essentially one with 
 the explanation of capital rental as given by Boehm- 
 Bawerk. He insists strongly that the problem is (i) a 
 value problem; (2) a surplus-value problem; the lack of 
 clear appreciation of this value problem is, indeed, the 
 gravamen of his complaint against all preceding interest 
 theory. And why is it necessarily a value problem? 
 Otherwise there can come out of the situation analyzed no 
 surplus value. But in addition — and this receives all 
 emphasis at the hands of Boehm-Bawerk — the problem 
 must be fundamentally one of goods, and at the same time, 
 of goods that are of comparable quality, for there could be 
 no value productivity unless as based upon physical pro- 
 ductivity. 
 
 Wieser's first criticism of Boehm-Bawerk's position 
 was, then, that even with physical productivity there could 
 result no value productivity, unless as the outcome of some 
 distributional process, or processes, more or less mysterious 
 and more or less shrilly calling for elucidation. 
 
 prove the fact of physical productivity [gross, not net, one assumes] 
 as the scaffolding on which the other rests. The value productivity 
 already presupposes the determination of the value of capital, but the 
 value of capital can only be determined when the question of how to 
 impute the physical return has been answered, because the value of 
 capital rests on the share of return imputed Isugerechnef] to it. 
 Just as the rent must first be ascertained before the value of any land 
 can be calculated, and just as, generally speaking, the rules of imputa- 
 tion must be recognized before the value of production goods can be 
 determined, so must also the imputation of the return to capital first 
 be settled before we can take up the problem of its value." — Wieser, 
 op. cit., p. 126. 
 
 "The theory of interest, like that of rent, has always been dis- 
 cussed .... without any previous examination of the general laws 
 of imputation. The result, however, as regards interest, has been 
 
 immensely less satisfactory than as regards rent In the case 
 
 of interest, we have to deal with the essential fact in the problem of 
 imputation, while in the case of rent we have to deal substantially 
 with a detail capable of being conceived by itself, that, namely, of the 
 differential imputation." — Ibid., p. 128, note. 
 
 But, after all, it is evident that three steps are involved in any 
 complete proof — (i) physical productivity, (2) net value productivity, 
 (3) discount. And it is as to this third step, the derivation of the fact 
 of discount upon rentals from the mere fact of rentals, if indeed, the 
 derivation can be accomplished, that Wieser's account of the case 
 appears to be seriously lacking. 
 
INTEREST 20I 
 
 But Boehm-Bawerk answered — not to Wieser, but to 
 Clark, although Wieser's criticism came earlier than that 
 of Clark, Wieser 1888, Clark 1893 — that if a productivity 
 could be established such that less goods of an earlier 
 time could be set over against more goods of a later time, 
 and if an increase of this kind could be established as gen- 
 eral over the entire field of capital employment, a value 
 productivity could thereupon be inferred. 
 
 It is, then, at this point that the notable controversy 
 between Professor Boehm-Bawerk and Professor John B. 
 Clark comes so exactly to fit our need. Clark's attack," 
 aside from its abstract-capital arguments and aspects which 
 do not at present concern us, was precisely along the line 
 of Wieser's criticisms as to the nature of physical pro- 
 ductivity. Clark makes it clear that it is "not the recogni- 
 tion of time as an element in the problem of interest" that 
 he would criticize, "but the manner in which time is made 
 to act." In reality, "time does not put a discount upon par- 
 ticular goods; particular concrete goods are not, in actual 
 life, subjected to comparison. It is not the driving-horse 
 of '93 that is compared with one in '94." The capitalist 
 does not decide, if he buys, to buy a horse, and finally con- 
 clude to do the buying at the end of a year. Nor, in fact, 
 do the rainy-day savers — "quasi-capitalists" Clark calls 
 them, since they have not definitively abandoned all idea of 
 consumption, but are merely postponing — nor do these 
 rainy-day people have in mind 
 
 goods of like kind and quantity The marked antithesis 
 
 between that which they forego today and that which they expect 
 to purchase later affords, indeed, the motive for their postponing. 
 They do, no doubt, compare a sum of wealth [But do they? or only 
 a sum of weal — an aggregate of expected services commanded by 
 alternatives of purchasing power?] existing today with a like sum 
 to be used later. 
 
 Clark attributes the error charged to Boehm-Bawerk to 
 the acceptance of the notion of capital as concrete goods : 
 
 * "The Genesis of Capital," Yale Review, Vol. II, p. 302 (Novem- 
 ber, 1893). 
 
202 VALUE AND DISTRIBUTION 
 
 For the common and practical conception of capital as a perma- 
 nent fund or amount of wealth expressible in money though not 
 actually embodied in money, there is substituted the conception of 
 concrete goods distinguishable from others by the place that they 
 occupy in the order of industrial phenomena. 
 
 For evidently, it is insisted, if capital at the outset and 
 capital in a later aspect are to be compared, there will have 
 to be a comparison of concrete tangible goods, or of these 
 goods as expressed in some measure. And Clark insists 
 that this comparison is actually, commercially, experien- 
 tially, not of goods of like kind and quantity; if it is at all 
 a comparison of concrete goods it must be of machinery 
 for production with products for consumption; failing this, 
 it must be of two aggregates of value — of two "sums of 
 wealth," or of "amounts of wealth expressible in money;" 
 and at this point Clark declares himself as standing for the 
 money expression. 
 
 But is it possible to express value under any other form, 
 to give it any denominator intelligible as between different 
 men, otherwise than in terms of some conventional stand- 
 ard ? In truth, when capital is expressed as a value quantity, 
 is there anything for it but to use the money standard? 
 Capital is wealth under the money denominator, 
 since there is no other denominator possible. For ordinary 
 purposes, truly, this difference between value and price is 
 not significant. But for purposes of comparison over 
 intervals of time or space, the difference is theoretically of 
 fundamental import. For, whatever may be the truth for 
 current exchanges, it is clear that for deferred-payment 
 relations the only possible device for comparison must be 
 found in some conventionally adopted standard of com- 
 parison. 
 
 But all this is, to the individual, not so very different 
 from a value comparison ; it is, for his purposes, unlike the 
 ordinary non-deferred payment case only in this, that, with 
 the deferred payment, each of the articles compared is an 
 item out of an entirely different system of value exchanges 
 from that of the other. Prices in current exchanges are 
 merely and simply value phenomena expressed in some one 
 commodity intermediate, conventionally selected for the 
 purpose. As value phenomena, value items, two prices out 
 
INTEREST 203 
 
 of distinct systems of exchange relations are not possible 
 of comparison ; the equality or inequality is merely one in 
 terms of two bullion weights out of different value situa- 
 tions and systems. That the market price of a given horse 
 is today $100 is the expression of a value relation between 
 horse and metal ; that the payment will be made a year 
 from today in $105 is simply to say that a certain promised 
 quantum of metal, — an aggregate of items out of a later 
 value system, and, from the point of view of the present, 
 of an unknowable exchange significance in that system, — is 
 today exchangeable against the horse or against its equiva- 
 lent 100 items of metal ; no equivalence in value between the 
 two sums of items of metal is asserted in any other sense 
 than as a mere repetition of the brute and opaque fact that 
 the 100 and the 105 are exchanging against each other. 
 
 Up to this point there is, then, nothing but commenda- 
 tion to be accorded to Clark's formulation. It is, however, 
 true — or seemingly true — that he, as well as Boehm- 
 Bawerk, assumes for capital a concrete tangible material 
 basis, as a body of existing material things, out of which 
 the money or value situation proceeds, and for which it 
 stands ; that is to say, his concept of capital requires, as the 
 basis of the capital, an existing sum of industrial goods 
 and intermediate products, social capital, but, all the while, 
 subjected to a competitive, individualistic value adjust- 
 ment. But in point of fact, as his corporation-illustration 
 of capital, a favorite with him, shows, this price or value- 
 denominator form of capital may be invested in all the 
 various sorts of marketable or intermediately advantageous 
 facts ; there is no certainty — there is, indeed, no probability — 
 that the total corporate capital ever will be, — or even if it 
 ever is, will long remain, made up in its entirety of social 
 capital as distinguished from consumption goods, rights, 
 claims, franchises, good-will, and such other assets of 
 similarly non-concrete character as a going business con- 
 cern may find to its purpose. 
 
 Boehm-Bawerk appears to accept a goodly share of 
 Clark's contention, still, however, making shift somehow to 
 keep up with his talk of "goods." 
 
 According to my view the superiority of present over future 
 goods is based upon the very fact that one can, as a rule, make a 
 different and more advantageous use of goods now present than 
 
564 VALUE AND DISTRIBUTION 
 
 one can make of an equal quantity [?] of goods [?] which are not 
 to be at one's disposal until some future moment.^" 
 
 But what, Boehm-Bawerk asks, can this equal quantity 
 of goods be, if not the same quantum of the same kind of 
 goods? What sort of equaHty and what guarantee of 
 equaHty can there otherwise be? 
 
 According to my theory, the man who saves will weigh whether 
 the two hundred florins will have a greater value [ subjective 
 value? ulitity? service?] for him if consumed now as "present 
 dollars," or if reserved for like use as "future dollars." .... 
 Strictly speaking, the example chosen by Professor Clark is not a 
 case of comparing present and future "goods" but only one of 
 comparing present and future uses of the same sum of wealth 
 [money? purchasing power in terms of money?]. But .... 
 the decisive ideas are the same." 
 
 And still insisting that he has not hereby abandoned 
 his comparison of goods of "like kind and quantity," and 
 declining to admit that he has gone over to a mere equality 
 in terms of the conventional standard, Boehm-Bawerk 
 continues : 
 
 Why do I add to my proposition that present goods are worth 
 more in the average than future goods, the further qualification 
 that they are worth more than goods of like kind and quantity? 
 Simply because that without the second half of the proposition, 
 
 the first half would be neither intelligible nor complete 
 
 To express clearly and correctly the superiority which difference 
 of time gives present goods over future goods one must compare 
 things of like kind, for example, dollars with dollars, and not 
 diamonds with pebbles, and of like quantity, one thousand with one 
 
 thousand, and not one thousand with two thousand 
 
 Especially would it be inadmissible .... to place over against 
 each other like sums of value, instead of like sums of 
 
 wealth One would have to make the logically inconsistent 
 
 assertion that a certain present value is greater than an equally 
 
 great future value Professor Clark speaks of a "sum of 
 
 wealth," or an "amount of wealth." .... But .... if Pro- 
 fessor Clark would force himself to a precise definition of his 
 meaning, he would have to assert either exactly what I assert, or 
 
 ^° "The Positive Theory of Capital and Its Critics," Qu<ir, Jour, of 
 Econ., Vol. IX, p. ii8 (January, 1895). 
 
 "^ Ibid., p. 117. 
 
INTEREST 205 
 
 something positively false For either he would mean by 
 
 his amount of wealth an amount of goods, and in this sense, if he 
 is to demonstrate the superiority of present goods, he must neces- 
 sarily have reference .... to goods "of like kind and quantity," 
 or he means an amount of value, and then the assertion .... 
 contains the self-contradiction just criticised.^ 
 
 And this would, indeed, be a serious difficulty if, as 
 Boehm-Bawerk assumes, the alternatives presented offered 
 the only possible solutions. But there is all the while the 
 third possibility, that of the equality, in the present reckon- 
 ing, of a future quantum of the standard with a present 
 quantum of the standard. 
 
 And all the while Boehm-Bawerk stoutly insists that he 
 is abiding by his notion of capital as concrete tangible 
 goods, exclusive, one still assumes, of land. 
 
 But Clark, in his rejoinder,^^ insisting that the very state- 
 ment of the interest problem conceives the case in terms of 
 a fund and of income upon this fund and not in terms of 
 concrete capital goods, mercilessly forces home the "com- 
 parison" issue. He denies that $1,000 at one time and 
 $1,000 at another time can compare goods of like kind 
 and quantity, though of course admitting that these dollars 
 are, in a sense, themselves goods of like kind and quantity : 
 
 The sum in the present will buy certain things, and a like sum 
 hereafter will buy different things. Professor Boehm-Ba- 
 werk .... compares present and future goods of like kind and 
 number, because he compares present dollars with future dol- 
 lars .[The possessor of present wealth] compares two dif- 
 ferent subjective values obtainable by two different modes, of 
 spending present money 
 
 He objects to Boehm-Bawerk's fashion of bringing 
 money into the discussion, and then of objecting to "sums 
 or quantities of wealth The things to be com- 
 pared are a dollar's worth of whatever-you-please now and 
 a dollar's worth of whatever-you-please hereafter." 
 
 Nothing better than this or more clarifying for the 
 purposes of the present discussion could be asked, nothing 
 
 ^ Ibid,, pp. 125, 126. 
 
 " "The Origin of Interest," Quar. Jour, of Econ., Vol. IX, p. 257 
 (April, 1895). 
 
2o6 VALUE AND DISTRIBUTION 
 
 more conclusive also, and it is hardly gracious to stop to 
 regret that Professor Clark appears to believe that what a 
 capitalist "really estimates is like quantities of wealth meas- 
 urable in money;" for really the measurement function is 
 not present. But for the purposes presently in hand this 
 is mostly an irrelevant inaccuracy. 
 
 The discussion — this aspect of it — closes with Boehm- 
 Bawerk's practical admission of the entire charge made 
 against him : "Professor Clark seems to assume that I 
 have, in my last article, 'introduced into the problem for the 
 first time' the case of money In this he is mis- 
 taken, etc. ;" for Boehm-Bawerk asserts that he has done 
 the thing over and again in the Positive Theory — in all of 
 which the truth is clearly with Boehm-Bawerk — the more 
 so, the more unfortunately for him, for in precisely so far 
 is he disloyal to the doctrine, as held by him, of the con- 
 creteness of capital, and even more obtrusively disloyal to 
 his comparison of "like kinds and quantities of goods." ^* 
 
 Bearing in mind that Boehm-Bawerk stands for capital 
 as concrete non-land forms of wealth, and repudiates in 
 terms — whatever else he does impliedly — the value or price 
 
 14 '"pjjg Origin of Interest," Quar. Jour, of Ecoti., Vol, IX, p. 380. 
 
 The fact that concrete items of commodity, like ice, wine, or 
 wheat, often increase in value with keeping, appeals to Macfarlane 
 (Charles W. Macfarlane, "Value and Distribution," Lippincott's, 1900, 
 p. 196) as "of course fatal to the contention that present goods are, as 
 a rule, worth more than future goods." 
 
 These cases might properly be used to compel a retreat by Boehm- 
 Bawerk from his position that capital is a category of concrete goods, 
 to the tenable ground that capital is the price aspect of the concrete 
 goods ; but so far from being inconsistent with the doctrine that 
 present values command an agio over future values, the wine case, at 
 least, is an illustrative case of a capitalistic process taking place in 
 time. Boehm-Bawerk stands for the view that ten dollars' worth of 
 ice or wine or wheat of next year is not worth ten dollars now. This is 
 not inconsistent with the fact that waiting till next year may change ten 
 dollars' worth of present commodities into a then sum of value greater 
 than ten dollars. The future value does not now rank as equal to a 
 present value of the same denomination, but with time a change takes 
 place in the volume of value, and for that reason the waiting is done. 
 True, as Macfarlane argues, the increase in value may arise, as in the 
 case of the wine or of the wheat, through changes in the demand ; but 
 this is merely to say that a year from now the then value will be 
 greater than is the notv value, not that the future good is now more 
 valuable than the present good. 
 
INTEREST 207 
 
 expression as an essential element in the capital concept 
 for the existing competitive organization of society, some 
 attention must now be directed to his interpretation of 
 roundaboutness in capitalistic production as bearing upon 
 interest theory. His proposition seems to be that, with a 
 given development of technique, only a limited volume of 
 capital can be applied to production, at any given degree of 
 directness in productive methods ; that only on terms of 
 increasing roundaboutness can a market for more capital, 
 and scarcity for any capital, become possible; and that 
 increasing roundaboutness necessitates or implies the fact 
 of diminishing returns. 
 
 We shall, in a later chapter, have occasion to question 
 this alleged necessity of diminishing return anywhere in 
 the dynamic field — whether for land or capital or labor — 
 excepting upon the underlying assumption that the different 
 factors in production or the different sorts of instru- 
 mental goods are manifesting different rates of increase, 
 as, indeed, they commonly are. But in the actual situation 
 of things, Boehm-Bawerk is doubtless right in his conten- 
 tion that capital goods tend, at present, toward diminishing 
 productivity in some sense, not altogether clear, either of 
 product by weight and tale, or of product by utility meas- 
 ure, or of product by value measure. There is a limit to 
 the instruments that, in any given situation of technique, 
 of labor, and of land, can be absorbed without diminishing 
 advantage. There is, however, nothing to show that this 
 fact of diminishing return is due to greater technological 
 roundaboutness ; there would, in truth, be this same law in 
 more obtrusive manifestation, were the productive period 
 not possibly to be lengthened; and there might be increas- 
 ing volumes of capital consistently with shorter periods of 
 production — shorter processes. 
 
 Yet surely it is true that "every extension of the pro- 
 ductive process leads generally to some surplus result," ^^ 
 
 " The use by Boehm-Bawerk of this roundaboutness doctrine is the 
 point against which Professor Fetter has directed a most searching and 
 destructive criticism. It would be hard to separate from the discus- 
 sions of the present text that which is dye directly to Professor Fetter 
 and that which belongs to the author. Bat, in the main, so far as the 
 
2o8 VALUE AND DISTRIBUTION 
 
 and it is doubtless true also that, with a given volume of 
 capital, the more time, the more productivity ; capital works 
 in time. But this is equally true of land, and is the basis 
 of rent on either land or capital. And it is — or may be — 
 true that "production is more or less capitalistic according 
 to the average remoteness" at which return comes to pro- 
 ductive powers. But here again the principle applies 
 equally to land powers, that is to say, the question is merely 
 one of the importance of time in getting results out of 
 instruments of production — no great discovery. The fact 
 seems to be that the more any good helps in production — 
 value-wise, as market-determined — the greater is it in 
 volume as capital ; but the farther away its product is in 
 point of time the less is the present worth of its product, 
 and thereby the less the value — the capital quantity — of 
 the good as capital. 
 
 Capital is — and herein lies the chief point of its productive 
 efficiency — an effective intermediate cause of the consummation of 
 
 this profitable roundabout process I say "intermediate 
 
 cause," not "cause." Capital gives no independent impulse; it only 
 
 present discussion is not directly borrowed from Professor Fetter, it 
 has been suggested by him. 
 
 At the same time, it is fair to say that Professor Clark, in the 
 controversial articles lately referred to, has, in essentials, anticipated 
 Professor Fetter's criticisms ; all this, however, in the process of intro- 
 ducing or of supporting his regrettable abstract-capital concept, and, 
 possibly, without entire appreciation of the full reach and import of the 
 objections formulated by him to the position of Boehm-Bawerk. 
 
 So far as refers to Professor Fetter's treatment of time value — 
 interest in the widely inclusive sense of the term — the doctrine should, 
 perhaps, be rather held to be that of Wieser than of Fetter, though 
 here also Fetter's discussion, in its development of the principle and in 
 its consciousness of the significance and extent of the principle, is by 
 much to be preferred. 
 
 The following is from Natural Value, p. 141 : 
 
 "Every capital value — not alone the value of a sum of money but 
 of every perishable productive instrument — is calculated by discounting 
 (compare Menger, p. 135) ; that is to say, from the value of the 
 future expected sum of products into which the capital will be trans- 
 formed, the corresponding net return is deducted. Only that, prac- 
 tically, in discounting money claims, a fixed rate of interest, i. e., a 
 definite relation between capital value and net return, is always 
 assumed, and always emerges, while we are explaining the formation 
 of this relation by first discovering the principle for estimating capital 
 value," 
 
 No intention exists here to credit Wieser — or Menger — with origi- 
 nality in this regard ; I have made no attempt to trace the doctrine back 
 to its origin ; sympathetically interpreted. Say, at any rate, appears to 
 contain it. See p. 116. 
 
INTEREST 209 
 
 transmits an impulse given it by the original productive powers, 
 
 just as one billiard ball transmits motion to another 
 
 Capital is also the indirect cause of other profitable roundabout 
 ways of production being entered upon — other, that is, than those 
 in the course of which it itself has come into existence. When a 
 people possesses much capital not only can it successfully complete 
 those processes in the course of which the capital presently existing 
 has come into being, but it can also adopt other and new 
 
 methods The greater the stock of capital, the larger is 
 
 the share taken by the productive powers of the past in providing 
 means of consumption for the present, and the less are the new 
 productive powers of the present drav/n on for the present." 
 
 But as ultimate cause, certainly, it is only when we con- 
 ceive of subsistence goods as capital that it is possible to 
 regard capital as in any degree explaining the roundabout- 
 ness of the industrial process ; only so far as capital in 
 possession affects the aggregate of production may it bear 
 upon the saving possible to take place. "In this sense but 
 only in this sense, is it possible to say that man must 
 already have capital before he can enter on roundabout 
 methods of production. "^"^ 
 
 On something like this ground — it will be remembered 
 — was Jevons led to assert that only subsistence goods are 
 capital. But Boehm-Bawerk expressly dissents from this 
 view; he denies that consumption goods are capital, even 
 denies that long-time consumption goods, e. g., a house 
 occupied by its owner, are capital, and asserts that only 
 when there comes a fore-product — an intermediate product 
 — has capital emerged.^^ 
 
 All this, then, makes him appear to say that there are 
 two distinct causes co-operating to increase the roundabout- 
 ness of production: (i) larger supplies of capital, and 
 (2) larger supplies of something not capital. His recon- 
 ciliation for this apparent contradiction would probably be 
 found in the view that these larger margins of goods over 
 pressing current needs are relevant only to explain the 
 larger supplies of instrumental goods — capital proper — and 
 through them the greater roundaboutness in productive 
 methods. 
 
 But precisely what does this notion of roundaboutness 
 accurately mean? Surely to stop fishing, in order to make 
 
 " Boehm-Bawerk, op. cit., p. 92. 
 
 "Ibid., p. 93. 
 
 "J&iU, p. 96. 
 
210 VALUE AND DISTRIBUTION 
 
 a fish pole whereby later to catch more fish, is a round- 
 about method, since it is the interposing of a time-consum- 
 ing process of getting ready to do the thing finally to be 
 done, a submission to waiting, an abstinence. But is there 
 therefore any warrant for saying that when once the fisher- 
 man has his pole in readiness, he will require with it a 
 longer time than formerly in order to catch his first fish, 
 and will derive his benefit only through the fact that, 
 undergoing a longer-time process, he obtains a more than 
 proportionally larger catch? Why not equally well more 
 fish in the same time? 
 
 After all, is there in this fact of roundaboutness any- 
 thing more, necessarily or characteristically, than a more- 
 ness of waiting as volume rather than a moreness purely as 
 duration? If more capital goes into steam shovels, may it 
 not be merely into more shovels of the old type; or, if into 
 those of a new type, may these not be simply more 
 elaborate and more expensive methods of doing the same 
 work in fewer days? more breadth of waiting with less 
 length ? 
 
 But it may evidently be true that the larger capacity for 
 waiting derived by society from the diminishing pressure 
 of imperative needs upon producing power, may be turned 
 to the development of methods demanding longer periods 
 of time; with the sacrifice-significance of saving counting 
 for less, vinegar and wine may advantageously be given 
 longer and longer periods for the developing and ripening 
 of their finer but less essential qualities. And so there will 
 probably come many appliances demanding periods of 
 longer duration, but justified, under the new conditions of 
 waiting-burden, by the extra results achieved. But it is 
 hardly to be believed that all new savings will go into this 
 longer-time direction of change. But even of those that do 
 so go, not all will go into instrumental goods of the tech- 
 nological sort ; on the contrary some of the new power will 
 go into better-constructed and more durable houses, long- 
 time provision against future needs rationally and advan- 
 tageously provided in the present time — that is, into future 
 goods subject to the discount process into present worth — 
 future income rendered over into a present value reckon- 
 ing — that is, the emergence of capital and interest, with all 
 the materials of the capitalization process, but with only 
 consumption goods in question. And other savings will be 
 going both into durable and into temporary improvements 
 
INTEREST 211 
 
 upon the land ; and meanwhile, under the lower stress of 
 present need, the original powers of the soil are coming 
 to be better husbanded, their destruction or impairment 
 avoided, their profitable future results waited for. Absti- 
 nence is a land fact as well as a non-land fact. 
 
 But this is not, for present purposes, the only point of 
 identity between consumption goods — consumable goods — 
 and instrumental goods, or between non-land instruments 
 and land instruments. Concurrently with Boehm-Bawerk's 
 insistence that, as a question of origin, capital is not an 
 independent element of production, in this respect, there- 
 fore, differing from land, he finds it also to his purpose to 
 refute the ancient doctrine that capital is merely stored-up 
 labor, and asserts of capital, as regarded from the produc- 
 tive-efficiency point of view: "Capital . . . . is stored 
 up labor, but it is something more ; it is stored up valuable 
 natural power." [Italics are the present writer's.] ^^ 
 
 But not only does this abandon the distinction of 
 origin between land and capital, but it also forsakes the 
 concrete-capital notion for the value concept; it conceives 
 of capital as an intermediate fact through which the two 
 original facts — man and environment — exert their instru- 
 mentality; and thus capital now appears as something 
 which is not land, but yet is stored-up land product in its 
 price-value expression. 
 
 In the chapter next following there appears to be also 
 express recognition of non-instrumental forms of capital — 
 the loan-fund form — or what may conceivably be classed 
 as the abstract-capital form : 
 
 This encroaching on the moment's enjoyment need by no means 
 involve downright privation. With more productive labor, Cru- 
 soe's choice might not lie ... . between bare living and com- 
 fortable living, but, perhaps, between comfortable and ample 
 
 living The essential thing is that the current endowment 
 
 of productive powers should not be entirely claimed for the 
 immediate consumption of the current period, but that a portion of 
 this endowment should be retained for the consumption of a 
 
 future period A saving of productive powers, be it noted; 
 
 for productive powers, and not the goods that constitute capital, 
 are the immediate objects of saving. This is an important point, 
 which must be strongly emphasized because, in the current view, 
 too little consideration is given to it. Man saves consumption 
 
 " Boehm-Bawerk, op. cit., p. 99, 
 
212 VALUE AND DISTRIBUTION 
 
 goods, his means of enjoyment; he thus saves productive powers, 
 and with these finally he can produce capital The immedi- 
 ate cause of the production of capital is production; the mediate 
 
 cause is saving It is only exceptionally that capital itself 
 
 is the immediate object of saving; it may happen in the case of 
 those goods which, by nature, admit of being used either for pro- 
 duction or for consumption, such as grain. To the extent that a 
 man withdraws such goods from immediate use in consumption, 
 his saving directly lays the foundation of capital.™ 
 
 But whether all this can be strained to bear the loan- 
 fund or abstract-capital interpretation, may perhaps be best 
 decided by Boehm-Bawerk's analysis of the methods by 
 which savings work out into the existence of concrete 
 instrumental goods. Here, manifestly, the process is 
 entirely misconceived; it is not true that 
 
 if the owner lend his wealth to others .... for consump- 
 tion .... the sum lent is a direct advance of subsistence to the 
 borrower; .... if for production .... it passes, as already 
 described, from the borrowing employer to the laborers, as advance 
 of subsistence. Thus the entire accumulated wealth of society — 
 with the very trifling exception of that portion which the owners 
 themselves consume — is really brought into the market as supply, 
 of advances of subsistence.''^ 
 
 The bearing of the mere fact of perspective upon the 
 interest rate is admitted and indeed asserted by Boehm- 
 Bawerk : 
 
 There are three factors, each of which, independently of the 
 other, is adequate to account for a difference between present and 
 future goods in favor of the former. These three factors are : 
 The difference in the circumstances of provision between the present 
 and the future; the underestimate, due to perspective, of future 
 advantages and future goods; and finally, the greater fruitfulness 
 of lengthy methods of production. 
 
 The needy and careless value present goods more highly 
 because they urgently require them in the present or think only 
 about the present; the well off and the saving value them because 
 they can accomplish more with them in the future. And thus, in 
 the long run, everyone, whatever his economic position and what- 
 ever his economic temperament, has some ground for valuing 
 present goods more highly than future.^ 
 
 ™ Boehm-Bawerk, op. cit., pp. 102, 103. 
 ^ Ibid., p. 321. 
 '^ Ibid., p. 277. 
 
INTEREST 213 
 
 There is, indeed, no writer to deny the influence of per- 
 spective, although Wieser appears to criticize the rational 
 justification for the influence,-^ and is not entirely definite 
 as to its independent sufficiency for the emergence of an 
 interest rate. 
 
 Fetter apparently ascribes the interest phenomenon 
 entirely to perspective, allowing to productivity only such 
 influence as it indirectly exercises through the effect upon 
 the supply of goods with which the perspective principle 
 concerns itself.^* 
 
 Carver, insisting that were there no indisposition to 
 save, no abstinence cost for capital, there could be no limi- 
 tation upon the supply of capital — a pain-cost doctrine for 
 the aggregate capital supply, with the implication that the 
 cost margin is found at the highest point of saving-pain,' — 
 finds the demand to be made up of requirements partly for 
 technological purposes and partly for consumption; the 
 point of adjustment between the supply and the demand is 
 
 ^ "At bottom the economic conflict between the needs of today 
 and those of tomorrow is really of a moral nature ; it is a special 
 case of the struggle between impulse and reason." — Wieser, op. cit., p. 17. 
 
 "Present and future wants coming into competition with each 
 other, are as a rule to be regarded as equal ; that is to say, the differ- 
 ence in time does not necessitate any difference in valuation. To this 
 proposition we have now to add a second : that within the sphere of 
 production the difference in time does necessitate a difference in valua- 
 tion of the goods employed in production. The two propositions are 
 
 in perfect accord and mutually supplement one another If 
 
 capital .... is able to yield continuously the same returns, this 
 must find expression in a valuation which ascribes to capital a higher 
 value, the earlier the point of time it comes into our possession. For 
 the earlier the point of time, the earlier, and consequently the greater, 
 the return that may be expected." — Wieser, op. cit., p. 143. 
 
 °* I confess my inability to justify, by direct quotation or by strict 
 logical necessity, this interpretation. It seems to me, however, to be 
 necessitated by the general trend and direction both of Professor 
 Fetter's critical and of his constructive work. At any rate, I am 
 totally unable, otherwise than upon this interpretation, to make out 
 the relation posited by him between technological productivity and time 
 discount. 
 
214 VALUE AND DISTRIBUTION 
 
 the interest rate : ^^ all of which Boehm-Bawerk would 
 accept, with some mild protest about the word abstinence, 
 and with much relative insistence and emphasis upon 
 demand or utility, and finally with a peremptory call that 
 the value-surplus fact get somehow out of all this a definite 
 explanation. And in this call the economic world will join, 
 at the same time, however, probably denying that Boehm- 
 Bawerk has himself performed the task, as set forth by 
 him m the following: 
 
 The statement of how productivity of capital works into and 
 together with the other two grounds of the higher estimation of 
 present goods, I consider one of the most difficult problems of the 
 theory of interest and at the same time the one which must decide 
 the fate of that theory.^^ 
 
 In view of all this explicit recognition of perspective, it 
 only remains, for purposes of review and of criticism, to 
 set forth, without extended comment, the surprising doc- 
 trines both of Boehm-Bawerk and of Wieser in respect 
 to land rentals, and, less distinctly enunciated, the logically 
 associated doctrines for consumption loans. 
 
 In a certain sense interest on production and interest on con- 
 sumption have a common source. Both of them relate to a differ- 
 ence in the valuation of present and of future goods, only that the 
 causes which produce this difference are distinct. (Wieser, op. cit., 
 
 p. ISS-) 
 
 If they [houses] are to be produced, there must be the prospect 
 that their value will include the full and permanent maintenance 
 of the undertaker's capital, whether this value be realized through 
 
 selling or through letting the property The interest of hire 
 
 or let must, therefore, stand at the usual amount of interest on 
 capital. It is an application of the law of costs, according to which 
 the customary interest on capital is reckoned among costs. (Wieser, 
 op. cit., p. 157.) 
 
 The value of land is calculated .... by capitalizing the rent 
 
 of land In order to capitalize, a given rate of interest is 
 
 necessary; and that an interest rate may be given, we need capi- 
 tal Land has not the same double function as productive 
 
 "^ "The Place of Abstinence in the Theory of Interest," Quar. Jour, 
 of Econ., October, 1893. 
 
 ^' Positive Theory, p. 277, note. 
 
INTEREST 215 
 
 factor and as product. It produces without being produced; and 
 thus, to determine the value of land, it becomes necessary to bring 
 to our aid the standard of capitalization which we find in capital. 
 (Wieser, op. cit., pp. 158, 159.) 
 
 This implies either that abstinence is not sufficient as the 
 basis of an interest rate, or that the individual owner of 
 land exercises no abstinence with regard to it, or that, in 
 general, there is no interest possible excepting by deriva- 
 tion from technological non-land productivity together with 
 some sort of distributive imputation. 
 
 That interest is possible independently of technological 
 productivity would seem to be inferable from Boehm- 
 Bawerk's assertion of the threefold basis; if so, however, 
 this must mean that interest is not a phenomenon appear- 
 ing exclusively in connection with capital, but, on the con- 
 trary, may attach to something which is not capital. And 
 yet, on page 49 of the Positive Theory, in discussing Knies's 
 concept of capital, with especial reference to interest on 
 money loans, it is said; 
 
 Does the interest-bearing money belong to capital, or does it 
 not? .... If we answer in the negative .... we commit our- 
 selves to the strange doctrine that a thing which undoubtedly bears 
 interest is not capital. 
 
 It is, however, in a later chapter said that interest may 
 be paid for the use of land; that land is to be regarded 
 as a productive instrument equally with capital ; like capi- 
 tal, it manifests its productivity in time, and also somehow, 
 by virtue of its concrete productivity, furnishes, like capi- 
 tal, the basis of value productivity. 
 
 The theoretical explanation of rent from land coincides ulti- 
 mately with the explanation of interest obtained from durable 
 concrete capital, and land rent is nothing but a special case of 
 
 interest obtained from durable goods Manifestly the fact 
 
 that rent of land and rent of capital have one common final cause 
 is not a sufficient reason for abolishing every distinction between 
 them. Between land and capital there are so many important dif- 
 ferences, both theoretical and practical, that, notwithstanding the 
 common feature just described, we are justified in adhering to the 
 decision made in a former chapter to keep land out of the concep- 
 tion of capital." 
 
 ^Positive Theory, pp. 355-57. 
 
 It may be worth while, for purposes of a convenient summary, 
 to reproduce Boehm-Bawerk's own synopsis of the reasons referred to 
 
2l6 VALUE AND DISTRIBUTION 
 
 That the services from any durable consumption good, 
 a house, for example, are mainly future services, and are 
 thereby subject to a discount into present worth as the 
 capitalized value of the house, is fully and clearly asserted 
 by Boehm-Bawerk ; but here again the concept of capital is 
 not widened to include goods of this sort; they are regarded 
 as mere long-time consumption goods and not capital, on 
 the ground that they are not "intermediate products, des- 
 tined to serve toward further production." But none the 
 less is it said : 
 
 Our theory traces back the profits which durable goods yield 
 their owner to the selfsame causes as explain interest on loans 
 
 and undertaker's profit on production Supposing that the 
 
 other kinds of interest could be explained by the productivity of 
 capital, obviously this was no explanation of the interest yielded by 
 a durable consumption good which produced nothing, such as 
 a dwelling-house, household furniture, a hired piano, the books 
 
 of a lending library The true primary fact is the lower 
 
 value of future goods and future services.'^ 
 
 in support of the distinction under consideration. The bracketed inter- 
 polations must be pardoned in the interests of space. 
 
 "In many essential respects land and capital take different ways : 
 (i) The former is immovable; the latter, for the most part, movable 
 [irrelevant] ; (2) the former is a gift of nature ; the latter a result of 
 labor [Neither side of the antithesis is always true ; and Boehm- 
 Bawerk has himself admitted as much for the latter statement.] ; 
 (3) the former cannot be increased; the latter can be [untrue] ; (4) the 
 landowner has a social and economic position essentially different 
 from that of the capitalist ; property in land is justified on essentially 
 different grounds from property in movables [ethics, law, or politics — 
 at all events not economics] ; (5) land is the special object of a kind of 
 production which is economically distinguished by many important 
 peculiarities [Technology? At any rate, diminishing returns are not 
 peculiar to land.] ; (6) income from land, while subject to many laws in 
 common with income from capital, obeys many distinct laws of its 
 own — land rent, for instance, rising with economical development, 
 while interest falls." [As Boehm-Bawerk has just shown, capital rent 
 and land rent capitalize under precisely the same rate ; and many 
 forces in economic development bear to diminish rent.] — Positive 
 Theory, p. 55. 
 
 '^ Ibid., pp. 346-49. 
 
CHAPTER XV 
 INTEREST (concluded) 
 
 To discuss economic problems in terms of price rather 
 than of value, to place the emphasis upon money rather 
 than upon the things that money will buy, to talk of nomi- 
 nal rather than of real wages, is commonly accepted as the 
 mark of superficial thinking; that price is a mere half-way 
 house between value and value or between utility and 
 utility has come to mean that it is for most theoretical pur- 
 poses no house at all. 
 
 It is nevertheless important to appreciate how much of 
 modern economic life woud be different, and how much 
 of economic theory would require reformulation, were 
 there no money and no money price. The problem reaches 
 even so far, indeed, as to have raised the question whether, 
 without a money denominator, the value problem would 
 be possible of solution. What would be the theoretical 
 situation were there no conventional standard and medium? 
 
 It is at any rate evident that, at no matter what incon- 
 venience, there would be barter enough in this money- 
 less society; division and specialization of emplo)Tiient 
 would obtain very much as under present conditions ; 
 recognized value relations would establish themselves 
 between such classes of goods as in considerable measure 
 were exchanged against each other, and under some sort of 
 arbitrage these relations would acquire a considerable 
 degree of definiteness. That is to say, value relations 
 would exist essentially as at present, but all this without 
 any price system. But would there exist no medium of 
 exchange? No. Or, rather, there would be not one 
 medium but an indefinite number of media; for by trading 
 and retrading, possessors of commodities for exchange 
 would finally place themselves in command of commodities 
 exchangeable against the particular commodities desired; 
 
 217 
 
2i8 VALUE AND DISTRIBUTION 
 
 this, indeed, would be the method of arbitrage by which a 
 fairly complete system of value relations would get itself 
 established. That is to say, each man would, as his neces- 
 sities should dictate, be employing a medium of exchange, 
 -an intermediate between his wares for sale and the con- 
 sumption goods desired by him, but this intermediate would 
 be, for different men, and for each man at different times, 
 a different medium. 
 
 A money economy exists only when one intermediate 
 of exchange and medium of value expression is conven- 
 tionally established. 
 
 So far, however, no great issues appear to depend upon 
 the presence of t money-price system. But how about 
 deferred payments, and speculative or long-time merchan- 
 dising, and all the ramifications of the system of credit? 
 
 Whatever may be the fact with regard to subjective 
 value — of which more later — it must be true that market 
 value can be expressed only in terms of something else; but 
 expressed, be it noted, and not measured, and expressed 
 only in the sense of the equivalency implied in the mere 
 fact of exchange. 
 
 Not merely so, but value can never be expressed in 
 terms of more than one thing at a time — any more than the 
 height of any particular man can be expressed as the 
 height of a dozen different men at once. The market value 
 of any one thing is, then, expressible as a ratio of exchange 
 with reference to any one of all the different things against 
 which the commodity in question is actually exchanged. 
 
 In German usage, Preis is the generic term for the good 
 on either side of an exchange, in its function of quid pro quo- 
 If the exchange relation is one of goods against the money 
 good, the money is called the Geld-Preis. In English usage — 
 as goes without saying — price has been limited to mean ex- 
 change power expressed in terms of money solely. Thus, 
 while on the whole the German usage may well appear to be 
 the more philosophical, it must remain true that popularly 
 price means the money that a thing will sell for, and that 
 
INTEREST 219 
 
 some term for this money relation, this expression of 
 exchange power in terms of a conventionally specialized 
 money commodity, is imperatively called for. 
 
 But in relations of exchange over considerable intervals 
 of time or of space, the case no longer presents itself as one 
 of terminology but rather as one of controlling business 
 necessity. Here the only feasible quid pro quo is the money 
 intermediate ; no other price than money price has practical 
 standing in the problem; price and money price are one. 
 
 What, indeed, would be the deferred-payment situation 
 in the absence of any conventional standard in which the 
 deferred-payment relation might be expressed? The 
 farmer would hardly contract to accept a hay payment as 
 against his present advances of hay, nor much more prob- 
 ably, any variety of grain ; later, as well as now, he is likely 
 to have these in surplus. There would be nothing for it 
 but to sell against the promise of whatever com- 
 modity should seem most likely to be the commodity 
 desired at the expiration of the payment term, or to arrange 
 to receive that commodity seemingly most likely to be read- 
 ily marketable as an intermediate. That is to say, here 
 again the result would be not the absence of an inter- 
 mediate, but the multiplication of intermediates, and each of 
 these would serve, for the respective individual interested, 
 merely as a fund of general purchasing power, but of a 
 most regrettably speculative quality. 
 
 All of which sums up, as we have already seen, in saying 
 that so-called value relations over interval of time are 
 really nothing but utility relations worked out in terms of 
 price, and that these relations are practicably incapable of 
 any other manner of working out. Try to interpret the 
 assertion that 100 of today is worth 105 of next year; it 
 will be found to mean, (i) that 100 articles of today 
 exchange today against the promise of 105 articles of 
 similar kind — an exchange relation worked out in terms of 
 the present value system — a relation in which either side of 
 the exchange is the price expression of the other, without 
 
220 VALUE AND DISTRIBUTION 
 
 the employment of any money-price mechanism; or (2) 
 that either side of the exchange relation commands as much 
 money now as does the other now — a price relation of the 
 money sort; or (3) that, because of the actually ruling dis- 
 count rate, 105 of promised money exchanges against 100 
 of present money. But what would it mean to say that the 
 105 of the later time will then have the same value that the 
 100 has now? The 100 of today — 100 hats or 100 dollars — 
 is an item in a present exchange system, a present scheme 
 of value relations ; the 105 belongs to another and a distinct 
 system. The only value link between the two systems is 
 this of exchange relations established between two quanti- 
 ties of something chosen as standard for the purpose of the 
 deferred-payment relation. And in this standard of 
 deferred payment all notion of equality in value under 
 some value-measure system is lacking. The situation is 
 simply this : By virtue of the fact that the selected inter- 
 mediate is one of wide acceptability, and offers, as is 
 thought, the closest possible approximation to general 
 purchasing power — something approaching an equality in 
 utility, in service, is possible; and this is all that is possible. 
 
 But the money medium is not adapted to measure the 
 service; and it being true that utility relations in exchange 
 are purely personal categories always, it must follow that 
 if any commodity exchanged finds anywhere a measure of 
 utility, that measure will have to be the quid pro quo of each 
 respective act of exchange. But the fact is that to neither 
 of the traders can the exchanged commodities be in equi- 
 librium of utility, else the exchange would not have taken 
 place. The fact of exchange does not, then, anywhere 
 attest equality of utility, but only equality of value in the 
 sense of actual exchangeability. 
 
 And all this is merely a repetition of the doctrine that 
 the interest problem is one of price and of discount reck- 
 oned upon price, and that all value productivity, so called, is 
 really productivity indicated and proved and expressed 
 by increase in price; gains are not value gains in any other 
 
INTEREST 221 
 
 sense than that they are utility gains worked out in terms 
 of price. 
 
 Savings and capital creation. — It was pointed out upon 
 an earlier page that the collectivist concept of capital would 
 include all technologically completed goods deferred in 
 consumption, but would in the main have reference to 
 instrumental goods, and this without occasion for any dis- 
 tinction between land and other productive instruments. 
 Rights and credit claims of various orders could have no 
 place; saving, that is to say, would embody itself in con- 
 crete material forms ; loan- fund capital could interpose no 
 intermediate stages between saving and social capitaliza- 
 tion, and no possible justification could exist for the emer- 
 gence of any abstract-capital concept. 
 
 It was, however, urged that social saving would have 
 this much in common with competitive saving, that, under 
 either system, saving must imply postponed consumption; 
 private saving, privately postponed consumption; social 
 saving, a social postponement, either directly in the saving 
 of consumption goods, or indirectly by the diverting of 
 productive energies from product ends to instrument 
 means. 
 
 But at what point, in a collectivist society, would saving 
 and capitalization rationally find their limit? Surely only 
 such surplus as should exist over imperative present need 
 could go to capitalization; but what would be the farther 
 limit ? 
 
 As long as a later utility of larger volume was to be had 
 through the postponement of a present service, so long 
 saving would be a rational process. In this computation, 
 different individuals would have to count at an equality, 
 and future members of society and present members of 
 society be indifferently regarded. 
 
 But there would still be limitations to be recognized 
 upon the postponement policy. The substitution of instru- 
 mental goods for labor is, as we have seen, a limited process; 
 
222 VALUE AND DISTRIBUTION 
 
 the point somewhere arrives where the indirect capitalistic 
 method gives no greater product than does the 
 direct labor method. Precisely where this point falls is in 
 large part a question of the development of industrial tech- 
 nique. After the uncivilized man has provided himself 
 with one or two boats and a fair supply of poles and lines, 
 he will do ill to increase his supply in these directions. 
 So for the more skilled workman there is a limit to the 
 number of shovels, plows, reapers, or looms that he can 
 adequately use or tend. So also the point of capital satura- 
 tion is, in any society, in considerable measure a question of 
 the standard of comfort, and of the development of varied 
 directions of consumption; but in any given situation there 
 is a limit point. Again, while, in a collectivist society, haz- 
 ards of criminal predation would be inconsiderable, other 
 hazards of loss with passing time would need to be con- 
 sidered — dangers of fire, and of water, and of wind, and of 
 decay. In an environment earth-shaking, like that of Japan, 
 the same rational preference as with the Japanese would 
 exist for one-storied unsubstantial architecture. And 
 finally, the law of diminishing utility with expanding sup- 
 ply would have its application; and all the while the com- 
 parison of the present with the future would proceed 
 neither in terms of value nor of concrete product, but of 
 units or totals of service. 
 
 Sufficiently modified, similar limitations hold for the 
 isolated individual economy. But here, there enter con- 
 siderations of the uncertainty of life, and of needs chan- 
 ging in intensity and in direction with advancing age. So 
 the appeal of different desires and the recognition of the 
 need for saving are greatly modified accordingly as there 
 are or are not parents, wife, and offspring to be taken into 
 the reckoning. 
 
 Carried over into a competitive society, the necessary 
 modifications are more profound and more far reaching. 
 Subjective changes in need are more pronounced with a 
 more complex life; the objective hazards of property-own- 
 
INTEREST 223 
 
 ing become in some directions greater, in other directions 
 less. And more importantly still, much saving takes place 
 for individual purposes which may not at all infer a social 
 saving, and which may imply merely a deferred right of 
 consumption out of another's mortgaged production, or 
 may be even a right of privilege, monopoly, tribute, or 
 pension at the charge of one's neighbors. 
 
 Thus, how much the individual may rationally save, and 
 the form in which individual saving may rationally take 
 place, have little or no reference to the social advantage or 
 interest. And the hazards of non-employment, and the 
 hazards either of untimely death or of death too long 
 delayed, require a measure of saving which may well in the 
 average far outrun the average actual need for rainy-day 
 purposes.^ Here enter all sorts of considerations of fam- 
 ily pride, and of interest in the family prestige of com- 
 petitively ostentatious establishments. 
 
 How far may saving extend in a competitive society, 
 and what shall be, in the social interest, its theoretical limit? 
 
 H any reply is possible, it cannot be given now (see p. 529, 
 note). For present purposes, we need merely to examine 
 the actual functioning of abstinence under competitive con- 
 ditions. Is it possible here, as in a collective or a Crusoe 
 economy, that saving may so far saturate the demand as to 
 cancel the interest agio? or as even to involve a negative 
 interest — a charge for safe keeping? As not rarely one 
 pays to have his traveling-bag guarded, so, under condi- 
 tions of undeveloped industrial technique, and of public 
 disorder and turbulence, it is within possibility, as earlier 
 centuries proved, that negative interest be sometimes 
 collected. 
 
 H, to the conditions already assumed, it be added that 
 no money system exists, or that the money supply is so 
 small, in volume and in employment, as to make impos- 
 
 ^ There is something here of bearing upon the question of state 
 insurance and the possibly associated problem of oversaving ; but there 
 is at present neither time nor space for the discussion. 
 
224 VALUE AND DISTRIBUTION 
 
 sible or impracticable any considerable saving through its 
 mediation, it might readily fall out that the investment 
 supply would be large enough to swamp the aggregate 
 borrowing demand for consumption purposes or for indus- 
 trial or trading purposes. 
 
 Nor, be it noted, does this reasoning assume the can- 
 cellation of all abstinence protest or cost; it assumes simply 
 that so intense is the appreciation of probable or possible 
 future needs, or so great the utility increment due to purely 
 subjective considerations, as to overbalance the actual and 
 the rational indisposition toward waiting. 
 
 But whether the protest against waiting would be a 
 rational one, were the uncertainties of life and of invest- 
 ment not constant factors in the problem, is not at all clear. 
 And whether generally among men the emphasis is not at 
 present too much upon the possibility of old-age penury 
 and suffering, and too little upon the fact that youth is the 
 period when pleasures are vivid and wealth is rich with 
 service, moralists rather than economists may profitably 
 discuss ; and whether, on the whole, too great — or too little 
 — thought is, under present conditions, devoted to making 
 provision for the needs of v/ife and children, and for the 
 pride and power of future generations, may also be of 
 interest to some one other than the economist. But it is 
 here sufificient to note that an affirmative advantage must 
 everywhere make goods its case against the fundamental 
 preference for immediate enjoyment, else there can be no 
 postponement of consumption; and changes of human 
 disposition in this direction may greatly vary the relation 
 between the demand for capital and its supply. Techno- 
 logical productivity does not, then, for all possible condi- 
 tions, guarantee an interest agio.- 
 
 ^ This fact of psychological perspective, while accepted as an 
 opaque definitive datum of human nature — a brute fact, if one may be 
 allowed the term in this connection — has had its rationality put much 
 in question. Why should not the enjoyment of next year appeal to the 
 rational mind as strongly as the enjoyment of today? If it be human 
 frailty that it does not, and it is yet the fact that it does not. 
 
INTEREST 225 
 
 Whether Crusoe should hold a particular item of goods 
 over from the present to the future would depend on 
 whether, in the present reckoning, the future gratification out- 
 economics will have to get along somehow with the situation, but may 
 at the same time recognize the irrationality of it. In this connection 
 Wieser has already been quoted (p. 213) Pantaleoni also, in dis- 
 cussing whether remoteness has to do with the present subjective value 
 of goods, otherwise than by virtue of the aspect of uncertainty, says : 
 "A remote pleasure or pain, if supposed to be absolutely certain, must, 
 other conditions being equal, be of equal weight with a proximate 
 pleasure or pain" {Pure Economics, Macmillan, 1898, p. 26). Panta- 
 leoni adds that valuations made inconsistently with this principle are 
 anti-hedonistic and anti-economic ; but that the principle of con- 
 tingency must allow not only for the uncertainty of occurrence but also 
 for possible changes in the individual in point of susceptibility to the 
 pain or pleasure in question; but it is added: "In the majority of 
 instances, these valuations are carried on with only approximate 
 correctness. This is tantamount to saying that error is a principal 
 source of anti-economic acts, and operates in this sense on a vast 
 
 scale But this admission, although it can and must be made, 
 
 in order to explain real phenomena, consisting of human actions, can 
 never be adduced as explanatory of the phenomena of pure or rational 
 economics, i. e., of what would occur if all men were perfect 
 hedonists." The subject of pure economics approached in this manner 
 must become, one would think, mostly a mere discipline. 
 
 With some seeming skepticism as to the rationality of the per- 
 spective fact. Carver has nevertheless treated abstinence as a cost fact, 
 by arguing from what would become of the interest rate, if postponed 
 consumption were not felt as a burden — if there were no indisposition 
 to save. ("The Place of Abstinence in the Theory of Interest," Quar. 
 Jour, of Econ., October, 1893.) And Sidgwick has speculated upon the 
 effects upon the values of productive instruments, land, for example, 
 if the interest rate should fall to zero — all to the conclusion that land 
 values would be infinite (but I am totally unable to find in my copy of 
 Sidgwick the discussion which I seem to myself to remember very 
 clearly). It should, perhaps, better have been deduced that, with 
 capital services free, land and labor could retain exchange value only 
 to the extent that the principle of substitution should not apply — that 
 is, only in those cases where the functions of labor and of land could 
 not be fulfilled by capital. The outcome, then, of disappearing interest 
 should simply be a great diminution in the volume of unfree — valu- 
 able — goods, with the valuation of such as remained valuable arrived at 
 without the aid of the discount principle — that is to say, with all uses 
 present and future equally regarded as present items in one and the 
 same exchange system. 
 
 But however all this may be — and it is not altogether clear — it is 
 at any rate certain enough that, with abstinence resistance to saving 
 entirely removed, great changes, ranging from the infinite value of 
 land and labor to the vanishing values of either, might be formulated 
 as possible ; and pretty much anything else might also take place, 
 since all economic science would be at an end. For the assumption is 
 
226 VALUE AND DISTRIBUTION 
 
 ranked the present; and if the good in question were one 
 of concrete productivity, the same question of choice 
 between the present fact and the objectively greater future 
 
 entirely illegitimate. Recalling that the psychology of saving is simply 
 that of postponed service, it becomes evident that the assumption of 
 willingness indefinitely to postpone consumption is tacitly to abandon 
 needs and desires as the bases of economic activity, to assume a total 
 lack of demand for products, and thereby to make production an 
 absurdity, unless, indeed, as a play activity, like the mud-pie making of 
 children — with whom also there is said to exist a precisely similar 
 disposition toward indefinite postponement of consumption. 
 
 This view forsakes the fundamental assumptions of the science 
 — that human desires are the primary fact in economics, and that all 
 production takes place as a mere intermediate tovi^rd consumption ; 
 it is, in truth, a doctrine parallel, in its obliviousness of the economic 
 center of gravity, to the earlier doctrine of unproductive consumption, 
 and to the theoretical view which held laborers' subsistence supplies 
 to be technological capital like coal, and that regarded man as a 
 machine for the end of turning out product, and held the maximum of 
 accumulation to be the economic end and test — a doctrine parallel 
 in morals to the insane exaggeration of the virtue of frugality, and to 
 the ideal of dying rich as standard of life and measure of success, 
 a doctrine which, generally applied, would veto any advance in the 
 standard of living, and which, as partially applied in the lethargy 
 and chilled demand of post-panic depression, presents not merely the 
 bad logic and paradox but the prolonged miseries and disasters of 
 underconsumption. 
 
 The science of economics is free of the burden either of justifying 
 the ways of God before men or the ways of men before any possible 
 tribunal ; but inasmuch as there is no significance in production but as 
 a means toward consumption, and no justification for saving but as 
 postponed service, it must be as rational as it is fundamental in 
 economic life that human nature should prefer the immediate to the 
 distant good, and should regard as an evil every postponed consump- 
 tion that cannot through positive advantages establish a balance of 
 benefit. 
 
 Expectation of increment is, then, everywhere the condition on 
 which depends the consent to waiting. Not merely every boy, but 
 every man, would forthwith, after breakfast, proceed to make way with 
 his lunch but for the fact that a larger service is recognized as attend- 
 ant upon the later consumption. True it is, that if there were no 
 burden cost in waiting, the supplies of capital would be unlimited ; 
 but it is forthwith to be added that if men could content themselves 
 with postponing the services of wealth to an indefinite future, they 
 would never produce anything for either earlier or later service. 
 Unresisting postponement presupposes and assumes an absence of the 
 desire for goods ; wealth eternally waited for is not wealth at all. 
 There is, as all agree, no utility — no wealth — excepting as related to a 
 human need or desire. A desire for a good never to be enjoyed is a 
 contradiction in terms ; a good of this sort is a no-good. Unprotesting 
 abstinence implies the lack of interest to produce and the absence of 
 anything to be saved. Thus, to assume the general and continuous 
 non-burdensomeness of postponement is to cancel the possibility of all 
 
INTEREST 227 
 
 fact would present itself. The cow of today would, for 
 example, outrank the cow and calf of next year, if the 
 waiting-time subtracted from the appraisal significance of 
 
 economic discussion — to saw off upon the hither side the limb upon 
 which all economists are sitting. 
 
 It is doubtless anathema to talk in economics of overproduction ; 
 and underconsumption appears like an evasive and timid way of 
 saying the same thing. It is commonly argued that the desires of men 
 for wealth are absolutely insatiable, or, if not quite this, are, at least, 
 far beyond any practical possibility of satiation ; goods in general 
 cannot be in superfluity so long as the desires of any member of the 
 productive group are still unsatisfied. Mill's argument for this posi- 
 tion looks conclusive : Goods themselves furnish the demand for 
 goods ; money is a mere intermediate through which goods are exchan- 
 ging against one another. Total demand and total supply therefore 
 analyze ultimately into the same aggregate of social product ; supply 
 can then increase only as demand increases ; overproduction, in any 
 other than the purely relative sense, is then an impossibility. 
 
 This would all be clear enough if, in fact, exchanges were always 
 of existing goods against existing goods — if, that is, the intermediate 
 commodity and other forms of postponed purchasing power were not 
 factors in the problem. In truth, however, goods have to be conceived 
 in another aspect than this solely of present goods against present 
 goods ; the case sometimes presents itself as one of present goods 
 against future goods, and for this purpose moneys and credits, as the 
 form of quid pro quo into which existing goods are seeking exchange, 
 may at one time be receiving a much more marked emphasis than at 
 another. When the exaggerated desirability of postponed consump- 
 tion obtains, the demand for ordinary commodities slackens. The 
 problem then transforms itself into this — how shall men, in the 
 average, increase their production and sale of goods consistently with 
 a diminished buying and consuming of goods ? 
 
 Without attempting any explanation of the causes lying behind the 
 recurrent phenomena of commercial crisis, and confining our atten- 
 tion solely to the post-crisis period of depression, we come upon two 
 contrasted, though perhaps not conflicting, lines of explanation, the 
 one interpreting the situation in terms of disturbed production react- 
 ing upon consumption, the other, in terms of disturbed consumption 
 reacting upon production ; the one position may be stated as follows : 
 
 "The explanation is found in the imprenditor system, and for the 
 most part in the relation of employer with employee. The imprenditor 
 buys raw materials and employs laborers for the purpose of making 
 profits. He is a mere intermediary. If he is unable in marketing his 
 products to make his receipts exceed his outlays, he withdraws from 
 production, however social interests may thereby suffer. 
 
 "In the fall of prices following a panic, not all commodities fall 
 with equal rapidity. Goods from foreign sources, for example, may 
 nearly or quite hold their old level of prices. Other products are 
 perhaps produced under conditions more or less approaching monopoly ; 
 others again may be well sustained in price through speculative hold- 
 ings by the producers or through restriction of output. The imprendi- 
 
228 VALUE AND DISTRIBUTION 
 
 the future good at a greater rate than the objective pro- 
 ductivity of the good could add. 
 
 And now we ask : On what terms, in an individualistic 
 
 tor must produce in view of market prices ; prices are his master. 
 If his productive outlays are too high, he must withdraw from business. 
 There is, however, for most employers, one resource and one only, 
 that of reducing wages. A small reduction may possibly be sufficient. 
 But here is precisely the kernel of the difficulty. Even were raw 
 materials for all industries falling regularly and equally, the imprendi- 
 tor would still be compelled by lower prices of product to reduce the 
 wages paid. As a practical fact this is a difficult matter. Laborers 
 resist angrily and persistently. They do not understand the necessity 
 of the reduction — they believe that they have merely to stand firm. 
 To prevent a strike or a long continuance of strained relations, the 
 employer often finds it not less profitable and much more comfortable 
 to close his shop. In times of depression products are small enough 
 at the best. 
 
 "Inertia is a fact that must be reckoned with. Wages rise 
 slowly and, when fall is inevitable, fall slowly and with painful strug- 
 gle. .... Were it possible for prices to fall evenly all along the 
 line, and for wages to be forced to fall in conformity with prices, the 
 depression following upon panic would be unimportant and of short 
 duration. But (i) as long as indebtedness does not fall as measured 
 in money units, there is tremendous resistance — in many cases a 
 struggle for very financial existence — against sale and liquidation at the 
 ruling level of prices. Even were this difficulty avoided .... 
 there would still remain (2) the inequalities already mentioned in the 
 
 fall of commodities generally (3) The difficulty of accurately 
 
 adjusting wage-payments to market prices Capital, labor, 
 
 and employer must co-operate in production. If with any employer 
 laborers insist upon all, or more than all, of the product, production 
 must cease." — Davenport, op. cit., p. 363. 
 
 To Say, whose loi de debauchees was the beginning of the doctrine 
 that a general overproduction is impossible, and whose reasoning was 
 later accepted in turn by James Mill, by John Stuart Mill, and by 
 Cairnes, this disturbed-production explanation of depression would 
 have been entirely satisfactory. But as usual, Malthus was a sceptic ; 
 and in his insurgency against the doctrine of the impossibility of a 
 "general glut," he contrived finally to put himself into conflict with 
 Ricardo. This noteworthy controversy will serve us in good stead as 
 background for our general problem : 
 
 "According to the best authorities .... what is meant by the 
 glut of a particular commodity is such an abundant supply of it com- 
 pared with the demand as to make its price fall below the cost of pro- 
 duction ; and what is meant by a general glut is such an abundance of 
 a large mass of commodities of different kinds, as to make them all 
 fall below the general price, or the ordinary costs of production, with- 
 out any proportionate rise of price in any other equally large mass of 
 
 commodities Mr. Mill endeavors to show that demand and 
 
 supply are always equal in the aggregate ; that an oversupply of some 
 commodities must always be balanced by an undersupply of others ; 
 and that therefore a general glut is impossible." (Rev. T. R. Malthus, 
 
INTEREST 229 
 
 non-money economy, should one man lend to another man 
 a cow? At the minimum, the payment, whether agreed to 
 be made in terms of cows or in terms of other utilities, 
 
 Definitions in Political Economy, London, John Murray, 1827, chap. 
 on James Mill.) And Malthus rightly points out that Mill would be 
 entirely correct here if demand meant nothing more than the amount 
 consumed ; doubtless the entire product may be sold and be consumed at 
 some price, but not necessarily at a price remunerative to the producers ; 
 if nothing more is meant by Mill than to assert that consump- 
 tion will equal production, "this .... is really no more than say- 
 ing that if commodities were produced in such abundance as to be sold 
 at half their costs of production, they would still be somehow or other 
 consumed — a truism equally obvious and futile. But .... Mr. 
 Mill .... observes, 'It is evident that whatever a man has pro- 
 duced and does not want to keep for his own consumption is a stock 
 
 which he may give in exchange for other commodities His 
 
 demand is actually equal to the amount which he has produced and 
 does not mean to consume !' " (Elements of Pol. Econ., sec. 3, p. 225.) 
 
 But Malthus insists that hats and shoes may very well be selling 
 against each other at the old ratios and yet both be selling at less 
 than cost ; the question is merely whether this can be true for com- 
 modities generally. "The hop-planter who takes a hundred bags of 
 hops to Wighill fair, thinks little more about the supply of hats and 
 shoes than he does about the spots in the sun. What does he think 
 about, then? and what does he want to exchange his hops for? Mr. 
 Mill seems to be of opinion that it would show great ignorance of 
 political economy to say that what he wants is money ; yet .... 
 it really is money that he wants and .... this money he must 
 obtain .... in exchange for the great mass of what he has 
 brought to market, or he will be unable to ' carry on his business as a 
 hop-planter ; .... he must pay the rent of his hop grounds in 
 money ; .... he must pay for his poles, his bags, his implements 
 
 in money He must pay the laborers .... during the 
 
 course of the next year in money, and . . . . it is in money and in 
 money alone of all the articles brought to the fair, that he can calculate 
 his profits." 
 
 We may stop to note that Malthus is probably right here as to 
 the actual psychology of the case ; people do look at things in this 
 way ; and perhaps it does not matter to the argument whether or not 
 they ought. But all the while, the precise question at issue is not 
 entirely clear. Malthus says it is whether commodities generally may 
 not be being produced at a loss to the producers. "True .... the 
 landlords and laborers who are paid in money will finally exchange it 
 for something else, as no one enjoys money in kind, except the miser ; 
 but the landlord .... would be little inclined to accept from the 
 planter the articles which he could get at the fair in exchange for his 
 
 hops And as matter of fact the laborer .... is paid in 
 
 money. 
 
 "Foreign trade is no doubt mainly a trade of barter. But the 
 question whether British woolens find an adequate market in the 
 United States does not depend upon their purchasing the same 
 quantity of tobacco as usual, but upon whether the tobacco or whatever 
 the return may be, will purchase the British money or the British 
 
230 VALUE AND DISTRIBUTION 
 
 would need be, to the lender, in view of all his circum- 
 stances, of as great significance as the present cow, whether 
 as immediate consumption good or as a production good to 
 be kept in the possession of the owner. That is to say, the 
 
 labor necessary to enable the woolen manufacturer to carry on his 
 business successfully. If woolen and tobacco are both below the costs of 
 manufacture in money or labor, both parties may be carrying on a 
 
 losing trade This is an answer to the pamphlet which M. 
 
 Say addressed to me some years ago. . . . The power of replacing 
 
 capital will mainly depend on the power of commanding labor 
 
 Commodities in general .... are continually rising or falling in 
 money price .... while the money price of labor remains much 
 more nearly the same. 
 
 "The qtiestion of a glut is exclusively whether it may be general, 
 as well as particular, and not whether it may be permanent as well 
 
 as temporary What are the costs of production? They are 
 
 either the amount of money necessary to repay the labor worked up in 
 the commodity, and in the tools .... etc with the ordi- 
 nary profits, etc or they are the quantity of labor in kind, 
 
 etc Now surely it cannot be denied theoretically that all 
 
 commodities produced in this country may fall in comparison with 
 a commodity produced in Mexico. As little can it be denied theoret- 
 ically that all commodities produced by British labor may fall in com- 
 parison with that labor." 
 
 Malthus makes no question that the glut will be quickly followed 
 by reduced production, and appears to regard this as a fact of remedy 
 rather than a second and aggravated stage of the disease. 
 
 As Malthus has drawn the issue between himself and Mill, Malthus 
 is clearly enough right ; wages and raw materials and contractual 
 obligations do not keep pace in change with the course of general 
 prices ; the phenomena neither of boom nor of post-panic depression 
 can be understood excepting in the light of this fact. But the larger 
 question whether, irrespective of costs' and entrepreneur profits, and of 
 continuing entrepreneur activity, the production of goods may outrun 
 temporarily the disposition to consume at no matter how low a price, 
 is not touched by this discussion. Malthus, indeed, admits, as we have 
 seen, that all the goods can and must find consumers. In other places, 
 however, in order that entrepreneur profits be maintained, he recom- 
 mends luxurious consumption as temporary remedy ; and it was upon 
 this issue that Ricardo entered the lists. (See Bonar, Letters of 
 Ricardo to Malthus, op. cit., pp. 188-90.) 
 
 But upon the question whether present consumption may not be 
 too greatly limited beyond the possibility of the savings being absorbed 
 by social capitalization, and with a concurrent overemphasis upon the 
 securing of representatives of reserved and postponed purchasing 
 power — goods refusing to exchange against each other, but only 
 against some form of long-time intermediary — this discussion throws 
 no light. 
 
 The problem of the relation of more liberal credit to the demand 
 for goods, and of the relation of credit to speculative activity, and 
 thereby to the general level of prices, is also really involved in the 
 
INTEREST 231 
 
 loan must offer to the lender the promise of greater service 
 to him than either of the other two methods open to him — 
 consumption and personal exploitation. 
 
 To the borrower likewise the question will present itself 
 
 discussion. According to the usual view o£ the relations between 
 demand and supply of products, demand and supply being regarded as 
 merely different aspects of the same aggregate of goods, it is difficult 
 to see how credit can be conceived, relatively to supply, as an 
 increased demand or as an increase in the total volume of purchasing 
 power. In this view of the case, expanding credit could have no bear- 
 ing upon prices, no matter what might or might not be the effect upon 
 interest rates — relations between present and future — excepting as, 
 through the use of credit as substitute for money, the money com- 
 modity is in effect made greater in supply. 
 
 But if credit be regarded as expressing some modification in social 
 attitude toward present goods and present consumption as against the 
 future — an emphasis upon the present, with an enlarged disposition to 
 promise heavily against the future, in order to have in the present — the 
 case takes on a new aspect. And really speculation is nothing but the 
 desire to have now, on terms of promise against the future, with the 
 hope, it is true, that the future by its larger prices will justify, in 
 terms of price gain, the hurry of acquisition. It is, in last analysis, 
 an emphasis upon present goods, through present purchasing power 
 in terms of money, as against future money or money credits. 
 
 It is implied in all this, and needs be clearly accepted, that the 
 purchasing power which is being offered against present goods is not at 
 any time solely other present goods or the suspended purchasing power 
 info which they have been converted. At all times future facts are a 
 part of the present offer, and, as credit is varying in volume, are a 
 fluctuating share in the total volume of offer. The granting of credit 
 is really a method of making, out of putative future purchasing power, 
 a present purchasing power ; the business of discount banking is 
 essentially nothing but the underwriting of these undertakings against 
 the future. The present purchasing power thus created thereupon 
 becomes a part of the present money, or money equivalent, offering 
 itself as demand against present goods. Two effects are manifest : 
 (i) a rise in the rate of interest, that is to say, more favorable terms 
 for present purchasing power as against future purchasing power, the 
 new initiative being with the offers of future purchasing power ; (2) 
 since future purchasing power is, through its credit representatives, 
 functioning as currency, there comes about a modification in the 
 exchange relations between the unit of currency and the commodities 
 against which currency is being exchanged, that is to say, the level of 
 prices is modified. 
 
 But to return to our specific question — the social bearing of an 
 unusually marked disposition on the part of producers and sellers to 
 refuse to exchange present goods against present goods and to demand 
 in exchange deferred rights of purchase — money-cash, credits, or well- 
 secured promises ; it is clear enough that a generally lower price level 
 must result ; but is it at all clear that this change in price level must 
 succeed in marketing the goods in exchange for other goods, to the 
 
232 VALUE AND DISTRIBUTION 
 
 in terms purely of service, of utility; can he obtain such 
 terms of interest charge as to provide, after payment of the 
 principal and its agio, a surplus of advantage? 
 
 With the establishment of a money economy, the prob- 
 lem remains the same in essentials; the calculus is still one 
 of balance of utility. 
 
 And in the more complicated industrial organization 
 also, the entrepreneur is seeking a balance of utility for 
 himself, although it is true that here the computation has to 
 be worked out as the final summing-up and outcome of a 
 series of market-price computations. The medium in all 
 
 result of terminating the glut, and without enforcing a restriction of 
 production? Or is it rather true that otherwise than so far as the 
 new price level modifies the prevailing psychological attitude toward 
 consumption, there must be, for a time, an adequate market for only 
 those goods ministering to the more primary cla,sses of needs? 
 
 The period preceding crisis is one of extremely high aggregate and 
 per-capita productiveness of goods ; all productive energies have been 
 fully employed, enterprise functioning at the extreme of pressure. The 
 demonstration of this is convincingly found in the prevailingly high 
 level of consumption ; with every wage-earner there goes the full 
 dinner pail. Among the laborers there is taking place a higher average 
 consumption of clothing, of minor comforts, and of luxuries. Not 
 only this, but the social production has been sufficiently large to 
 permit, over and above immediate necessities, the acquisition of a 
 goodly amount of durable consumption goods — more and better 
 personal belongings, books, pictures, household furnishings. Meanwhile 
 also, in the more distinctly capitalistic field, it will be found that the 
 social productiveness has made it possible, through saving, that there 
 be constructed miles and miles of new dwellings and of business blocks 
 — new streets with grading, paving, and sewers, and generally the 
 extension of all sorts of public improvement, and the development of 
 all kinds of quasi-public utilities. 
 
 Of the farmer it can be said that never was his farm in better 
 cultivation, his land so expensively and adequately drained and fenced, 
 his herds so large, his barns so capacious or in so good repair, or 
 his house so spacious or so well furnished. Turning to still more 
 general conditions of accumulated wealth, it may be said that never 
 were the factories so large or so well equipped with the different 
 instruments and appliances of production ; and never were the ware- 
 houses so large to receive the outpouring volumes of product. These 
 prosperous years have, it is true, consumed largely out of their pro- 
 duction, but at the same time it has been possible to construct and 
 equip railroad systems spanning entire continents, and to have re- 
 equipped all the systems earlier constructed. 
 
 And how has it all been possible? Doubtless the ultimate explana- 
 must be in the surpassing volume of production ; but within this, and 
 made possible by it, was the enormous volume of saving. 
 
 But how, under the existing economic organization, does this 
 
INTEREST 233 
 
 the entrepreneur's computations remains a money medium; 
 he must get money gain, but this in order finally to get the 
 maximum of utility gain. He borrows present money 
 against future money, or, more accurately, he borrows 
 present purchasing power against the obligation of later 
 payment according to the same standard. Hence the inter- 
 est problem, as it presents itself in actual affairs, is the 
 sale of present purchasing power, expressed in terms of the 
 standard, against future purchasing power, expressed in 
 like terms. As Galiani wrote a century and a half ago : 
 
 Hence arise the kindred phenomena of exchange and interest, 
 the one being an equation between money present and money distant 
 in space .... in order to equalize the intrinsic value of the 
 one or the other diminished by the lesser convenience or the greater 
 danger. Interest is the same equation made between money pres- 
 ent and money distant in time, time here operating in the same 
 way as space.^ 
 
 saving take place? Usually, as we have seen, through the restricted 
 consumption of some individuals or classes in society, and the lending 
 of this saved purchasing power — this loan fund — to others, mostly for 
 the purposes of the creation of social capital. 
 
 It is, then, the need of new railroads, new factories, new appli- 
 ances, and new equipment that has furnished, and that alone could 
 furnish, the market for new savings and the possibility that these new 
 savings could express themselves in an increasing social capitalization. 
 It is indeed evident that, if savings will not capitalize into forms of 
 intermediate social wealth, there can be no market outlet fol the 
 savings unless it be in consumption loans, that is, in class indebted- 
 ness, dubiously secured, or in government wastes and government wars. 
 We are, then, within reach of our conclusions : with the restriction 
 of the disposition to consume, there is neither the market to absorb 
 the productive output of society, nor even the market to employ the 
 existing productive equipment ; capitalization cannot take place ; 
 savings, in any considerable volume, become an impossibility because 
 of no market for them ; there is nothing for the case but a sharp 
 restriction of the productive output of society. A temporary lowering 
 in the standard of living takes place ; meanwhile some tendency is mani- 
 fest toward the displacement of labor through competing surplus-capital 
 equipment, to the extent, that is, that the existing supplies of instru- 
 mental goods are adapted to serve in relation to labor rather as substi- 
 tutionary than as complementary goods. In large part, however, it is 
 true that the existing capital goods are rather complementary than 
 substitutionary in their technological relation to labor, and that hereby 
 labor receives employment so far as the capital itself is able to find 
 employment. 
 
 ^ Delia Moneta, Book V, chap, i, p. 243, quoted by Pantaleoni, 
 op. cit.j p. 26. Pantaleoni, however, appears to be wrong in interpret- 
 
234 VALUE AND DISTRIBUTION 
 
 The proposition that instrumental goods are productive 
 in time needs no demonstration or elucidation, so far as 
 concerns mere productivity by weight and tale; all instru- 
 ments or agents of production — land and labor as well as 
 machines and appliances — manifest their productivity only 
 with time. 
 
 But here, as we have seen, two problems are presented : 
 (i) How infer that this weigh t-and-tale productivity is also 
 a value productivity? (2) Why, if value productivity attends 
 the instrument with lapse of time, is this value increase not 
 reflected back upon the value of this instrument and 
 expressed as part of the present value — the value increase 
 thus disappearing by this very fact of absorption? 
 
 I. Boehm-Bawerk's solution of this difficulty of proving 
 concrete productivity to be value productivity, was merely 
 to assert it as self-evident; there may, he admitted, be 
 occasional cases where the increase in concrete product is 
 more than offset by the effect of the increasing supply to 
 depress the item price, but these cases are assumed — and 
 thereupon declared — to be so far exceptional as to leave 
 unimpaired the generalization that value increases with 
 increasing supply. 
 
 But again the inquiry presents itself — is the problem 
 after all a question of value? and if so, in what sense? 
 For all possible entrepreneur purposes the outcome is sub- 
 stantially one of value increase, if only the later product 
 exchanges for more money than did the earlier borrowed 
 sum. It is, then, for entrepreneur purposes, necessary 
 simply that the exchange power of money relatively to 
 commodities in general have not changed; it must in such 
 case be true that an increased number of items imports an 
 increase in the aggregate price, if only the per-item price 
 of the particular product has not especially suft'ered. If, 
 then, the influence of technique, together with all other 
 
 ing this passage as reducing the whole question of interest to the 
 cause of contingency ; the aspect of lesser convenience might well be 
 taken to include the deprivation of the use during the loan period. 
 
INTEREST 235 
 
 co-operating influences bearing upon price, has been of a 
 sort to leave the general price level undisturbed, a general 
 increase in weight-and-tale output must attach a general 
 price advance to the aggregate product. If there are 
 exceptional industries where the aggregate price product 
 suffers despite the increase in the number of items pro- 
 duced, there must thereby be a still more marked price 
 productivity for the remaining industries in the aggregate. 
 Failure to manifest price productivity is thereby proved to 
 be exceptional, and basis is established for the only kind 
 of value productivity which at all concerns the present 
 problem — the explanation of interest-offering under entre- 
 preneur production. 
 
 2. But why is the increase in price product not reflected 
 back upon the price or value of the productive instrument 
 itself, and expressed under the form of its increased 
 present worth? 
 
 The first answer is that it is so reflected. Even though 
 an instrumental good may also be capable of use as con- 
 sumption good, it cannot serve in both capacities at one 
 and the same time ; the situation is one of alternatives. As 
 production good the present worth is based solely upon the 
 value of the future product, and is purely the resultant 
 thereof. True, the cow may command $50 for immediate 
 consumption as beef, or may bear a $50 value for dairy and 
 breeding purposes ; but either aspect excludes the other. In 
 the aspect of productive instrument, then, our problem 
 formulates itself as follows : Why is not a fifty-dollar cow 
 now worth fifty-five dollars, if only it and its increase will at 
 the end of the year be worth fifty-five dollars? And this is 
 merely to ask, why will not the cow now exchange for 
 more of other things, if at the end of a year it will so 
 exchange? It is, perhaps, answer enough for present pur- 
 poses to say that the cow has today exchange relations 
 against other things all of which, in their aspect of present 
 purchasing power, have this same potentiality of increase. 
 
 But it remains to ask, why have all present values the 
 
236 VALUE AND DISTRIBUTION 
 
 same productivity in rate of increase? Some production 
 goods appear to increase by only a fraction of themselves 
 annually, cows, e. g., bringing forth young but once a year, 
 while rabbits multiply ten or twelve times; and still other 
 productive instruments bring forth some thirty and some 
 sixty and some a hundred fold. Is the answer to be sought 
 in the degree of dependence upon other productive influ- 
 ences — the attendant higher expense in getting, e. g., the 
 rabbit increment upon the market — or in the land and 
 labor and implement outlays of maturing the highly multi- 
 plying yield of grain? The facts, however, will hardly 
 bear out this explanation; we shall rather have to refer 
 ourselves to the greatly falling per-item price of the more 
 readily multiplied commodities ; we must invoke the prin- 
 ciple that entrepreneurs and entrepreneur capital will direct 
 themselves into these mathematically attractive enterprises, 
 until, with lowering prices in connection with the collateral 
 costs and burdens, the purely mathematical advantages are 
 fully offset. 
 
 But even so, we have the necessity still before us to 
 explain the general rate of price increment, that is, of time 
 discount. 
 
 Is it enough for this to show that, through technological 
 influences, present price has the power to grow, at the 
 actual rate of increase, into future price? Does, then, the 
 long-continuing fall in the rate of interest indicate a slow- 
 ing-up in the rate of weight-and-tale reproductiveness of 
 instrumental goods, despite all the technological advances of 
 these later years? Why is the rate of increase as it is, and 
 why as low as it is? There is a suggestion here that some- 
 how all lines of production that are markedly instrumental 
 in their technique, have so suffered a price fall in their 
 respective products that the weight-and-tale productivity 
 of the instruments has been more and more absorbed under 
 the guise of rising compensations to the co-operating pro- 
 duction costs, interest suffering, we will say, to the 
 advantage of wages. And if so, why has this taken place 
 
INTEREST 237 
 
 to the precise extent that recent facts disclose? Need it 
 ever stop? What influences are setting the Hmit? 
 
 Let it be supposed to be today possible to foresee that 
 each and every item of wealth in existence today will 
 tomorrow, by its own inner necessity and activity, be repre- 
 sented by two similar items. To assert that the one item of 
 today would have the same value or price as two items of 
 tomorrow would have but one possible meaning. There is 
 no reason why the exchange relations obtaining today 
 between different commodities, or between commodities 
 and money, should be in any wise different tomorrow ; thus 
 an item of today should buy the same amount of other 
 items or of money as an item of tomorrow will buy tomor- 
 row ; there are merely two items tomorrow for every one of 
 today ; and two items of tomorrow must command of other 
 commodities or of money twice as much as one item of 
 today will command. 
 
 Thus any question of equality of value or of price 
 between today's situation and that of tomorrow can refer 
 only to the exchange relations which must come to exist 
 between the one item of today and the two of tomorrow, 
 both being expressed in terms of the same system of 
 exchange values. These relations must then be stated 
 either (i) in terms of the present system, so that tomor- 
 row's two items are discounted at the rate of 50 per cent, 
 into present price, the bank-discount manner of statement; 
 or (2) that today's items draw interest at the rate of 100 
 per cent, in taking rank in tomorrow's system of price. 
 
 In either case, items are transferred from one price 
 system into the other only by virtue of the principle of 
 interest agio, time discount. 
 
 And in the case assumed, a case of no co-operating 
 effort or pain or care, and of no outside instrumental 
 co-operation — a case also in which all things, provisions, 
 lands, machines, durable goods, everything, have doubled — 
 the discount rate would be 50 per cent., or the interest rate 
 100 per cent. 
 
238 
 
 VALUE AND DISTRIBUTION 
 
 But all this, while it may make clear the broad general 
 principle and basis of time discount, leaves unsolved all the 
 distributive difficulties inevitably to emerge as the various 
 co-operating influences are found to have part in bringing 
 about the increase in price product. And possibly enough 
 we have some difficulties to consider in the very phenome- 
 non of money price itself.* 
 
 * Because, in the discussions to follow, the emphasis upon price 
 as the peculiar and leading, if not the exclusively important, aspect 
 of value, will become increasingly pronounced, there appears to exist 
 the logical requirement, if not the practical necessity, of including 
 within any general discussion of value an examination of the nature 
 of money and a study of the process of price adjustment. To omit this 
 appears to assume either (i) that monetary theory is so far a field of its 
 own with its own peculiar difficulties and problems, as to render mone- 
 tary doctrine impracticable of discussion here, and as to enforce, for 
 present purposes, the uncritical acceptance of the generally received 
 doctrines ; or (2) that monetary theory is, in its value aspects, so far 
 at one with value theory in general, as reasonably to dispense with any 
 special treatment. 
 
 But even were this second view adopted, some justification for the 
 adoption of it could fairly be demanded. The truth, however, appears 
 to lie with the first assumption, that the problem of price would, if 
 entered upon here, lead us in many directions over-far afield. Little 
 more, then, can in this place be attempted than a summary statement 
 of the grounds appearing to justify this view. 
 
 The explanation for the relatively inelastic character of the 
 money supply carries us over, on the one side, into the technology of 
 gold production, and into the nature and degree of gold consumption ; 
 on the other side, into the peculiar nature of the demand for money, 
 and thereby into the recognition that, as Marx has put it, "Gold, 
 when a mere commodity, is not money" {Das Capital, Book I, 
 chap, iii, sec. 2). But in the purely supply aspect of the problem, 
 it is perhaps true that no great difficulty need be experienced. 
 
 It is on the demand side of the money-value investigation, and 
 especially with reference to the nature and the basis of this demand, 
 and with reference also to the interactions and adjustments between 
 the demand for gold as commodity and the demand for gold as money, 
 that monetary theory becomes at once difficult and controversial. 
 Here credit influences present themselves for analysis — present, 
 indeed, in the first instance, the problem whether they may not rightly 
 rank rather as within the money-supply category than as within the 
 demand-diminishing category. Here also the variotis quantity theories 
 formulate themselves as issues — the relation and the reaction of credit 
 on prices and of prices on credit, and the like. 
 
 On the whole, therefore, a theory of value need not stand or fall 
 with a theory of price, nor need a theory of price especially concern 
 itself with the broader and deeper problems of value in general. Gold- 
 value price, Geld-Preis, is an independent subdivision of the broad 
 
INTEREST 239 
 
 But we have not yet finished with the nearer-lying diffi- 
 culties on the demand side of the intereat equation. So 
 much as this is already evident, that the preference for 
 goods for present consumption, the abstinence or "per- 
 spective" influence, as well as the demand for present 
 goods for purposes of industrial or commercial gain, and all 
 the preferences that run toward present goods by reason 
 
 value field -and claims its place as separate subdivision precisely because 
 it has more than enough of difficulties of its own. 
 
 With this preamble of caution, of disclaimer, and of apology, 
 some of the connections and some of the separations of value theory 
 in general and price theory in particular may be noted. 
 
 To money in its aspect of general purchasing power, and as 
 symbol and equivalent of consumption goods, the principle of falling 
 utility applies as a fact of the individual experience. But as inter- 
 mediate, not to consumption, but to exchange, the principle does not 
 apply. The more or less of the exchange medium in the possession of 
 any individual, and the more or less of the exchange medium in society, 
 and the general level of prices in society, are each and all irrelevant 
 to the advantages derivable by the individual from the opportunities 
 offered by exchange ; only goods in hand and goods wanted are essential. 
 Thus, while, in a loose and general way, under the rich-man- 
 poor-man comparison, the possessor of a large supply of any one com- 
 modity, or of commodities, or of purchasing power in general, may be 
 said, as compared with the respective utilities offered to the possessor 
 of the smaller supply, to hold at a low marginal utility, no comparison 
 of this sort is possible for money as intermediate of exchange. The 
 ratio relation between the things to be had and the things to be fore- 
 gone in the application of purchasing power exists for both men, and 
 is the same ratio of equality for all marginal applications of purchas- 
 ing power, but the absolute volume of the utilities compared in the 
 computation of buying and foregoing are not to be known by the fact 
 of exchange or to be even vaguely inferred from it. 
 
 The principle that with any commodity successive increments of 
 supply attach to lower and lower individual needs, and thus that, with 
 each individual, successive increments of purchasing power afford 
 per unit a smaller and smaller significance, and that thereby, in 
 society as a whole, any increase in social dividend may be loosely 
 and average-wise declared to take place only as subject to the law 
 of falling marginal service, is in no part safely to be carried over 
 into monetary discussion. The monetary need in society is not in 
 general better served by greater supplies of media ; a principle of no- 
 utility rather than of diminishing utility applies to every increase of 
 money supply ; to society as a whole or in the average, it does not at 
 all matter whether the level of prices be high or low — the supply of 
 intermediates great or small. 
 
 Thus while with gold as consumption good the principle of 
 
240 VALUE AND DISTRIBUTION 
 
 of the uncertainty of life and by reason of the danger of 
 objective loss, and all the demands resting upon changing 
 human conditions and needs, have each their several share 
 in determining the interest-agio adjustment between demand 
 and supply. 
 
 But it is now necessary to recur to the fact that capital- 
 borrowing is not commonly a borrowing of instrumental 
 
 diminishing utility applies, an entirely different principle must be 
 accepted for the social significance of increasing gold as money. 
 
 An increase in the general supply of purchasing power in society, 
 as an attempted parallel to the effect upon the individual of an 
 increase in his personal provision of purchasing power, could point to 
 nothing in society but an increase in the total of goods to be exchanged 
 — an increase in the aggregate demand and supply of products — and 
 would thereby cease to be a monetary computation, in any other 
 bearing than that of its relation to the quantity of intermediate 
 purchasing power required by society. 
 
 The marked inelasticity of the demand for money, as compared 
 with other market facts, traces back to the peculiar nature of the 
 service which it characteristically renders, and leads in turn to the 
 solution of some of the most controversial of the problems connected 
 with monetary theory. 
 
 It is clear enough that division of labor is possible only upon 
 terms of the possible exchange of products. Socially, then, an inter- 
 mediate of exchange, a money, has all the significance that attaches 
 to specialization of activity in society ; for while a considerable 
 degree of this interdependence by specialization could be worked out 
 under a system of barter, it is, as we have already seen, at the same 
 time clear that not a lack of any medium of exchange, but a multipli- 
 cation of media, would characterize the barter economy ; a money 
 economy has arrived when the point is reached where one medium has 
 come to be conventionally accepted in place of many media. 
 
 The demand, then, for exchange media, or in modern society 
 for an exchange medium, has behind it all the forces derivative from 
 the advantages of specialized industrial organization. For each indi- 
 vidual the significance of money expresses itself in the advantage 
 accruing to him through his own opportunity to do the thing to which 
 circumstance and aptitude direct him ; thus each exchange affords for 
 him in some degree the advantage commonly designated as quasi-rent. 
 The strenuous demand for an exchange medium finds, therefore, its 
 explanation in the rent elements hidden in every transaction of trade. 
 Thus all the advantages that accrue to individuals separately, and to 
 society in the aggregate, through the assignment of tasks to faculty 
 and to opportunity, and all the advantages attendant upon the law of 
 increasing return, depend upon the existence of an exchange medium, 
 and imperatively prescribe its exchange-permitting adequacy. 
 
 And this leads us to the recognition of another aspect in which 
 money differs from any other commodity ; other commodities have 
 many and varied uses, and various grades of utility in each use ; so 
 
INTEREST 241 
 
 goods but of purchasing power ; and this purchasing power, 
 as we have seen, is directed, under entrepreneur super- 
 vision and discretion, into all sorts of gainful avenues 
 of cost outlay — land-labor, industrial appliances, advertis- 
 ing, insurance, franchises, privileges, copyrights, patent 
 rights, good-will, cutthroat competition, bribery, monopoly 
 differentials of predation, etc. The competitive entre- 
 
 also of gold as commodity ; but as money, all items perform the same 
 function and perform it equally well ; gold as money has only one 
 utility and one grade of utility. So, with other commodities, the total 
 utility of the stock is indefinitely more than the utility of the final item 
 (if there ever really were a social marginal utility) times the number 
 of items ; with money the total utility is a simple product. 
 
 It follows also from the nature of the money service that the 
 level of prices is, for this purpose, entirely unimportant ; and it 
 follows likewise that, whatever the money supply, the price level must 
 adjust itself so as, in view of the volume of the money supply, to 
 make possible the volume of exchanges to be effected. Restated, this 
 means that, so far as production and the degree of productive speciali- 
 zation may be taken as constants, there can be no change in the 
 general price level otherwise than through a change in the volume 
 of exchange media. This statement could doubtless be equally well 
 changed to read that, with the supply of media remaining constant, 
 changes in the level of prices can come about only through a 
 change in the volume of the demand for the exchange medium. 
 
 No detailed discussion will be needed here to show that credit as 
 substitute for money may be treated either as an increase in the 
 supply of money, or as a decrease in the demand for money. With 
 this in mind, we are prepared for the further doctrine that a direct 
 proportion holds between prices and the volume of exchange media ; 
 this, indeed, follows necessarily from the fact of the homogeneity of 
 the demand, and from the practically inflexible and inelastic nature 
 of this demand. If with a change in the demand for an exchange 
 medium, and with an inelastic supply of the medium, there could be 
 no adjustment by a change in the price level, the alternative would be 
 an adaptation of the commercial and industrial organization of 
 society, as dictated by the inadequacy of the supply of media. For it 
 is once again to be noted that the demand is none of it of a nature to 
 be retired by a change in the price level ; only on terms of industrial 
 disorganization and reorganization is this demand to be retired. 
 
 The quantity theory of money runs, at its crudest, that the 
 quantity of money metal in existence — or in circulation — determines 
 the price level. This is obviously incorrect ; and it probably is also 
 incorrect, if the proviso "other things being equal" be added. But the 
 amended formula would hold were there no use for the money metal 
 other than the money use. The inadequacy in the quantity theory, 
 as commonly stated, is in its failure to allow for the influence of 
 demands for the money metal other than the money demand, or in its 
 assumption that the money use has somehow the power to dictate the 
 bullion value in the non-monetary market. Opponents of the quantity 
 
242 ' VALUE AND DISTRIBUTION 
 
 preneur concept of capital is the only one having relevancy 
 here, purely because individual and not social productivity 
 is the only productivity in question. 
 
 Not only this : but the interest rate is determined in the 
 purchase and sale market of the loan-fund form of capital. 
 All the different demands for all the different present uses 
 of all possible different kinds of present goods, and of 
 rights to goods, express themselves as call for loan funds — 
 unspecialised purchasing power. The supply of loan funds, 
 the origin and amount of which yet await in some part 
 their explanation, is the deferred-consumption volume 
 turned into immediate and current purchasing power. 
 
 The value of any instrument of production is the 
 present worth of all the future incomes attributed to it, as 
 computed under the time-discount rate established in the 
 loan-fund market.^ 
 
 theory are also prone to forget that there are two distinct demands — 
 the money and the commodity demand, and to assume that the money 
 value is a derivative from the value of the metal as established in 
 the commodity market. But, in truth, both the industrial demand and 
 the money demand concur in fixing the value which, supply being 
 assumed, the money metal must bear. But it is none the less true that 
 so much as is the exchange medium less so much the more must the 
 exchange unit possess of purchasing power — that is, that so much 
 the lower must be the price level. The quantity theory is then tenable 
 in its assertion of proportionality, but fallacious in its tracing of the 
 lines of causation. 
 
 There is, indeed, no warrant for believing that gold as money gets 
 its value from gold as commodity — or the reverse. The value of iron 
 for nails is not reflected to it from the stove demand, any more than 
 the value of flour for pie-crust purposes is the determinant of the value 
 of flour in all other culinary processes. In no intelligible sense, then, 
 can the volume of money in any one country, or in the world, be said to 
 fix prices, or prices be said to fix the volume of money ; but both 
 the level of prices and the local quantity of money are determined by 
 the same influences, that is, are derivative from the world-level of the 
 value of gold, as itself expressive of the adjustment between all the 
 different demands for gold, on the one side, as over against all 
 the supply of gold on the other side ; and by virtue of this common 
 derivation, the value of gold used as money and the volume of gold 
 so used are bound rigidly together. 
 
 ^ Professor Irving Fisher's admirable treatise upon The Rate of 
 Interest appears as the present work is passing through the press. 
 
 It will be remembered that Boehm-Bawerk defines interest as the 
 premium commanded by present over future goods, and that he 
 
INTEREST 243 
 
 No instrumental good — or, if one prefers the expres- 
 sion, no capital good — will be produced, unless the future 
 
 attributes this premium to three concurrent causes, (i) the per- 
 spective underestimate of the future, (2) a possible relative scarcity 
 of present goods as compared with future goods, (3) the technological 
 productivity of wealth with passing time. 
 
 Professor Fisher- — following what is seemingly Professor Fetter's 
 view — adopts as his thesis that only the first two of the three influences 
 set up by Boehm-Bawerk are properly to be invoked in explanation of 
 the interest phenomenon : 
 
 "It is the third circumstance — the so-called technical superiority 
 of present over future goods — which we believe to contain essential 
 error (p. 55). To abstract both the underestimate of the future and 
 underprovision for the present is to abstract the whole basis of 
 interest j(p. 55). If we eliminate the 'other two circum- 
 stances' .... we eliminate entirely the superiority of present 
 over future goods, and the supposed third circumstance of 'technical 
 superiority' therefore turns out to be non-existent (p. 70). 
 If we cast out from the agio theory Boehm-Bawerk's special feature, 
 his alleged 'technical superiority of present goods,' the theory 
 which remains is believed to be correct" (p. 74). 
 
 Professor Fisher is not, however, disposed to deny to productivity 
 some bearing on the interest rate ; but he insists that the influence of 
 productivity is exerted solely through modifying the general situation 
 within which postponement of consumption takes place ; it brings about, 
 that is, a new abstinence problem, and does this solely through modi- 
 fying the relative supplies of present goods as over against future 
 goods: 
 
 "It is also true, as Boehm-Bawerk has pointed out, that not only 
 does a lower rate of interest tend to the choice of remoter returns, 
 but that, contrariwise, the choice of remoter returns tends to check 
 the fall in the rate of interest ; the reason .... being that the 
 choice of an income-stream relatively large in the future and small in 
 the present tends to increase the relative valuation of present as 
 compared with future income (p. 164). 
 
 "If any cause tends to lower the rate of interest, the immediate 
 effect will be to put a premium on those income-streams the return 
 
 from which is in the remote future But the decision to 
 
 choose such income-streams tends to prevent the very fall in the rate 
 of interest which caused the choice. For by relatively oversupplying 
 the future with income, and undersupplying the present, such uses 
 as forestry will tend to raise the relative valuation of present over 
 future income, and therefore also to raise the rate of interest 
 (p. 175)- 
 
 "Nature offers man, as one of her optional income-streams, the 
 possibility of great future abundance at trifling present sacrifice. 
 This option acts as a bribe to man to sacrifice present income for 
 future, and this tends to make present income scarce and future 
 income abundant, and hence also to create in his mind a preference 
 for a unit of present over a unit of future income (p. 186). 
 
 "The effect in raising interest comes merely from the shifting 
 
244 VALUE AND DISTRIBUTION 
 
 rents promised by it, when computed into present worth 
 at the market rate of discount, equal, and thereby justify, 
 
 forward of the income-stream, which leaves the immediate income 
 smaller than before, but compensates for this by a still greater increase 
 
 afterwards The rate of interest, for contracts connecting 
 
 the periods of scarce income with those of plentiful income, tends so to 
 be high (p. 199). 
 
 "The deferred increase is expected to yield a return on the 
 immediate sacrifice at a rate sometimes far greater than the rate of 
 interest. But this high rate of return on sacrifice to the exploiter of 
 the newly discovered method of utilizing capital does not by itself 
 fix the rate of interest at that level. On the contrary, the valuation 
 of the property is immediately adjusted to the new conditions" 
 (p. 199). 
 
 Thus we are to understand Fisher to assert that the use of any 
 productive process or the use of any sort of productive wealth can 
 exert an effect upon the rate of interest only through modifying the 
 individual's estimate of the relative importance to him of present 
 goods as against future goods. How shall the owner of an instrument 
 of production, say, a farm, employ it — for farming? for forestry? for 
 mining? 
 
 "In the case of optional income-streams, the particular choice 
 depends upon the rate of interest (p. 145). The intensiveness of 
 his farming is thus determined by the rate of interest (p. 157). The 
 choice will fall on the option whose marginal rate of return on sacri- 
 fice, reckoned relatively to the neighboring option, is equal to the rate 
 of interest (p. 158). Those investments which most promptly yield 
 returns are formed first, and the less rapidly returning instruments 
 are successively formed until the margin is reached which corre- 
 sponds to the rate of interest A certain decrease of present 
 
 income will be accompanied by a certain increase in future income. 
 The relation between the immediate decrease and the future increase 
 will vary within a wide range, wherein the choice will fall at the 
 point corresponding to the ruling rate of interest (p. 159). The 
 intensity with which he will improve and cultivate his land is deter- 
 mined by the current rate of interest" (p. 161). 
 
 That this correctly sets forth the attitude and the computations of 
 the individual operator is past question ; but is there not at the same 
 time some influence exerted to modify the rate of interest — and, if 
 so, how? Does each productive instrument merely receive its value 
 from an interest rate elsewhere and otherwise determined? 
 Or do productive instruments themselves, as an aggregate, 
 through the very fact of the productive opportunities which they 
 offer, have an effect in determinirfg that interest rate under which 
 each is separately capitalized ? And do new processes, inventions, 
 and appliances somehow bear to affect the rate? 
 
 "All preference for present over future goods resolves itself, 
 in the last anaysis, into a preference for early enjoyable income over 
 late enjoyable income (p. 90). When any other goods than enjoy- 
 able income are considered, their values already imply a rate of inter- 
 est. When we say that interest is the premium on the value of a 
 
INTEREST 245 
 
 the requisite investment of present purchasing power. 
 And Hkewise, as will be readily seen, any existing instru- 
 
 present house over that of a future house, we are apt to forget that 
 
 the value of each house is itself based on a rate of interest 
 
 Both terms of the comparison involve the rate of interest 
 
 But when present ultimate income is compared with future ultimate 
 income, the case is different, for the value of ultimate income involves 
 no interest whatever (p. 91). 
 
 "The rate of interest expresses a price in the exchange between 
 
 present and future goods Time-preference is the central fact 
 
 in the theory of interest" (p. 88). 
 
 True, "not only does a lower rate of interest tend to the choice 
 of remoter returns, but, contrariwise, the choice of remoter returns 
 tends to check the fall in the rate of interest" but the reason is 
 stated as being "that the choice of an income-stream relatively large 
 in the future and small in the present tends to increase the relative 
 valuation of present as compared with future income" (p. 164). 
 
 Here, then, is the issue : Fisher does not dispute the doctrine of 
 Boehm-Bawerk that the newly opened lands, newly invented appli- 
 ances, newly devised methods, have a bearing to raise the rate of 
 interest, but only that the productivity fact is a separate and inde- 
 pendent cause of interest ; he ascribes the influence of productivity 
 solely to its effect upon the relative importance attached to present 
 and future goods. Larger opportunities for profitable investment 
 are presented as having ultimate bearing upon the rate, not by using 
 up the supplies of capital or by increasing the volume of the demand 
 for capital, but solely by limiting the present supplies of consumption 
 goods at the same time with increasing the supplies of future goods, — 
 and thereby increasing the premium of present goods over future 
 goods : 
 
 "The lower the rate of interest, the better can the owner afford 
 to keep his carriage in repair, and the higher the state of efficiency in 
 
 which it and all other instruments will be kept The very 
 
 attempt .... tends in turn to increase the rate of interest ; for 
 every repair means a reduction in present income for the sake of 
 future — a shifting forward in time of the income-stream — and this 
 will cause a rise in the rate of interest (p. 195). 
 
 "The effect in raising interest comes merely from the shifting 
 forward of the income stream, which leaves the immediate income 
 smaller than before, but compensates for this by a greater income 
 
 afterwards The high rate of return on sacrifice to the exploiter 
 
 of the newly discovered method of utilizing capital does not by itself 
 fix the rate of interest at that level. On the contrary, the valuation 
 of the property is immediately adjusted to the new conditions 
 (p. 199). 
 
 "Since the invention will* more than repay this cost .... 
 the effect will be to decrease immediate and increase remote income 
 for society as a whole. Borrowing and lending merely distribute the 
 pressure upon those most willing to bear it ; but the effect is .... to 
 cause a temporary depression followed by an ascent in the income- 
 
246 VALUE AND DISTRIBUTION 
 
 merit, whether land or other, the upkeep of which costs 
 more in newly invested or in reinvested purchasing power 
 
 stream, and therefore to increase somewhat the rate of time-prefer- 
 ence and the rate of interest (p. 200). 
 
 "Society .... directs its labor to great engineering enter- 
 prises .... which cannot be in to contribute a return in enjoyable 
 income for many years. In contemplation, future income, during this 
 period, is relatively plentiful, and in consequence of these 'great 
 expectations,' the rate of interest will be high" (p 203). 
 
 There is, then, it will be noted, no denial made by Fisher that the 
 productivity of wealth has an effect upon interest rates — that it is 
 a cause — ^but only a denial that it is a separate and independent 
 cause. The issue is, then, only as to the sense in which it is a cause, 
 and as to the method of its action : if one shifts a weight from one 
 side of the scales to the other, the tipping of the scales may certainly 
 be said to be caused by the shifting of the weight, — but it may also be 
 rightly asserted that this is only through the disturbance of the rela- 
 tion between the two weights. And by reasoning precisely parallel 
 it has been said that a new supply of any commodity has no effect 
 upon price, simply because — once the supply is present — the adjust- 
 ment becomes purely a matter of the nature and volume of the 
 demand. 
 
 If this, then, is really the issue, one might stop to ask himself, 
 what of it — -supposing it all to be true ; is the issue really worth 
 while ? 
 
 But is it all, indeed, true ? Could not the reproductive power of 
 wealth establish an interest rate even "if we eliminate the other 
 two circumstances" ? After all, is "the supposed third circumstance 
 non-existent" ? Is it true that "the imagined, third circum- 
 stance .... is only the first two circumstances in disguise" ? 
 
 Surely, (i) the perspective underestimate of the future may 
 suffice to place a premium on present goods : and surely also (2) the 
 relative scarcity of present goods as compared with future goods 
 would also equally well suffice to bring about this premium : but how 
 about the reproductive power of capitalistic processes as an inde- 
 pendent cause? 
 
 Let it be assumed, as an extreme test case, that present needs 
 and desires are so far weak or so far satiated as to approach the limit of 
 non-existence or of disappearance, — a situation in which, by the very 
 terms of the assumption, there can be neither any "prospective under- 
 estimate" of the future, nor any degree of inadequacy in "present pro- 
 vision," — there being in fact no desire for present consumables, but 
 only a clear appreciation of the certainty of tomorrow's need. If now 
 it be clear that, for each unit of the existing wealth of today, there 
 may by tomorrow be derived two units for tomorrow's consumption, — 
 is it not certain that there will forthwith set in a vigorous competitive 
 bidding for control of the present facts offering a command of 
 tomorrow's consumable goods, and that there must result an interest 
 rate approximating to 100 per cent, per day? 
 
 It is extremely difficult to decide how far and in what sense 
 
INTEREST 247 
 
 than the present worth of the future increased returns 
 which are attributable to the upkeep to be appHed, will 
 
 Fisher concurs in Boehm-Bawerk's assumption that comparison is 
 possible in competitive society between goods in the present and 
 goods in the future. Most of Fisher's analysis proceeds upon the implied 
 assumption of this possibility : "Could it always be assumed that the 
 monetary standard was invariable in value with reference to all 
 goods, the rate of interest reckoned in money would be the same 
 as though it were reckoned in terms of the goods themselves" 
 (p. 78). But even were it accepted that the comparison is possible, 
 Professor Clark long ago made it clear that in the market transactions 
 of a competitive society the comparison does not actually take place. 
 And it is equally clear also that neither borrowing nor paying com- 
 monly takes place in terms of any concrete goods — whether farms or 
 machines or raw materials or consumables. The borrowing runs in 
 terms of present purchasing power according to the established money 
 standard ; and the future settlement is agreed to be worked out in like 
 terms. The contract and all the operations under it sound purely in 
 terms of price, precisely as the gain in contemplation by the entre- 
 preneur is computed as nothing else than a balance in terms of 
 price. And no other computation is of the slightest significance to 
 him — unless, possibly, as somehow derivative from the price gain 
 which he is engaged in seeking. The interest problem is, then, not one 
 of surplus value, or of surplus consumption goods, or of surplus 
 future income, but only of surplus price. Only so far as surplus 
 goods bring surplus price can surplus product of any sort stand as 
 relevant to the computation. 
 
 For the purposes of the interest problem, therefore, anything is 
 productive which, in the actual situation of the entrepreneur, makes 
 for a price-increment for him. The computation has to do solely 
 with productivity as interpreted from the individual-acquisitive point 
 of view. The borrowing is of a fund of purchasing power. This 
 purchasing power may, truly, be directed into machinery, farms, or 
 raw materials, — into lines, that is to say, of technological and 
 social productivity, — ^but so, equally well, may it not. Instead, 
 it may go into buying the right to levy taxes, or to enjoy a 
 monopoly, or otherwise to plunder society ; or the borrowed fund 
 may be invested in bribing the city council to grant a desirable 
 franchise, — or into advertising expenditure, as a process of indoctrinating 
 the public with profit-rendering Hop-Bitters or Peruna misinformation. 
 In any case, if the adventure promise a return in price-increment, it 
 will contribute to the demand for loanable funds, and, as based upon it, 
 there may emerge an interest rate. 
 
 And from aspects of distributive theory mostly to be presented 
 later (see chap, xxvi), something may now be deduced for the pur- 
 poses of the interest problem. Even where the borrowed funds are 
 used by the entrepreneur in the purchase or hire of instruments of 
 production, his problem remains precisely the same problem of how to 
 get out of the future price-result a price balance over the price outlay. 
 Enough of purchasing power must be advanced for labor to divert it 
 from ministry to other demands — whether the consumption demand 
 or the demand of some competitor, — enough for machines to get them 
 
248 
 
 VALUE AND DISTRIBUTION 
 
 fail of receiving the upkeep :*^ The degree of improvement 
 depends upon the rate of interest. 
 
 And now what shall be said of the view especially 
 championed by Wieser, that for a complete theory of inter- 
 produced for the purpose, — and enough for land to command its 
 service ; and in connection with this investment there goes the entre- 
 preneur's own activity of supervision and co-operation. When the 
 time arrives for computing the gains upon the adventure, there is no 
 way of attributing a certain quantum or proportion of the price result 
 to the labor hired, or to the funds advanced for the labor, or any 
 certain other amount to the machinery hired, or any third amount to 
 the land employed ; nor is it possible even to attribute any certain sum 
 of acquisitive productivity to the aggregate of the borrowed funds. 
 All that the entrepreneur can know is that by employing the borrowed 
 funds or their proceeds in connection with his own activity, and 
 very possibly also in connection with funds or instruments of his 
 own, this new borrowing could be made so to signify to him in terms 
 of price-increment as to justify the promise to pay a price-interest 
 increment. The rate of time discount, therefore, is a rate fixed and 
 determined in the loan-fund market ; all properties — instrumental 
 or other — that command a hire receive a value through the applica- 
 tion of this interest rate to the computation of the present worth of 
 these hires. 
 
 " Classical doctrine teaches that the payment of land rent does 
 not condition the existence or the maintenance of the land as pro- 
 ductive instrument ; the rental payment having thus no bearing upon 
 the supply of instruments, can have no significance for the supply of 
 products, and thus no significance for the value of those products ; 
 rent is thus held to be a price-determined fact — a result rather than a 
 cause, — a distributive share which is not at the same time a cost, in 
 that sense in which the other distributive shares are costs. 
 
 Marshall faced and accepted the logically necessary inference 
 that no hire of any produced instrument of production can be regarded 
 as a price-determining cost, excepting under a time computation long 
 enough to allow a change to take place in the supply of instruments, 
 as the result of the divergence of compensation from cost ; and that 
 for short periods capital-goods rents must be treated as, for cost pur- 
 poses, exactly like land rents. 
 
 We are not just now called upon either to accept or to reject this 
 view, but only to examine the relations of land instruments and rental 
 outlays to problems in the shifting and incidence of taxation. 
 
 It is clear that a tax shifts only so far as, by the imposition of the 
 tax,— through its effect upon the relative supply of instruments, the 
 relative costs of production, and the relative volumes of products 
 exchanging against one another, — modifications are necessitated in the 
 exchange relations in the market ; shifting is a problem in value. 
 
 If, for example, certain kinds of productive instruments are taxed, 
 or if capital investments in a certain line of production are taxed, a 
 change in the supply of these instruments, or in the volume of capital 
 investment, will be brought about ; the redistribution of capital applica- 
 tions may be slow or may be rapid, according to the degree of mobility 
 
INTEREST 249 
 
 est there is necessitated an investigation of the distribu- 
 tion-imputation process under which the rate of interest, 
 together with all the other distributive shares accruing 
 under the productive process, is supposed to be determined ? 
 
 in the particular case ; even if the instrument or other capital have no 
 alternative application by immediate change of use, it is certain that 
 with time, through the gradual process of wear-out and deprival of 
 upkeep, the capital shifting is none the less inevitable ; the supply of 
 products must diminish with the progressive diminution in the supply 
 of instruments ; the result must express itself in an enhancement of 
 price to consumers. 
 
 As to land, the traditionally accepted doctrine is excellently set 
 forth by Carver in the following: "All goods excepting land are 
 perishable and reproducible while land is not .... an important dis- 
 tinction, since this limits their value to something approximating their 
 cost of production, whereas there is no such limit to the value of 
 land. These distinctions are important because important conclusions 
 
 as to public policy depend upon them A tax on land, to take 
 
 a single example, has a different effect from a tax on an article which 
 is being produced, worn out, and reproduced by human effort. A tax 
 on the latter class of articles has the effect of discouraging that effort 
 and, consequently, of reducing the supply, v/hereas a tax on land does 
 not affect the supply in the same way nor to the same degree," — Dis- 
 tribution, p. 129. 
 
 It is, however, clear enough that, if land values are subjected to a 
 higher rate of tax than are other investments in productive instru- 
 ments, a shifting of investment will take place as soon and as far as the 
 nature of the case leaves it possible. The only questions are as to how 
 soon and how far this possibility can manifest itself. It is clear also 
 that in fertility aspects the original environment is capable of exhaus- 
 tion in full parallel with produced instruments of production, and by 
 the same method if upkeep is withheld. Practically all agricultural 
 districts in New England testify to this fact ; nothing about land is 
 indestructible excepting its location. 
 
 It is apparent, then, that the "Single Taxers" have been grievously 
 misled through an uncritical acceptance of the classical rent theory. 
 They make shipwreck against the certainty that to subject the unearned 
 increment to their tax program is inevitably to drive this unearned 
 increment out of existence, or, more accurately, to force its transfer 
 into a non-land form of holding — to render food and raw materials 
 dear through the diminution of the social equipment for the supply of 
 these goods. 
 
 But while, as applied to fertility differentials, all this appears to 
 be past doubt, the argument as it applies to the mere fact of location, 
 and to differentials of transportation, is not quite so satisfactory or so 
 self-approving. 
 
 The truth is however, that unless fertility and location differentials 
 are separately appraised and separately burdened in point of taxation, 
 the tax upon location will have precisely the same effect to stimulate 
 the exhaustion of fertility as if the tax were directly imposed upon the 
 fertility. The land stands as a value aggregate of fertility and of 
 transportation differentials ; value will continue to be substracted from 
 
25© VALUE AND DISTRIBUTION 
 
 Or what shall be said as to the proposition — perhaps 
 commonly regarded as identical with the foregoing, and pos- 
 sibly rather intended by Wieser, — that a complete interest 
 theory requires an investigation and elucidation of the 
 distribution-imputation process under which the rentals and 
 hires of the various classes of instrumental goods and 
 agents are determined? 
 
 The replies must be as follows : for all co-operating — 
 that is, complementary — production facts, whether ma- 
 chines of various sorts, laborers of various grades and 
 kinds, lands of differing capacities and adaptations, patents, 
 franchises, trade secrets — all such items as enter for the 
 individual advantageously into the productive process, 
 whether the product be hats, or shoes, or bonds, or salable 
 notoriety, or marketable slander, or office, or place, or influ- 
 ence, or pictures, or acting, or preaching, for all of these 
 gain-producing agencies there is everywhere the problem 
 of the value distribution of the joint product — a problem 
 too difficult to be entered upon here; but this is not the 
 interest problem; it is the problem of rentals, hires, and 
 wages, whenever paid, and without necessary reference to 
 their possible reduction into a present worth. 
 
 Confining ourselves for the present to the observation 
 that all of these rentals facts, if not of present payment, 
 are themselves subject to the discount rendering into pres- 
 ent worth, we turn to what is, for immediate purposes, the 
 surpassingly important fact, that all these rentings, and 
 hirings, and purchasings of instruments, or of labor, or of 
 any possible sort of cost fact, enter into the cost computa- 
 tion of the entrepreneur solely under the capital denomi- 
 
 the land up to the limit that the "skinning" process can be carried — 
 so long, that is, as by wear-out and refusal of upkeep, the slow market- 
 ing of the land by the process of exhaustion remains possible of further 
 extension. Where, as with urban values, the land differential is entirely 
 one of location, there is no serious theoretical impossibility in the 
 single-tax program, if only the distinction between ground rent and 
 improvement rent is faithfully observed. For precisely parallel reasons, 
 it is imperative with agricultural land to preserve the distinction 
 between differentials of location and differentials of fertility. 
 
INTEREST 251 
 
 nator; but they nevertheless enter in two aspects: (i) ac- 
 cording to the quantum of direct expense; (2) according to 
 the time at which the expenditure is made relatively to the 
 time of cash marketing. And this amounts to saying that 
 so far as the expenses of production are technological in 
 character and are to be ascribed to the mechanical factors 
 in production, these expenses as capital charges are to be 
 computed not in terms of rent, interest, wages, and profits, 
 but of (i) instrument hires — rentals, (2) wages, (3) 
 profits, and (4) time discount, interest, upon the particular 
 outlays under consideration. But it is still to be kept in 
 mind that these categories of cost^, like the discarded cate- 
 gories, fall far short of including all cost outlays ; and 
 upon each of these other outlays, there is, or may be, an 
 interest charge to compute as within the total of entrepre- 
 neur-capital cost. 
 
 For Crusoe the problem of balancing the protest against 
 postponement of consumption against the advantages 
 obtainable through postponement, could offer no great 
 theoretical difficulty; the pressure of present desire must 
 find in varying degree its justification or explanation, (i) in 
 the prospect of relative plenty or want; (2) in the uncer- 
 tainty of life; (3) in the prospect of greater or less inten- 
 sity of life and desire, with the passing of the years ; (4) in 
 the sheer lack of capacity adequately to appreciate in the 
 present the needs of the future — all these influences sum- 
 ming up to explain the relative estimate of present need to 
 future need. On the objective side, there are the prospects 
 and openings for productive employment, and the hazards 
 of partial loss or total loss. The limit upon saving is at the 
 point where advantages and disadvantages are regarded as 
 at equilibrium. 
 
 In competitive society, the holder of wealth or of rights 
 to wealth or of rights to service has not merely the three 
 options open to Crusoe, to exploit, to hold, to consume; he 
 has a fourth possibility, to lend; and from his personal 
 
252 VALUE AND DISTRIBUTION 
 
 point of view, only the third option is to be regarded as 
 non-productive ; all the rest are productive ways of holding 
 present wealth over for acquisitive ends. Whichever one 
 of these three productive methods offers the highest induce- 
 ments will be selected, provided only that it is of sufficient 
 weight to overbalance the claims of immediate consump- 
 tion. 
 
 On the side of borrowers a provision of present wealth 
 or of present purchasing power may be desired either for 
 purposes of consumption or of some sort of gainful employ- 
 ment of the borrowed fact. But for both borrowers and 
 lenders, the problem, while worked out in terms of stand- 
 ard and of price, is in ultimate analysis a calculation of 
 present utility against future utility : from no point of view 
 is it, in any other sense than this price sense, a problem of 
 value. The borrower, as producing entrepreneur, can pay 
 an increase, reckoned in the price standard, if, by the aid 
 of the loan, he can become able to put upon the market 
 goods salable at an increase of price over what his product 
 without the loan would have sold for; he cannot have the 
 present purchasing power, or present wealth in terms of 
 purchasing power, unless upon terms of this payment. The 
 problem as thus restated is, then, precisely like any other 
 problem of market price where buyers and sellers are many 
 on both sides of the market, only that in the interest prob- 
 lem the point of price adjustment — the equilibrium point — 
 is a rate per cent. Detailed analysis of the process by 
 which this, or any other, price adjustment is reached, must 
 be postponed to a later chapter (see chap. xxv). 
 
 But there still remains the difficulty of formulating the 
 precise relation of technological productivity to the interest 
 rate. 
 
 It has become sufficiently evident that technological pro- 
 ductivity would alone suffice to explain the time-discount 
 phenomenon; but so might also the "perspective" fact be 
 sufficient, if only the demand for present consumption out- 
 
INTEREST 253 
 
 ran the loan supplies derivative from the reverse per- 
 spective. 
 
 But, in point of fact, the saved purchasing power in 
 society goes not solely to supply the entrepreneur demand ; 
 it directs itself sometimes into the immediate substituted 
 consumption of the borrower; or results in the borrower's 
 providing himself with increased durable consumption 
 goods ; or, again, in the financing of public improvements, 
 or of deficits of administration; or, still again, in indebted- 
 ness for the wastes and orgies of war. 
 
 And even when the demand in question is an 
 entrepreneur demand for entrepreneur capital, there 
 is no warrant for supposing that in any case, 
 all, or, in all cases, any of the borrowed funds 
 must be devoted to the increase or even to the upkeep 
 of instrumental goods. The quest of the entrepreneur is 
 purely one of private gain; his ends may, it is true, be 
 attained through socially productive activity, by contribu- 
 tion to the social dividend, but equally truly, and equally 
 commonly, these ends are otherwise sought. Private acqui- 
 sition is the only productivity involved. Merchandising of 
 consumption goods is clearly enough, in present society, a 
 socially productive activity, irrespective of all question of 
 the degree of the productivity or of the possibly associated 
 wastes; but it is not so clear that either the production or 
 the underwriting or the merchandising of every sort of 
 corporate stocks is as socially productive as it may be 
 acquisitively gainful. So the uprearing of business good- 
 will through advertising, and the establishment of monopoly 
 through the outlays and the temporary losses of cutthroat 
 competition, are gainful investments of loan-fund capital. 
 So the right to levy tolls is a capitalizable fact, and may be 
 originally procured on terms of capital outlay. Interest 
 rates may be in part supported, and might be entirely so, 
 by the investment opportunity offered under the system of 
 tax-farming, or by the sale of monopolies in foreign trade. 
 Election contributions are often decided to be a profitable 
 
254 VALUE AND DISTRIBUTION 
 
 line of investment of business capital. If by the mere 
 power of size attaching to great aggregations of capital, 
 the right of highway robbery, or of railway robbery, or of 
 public-contracts robbery, could be controlled, a very consider- 
 able rate of interest agio might rule without any slightest 
 taint or alloy of socially productive service in any capital 
 use. Other distributive shares in society would doubt- 
 less have to pay for it all, but the revenues accruing to 
 postponement would be none the less actual. 
 
 In point of fact, however, technological productivity 
 has a part, and, it may be, quite the larger part, in account- 
 ing for business gain from the use of capital. But for 
 theoretical purposes the only emphasis is upon the point 
 that the question is one purely of entrepreneur gain through 
 the possession of entrepreneur capital, and not at all of the 
 particular method by which the gain is achieved. 
 
 Were it possible accurately or even approximately to 
 determine in what degree the emergence of a commodity 
 product at the end of its series of production and market- 
 ing processes is due to technological productivity, the rela- 
 tion of technological productivity to interest would be a 
 deal clearer than it actually is. But that all the mechanical 
 processes are completed leaves the commodity far from 
 having been completely "produced ;" all the various items of 
 general-management cost, of taxation, of advertising, etc., 
 remain to be computed; and under the actual conditions of 
 business organization, a fairly definite proportion must be 
 maintained between each of these lines of expenditure and 
 the direct expenditure in concrete instrumental processes. 
 The relation between these different lines of expenditure is 
 that characteristic of interdependent complementary pro- 
 cesses, no one of which is more imperatively required than 
 any other; the process is an aggregate, a complex, and the 
 share, which, as hire, the instrumental good derives from 
 the result, is the share which entrepreneur competitive bid- 
 ding attributes to it, in view of the effectiveness of the 
 instrument in point of technique, of the nature of market 
 
INTEREST 255 
 
 conditions and market methods, and of the relative attract- 
 iveness of other than technological lines of productive 
 expenditure. Not far from two-thirds of the retail selling- 
 price of coffee today is due to the expensiveness of the 
 competitive methods of marketing. 
 
 Thus, were productive processes more markedly tech- 
 nological, the interest rates upon any given volume of capi- 
 tal employment might be higher ; but it is, perhaps, equally 
 true that the present volume of saving capital could hardly 
 be employed, at the present level of development in tech- 
 nique, in purely technological lines; the widening field of 
 investment in non-technological production processes 
 explains in large part the elasticity and the extent of the 
 demand for capital under present conditions, and explains 
 also the fact that the interest rate has not come under the 
 necessity of a greater fall.'^ 
 
 ^Professor Veblen argues (Theory of Business Enterprise, chap, v) 
 that the growing employment of credit by individuals and by business 
 concerns, though it increases the volume of business in terms of price, 
 cannot, in view of competition, increase appreciably, in the long run, 
 the aggregate profits of business, and cannot appreciably enhance the 
 aggregate industrial equipment or the aggregate industrial output ; all 
 competitors being compelled, through competition, to extend their use 
 of credit, no advantage can accrue to them in the aggregate ; the added 
 funds not going appreciably to the provision of increased industrial 
 equipment, the aggregate social product is not expanded ; "all these 
 advances go to increase the 'capital' of which business men have the 
 disposal ; but for the material purposes of industry, taken in the 
 
 aggregate, they are purely fictitious items Ftinds of whatever 
 
 character are a pecuniary fact, not an industrial one ; they serve the 
 distribution of the control of industry, not its materially productive 
 work." (P. 104.) 
 
 As to the tendency of the forces under consideration to bring 
 about a progressive consolidation of enterprises, there need, seemingly, 
 be little doubt ; but that while the number of business units is 
 decreasing there can be no appreciable increase in the per-unit profit 
 is not so clear. But is there really an increased aggregate of credit, 
 or is the fact simply that the larger organizations have merely displaced 
 the smaller in the use of a practically unchanged volume of credit? 
 Is there any reason to assume that the aggregate capital investment 
 has, through credit, been increased, and this without corresponding 
 increase of entrepreneur gains, and that, on the contrary, the enlarged 
 employment of capital, without enlarging returns, has necessitated 
 an actual fall in the interest rate, though possibly not a fall in the 
 absolute quantity of interest outlay? 
 
 But for the most part, Veblen does not assert a fall in the rate 
 
256 
 
 VALUE AND DISTRIBUTION 
 
 It will now be profitable to sum up these interest conclu- 
 sions so far as they are of inmiediate relevancy to the 
 course of the argument. 
 
 The discount rate, the interest agio, should, in analogy 
 with all other cases of market adjustment, coincide approxi- 
 
 of interest, but only a decrease in the rate of profit, as computed upon 
 the basis of the total business transacted by the entrepreneurs and 
 upon the total volume of "capital" in hand, inclusive of credit exten- 
 sions ; and he appears to account for the larger employment of 
 "capital" chiefly by the fact that the productive intermediates are 
 enhanced in price through the competitive bidding of the competing 
 entrepreneurs : "Loan credit .... taken in the aggregate serves 
 only to widen the discrepancy between business capital and industrial 
 equipment. So long as times are brisk this discrepancy ordinarily goe.= 
 on widening through a progressive extension of credit. Funds obtained 
 on credit are applied to extend the business ; competing business men 
 bid up the material items of industrial equipment by the use of funds 
 so obtained ; the value of the material items employed in industry 
 advances ; the aggregate of values employed in a given undertaking 
 increases, with or without a physical increase of the ■ industrial 
 material engaged ; but since an advance of credit rests on the collateral 
 as expressed in terms of value, an enhanced value of the property 
 affords a basis for a further extension of credit, and so on." — 
 Ibid., pp. 104, 105. 
 
 "The nominal magnitude (value) of the earnings is not increased 
 
 in as large a ratio as that of the business capital The funds 
 
 obtained on credit are in great measure invested competitively in the 
 same aggregate of material items that is already employed in industry 
 apart from the use of loan credit, with the result that the same range 
 of items of wealth are rated at a larger number of money units." — 
 Ibid., pp. 108, 109. 
 
 But in any case, the rate of interest does, after all, in Veblen's 
 view, appear to be pushed toward fall through an overvaluation of the 
 intermediate goods finally resulting from their constantly expanding 
 market prices : "A manifest discrepancy presently arises .... 
 between the aggregate nominal capital (capital plus loans) engaged in 
 business, on the one hand, and the actual rate of earning capacity of 
 this business capital, on the other hand" (p. 107). It is "unavoidable" 
 that "credit expansion is in some degree 'abnormal' or 'excessive.' 
 Such a use of credit does not add to the aggregate of industrially pro- 
 ductive equipment, nor increase its material output of product, and 
 therefore it does not add materially to the aggregate gross earnings 
 obtained by the body of business men engaged in industry, as counted 
 in material terms of wealth or of permanent values ; it diminishes the 
 aggregate net profits .... as counted in such terms, in that it 
 requires them to pay interest, to creditors outside of the industrial 
 process proper, on funds which, taken as an aggregate, represent no 
 productive goods, and have no productive effect ; there results an 
 overrating of the aggregate capital, engaged in industry, compared 
 with the value of the industrial equipment at the starting point, by 
 
INTEREST 257 
 
 mately with some fact of marginal sacrifice; and so 
 it does. Abstinence is here one of the items of cost in the 
 sense that the present volume of saving, or some part of it, 
 will take place only on terms of the present level of com- 
 pensation. The cost of any supply item, be it remembered, 
 is merely the money statement of the resistance to be over- 
 come in order that the item in question shall offer itself 
 
 approximately the amount of the aggregate deposits and loans on 
 collateral." — Ibid., p. 112, 
 
 The fundamental error in all this — if error there be — rests in 
 Professor Veblen's confusion of bank credit with loan fund. 
 
 We have already seen that the banking function is merely the 
 underwriting of the customer's credit ; banks do not lend their 
 deposits ; the very existence of this deposit liability is, indeed, the fact 
 by virtue of which the bank is limited in its further underwriting 
 activity. The bank does have an important influence in aiding the 
 process by which loan funds, in the form of its deposit liabilities, 
 come into existence ; but the only possible lenders of these are the 
 holders of them. The lending of them is a lending of suspended 
 purchasing power ; they are a part, and a very considerable part, of the 
 great loan-fund supply. This aggregate loan-fund supply furnishes, 
 in the modern business organization, the basis of the process through 
 which private savings work out into social capitalization. 
 
 Mostly by means of the borrowing of loan-fund capital, and to 
 small extent or not at all by appeal to bank credit, is the aggregate 
 industrial equipment augmented. Short-time loans are not practicable 
 for this purpose. Loan-fund borrowing is the true borrowing of 
 "capital" in the business and financial sense. But it must be admitted 
 that a goodly share of this typical capital flows, under entrepreneur 
 management, into gainful processes — entrepreneur-wise viewed — that 
 are not at all gainful as socially viewed — flows, for example, into all 
 sorts of competitive expense for attracting trade, into extravagances 
 of location, housing, and furnishings, into larger investment in sales- 
 men, advertising, variety and size of stocks, and some of it, doubtless, 
 into the competitive bidding up of the prices of the existing volume of 
 intermediate goods, whether instruments or raw materials. 
 
 Bank borrowing, on the other hand, is a mere issuance of the 
 bank guarantee, its indorsement, in support of the customer's under- 
 taking to pay, otherwise non-current ; this suretyship transaction is 
 worked out under the guise and ternjinology of capital and interest 
 methods. 
 
 This distinction between bank guarantee and ordinary loan-fund 
 borrowing may well occasion perplexity. It is, indeed, true that the 
 bank customer may use his bank balance, acquired by discount, 
 precisely as he uses the bank deposit credit assigned to him by the 
 loan-fund capitalist. The difference is in the fact that in substance the 
 credit apparently advanced by the discounting bank is really advanced 
 by the person who accepts the customer's undertaking as guaranteed 
 by the bank, and upon this undertaking and guarantee makes advances 
 to the bank customer. Credit is, it is true, here obtained by the bor- 
 rowing customer, as truly as in the other type of loan, but it is a 
 
258 VALUE AND DISTRIBUTION 
 
 upon the market. Thus many items of the capital supply- 
 may have no cost price ; some saving would take place with- 
 out pay; and it is possible that some part of each man's 
 saving would not take place except for the pay. But in any 
 case, each different volume of supply has its different 
 
 credit from some one other than the bank ;' the bank stands as mere 
 underwriter of the credit relation. 
 
 Thus under this form of credit obtained by the customer's exten- 
 sion, through the bank, of his own credit-borrowing activity, it is 
 rarely practicable that the proceeds be invested in such long-time 
 gainful directions as an increase of plant or as an enlargement of good- 
 will and connections. The bank guarantee is of necessity a short-time 
 relation, and from the point of view neither of the bank nor of the 
 customer are its proceeds safely applicable to other than forms of 
 wealth readily convertible into cash. 
 
 Thus the credit extended by vendors through the intermediary 
 of bank guarantee resembles the credit extended through ordinary 
 capital-lending, in this, that neither is a borrowing of capital from the 
 bank ; but differs in turn in this, that the bank-guarantee form can 
 rarely serve the purposes of social productiveness or of any long-time 
 gainful application, while the exact contrary is the fact with mortgage, 
 bond, and preferred-stock credits. 
 
 But in whatever way, through credit, the entrepreneur is enabled 
 to extend his operations, whether in increasing his material plant, or 
 in purchasing desirable legislation, or in extending his good-will and 
 connections, or in the increase of his holdings of marketable merchan- 
 dise, there is much question as to the propriety of regarding any one 
 of these uses of his own credit as an increase in his business capital. 
 Admitting, then, that always "under the regime of competitive busi- 
 ness .... credit expansion is in some degree 'abnormal' or 'exces- 
 sive,' " it is to be accepted as inevitable that "there results an overrating 
 of the aggregate capital engaged in industry, compared with the indus- 
 trial equipment at the starting point, by approximately the amount of 
 the aggregate deposits and loans on collateral?" (Ibid., p. 112.) And 
 is it true that the interest outlay for loans — ^bank or other — "diminishes 
 the aggregate net profit obtained by the business men engaged in 
 industry .... in that it requires them to pay interest, to creditors 
 outside the industrial process proper, on funds which, taken as an 
 aggregate, represent no production goods and have no productive 
 effect" ? 
 
 That much of the extended credit goes into socially non-productive 
 channels is certain enough ; but it is not so certain that the process is 
 non-igainful in its effect upon the aggregate profits of the entrepreneur 
 class as a whole ; it may — and commonly does — result in a social waste 
 of productive energy, and may yet be profitable to the aggregate entre- 
 preneur interest. 
 
 But in any case the banker is paid, whether the service be or be 
 not social; but paid for what? Here again the nature of the banking 
 business must be firmly grasped ; bankers are paid for making the 
 customer's credit into present purchasing power; under the bank guar- 
 
INTEREST 259 
 
 level of compensation at below which some part of 
 the supply would not be forthcoming. But as with 
 labor-pain cost, so with abstinence cost — no reduction 
 to a common pain denominator is possible. The re- 
 muneration received is no measure of the pain under- 
 gone or even of the resistance overcome. The mar- 
 ginal postponement of consumption, like any other case 
 of margins, is a ratio relation ; any particular item of saving 
 is marginal, not because of the high significance of the 
 abstinence protest, but merely because the forces making 
 
 antee the customer's obligation becomes cash to the vendor of the 
 desired goods. For this underwriting the customer pays to the bank, 
 under the guise of interest, that which he would otherwise have had 
 to pay to the vendor as real interest. 
 
 But at any rate, the mere power or opportunity or ability of the 
 borrower to borrow is hardly to be regarded as capital, nor is the 
 exercise of the power accurately an increase of his capital, whether 
 or not that which is borrowed is, to the lender of it, capital goods, or 
 loan-fund capital, or mere guarantee. 
 
 It is, however, beyond question that the fact that one is possessed 
 of good credit — the ability to borrow and upon advantageous terms 
 — is a source of gain to the possessor ; why, then, not call it capital, 
 and the return upon it a capital rent ? The reason is that the fact of 
 good credit is really not a possession at all in the ordinary case, but a 
 part of the possessor — a purely subjective fact, as truly as any other 
 aspect of personal power or skill or influence. True, it is an advan- 
 tageous fact, a gainful attribute, but it is an attribute of the human 
 being to whom it attaches, and in close analysis must receive a com- 
 pensation under the category of profit in the strict sense of the term. 
 
 But if it really becomes possible, as it sometimes does, to make a 
 separation of the credit from its personal basis and foundation — to 
 give it an independent and external existence, and so, in some measure 
 to transfer it, say, to a corporation to be organized — this credit may, in 
 this non-attached form, become, so far as the transfer is really 
 possible, a distinct capital fact and, like good-will and business con- 
 nection, be capitalized for whatever, in the securities market, may be 
 held to be the present worth of its income-earning capacity. The 
 personal rtemuneration for the separated and transferred credit- 
 attribute must in such case be received in block by the original 
 possessor as the present worth of its putative future effectiveness for 
 gain ; and this putative earning power then becomes an asset of the 
 grantee company, and may be as such capitalized like any other asset. 
 
 In case the credit attaches to a group of individuals, as to a partner- 
 ship or association, and attaches to the grouping rather than to the 
 separate individual members of the group, it would then seem prefer- 
 able to regard the credit attribute as in its nature and origin a separate 
 and objective fact, and as thus a part of the firm or association capital. 
 
26o VALUE AND DISTRIBUTION 
 
 for present consumption, representative, it may be, of very 
 great or of very limited present need, are at an approximate 
 equilibrium against the estimates of the advantages promised 
 by postponement. 
 
 But, on the level of the entrepreneur-cost analysis, none 
 of this cost to the lender has direct significance for pur- 
 poses of borrower's cost or for purposes of any cost 
 investigation leading to the determination of the value 
 of the product. What the entrepreneur has to pay is cost 
 for him; lender's cost is relevant only from the point of 
 view of explaining the causes of the situation under which, 
 and as determined by which, entrepreneur cost has to be 
 worked out. Just as entrepreneur cost is in no sense an 
 employee cost of pain, but purely an entrepreneur compu- 
 tation, so such interest costs as are relevant to the cost-of- 
 production category are not costs of abstinence to those 
 who do the saving, but are costs of expenditure to those 
 who do the borrowing. 
 
 This is evidently not to deny that the entrepreneur may 
 himself have a postponement cost, as well as opportunity 
 costs of other sorts, e. g., leisure and recreation, but the 
 saver's postponement cost is not also a cost item in the 
 entrepreneur reckoning; so again, when a borrower 
 decides to consume the product of the loan rather than to 
 use it reproductively, his choice in the direction of non- 
 abstinence — his refusal of the cost burden of waiting — is 
 his own, and not that of the saving lender ; it is a new and 
 distinct choice. 
 
 Thus, the "value of money" or of capital, as of labor 
 or machinery or land, is a market fact, a price datum, 
 which the entrepreneur takes as he finds it, without 
 attempting any explanation, and without any call to make 
 the attempt. Entrepreneur cost explains the price of the 
 product only upon the basis and assumption of other 
 established prices for the items of cost, which cost prices 
 the entrepreneur-cost analysis in question is not concerned 
 or competent to explain. 
 
INTEREST 261 
 
 The discount rate also approximately coincides with 
 some item of marginal demand; there is, as we shall later 
 see, no very serious error in the doctrine that the interest 
 rate reflects the marginal productivity of capital, if only 
 the capital concept be interpreted widely enough and in 
 the competitive, entrepreneur tenor, and if the notion of 
 productivity be not socially but competitively conceived 
 and be applied in a sufficiently extended sense. (See 
 chap, xi.) 
 
 This interest discussion has gone far more deeply into 
 the interest problem than the cost-of-production category 
 has need for; but this was nevertheless necessary purely 
 for the purpose of finding out what was really needed and 
 what relation interest bears to entrepreneur cost. And so 
 much as this becomes clear from our analysis, that within 
 entrepreneur cost must be computed, not merely wages and 
 the different rents of different productive agents, but also 
 a time charge for the value fund in the entrepreneur 
 employment, according to the length of time of this 
 employment. That is to say, cost of production reckons, 
 among other items of cost, like wages, taxes, rent on land, 
 rent on capital goods^ etc., an interest charge on the 
 capital-fund investment. 
 
 And as will later more fully appear, interest, in the 
 sense of time discount, must be recognized as a distributive 
 share, precisely because it is a cost under the entrepreneur 
 system of production and distribution; cost payments by 
 the entrepreneur are distributive shares to the payees. It 
 is not, however, to be inferred that every case of interest 
 payment is a payment made as incidental to a productive 
 process. There are interest revenues that are not deriva- 
 tive from the productive process, and are not to be 
 regarded as distributive shares out of a produced value. 
 Many cases fall purely and solely within what we may call 
 the secondary distribution, as distinguished from the 
 primary, the production distribution. (See chap, xxvi.) 
 
CHAPTER XVI 
 RENT AND COST— MARGINAL COST— RELATIVE COST 
 
 John Stuart Mill, following out the implications of 
 Ricardo's proportionment doctrine and recognizing that 
 value is essentially relative, perceived that costs of pro- 
 duction as bearing on value must likewise be relative, and 
 thus that the exchange relation between different goods can 
 be affected by only such causes as unequally affect the costs 
 of different goods ; and accepting also from Ricardo, and 
 with approximately complete consciousness, the entrepreneur 
 point of view, it became clear to Mill that, for a cost- 
 of -production doctrine adequate and serviceable and con- 
 sistent from this standpoint, cost, on the labor side, must be 
 held to be not the labor and not the pain of the labor, but 
 the wages paid for the labor; and it followed also that if, 
 in a given line of employment, the efficiency is greater in 
 the same proportion that the wages are higher, the relative 
 wage cost is not affected. 
 
 And it thereupon followed that wages payments become 
 relevant to value only in so far as one commodity requires, 
 relatively to another, more labor or a more highly paid 
 variety of labor: "Things .... which are made by 
 skilled labor exchange for the produce of a much greater 
 quantity of unskilled labor, for no reason but because the 
 labor is more highly paid." [Mill's habit of regarding 
 cost items as opaque and definitive facts.] "So wages do 
 enter into value ; the relative wages of the labor necessary 
 for producing different commodities affect their value as 
 
 much as the relative quantities of labor The 
 
 absolute wages paid have no effect upon value, but neither 
 has the absolute quantity of labor." ^ However, since 
 variations in wages are usually general, it is. Mill says, by 
 
 ^ Principles of Political Economy, Book III, chap, iv, sec. 3. 
 
 262 
 
RENT AND COST 263 
 
 variations in the relative quantity of labor required in pro- 
 duction that variations in value commonly come about.^ 
 Similarly also with interest and profit elements in cost; 
 these charges are presented as affecting value only as they 
 enter, in varying measure, into the costs of different com- 
 modities. 
 
 It is manifest that Mill is here treating cost consistently 
 from the entrepreneur point of view; labor charges are 
 conceived to enter the computation only as reduced to 
 price-value homogeneity in the entrepreneur outlay, — an 
 unquestionable fact which, by the way, has led some 
 economists to the notion that labor is an abstract fund.^ 
 
 Likewise with capital the entrepreneur reckoning holds, 
 and this equally whether the question be one of interest 
 charges on loan-fund borrowing, or of rentals paid for 
 machinery, or of interest paid as a percentage rate upon 
 the price expression of the niachinery as a value fund — 
 from which last method it has been by some economists 
 inferred that capital is an abstract fund. 
 
 And precisely as these items of outlay for capital goods 
 attain the homogeneity requisite for cost computations only 
 by virtue of their reduction to the common denominator of 
 price, so also, under the same reduction to terms of price, 
 there enter into the cost reckoning minimum wages or 
 profits of superintendence; from which fact it may some- 
 times be inferred that profit-receivers are also an abstract 
 fund. And forthv/ith, these three separate factor funds 
 having been successfully established, the logic of the case 
 will compel their merger into one great and inclusive fund 
 of abstract units of value productivity. 
 
 It results, then, from Mill's doctrine, that values are 
 not proportionate to the labor applied, or to the capital 
 applied; nor is the problem one of some sort of compound 
 proportion of these, as Ricardo seems often upon the 
 
 ' Ibid. 
 
 " For example, Marx, notoriously ; see also Macfarlane, Value and 
 Distribution, pp. 267, 270 ; Clark, Distribution of Wealth, chap. xi. 
 
264 VALUE AND DISTRIBUTION 
 
 point of asserting. Instead of this, value reduces to a 
 simple proportion based upon the price costs incurred, or, 
 undoubtedly, if one prefers, to a compound proportion in 
 which each and every outlay appears under the price 
 denominator. 
 
 But if such was really Mill's doctrine, how came it 
 about that rent outlays were excluded from cost? The 
 answer is that Mill did not exclude them; he expressly 
 admitted them: 
 
 No one can deny that rent does sometimes enter into cost of 
 production. If I buy or rent a piece of ground, and build a cloth 
 manufactory upon it, the ground rent forms legitimately a part of 
 my cost of production, which must be repaid by the product.* 
 
 Mill's view was, however, that rent outlays do not com- 
 monly enter into the marginal cost of production; and 
 with Mill as with Ricardo, it was this marginal cost that 
 was price-determining. The doctrine applies especially — 
 and most clearly and most importantly — to agricultural 
 products. "Rent forms no part of the cost of production 
 which determines the value of agricultural products." ^ 
 
 This doctrine was obviously Ricardian, and needs no de- 
 tailed restatement at this point. Ricardo placed rent out of 
 connection with value, by getting it out of marginal cost. 
 This marginal cost he found upon marginal land, rentless 
 land. Nor need it especially matter if no rentless land were 
 found ; for there was always the intensive margin, and at this 
 margin it was equally possible to isolate a product in the 
 cost of production of which rent could have no part; this 
 product would therefore function as the marginal product, 
 a product produced, if not upon marginal land, yet upon 
 the rentless margin of rent-bearing land. And thus if (i) 
 marginal cost could be identified with cost upon marginal 
 land, and then (2) this marginal land could be accepted as 
 the price-determining influence in cost, the Ricardian case 
 
 * Mill, op. cit., Book III, chap, iv, sec. 6. 
 '^ Ibid., chap, v, sec. 2. 
 
RENT AND COST 265 
 
 was established. With rent excluded, and with capital 
 reduced to the labor denominator, value became propor- 
 tional to labor content. 
 
 But these two important steps in the argument were 
 merely taken for granted — assumed out of hand— perhaps 
 by title of their sheer reasonableness. At all events, these 
 two propositions present the problems next awaiting 
 examination at our hands : ( i ) Is the cost margin an 
 instrument margin? (2) And in what sense, if any, 
 is one item of supply more price-determining than any 
 other ? 
 
 (i) Is the cost margin a land margin? It is significant 
 upon this point to notice that for non-agricultural indus- 
 tries the trend of authority appeals rather to the marginal 
 entrepreneur. Mill's reasoning itself looks in this direc- 
 tion, and Walker — no matter how badly his marginal 
 entrepreneur was selected — stands distinctly for the view 
 that marginal cost is cost at the personal margin; and so 
 with most other writers. And evidently there must be a 
 cultivator upon marginal land. Perhaps a sympathetic 
 interpretation might harmonize the old with the newer 
 doctrine, by taking Ricardo to have regarded the cultivator 
 as marginal because on marginal land. But if so, we 
 must likewise regard as marginal that cultivator who is 
 getting on somehow with machinery, part or all of which is 
 worthless — marginal capital goods; it would perhaps be as 
 promising a quest to hunt for no-interest or no-wage pro- 
 duction as for no-rent production. Evidently labor and 
 capital may be applied upon no-rent land — no land, but it 
 is equally true, and perhaps more common, that worthless 
 machinery, — no-interest capital goods, that is, no capital, — is 
 combined with land and labor^ or that worthless labor, 
 child, pauper, invalid, or convict, is combined with capital 
 and land. And it has been many times pointed out that the 
 Ricardian doctrine must thereupon logically exclude 
 wages and interest from value-determining cost. 
 
266 VALUE AND DISTRIBUTION 
 
 And, going over to the intensive margin,® for a really 
 workable land margin, it should be immediately evident 
 that capital instruments applied on marginal land, or upon 
 any other land, are, or may be, supplied with labor to the 
 point where only the labor is remunerated in additional 
 product; whereby, by parallel argument, only wages are 
 left as cost. And it is evident also that every holding of 
 land, if rationally handled, receives expense outlay to the 
 point where, in the circumstances of each respective culti- 
 vator, no further outlay is expedient in view of the further 
 remuneration. That is to say, the intensive margin is to be 
 found on all land, and with most, if not with all, capital 
 instruments. 
 
 And, finally, this land-margin view rnust face the diffi- 
 culty, already sufficiently elaborated, that the entrepreneur 
 in his borrowing does not borrow land or capital or labor, 
 but only purchasing power, and follows a most catholic 
 system of interchange and substitution among the various 
 productive factors. 
 
 But whether or not this land-margin cost doctrine needs 
 abandonment forthwith, the entrepreneur margin being 
 accepted in place of it, it is at all events clear that even 
 upon marginal land there must be an entrepreneur, and 
 that the land is marginal only as related to him and to his 
 separate labor and equipment. It is not absolutely neces- 
 sary, indeed, that wage or implement outlays be under- 
 taken by him; if he can get along with valueless land, he 
 may quite as reasonably do as much and as well with 
 scrap-pile tools. But however this may be, it is certain 
 that no piece of land and no item of implement wealth can 
 ever be abandoned as unproductive, or be appraised as pre- 
 cisely on the line between use and non-use, excepting as the 
 expression of a human choice, a fact in the psychology of 
 some entrepreneur, his judgment as to the adaptability of a 
 means of production to his needs as an independent 
 producer. 
 
 * Cf. Hollander, Quarterly Journal of Economics, January, 1893. 
 
RENT AND COST 267 
 
 A further argument in defense of the Ricardian doc- 
 trine needs at this point to be again called to mind. It is 
 urged that rent outlays upon the better land ought not to 
 rank as cost items, since, for whatever is differentially 
 expended in rent, a precisely equivalent differential of 
 advantage is obtained; the better lands are no dearer, and 
 no cheaper, at the higher rent than are the poorer lands at 
 the' lower rent; the more rent payment, the more land 
 service, and the correspondingly larger product : 
 
 It is true that all tenant farmers and many other classes of 
 producers, pay rent. But .... whoever cultivates land, paying 
 a rent for it, gets in return for his rent an instrument of superior 
 power to other instruments of the same kind for which no rent is 
 paid. The superiority of the instrument is in exact proportion to 
 
 the rent paid for it The real expenses of production are 
 
 thus incurred on the worst land Whoever does pay rent 
 
 gets back its full value in extra advantage, and the rent which he 
 pays does not place him in a worse position than, but only in the 
 same position as, his fellow producer who pays no rent, but. whose 
 instrument is one of inferior efficiency.'' 
 
 It only needs be suggested that this argument really 
 abandons the land-margin and accepts the entrepreneur- 
 analysis point of view, and, so far as it is valid for any 
 purpose, goes to prove that the costs of production are 
 equal upon all lands, and therefore that all lands are equally 
 marginal, — an argument reinforcing and supplementing the 
 point lately made that for every farm and with every 
 farmer there is an intensive margin. 
 
 But some still more perplexing conclusions appear to 
 follow from Mill's argument, if it is accepted — conclu- 
 sions that may well call for lengthy consideration, since, 
 with its acceptance, there will be rendered necessary a 
 fundamental revision of an entire series of important 
 theoretical doctrines. 
 
 If, from that sort or aspect of cost which is to be 
 regarded as price-determining, rent is to be excluded by 
 
 ^ Mill, op. cit.. Book II, chap, xvi, sec. 6. 
 
268 VALUE AND DISTRIBUTION 
 
 virtue of the fact that, for whatever increase of expense is 
 made by renting the better land, a corresponding advan- 
 tage of opportunity is secured and a corresponding 
 increase of marketable product obtained, it will directly 
 follow that interest paid for the control of larger capital, 
 or higher wages paid for a better grade of efficiency, or 
 for a larger force of employees, must by parallel argument 
 be excluded from value-determining cost. 
 
 That there is an inviting quality in this conclusion, 
 despite the seeming paradox and absurdity of it, may be in 
 part inferred from the fact that, as will later appear, 
 some of the Austrian school have, on entirely independent 
 reasonings, arrived at it.^ Mill's doctrine, outlined a few 
 
 ^ The following resume of Pierson's cost doctrine (Dr. N, G. Pierson, 
 Principles of Economics, translated from the Dutch by A, A. Wotzel, 
 Macmillan, 1902) will be of service as throwing some light upon the 
 later trend of cost doctrine with the Austrian school. The interests of 
 space must stand as excuse for the more or less chaotic fashion of 
 quotation and comment in the following ; when words other than those 
 of Pierson — as translated — are used, or when comments are inter- 
 polated, brackets will so indicate : 
 
 "In the language of every day, cost price indicates the sum total 
 of the disbursements which an entrepreneur has to make in order that 
 
 he may procure a given quantity of commodities This is 
 
 the only fact that possesses interest for him when he wants to know 
 the cost price of his products. But the economist, when he is consider- 
 ing the conditions for promoting the welfare of society as a whole, has 
 to be careful not to view things from the standpoint of the entrepre- 
 neur. Under no circumstances may he place wages on the same foot- 
 ing with fuel and fodder as part of the cost (p. 62). [Surely there are 
 here two distinct points of view, and each for its purpose is worthy of 
 consideration ; but it has yet to be shown that, in an investigation of 
 value in a competitive society, we may safely abandon the competitive 
 reckoning and adopt the social point of view.] .... Let us imagine 
 
 a number of persons united in a co-operative society One 
 
 contributes capital and land ; another his knowledge ; a third his muscu- 
 lar strength, and so on Now as to cost: many have had to 
 
 draw something on account in the course of the year Are 
 
 these disbursements part of the cost? Certainly not: they are portions 
 of the jointly acquired income resulting from the enterprise. The 
 only items that can be reckoned as costs are : corn used for sowing, 
 live stock that has perished [etc.]. [This notion that cost can in no 
 case cover alternative income has this fault at least, that it gives no 
 notion or measure of the influences that serve as counter-inducement 
 against the production of the product in question. As Crusoe must 
 reckon a displacement cost, a disadvantage by foregoing — opportunity 
 cost — so must society face a precisely similar cost in the alternative 
 
RENT AND COST 269 
 
 pages back, that value is affected only by relatively 
 high wages, or by relatively high interest outlays, or — and 
 here the interpretation is less confidently made — by rela- 
 tively high rental burdens, has the same logical trend and 
 must pass for something more than a mere analogy. 
 
 Taking note that the inquiry at its present stage 
 engages us in a quest for personal margins, rather than 
 for instrument margins, let us ask ourselves what cost 
 influences are of the sort to make one producer marginal as 
 against another, that is, what costs are margin-determin- 
 ing costs. 
 
 It is evident that a fall in demand, expressing itself in 
 
 applications of social productive power.] Let us now modify our hypo- 
 thesis : The workers .... demand a fixed wage in lieu of weekly 
 payments on account, and the landowners demand a fixed rent. The 
 result of this is that the enterprise loses its co-operative character, as 
 the risk will, in future, be borne by certain members of the society 
 only. But this does not change the economic character of what the 
 workers and the landowners receive. That which is paid them con- 
 sists still .... of products of the enterprise (p. 62). [This is the 
 social point of view at the extreme of statement. The truth seems to 
 be that, precisely because the co-operative character has been lost and 
 the enterprise has come to be conducted for individual profits, 
 there has come to be someone to reckon these wage and rental 
 outlays as cost. True the wages and the rent are incomes derived, as 
 all incomes must be derived, from product, but that which is income to 
 laborer or landlord may be none the less cost to the employer or the 
 tenant. And it is precisely for this reason that the investigation of 
 costs and of their relations to value, is at the same time an investiga- 
 tion of distribution.] 
 
 "We see that what the entrepreneur regards as the cost price of 
 his products is a very mixed sum. It certainly includes what would be 
 the cost in the narrower or social sense ; but .... generally the 
 
 greater part .... consists of income and nothing else 
 
 The entrepreneur has every right to reckon all these prearranged 
 disbursements as part of his cost ; but we know very well, and so does 
 he, that they only make up the sum which he must pay out of the 
 income he earns as recompense for the assistance afforded him in 
 earning it (p. 63). [There is surely no room for difference of opinion 
 here, excepting as to the question whether, in a competitive society, 
 the costs of competitors are the costs with which an investigation 
 of value is concerned, and whether in fact the other concept of cost, 
 the social concept, has any relevancy to the problem in hand.] The 
 greatest confusion of thought arises from a failure to observe the 
 distinction between cost from the point of view of the entrepreneur 
 and cost from the point of view of society as a whole (p. 63). 
 
 "We now return to the question. What is the price that mankind 
 
270 VALUE AND DISTRIBUTION 
 
 the falling price of some one product, must drive some 
 producers into other lines of production; but which pro- 
 ducers? Only such product will continue to come upon the 
 market as can be produced at this lower price ; the price 
 will still be commensurate with the costs of that producer 
 who now stands as marginal under the new conditions; 
 but would this fall in price be selective, or be influential 
 in any degree, in determining which producer should 
 be marginal? And so with all the outlays of pro- 
 duction; each producer faces the same external con- 
 ditions of production, the same wages and rent and 
 interest levels; these burdens are common to all the com- 
 
 has to pay for the things that it needs? The price consists not of 
 wages, but of labor ; not of interest or capital^ but of the using of 
 capital; not of profit, but of care of management (p. 64), [What of 
 rent, or of the use of land ? Does this go or not go with interest or the 
 use of capital? And only a little while ago it appeared that the 
 co-operative society had no costs other than the consumed material of 
 agents. Perhaps it is important that Pierson asks here, What is the 
 price — there, What was the costf^ Wages, interest, and profit, speak- 
 ing in the social sense, are not parts of the cost of production ; they 
 are parts of what is produced. They are not things sacrificed, but 
 things gained (p. 64). [But note that labor, as distinguished from 
 wages, and the uses of agents are still called the prices of product, 
 though it is perhaps not clear whether or not they are costs.'] .... 
 If we want to ascertain the net as distinct from the gross income of 
 society .... we need only deduct what has been spent for the 
 purpose of replacing and maintaining commodities which have been 
 wholly or partially destroyed in the process of production itself. But 
 in their turn these commodities are the fruits of labor, and so we 
 arrive at the conclusion that labor, the trouble of production, is the 
 sole price which mankind pays in order to procure such things as it 
 deems to be necessary. That is to say, the only positive price ; for 
 there is also a negative price, if such an expression be permissible. 
 
 The negative price consists in absence from present enjoyment 
 
 It is .... a sacrifice made by those who practice it ; a price, a 
 negative price, if we must so call it, paid by man in order to obtain 
 the commodities which he desires to possess (p. 64). [But this, one 
 fancies, is not intended to make interest a cost ; and the uses of 
 capital have been reckoned once as "the price which mankind has to pay 
 for the things it needs ;" now the sacrifice of absence in accumulating 
 and holding capital comes in somehow, seemingly as a new cost, but a 
 cost in the negative sense. The reconciliation must be found in some 
 difference of meaning between cost and price. But all the while, what 
 about land and the compensation for not wearing it out — for applying 
 the expenses of upkeep ? Abstinence certainly obtains here if anywhere. 
 Is land regarded as capital and are its uses parallel to uses of capital, 
 which latter are ranked as part of "mankind's price"? At any rate, 
 
RENT AND COST 27I 
 
 petitors in the field; why then is any producer marginal? 
 It is true that for such industries as are distinctly capital- 
 istic, or distinctly land-using in their technique, or distinctly 
 wage-paying, there will follow, in case of changes in wage 
 or interest or rent levels, marked effects upon the relative 
 volumes of products, and upon the relative prices of 
 products. But the question again presents itself, are not 
 all competitors equally subject to these conditions? What 
 influences select the marginal man, the price-determining 
 man, so called? 
 
 That one man is marginal as against another must, it 
 seems, be due to such peculiarities in him, or in his circum- 
 
 it is to be remembered that some of the land is not the result of labor, 
 while, as certainly, some of it is. This seems likely to make trouble for 
 "the conclusion that labor is the sole price that mankind pays, etc." 
 But inasmuch as the concept of price, whether it mean the same 
 thing as cost price or not, is a social concept, and therefore has, in a 
 competitive society, little, if anything, to do with value, it perhaps does 
 not greatly matter what relation to the case rent and land and land 
 uses may hold.] 
 
 "Not only do the expressions value and cost price [cost price mean- 
 ing labor and abstinence] differ widely in meaning, but the one 
 actually means the reverse of the other. Nevertheless .... the 
 relation between the value of things in most cases corresponds pretty 
 nearly to the relation between the respective cost prices. 
 [This sounds Ricardian, but it is not ; for] How is this 
 to be explained? The reason is that everyone prefers to apply his labor 
 to the production of such things as will afford him the greatest amount 
 of enjoyment. Value is the regulatrix, so to speak, of labor. It deter- 
 mines the direction in which the objects to which, labor shall 
 
 be applied. Speaking very broadly, every kind of labor will be con- 
 tinued up to the point at which it becomes as remunerative as any 
 other kind of labor. [And one would infer that it will be continued 
 only so far ; but of course this is simply awkwardness of expression. 
 The real significance of the principle would be better brought out, were 
 it said that labor will not be continued in one direction when it 
 becomes less remunerative than in any other direction, that is, than 
 the same labor in a different employment ; but this would have implied 
 and almost imposed the notion of a displacement, a sacrifice or oppor- 
 tunity cost. And note that the phrase less remunerative or as remun- 
 erative is not quite accurate ; less attractive, all things, including 
 remunerations, being considered, would adequately cover the case.] 
 As a result of this, most commodities automatically acquire a certain 
 value in relation of each other, which corresponds approximately to the 
 proportion between their respective costs in labor (p. 65). [This 
 doctrine of choice between the alternative applications of the productive 
 powers at one's disposal must logically include costs, not merely in 
 labor, but in capital and land.] An example may serve to make this 
 
272 VALUE AND DISTRIBUTION 
 
 stances, as render his relation to the market situation a 
 peculiar relation. And this is not to deny that there are 
 lands especially adapted to particular lines of productioji 
 and thereby especially subject to change in cultivation with 
 changes in market levels. But that under a particular 
 cultivator, these lands are especially liable to change in 
 use, must rest with the peculiar tastes, abilities, or situation 
 of the particular cultivator. 
 
 Nor does this view at all deny that rent, interest, and 
 wage outlays are costs ; clearly they are costs ; no issue is 
 offered upon this point. But are they those parts of cost 
 by virtue of which one individual becomes marginal as 
 against another? Margin-determining influences — the 
 
 clear. Suppose that in a certain country it requires exactly the same 
 effort to produce half a ton of wheat as it requires to produce a ton of 
 rye. The proportion in which the cost price of wheat stands to that 
 of rye will therefore be as 2:1 (p. 65). [The example raises more 
 difficulties than it clears up ; for evidently we are not now talking of 
 any one man's choice as to how he shall apply his productive forces 
 and agents, in which case labor and value products might be assumed 
 to be proportional ; but we are talking of society and of market values ; 
 it therefore becomes impossible to assert that, country-wide and for 
 different men, wheat takes twice as much labor as rye, unless upon the 
 assumption of some sort of jellification, both of labor and of land, — 
 some reduction in value denominator or otherwise, to homogeneous 
 quantities.] .... 
 
 "The value of things, as some people put it, depends upon or is 
 
 determined by their cost of production However .... 
 
 things do not derive value from the fact that they have cost labor ; 
 labor has been expended upon them because they have value. [This 
 leaves the quantum of resistance, the forces limiting supply, still to be 
 explained, which explanation cannot, in terms of utility or value, be 
 accomplished, excepting as expressed in the pull upon labor (and upon 
 land and capital) exerted by the other values alternatively possible ; 
 and this reinstates the doctrine of costs, under the form of sacrifice, 
 displacement, opportunity foregone.] The value of commodities is not 
 determined by the amount of exertion involved in their production, 
 but by the amount of inconvenience arising from our being deprived 
 of them. [Here again is utility asserted not merely as primary, which 
 it is, but as exclusive of cost, which it is not ; since cost and alternative 
 utilities or values are — often, at least — one and the same.] Instead, 
 therefore, of saying that the values of things depend upon their cost 
 of production [labor cost], let us rather say that the value of com- 
 modities .... must, in the long run, coincide with their respective 
 costs of production (p. 66). [All of which would be satisfactory to any 
 cost-of-production theorist, were it not for the distinctly labor-cost 
 implications and emphasis.] . . . ." 
 
RENT AND COST 273 
 
 decisive variants in the situation — are found in the ability 
 or lack of ability to buy closely, hire cheaply, organize 
 economically, sell skilfully, or in the degree of aptitude or 
 preference for some other line of production. That is to 
 say, cost as a margin determinant is purely a matter within 
 the personal aspects of entrepreneurship, a managerial 
 fact, a subjective phenomenon, in which all the influences 
 bearing upon the psychology of choice between different 
 occupations or between occupation and leisure have their 
 place. 
 
 This leads us back to the second part of our inquiry: 
 Of what significance is the marginal instrument or the 
 marginal producer, when once one is found? In what 
 sense, if any, is one item of supply more price-determining 
 than any other? For, after all, all investigations on the 
 cost side of the value equation are important only as bear- 
 ing upon the question of the supply, and all our talk of 
 margins serves only the purpose of explaining supply fluc- 
 tuations. It is true that only by the close analysis of what 
 is characteristic in marginal relations does the ready and 
 sensitive response of supply and demand and value to the 
 changing conditions of production become intelHgible. 
 But it remains true that market value is the equation point 
 between the whole volume of supply over against the whole 
 volume of demand. Each and every item of supply has its 
 small share of influence upon the market outcome. "The 
 withdrawal of iron from any one of its necessary uses 
 would have just the same influence on its value as the 
 withdrawal from its marginal use." " The marginal item 
 whether of demand or of supply differs from any other 
 item only that through it, as marginal increment, a deter- 
 mination may be reached as to just what effect it, or any 
 other single item, has had upon the price adjustment, meas- 
 urement being made from the point at which all the other 
 
 ' Marshall, Principles of Economics, ^ih. ed., p. 580, note. 
 
274 VALUE AND DISTRIBUTION 
 
 forces in the market would otherwise have left the price. 
 Not to the soldier who fires the last gun is the victory to 
 be accounted, por is the smallest boy who touches off a 
 fire-cracker to be held responsible for the entire Fourth of 
 July hubbub. If there is accurately a producer upon the 
 margin, the market price must coincide with his cost; but 
 neither the point of adjustment nor the producer at this 
 point is the determinant of price. True it is that if he were 
 not in the case, the price would have been other; but so is 
 this true of all the other producers respectively. The mar- 
 ginal item of supply is one among the whole number of 
 items and, as such, has its part in the resulting adjustment, 
 but it is the entire supply in equilibrium with the entire 
 demand that gives the market adjustment. It is true that 
 the added weight of the marginal item has, in strict theory, 
 moved the price from one point to another, but the basis 
 upon which this effect is worked and the situation which it 
 modifies are the results of thousands of other units of 
 supply in face of thousands of offers. 
 
 At the most, then, price is to be understood not as fixed 
 by marginal cost but as commensurate with marginal cost. 
 Who shall produce or who withdraw is for the most part a 
 result of price, and only in the smallest degree, as putting 
 so to speak, a fine edge upon the price, a causal fact. To 
 claim for the marginal item either of demand or of supply, 
 or for both, the function of price determination parallels 
 the case of the fly in Aesop's tale who sat on the axle tree 
 of the chariot and said, "What a dust do I raise!" 
 
 The truth of the case appears to be as follows : There 
 are margins of many and various sorts, all important to the 
 problem of supply. Prices of agricultural products are com- 
 mensurate with cost at the extensive land margin, but 
 equally so with cost at the capital-goods margin. So also 
 of the intensive margin, of the day's-end fatigue or recrea- 
 tion margin, and of the alternative-opportunity margin. 
 Each of these margins stands as a fact or an influence for 
 
RENT AND COST 275 
 
 the limitation of supply ; the refusal' price, the "necessary 
 price," at each of these margins is the market price.^" 
 
 But some of these margins are of the distinctly personal 
 sort, as, for example, the fatigue and the opportunity mar- 
 gins; nor is there the possibility of any instrument margin, 
 excepting as through the relation of the instrument to the 
 entrepreneur's personal activity, as an aspect of the entre- 
 preneur problem, and as an expression of the judgment and 
 choice of the entrepreneur fact in production. 
 
 Any change in price will involve a rearrangement in the 
 entrepreneur complex or group of productive powers, a 
 readjustment or realignment of his productive forces and 
 agents. At the intensive margin of effort, and commonly 
 at the intensive margin of utilization of his instru- 
 ments and agents, each and every entrepreneur is 
 marginal ; that is to say, not all of his product is equally 
 near to the margin ; he has different costs for different incre- 
 ments of product. With falling prices any entrepreneur 
 may transfer part or all of his lands to other products, or 
 may sell off part or all of his capital goods, or reduce his 
 labor investment, or restrict his loan- fund borrowing; or he 
 may, leaving part or all of his investment undisturbed, 
 transfer part or all of his personal activity to his next most 
 attractive alternative ; or he may completely abandon the 
 old line of production. In this case of abandonment also, 
 he and his capital may hold together as one productive 
 group or complex, or may scatter into various industries ; 
 with falling profits, and possibl}^ with failing pleasure or 
 interest in the business, or at the approach of old age or of 
 
 " In the main, of course, whether any man is marginal, or at what 
 point in his production he reaches a margin, is the result of the 
 objective conditions that he has to face. Each margin is thus rather the 
 effect of price than the cause of it ; the total situation is directive of 
 each person in it, who in turn himself helps to make the situation. 
 Each person must be recognized as in his measure contributing toward 
 the total situation. Cost has thus — and precisely at this point — to do 
 with price. If there is confusion in thinking of any particular fact as 
 at the same time both cause and effect, let one imagine himself as 
 jumping — the last person — upon a crowded raft, and sinking with it ; 
 does one sink the others or do they sink him? 
 
276 VALUE AND DISTRIBUTION 
 
 ill health, he may decide to retire from productive activity, 
 reducing his possessions to the form of loan-fund capital. 
 But whatever may be the modifications which result, they 
 will come about through him as a man marginal in some 
 or all of his activities, and no instrument will be marginal 
 excepting in its relation to him. And no one of all his 
 possible margins, and no total of all the different margins 
 of all the different entrepreneurs, will be price-determining 
 or even price-influencing except to the degree that supply 
 undergoes modification and to the extent that supply is an 
 influence in the fixation of price. 
 
 As an entrepreneur problem, then, all outlays are ele- 
 ments of cost; and personal preferences, repugnancies, con- 
 siderations of climate, neighborhood, home ties, national 
 prejudice, wholesomeness, cleanliness, good repute — all are 
 elements in cost to the extent that they serve to limit supply, 
 the cost problem with reference to each man, and thereby 
 to any instrument or agent under his control, being simply 
 and solely to determine the point at which supply in differ- 
 ent quantities can be had from him, and the degree and the 
 extent of his elasticity in production with changes in price. 
 And it is as one among all the other cost influences, but 
 commonly as the influence of paramount importance, that 
 opportunity cost acquires significance in the value problem. 
 Cost is simply the money expression of the total of resist- 
 ance to the entrepreneur's production. 
 
 It is evident, therefore, that wages, interest, and rent 
 are, from one point of view, income, but to the extent that 
 they are received from entrepreneurs, are costs to entre- 
 preneurs. Value and distribution are therefore, as has been 
 said, merely different aspects of the same problem. 
 
 It is, however, an easy inference, but none the less a 
 mistaken one, to conclude that costs are equal to value, that 
 is, that all of the product is distributed within the cost 
 category. All excepting the marginal items of product 
 afford to entrepreneurs a surplus above cost — producers' 
 
RENT AND COST 277 
 
 quasi-rents, occupation differentials. Of this entrepreneur 
 remuneration, only a part is necessary remuneration — mini- 
 mum profit. All of the producers' differentials, personal 
 quasi-rents, fall within wages of superintendence, profit in 
 the broader sense, but not cost elements in profit. 
 
 The problem of each independent producer — each entre- 
 preneur — is how through one or another combination of the 
 productive energies at his disposal — land, capital, hired 
 labor, and his own activity — to obtain the results most 
 desirable to himself. Both costs and distributive shares 
 stand, therefore, as entrepreneur adjustments. Each human 
 being has before him to decide, in view of his peculiar 
 situation and adaptation, whether he shall be an entre- 
 preneur, a purchaser of productive powers, a combiner 
 and adjuster of productive energies, or whether he shall sell 
 his own productive energy to another, shall be a hired item, 
 a mere instrument, like the land or the draught horse. The 
 wage-earner differs from the draught horse only by the 
 fact that the wage-earner may become an independent pro- 
 ducer or an employing entrepreneur. As wage-earner he 
 sells his productive power precisely as the capital-owner or 
 the land-owner sells the productive efficiency of the things 
 that he controls. ^^ As far- as the entrepreneur's personal 
 
 ^^ All of this, of course, conceives cost as an entrepreneur computa- 
 tion. Were it here important, it would doubtless be possible to inquire 
 into cost as looked at from the point of view of the wage-earner ; 
 only that this cost would not refer to the cost of the produced com- 
 modity, but only to the cost to the laborer of his labor pain or of the 
 remuneration for it. This cost might be one of labor pain or of dis- 
 placed recreation or both ; or if, as is more commonly the case, not 
 leisure but another sort of work, or the same kind of work under 
 another employer, were the displaced fact, the cost would be one 
 within the usual opportunity category. 
 
 For purposes of investigating the causes of the labor situation in 
 which the employer is placed and in which his costs are to be com- 
 puted, there is doubtless importance in the laborer point of view and 
 manner of analysis. But this investigation is on the level of the expla- 
 nation of entrepreneur costs ; for the entrepreneur the cost question is 
 one of how much and not why. His costs are as they are. 
 
 But it is still to be noted that the mere item of outlay may be 
 quite misleading as measure of cost. Cost, it must be remembered, is 
 that total which the market price must remunerate if production is to 
 be maintained ; it may then well be true that for producing an output 
 
278 VALUE AND DISTRIBUTION 
 
 remuneration is concerned, it suffices to say that if he 
 cannot anywhere, after his different outlays, retain for him- 
 self a return as desirable (not necessarily as large) as that 
 which he could control through wage service, wage service 
 will be his alternative. And thus again we return to the 
 fact that all these different outlays, — rent, interest, and 
 wages among them, — are elements of cost, that is to say, 
 form part of that total for which the market price must 
 serve as indemnity if the production of the entrepreneur is 
 not to diminish or cease. ^^ 
 
 But after all is said, there is still an aspect of truth in 
 Ricardo's dictum that "corn is not high because rent is 
 paid, but rent is paid because corn is high If the 
 
 of 105 the necessary outlay is only 100, but that this same outlay else- 
 where applied may control a return of 102; in such case, the alterna- 
 tive productiveness of 102 and not the smaller 100 item of outlay must 
 be accepted as the cost. 
 
 *^ Acquiescence in the traditional terminology of the cost discus- 
 sion, with its categories of rent, interest, wages, and profits, has seemed 
 to be imperative here in view of the particular issue under discussion 
 — the rent-cost problem — and of the exigencies of an intermixed expo- 
 sition and criticism. 
 
 So important is the doctrine of this chapter, especially with 
 regard to the multiplicity of the different margins, and their nature, 
 so great the danger of misinterpretation, and so imperative the result- 
 ant call for all possible expositional clarity, that, even at the certainty 
 of some repetition, a restatement of the doctrine appears to be desir- 
 able ; a changed direction of approach will, in some measure, require 
 the anticipation of certain important steps in the general argument. 
 
 The marginal cost of product coincides reasonably accurately with 
 the expense at the extensive margin, or with the displacement either 
 of agricultural or of non-agricultural product at the extensive margin, 
 or with the displacement either of agricultural or of non-agricultural 
 product at the intensive margin : and also, for each and every use of 
 each and every grade of land, there is — or may be — a question of some 
 alternative use, the displacement of which would be refused were 
 prices in the first use appreciably to fall. 
 
 Here are surely margins enough ; but there are more. We may as 
 well talk of the extensive margin being an interest or a wage margin 
 as a land margin. So, at the intensive or at the alternative margin, the 
 choice is really whether, under the conditions, it is as gainful to apply 
 more labor or capital here as elsewhere. Still further, in each of these 
 problems, as in practically every problem, capital and labor come, as 
 regards each other, to an indifference of productive applications. Evi- 
 dently the margins are multitude ; and all that we may say, from the 
 
RENT AND COST 279 
 
 high price of corn were the effect and not the cause of 
 rent, prices would be proportionally influenced as rents 
 were high or low, and rent would be a component part of 
 
 cost point of view, is that any one of the agents may, through a 
 change in its costs, become the margin-changing agent — that is to say, 
 the agent deciding the producer to modify or abandon his line of 
 productive activity. 
 
 This amounts to saying that over against the general situation, 
 which the cultivator does not control, and the changes in which express 
 themselves as fluctuations in the volumes and in the values of produc- 
 tion goods, is the cultivator, whose problem is always to find that line 
 of productive activity the conditions of which are, relatively to him, by 
 virtue of his peculiar adaptations, his efficiency, his preferences, and 
 his equipment of goods, most advantageous or least resisting. 
 
 Viewed, then, as a whole, the aggregate human demand for goods 
 relatively to one another being assumed, and the aggregate human 
 efficiency for production in its actual environment of land and capital 
 being taken for granted, — and all this in connection with a system of 
 production functioning under the direction of independent and compet- 
 ing human agents, each engaged in the attempt to find for himself the 
 most advantageous line of application of the productive powers and 
 agencies under his control, — market value emerges as a point of adjust- 
 ment or of equilibrium for all the forces and influences engaged. 
 Normal value is the point at which, if conditions remained the same, 
 the equilibrium would be permanent ; changing values are merely points, 
 in a moving equilibrium, reached but only temporarily held, under these 
 readjustments and realignments of productive activity, brought about 
 by the changing conditions of demand, of processes, and of supplies of 
 productive agents. 
 
 Man is to be conceived as the subject and the center of economic 
 science ; his environment of land and capital (and, for the individual, 
 of his fellows) as his opportunity ; his industrial product as his remun- 
 eration ; his economic activity as his attempt to produce and to 
 exchange this product along the lines of least resistance (sacrifice). 
 Normal price is to be conceived as the point of least resistance, not 
 only for the buyers and sellers directly engaged in any employment, 
 but also for producers in other employments seeking those lines of 
 activity affording the most satisfactory — or least unsatisfactory — 
 remunerations. "Market prices are found to fluctuate in either direc- 
 tion about these normal or ideal prices, and cannot, in the competitive 
 adjustment of sacrifice, long or widely depart therefrom. In short, 
 the normal price is that price at which no producer can, to his own 
 thinking, better employ himself in some other line of production. 
 Prices generally would stand at their normal, if no producer or con- 
 sumer could to his own thinking advantageously change his manner of 
 economic action. But, like the ocean, market values have no rest. 
 Prices ripple and wave above or below their ideal level, as desires and 
 appetites, opportunities and abilities, slowly or rapidly change in force ; 
 yet .... none the less .... confess the controlling power of 
 this level as truly as do crest and trough their subjection to the ideal 
 level of the sea." — Davenport, op. cit., p. 104. 
 
 But men as employees are passive facts, mere agents under the 
 
28o VALUE AND DISTRIBUTION 
 
 price." " But, obviously, these same remarks apply equally 
 well to wages and interest. Wages are high all along the 
 Hne because, in view of the high productive powers of 
 labor, entrepreneurs' competitions are placing a high 
 market price upon that labor; thus the production of any 
 particular commodity has to face this high wage-cost level, 
 and must recoup itself for these wage costs through a 
 corresponding level of prices. 
 
 It is even so of any agricultural product; the supply of 
 land, relative to the demand for agricultural products in 
 general, gives, through entrepreneur bidding, the rental 
 values to different lands; this rental value stands as a 
 datum of cost for the production of any particular agri- 
 cultural product. But in ultimate analysis, it still stands 
 as true that it is not the rent that makes the prices high, 
 but the scarcity of land. 
 
 The real and the recurrent difficulty in all of this is that 
 costs and the relations of cost to value do not touch the 
 ultimate causes in the case. Entrepreneur computations 
 take all items of outlay cost as data, as definitive, funda- 
 mental facts, which, for any other than the entrepreneur 
 point of view, they indubitably are not. 
 
 All of this, however will get clearer with a change in 
 point of view. 
 
 A collectivist society, having no rentals to pay, could 
 compute none as facts of cost. In case the improvement 
 or upkeep of land were under consideration, the sole ques- 
 tion would be whether the energies and materials applied 
 could not be better applied elsewhere. The sole question 
 in the use of already existing land opportunities for any 
 particular product would be whether these opportunities 
 could not better be used for something else. The only 
 resistance to the current production would be — so far as 
 
 direction of managing producers, and are .therefore only potentially 
 directing forces. The problem of production and of marginalship is, 
 accordingly, an entrepreneur problem. 
 
 ^^ Ricardo, Political Economy, chap, ii, sec 29. 
 
RENT AND COST 281 
 
 concerned the land — the displacement of something else. 
 That is to say, the collectivist computation of land costs 
 would be entirely one of opportunity cost. Were the land 
 of a sort adapted to only one product, a cranberry swamp 
 as a possible example, no cost could be computed for the 
 land use. Of such land it might be said that its utility was 
 high because its products were highly useful ; but land-wise 
 the utility product would have no cost. But, with land of 
 alternative applications, the displaced product would stand 
 as the land cost of that product actually produced. If the 
 displaced utility were great, the produced utility would also 
 have to be great or be foregone. While it would doubtless 
 be true that the utility of the land could be ascribed to its 
 productiveness for, say, corn, it would none the less remain 
 true that the corn utility, at below a certain measure, 
 would not be permissible of acceptance, because of the high 
 utility of the land as reflected from its adaptation to 
 another product — wheat, for example. 
 
 For competitive society, Ricardo's doctrine should, 
 therefore, be revised to run something as follows : Ulti- 
 mately, corn is not high because rent is paid for corn land, 
 but rent must be paid, because, to command the land for 
 corn, a rental possible from some other product has to be 
 refused. 
 
 But, so formulated, the doctrine is, in truth, rather 
 transitional between the collectivist and the competitive 
 points of view than fully competitive; it retains, indeed, 
 strong traces of its collectivist origin. For, under com- 
 petitive conditions, not that rent barely sufficient to dis- 
 place the alternative use is the land cost, but the rent really 
 paid in the actual use. 
 
 Transfer the case fully into the entrepreneur competi- 
 tion, and all this becomes clear. Land, being limited in 
 quantity, is therefore cultivated to an extensive margin. 
 The limitation upon the land supply expresses itself under 
 the guise of rent for all lands or powers of land above the 
 margin. Rent is fixed by the bidding of entrepreneurs in 
 
282 VALUE AND DISTRIBUTION 
 
 view of the fact that a possessor of the better land is, by 
 virtue of his rent outlay, excused from an approximately 
 correspondingly high outlay for labor and instruments of 
 production. Rent is thus an item in entrepreneur cost, and 
 is causal in the same sense that other outlays are causal — 
 in the sense, that is to say, that this rent is the form under 
 which, in competitive production, a shortage of land 
 expresses itself. The rent is a necessary outlay, or, if 
 avoided, must be avoided at a correlative increase of outlay 
 in other directions. But, ultimately speaking, prices are 
 not high because rent is paid, but because of the limitation 
 upon the supply of land which, by driving cultivation to 
 poorer land powers, must give, whether under collectivist 
 or under competitive production, a distinct advantage to 
 all cultivation upon non-marginal lands. But, under com- 
 petitive production, these differential advantages take the 
 form of property rights for their possessors ; the land 
 acquires the aspect of a competitive agent affording a 
 valuable opportunity, by the use of which a cost of produc- 
 tion could be obtained lower, were the rent not computed, 
 than other costs, and lower than the market value of the 
 product ; thus the rent comes necessarily to be paid. 
 
 But, ultimately speaking, the rent does not increase 
 the price ; by the very fact that the land is limited the high 
 price is unavoidable. Unquestionably, were the land sup- 
 ply greater, the rent would be lower, and the prices lower; 
 but mark, not, in last analysis, lower because the rent is 
 lower, but because conditions have come to exist, which, 
 in making the lower price possible, have made the high 
 rent impossible. The rent cost and the relation of it to 
 value are mere expressions, in terms of entrepreneur com- 
 petition, of causes underlying and ultimate — environmental 
 facts, with which production must get along as best it may. 
 
 The foregoing conclusions lead directly to the con- 
 clusion that, from certain points of view and for certain 
 purposes, it is necessary to recognize as the true cost 
 
RENT AND COST 283 
 
 determinants these environmental facts, the situation facts, 
 as they will henceforth be called. What this term means 
 may possibly become clearer with a review of one of 
 Ricardo's comrade controversies with Malthus : 
 
 Malthus had argued that rent can arise only when land 
 is fertile enough to yield a surplus above the subsistence of 
 the laborer. For our present purposes, and for all the 
 purposes of Malthus' argument, and in closer conformity 
 with later theory, this term subsistence should better be 
 interpreted in the sense of wages, the doctrine then run- 
 ning to the effect that unless the yield will more than suffice 
 to pay the wages, there can be no rent collected. 
 
 But under either interpretation it is clear that were all 
 land sufficiently poor — and all equally poor — and yet, with 
 all of its badness, unlimited in quantity, there could be no 
 rent. Thus Malthus' position sums up as follows : Two 
 conditions must concur before rent can emerge, viz., that 
 there be land good enough to yield this surplus, and yet 
 that there be a scarcity both of this and of better land. 
 
 These better lands — what there were of them — Malthus 
 regarded as a source of material well-being, a social asset; 
 rent is the market e-xpression of this social good fortune. 
 True, it might be objected that, with this land in the 
 possession of private owners, the attendant advantages 
 must accrue, not to society in general, but to these owners ; 
 but, even so, the owners must be admitted to be a part of 
 society; and more than this, not all the benefit could be 
 monopolized by the owners ; as a condition to the receipt of 
 their rents, the land must be utilized, with a resulting 
 larger supply of products and with lower prices to con- 
 sumers. 
 
 But Ricardo placed the emphasis differently — not upon 
 the "I have" aspect, but upon the "Oh, had I." The exist- 
 ence of rent he interpreted as an expression of the nig- 
 gardliness of nature, the evidence of the difficulty under 
 which society is laboring in getting a living. Out of this 
 bad case, progressively getting worse, the land-owner is 
 
284 VALUE AND DISTRIBUTION 
 
 acquiring a progressively larger deduction from what 
 others can enjoy — that is, out of a national dividend griev- 
 ously restricted at the best, is acquiring not merely an 
 unearned increment, but an increment received out of the 
 social distress, and greater as this distress is greater. 
 
 Here, as mostly elsewhere in economics, the Ricardian 
 temper and mood and point of view have carried the day; 
 and not without justification, for Ricardo was right. But 
 so was Mai thus. Given the ideal endowment of piety, with 
 a sufficiently thankful heart, one has it always at hand to 
 render thanks that things are no worse: "Every misery 
 we miss is a new blessing, and therefore let us be thank- 
 ful," spake the completely genial fisherman. And so, in 
 substance, Malthus was thinking how much better things 
 were than if they had been worse; Ricardo, of how much 
 better they might have been if they had not been so bad. 
 
 But as a mere distribution fact, as distinguished from a 
 production fact, Malthus' view appears to present the better 
 doctrine. What land there is, is wealth, as clearly as what 
 capital there is. As a question, however, of the ethics of 
 institutional distribution, the problem of the unearned 
 increment, the right of property in the rent differential, 
 Ricardo's view has something more to say for itself. 
 
 But as a problem of costs in competitive production, 
 the two views need not have differed in application; 
 Ricardo misapplied his doctrine.^* 
 
 But it is none the less important to recognize that the 
 land and the capital and the labor do not make the costs 
 and the value of the products high, but low ; the more 
 
 " On the main issue, Senior sided for the most part with Malthus. 
 Ricardo had written (Principles, p. 53) : "The labor of nature is paid, 
 not because she does much, but because she does little. In proportion 
 as she becomes niggardly in her gifts, she exacts a greater price for her 
 work. Where she is munificently beneficent she always works gratis." 
 
 Senior replies : "Mr. Ricardo seems to have forgotten that the 
 quality which enables land to afford rent, namely, the power of pro- 
 ducing the subsistence of more persons than are required for its 
 cultivation, is an advantage without which rent could not have 
 
 existed That we have in this country perhaps a million of 
 
 acres capable of producing, with average labor, forty bushels of corn 
 
RENT AND COST 285 
 
 agents and instruments, relatively, especially adapted to 
 particular products, the greater the relative supply of these 
 products and the lower the price. In fact, unless the case 
 be one of complete indifference, no producer employs any 
 particular agent or instrument, as against another, except- 
 ing as a saving of expense is promised thereby ; all produc- 
 tion goods are, for their particular products, value- 
 diminishing influences. It is the scant supply of land and of 
 capital and of adapted labor, and not their presence, which 
 explains the relative scarcity of the product, its high value, 
 the relatively high hire of the productive factors, and the 
 correspondingly high capitalized value of such of them as 
 can be capitalized. As a question of costs, rent, interest, 
 and wages are, therefore, not ultimate explanations of 
 value. The fundamental determinant is "situational," as 
 connoting the entire case on the cost side, the original 
 environment, the volume and kinds of saved wealth, the 
 qualities and adaptations of men, the degree and the direc- 
 tion of development in the sciences and arts of production. 
 Entrepreneur outlay costs are the values placed by com- 
 petitive bidding upon the various opportunities and auxil- 
 iaries in the productive process, in view of the market 
 values of the resulting products. 
 
 But that the market remuneration of any productive 
 fact is a derivative from its value-producing power, in 
 view of the existing conditions of demand and of supply, 
 does not imply that this remuneration is either equal to its 
 contribution or is proportional to it, or, indeed, that the 
 precise amount of its contribution is ascertainable, or that, 
 
 an acre, is a benefit ; that we have not more than a million such acres, 
 is an evil. That the average amount of what an agricultural laborer 
 produces much exceeds what is absolutely necessary for the subsistence 
 of an agricultural family, is a benefit. That the extent of our fertile 
 land, and the amount of our capital, in proportion to our population, 
 are not sufficient to enable him to consume, directly or indirectly, for 
 his own advantage and that of his family, all that he produces, is an 
 
 evil To produce rent, both the benefit and the evil must 
 
 coexist. The one occasions rent to be demanded ; but it is the other 
 that enables it to be paid. Mr. Ricardo's attention seems to have been 
 confined to the evil." — Senior, Political Economy, p. 138. 
 
286 VALUE AND DISTRIBUTION 
 
 if ascertainable in its relation to any one entrepreneur, 
 this contribution would not be a different one for each dif- 
 ferent competing entrepreneur. In truth, the cost to any 
 entrepreneur is rarely, if ever, the precise equivalent — were 
 this quantum an ascertainable one — of the value signifi- 
 cance of the productive factor to him; otherwise there 
 could be no non -marginal entrepreneurs, and no producers' 
 quasi-rents. And even at the margin the equivalence is 
 really impossible of establishment; complete proof of this 
 last must, however, be postponed to later aspects of the 
 argument. 
 
 Recurring again to the Ricardian doctrine as to the 
 relation between land margins and costs, a more important 
 and — fundamentally — a more decisive argument remains 
 to be presented: There is no land margin of the sort con- 
 templated in the Ricardian doctrine. 
 
 Productive agents of countless kinds, labor of different 
 grades of skill in all the different trades and subdivisions of 
 trades, capital goods of all sorts and grades for number- 
 less different purposes, lands varying in climatic and chemi- 
 cal and positional qualities, adapted to countless different 
 uses and products, and in all conditions of original or 
 acquired fertility and exhaustion, and with all kinds of 
 improvement and modification through capital and through 
 labor — are one and all, through competitive bidding, 
 reduced to a certain sort of homogeneity, that is to say, 
 to the homogeneity of market price. But all the differ- 
 ences between the different productive agents and instru- 
 ments still persist. That all are subjected to a common 
 price measure, which merely means that all are bought and 
 sold, does not obliterate these differences or reduce all pro- 
 ductive facts to an abstract fund. In truth, money and 
 loan fund, — deferred options of disposing of wealth and 
 services, suspended purchasing power, — are the only cases of 
 abstractness or of true homogeneity known to economic 
 affairs. We have already had some occasion, and shall 
 
RENT AND COST 287 
 
 later have yet more, to notice that not even in point of 
 utility do equal market values express or suggest equiva- 
 lence. That the same man pays $500 for a furnace, a further 
 $500 for a piano, and a third $500 for a back kitchen to 
 his house, does not point to any actual or expected equality 
 of service from the different lines of expenditure ; still less 
 do equal outlays by different men. 
 
 Nor even by an appeal to margins is the case for 
 equality made stronger. That each of these three uses is 
 marginal in the sense of being the last item that one would 
 purchase at the price, may be merely derivative from the 
 fact that each is the last that one would purchase at any 
 price ; and it may still remain true that one would, if 
 necessary, have paid indefinitely more for each of the three 
 things than was actually paid. 
 
 And still clearer is it that as between different men — 
 simply because they are different and essentially incom- 
 parable in their mental states, to say nothing of differences 
 of wealth and poverty, sickness and health, culture and 
 crudity, vivid feeling and obtuse feeling — all utility com- 
 parisons fail utterly and hopelessly; there is no homo- 
 geneity possible here but this of purchasers' offer or of 
 purchasers' actual payment, — either one a mere price homo- 
 geneity. 
 
 And all of this holds — and this is our point of goal — 
 for production goods as truly as for consumption goods, 
 though admittedly in less marked degree. Men as pro- 
 ducers are dissimilar, not merely in intelligence and in 
 special aptitude, but in wealth, in credit, and in degree and 
 quality of objective material equipment. Production goods 
 take on a different relation to different entrepreneurs 
 accordingly as these entrepreneurs are different in their 
 aptitudes, their purchasing power, their lines of produc- 
 tion. Even were all goods capable of being distributed 
 and graded into stocks of similar items, these differences in 
 entrepreneur relation would still exist. But, in truth, most 
 goods are not so gradable ; even wheat is so only arbitrarily 
 
288 VALUE AND DISTRIBUTION 
 
 and by overlooking minor dissimilarities and inequalities. 
 Thus the purchaser commonly pays less for things than his 
 limit price. And there are quasi-rents of production as 
 well as of purchase or of sale. What any particular hirer 
 or buyer must pay for any particular item of productive 
 wealth is — even where frictionless competition is assumed 
 — only what the next most capable bidder is willing to pay ; 
 the maximum bid of the buyer in question is very prob- 
 ably a quite appreciably greater sum; most bargains are 
 concluded within an appreciably wide intermediate tract 
 of higgling. 
 
 Applying now these principles to the land-margin ques- 
 tion, it becomes evident that the margin of market value 
 and the margin of personal service do not and cannot 
 coincide. With the especial aptitudes or preferences of 
 one man for intensive farming, and of another for exten- 
 sive farming, and with all the modifications of neighbor- 
 hood preference, birth, associations, family, friends, health, 
 habit, religion, and the like, it is not at all certain that the 
 man upon the lowest-price land, or upon rentless land, if 
 there be any, could not and, if necessary, would not pay 
 more than he pays. When, after years of profitable farm- 
 ing and contented rent-paying at an appreciable sum, the 
 tenant falls on death, it may well happen that no new 
 tenant can find it to his advantage to make use of this land 
 on any terms. Every landlord knows that the rent income 
 depends in part upon the tenant and upon the bargain; in 
 every rural community the good tenant is as cordially 
 sought after by landlords as is the good landlord by 
 tenants- Never is the payment a trustworthy measure of 
 the service of the land to the tenant, or, in the absence of 
 this particular tenant, of the revenue, under an alternative 
 tenant, to the landlord. The margin of occupation is, 
 then, not a value margin ; and it is a utility margin only 
 with reference to a particular cultivator; the margin of 
 
RENT AND COST 289 
 
 service may be far beyond and below the ragged, saw- 
 edged, market- value line of rental payment. 
 
 A later development of the argument will serve to show 
 that precisely here must fail the productivity theory of 
 distribution. The remuneration is not the expression and 
 equivalent of the value productivity, but is merely the 
 market value of the value productivity. But all this must 
 await its turn. 
 
 It thus appears that the marginal producer of any 
 agricultural product is as likely to be upon high-rent .land 
 as upon rentless land. A fall in price is as likely to 
 direct out of agriculture and into some non-agricultural 
 employment the- tenant upon the better land or the capital 
 upon the better land as the tenant or the capital upon the 
 low-priced or rentless land. 
 
 Nor is this at all to deny that rightly understood there 
 is, or may be, such a thing as marginal land, land which, 
 to the most capable cultivator of it, is barely worth cultivat- 
 ing upon no-rent terms ; but it is to deny that this service- 
 less land and rentless land are necessarily the same land ; and 
 especially it is to deny that a fall in price will necessarily 
 send into non-use all land held without rent, or that 
 there is any such relation between rentless land and market 
 price as is indicated under the Ricardian doctrine.^^ 
 
 " The effects of a price fall upon land-holding are something as 
 follows : 
 
 A fall in the value of any one agricultural product will set free 
 some land for use in the production of other agricultural products ; 
 and when the redistribution in the uses of land has completed itself, 
 its final effects will sum up: (i) in a small reduction in the prices 
 of all other products ; (2) in the same total of effects upon land rents 
 in general as would follow from a small fall in the value of agricultural 
 products in general. 
 
 Going more into detail, it may be said that a fall in the price, say, 
 of wheat, will have as result a rise in both the extensive and the 
 intensive margins of cultivation ; that is, there will occur some outflow 
 of labor and capital from all grades of wheat land into other employ- 
 ments, both agricultural and non-agricultural. But it is only by land 
 somewhere becoming vacant that landlords are likely to lower their 
 rents. Non-marginal lands will, however, remain only temporarily out 
 of cultivation ; less than the old rent is better than no rent at all. 
 
290 VALUE AND DISTRIBUTION 
 
 We approach now a question which has been much 
 debated, but which should not, at the present stage of the 
 discussion, occasion great difficulty: Does the rent which 
 land is worth for another crop enter into the cost of the 
 crop actually produced ? ^^ 
 
 The following propositions may perhaps now be taken 
 either as proved or as requiring no proof : 
 
 The rent paid for land used for wheat is a part of the 
 cost of production of the wheat. The method of Marshall, 
 Hyde, and Hollander,^^ of appealing, for a rentless price- 
 But with the redistribution of holdings and of lines of production, some 
 cultivators having abandoned agriculture, the vacated better lands will 
 be re-rented to cultivators variously selected. No-rent lands — or lands 
 as near to this as cultivated lands ever get — may have been in the 
 possession of tenants some or all of whom could afford to pay an appre- 
 ciable rent ; these lands and their tenants may be undisturbed by the 
 fall in price, all the while that cultivators may have been moving off 
 from better lands, driven therefrom by the inflexibility of landlords in 
 refusing to lower the rents, or induced therefrom by the overbalan- 
 cing attractions of non-agricultural employments. 
 
 But it is not likely — indeed, it is not possible — that the vacated 
 lands be taken up solely by cultivators moving up from the poorer 
 or the poorest grades of land ; as rents fall and cultivation becomes 
 less intensive, cultivators will turn to farm larger areas of land. 
 The final adjustment will, then, sum up at something like this ; that the 
 marginal cultivators — on no matter what grades of land — will mostly 
 have abandoned agriculture, while all cultivators will, in some measure, 
 have diminished by marginal reductions their output per acre; the 
 margin of cultivation, both extensive and intensive, will have some- 
 what risen ; the methods of cultivation will have moved toward a less 
 intensive type, — another way of asserting some measure of capital out- 
 flow ; the reduction in the returns of agriculture in general will have 
 distributed itself into lower rents for landlords, lower returns upon 
 the capital instruments still remaining in production, and very slightly 
 lower personal remunerations for the human factor in agricultural 
 production. 
 
 But the marginal costs for different products will still be the costs 
 at the personal margin on no matter what grades of land. 
 
 ^' J. S. Mill, Principles, Book III, chap, vi ; Jevons, Theory of 
 Political Economy, Preface, pp. liii, liv ; Patten, Theory of Dynamic 
 Economics, p. 78; Hobson, Economics of Distribution, pp. 121-25; 
 Macfarlane, Value and Distribution, pp. 130-35 ; and A. S. Johnson, 
 Rent in Modern Economic Theory, pp. 78-82, are among the different 
 supporters of the affirmative ; see Marshall, Principles, for the most 
 authoritative exposition of the negative argument ; also, A. M. Hyde, 
 Journal of Political Economy, Vol. VI, No. 3 (June, 1898). 
 
 " Cf. article by J. H. Hollander, Quarterly Journal of Economics, 
 January, 1895. 
 
RENT AND COST 291 
 
 fixing cost, to the intensive margin where no rent is earned 
 or paid, is fruitless; cultivators at the intensive margin 
 simply substitute labor and instrument outlays for rent 
 outlays; there is no occasion for inequahty of costs, or for 
 the existence of marginal costs anywhere, by reason of the 
 land or rent fact as presented in this view. 
 
 Conceiving all supply-limiting influences as costs, it is 
 evident that any reduction, through corn culture, from the 
 amount of land to be had for wheat-raising, must neces- 
 sarily express itself in a diminished volume of wheat 
 product, in higher prices for wheat, and in higher rents 
 for wheat lands. But inasmuch as this leaves such wheat 
 rents as are actually paid to function as cost items in wheat 
 production, no reason yet appears for counting in the 
 possible — and smaller — corn rents. 
 
 As a collectivist doctrine the land cost of wheat would 
 be found in the displacement of corn; so, in competitive 
 production, corn cultivation may be the cultivator's most 
 attractive alternative; and, if the case were one of indiffer- 
 ence between wheat production, corn production, and non- 
 production, he might, with equal accuracy, speak of his 
 outlay or of the potential corn as his cost. But this again 
 is to call either the wheat re?it or the corn possibility of 
 product a cost; it is not to call the corn rent a part of the 
 wheat cost. 
 
 In collectivist production the cranberry patch could not 
 afford a basis of cost — having, by assumption, no alterna- 
 tive use. But in competitive production other competitors 
 would pay the cranberry rent, and would thereby impose it 
 as a cost upon the renting tenant. In competitive produc- 
 tion, then, the presence or absence of alternative adapta- 
 tions does not decide the cost problem. Opportunity cost 
 for the individual is in his outlays or in their alterna- 
 tive applications and is not necessarily a matter of the alter- 
 native applications of the production goods.^^ 
 
 " There is no force — and for present purposes, no relevancy — in 
 the doctrine that, because the remission of rents would not lower price, 
 
292 VALUE AND DISTRIBUTION 
 
 To Mill's dictum, "When land capable of yielding rent 
 in agriculture is applied to some other purpose, the rent 
 which it would have yielded is an element in the cost of 
 production of the commodity which it is employed to 
 produce," Jevons objects : 
 
 Here Mill edges in as an exceptional case that which proves 
 
 to be »the rule If land which has been getting £2 per acre 
 
 rent as pasture be ploughed up and used for raising wheat, will not 
 the £2 per acre be debited against the expense of the production 
 of wheat? 
 
 That Jevons has assumed a case of production by a 
 cultivating owner somewhat obscures the reasoning. But 
 it is clear that if this owner is computing his cost according 
 to an alternative product, he must make the displaced 
 pasture product the cost of the wheat, and not the rent; 
 and if he is computing his cost according to the rent, he 
 will find the cost in that rent which, as landlord, he could 
 derive from the land by renting it for its most profitable 
 use — the wheat use — and not according to some smaller 
 rent quantity possibly obtainable for the pasture use; thus, 
 in neither case can the pasture rent be a cost. 
 
 Jevons, however, carried his doctrine to its logical con- 
 clusion : "When labor is turned from one employment to 
 another, the wages it would otherwise have yielded must be 
 debited to the expense of the new product." There is 
 again the same sort of confusion of thought, but this time 
 it is in the failure to distinguish the wages of work from 
 the product of work. But as applied to competitive pro- 
 duction, Jevons' doctrine amounts to saying that my cost 
 is not in what I do pay my men, but in what I might have 
 paid them, had I paid them less.^'' 
 
 rent is no part of cost. This would equally well hold to exclude 
 interest or wages from cost. And if it be urged, as, for example, by 
 Hyde, that there is a marginal subsistence wage which must be paid 
 in order that the laborer live, it is, perhaps, fair to reply that the land- 
 lord may equally need the land hire in order to live ; at any rate, the 
 cancellation of the hire would, as has been already shown, finally 
 result in the exhaustion of the fertility of the land. 
 
 " It should be noted that Seligman in his lately published 
 Principles of Economics adopts in its most unmitigated form the 
 
RENT AND COST 293 
 
 Patton's way of putting the case is perhaps its most 
 forcible expression: "If the marginal land used for gar- 
 dening will yield a rent for wheat, the value of the mar- 
 ginal produce of garden products must equal the cost of 
 the labor employed plus the cost of the land when used for 
 wheat." 
 
 Surely the product must at least equal in value the 
 labor wage and the wheat rent; but it must more than 
 include the wheat rent; it must include the rent for the 
 garden use, which has, by assumption, been important 
 enough to displace the wheat use. 
 
 But there is nevertheless, as has already been indi- 
 cated, some saving grace of truth in this alternative-rent- 
 cost doctrine ; an influence important for the price of 
 wheat, and an influence much more nearly fundamental 
 than mere entrepreneur outlay, is vaguely in the back- 
 ground of the thought. Still, it is not the displaced corn 
 rent that makes either the prices of wheat or the rents of 
 
 reasoning of Jevons : "In the cost of the wheat, therefore, must 
 always be included the rent which the marginal, or no-wheat rent, 
 land would earn if employed for the next lower use" (p. 377). 
 
 And Jevons is likewise followed in his confusion of rent with 
 displaced product : 
 
 "Furthermore, not only must the marginal rent [the displaced prod- 
 uct?] always be included in cost, and therefore in price, but in a higher 
 sense the differential rent as a permanent phenomenon is also a part of 
 price. The rent of anything is its product. [True only when product 
 is used in another connection and in quite a different sense, as dis- 
 tributive value share.] The greater product of the better land forms 
 as much an element of the supply as the smaller product of the poorer 
 land, and price depends on the relation of the total supply to the total 
 
 demand Price is not fixed- by the marginal or maximum 
 
 cost but at the marginal cost, and the margin depends upon the out- 
 put of the better grades, receding as this increases, advancing as it 
 falls. Every bushel of wheat, whether it comes from good or poor 
 land, affects the supply, the price, and the margin." 
 
 Now note the argument : The rent on land is a price-determining 
 fact, because the product of the land is a part of the aggregate com- 
 modity supply. But the objection immediately arises that in this 
 higher sense — a view which emphatically deserves far more extensive 
 and more thorough development than it has yet anywhere received — 
 no cost of any sort, but only product, has anything to do with price. 
 And in last analysis, truly, products are not to be explained by remun- 
 erations, but by supply of agents ; the supply of products, being deter- 
 
294 VALUE AND DISTRIBUTION 
 
 wheat land higher, nor is it the land which might have 
 been used for corn but instead was used for wheat that 
 makes wheat prices and wheat rents higher — for precisely 
 the contrary is the fact — but it is the limitation upon the 
 supply of wheat lands by virtue, among other causes, of 
 the use for corn-growing, that makes the supply of wheat 
 smaller, thereby the prices higher, and thereby again the 
 wheat rents higher. 
 
 And once more be it repeated that rent is not the ulti- 
 mate cause of price ; rent in any line of production is 
 merely the entrepreneur expression of the limited quan- 
 tity of agents accessible for that industry. But in principle 
 all this holds equally of wages and of interest as costs ; 
 the relative scarcity of productive agents renders the 
 products relatively scarce, thereby the prices high, thereby 
 the remunerations for the agents high. The high remun- 
 eration is cost, in the sense of a supply-limiting fact, only 
 
 mined by the supply of agents, determines in turn — on the cost side 
 — ^the value of the product ; and the value of the product in turn 
 explains the remuneration of the agent. But this is all on a level 
 underlying the shallow entrepreneur-cost analysis — the merest super- 
 ficial adjustment working within, and controlled by, the larger situation 
 facts — and excludes all remunerations from the category of causal 
 factors ; the argument is thus not good to include rent equally with 
 wages in cost, but to exclude, together with the entire cost computation, 
 all of the different subheads and factors of cost from the category 
 of value-determining influences ; under this analysis, both rent and 
 interest appear as results of value, as mere distributive shares. That 
 is to say, not rent, but the lands — their scarcity ; not wages, but the 
 supply of labor, must explain the limited volume of product and the 
 value derivative from this limitation. And so bearing in mind that 
 wages produce nothing ; that land, and not rent, has productive power ; 
 that land is one thing, and the rent of it another and a quite dis- 
 tinguishable thing, we are in position to appreciate the infinite confusion 
 of fundamental standpoints and of derivative analyses involved in our 
 author's argument as it continues (the italics are the present writer's) : 
 "The rent of the better instrument is the product of the better instru- 
 ment. Each unit in the supply is a part of the total product or total 
 rent, and must therefore affect the price. Hence the rent or product 
 of any instrument of production, whether it be land or capital or 
 labor, whether it be marginal or differential rent, is really an element 
 in the price, in the sense that, were it not for that product, the price 
 would be different. Land is here in precisely the same position as 
 other things" (p. 379)- 
 
RENT AND COST 295 
 
 as, under entrepreneur production, it is the result and the 
 expression of a relatively limited supply of agents. 
 
 And now we are in position to estimate the measure of 
 truth contained in the view that, the market value of agents 
 being fixed, and the market opportunities ■ and burdens 
 being common to all entrepreneurs, and the entrepreneur's 
 personal equation of circumstances and ability being the 
 selective determinant of marginalship, entrepreneur differ- 
 ences must stand as the only variant in the determination 
 of the relative costs. 
 
 Such, indeed, would be the truth, were all industries 
 alike in their technological aspects; were labor, for 
 example, the only productive agent, or were all industries 
 equally capital-using and land-using and labor-using in 
 their methods of production. Or the proposition would 
 hold, if it were possible indefinitely, — as in large degree it 
 is possible, and as at the margin it is practically always 
 possible, — to substitute one agent for another, so that no 
 relative scarcity of any kind of productive agent could ever 
 obtain. 
 
 But as the case actually stands, peculiarities of adapta- 
 tion in productive agents, and peculiarities in entrepreneur 
 ability and adaptation have both to be accepted as funda- 
 mentally directive situation facts for the supply side of the 
 value equation. 
 
CHAPTER XVII 
 
 THE MODERN MOVEMENT 
 
 marginal utility and subjective value 
 
 (boehm-bawerk and von wieser) 
 
 In English, and especially in economic usage, the word 
 value connotes relativity. Seemingly, this does not hold, in 
 the German Sprach-Gefiihl, for the German term Wert. 
 Hence, translators of German economic literature and 
 expositors of German economic doctrine have to choose 
 between rendering the one German word Wert into the 
 two English words, worth and value, as occasion may 
 require, as against attempting to make the one word value 
 serve as the English equivalent of both the relational and 
 the non-relational senses of Wert. 
 
 In employing the two terms in English, there is the 
 obvious advantage — if only the changes and shades of 
 meaning in the German are correctly distinguished and 
 reported — of leaving less occasion for ambiguity and con- 
 fusion in the English readers' attempt to follow the Ger- 
 man thought. On the other hand, there is equal danger of 
 making distinctions where there were none in the thought 
 of the German author ; and if it should turn out to be true 
 that the use, in the German, of the one word for two 
 unrelated concepts has been a prolific source, not merely 
 of misinterpretation from the outside, but of confusion and 
 inaccuracy in the original thought, there is the added 
 danger that the two words in English should import a 
 clarity which is not in the original discussions, and should 
 make gratuitously difficult the task of understanding how 
 these confusions and inaccuracies have been occasioned. 
 
 However, there is nothing for it but to make the best 
 compromise possible. Wherever in the following discus- 
 sions the word zvorth is used, it may be taken as clear that 
 the use of Wert in the original is non-relational. 
 
 Wert in the subjective sense is the significance which a good 
 or a complex of goods possesses for the well-being of an indi- 
 
 296 
 
THE MODERN MOVEMENT 297 
 
 vidual Objective exchange Wert is the ability to com- 
 mand in exchange a quantity of other economic goods.^ 
 
 Boehm-Bawerk regards this objective Wert as a quality 
 attached to the good, and as without any necessary impH- 
 cation of service to the well-being of any individual; the 
 concept is of a purely objective fact — the power of 
 purchase — Kraft. There is, in fact, said to be no possi- 
 bility of rendering subjective Wert over into objective 
 Wert; though the first may be used to explain the second, 
 there must be a distinct theoretical system for both. But 
 "that two so distinct subjects must be handled under the 
 one name of Wert is unquestionably a source of great 
 danger." ^ 
 
 A good may stand as more than the service ful cause — 
 it may be the necessary condition — of human well-being; 
 herein lies the distinction between utility and worth. Worth 
 implies that 
 
 with the possession or the loss of the good a satisfaction 
 stands or falls When, with a good, an item of satisfac- 
 tion, well-being, pleasure, is at stake, then will the effective interest 
 we take in our own well-being be transferred to the good which we 
 recognize as the condition; in it we respect and prize our own 
 welfare.^ 
 
 Nor is the notion of cost a necessary element in the 
 worth concept; worth might exist with goods supplied by 
 the bountry of nature, if only the supply were limited. 
 Worth implies merely "that importance which a good or 
 complex of goods, as the recognized condition of an other- 
 wise absent utility, acquires for the well-being of an 
 individual." * "The measure [das Mass] of the dependent 
 service is everywhere the measure [das Mass] of the worth 
 of the good." ^ 
 
 '^ Eugen V. Boehm-Bawerk, "Grundzuge der Theorie des wirtschaft- 
 lichen Werts," p. 4. (Conrads Jahrbucher, 1886, neue Folge, XIII, 
 pp. 1-82, 477-541). 
 
 ^ Ibid., p. 7. * Ibid., p. 13. 
 
 ^ Ibid., p. 9. ^ Ibid., p. 20. 
 
298 VALUEJAND DISTRIBUTION 
 
 Notice that, despite the everywhere, there is here no 
 thought of markets and of exchange ratios, but only of 
 the service to the individual; nor, in fact, is there any 
 implication or suggestion of the quantum of one dependent 
 satisfaction relative to some other satisfaction, no compari- 
 son of one service with another, or of one necessary condi- 
 tion of satisfaction with some other necessary condition. 
 The thought goes solely upon absolute magnitude of feel- 
 ing; worth, or subjective worth, or subjective value, in 
 Austrian usage — these terms are really interchangeable — 
 is the significance attached to the means, as the indefeasible 
 condition upon which the feeling magnitude is recognized 
 to be dependent. It is absolutely essential that this fact 
 be grasped and firmly held; the Austrian doctrine is either 
 nonsense or hopeless error otherwise: 
 
 I say advisedly and with casuistic caution, the entire theory of 
 subjective Wert is nothing more than a great system of casuistry 
 as to when, under what conditions, and to what extent, our well- 
 being depends upon a good." 
 
 And keeping in mind that the subjective worth of any 
 good is measured by the need that without the good must 
 go unsatisfied, it follows that no one item of a stock of 
 goods can have a greater worth than that measured by the 
 weakest desire ministered to by any item of the stock; 
 so one item of a non-important class of goods may outrank 
 another item in the most important class : "Not every peak 
 of the Alps is higher than any peak of the Pyrenees;" all 
 of which says that "the worth of any good is determined 
 according to the magnitude of its marginal utility" 
 (Grensnutsen) ."^ 
 
 It follows that it is equally as false to measure the 
 worth of one item according to the importance of its class 
 of goods, as to measure the importance of the class 
 according to the importance of the marginal item; the 
 particular item, as item, or the group, as group, must get 
 its worth according to the utility dependent upon it. 
 
 Obviously also the height of the marginal utility, the 
 subjective worth of any item in a stock of goods, must 
 
 " Boehm-Bawerk, op. cit.,p. 20. ''Ibid., pp. 22, 29. 
 
THE MODERN MOVEMENT 299 
 
 depend in part upon the degree of the individual want, in 
 part also upon the size of the stock of goods. And here 
 follows doctrine invaluable for future purposes : 
 
 Since the relation of needs and provision may be extremely 
 different with different individuals, it follows that one and the 
 same good may have many different degrees of subjective worth 
 for different persons, a fact, in the absence of which the existence 
 of exchange would be absolutely unthinkable. Thus, in otherwise 
 similar circumstances, the same quantity of goods has for poor and 
 rich a different worth — lower for the rich, higher for the poor.^ 
 
 Now passing over for the moment, as does Boehm- 
 Bawerk finally, the difficulty of making utilities for differ- 
 ent men commensurable or even comparable, and assuming 
 this difference in worth for the rich man as compared 
 with the poor man, we stop to note that each of these 
 cases of worth is conceived by Boehm-Bawerk as a quan- 
 tity of absolute magnitude, a matter in each case of the 
 intensity of the need depending for its satisfaction upon 
 the good in question. But the difficulty remains that 
 solely upon the basis of these absolute magnitudes, no 
 exchange can ever be worked out; if otherwise, there 
 would never be any end to the exchanging between rich and 
 poor. That they exchange, the poor man a horse, and the 
 rich man a cow, gives no evidence of the importance to 
 either man of either the horse or the cow, and indicates 
 only that to one the horse is more important than the cow, 
 to the other, the cow more important than the horse; that 
 is to say, an exchange can take place only because the two 
 traders differ in their estimates of the relative importance 
 — the relative marginal utility — of the items under con- 
 sideration, differences not of subjective worth — these of 
 themselves would be irrelevant — but differences in relative 
 subjective worth. 
 
 All this has, of course, nothing to say as to the impor- 
 tance or the accuracy of the Austrian concept of subjective 
 worth, but refers only to the relation of this concept to the 
 phenomena of markets and of market values. 
 
 Nor, in view of occasional passages in Austrian discus- 
 sion, particularly in the work of Boehm-Bawerk, is it open 
 to doubt that, upon occasion, full recognition is accorded in 
 Austrian theory to this obvious fact of doctrine. But it is 
 
 * Ibid., p. 41. 
 
300 VALUE AND DISTRIBUTION 
 
 equally clear that the general trend of the discussion and 
 of the terminology is the other way; the above-quoted pas- 
 sage is one out of numberless instances in which subjective 
 worth is treated as relative, without explanation or apology 
 and by mere assumption, or is out of hand asserted to be 
 identical with market value — this last to the degree that the 
 general understanding of Austrian theory has come to be 
 that it explains market value by marginal utility, and 
 resolves market value into marginal utility. 
 
 But that subjective worth is alone inadequate to explain 
 exchanges, that by each trader two subjective worths must 
 have been compared, and a choice between them made, that 
 is, that subjective worths, absolute magnitudes, must be 
 put into terms of relativity — must undergo the valuation 
 process, before on either side a readiness for exchange 
 can be reached — is entirely clear. No one is ready to trade 
 by the mere fact that he has made an estimate of the 
 importance to himself of some one particular article — has set 
 a worth upon that article ; he must have done a similar 
 thing for that other article, the quid pro quo, else there 
 can be no basis for finding a balance of gain in the 
 transaction of exchange. 
 
 But now recurring to the basis — if basis there be — for 
 comparing, in terms of more or less, utility to one person 
 with utility to another person, it must be admitted that the 
 naive common-sense of the case is with the Austrian 
 assumption. It does appear to mean something when a boy 
 asserts that a blow hurts him more than it hurts another 
 boy, or when it is said that music gives one man more 
 pleasure than it gives another, or that the higher orders of 
 life feel pain more intensely than do the lower. Just what 
 or how much this naive deliverance may signify is a ques- 
 tion rather for the psychologist than for the economist; 
 but that there can be, at the most, only a vague and inac- 
 curate comparability and commensurability, is apparent; 
 there is little promise here of scientific service.^ 
 
 The truth probably is that, in the final and ultimate 
 
 " "Ah, sir, a distinct universe walks about under your hat and 
 under mine — all things in nature are different to each — the woman we 
 look at has not the same features, the dish we eat has not the same 
 taste, to the one and the other ; you and I are but a pair of infinite 
 isolations, with some fellow-islands a little more or less near us." — 
 Thackeray, Pendennis. 
 
THE MODERN MOVEMENT 301 
 
 psychological analysis, the more or less in these cases is 
 itself essentially relative ; to say that a thing pains me more 
 than it pains you is true only with the reference and with 
 the limitation of my larger or smaller capacity, my powers 
 of endurance and of self-control, and the intensity of my 
 coexisting sensations, perceptions, and emotions ; that is 
 to say, the comparison of my pains and yours is a matter 
 solely of the relative importance of these quantities, each 
 as parts of two distinct sensational and emotional situations 
 and systems ; that my more is more only in the sense that it 
 is, as a question of proportion, a larger share in my emo- 
 tional system, — is a greater quantity as matter of proportion, 
 the things being compared only in this aspect of ratios 
 to the other facts in their respective sensational and 
 emotional environments. 
 
 But with the recognition that, as applied to items of 
 demand or to items of supply, subjective worth is an 
 irrelevant concept until carried oyer into a comparison of 
 two subjective worths — into a subjective valuation — that 
 is, with Austrian theory interpreted at its best, it becomes 
 true, and is to be regarded as one of the chief merits of the 
 Austrian analysis that this difficulty as to the comparability 
 of the mental states of different men disappears ; the ratios 
 of equality or of inequality can be compared, entirely 
 irrespective of the quantities constituting the ratios.^*^ 
 
 But there still remains the problem as to how the dif- 
 ferent feelings of the same individual, at any particular 
 time and in any given set of circumstances, are somehow 
 reduced to a common denominator and made commen- 
 surable; and here the discussion of Boehm-Bawerk is, in 
 the main, admirably convincing: 
 
 Are feelings in any wise rational facts, and, even if so, 
 are they susceptible of rational measurement and com- 
 
 " The difficulty disappears for value theory, in the restricted 
 sense ; but it is not so clear that it does not persist for the theory of 
 interest. For, if my emotional quantities are not comparable with 
 yours, how comes it that my emotional quantities of today are com- 
 parable with those of a week or a year hence ? It is, perhaps, enough 
 that each individual does somehow make the comparison, in a manner 
 satisfactory to himself, and that with what justification and with what 
 measure of accuracy or of error need not concern the economic inves- 
 tigator. Perhaps it is enough that different situations appeal with 
 different degrees of strength to present will and choice. 
 
302 VALUE AND DISTRIBUTION 
 
 parison? Can whimsies be subjected to appraisal, so as to 
 stand in mathematical relations of beauty, agreeableness, 
 or sweetness, — this person or thing one and one-half times 
 as beautiful or as beloved as another, etc. ? Well, if, at least 
 in some crude but effective fashion, they were not so, no 
 economic life would be possible ; there could be no principle 
 of greatest pleasure with least pain; if we were unable to 
 posit the greater here and the less there, we should have 
 no way of deciding which desire to satisfy or to provide 
 against. Somehow we do the thing. The pleasure from a 
 cold bath is sufficiently unlike that from a symphony con- 
 cert, and both from that of satisfying hunger or thirst; but 
 we know right well at any given time which pleasure is the 
 greatest [which opportunity most attracts us]. Likewise 
 the toothache is a different sort of pain from a pin prick; 
 but we are able to decide which is the greater matter. 
 Somehow we arrive at a decision whether, with a scant 
 supply of water, to use it for drinking purposes, or for 
 watering the crops. That we have an economic life is the 
 proof that we do find a basis of commensurability, or at 
 least of approximate comparability. We do decide that one 
 pleasure is, in a general way, greater than another. 
 
 But after all, can we arrive at the conclusion that one is 
 greatly better, or moderately better, or, again, only incon- 
 siderably better or greater than another? Can we get at it 
 in any accurate way, even to mathematical precision, so 
 that pleasure A may be pronounced to be, say, three times 
 as great as pleasure Bf We certainly do it, and we do 
 certainly express ourselves in this precise way, although 
 the quality of the process may not rationally justify the 
 preciseness in the statement of the result. How otherwise 
 should we trade? A boy is about to buy some fruit; he 
 may have for his money one apple or six plums. He does 
 in fact compare the pleasures ; and in getting at a decision, 
 he must do more than decide that he likes apples better 
 than plums; he must decide whether he prefers one apple 
 to six plums, or six plums to one apple. Or if two boys, 
 
THE MODERN MOVEMENT 3^3 
 
 A and B, are trading plums for apples, shall A accept the 
 offer of three plums for one apple? Take it that he refuses 
 successive offers of three, four, and five, but accepts the 
 offer of six; all this is nothing else than a judgment on 
 his part that the pleasure from the offered good is or is not 
 greater than the pleasure obtainable from the quid pro quo 
 to be rendered. 
 
 And it is plain that if we can call an apple worth three 
 plums, we can call a plum worth one-third of an apple. 
 We do arrive at mathematical statements, precise, definite 
 ratios ; and so it is perhaps true, as von Wieser insists, 
 that all of these relations of greater and of less worth 
 finally trace back to relations of equality. 
 
 But we remark that while all this is, in the main, as 
 convincing as it is clear in statement, there are nevertheless 
 some implications in it to call for question. The dubious 
 aspect of it all is that it all sounds in terms of pleasure and 
 pain, the comparison of pleasure with pleasure, or of pain 
 with pain, or of pleasure against pain. It is true that this 
 is not peculiar to the Austrians, — to the utility school, so 
 called, in economic thought; it is characteristic of all or of 
 nearly all of economic discussion present and past. But it 
 is the more manifest that with the rapid movement in 
 psychological opinion toward what is termed the "volitional 
 or functional psychology" as distinguished from the pas- 
 sive or associationist point of view — the newer insistence 
 upon impulse and instinct in human activity as against 
 calculating and reflective choice — there is becoming increas- 
 ingly clear the necessity for reformulation of the funda- 
 mental assumptions of economic theory. The process of 
 valuation is distinctly a psychological phenomenon, and the 
 problem of value is the fundamental problem in economic 
 science. It may not be too much to say that the next 
 line of advance in economic theory will be distinctly psy- 
 chological in character, and that further progress awaits 
 its new impulse at the hands of the psychologist. 
 
 It must be admitted that in all fields of investigation, 
 other than jurisprudence and economics, utilitarianism 
 stands as a point of view discredited and outworn. How- 
 ever defensible this laggardness may be for a science where 
 
304 VALUE AND DISTRIBUTION 
 
 the question is merely, as in jurisprudence, on what reason- 
 ings have legal precedents and legal institutions been 
 worked out, there can be in utilitarianism no resting-place 
 for those sciences which, like economics, ask not what 
 opinion the doctors of the science have held concerning the 
 facts, but what objectively are the facts. Economics must 
 keep itself abreast of modern thought or, at the worst, must 
 more or less belatedly follow after. The preliminary step 
 is, then, to recognize that utilitarianism, or any form of 
 hedonistic theory, is a thing of the past. 
 
 It is precisely from this point of view that the Austrian 
 school comes seriously under suspicion. Whether it be 
 by necessity and fundamentally, or merely through ter- 
 minology and gratuitously, there is overmuch flavor in it 
 of Benthamism, too much talk of utility in the sense of 
 pleasure, and too much analysis of market activities in the 
 aspect, not merely of egoistical and cool-headed farsighted- 
 ness, but also of calculations worked out under a com- 
 mon denominator of utility for feeling — "pleasure by the 
 shilling's worth." 
 
 This is, in any event, if not bad doctrine, at least ques- 
 tionable and unnecessary doctrine. It lacks catholicity. 
 There are too many thinkers who believe that men sell and 
 buy economic goods from impulse and habit and irreflec- 
 tion — that instinct and appetite and spontaneity manifest 
 themselves in the economic world as truly as in the world 
 of play or romance. There are those going even so far as 
 to say that primarily we do not desire things because they 
 give us pleasure, but that they give us pleasure because 
 we desire them. Just as the chicken pecks its way out 
 of its shell without foreknowledge of the glories of the 
 outside day, and, immediately upon exit, picks up a grain 
 or two of sand, nowise interested in the nearby gratification 
 from its pungent flavor or in the far-away joys to accrue 
 from a well-sanded digestion, just so human instincts and 
 tastes and impulses reach their time, and spontaneous 
 activities press forward to expression; rattles wane and 
 dolls wax, while in later succession sleds and canes and 
 sweethearts and homes and offspring and offices and pro- 
 fessorships crowd upon the stage of human activity. 
 Things move from indifiference through gratification to 
 satia,tion, as men change in their equipment of desires and 
 tastes and sympathies; and, when a thing comes to give 
 
THE MODERN MOVEMENT S^S 
 
 us pleasure, it does so merely because we have come to 
 like it. As one wakes in the morning according to the 
 inner time-lock which he set at bed-going, as the hypnotic 
 patient carries out, days later, the mandate given during 
 his forgotten trance experience, as the idee fixe of patho- 
 logical mental conditions, or even of habit, guards one 
 against all influence of argument or appeal, as the resolve 
 of yesterday remains by that mere fact the cherished goal 
 of today, so do all of us, in a wide domain of our activities, 
 move in a half -blind trance of inherited impulses and 
 instincts and of acquired tendencies and aims. So much of 
 our action is essentially reflex that there is more question 
 whether any of it is altogether calculated and purposeful 
 than whether all of it is. 
 
 Boehm-Bawerk insists that we could not choose if we 
 could not measure exactly. Possibly so ; it is, however, 
 important for the economic life only that we choose, and 
 it is neither important nor clear that we choose or compute 
 or compare in terms of the pleasure or the pain equivalents 
 of the goods. It may be that the desire is for the good — 
 the commodity, the fact — and not for the pleasure of which 
 it may be the key. Possibly enough, the pleasure is a sort 
 of by-product, an incident. So one may enjoy the process 
 of getting rich rather than the wealth when acquired. It is 
 often more important for happiness to have a goal than to 
 reach it. Or, doubtless, the desire may reach out solely 
 toward the goal.^^ 
 
 The fisherman who, when asked whether he was getting 
 any fish, replied that he was not fishing for fish, but for 
 pleasure, certainly may have spoken the truth ; doubtless 
 some of our activity is worked out under the pleasure 
 calculus. But it is equally certain that one may be fishing 
 for fish, and not for pleasure ; not all of our action is to be 
 reduced to a pleasure-and-pain computation ; there is a 
 spontaneous unfolding of activity — the disposition to func- 
 tion — the type of action insisted upon in the ethical theory 
 called "energism." Play may be its own end and justifica- 
 tion, not the pleasure of play; many men keep up the habit 
 of living, with all its necessary and incidental activities, 
 without attributing pleasure to the parts separately or to 
 
 ^^A student reports to me the reply of a petulant and inconsolable 
 child : "I don't want nothing ; I just want to want something." Later 
 years of life know this feeling better. 
 
3o6 VALUE AND DISTRIBUTION 
 
 the aggregate, and even under the conviction that Hfe is a 
 burden. A race of pessimists might not suffer in numbers, 
 as compared with the most devoted of pleasure-seeking 
 Epicureans. We seek things because they respond to our 
 wants. It is sufficient that the fact be a desired fact, an 
 inducing fact, a fact operative to call forth a response of 
 will and choice. Who knows that he desires a thing or a 
 situation always with a degree of intensity proportioned to 
 the pleasure that the fact when attained will give, or is 
 expected to give? Is the martyr seeking the pleasures of 
 martyrdom? Now and then does not one smoke, at some 
 blind "1 must" call of habit, and even with the full knowl- 
 edge that the process will not afiford pleasure, and that the 
 result will be a headache? Are the desires of sex, or the 
 parental instincts and activities, sheer computations of 
 pleasure? And if all our rational activities could be justi- 
 fied under this hedonistic calculus, and 3'et if this be not, in 
 fact, the computation according to which they are under- 
 taken, and if many of our activities are not reasoned, but 
 are, instead, intuitive or habitual and, in either case, uncal- 
 culated, it must follow that another and more inclusive 
 formula than that of the hedonist is in need of seeking. It 
 is enough that we choose in fine gradations and with clear 
 distinctions, and it does not matter whether the measure be 
 accurate, the process rational, or the result correct. 
 
 That most of our activity is of the irreflective tradi- 
 tional sort is, indeed, admitted by Boehm-Bawerk : "Num- 
 berless economic acts are performed purely automatically 
 or mechanically ;" ^^ and all choices might be reached in as 
 mechanical a way as some are — and as perhaps all really are 
 — and yet the economic facts would remain practically 
 and theoretically much as now. We do seem to ourselves 
 to do some considering ; we might do either more or less 
 and still the fact of deciding would remain — choices between 
 goods and choices between alternative activities would still 
 take place, and our economic theories would still formulate 
 themselves very much as they are now formulated. 
 
 I must simply insist with all emphasis that the correctness of 
 our measurements does not signify, but only that we make 
 
 them Well or ill the reckoning is done in terms of com- 
 
 mensurability." 
 
 "Boehm-Bawerk, op. cit., p. 49. ^^ Ibid., p. 50. 
 
THE MODERN MOVEMENT 307 
 
 So it does not much matter for the economic aspects of 
 either the older or the newer thought whether one concurs 
 in the anti-utilitarian protest. The later investigators, like 
 the earlier, appear to be grievously given over to hedon- 
 ism; but so have other men been to Methodism without 
 obvious disadvantage to their economic theories. So much 
 is, indeed, asserted by both Boehm-Bawerk and von Wieser ; 
 and one wonders mostly why, if all this hedonism is, in 
 fact, so unessential, one finds so much of it.^* And yet it 
 may safely be asserted that there is not one single essential 
 
 ""Men strive after happiness. This is, perhaps, the most general, 
 and certainly the most vague, expression for a complex of strivings, 
 all of which have for the object the bringing about of such occurrences 
 and conditions as we know and feel to be pleasant, and the avoiding 
 of those we know to be unpleasant. Instead of 'striving after happi- 
 ness,' we may use the expression 'striving after self-preservation and 
 self-development,' or 'striving after the greatest furtherance of life.' 
 Or we may, with equal propriety, use the words 'striving after the 
 most complete possible satisfaction of wants ;' for the expressions we 
 are so familiar with in economic terminology, 'want' and 'satisfaction 
 of want,' mean, in the last resort, nothing else than, respectively, the 
 unsatisfied craving of man to be put under conditions he thinks desir- 
 able or more desirable than those he has, and the successful obtaining 
 of such conditions." — Positive Theory of Capital, p. 9. 
 
 "To many of us it seems a positive hindrance to the fair fame of 
 political economy now that its professors should talk of a 'calculus 
 of pleasures and pains,' as if that were the foundation on which all 
 economical theory must rest. If the economist is no longer assumed 
 to suppose that all men act only from self-interest in the narrowest 
 sense, why should he be supposed to measure only pleasures and 
 pains ?"—TBonar, Philosophy and Political Economy, p. 236. 
 
 "The facts are simply these : Every species of wealth is of value 
 to us in so far as it helps us to supply some of our wants. These wants 
 are of an almost endless variety, and differ very greatly in the degree 
 
 of their importance If any of these wants remain entirely 
 
 unsatisfied, we are to that extent the losers ; and their loss is in pro- 
 portion to the importance of the wants whose satisfaction is desired. 
 But each of our wants demands only a limited amount of the material 
 which is appropriate to its gratification ; and, when this has been 
 granted, it demands no more. Moreover, each want can in general be 
 supplied in such a way as to serve its purpose moderately well with a 
 considerable less amount of material than that which would bring it up 
 to the limit at which the demand would absolutely cease. Hence, as 
 wealth increases in a particular direction the increments in 
 that direction become less and less valuable for the supply 
 of our wants. In all this there is no necessary reference 
 to pleasure. If the need of living continued, we should go on about as 
 before without any connection of pleasure with the gratification of 
 
 want We have seen already wherein the plausibility of the 
 
 doctrine consists. Our end seems plainly to be in the realization of 
 something which our nature wants. Such a realization brings pleasure. 
 
3o8 
 
 VALUE AND DISTRIBUTION 
 
 doctrine in the system that might not, without substantial 
 impairment or change of economic bearing, be stripped of 
 its psychological or ethical implications. 
 
 For the purpose of the present discussion there is. 
 
 Hence it is very natural to identify pleasure with the realization of an 
 end." — Mackenzie, Introduction to Social Philosophy, pp. 215, 216. 
 
 The interrelations of utilitarianism with the associational psy- 
 chology, and of the two with the Lamarckian biology, and of the three 
 with the notion of thought and feeling as merely material atom- 
 activities taking place in the brain conceived as seat and origin of 
 thought rather than as mere organ, are all suggestively and effectively 
 set forth by Professor Fite in his Introductory Study of Ethics: 
 
 "The hedonistic psychology is that of the associational school. 
 According to this school the mind is a series of mental states, of 
 quasi-mental pictures, which (a) are various combinations of simple, 
 homogeneous mental elements, whose form of combination is (&) 
 
 determined by the order of external stimuli The original 
 
 substance of mind is thus wholly amorphous and indeterminate, like 
 the surface of a blank waxen tablet, and mental structure is the 
 mechanical result of the impressions left by external objects 
 
 "On first sight human impulses show an enormous variety ; and 
 prima facie any impulse would appear to be as real and as elementary 
 as any other. But for associational psychology there is no way of 
 explaining this variety, except as quantitative variations of a single 
 elementary, and hence real, desire, which is then described as a desire 
 
 for pleasure The hedonist finds that the young infant has 
 
 apparently no desires except the sensuous one, and from this he con- 
 cludes that the elementary desire is the desire for food and animal 
 enjoyment. But according to the evolutionary conception, the develop- 
 ment of desire does not begin with the individual infant, nor yet with 
 the species ; its earliest stages must be sought among the lower 
 animals. Turning his attention, then, still further backward, the 
 hedonist finds that the desires of the lower animals are still more dis- 
 tinctly sensuous. Sensuous desire then becomes his type or element 
 
 of desire The child .... loves his mother because the 
 
 thought of her suggests all manner of comforts of which she is the 
 source; originally she is the source of his food 
 
 "It follows that the hedonist is a believer in determinism as 
 opposed to free will 
 
 "The distinction between the two views [Lamarckianism and 
 Weissmannism] amounts to this : according to one, the environment 
 may initiate a modification (i. e., create an instinct) ; according to the 
 other, it can merely restrict the operation of instincts already inherent 
 in the organism. 
 
 "But the vital point of the controversy lies deeper. It has to do 
 not only with the inheritance of acquired characteristics, but with 
 what is implied as to the mode of inheritance of all characteristics. 
 The question resolves itself ultimately into this : which is primarily 
 and fundamentally responsible for the course of human and animal 
 development, the environment or the inherent nature of the organism ? 
 Now the Lamarckian places the burden of responsibility upon the 
 
THE MODERN MOVEMENT 309 
 
 therefore, no occasion to enter into a criticism of the 
 Austrian terminology purely in the aspect of its philo- 
 sophical or ethical implications. However bad the psy- 
 chology of the demand school in economics may appear, 
 
 environment. In other words, it is his object to show that all the 
 characteristics of human and animal life are due entirely to environ- 
 mental influences 
 
 "From the hedonistic standpoint the fundamental characteristic 
 of human nature is its tendency toward passive conformity. There are 
 no specific impulses to satisfy, no specific ends to be accomplished ; 
 our only object is to make ourselves as comfortable as possible in view 
 of the existing conditions ; and provided we are comfortable, it matters 
 not what kind of a life we lead 
 
 "The hedonistic theory may then be regarded as a mechanical 
 view of conduct. The ethical theory implies immediately a mechanical 
 psychology, which attributes all the phenomena of conscious life to 
 combinations of simple mental elements ; more remotely a mechanical 
 biology which translates the mental elements into physiological 
 elements and the law of association into a biological law ; and finally 
 a mechanical cosmology which reduces all the reality of the world to 
 simple physical elements governed by one physical law" (chap, vii, 
 PP- 95-1 1 ij passim). 
 
 Thus all ethical appraisals, whether of approval or of disapproval, 
 come to be interpreted as a sort of brain-tissue memory established by 
 long experience, individual or racial, into lines of least resistance and 
 intimate association between brain centers, in such wise that the facts 
 or activities commonly connected in experience with pleasure or pain 
 are regarded with approval or with disapproval as the representatives 
 or the equivalents of the respectively associated pleasures or pains. 
 
 Among many possible illustrations of the prevailing hedonism of 
 economic thought, the following are offered as typical : 
 
 Seager : "The normal purpose of consumption is to afford 
 pleasure" (op. cit., p. 67). "The sum of the efforts and sacrifices that 
 are involved in production constitute what is known in economics 
 
 as the cost of production Sacrifices, .... the doing of 
 
 things that are less pleasurable than other things that might be done 
 but free from any element of pain" (p. 53). 
 
 Seligman : "The motive that guides men in their economic life is 
 sometimes described as the economic motive. It may best be defined 
 as the motive that compels every human being to satisfy his wants with 
 the smallest possible effort, or which leads him to secure the most 
 
 pleasure with the least pain Human beings are impelled by 
 
 other motives as well In searching for the fundamental laws 
 
 of economics it is convenient to exclude all motives save the 
 economic The so-called economic man is a complete abstrac- 
 tion. By the economic man is meant the human being dominated 
 by the economic motive. Such a man does not, however, really 
 
 exist Side by side with the economic life are the aesthetic 
 
 life, the religious life, the intellectual life It is, indeed, the 
 
 function of economics to study that aspect of human life known as the 
 
3IO VALUE AND DISTRIBUTION 
 
 it can be held to be of disadvantage to economic thought 
 only in the sense that it holds the field against some better 
 psychological formulation of economic foundations. 
 
 There is, then, no sufficient reason .for quarreling with 
 the term utility either on the ground of its distinctly 
 hedonistic associations or upon the basis of some other 
 word better serving the needs of the case. In truth, the 
 better word is not readily forthcoming; and, whatever may 
 have been the consensus of use in past economic discussion, 
 it remains true that utility does not of necessity mean 
 
 economic life. We must not, however, forget that we are studying 
 man in only one aspect of his existence" {Principles, pp. 4, 5). 
 
 "Since value implies capacity to satisfy wants, there are as many 
 kinds of value as there are classes of wants. Things have a scientific 
 value, an aesthetic value, a religious value, a philosophic value, a 
 political value and so on. The value with which economics has to 
 deal is economic value, a small subdivision of the whole. As this is a 
 treatise on economics, we shall hereafter use the term value in the 
 sense of economic value, that is, the value of anything for economic 
 
 purposes When we defined economics .... as the science 
 
 of value, it must be remembered that what is meant is the science 
 not of all value, but only of economic value" {Principles, p. 174). 
 
 Taken altogether this appears to mean that the economic motive 
 and the economic field include all activity motived by pleasure and 
 pain calculations ; but not all human life is so motived, since some 
 wants reach toward satisfactions expressive of other sorts of appeal. 
 But it is clear that economics is regarded as hedonistic in all its com- 
 putations. Were it in any wise relevant to the matter in hand, one 
 might stop to inquire whether, by this test, a picture must not be 
 excluded from economic consideration, pictures being aesthetic facts ; 
 and how is it possible that the redness of an apple should affect its 
 market value ? The services and the boluses of the physician are clearly 
 enough economic items ; but how about Christian Science healing, and 
 about outlays for preaching, and for other ghostly comfort? 
 
 Pantaleoni ; "It is evident that commercial or industrial activity 
 or the activity (whatever its nature may be) displayed by men in the 
 pursuit of what is commonly termed wealth has no other motive than 
 egoism" {Pure Economics, p. 11). 
 
 And if it be true that all action is hedonistic, is it so in the sense 
 of the seeking of pleasure and avoidance of pain, or is the calculation 
 one not of. pleasure and pain strictly, but only of pleasures and of 
 pains? And how does the individual get these different pleasures and 
 pains into any common denominator so as to become comparable? And 
 is it safe to take pleasure or pleasures to be the algebraic negative 
 of pain or pains? 
 
 To some of these questions the safest and simplest reply is 
 ignoramus ; and with regard to others it is probably true that for the 
 purposes of economics, no deeper knowledge is called for than such as 
 shall safeguard the economist from unnecessary pitfalls or from 
 
THE MODERN MOVEMENT 311 
 
 "importance for happiness" or imply any sort of "pain 
 or pleasure calculus." Desirability in the sense of the 
 capacity to be desired is inaccurate, while desiredness is at 
 least awkward. If, however, one revolts at the use of 
 utility and marginal utility, desiredness and marginal 
 desiredness may perhaps be acceptable. 
 
 Acquiescence in the term utility carries with it also an 
 acceptance of marginal utility. Entirely aside from any 
 question as to the dubious purposes to which this second 
 term has been subjected in economic discussion, it is clear 
 that it stands for an actual fact in individual experience. 
 
 unnecessary choices between competing presuppositions or competing 
 schools of ethical theory. 
 
 Pantaleoni {op. cit., p. 26), for example, discusses the question 
 whether pleasure is negative pain, or whether, on the contrary, pleasure 
 and pain are qualitatively distinct sensations, and inclines, on the 
 whole, to the first, the positive-and-negative view, as the better 
 explaining the experienced actual comparability and the patently actual 
 commensurability of the two. 
 
 The better opinion seems to the present writer to be that pain and 
 pleasure are multifarious, pain no more accurately the negative of 
 pleasure than is one pleasure or one pain the negative of another 
 pain or another pleasure ; and that no item of pleasure is comparable 
 or commensurable with any other, or with any pain item, and no item 
 of pain like or unlike any other item either of pleasure or of pain, 
 in any other sense than that all, as objective facts arousing liking 
 or repugnance, must make their separate and respective claims upon 
 the will, are thus brought under a common denominator of desire, and 
 are commensurable with respect to the strength of the appeal which 
 they make to choice, — the relative force of the competing desires to have 
 or to avoid. "It is a simple psychological fact that, as we cannot know 
 ourselves except in relation to objects from which we distinguish 
 ourselves, so we cannot seek our own pleasure except in objects 
 which are distinguishable from that pleasure, and which we desire for 
 themselves. Desire always in the first instance looks outward to the 
 object and only indirectly through the object to the self; pleasure 
 comes of the realization of desire, but the desire is primarily for some- 
 thing else than the pleasure ; and though it may gradually become 
 tinctured by the consciousness of the objective result, it can never 
 entirely lose its objective reference. The pleasure seeker is an 
 abstraction ; for just in proportion as we approximate to the state of 
 the pure hunter for pleasure, for whom all objective interest is lost in 
 self-seeking, it is demonstrable by the nature of the case, and shown 
 by experience, that for us all pleasure must cease" (Caird, Heget, 
 p. 213). 
 
 "We can only have the highest happiness — such as goes along with 
 being a great man — ^by having wide thoughts, and much feeling for 
 the rest of the world as well as ourselves ; and this sort of happiness 
 often brings so much pain with it that we can only tell it from pain 
 by its being what we would choose before everything else, because our 
 souls see it is good" (George Eliot, Romola, III, 290). 
 
312 VALUE AND DISTRIBUTION 
 
 Its best illustration is found in the falling intensity of the 
 desires of any individual for any given sort of commodity 
 at any given point of time. Successive increments of sup- 
 ply call forth a continually diminishing response of desire. 
 But note that, if the case be not conceived as one of a suc- 
 cession of commodity items — if no item be regarded as 
 coming early or late as compared with any other, but all 
 as portions of a stock already in hand — it is no longer 
 ppssible to regard any one item as entitled as against any 
 other to the marginal place. Any item may stand as mar- 
 ginal in the sense that the loss of it would be felt as 
 involving only the utility depending upon it, which utility 
 would be equivalent to the utility of the last item in the 
 series, were the different items acquired or considered 
 successively. 
 
 It by no means follows, however, that each of the items 
 is marginal because any one of them may be so. Not all 
 of the items of a stock can be marginal at once. The 
 utility loss that will be suffered in the loss of the entire 
 stock is not the marginal utility times the number of 
 items, but the utility of the entire stock conceived as a 
 marginal stock. No one item can be regarded as marginal 
 excepting on such terms of regrouping as shall impose the 
 non-marginal quality upon all the others.^^ 
 
 It needs also to be clearly held in mind that in utility 
 schedules we never get beyond the individual, and that 
 marginal utility is purely a matter of the individual 
 psychology. For different individuals there can be no 
 
 " Wieser appears to be of the other opinion: "The majority of 
 theorists .... are agreed that these prices are fixed by a marginal 
 law. We, however, have gone still farther, and say that value generally 
 and in every form, even that of use, and even where there is no 
 exchange .... must obey a marginal law. Jevons, Gossen, and 
 Walras have not gone so far as to assert this. To these writers the 
 utility of the separate portions or items of one supply is different 
 
 according to the amount of use which each actually gives I 
 
 can scarcely hope to have converted him [the reader] all at once to 
 such an unfamiliar aspect of the question" {Natural Value, p. 26, note.) 
 But in another note upon page forty-four Wieser states the position again 
 in a way to raise the query whether he is not talking about value rather 
 than utility. In fact, in the second case he employs the word value 
 for seemingly precisely the same meaning as was in the former case 
 expressed by utility, the two statements together being perhaps mostly 
 serviceable as illustrating the confusion of utility with value character- 
 istic of Austrian discussion. 
 
THE MODERN MOVEMENT 313 
 
 comparison of utilities either qualitatively or quantita- 
 tively. As including more than one individual schedule, 
 there is, therefore, no possibility of a marginal service in 
 the sense of the smallest service of a descending series ; 
 there is no series. That A will pay 30 and B 29 in no 
 sense implies that the utility to B is to the utility to A 
 as 29 : 30. One may be willing to give today for bread 
 double what he would have given a year ago, though only 
 equally as hungry today. The strength of his desire for 
 other things is a necessary factor. Cases are, as we have 
 seen, marginal, not in terms of absolute utility, but only of 
 relative utility. A wealth of illustrations edifying to the 
 point of weariness about the cigar and the loaf. Dives and 
 Lazarus, the starving man and the man at feast, ought 
 long since to have placed this truth beyond either the 
 right or the danger of serious discussion, but have not 
 done so. We still hear that stocks of goods in the 
 general market may be ranged under one schedule with 
 one margin of utility, and that the margin of utility both 
 determines and is the market value for all the items of 
 the market stock. 
 
 Thus, considered merely as the marginal item in an 
 individual schedule, marginal utility becomes no more 
 than vaguely quantitative — the assertion of a smaller 
 utility than any other in the series. In no degree is it a 
 measure of the absolute utility or of the precise ratio in 
 utility which any item in the series bears to any other. To 
 say that a certain utility is the smallest of a series does not 
 imply anything about the size of this utility. The smallest 
 potato in the bin may be a very sizable potato. 
 
 From the very fact also that the series is a series, and 
 that the very law of satiation which it expresses requires 
 that the items of the series be unequal in utility volume, 
 there can be no term within the series capable of serving 
 accurately as the utility measure of any other. 
 
 Nor is it more defensible to assert that the measure of 
 the utiHty is to be found in money. To say that the limit 
 price upon a horse for a would-be buyer is 30 means 
 simply that at any price above 30 the bidder would prefer 
 to reserve his purchasing power for other purposes. But 
 it will not do to assert with the Austrians that this 30 
 measures the utility of either the goods or the horse. 
 There is no such thing as measuring utility in money. 
 
314 VALUE AND DISTRIBUTION 
 
 All that the price limit of 30 says is that, as between the 
 utilities of two things purchasable at 30, to go as far as 
 30 for the horse is to reach the point of indifference. At 
 higher than 30 something else is preferable. This 30 
 mark speaks as to the relative utility — to the particular 
 individual — of horses and other things, but says nothing 
 as to the absolute utility of the things compared. That 
 John is taller than Tom tells nothing of how tall either is. 
 Likewise, to assert an equality of utility between two 
 things tells nothing as to the absolute utility of either. 
 That all the potatoes in a bin are of equal size leaves 
 everything in the dark as to the size of any of them. 
 
 It follows that the vague term utility gets quit of only 
 one dimension of its vagueness in becoming marginal. 
 Nor does the strictly marginal utility — the lowest utility 
 of the series — do even this. It is only when a quantitative 
 relation of utility is asserted with reference to a commodity 
 outside the series — when utility becomes relative — that 
 marginal utilit}^, so called, can express itself in price limits 
 or become relevant to the phenomena of exchange. ^^ 
 
 " The general relation of utility to wealth and to value may now, 
 perhaps, be mostly taken for granted. 
 
 Senior defines wealth as "all those things, and those things only, 
 which are transferable, are limited in supply, and are directly or indi- 
 rectly productive of pleasure or preventive of pain." Note the three 
 requisites: (i) transferability, (2) limitation in supply, (3) advan- 
 tage in terms of pleasure or of prevention of pain. 
 
 Enough has been, for present purposes, said of the pain-and- 
 pleasure implications of utility. As to transferability it is to be 
 objected that while it is evidently an essential condition to market 
 exchangeability and thereby an important influence upon the utility of 
 any good to its possessor, a thing may yet be useful without being 
 transferable, and, if other conditions coexist, may have value to the 
 individual. Jevons (Principles of Economics, Macmillan, 1905, p. 3) 
 puts the case thus : "Transferableness .... is .... in most 
 cases a question of degree. There are comparatively few things which, 
 
 though useful to one person, are absolutely useless to another 
 
 An old family portrait may be more interesting and useful to the 
 family than to other people ; but if its painter is of repute and skill, 
 it may, nevertheless, be valued by other owners. A rare edition may 
 be almost priceless for the book-collector who wants it to complete his 
 series, but it may be desired by other collectors with less warmth." 
 
 This is, truly, an accurate paraphrase of Senior (op. cit., pp. 8-10) 
 who is cited by Jevons with approval. But clearly enough, the talk 
 here is not of transferability in any ordinary sense ; the difficulty is 
 not — so far as, in degree, there is any difficulty — that the usefulness 
 cannot be assigned, but that there is none to be assigned ; buyers could 
 have, if, in their view, there were anything to be had. To others 
 than the possessor, the thing in question lacks utility ; they do not 
 
THE MODERN MOVEMENT 315 
 
 The concept of marginal utility is, beyond question, of 
 great significance in economic analysis, though as we have 
 seen, and shall repeatedly have occasion to note, it is often 
 most disastrously confused with marginal purchaser's price, 
 that is, with relative marginal utility, — relative subjective 
 zvorth, subjective value. 
 
 But evidently it is only the latter concept that has any 
 part or share in the term value as a market category and 
 expression of purchasing pOAver. Value in this relational 
 sense emerges only when utilities, as an individual cate- 
 gory, have been, by different individuals, conceived rela- 
 tively to other utilities to be displaced. For different 
 buyers the relative utilities of horses to other goods, when 
 expressed in terms of money as 30, 28, 26, etc., are purely 
 personal estimates as to the utility of horses compared with 
 the utility of the things which each buyer must forego in 
 the event that he purchases a horse ; and these are marginal 
 estimates, since each expresses the purchasing disposition 
 pushed to the point of indifference. Each of these money 
 statements is, therefore, an expression of subjective value — 
 
 desire. But the next point made by Jevons, still following Senior, is 
 valid : "The question, of course, is not one of mere physical trans- 
 ferability. There are some things, such as land, which cannot be 
 handed about, but can only be transferred in legal possession. Other 
 things, for instance, a beautiful voice, cannot be received or parted 
 with." 
 
 And just as transferability is a condition neither to utility, nor to 
 value in the individual schedule and in the relative sense, but is an 
 essential only to exchangeability, so Senior's second requirement, 
 limitation in supply, is accurately a condition not to the existence of 
 utility but only of utility in the marginal items, or more accurately, to 
 utility in all of the items of the stock ; and as condition to marginal 
 utility, and thereby to subjective worth, and thereby to the comparison 
 of worths, it is finally a condition to the existence of market value. 
 
 There is, however, in the books, much confusion of utility with 
 marginal utility ; of this the following cases — entirely outside the 
 Austrian sponsorship — may be cited as typical examples : 
 
 "At a given moment there is a given number of units and there 
 is but one marginal utility, and this is the same for each of the units. 
 It is quite erroneous to say that where there are 30 units, the utility of 
 the tenth is 36 ; of the twentieth 25 : of the thirteenth 19. It is equally 
 incorrect to say that when there are 60 units, the 'total utility' is 
 equal to the area between the right angle and — etc.," "while the value 
 is equal to the rectangle, etc." — Fetter, Principles, p. 25. 
 
 From Seligman, Principles, p. 176: "At any given time the utility 
 of each apple is equal to that of the last, and therefore to that of any 
 of them." 
 
 And Seligman, carrying out the implications of this position, adds : 
 
3l6 VALUE AND DISTRIBUTION 
 
 not subjective worth, but subjective value, a relational fact 
 — money serving as mere equation sign between subjective 
 worths of unknown size : x^y, with no notion as to the 
 magnitude of either .r or y. Mere marginal utility — sub- 
 jective worth, for most purposes (but see later?) — ex- 
 presses the utility that is lost in the loss of one item of 
 stock. In relative marginal utility, loss in terms of some- 
 thing else, the thought is carried over into the field of 
 value. 
 
 We are now ready for further additions to our equip- 
 ment of terms. Market value is the objective resultant — 
 the equilibrium point — of all the different subjective values 
 implicated in the market. The marginal traders are those 
 with whose subjective valuations the market adjustment 
 
 "The marginal utility of the stock .... is always equal to the 
 marginal utility of the final unit multiplied by the number of units ;"or 
 as Fetter puts the same view : "The dependence felt by men on the 
 group is the product of the units by the marginal^utility" (p. 25). 
 
 It is of course to be objected that the service derived from the 
 whole group of units, considered as an indivisible aggregate, or the 
 loss which would be sustained by the loss of the entire group is some- 
 thing indefinitely greater — possibly infinitely greater — than the product 
 of the marginal utility multiplied by the number of units. It is true 
 that, taken separately, no one item can have greater importance attached 
 to it than has the marginal item, since, when the items are considered 
 separately, substitution is possible ; but all the items have not the same 
 utility. If it were really true that the utility of each item of a stock 
 falls to the level of the last item, and if it were true that the total 
 utility of the group is the product of the marginal utility multiplied by 
 the number of items, there could never be any utility in any single 
 item or in any group of items, so long as the supply were sufficient 
 to allow any part of it to be free goods. That is to say, the view 
 presented by Professor Seligman permits the emergence of utility only 
 as the result of scarcity ; and yet scarcity alone is not sufficient for 
 value — else mosquitoes would be valuable in winter. What name 
 shall serve to denote the other essential? 
 
 In a general way, the notion of utility is doubtless fairly clearly 
 held in economic thought ; and not much needs here be said in this 
 connection. Jevon's statement of the case is in the main admirable : 
 
 "Most persons confuse the utility with the physical qualities which 
 are merely the basis or requisite condition of the utility. The utility 
 of gold, for instance, cannot be said to consist in its beautiful yellow 
 color, its ductility, freedom from corrosion, and high specific gravity. 
 If these qualities constituted utility, then gold would be useful even to 
 the drowning traveler whose pockets are loaded with coin. The 
 water of the river in which he drowns would, moreover, be useful, 
 because its qualities remain the same as if it served the population of 
 a town for drinking and washing purposes. As Senior briefly remarks : 
 
THE MODERN MOVEMENT 317 
 
 most nearly coincides. For all traders other than the mar- 
 ginal there is an appreciable advantage accruing from the 
 fact of exchange. These differentials — these distances of 
 advantage between the sacrifice which would have been 
 consented to, if imposed, and the sacrifice actually consented 
 to — are the traders' quasi-rents. 
 
 It is not intended — it would, indeed, be most unfair, to 
 imply that everywhere in Austrian discussion this aspect of 
 relativity fails of adequate recognition, or that it does not 
 occasionally receive expression at the hands of Boehm- 
 Bawerk. One wishes merely that this recognition had been 
 consistent and firmly adhered to, especially in such authori- 
 tative treatises as have been translated into English. But, 
 
 'Utility denotes no intrinsic quality in the things which we call useful ; 
 it merely expresses their relations to the pains and pleasures of 
 mankind.' " 
 
 Aside from the distinctly hedonistic tone of this formulation, one 
 could improve it only by extending its scope ; for it seems to be the 
 truth that no quality or attribute — utility or other — is really intrinsic ; 
 just as, psychologically considered, sound is not an aerial vibration drum- 
 beating upon the organs of auditory sensation — ^but the subjective 
 effect or interpretation of the external phenomenon ; and just as heat 
 and light and color are psychological significances derived from what 
 — supposedly — are objectively mere etherial waves — so all the so-called 
 qualities are such only as reported to the mind through a reporting 
 mechanism, and as modified and conditioned by the nature and limita- 
 tions of this mechanism, and as interpreted according to the activities 
 and capacities of the recipient-percipient mind. The ultimate truth is, 
 then, that, like utility, all these qualities are such only in the sense of 
 relations between the objective fact and the human consciousness; 
 there is no place for "intrinsic" qualities anywhere, unless as expres- 
 sive of the faith that there is somewhere a reality in itself lying behind 
 and upholding the reality as it appeals to us. 
 
 But in view of all this, and of the further truth that all thought 
 must run in terms of relation, what does it mean to speak of an 
 absolute magnitude of feeling? There can surely be intended no denial 
 that in expressing or estimating or appraising the feeling, it must be 
 thought of as an experience, and must be understood and appreciated in 
 the light of other experiences ; nor is it denied that, for any purposes 
 of thought or of action, the feeling must be considered with reference 
 to its setting of experiences, and in relation to experience past and 
 experience to come. But by the very necessity of this relativity in 
 the nature of thought, it is all the while implied that different some- 
 things in sensation or feeling exist to be related. Before things can 
 be understood, compared, related, thought of, they must first be. Thus 
 before a feeling can be decided to be greater or less than another, 
 more or less desirable, similar or different, it must have been experienced 
 
3l8 VALUE AND DISTRIBUTION 
 
 with the accepted terminology of the school, neither con- 
 sistency of doctrine nor clarity of exposition was readily 
 possible. But more of this later. Our present interest is in 
 the working-out by Boehm-Bawerk of the relation between 
 subjective Wert and market value. 
 
 Price in German usage indicates merely the quid pro quo 
 of exchange. When the exchanged good is money, it is 
 accurately to be called the money price. Careful attention 
 to this fact is essential, if misinterpretation is to be avoided 
 by English readers. 
 
 Fundamental to exchange are^ according to Boehm- 
 Bawerk, three assumptions : ( i ) There can be no exchange 
 except where exchange brings advantage; (2) the larger is 
 
 separately, and in this sense, absolutely ; it can be a term in a relation 
 only on condition of having a separateness, an existence outside the 
 relation. One's first experience of any sort must contain its own 
 quantum of discomfort or of satisfaction ; it does not need that one 
 have stepped on my toe twice, in order that I come to have a first feel- 
 ing experience. If pain or pleasure could exist only with a second 
 experience, neither could ever exist at all. 
 
 True, one could not appreciate the experience as like or different 
 in relation to another, unless upon the assumption of preceding 
 experiences with which to put the current experience into relation, 
 but he could nevertheless have the current experience and, feeling- 
 wise, approve or disapprove of it. It is in this sense that we may 
 speak of an absolute magnitude of feeling. 
 
 Nor is there question that in the process of putting these feeling 
 magnitudes into relation, in deciding between them, making compari- 
 sons of them, some development or modification may take place in the 
 terms or in the completeness of the separate appraisals. It is rare that 
 one knows precisely how much he would pay for a thing more than he 
 actually does pay ; he has never carried the processes of appraisal, 
 comparison, and computation farther than to know that the com- 
 modity in question signifies to him more than the quid pro quo to be 
 foregone. But more and more as the needs of action require, and in 
 the process of deciding to act, or in the process of acting, these 
 separate and absolute magnitudes of feeling acquire clearer definition, 
 both relatively and absolutely ; and it is probable that in the process of 
 comparison, the act of thinking things into relation, there may be some 
 reaction of one term in the relation upon the other, to modify the 
 appraisal of each, not merely in point of precision, of definition, but 
 also qualitatively. But not the less must there be two separate 
 feeling magnitudes to be compared, between which a relation is to be 
 established and a choice declared. These absolute magnitudes, these 
 to-be-related significances, are of the general nature, the raw material, 
 of subjective worth. 
 
THE MODERN MOVEMENT 319 
 
 preferred to the smaller advantage; (3) the smaller is pre- 
 ferred against no advantage. 
 
 Exchange therefore presupposes that for each trader 
 the obtained good affords a greater utility than the good 
 foregone, so that, "since the significance of goods for well- 
 being expresses itself as subjective value (worth), the 
 obtained good possesses a greater subjective worth than the 
 released good." ^^ 
 
 It follows that "an exchange is economically possible 
 between persons only who appraise commodity and price 
 
 good differently — in fact, in reverse order One 
 
 must appraise the good higher, the other lower than the 
 price good." ^^ 
 
 Now, is it true that the good parted with and the good 
 received must have the; same value — Wert — since they 
 exchange against each other? In the subjective sense, in the 
 purely personal appraisal of the traders, no ; for each man 
 the worths compared must be unequal to the degree at least 
 to tip the scales of choice.^^ 
 
 Here, it is to be remarked, is surely adequate recognition 
 of the necessity of getting two subjective worths into com- 
 parison, into a subjective-worth ratio, that is to say, into a 
 subjective valuation, before either a price offer or a refusal 
 price can be reached, and any subjective value come to exist 
 in that relational sense affording a possible key to market 
 value; but in all the Austrian prodigality of terminology 
 there is no term for this valuation relation between subjec- 
 tive worths. And note that for any trader, even that one 
 nearest the margin, some quasi-rent is asserted ; market 
 price can never quite express any margfinal demand ; as a 
 ratio, market value is never quite coincident with the mar- 
 ginal purchaser's ratio between marginal utilities. Marginal 
 buyers and sellers are those who, at the market adjust- 
 ment, approach nearest to indifference, — whose utility-ratios 
 between goods obtained and goods foregone are nearest to 
 being expressed by the i : i ratio: "That bidder is the 
 strongest [tauschfdhigste] who appraises his own good 
 lowest relatively to the good offered, or, what amounts to 
 
 " Boehm-Bawerk, op. cit., p. 480. ^'' Ibid., p. 490. " Ibid., p. 490. 
 
320 VALUE AND DISTRIBUTION 
 
 the same thing, appraises the offered good highest rela- 
 tively to his own." ^° 
 
 And here follows the familiar illustrative scheme — with 
 the horses — for the working-out of the price adjustment, a 
 method too familiar to require attention for present pur- 
 poses; but it is nevertheless worth remembering that it is 
 all worked out in terms of money against goods.^^ 
 From this analysis several principles are deduced: 
 Which of the bidders succeed in trading? The five 
 buyers who appraise the horses highest, and the five sellers 
 who appraise the horses lowest. 
 
 But here again the relativity is forgotten; the appraisal 
 cannot be in terms of mere subjective worth, else no 
 exchange could be deduced as possible. The lowest and 
 the highest should have been expressed as relative to the 
 medium of exchange, or as relative to the price commodity 
 on the other side. Simply as an expression of marginal 
 utility, nothing is to be arrived at. 
 
 The height of the market price is Hmited and fixed by the 
 height of the subjective worth estirrlates of the two marginal 
 
 22 
 
 pairs. 
 
 The unfirm grasp of the relativity principle is at this 
 point suggested by the vague and halting quality of the 
 statement; worth appraisals or worth estimates (subjective 
 W ertschdtzungen) can rightly mean not mere recogni- 
 tions of subjective worth, but valuations of subjective 
 worths, comparisons made between subjective worths. 
 
 And it is further to be objected, (i) that the formula- 
 tion misconceives the relation of the marginal traders to the 
 other traders and to the process of price adjustment; the 
 marginal buyer or seller shows merely the degree or extent 
 in which he, or any other trader, has individually affected 
 the market outcome; (2) not the two marginal pairs, but 
 one marginal pair, not four persons but two, give the 
 breadth of the margin interval within which the price is 
 indeterminate and left to higgling for its adjustment. A 
 point may easily be fixed between two points ; but precisely 
 how a point shall be fixed between four points is not readily 
 clear. 
 
 ^' Boehm-Bawerk, op. cif., p. 491. 
 
 ^ I bid. J pp. 493-96. ^ Ibid., p. 501. 
 
THE MODERN MOVEMENT 321 
 
 All of this process and the outcome of it trace back, 
 Boehm-Bawerk asserts, to subjective value (Wert) as the 
 ultimate explanation : 
 
 The relation between commodity and price good is it [which 
 distinctly is not subjective worth, but a relation between subjective 
 worths] that decides the individual to take steps looking to an 
 exchange, decides as to the degree of the exchange disposition, 
 decides sharply up to what point the interests of each bidder will 
 lead him to compete, and likewise the limit at which, as outbidden 
 and excluded bidder, he must retire from the competition; decides 
 in its further effect who, in the scale of strongest bidders, will suc- 
 ceed in trading, to whom the role of marginal pair [note the 
 singular] will fall, and thereby also the height of the price at 
 which the exchange shall take place.^^ 
 
 Subjective worth does, in fact, none of these things; 
 and even the subjective valuations do not do the last. But 
 forthwith the exposition relapses into accuracy : 
 
 We can with entire precision describe the price as the result of 
 subjective worth appraisals of commodity and price good, as these 
 appraisals meet each other upon the market.^ 
 
 Nothing having yet been said as to the relation of 
 demand and supply, we have now to inquire "from what 
 circumstances it is decided whether the worth-appraisal 
 level [Schdtstmgsniveau] of the marginal pairs is high or 
 low." 25 
 
 There are four forces or facts making for the deter- 
 mination of the price: (i) the nature of the demands 
 directed upon the commodity; (2) the height of the appraisal 
 figures (Schdfsungssiffern) on the part of the buyers; 
 (3) the number of wares for sale; (4) the height of the 
 appraisal figures on the part of the sellers : 
 
 But .... our appraisal figures are not simple magnitudes. 
 They are in no sense simple data as to the absolute magnitude of 
 the subjective Wert which the commodity has for the appraisers, 
 but rather they are relative quantities derived from the comparison 
 of two separate Wert-appraisals, the appraisals of commodity and 
 of price good. In saying that A appraises a horse at 200 florins, 
 we have said and implied nothing as to what absolute importance 
 
 ^Ibid., p. S03. ''*Ibid,, p. 503. '^ Ibid., p. 509. 
 
322 VALUE AND DISTRIBUTION 
 
 the possession of a horse has for A but, on the contrary, we have 
 merely expressed the relation in which the Wert of the horse 
 stands for A in relation to the Wert of the money-price.'" 
 
 It must be admitted that this is accurate, adequate, and 
 admirable; and if the terminology were adapted to the 
 doctrine, and the doctrine adhered to without vacillation, 
 and were the exposition consistent and free of confusion 
 both of thought and of terms, nothing better could be 
 asked for, so far as this aspect of value doctrine is con- 
 cerned. But it is equally true that so stated and inter- 
 preted, no Ricardian would ever put the doctrine in issue, 
 excepting possibly as to the importance of the conclusions 
 and the justification of the attendant much talking. The 
 Ricardian is, as we have seen, overdisposed to assume that 
 the demand can be taken for granted, without analysis and 
 without saying. 
 
 But Boehm-Bawerk also, under force (3), "the number 
 of wares for sale," recognizes that cost influences await 
 investigation. 
 
 COST OF PRODUCTION 
 
 In truth, the Austrian analysis of subjective worth has 
 not yet been fully presented. Bearing in mind that "a good 
 which one already has he appraises according to the loss 
 (Einbusse) which he would suffer by the loss of it," ^^ a 
 principle of substitution has to be recognized. The loss of 
 any particular good, say of an overcoat, is not commonly to 
 be measured according to the utility of the overcoat, but 
 according to the utility of the good which will have to be 
 foregone in order to replace the overcoat.-^ 
 
 It is by virtue of this doctrine of substitution that goods 
 of highest necessity, food, clothing, and the Hke, command 
 so limited an appreciation in point of worth. But obviously 
 the principle does not apply when the loss, if shunted off, 
 would fall upon something not less but more important; 
 when, in short, the lost good is itself marginal. Substitu- 
 tion through reproduction really falls under this general 
 
 ^ Boehm-Bawerk, op. cit., p. 509. 
 
 '"Ibid., p. 33, note. "^ Ibid., p, 36. 
 
THE MODERN MOVEMENT 323 
 
 principle of substitution, and furnishes the theoretical basis 
 for the bearing of costs upon subjective Wert. The loss is 
 always that smaller loss into which the loss in question may 
 be translated.-'' 
 
 There is no objection fairly to be made here; 
 the valuation process is unquestionably of the sort stated. 
 But- it is none the less in point to note the necessary impli- 
 cation that, whatever may be the truth as to market value, 
 subjective value {Wert) is hereby made a question not of 
 marginal utility but of marginal cost, marginal displace- 
 ment. Subjective Wert is then badly presented when, as 
 over and again in Austrian discussion, it is made exclu- 
 sively a question of marginal utility. When, for an over- 
 coat, for which, by virtue of its utility, one would pay if 
 necessary $20, one actually pays only $10, he is justified in 
 placing the value of the coat at $10 ; but not the utility ; the 
 utility is still the twenty-dollar quantity, and the purchaser's 
 differential, the utility gain, the quasi-rent, is thus $10, 
 simply because the coat had and retains a marginal utility 
 of $20. And thus the strange outcome of all this discussion 
 appears to be that marginal utility, or, more accurately, 
 subjective value, as value determinant presented as unre- 
 lated to cost and as fundamental to cost, is itself finally 
 resolved into cost. Bat however this may be, it is clear 
 that, in accurate analysis, marginal utility should remain 
 one thing, and the marginal cost of the marginal utility, — its 
 subjective value, its worth, — should remain another and a 
 quite distinct thing. On any other terms all is confusion, 
 all utility becoming marginal in a general mish-mash of 
 costs. For if marginal utility and cost value are one, there 
 can be no utilities that are not marginal; all the similar 
 items of a stock must be of equal marginal utility, equal 
 subjective value, and equal market value; therewith disap- 
 pears all possibility of the explanation of value by margins. 
 
 And so when Wieser says that, "in Paradise nothing 
 would have Wert but satisfactions," it is immediately to be 
 added that satisfactions also would not; they would have 
 utility and relative utility, but no marginal utility and no 
 value, either of the subjective or of-« the objective sort, 
 simply "because there one could have anything." ^° 
 
 ^ Ibid., p. 39. 
 
 ^ Friedrich von Wieser, Natural Value, edited by William Smart, 
 translated by Christian A. Malloch, Macmillan, 1893, p. 20. 
 
324 VALUE AND DISTRIBUTION 
 
 But the Austrian doctrine of costs will best be con- 
 sidered in another connection. The task now at hand is 
 to present the concept of subjective Wert with such ade- 
 quacy and definiteness as the nature of the concept permits. 
 To this end extended reference will be necessary to the 
 Positive Theory. ^^ 
 
 At all events, it seems from the analysis so far as at 
 present carried, that even in marginal utility, strictly inter- 
 preted, there is nothing- but utility, and this without any 
 pretense of a measure for the utility set up, unless it be in 
 the utility of some non-marginal item; and all we can then 
 say is that it is the less useful of the two. 
 
 Recalling that Say stood distinctly for the measure of 
 utility by value, rather than of value by utility, one would 
 like to know whether anything is made in Austrian theory 
 of this distinction. According to Boehm-Bawerk, "The 
 measure of the utility which depends on a good is, actually 
 and everywhere, the measure of value for that good." ^^ 
 
 And again: 
 
 The value of a good is measured [Die Grosse des Wertes 
 eines Gutes bemisst sich] by the importance of that concrete want 
 or partial want which is least urgent among the wants that are met 
 from the available stock of similar goods. What determines the 
 value of a good [ist fiir seinen Wert massgebend] then, is not its 
 greatest utility, not its average utility, but the least utility, .... 
 
 the economic marginal utility of the good The value 
 
 [Wert] of a good is determined by the amount of its marginal 
 utility [nach der Grosse seines Grenznutzens] .^ 
 
 Merely stopping to note that the meaning of value is 
 here again referred to marginal utility as distinguished 
 from the cost or displacement attendant upon marginal 
 utility, we ask ourselves what is meant by saying that 
 value "is determined" by the amount of the marginal utility, 
 
 ^^ Eugen v. Boehm-Bawerk, The Positive Theory of Capital, trans- 
 lated, with a preface and analysis, by William Smart, Macmillan, 1891. 
 
 ^^ Ibid., p. 139. In the original the passage reads: "Das Mass des 
 abhangigen Nutzens ist wirklich und iiberall auch das Mass fiir den 
 Gutenwert." — "Capital und Capitalzins, zweite Abtheilung," Positive 
 Theorie des Capitals, Buch III, Abschnitt III. 
 
 ^ Ibid., p. 148. 
 
THE MODERN MOVEMENT 325 
 
 more than merely that vakie is marginal utility? But that 
 there is a difference is to be inferred from the earlier state- 
 ment that the measure of the marginal utility, the trans- 
 formation of it into subjective worth, is to be traced to the 
 purely psychological and subjective feeling-state attendant 
 upon the existence of the want situation of the individual 
 relative to the good; all of which must mean that the psy- 
 chological emphasis, the significance for feeling, constitutes 
 the subjective valuation, the non-relative worth appraisal 
 of the marginal utility, its expression. 
 
 So far the doctrine is parallel with that of Say, except- 
 ing that, with Say, the talk was purely and solely of market 
 value, and that, with subjective value, Wert, the notion is 
 rather one of the expression of value than of the measuring 
 of value. Subjective value, as such, implies no measure, is 
 not expressed in equivalents, and stands for an absolute 
 magnitude of feeling.^* 
 
 In Boehm-Bawerk's treatment of substitutionary utili- 
 ties, in the Positive Theory, he returns to the overcoat illus- 
 
 ^ It is also to be said that here, as elsewhere in Austrian discus- 
 sion, there is difficulty in being certain of one's justification in inter- 
 polating the word subjective or any sign that subjective worth is 
 intended, — to be sure that, after all, the statement in hand is not 
 intended to apply as well, or even exclusively, to market value. That 
 this discussion is found in the chapter on "Subjective Value" does not 
 guarantee that the thought may not drift into market-value waters. 
 Thus on page 152, after discussing the subjective value of a sack of 
 corn out of a farmer's stock of similar sacks, and after attaching this 
 value to the marginal utility of the final sack, — clearly an absolute 
 magnitude, — Boehm-Bawerk proceeds : "Transfer now the field of illus- 
 tration from the solitary in the primeval forest to the bustle of a 
 
 highly organized community The more goods there are of 
 
 one kind in the market the smaller .... is the value The 
 
 more individual goods there are available in any class, the smaller is 
 the marginal utility which determines the value." 
 
 That there can be no such thing as a market marginal utility, but 
 only a market marginal purchase price, does not need repeating, unless, 
 indeed, the assumption is tacitly made that all purchasers are precisely 
 alike in point of subjective situation and of purchasing power. But 
 this is merely another case of the confusion, chronic in Austrian 
 discussion, of marginal utility with market value and of subjective 
 value with objective value. If the Austrians cannot keep their 
 categories separate, it is idle to expect others to do so. And so Hob- 
 son, doing yeoman service against the straw-man doctrine that 
 marginal utility determines or is market value, appears to achieve an 
 easy victory over Boehm-Bawerk by merely quoting from page 159 of 
 the Positive Theory : "The fewer and the less urgent the wants and 
 the more goods there are to satisfy them, the deeper down the scale 
 
326 VALUE AND DISTRIBUTION 
 
 tration : "I shall try to shift the incidence of the loss onto 
 other lines of goods," sell some of them, or drawing upon 
 my stock of cash, go without something that I had intended 
 to buy, or I shall economize in household expenses, and 
 only in case of extreme need go without an overcoat. 
 "Only in the last case is the Wert of the overcoat deter- 
 mined by the immediate marginal utility of its own class. 
 In most cases it is determined by a substitutionary utility." ^* 
 But again it is to be objected that this getting to the 
 margin by the method of substitution is not to find the 
 utility of the final item of the stock in question, or the 
 utility of the single item under consideration, but only the 
 cost of it, and thereby the subjective significance, the worth 
 of it. And in either case, whether away from the margin 
 or upon it, the worth as matter of subjective estimation 
 obtains no expression in terms of something else, that is to 
 say, receives no measurement, but is merely a statement of 
 the absolute magnitude of significance to the individual 
 well-being, and therefore is a relative quantity only in the 
 sense and to the extent that it has a place higher or lower 
 in the personal list of absolute feeling magnitudes. 
 
 Wieser is as obtrusively hedonistic in his point of view 
 as is Boehm-Bawerk or as were any of the classical school ; 
 but the validity of his doctrine is not made to stand or fall 
 thereby : 
 
 What is it that gives value to the satisfaction itself we shall 
 not attempt to explain. It will be enough if we give the symp- 
 
 goes the satisfaction and the lower falls the marginal utility and the 
 value. It comes nearly to the same thing, only in a less precise form, 
 to say : Usefulness and scarcity are the ultimate determinants of the 
 value of goods." 
 
 Upon which Hobson remarks (Economics of Distribution, p. io6) : 
 "Now, not only is scarcity thus fetched up from the supply side of the 
 equation as a determinant of value separate from utility, but it is 
 made the determinant of marginal utility itself, for 'it is the scarcity 
 that decides to what point the marginal utility actually does rise in the 
 concrete case' " (Positive Theory, p. i6o). And Hobson is pardonable 
 for not seeing that Boehm-Bawerk is talking here about the individual 
 schedule and the purely personal bearings of wants and provision for 
 wants, that is, that the discussion is not in the market-value field but 
 only in the subjective field. 
 
 °' Boehm-Bawerk, op. cit., p. 156. 
 
THE MODERN MOVEMENT 327 
 
 toms by which the degrees of vahie or importance are recognized. 
 It is the intensity with which the satisfaction is desired;'* 
 
 which sufficiently cuts loose from all hedonistic compHca- 
 tions. 
 
 Not free goods but only economic goods can have value ; 
 and so Menger's definition is approved by Wieser : Value is 
 "the importance which concrete goods, or quantities of 
 goods, receive for us from the fact that we are conscious 
 of being dependent on our disposal over them for the 
 satisfaction of our wants." ^'^ 
 
 But as Wieser elsewhere remarks, "Menger has a com- 
 plete system of subjective value but makes no attempt to 
 develop objective value." ^^ This, therefore, is not to be 
 understood as a definition of market value. 
 
 This definition, however, as adopted by Wieser, is found 
 near to the beginning of his treatise, before any discussion 
 of subjective value (Wert) has been attempted, and is 
 formulated as a general definition of value. And so upon 
 page twentj^-four, as the title of chapter ix, we read, 
 "The Valuation of Goods in Stocks. The Law of Marginal 
 Utility the General Law of Value." And the chapter itself 
 discusses collectivist valuation, in which, evidently, there is 
 no such thing possible as marginal utility in any accurate 
 sense. ^^ 
 
 ^Natural Value, p. 7. ^'^ Ibid., p. 21. ^'^ Ibid., p. 54. 
 
 ^^ These confusions must, in the interests of space, be rather 
 instanced than fully reported or adequately discussed. 
 
 Confusions of utility with marginal utility ; and with price : 
 
 "In a word, the value of a supply of similar goods is equal to the 
 sum of the items multiplied by the marginal utility." 
 
 Now while this would perhaps be true, were the question one of 
 market value, it is distinctly untrue, as a question either of aggre- 
 gate utility or of aggregate subjective worth, that is, the subjective 
 worth of the group conceived as a whole, a unit ; but, still within the 
 collectivist computation, the discussion proceeds : "A harvest consist- 
 ing of 1,000,000 quarters, is short .... so ... . that grain 
 dare not be consumed unless the act of consumption yield a satisfaction 
 equal to the figure 10 [10 what? At any rate a social marginal utility]. 
 The value of the harvest will be calculated as 1,000,000X10." 
 
 "The various things that determine money value to the individual 
 are the following : . . . . the amount of money which is at his 
 disposal ; the nature and quantity of the goods which can be obtained 
 
328 VALUE AND DISTRIBUTION 
 
 On page fifty-one we read: 
 
 When we speak generally of the value of goods we mean the 
 economic rank given them by their prices Some particu- 
 lar designation is indispensable for the ranking of goods in economic 
 exchange, and it is impossible to find any other designation than 
 
 that of Wert The word Wert alters its original sense 
 
 somewhat when transferred from the subjective relation to wants 
 to the objective relation to price. Subjective Wert represents a dis- 
 tinct feeling; that of being dependent upon the possession of a 
 good for the satisfaction of a want — a distinct degree of personal 
 
 interest in goods Objective Wert or price is not in 
 
 the least the expression of the economic valuation of goods, even 
 when it is the result of economic competition, and of the individual 
 valuations of all the different members of the economic com- 
 munity. Price is a social fact, but it does not denote the estimate 
 
 under the existing market conditions and prices ; the utility [marginal] 
 which these goods are able to give, as also the utility already secured 
 by possessions otherwise acquired ; and, lastly, the urgency of demand" 
 (p. 46). 
 
 "In each kind of production good, taken by itself, the value of the 
 product is adjusted to the level of its particular marginal utility" 
 [intended as a collectivist computation, with a collectivist marginal 
 utility; but what about displacement and cost here?] (p. 97). 
 
 Confusions of marginal utility with subjective value, and with 
 demand price : 
 
 "The law of value [market value here, as the context shows] 
 unites the conceptions of value and of utility in ■a. way which is 
 fully confirmed by the facts : . . . . and it only remains for us now to 
 combine the fact of costs with the law of marginal utility" (p. 26). 
 
 "The law of price is nearly related to the law of value. The value 
 of a stock consisting of separate items is determined as a marginal 
 value, according to the marginal utility of the single good." [Seem- 
 ingly a subjective-worth computation for one consumer ; in such case, 
 not the whole stock, but only any one item gets valued in the way 
 asserted.] "The price of a stock which is sold in separate items is also 
 determined as a marginal amount, according to the purchasing power 
 of the marginal buyer of the single good" (p. 43). [Here there is 
 careful avoidance of making price and marginal utility equivalent ; price 
 is marginal purchasing power ; but on page forty-seven it is said that, 
 whether for goods or for money, "it is demand and supply, as these 
 express themselves in marginal utility, that decide the exchange value."] 
 
 "The estimate of value [here evidently subjective worth] leads 
 us back to use value, and again the law of marginal utility holds" 
 (p. 48). 
 
 "The rich man, therefore, will not value his coat according to 
 its utility, but according to the cost of procuring it ; in his estima- 
 tion this cost will stand lower than the utility All household 
 
 goods, which when lost or stolen, can be replaced by purchase, are 
 thus valued" (p. 49). 
 
THE MODERN MOVEMENT 329 
 
 put upon goods by society Relations of price and of 
 
 objective JVert do not in the least correspond with the relative 
 position of the two goods in regard to their economic importance 
 
 or subjective valuation [But] exchange value taken by 
 
 itself and unrelated to subjective value is unintelligible 
 
 To explanation, subjective value is chief in importance because only 
 through it can exchange value be reached. 
 
 All this is admirable; but turning back to page thirty- 
 four before there had been any talk of subjective value or 
 of subjective anything, but only of value as referring to 
 general market transactions, we read : 
 
 Value is the form in which utility is calculated. .... It 
 is difficult indeed to estimate the utility of a stock; easy to estimate 
 its value. That is to say, the value of a stock can be expressed as 
 the single product of stock and marginal utility; it is a multiple of 
 the marginal utility; whereas utility can be expressed only by a 
 sum which contains as numerous and as various amounts as the 
 stock contains items." The utility, for instance, of a harvest of a 
 million quarters can be represented only by an almost inexhaustible 
 
 description of all the benefits accruing from it The value 
 
 of the same harvest is easily and shortly ascertained by multiplying 
 the utility of the marginal employments by the whole amount. 
 
 But on page sixty-two better doctrine is found, doctrine 
 also of the highest of importance as putting the finishing 
 touches to our present discussion: 
 
 In natural value [ideal coUectivist value] goods are estimated 
 according to their marginal utility; in exchange value, according to 
 a combination of marginal utility and purchasing power. 
 
 Passing over the objection that there can be no social 
 marginal utility in any other than a rough average sort, 
 it is of supreme importance to note that here is an abandon- 
 ment, as complete and unambiguous as that with Boehm- 
 Bawerk, of marginal utility as value measure or value 
 determinant. No matter how frequently Wieser has 
 asserted and will assert the contrary, there is no under- 
 standing of the real force and meaning of the Austrian 
 
 *" That the value of a stock is the product of marginal utility by 
 the number of items can from no point of view be true unless by 
 interpreting marginal utility into marginal cost or marginal value, as 
 in fact Wieser, like Boehm-Bawerk, does ; marginal utility, marginal 
 cost, marginal utility value, and subjective value, all appear to analyze 
 into the same thing, and exchange value also is prone to edge its 
 way in. 
 
33© VALUE AND DISTRIBUTION 
 
 doctrine without accepting this truth. The point of view 
 does not make for marginal utility as the gist of the value 
 concept or as underlying it, otherwise than as an inter- 
 mediate step toward arriving at the purely explanatory and 
 tributary concept of subjective worth. Exchange value, 
 estimated or expressed or fixed or worked out "according 
 to a combination of marginal utility and purchasing power," 
 becomes not marginal utility or marginal subjective valua- 
 tion, but marginal relative utility, that is, marginal sacrifice, 
 marginal buyer's offer price, or marginal seller's demand 
 price.^^ 
 
 SUBJECTIVE EXCHANGE VALUE 
 
 Subjective exchange value is defined by Boehm-Bawerk 
 as "The importance which a good obtains through its 
 capacity to procure other goods by way of exchange." 
 
 In view of the non-relativity of the concept of subjec- 
 tive value, there is nothing further to be urged here against 
 the use of the term value for this new concept; and, in the 
 
 *^ It may by this time be taken as established that neither in pain 
 nor in utility, whether as value determinant or as value denominator, is 
 there any place of abiding or hope of rest for the investigator of value. 
 But even were it otherwise, were it in any way possible, cause-wise or 
 denominator-wise, or both, to resolve value into a homogeneous 
 medium of pain cost or of utility demand, what, after all, would it 
 all profit? 
 
 The scientific instinct for unification is undeniably strong ; to it, 
 indeed, is traceable the larger part of all accomplishment in thought 
 and in research. When, if ever, the ultimate atom or electron of 
 matter is discovered, or, in the tentative manner of scientific generali- 
 zation, is credibly assumed as a working hypothesis, the fact will be one 
 of no small moment, even though everything be yet to learn as to the 
 ultimate nature of this ultimate atom. So also, were it really necessary 
 and at the same time credibly possible and approximately intelligible to 
 accept or to suppose a social pain unit or a social pleasure item, or 
 did it in any sort advance the case to compute some average level 
 of pain experience or of pleasure experience and to conceive of this 
 average level as homogeneous in a degree to permit of some typical 
 or normal or standard or average unit-resultant, and were there no 
 other method of making intelligible and manageable the phenomena 
 with which economic science has to deal, and were the new fields of 
 research thus thrown open for entry as attractive as the old fields 
 made necessary of abandonment, — the pain-jelly or the pleasure-jelly 
 hypothesis — it not at all mattering which — would impose itself upon 
 our acceptance. 
 
 But it is first to be noted that the entire marginal analysis, for 
 whatever it has accomplished and for whatever it promises, would 
 be first among the things to be abandoned ; and this would involve not 
 
THE MODERN MOVEMENT 331 
 
 German, Wert may be the only resource for the case, if 
 there is occasion or justification of any sort for the new 
 concept. The use of the new term seems to have been 
 responsible for the adoption of objective exchange value; 
 there being, by assumption or enactment, a subjective 
 exchange value, the interests of symmetry now impose a 
 longer and more cumbersome term in place of market 
 value, but with no added significance, other than that of 
 contrast with subjective exchange value. 
 
 But the fact appears to be that "subjective exchange 
 value" is absolutely without serviceability in the value 
 investigation; it is a case of purely gratuitous distinction- 
 drawing and term-making, and this in face of Boehm- 
 Bawerk's oft-quoted confession that he "would 
 gladly exchange these pedantic and clumsy expres- 
 sions, etc. ; . . . . but .... use value and exchange 
 value are not suitable at all, because, as we shall see, there 
 is a subjective exchange value." *^ 
 
 merely the loss of those contributions distinctly to be credited to the 
 modern movement, but also the entire Ricardian land-rent doctrine, 
 and together with this the complete scheme of marginal cost in its 
 relation to value. 
 
 But, finally, what is it that this labor-jelly or pain-jelly or utility- 
 jelly hypothesis can offer us? In no sense a homogeneous medium into 
 which all costs or all services may be resolved, but a homogeneity 
 supposedly actual and valid only for the marginal cases. The truth is, 
 then, that nowhere are the glittering promises in the way of being 
 kept ; the thing that is tendered is not the thing held out as in prospect. 
 Nor is there offered any substitute for the thing promised, but rather a 
 relinquishment of it ; for of what service would be this mere fringe of 
 homogeneity at the lower edge of the wide value tract? How does 
 any alleged general value determination by the marginal-cost item come 
 to recommend itself to be a resolution of all the non-marginal cases 
 into an equality in pain origin or in service offering? In its very 
 terms, this solution turns out upon examination to be a no-solution. 
 
 But if it is indeed true, — and it is no part of the present purpose to 
 deny it, — that for the various and different market demands to come 
 jointly to bear upon market value, they must find a way to get them- 
 selves aggregated ; and if it is true that costs as bearing upon value 
 must likewise become comparable and, for the purpose, homogeneous ; 
 and if men imperatively need in their commercial affairs some 
 generalized form of value expression, a language, a standard, a denomi- 
 nator, it is fairly to be urged that in the system of price-offer, price- 
 refusal terms, a money-price rendering of value, and a money standard 
 of deferred payments, the precise thing required is offered and is 
 attained. More cannot be had, and were more to be had, there would 
 be no need for it, 
 
 *^ Positive Theory, p. 130, note. 
 
332 VALUE AND DISTRIBUTION 
 
 But the adoption of the new term is more than merely- 
 gratuitous ; it is bad in logic ; it involves the absurdity of 
 asserting that the utility of the cow that you sell is, after all, 
 not the utilit}'' of the cow, but the utility of the horse which 
 you receive in return. And doubtless this is true in a sense, 
 though it seems to leave the cow strangely bereft of any 
 utility whatever, unless perhaps that previously contentedly 
 possessed by her, but now repudiated and cast off, or, 
 possibly, appropriated by the horse. This recalls the pro- 
 cedure by which the utility of the overcoat was suddenly 
 reduced from 20 to 10 by the mere fact that it could be had 
 for 10. 
 
 The truth appears to be that the notion of quasi-rents, 
 buyer's or other, is sufficient for all cases presenting this 
 aspect of the differential principle. And the concept indi- 
 cated by the term is really needed to explain the demand 
 for goods, the forward-looking attitude toward exchange, 
 and the degree and kind of the purchase-elasticity. 
 
 Let it, for example, be taken as true that, having no coat, 
 one would, if necessary, pay twenty dollars for a coat, but 
 needs pay only ten ; or that, having a coat of a twenty- 
 unit power of service, one could, if he lost it, replace it at 
 ten. Doubtless one may say that the subjective worth is 
 10, but this 10 is obviously not well adapted to" serve as an 
 expression of the bidding disposition; 20 is still the maxi- 
 mum bid; to place the utility at 10 leaves it strangely stand- 
 ing as true that one is willing, if necessary, to bid the price 
 up to twice the utility. 
 
 But this is not the worst of the bad logic. Subjective 
 exchange worth, like marginal utility and subjective worth, 
 must justify its existence in economic terminology through 
 its service as tributary to the explanation of market value, — 
 as a term, standing for some intermediate analysis subsid- 
 iary to the elucidation of the problem under investigation. 
 On any other basis each of these terms is an impertinence. 
 
 But unfortunately for subjective exchange value, it is 
 an ex post facto concept, a term derivative from the 
 exchange transaction, and expressing the advantages 
 derived from it; as such, it loses all importance as helping 
 in the explanation of the terms of the exchange. It substi- 
 tutes the backward-looking view for the forward and 
 recalls little Alice of the looking-glass experience, who 
 used to cry before she had cut her finger, and having cut 
 
THE MODERN MOVEMENT 333 
 
 it, laughed, the pain being over ; and who occasionally lost 
 much time rapping upon the door to get in when she was in 
 already. 
 
 Both Wieser and Boehm-Bawerk stand for the subjec- 
 tive-worth concept. And Wieser applies here something like 
 the foregoing logical methods in his attempt to demonstrate 
 not merely that subjective worth is a necessary concept in 
 the elucidation of market value — as in fact it is — but that 
 it is adequate thereto — as in fact it is not. Without this 
 absolute-magnitude kind of value for each of the two 
 things to be compared, there could, he rightly argues, be 
 nothing to compare. Each must be worth-estimated 
 separately, and then a comparison of them made, before, 
 as a result, a readiness for exchange may be reached. The 
 exchange advantage expresses itself as the greater absolute 
 magnitude of the so-called objective exchange value 
 over the direct — the subjective — value. True, the compari- 
 son is ordinarily made through money; but accurately the 
 subjective exchange value of my cow is not in the money, 
 but in that which I shall purchase with the money, e. g., 
 a horse, regarded in its aspect of direct subjective value, 
 as an absolute satisfaction magnitude. 
 
 And so, by finding two subjective values, by comparing 
 them, and then attributing the second value to the first, 
 thereby returning to a non-relative fact; having, that is, 
 once used the relationship and then dropped it, or lost it 
 by absorption, Wieser concludes that he has all the while 
 been within the field of absolute magnitudes.*^ 
 
 ^Natural Value, pp. 50, 53, note. 
 
CHAPTER XVIII 
 
 CLASSICAL VERSUS MODERN (DIETZEL VS. BOEHM- 
 BAWERK) 
 
 It is commonly stated that in the early seventies three 
 different investigators, Menger, Jevons, and Walras, work- 
 ing independently and in different languages, arrived at 
 practically identical positions in their reformulation of 
 economic doctrines. That there was practical identity in 
 point of view — in the emphasis on demand as against sup- 
 ply, and upon utility as fundamental to cost — and that the 
 marginal method in the analysis of market adjustments 
 was common to all three, must be admitted; and this is a 
 degree of similarity sufffciently remarkable. 
 
 But the divergencies were important enough to influ- 
 ence greatly the subsequent development of the derived 
 lines of thought. Jevons made only slight attempt at analy- 
 sis of the phenomena of individual valuation, and, whether 
 for better or for worse^ is only in the slightest degree respon- 
 sible for the beginning and the growth of the doctrine of 
 subjective worth. For the most part, Jevons' work was in 
 the field of market value, and especially of the distributive 
 categories derivative from the value concept. Menger 's 
 work is, on the other hand, mainly restricted to the field of 
 subjective valuation and subjective value — worth in the 
 individual schedule.^ 
 
 Vevons and Walras are on the whole much alike both in point 
 of view and in method of treatment ; for the purposes in hand their 
 positions are, indeed, practically identical ; that is to say, neither does 
 anything of appreciable significance distinctly within the field either 
 of subjective worth or of subjective valuation in the accurate, the 
 relative, sense. Both directed attention especially to the marginal 
 analysis, and, without attempt to examine into the precise nature of 
 the margin, employed the principle of the satiability of desire as 
 explanation of the principle of marginal utility in the demand curve. 
 As against himself, Walras accords priority in time to both Gossen and 
 Jevons, so far as refers to the leading principles of the method and to 
 the point of view, but regards himself as having made some fields of 
 
 334 
 
CLASSICAL VERSUS MODERN 335 
 
 The later doctrine has been developed mostly along the 
 lines of Menger's analysis, and chiefly by his convinced 
 
 the development and the application of the theory peculiarly his own: 
 "This half-volume was, indeed, prepared and almost entirely printed, 
 and I had communicated the main points of the theory herein expounded 
 to the Academy of Moral and Political Sciences at Paris, when, a 
 month since, I made the acquaintance of a treatise upon the same 
 subject, entitled The Principles of Political Economy, published in 
 
 1873 .... by Mr, W. Stanley Jevons Like myself, this 
 
 author applies the mathematical analysis to pure economics, and 
 especially to the theory of exchange ; and — a truly remarkable fact — 
 bases the entire reasoning upon a fundamental formula, which he 
 terms the equation of exchange, which is rigorously identical with that 
 which has served me as point of departure, and which I call the 
 condition of maximum satisfaction. Mr. Jevons has especially directed 
 his attention to the general and philosophical exposition of the new 
 method and to laying the foundations of its application to the theory 
 of exchange and to the theories of labor, of rent, and of capital. As 
 for myself, I have made especial effort to make thorough exposition of 
 the mathematical theory of exchange. This leaves me in duty bound 
 to ascribe the priority of formulation to Mr. Jevons, the while reserving 
 
 to myself some claim to several important deductions In my 
 
 opinion, Mr. Jevons' work and my work, so far from antagonizing each 
 other, confirm and complete and essentially strengthen each other." — 
 Leon Walras, Preface to Elements d' Economic Politique Pure, 4th 
 ed., 1900. 
 
 There is, then, from the point of view of the present investigation, 
 no especial call for detailed report or criticism of either Jevons or 
 Walras. Their mathematical forms of statement and method of 
 investigation, if there really be a separate method, serve to make the 
 task one as impracticable for the present writer as it would probably 
 turn out to be unserviceful to the reader. 
 
 Walras' rendering of the marginal-utility doctrine makes a dis- 
 tinction between extensive utility and intensive utility ; a commodity has 
 extensive utility up to the point where no more of it will be consumed 
 even upon terms of being offered gratis ; intensive utility is the sort of 
 utility that influences the demand curve {ibid., p. 73). "We call the 
 utility intensive because of the fact that the commodity responds to 
 needs more or less intense and pressing, accordingly as, with a 
 greater or smaller number of men, these needs persist, despite the 
 height of the price, and persist more or less strongly with different 
 men ; because, that is to say, the importance of the sacrifice to be made 
 to procure the commodity has more or less influence upon the quantity 
 of the commodity consumed" {ibid,, p. 73). 
 
 All of which amounts to reducing the different demands of 
 different individuals to a homogeneity of utility ; thence comes the 
 interpretation of the demand-price curve as a mere intensity-of-utility 
 curve. 
 
 Based upon this line of reasoning, the further development of the 
 
336 
 
 VALUE AND DISTRIBUTION 
 
 pupils or disciples. Therefore, in the interests both of 
 effectiveness of exposition and of economy of space, it has 
 
 marginal-utility analysis is easily foretold ; market value and marginal 
 utility become coincident quantities. 
 
 But it is still to be noted that all of this analysis proceeds upon 
 the assumption of existing and temporarily fixed supplies of goods, 
 that is of goods unaffected, for the time being, by influences of cost. 
 This was also the method of Jevons, the further problem being to 
 analyze and formulate the cost influences in their relation to supply. 
 Walras, as it seems to this writer, gets not much farther toward the 
 solution of the problem than a more or less inadequate formulation of 
 it : "In a word, it remains to decide whether it is the price of 
 tlie productive services that determines the price of the product, or rather 
 the price of the product, determined as we have seen through the law 
 of demand and supply, that determines the price of the productive 
 services, by virtue of the law of cost of production, the prix de revient" 
 (ibid., p. 176). 
 
 As for Jevons, it is further to be said that in numerous cases he 
 impliedly or explicitly adopts the notion of a social utility ; that he 
 repeatedly makes the feeling-quantities of different men both comparable 
 and commensurable ; and that he repeatedly identifies marginal utility 
 with marginal offer price ; and that his general reasoning involves of 
 necessity each and all of these assumptions. It is nevertheless true 
 that, in more careful analyses and formulations, each of these positions 
 is repudiated and the correct doctrine accorded adequate recognition. 
 A few questions must suffice under these heads : 
 
 SOCIAL UTILITY, COGNATE TO THE SOCIETY-AS-AN-ORGANISM DOCTRINE 
 
 "In a time of scarcity the utility of barley as food might rise so 
 high as to exceed altogether its utility, even as regards the smallest 
 quantity, in producing alcoholic liquors. In a besieged town the employ- 
 ment of articles becomes revolutionized." — Theory of Political 
 Economy, 3d ed., London, 1888, p. 61. 
 
 "We are now in position to appreciate perfectly the difference 
 between the total utility of any commodity and the degree of utility of 
 the commodity at any point" (ibid., p. 49). 
 
 "The laws which we have to trace out are to be conceived as 
 theoretically true of the individual ; they can only be practically 
 verified as regards the aggregate transactions, productions, 
 and consumptions of a large body of people. But the laws 
 of the aggregate depend of course upon the laws applying in individual 
 cases" libid., p. 48). 
 
 THE FEELINGS OF DIFFERENT MEN MADE C0MMENSUR.\TE AND 
 HOMOGENEOUS 
 
 "In Paris [in the siege of '70] a vast stock of horses were eaten. 
 Hot so much because they were useless in other ways, as because they 
 were needed more strongly as food. A certain stock of horses had, 
 indeed, to be retained as a necessary aid to locomotion, so that the 
 equation in the degrees of utility never wholly failed" {ibid., p. 61). 
 
 "Suppose that the rate of exchange is approximately that of ten 
 
CLASSICAL VERSUS MODERN 337 
 
 again seemed desirable not only to violate the time sequence 
 in the development of doctrine, but to accord scant recogni- 
 
 pounds of corn for one pound of beef ; then if, to the trading body 
 which possesses corn, ten pounds of corn are less useful than one of 
 beef, that body will desire to carry the exchange farther. Should the 
 other body possessing beef find one pound less useful than ten pounds 
 of corn, this body will also be desirous to continue the exchange. 
 Exchange will thus go on until .... loss of utility would result if 
 
 more were exchanged The degrees of utility have come to 
 
 their level, as it were" (ibid., p. 96). 
 
 " .... In other words, if increments of commodity be 
 exchanged at the established ratio, their utilities will be equal for 
 both parties" (ibid., p. 96). 
 
 But, "No attempt is made to compare the amount of feeling in 
 one mind with that in another. I see no means by which such a 
 comparison can be accomplished. The susceptibility of one mind may, 
 for what we know, be a thousand times greater than that of another. 
 But, provided the susceptibility was greater in like ratio in all direc- 
 tions, we should never be able to discover the difference 
 
 Between A and B there is a gulf fixed. Hence the weighing of motives 
 must always be confined to the bosom of the individual" (ibid., p. 14). 
 
 "The general forms of the laws of economics are the same in the 
 case of individuals and of nations ; and, in reality, it is a law operat- 
 ing in the case of multitudes of individuals which gives rise to the 
 aggregate represented in the transactions of a nation. . . . „ The use 
 of an average, or, what is the same, an aggregate result, depends upon 
 the high probability that accidental and disturbing causes will operate 
 in the long run .... so as to neutralize each other" (ibid., 
 pp. 15, 16). 
 
 MARGINAL UTILITY IDENTICAL WITH MARKET PRICE 
 
 "We shall seldom need to consider the degree of utility except as 
 
 regards the last increment I shall therefore commonly use 
 
 the expression iinal degree of utility, as meaning the degree of utility 
 of the last addition, or the next possible addition of a very small, or 
 
 infinitely small, quantity to the existing stock We may know 
 
 the degree of utility at any point while ignorant of the total utility" 
 (ibid., p. 51). 
 
 "The value of a divisible commodity is measured not, indeed, by 
 its total utility, but by its final degree of utility" (ibid., p. 137). 
 
 "Value depends solely upon the final degree of utility. How can we 
 vary this degree of utility, etc.?" (ibid., p. 164). 
 
 But on page 141 : "The general result of exchange is thus to 
 produce a certain equality of utility between diflferent commodities, as 
 regards the same individual ; but between different individuals no such 
 
 equality will tend to be produced The degree of utility of 
 
 wealth to a very rich man, etc." 
 
 Marshall's well-known note (Principles, Book V, chap, xiv) admir- 
 ably discusses Jevons' remark (Theory, p. i) : "Repeated reflection 
 and inquiry have led me to the somewhat novel opinion that value 
 depends entirely upon utility" — saying — "A trading body is not a person ; 
 
338 VALUE AND DISTRIBUTION 
 
 tion to personal questions of priority or of originality in the 
 progress of this doctrinal evolution. That the works of 
 Wieser and Boehm-Bawerk stand today as the most au- 
 thoritative expression of what is characteristic and domi- 
 nant in the unfolding of Austrian theory must serve as 
 
 it gives up things that represent equal purchasing power to all of its 
 members, but very different utilities. It is true that Jevons was him- 
 self aware of all this Jevons' antagonism to Ricardo and Mill 
 
 would have been less if he had not himself fallen into the habit of 
 speaking of relations which really exist between demand price and 
 value as though they held between utility and value." 
 
 Jevons' account of the relation of cost to value needs some slight 
 attention at this point. Does cost fix value or value cost? 
 
 "Wages are governed by the same formal laws as rents 
 
 So far as cost of production regulates the values of commodities, wages 
 must enter into the calculation on exactly the same footing as rent." — 
 Op. cit., Preface, p. xvi. 
 
 "When labor is turned from one employment to another, the 
 wages it would otherwise have yielded must be debited to the expenses 
 of the new product. Thus the parallelism between the theories of rent 
 
 and interest is seen to be perfect in theory Precisely the same 
 
 view may be applied, mutatis mutandis, to the rent yielded by fixed 
 capital, and to the interest of free capital" {ibid., p. xlix). 
 
 "Value depends solely on the final degree of utility. How can we 
 vary this degree of utility? .... By having more or less of the 
 commodity to consume. And how shall we get more or less of 
 it? . . . .By spending more or less labor in obtaining a 
 
 supply I hold labor to be essentially variable, so that its 
 
 value must be determined by the value of the produce, not the value 
 of the produce by the value of the labor" {ibid., pp. 164, 165). 
 
 Then, having treated the production margin as an equilibrium 
 between the labor pain of production and the pleasures attaching to 
 the possession or consumption of the product, — "labor will be carried on 
 till the increment of utility .... just balances the increment of 
 pain," he continues : "The preceding theories lead directly to the 
 well-known law, as stated in the ordinary language of economists, that 
 value is proportioned to the cost of production As the incre- 
 ment of labor considered is always the final one .... articles will 
 exchange in quantities inversely as the costs of production of the most 
 costly portions, i. e., the last portions added" {ibid., p. 186) : Which 
 sums up in accepting all of what is most pernicious in the labor-cost 
 doctrine, viz., the abandonment of entrepreneur cost, the adoption of 
 pain cost, and the jellification of labor. It may be here noted that 
 Pantaleoni concurs in this labor-pain-cost view (Maffeo Pantaleoni, 
 Pure Economics, Macmillan, 1898, p. 102), as, for that matter, in most 
 other of Jevons' errors, e. g., in his constant and consistent hedon- 
 ism, and in the repeated identification of marginal utility with marginal 
 demand and with market value. 
 
CLASSICAL VERSUS MODERN 339 
 
 justification for the prominence — near to exclusiveness — 
 given to these two writers in these pages. 
 
 Wieser had in 1884 pubHshed his Ur sprung und Haupt- 
 gesetze des tvirtschaftlichen Wertes, and had been by Hein- 
 rich Dietzel somewhat scathingly reviewed. In 1885 
 appeared Boehm-Bawerk's Capital und Capitahins, and in 
 1886 the Grundsuge dcr Theorie des wirtschaftlichen Gu- 
 terwerts. In 1890, and before the pubHcation of the Posi- 
 tive Theorie, was pubHshed Dietzel's onslaught upon the 
 newer doctrine, Die klassische Werttheorie und die Theorie 
 vom Grenznutzen. During the same year came Dr. Robert 
 Zuckerkandl's few pages of reply, and a short note from 
 Boehm-Bawerk formulating certain questions which, with 
 their answers by Dietzel, were intended to make precise 
 the issues to be debated. Dietzel promptly replied to the 
 questions as formulated, and in 1892 appeared the rejoinder 
 of Boehm-Bawerk. - 
 
 The entire controversy, and especially that portion of it 
 belonging to Dietzel and Boehm-Bawerk, is to our purpose 
 as serving in peculiarly marked degree toward bringing 
 into intelligible statement the issues between the two points 
 of view. 
 
 Dietzel's review of Wieser need not detain us here. 
 The later and more formal article, Dietzel's attack upon 
 
 ^ 1884, Wieser, Ursprung und Hauptgesetze des wirtschaftlichen 
 Wertes. 
 
 1885, Dietzel, review of Wieser's Ursprung und Hauptgesetze, 
 Conrads Jahrbiicher, neue Folge, XI, 161. 
 
 1885, Boehm-Bawerk, Capital und Capitalsins. 
 
 1886, Boehm-Bawerk, Grundznge. 
 
 1890, Dietzel, Die klassische Werttheorie und die Theorie vom 
 Grenznutzen, Conrads Jahrbiicher, N. F., XX, 563. 
 
 1890, Zuckerkandl, Reply, Die klassische Werttheorie und die 
 Theorie vom Grenznutzen^ ibid., XXI, 509. 
 
 1890, Boehm-Bawerk, Ein Zwischenwort zur Werttheorie, ibid., 
 XXI, 519. 
 
 1 89 1, Dietzel, Zur klassischen Wert- und Preistheorie, Conrads 
 Jahrbiicher, dritte Folge, I, 685. 
 
 1892, Boehm-Bawerk, Wert, Kosten und Grenznutzen, ibid.. Ill, 
 321. 
 
34° VALUE AND DISTRIBUTION 
 
 the general position of the newer school, opens with the 
 pardonable error of assuming that Boehm-Bawerk's doc- 
 trine of subjective value is offered as somehow a workable 
 doctrine of market value. Dietzel, therefore, directs his 
 attack against the Austrians' peculiar ground of Crusoe 
 conditions and of purely personal analysis, and asks 
 whether, upon these terms, value, as a relation between 
 commodities, is a question of marginal utility rather than 
 of marginal cost. 
 
 And Dietzel makes it fairly clear that, in the Crusoe 
 economy, the only possible common denominator under 
 which freely reproducible goods can obtain an objective 
 and practicable basis of comparison must be the labor-cost 
 denominator. True, utility, may, for goods limited in 
 supply, stand as the best thing, because the only thing, 
 possible; but when the good can be reproduced by labor, 
 labor will come to stand as the cost; the loss of the good 
 will appeal to Crusoe only as the loss of the labor of 
 replacement, and the good, no matter how much greater its 
 utility may be, will fall to the value rank set by its cost. 
 And Dietzel points out that, especially with goods not exist- 
 ing in stocks, their utility affords no basis of comparison ; 
 all goes over to cost computations : "Assume that the cabin 
 can be reproduced in lo hours, the net in lo, the bow in 8, 
 the food supply in 5 ; Crusoe, if he knows anything about 
 how to figure in economic fashion, will fix the Wert of the 
 goods at the figures 10, 10, 8, 5." Suppose Crusoe to need 
 per day three liters of water and ten fish, and has in store 
 three days' provision of each, nine liters of water, and 
 thirty fish. Will he appraise the water and the fish, rela- 
 tively, according to their respective marginal utilities? If 
 with five hours of labor he can get nine liters of water or 
 ten fish, he will be indifferent whether he lose his three 
 days' supply of water or his one day's supply of fish. 
 
 But from all this — and there is more of it, and of a 
 most convincing sort — it is evident that there is no issue. 
 
CLASSICAL VERSUS MODERN 341 
 
 In the Grundsuge, Boehm-Bawerk had admitted the prin- 
 ciple of cost — of substitution — and had even gone so far as 
 to say that the utility of the purchased good actually was 
 the utility — the subjective worth — of its cost good; and 
 where, — as is admitted is sometimes the case, though the 
 rarity of it appears to be overstated, — the method of replace- 
 ment is labor pain, labor pain was admitted to be the cost. 
 
 But note carefully that with Boehm-Bawerk this labor 
 pain as cost leads only to the establishment of subjective 
 worth; with Dietzel labor pain becomes a relational, com- 
 mon-denominator, medium fact. What, for example, does 
 this 10, 10, 8, 5 series of figures mean to Dietzel? Simply 
 relations of importance, reflecting the relative labor require- 
 ment ; nothing is implied by Dietzel, and nothing is cared 
 whether the services from possession or the pains from 
 procurement be little or much ; he is in pursuit of a com- 
 mon denominator and a basis and a cause for precise com- 
 parison. But with Boehm-Bawerk a subjective value of 10 
 means a certain quantum of feeling, so much pleasure, or 
 defense from so much pain, a definite f eeling- volume ; and 
 if the subjective value (worth) of this 10 of pleasure is; 
 by virtue of its cost, only five, this 5 likewise is a non-rela- 
 tional fact, a definite quantum of pleasure lost or of pain 
 accepted in order to obtain or to retain the 10 item of well- 
 being magnitude. 
 
 And therefore the simple fact is that there is no issue. 
 Dietzel is talking of the relations between Crusoe's utilities, 
 his wz^^r-valuations — to accept for the moment the Aus- 
 trian view of the terms, while Boehm-Bawerk is within the 
 field of absolute magnitude. Dietzel is in the field of 
 exchange value ; Boehm-Bawerk's discussion is sub- 
 jective-worth discussion. 
 
 Dietzel's attack being mostly beside the point, as rais- 
 ing no issue, the reply contributed by Dr. Robert Zucker- 
 kandl, at that time Privat-Dozent in the University of 
 Vienna, could have no great significance in the discussion. 
 The following passage, however, deserves record: 
 
 It is an error to suppose that the later value school has seriously 
 in mind the basing of market valuation upon the analysis of the 
 economics of isolation. This method has been used only for 
 readier illustration and in order to make certain phenomena in 
 actual economic life more fully intelligible. Beyond this the 
 
342 VALUE AND DISTRIBUTION 
 
 isolated economics is without interest Actual economic life 
 
 is something essentially different from an isolated system, and what 
 serves in the one as a rule may very readily in the other be only an 
 exception. And so, if the labor measure were taken to hold for the 
 Crusoe case, little would follow from this for actual affairs. 
 
 Seemingly in entire ignorance of Zuckerkandl's con- 
 tribution, Boehm-Bawerk now attempts to bring the con- 
 troversy to precise issues, and thereupon transfers the 
 whole discussion forthwith to the market-value field. 
 
 Does Dietzel regard the "sum of labor" in production 
 as synonymous with cost of production, or does he mean 
 by "cost" the sum of the various different costs of the 
 entrepreneur, in which the labor itself figures not accurately 
 as total but only as one value item? (That is, does Dietzel 
 accept entrepreneur cost as the significant cost category?) 
 
 Answer: The latter, the entrepreneur view, is accepted. 
 
 Does Dietzel regard the value of the cost good as the 
 cause of the value of the product, or is the product value 
 the cause, and the cost-good value the effect? 
 
 Answer : Each is the cause of the other. 
 
 Is the issue merely that the later school arrive at market 
 price out of the worth estimates of the marginal traders, 
 and only round-about-wise out of cost, while the classical 
 school go directly to the cost fixation? 
 
 The answer is not quite specific, but the issue is stated 
 to be upon the interpretation and treatment of costs. 
 
 Does Dietzel regard labor as a valuable good falling 
 under the cost-of -production law, and as fixed in value by 
 the subsistence cost of self -maintenance and of rearing 
 successors ? 
 
 Answer: Yes, in the long adjustment. 
 
 Dietzel prefaces these answers with the complaint that 
 while he had taken the Austrians upon their own peculiar 
 ground, the psychological analysis of the individual eco- 
 nomic life, the reply is merely to transfer the discussion 
 to the field of competitive trading; in all of which com- 
 plaint Dietzel is correct enough, but for the fact that the 
 
CLASSICAL VERSUS MODERN 343 
 
 isolated analysis is not conceived by the Austrians, at their 
 best, as basis for the solution of the market-value problem, 
 but merely as preparation for the problem. 
 
 In fact, labor cost, as the solution of the supply side of 
 the value equation, can hardly be attacked in the Crusoe 
 system of things, or in any system where all men are con- 
 ceived to be precisely alike. Not so, however, for actual 
 market conditions; all the products of one producer may, 
 both in cost and in marginal utility, be the equivalent, in 
 subjective worth, of the day's-end item of labor applied, 
 and may exchange against similarly produced and meas- 
 ured goods of another producer. The goods purchased by 
 either man will then be obtained through this marginal, 
 day's-end, labor burden; that is, labor cost will apply for 
 each man to limit his volume of product and to express the 
 importance of the purchases made through his product; 
 but the goods produced find, for their utility or subjective 
 worth, no measure or expression in the ratios at which one 
 man's products exchange against the other man's 
 products ; the quantities of time respectively devoted by 
 the two men, the burdens undergone, the pleasures 
 obtained, will have in the market-value expression no 
 relation to each other. 
 
 Dietzel accepts the entrepreneur notion of cost, that is, 
 he makes cost items enter into the computation only as 
 reduced to terms of value. Thus far, then, there is for 
 present purposes still no issue; though, as we shall later 
 see, the Austrians do not themselves hold consistently to 
 the entrepreneur analysis. 
 
 But upon the question whether market value is the 
 cause or is the effect of cost, the discussion moves toward 
 more definite positions of disagreement. Dietzel does not 
 deny that cost goods derive, in a sense, their values from 
 the values of their products : 
 
 I declare plainly that .... both time and labor powers 
 derive their character as goods from their usefulness, only not an 
 actual but a potential usefulness, in the sense that they are the 
 conditions of all satisfaction of wants and of all creation of 
 utility; further, that they derive their character of economic goods 
 [that is, valuable goods] from the fact that they are limited in 
 supply. 
 
344 VALUE AND DISTRIBUTION 
 
 Note now that Dietzel is attempting to make labor a 
 valuable good in precise parallel with machinery or land, 
 and this not in the sense merely that effort must be com- 
 pensated in order to obtain product, and compensated 
 approximately in the measure that it is attended by value 
 product, but in the sense also that labor has an objective 
 existence, as a thing separate from the putting-forth of it, 
 seemingly as a not-man fact, like land or appliances. 
 
 But Boehm-Bawerk had put his question in the alterna- 
 tive, implying that the production good must be the cause, 
 with the value of the product the result, or vice versa. 
 This Dietzel denies : "The value of the production good 
 and the value of the consumption good condition each 
 other mutually," since no production good has value if its 
 product is valueless, and no product has value if its 
 production good is valueless. 
 
 A mine derives its character as a good from the fact that it 
 can produce useful products ; it becomes a valuable good from the 
 fact of its scarcity. [Or is it from the scarcity of its products?] 
 The product of the mine derives its value from the value of the 
 mine, the mine its value from the value of the product. The 
 Johannisberger vineyard is a good because of its potential [?] 
 importance as the condition of the satisfaction of the desire for a 
 particular wine; the vineyard is a valuable production good be- 
 cause it is a unique, or an absolutely scarce, production good. The 
 wine gets its value from the value of the vineyard. If the vineyard 
 loses its value, as, for example, by new methods of viticulture, the 
 wine would, so far as its value were a land-cost value, become value- 
 less. The vineyard, in turn, gets its value from the value of the wine. 
 
 Dietzel's objection to the alternative form of the ques- 
 tion would, however, better have run not so much that 
 either answer is correct as that neither is correct. For 
 certain purposes and for its particular point of view either 
 way of answering must indeed be admitted to be correct; 
 but the difificulty is that the alternative question assumes 
 that upon the one side or the other the ultimate causes are 
 to be found. It is surely true that an existing market value 
 is the cause of the entrepreneur consenting to make his 
 cost outlays ; and it is equally true that forthwith the entre- 
 preneur product affects, modifies, and readjusts the market 
 
CLASSICAL VERSUS MODERN 345 
 
 value of the product; and it is also true that meanwhile 
 entrepreneur competition is placing new values on the 
 cost goods and bringing about a new proportion-adjust- 
 ment of values with costs, or of costs with values ; and, 
 in turn, upon these new costs are based new entrepreneur 
 opportunities, computations, and producings, and so on 
 indefinitely in a circle, the result of each situation becoming 
 in its turn a cause for the next term in the series. The 
 ultimate causation must, then, be sought elsewhere; in the 
 sense of finality neither cost nor value is cause, and any 
 attempt to fix upon either as ultimate, or even as logically 
 prior to the other, must inevitably lead to circuity of 
 reasoning or to question-begging. 
 
 As between cost and demand, Dietzel admits and agrees 
 that the earlier fact in the sequence is the demand with its 
 possible price; mines could not be scarce if people did not 
 want iron; but then comes in cost to put the later, but the 
 decisive, touches to the situation. True it is that what the 
 buyers will, at the outside, pay limits what the producers 
 may spend in costs ; in this sense the demand determines 
 the cost ; but the last determination and the exact one is the 
 cost. The demand gives the maximum possible price; the 
 cost gives the actual price. 
 
 On the question whether labor as a productive fact 
 derives its value from cost of production, Dietzel says that, 
 as a short-time doctrine, the value of the labor is explained 
 by the fact that satisfactions depend upon it. But in the 
 long run wages cannot be lower than the expenses of 
 living and of rearing a family; and if higher than this, the 
 increase in numbers will finally prescribe the subsistence 
 level of wage. Precisely how this works itself out he 
 leaves to be taken for granted. 
 
 Boehm-Bawerk in rejoinder, two years later, says, with 
 all emphasis, that the issue is not at all upon the validity 
 of the law of costs: 
 
 The actual and essential features of the cost law, viz., that cost 
 regulates the value of reproducible goods, that we commonly 
 appraise the goods directly according to costs, that changes on the 
 
346 VALUE AND DISTRIBUTION 
 
 side of cost cause changes in the level of value, these things the 
 marginal utility theorists have never in the slightest overlooked or 
 denied. 
 
 The issue, he says, is merely as to whether this cost 
 law is final or whether, on the other hand, it rather does 
 not itself need explanation. And to add the necessary 
 explanation involves an extension of theory, yet not an 
 extension of a sort to cut across the cost law, or to mutilate 
 it, but one which shall support and strengthen it. 
 
 This then is the issue for which we have been waiting. 
 Excepting in the entirely unworkable sense of labor 
 pain, the classical school did not, and, as has already 
 sufficiently appeared, do not explain costs. And it is also 
 sufficiently evident that costs require explanation. It is at 
 all events to be set down to the credit of the later school 
 that this problem is fully faced by them, and a serious and 
 systematic attempt made toward its solution. That there 
 are serious and obvious doctrinal gaps in the Austrian 
 analysis of demand, that the terminology, while more than 
 prodigal, is yet both illogical and insufficient, are defects 
 not intrinsically overserious of remedy. And in these 
 particular aspects, the newer position, with the necessary 
 modifications, would not be fundamentally at variance with 
 the Ricardian doctrine and point of view. The ultimate 
 test must come with the newer treatment of costs. In the 
 conviction of the present writer, the Austrian doctrine, as 
 tried by this test, makes not better than a passable showing. 
 
 Boehm-Bawerk continues : Doubtless value as cost may be 
 used to explain value as product; but how explain the first 
 value? If value is traced back far enough, it is almost certain 
 to come upon some non-reproducible good, for the value 
 of which cost will not serve as explanation, or at all events 
 to come upon labor. How value this non-reproducible 
 good or this labor? Shall we, with Dietzel, value the labor 
 by its production costs, by the bread and meat necessary to 
 maintain tlie laborer and his family? But these have them- 
 selves already been value-explained in terms of labor. 
 
 The later school resorts for the solution of this diffi- 
 culty to the doctrine of production-related cost goods, the 
 doctrine, namely, that the value of a production good in 
 
CLASSICAL VERSUS MODERN 347 
 
 any particular employment is derived from its value in 
 other employments, so that the values of similar goods are 
 equal as determined by their values in their marginal use — 
 a solution of the cost problem in terms ultimately of 
 utility rather than of pain : 
 
 And as the value [subjective worth] of each similar sack of 
 corn is determined according to the utility of the sack dispensed 
 with at least sacrifice, so the value [Wert — subjective? objective?] 
 of all production goods is determined generally according to the 
 value of the most easily sacrificed good which will be produced out 
 of the common production store, or, as we call it, according to the 
 marginal utility of the marginal product. 
 
 And here, it is to be remarked, are summed up all the 
 faults and errors in the Austrian solution ; for it must be 
 that we are talking of market value, since it is Boehm- 
 Bawerk himself who has elected to transfer the discussion 
 out of the subjective field: (i) With cost as a competitive 
 problem — an entrepreneur reckoning — the value of the pro- 
 duction good in one use is not necessarily dependent upon 
 its having an alternative industrial employment. As long 
 as there is an alternative bidder for it, competition by other 
 entrepreneurs, it does not at all matter whether the good 
 has several valuable applications or only one. 
 
 Boehm-Bawerk's reasoning mixes collective with com- 
 petitive cost computations, a radical and all-pervasive error. 
 But how as a Crusoe or a collectivist problem? Even so, 
 the utility, the importance, the subjective value of an agent 
 does not depend on its having another use ; only the cost 
 aspect of the agent, as a constituent of the production cost 
 of the product, so depends ; it is, in such case, the worth of 
 the one and sole product that gives worth to the agent; 
 agent-wise, there is no question of cost. 
 
 (2) It is most difficult to make out what Wert stands 
 for in Boehm-Bawerk's formulation. In the first use, it is 
 almost of necessity the subjective-value concept that is 
 intended. The second use cannot bear the subjective-value 
 meaning, else, as non-relative, it would be meaningless, 
 or would be worse, as introducing all of the rich-man- 
 poor-man perplexities. It has more the sound of some 
 social marginal utility, society being conceived of as, for 
 the purpose, an individual. But this concept any Austrian 
 
348 VALUE AND DISTRIBUTION 
 
 would be quick to outlaw as nonsense. Nor logically and 
 justifiably can the concept be one of marginal market 
 value, or any other market-value concept, since it is market 
 value that is sought to be explained. But whether logical 
 or not, this last is probably the correct interpretation; it 
 seems, indeed, to be the only possible interpretation. And 
 so, assuming that there is an alternative and marginal use, 
 and that this use has a value of its own, independently of 
 the other and non-miarginal uses, the Austrian method will 
 trace the value of the other productive items back to the 
 value of this marginal use. But it will still remain to 
 explain the value of this marginal use, and to establish for 
 value purposes its independence of the non-marginal items 
 or non-marginal uses. Must not this marginal-value use 
 be also explained by appeal to some displacement, some 
 cost ? 
 
 But whether this newer view is or is not tenable, Dietzel, 
 as Boehm-Bawerk rightly points out, has himself adopted 
 it. Dietzel recognizes that the value of the cost good must 
 be explained; and when he says, "The cabin that saves me 
 ten hours' labor is of equal worth to me with the products 
 which I need and which with this sum of labor I purchase 
 from nature, he may be able to see how his explanation 
 differs essentially from that of the marginal utility the- 
 orists;! [Boehm-Bawerk] cannot." 
 
 Boehm-Bawerk insists that Die'tzel's explanation, if a 
 full one, must go farther and explain the value of the dis- 
 placed fact, the cost; this cost value must find its explana- 
 tion in marginal utility : 
 
 The less material and labor it requires to make a coat, so many 
 the more coats from the same goods ; so much the lower down 
 the utility curve can satisfaction extend, so much the lower the 
 marginal utility of coats. By service to marginal utility [Grenznut- 
 zen] the cost goods come to be valued. Not cost, but utility, then, 
 is at the end of the causal series. 
 
 Here again is some of the talk that has given rise to the 
 identification, through cost, of marginal utility with value. 
 Surely marginal purchase price, whether of a consumption 
 good or of a cost good, is capable — all differentials aside — 
 of standing as the equivalent of price; but it is equally 
 
CLASSICAL VERSUS MODERN 349 
 
 clear that the volume of supply items has something to say 
 as to how far down upon the curve of demand the mar- 
 ginal item will be found. And only one page back mar- 
 ginal utility was itself stated as a result of the relation 
 between need and provision for need. 
 
 And, as Boehm-Bawerk goes on to say, not the techno- 
 logical fact — the good or the labor applied — is final as 
 cost, but the value of it ; the technological aspect is merely 
 a secondary influence in the case, as bearing upon the 
 quantum of the supply. 
 
 Now this is clearly entrepreneur analysis, and as such 
 is correct in giving precedence to the value aspects of the 
 production goods ; though it remains true that it is only as 
 based upon the technological efficiency of the production 
 goods, as underlying the production of things of value, 
 that these production goods have any value. But once 
 again let it be said that entrepreneur costs are themselves 
 not final facts in value causation, but only the method of 
 expression by which, in an entrepreneur economy, the final 
 facts attain manifestation. The quantity of production 
 goods, as mere mechanical facts — technological capital — 
 has bearing upon the quantity of the product. But quan- 
 tity of product does not directly determine value; only 
 through supply in its relation to demand does the quantum 
 of product reach a value standing; thereby the production 
 goods obtain, through entrepreneur bidding, their value. 
 If there is any one thing fundamental in all this, it is not 
 the value costs, but the volume of production goods. And 
 still the volume of production goods must in turn receive 
 an explanation, not only as an aggregate, but also as a 
 share directed to the service of any particular line of 
 supply. The first question, that of the aggregate supply of 
 production goods, goes back to the original environmental 
 situation, or to an account of the genesis of instrumental 
 goods through the intermediary of savings and capitaliza- 
 tion. The second problem, that of the distribution of the 
 instrumental goods between different lines of production, 
 leads over into the demand side of the value equation ; 
 given at any time the aggregate supply of different com- 
 modities, how are these adjusted to one another in 
 exchange relations — market values? and how, in view of 
 their existing volumes, do production goods, through entre- 
 
35° VALUE AND DISTRIBUTION 
 
 preneur bidding, receive their market values, get dis- 
 tributed among the different industries, modify the value 
 levels for products, and thereupon get revalued and 
 redistributed ? 
 
 But, while Boehm-Bawerk regards the old school and 
 the new as at issue upon the nature of costs, he finds 
 Dietzel to be after all in essential agreement with the later 
 doctrine; as against Dietzel the issue is solely as to which 
 of the two influences, cost and marginal utility, is cause 
 and which effect. Dietzel's position is that both are cause 
 and both effect, in some final and ultimate sense. Upon 
 this issue Boehm-Bawerk's argument is clear and con- 
 vincing to the point of brilliancy : Material causation is 
 easily misunderstood and misapplied; a tree may be the 
 cause of an acorn, and the acorn in turn the cause of a 
 tree, but not of the same tree ; poverty may cause drunken- 
 ness, and this in turn cause poverty, but not the same 
 poverty. Concretely the same things, the same objective 
 facts, cannot be both cause and effect. Dietzers position 
 is a logical impossibility. 
 
 Note here, however, that the question is so far only 
 whether utility — or marginal utility, or subjective worth — 
 is or is not the cause of cost ; and surely on this point there 
 can be no doubt as to which category in economic produc- 
 tion is primary — demand or supply. But upon the further 
 question whether, as an entrepreneur fact, cost causes 
 value, or value cost, it is not so clear which is right, or that 
 either is right; neither costs of production nor values of 
 products are to be accepted as ultimate causes; rather both 
 are to be regarded as effects of desires for products, as 
 over against human productive powers in conjunction with 
 the environmental equipment of productive opportunity and 
 productive instruments. The causal sequence runs, human 
 desires and needs being taken for granted, from produc- 
 tion goods and human productive powers, more or less 
 scarce or abundant relatively to the needs, to the more or 
 less of products relatively to the needs, thence to the rela- 
 tive exchange powers of products, thence to the relative 
 exchange powers of the productive agents and instruments. 
 On the supply side, the primary term of the causal series is 
 
CLASSICAL VERSUS MODERN 351 
 
 the instrumental goods and powers — but not these goods 
 and powers in their value aspect. 
 
 But evidently all of this reasoning is upon a level of 
 value analysis deeper than the entrepreneur categories and 
 underlying these categories, — a stratum of thought to which 
 the cost category is irrelevant, otherwise than as mere 
 expression or manifestation of the underlying facts which, 
 under the competitive management and bidding of entre- 
 preneurs, are making themselves effective through the 
 leveling and proportioning mechanism of entrepreneur 
 costs. The entrepreneur, however, is prone to accept the 
 values of the cost facts as opaque and ultimate causal data 
 determining the values of products by determining the 
 supplies of them. 
 
 But Boehm-Bawerk is right in insisting that the value 
 aspect attaches to the production goods only by way of 
 derivation from the value of the product. But it is equally 
 true that the limitation of supply, whereby value arises, is 
 upon the products only as a derivative from the limited 
 supply of agents. And, in fact, Boehm-Bawerk says as 
 much; his argument for his aspect of the truth runs as 
 follows : Priority of time is not the point ; there is no 
 summer till after the spring, but the spring does not cause 
 the summer. The value of the product is explained by the 
 fact that the production goods are not in superfluity; put 
 with this the demand, and value comes both for products 
 and for cost goods, — that is, the product has value by virtue 
 ultimately of the same cause that gives value to the pro- 
 ductive good. None the less the value of the product is 
 farthest back in the chain of causation; the production 
 good gets its value from the value of the product. So corn 
 is not high because rent is paid, but rent is paid because 
 corn is high. If the art of smelting ore were lost, iron ore 
 would become valueless, but not iron; while to forget the 
 methods of using iron would render both iron and iron ore 
 valueless. So a corner in brick will carry up the prices of 
 brick, together with the quotations upon stocks in brick 
 corporations; but prices of brick cannot be raised through 
 
352 VALUE AND DISTRIBUTION 
 
 an advance in the market quotations upon brick stocks, 
 etc. — all excellent, if only it all mattered, if, in truth, the 
 causation were finally with the value of the produced good. 
 But it is, at any rate, clear that it is not finally with the 
 costs of the produced good. 
 
CHAPTER XIX 
 
 THE POSITIVE THEORY AND NATURAL VALUE 
 
 It is not surprising that in the Positive Theory a goodly 
 part of Boehm-Bawerk's discussion of market-vakte costs 
 is found within the chapters upon "Subjective Value." ^ 
 That between subjective cost, market- value cost, collectiv- 
 ist cost, and entrepreneur cost, there is a shifting so 
 continuous that one is rarely sure of precisely what is 
 being discussed, must fairly be accorded this m^uch of justi- 
 fication, that Boehm-Bawerk himself does not recognize 
 the importance of the distinctions. But the distinctions are 
 none the less important, and it is for the most part in the 
 failure duly to recognize them that the Austrian view of 
 cost falls so far short of consistency and adequacy. 
 
 The later theory, Boehm-Bawerk says, explains value 
 by "the marginal utility which a good is capable of render- 
 ing; that is to say, it depends on its future employment,"^ 
 and not on the value of the production goods consumed in 
 producing it, not on the conditions of its origin; the deter- 
 mination is forward-looking. 
 
 Lest this be understood as denying the influence of 
 costs, let it be kept in mind that the discussion here is of 
 subjective worth, and that marginal utility for this purpose 
 has itself already been made a matter of costs, but all the 
 while forward-looking, — a question, that is, of what sacrifice 
 of other values, or sometimes, doubtless, of effort, will 
 result. 
 
 And it may again profitably be said that any form of 
 value must run in terms of some condition or sacrifice 
 imposed upon the having or the keeping. The criticism 
 urged is merely that the cost of the marginal utility, the 
 value of it, should, as a concept, be kept rigorously distinct 
 from the marginal utility itself. And, after all is said, it 
 remains true also that the very concept of marginal utility 
 itself is a cost concept. That the esteem, the significance, 
 
 ^ Positive Theory, Book III. 
 '^Positive Theory, p. 179. 
 
 353 
 
354 VALUE AND DISTRIBUTION 
 
 the emphasis, but not the utility, accorded to each item in 
 the whole stock is reduced to the level of the marginal item, 
 is, in last analysis, as much a doctrine of cost, of substitu- 
 tion, as the method by which the subjective worth of the 
 marginal utility is found to be determined by that last and 
 least-cherished item of some other series. But the last 
 item in any one stock cannot, as the cost of any other item, 
 be offered as basis or measure of value, because, as merely 
 exchanging against duplicates of itself, no light is thrown 
 upon the question of its exchange power. 
 
 But Boehm-Bawerk ^ shows that the value [subjective?] 
 of a production good — by the very fact that it is not a con- 
 sumption good and can therefore have, in its own right and 
 ultimately, no utility — is not derived from its own marginal 
 utility, but only from the marginal utility of the product. 
 "The value must be high when the dependent satisfaction 
 is important, and low when it is unimportant." * 
 
 This seems to be a subjective value formulation, and, 
 as such, needs, perhaps, no criticism for lack of relativity; 
 but surely as a market-value formulation the doctrine 
 would require restatement to read: "The value will be 
 high when the dependent satisfaction is relatively impor- 
 tant, etc." 
 
 But here the difficulty again presents itself that, in close 
 analysis, the subjective worth of a production good, Hke 
 that of a consumption good, is determined not by the 
 dependent utility itself but rather by the cost aspect of the 
 dependent utility; which cost may as well be found in the 
 mere labor cost of the production good as in the displace- 
 ment of some potential product: for, according to the Aus- 
 trian view, the utility of the marginal good may not, after 
 all, be determined by its own utility but by its displacement 
 of other utilities, or possibly by its own labor cost. The 
 cost principle, as here invoked to arrive at the subjective 
 value of the consumption good, implies that the subjective 
 value of any production good must be found, not in the 
 marginal utility of its product, but in the subjective value 
 of its marginal product; not, that is to say, in its marginal- 
 utility productiveness, but in the marginal cost of this pro- 
 ductiveness. 
 
 ^Positive Theory. * Ibid., ■p. i8o. 
 
POSITIVE THEORY AND NATURAL VALUE 355 
 
 But, in point of fact, it is not possible even here to be 
 sure that the discussion is in the subjective-value field; for, 
 in confirmation of the argument, appeal is made to market- 
 value phenomena, and to that very "law of costs 
 
 Experience shows that the value of most goods is equal to 
 their 'costs.' But costs are nothing else than the complex 
 of those productive goods which have value .... [and] 
 must be expended in the making of the products." ^ 
 
 Suppose that one has three similar production goods, 
 any one of which will suffice for the production of con- 
 sumption good A, B, or C, the A product having a mar- 
 ginal significance of lOO, B of 120, C of 200; 
 the production good must have a value of 100: "The value 
 of the productive unit adjusts itself to the marginal utility 
 and value of that product which possesses the least 
 marginal utility among all the products for whose produc- 
 tion the unit might, economically, have been employed." ^ 
 
 "The Wert of goods which have a higher individual 
 marginal utility is put on a level with the value of the 'mar- 
 ginal product' — as we shall call that product which has the 
 least marginal utility." "^ 
 
 Here we note that marginal utility and Wert are pre- 
 sented as not necessarily equal ; the Wert of the non-mar- 
 ginal product is made equal to the Wert of the marginal 
 product, since the production goods — deriving their value 
 from the marginal application — dictate as costs their lower 
 value to products possessing higher marginal utility but 
 requiring only equal costs. 
 
 We seem here to be in the field of subjective worth — 
 though all the while this is not to be certainly asserted. 
 But, at any rate, why is the 100 use marginal? that is, why 
 are there only three production goods? Probably because 
 other productive openings have left no larger provision of 
 agents for the three wants in question. Even on the indi- 
 vidual basis, then, there is something relational here, and 
 something backward-looking. 
 
 Boehm-Bawerk's doctrine that value is the sum of mar- 
 
 * Boehm-Bawerk, op. cit., p. 183. 
 
 'Ibid., p. 186. ''Ibid., p. 181. 
 
356 VALUE AND DISTRIBUTION 
 
 ginal costs, each of these costs getting its value from its 
 least valuable use, would be true, so far as it goes, if only 
 these marginal costs were fully analyzed into an indiffer- 
 ence between marginal uses. But here a distinction must 
 be drawn between isolated or collectivist production as 
 against competitive production. The displacement, as 
 opportunity idea, applies to competitive production only 
 through the individual computation. The entrepreneur is 
 as readily marginal through his outlay for the cranberry 
 patch as for some productive good having an alternative 
 application. To the entrepreneur there is the clearly 
 defined alternative by virtue of which he becomes marginal, 
 viz., whether or not to apply his capital power to the hire 
 of the cranberry patch. And in point of fact also, the cran- 
 berry patch has alternative applications, in the sense that it 
 has different and competing relations of adaptation and of 
 desirability to different men; the successful bidder has not 
 necessarily to bid his maximum, but only to outbid his 
 most willing competitor. It is thereby rare that, in 
 market-value problems, the producer nearest to the margin 
 is really upon the margin, — rare, that is, that cost ever quite 
 equals value. That the case is not precisely the same with 
 Crusoe, or in collectivist production, is due to the fact that 
 in the isolated economy, cost resolves itself mostly or 
 entirely into the alternative- want aspects of production, 
 into the resistance pull of other demands. That Boehm- 
 Bawerk, despite the fact that he is citing and discussing 
 a market-value doctrine, is proceeding upon the group con- 
 c-ept of cost, instead of upon the competitive concept, is 
 shown in the following: 
 
 If we are considering what a good .... of higher immedi- 
 ate marginal utility is worth for us, we must say first of all, it is 
 worth exactly as much as the means of production from which we 
 could reproduce it at any moment. Then if we examine further 
 how much the means of production themselves are worth, we come 
 to the utility of the marginal product.^ 
 
 It is, indeed, passing odd that the principle of displace- 
 ment is applied here but is not accurately applied to competi- 
 tive costs ; but in competitive cost the principle is more 
 difficult to apply, as complicated with questions of individual 
 capacity and preference. In competitive production the 
 costs are fixed, in part by the market prices of production 
 
 ^ Boehm-Bawerk, op. cit., p. i88. 
 
POSITIVE THEORY AND NATURAL VALUE 357 
 
 goods, and in part also by the alternative openings offered 
 for the personal activity of the entrepreneur ; he is not, in 
 any ordinary case, appreciably an influence to affect the 
 conditions. Yet in his small share, whether he be a mar- 
 ginal producer or not, he does have an effect. Labor, or 
 land, or capital uses, acquire their market value as produc- 
 tive agents through the competitions of producers bidding 
 for the help of these agents. The value is not the mar- 
 ginal-value contribution of the agent, but is the price 
 adjustment at the level of the marginal bid, — not the possible 
 but the actual bid in view of the actual value contribution, 
 or, — put more accurately so as to cover the interest- 
 discount modification, — it is the price set at the marginal 
 bid in view of the present worth of the expected future 
 value contribution. But the competition of producers is 
 ordinarily not drawn from one field of production alone ; 
 the quantity of agents at the service of one line of produc- 
 tion is commonly, though not always, mostly a question of 
 the alternative pull of entrepreneurs in other industries. 
 
 Cost, from the individual point of view, is therefore truly 
 a question of displacement, but sometimes of displacement 
 of agents from one productive use to another, sometimes 
 of agents from other competing hands to the producer's 
 hands. The higher of the two amounts functions 
 as the cost quantum. So, for example, if land costing the 
 tenant lOO rent may be made to render him 103 of service 
 in corn or 105 in wheat, the land cost of the wheat is not 
 100 but 103. That is to say : The cost of the agent under 
 consideration will be expressed either as the money sig- 
 nificance of the agent in some alternative employment under 
 the management of 'the holder, or as the money outlay 
 imposed by the bidding of competing entrepreneurs ; and 
 the true cost will be the larger of these two value quanti- 
 ties. Thus, while we may acquiesce in Boehm-Bawerk's 
 statement, "that even when the law of costs holds, costs are 
 not the final but only the intermediate cause of value," this 
 acquiescence must import a meaning different from that 
 intended by Boehm-Bawerk ; it cannot be admitted that 
 demand has anything more to do with value than has cost, 
 unless in the ultimate sense that all economic activity traces 
 back to want, and that even competitive costs are more 
 commonly than, otherwise the expression of alternative 
 demands. And we must dissent unqualifiedly from the 
 
358 VALUE AND DISTRIBUTION 
 
 general proposition that "it is only this many-sided char- 
 acter of most cost goods, their capacity for being employed 
 in many different uses, that gives the appearance of the 
 contrary." ^ This statement is uniformly true only of the 
 isolated or socialized economy. But doubtless it is some- 
 times true of competitive production; that is, it may, as we 
 have already seen, be the case that in any particular entre- 
 preneur's hands an agent be on the point of being turned 
 by him into another line of production ; against the use that 
 he is making of an agent, the highest bid is not that of 
 some competitor but is his own bid for use in another line 
 of product. 
 
 In Wieser's treatment of costs and of value, the dis- 
 cussion chiefly concerns that which he terms "Natural 
 Value," — collectivist value — value arising "from the social 
 relation between amount of goods and utility, or value as it 
 would exist in the communist state." ^^ 
 
 That this manner of approach is for many purposes 
 most serviceable is not to be denied; but to be a working 
 concept, it must assume that in administration all indi- 
 viduals are regarded not merely as entitled to equal con- 
 sideration, but as precisely similar in all relevant aspects ; 
 or, if the discussion is to throw light upon exchange-value 
 problems, that an equal quantum of purchasing power 
 is assigned to the different claimants under the collectivist 
 distribution. 
 
 Wieser points out that, under present conditions, goods 
 are not distributed according to their maximum service in 
 consumption, but according to strength of purchasing 
 power; exchange value estimates luxuries high and neces- 
 saries low ; error, fraud, force, private property, and social 
 inequality disturb the case: "In natural value goods are 
 estimated simply according to their marginal utility; in 
 exchange value, according to a combination of marginal 
 utility and purchasing power." ^^ 
 
 " Boehm-Bawerk, op. cit., p. 189. 
 ^^ Wieser, Natural Value, p. 60. 
 ^Ibid., p. 61. 
 
POSITIVE THEORY AND NATURAL VALUE 359 
 
 In a certain sense, truly, all prices are costs, as terms of 
 sacrifice upon which all goods are obtained. But an 
 entirely intelligible and analyzable value situation might 
 obtain under conditions in which cost of production could 
 have no part, as, for example, under the government 
 suppl3'-distribution system at an Indian agency. So W^ieser 
 rightly remarks that the elementary theory of value con- 
 siders "that goods come into men's disposal without requir- 
 ing to be first produced," ^^ but, as one infers, with equality 
 of purchasing power somehow established in the society, 
 or with some assumed preliminary and temporary distri- 
 bution of the consumption goods. In such conditions, land 
 and capital could have no value. But "if we do away with 
 this assumption [of non-production], we obtain the natural 
 laws of value in production." ^^ 
 
 So, under socialism, Wieser says : 
 
 There must be land rent [land differentials] In such a 
 
 state it would not form personal property, but it would be calcu- 
 lated separately in the total income of the community, and that on 
 essential grounds, namely, in order to find out what is the quota 
 which individual lands contribute to total return, and to judge 
 therefrom what outlay may and ought to be expended to obtain this 
 quota. In other words, the economic-technical service, that of 
 controlling production, would remain, while the personal part it 
 plays, as a source of private income, would fall away." 
 
 Now, not at all denying the service, both expositional 
 and doctrinal, of this point of view, it is perhaps the more 
 to be regretted that so often there slip in competitive con- 
 cepts and illustrations, rarely clearly distinguished, and 
 that the point of view appears to be in perpetual flux 
 between collectivism and competition. In truth, here, as 
 with Boehm-Bawerk, the reader finds that the difficulties of 
 distinguishing between subjective- and objective- value doc- 
 trines are extreme. 
 
 Seemingly upon considerations both of expositional 
 advantage and of logical priority, Wieser takes up the 
 problem of distribution as fundamental to the doctrine of 
 costs, — which, perhaps, is as well as the other way about, 
 since either method must tacitly involve one or the other of 
 two assumptions ; either that value and distribution are dis- 
 
 ^Ibid., p. 61. ^Ihid.. p. 61. ^^ Ibid., p. 63. 
 
360 VALUE AND DISTRIBUTION 
 
 tinct problems, or that one solution may be made derivative 
 from the other. "The consideration that, from production 
 goods, one can obtain a return in goods which possess 
 not only utility but value, gives production goods their 
 value." ^^ "But," as Wieser rightly says, "the proposition 
 that production goods obtain their value from the value of 
 their returns, suffices for the co-operation of the co-operat- 
 ing productive factors as a whole, not for their valuation 
 individually." Thus value must explain costs as an aggre- 
 gate, but until we find the principle of imputation, "the 
 valuation of production goods [separately] will remain an 
 enigma." ^® 
 
 Nor is it possible, as Menger thought, to arrive at the 
 contribution of any one item by assuming its loss. Three 
 goods. A, B, and C, co-operating together may give a value 
 of 10, while any two of them together or applied in other 
 combinations would give a value of only 6. By Alenger's 
 reasoning this would assign to each a value of 4. But 3 
 times 4 is more than the value of all working together. 
 The advantage which a good renders is, therefore, not to 
 be calculated by the loss which will come with its loss, but 
 by the gain which does come with its possession.^'^ The 
 actual employment is the one from which computation 
 should be made, and not the employment which might have 
 been resorted to, if something not as good as was done had 
 had to be done. The three factors in combination produce 
 a surplus of i over what they could produce separately or 
 in any other combination ; it was because of this surplus 
 that they were put together ; to the extent of this surplus 
 there is something to be divided which the method of sub- 
 traction cannot distribute. 
 
 But will this specific productivity solution serve better? 
 The truth is that men bid for instruments of production to 
 go with their own labor or to supplement an existing stock, 
 because, with the new factors, the old become more pro- 
 
 ^' Wieser, op. cit,, p. 70. " Ibid., pp. yz, 78. " Ibid., p. 85. 
 
POSITIVE THEORY AND NATURAL VALUE 361 
 
 ductive ; but there is no occasion for ascribing the total of 
 this joint and co-operative increase either to the old or to 
 the new factors. Market values for productive contribu- 
 tions can, indeed, be worked out of situations of this sort — 
 the market is doing it daily and hourly — but never any 
 measure or purported expression of- the value productive- 
 ness. 
 
 To a hunter, rifle and cartridge together may have a 
 great Wert ; as a necessary fact in the combination, either 
 may be said to have all the worth ; alone neither would have 
 any of it. And likewise, if there is only one artist who can 
 do a given thing, and only one item of material on which or 
 with which the thing can be done, there is no theoretical way 
 of dividing the finished product. But if either factor can 
 be replaced, the deadlock is broken; and if there are differ- 
 ent combinations enough into which the different produc- 
 tion goods are entering, the market will solve, from all the 
 different equations, the values of the different unknown 
 quantities : so^ from 
 
 ;r-|-3;=:ioo 
 
 43'+5^=590 
 it may be deduced that .r^40, 3/=6o, and 5'=70. "The 
 sum of all the productive contributions exactly exhausts the 
 value of the total return." ^^ 
 
 But — it is to be objected — the entrepreneur must all the 
 while be here as a fourth fact, and the adjustment of 
 market value must take place through entrepreneur bid- 
 ding. There are, then, accurately no such equations as 
 jf-f-y^ioo, etc. ; the sum must be a different one with each 
 different entrepreneur, since each of all the different goods 
 must hold a different productive relation to each different 
 entrepreneur. The outcome will be one ascribing to the 
 instrument or agent as remuneration the sum expressing 
 merely the highest entrepreneur bid for it by virtue of its 
 productivity relation to this particular entrepreneur, — that 
 is to say, the highest value offer. 
 
 "/Wrf., p. 88. 
 
362 VALUE AND DISTRIBUTION 
 
 But it is at any rate true, as Wieser rightly insists, that 
 the vahie of each productive good is in part conditioned 
 on the existence of goods capable of co-operating with it, — 
 on complementary goods. Land has greater value as capi- 
 tal goods increase; labor greater value as the land is 
 better. 
 
 According to Menger .... the farmer who loses his cart 
 horse, loses only the value of the animal, whereas .... he 
 suffers, beyond this, some disturbance in the value of his remaining 
 productive wealth.^' 
 
 Every productive good .... has ascribed to it a greater 
 effect than it could obtain through its own powers; .... on the 
 other hand, .... a lesser effect .... than might be expected 
 from the degree of dependence in which the complementary goods 
 
 stand to it The imputation assigns in this way a medium 
 
 share Of land, capital, and labor there is nothing to be 
 
 said except that, together, they bring forth everything; alone, 
 nothing.^" 
 
 But note here that just how or why the outcome is as it 
 is, cannot be made clear without the assumption of the 
 entrepreneur fact, with all the differences in entreprenetir 
 capacity, in capital equipment, and in personal preference. 
 Wanting this aspect, and full allowance for it, we have only 
 a mystery. 
 
 Noting also that the foregoing passage seems to appeal 
 to the actual market, and that a part of it so appeals in 
 terms, so that we are left in our chronic doubt as to 
 whether and how far we are in the "natural-value" reckon- 
 ing, the further development of the argument becomes of 
 interest. The marginal law for production goods is asserted 
 to follow that for consumption goods; 
 
 In every stock of consumption goods, every unit receives its 
 value from the marginal utility; thus the value which the products 
 are expected to have is already adjusted to the marginal level, 
 and the value of the production goods, as derived from this, is 
 consequently placed, from the beginning, on the basis of the 
 marginal value.^^ 
 
 But production goods may be used to create products 
 
 "Wieser, op. cit., p. 91. ^ Ibid., pp. 92-94. '^ Ibid., p. 97. 
 
POSITIVE THEORY AND NATURAL VALUE 363 
 
 of different kinds. "In each kind, taken by itself, the 
 vahie of the product is adjusted to the level of its particular 
 marginal utility." -- And since these margins of utility in 
 the different kinds of goods are rarely, if ever, precisely 
 equal, "production stocks must always be employed in such 
 a way as to bring forward those products which will secure 
 the greatest possible satisfaction of want." And goods 
 not all having the same marginal utility, — gold for the filling 
 of teeth and gold for gilding not fully corresponding in 
 utility, — "it is quite impossible in the two kinds of employ- 
 ment to keep always exactly to the same marginal amount ;" 
 it is sufficient if no rearrangement will bring a higher 
 utility.^^ 
 
 Here again, not attempting to be quite certain whether 
 the discussion is wholly collectivist in reference, though 
 most of it surely is, and merely remarking these further 
 cases of mix-up between marginal utility and value, or 
 Wert, we are especially interested to observe that the differ- 
 ence in the utility of gold for teeth as against any other 
 employment does not appear, in Wieser's thought, to 
 depend upon differences in buyers' purchasing power, but 
 solely upon the fact that the marginal need with reference 
 to teeth may be much greater than any other need, even the 
 highest, for gold for other purposes; but the value will 
 correspond to the cost — to the displacement — in these minor 
 uses. This, then, definitely asserts that value is often less 
 than marginal utility, and so is one more recognition that 
 marginal utility and value are distinct concepts, and are 
 quantities not interchangeable, and that value is the cost 
 aspect of utility. 
 
 But now recurring to the doctrine that "land, capital, 
 and labor together bring forth everything, alone nothing," 
 and that "the sum of the productive contributions exhausts 
 the whole return," these statements, if accepted as true, 
 must, as we have seen, be interpreted to include the entre- 
 preneur as laborer, as co-operating factor of production, 
 and also as the director in the distribution of product. Of 
 land, capital, and labor, as compensated under rent, inter- 
 
 ^Ibid., p. 97. 
 
 "^ Ibid., p. 98, passim. 
 
364 VALUE AND DISTRIBUTION 
 
 est, and wages, and with no account made of profits, the 
 proposition does not hold. And when we are asked to 
 "suppose these productive elements employed on the most 
 rational plan possible," we seem to be assuming that all the 
 employed agents are precisely alike relatively to entrepre- 
 neurs in general, or that all are upon the market-value basis 
 fully interchangeable, and that all entrepreneurs are pre- 
 cisely alike in all relevant aspects, — no part of which is in 
 any wise permissible of assumption. For competitive pro- 
 duction at least, these three productive agents must be taken 
 as somehow including the employer, the valuer and bidder 
 fact, or must assume as somehow in the background a 
 fourth productive element, the human director; and he is 
 always a different man. There is, then, no such thing as 
 one most rational plan or combination of productive 
 factors, unless this presupposes a one best entrepreneur. 
 And in fact, under equally skilful but different entrepre- 
 neurs, different combinations of productive factors must be 
 the best combinations. There is, therefore, for any particu- 
 lar production good, no such thing possible as one specific 
 marginal use or marginal service or marginal utility or 
 marginal productivity, as attributable to it in its own right 
 and independently, or even as dependent solely on the rela- 
 tion of the agent in question to some other production good 
 or goods, but only as also related to the situation and apti- 
 tudes and needs of a specific entrepreneur. There must, 
 then, be as many specific marginal productivenesses as there 
 are different entrepreneurs to come into relation with the 
 good in question. The fallacy of the "marginal contribu- 
 tion" of any particular productive good is parallel to that of 
 the marginal utility of consumption goods upon the market; 
 in neither case is there room for more than a marginal rela- 
 tivity. For market-value purposes, the marginal productive 
 contribution does not exist, but only the market value of 
 the contribution, as the outcome of competitive bidding, 
 based upon the significance, for individual purposes, of the 
 good in question, — whether siii generis or as one good out of 
 a stock of similar goods, — as forming a part of a particular 
 entrepreneur complex. The purchaser of the production 
 good may or may not be near to paying for it all he can; 
 and while with one item out of a stock the quasi-rent fact 
 is probably a smaller quantity than in case of an isolated 
 good, there is no reason to suppose that it is entirely non- 
 
POSITIVE THEORY AND NATURAL VALUE 365 
 
 existent. As applied to the inner relations of the entre- 
 preneur complex, the doctrine here insisted upon with so 
 much emphasis is, indeed, merely an application of Wieser's 
 general doctrine: "We only estimate it [the farm horse] 
 at a portion of the decrease that would ensue were the 
 owner obliged to farm without it." ^* To value the horse 
 according to all of the loss is to value it at more than one 
 would need pay, and is at the same time to make it impossible 
 to pay for the other goods upon a similar basis, or even to 
 pay for them what under competitive conditions would 
 need be paid for them. 
 
 Wieser fails, however, to see that, in point of fact, the 
 accurate attribution or imputation of productiveness is 
 impossible upon the market, simply because it is impossible 
 inside the entrepreneur complex. The entrepreneur him- 
 self cannot tell how much the good in question produces 
 for him, but only how much he can afford to pay for it to 
 go with his other goods and his own productive powers, 
 rather than to go without it. 
 
 In joint production the specific productivities of the dif- 
 ferent productive agents are clearly not obtainable; and in 
 truth also, the productivity of any agent working in isola- 
 tion is not obtainable, simply because no good ever so 
 works; the entrepreneur fact, the director, is always in the 
 background, and the productivity is therefore a produc- 
 tivity relative to him ; thus the productivity must be a differ- 
 ent one with each different entrepreneur. But even if this 
 be somehow not entirely past question, it surely is clear that 
 the aggregate productiveness of agents employed in com- 
 bination is greater than the sum of their powers in isolated 
 production, that it is precisely for this reason that they 
 are placed in combination, and that the increment of product 
 from the very fact of combination is a joint product not 
 accurately to be distributed in terms of specific and dis- 
 tinguishable productiveness. In some slight measure, at 
 least, there must be in every case some question of joint 
 surplus product like that of the rifle-and-cartridge case, 
 or like the case of the unique painter and unique material. 
 The only practicable analysis is that of the entrepreneur 
 who attributes to himself as profit all that he does not have 
 to pay for the co-operating goods ; but it is obvious that this 
 analysis sacrifices accuracy to practicability. 
 
 ^Wieser, op, cit., p. 91. 
 
366 VALUE AND DISTRIBUTION 
 
 This appeal to the entrepreneur computation and the 
 entrepreneur bid supplies the missing link in the argument 
 of Wieser with reference to the different equations ; some- 
 how, he says, the market, out of all the different equations, 
 arrives at a marginal-utility imputation for each productive 
 good. If it really does so, and so far as it does so, it is 
 done by the bidding of entrepreneurs : 
 
 To each single item or quantity is imputed the smallest contri- 
 bution which under the circumstances can be economically arrived 
 at by the employment [employer] of the particular item or quantity, — 
 the marginal contribution [the marginal employer's bid based on 
 contribution] .... or, looking at it from a different point of 
 view, the marginal product [product to the marginal employer, if 
 only this were accurately ascertainable]. 
 
 Productive elements which admit of only one kind of employ- 
 ment do not share the multiplicit}^ of conditions necessary for the 
 emergence of what we recognize as costs.^ 
 
 This will be recalled as substantially the view adopted 
 by Boehm-Bawerk as the relation of monopoly goods to 
 cost of production, monopoly goods being understood by 
 Boehm-Bawerk to mean, in this connection, scarce goods, 
 goods not reproducible at will, like land, exceptional ability, 
 etc. But it must be noted that Wieser's doctrine does not 
 exclude the goods from cost bearing on the ground of 
 scarcity or of non-reproducibility, but only because of the 
 want of alternative applications. And this is unquestion- 
 ably good cost doctrine for collectivist or for Crusoe eco- 
 nomics. And if it were possible to make certain that 
 Wieser is all the while in the collectivist analysis, there 
 could be no room for serious criticism, except to point out 
 that the application to competitive economics, if not made, 
 calls imperatively to be made, and to point out also that, if 
 made upon the basis left possible by Wieser, it can be made 
 only with the utmost of difficulty, — or, if readily made, 
 must almost certainly be erroneously made. IVEonopoly 
 goods, in the sense of land or of high ability, are cost goods 
 in either type of reckoning, to the extent, at least, of the 
 alternative applications. But in the competitive economy, 
 any production good is a cost good to the extent that it 
 necessitates a cost outlay to command it. In the accurate 
 
 °* Wieser, op. cit., p. 175. 
 
POSITIVE THEORY AND NATURAL VALUE 367 
 
 sense, indeed, the displacement principle applies here ; the 
 productive good could have served in the hands of another 
 entrepreneur ; the expense incurred by the renting entre- 
 preneur might have been otherwise directed. 
 
 This is perhaps the point at which to discuss a forcible 
 and plausible objection against regarding as a cost the rent 
 paid for a good having only one productive application, the 
 cranberry patch, for example. It may be speciously urged 
 that the rent advanced by the tenant, or foregone by the 
 cultivating owner, while a cost charge in the individual 
 reckoning, and in that sense a cost, has yet no cost-causal 
 bearing upon market value ; the land will be used by some- 
 one; the rent is not a condition to the productive function- 
 ing of the land ; it will be used by some other cultivator, if 
 the present cultivator refuses the rent outlay ; our cranberry 
 patch, being good for nothing for any other purpose, cannot 
 be driven, because of low rent, into other uses, and will 
 remain in the cranberry service, whether or not the owner 
 sell, or the tenant abandon to another cultivator; the cran- 
 berry patch is therefore not a fact through which the supply 
 term of the value equation may evince any of that flexi- 
 bility whereby prices receive their modification. 
 
 But evidently thus much might be argued for capital and 
 for its remunerations, with only a long-run distinction 
 possible for such lands, if there are any, as are independent 
 of upkeep and incapable of exhaustion. But there is no 
 reason why cranberry land, or any other cultivated land, or 
 any form of specialized instrumental good, may not, with 
 time enough, be exhausted; that is to say, most instru- 
 mental goods, however specialized, are in the long adjust- 
 ment mobile in their capital-value aspect. 
 
 But it must be admitted that goods of no alternative 
 use differ from other goods with respect to the effect of a 
 diminishing demand for products, that is, differ with 
 respect to the degree of elasticity in supply, but differ 
 nevertheless only in degree. With falling prices, some 
 acres, or what amounts to the same thing, some intensive 
 possibilities, of the cranberry field will be abandoned, — will 
 not, it is true, go into other lines of product, but none the 
 less will go ; the labor and capital — the expense — go in part 
 elsewhere; and if the entrepreneur departs leaving a new 
 
368 VALUE AND DISTRIBUTION 
 
 tenant to follow him, this new tenant will fail to utilize the 
 land at the old degree of efficiency, at the same tension 
 of productive power; and the new tenant is himself not as 
 efficient a producer as the old, — was in fact outbid by the 
 earlier tenant on the earlier level of prices, this earlier 
 tenant now finding the cranberry enterprise at the present 
 level of prices not worth his while.^^ 
 
 Supply conditions have then been somewhat disturbed. 
 But the degree of bearing of costs upon value is in any 
 case easily exaggerated, — which fact was in Mill's mind 
 when he argued that only relative wages and relative profits 
 should figure as costs. But if only those outlays not pro- 
 portionate to efficiency rendered are reckoned as costs, the 
 situation will become hopeless of analysis for cost purposes. 
 Because of differences in entrepreneurs, and thereby differ- 
 ences in the relations of efficiency to outlay, and because of 
 the different technological conditions of different lines of 
 production, there is nothing for the case but to reckon all 
 outlays as costs, and for that matter, also, all tediums, 
 repugnances, and counter-attractions, whether absolute or 
 relative. 
 
 But it remains true that only differences of cost, relative 
 to efficiency, seriously affect the value outcome. We must, 
 however, view as costs all that the entrepreneur regards as 
 burden in arriving at his choice of occupations, all that he 
 charges up against the chosen occupation as a resistance 
 to production and as necessary to be overcome in his market- 
 price remuneration. All his outlays rank for him as data 
 in making his choice between lines of activity. It is, indeed, 
 only as working out through entrepreneur computations 
 and entrepreneur competitions, that production goods of 
 any sort acquire value or rental, or rank as costs, and come 
 thereby to have their little or much bearing on the relative 
 volumes of goods seeking exchange against one another. 
 That there is, for any purpose, a not greater relative supply 
 of production goods — whether of non-alternative use or of 
 many uses — is the reason for relatively few products, high 
 
 ^^ It is, however, true that cases may be imagined where no expense 
 or labor of upkeep is necessary, — a cranberry patch, for example, where 
 the more one should disturb it the less satisfactory would be the 
 results. But even assuming such a case, the most that can be said is 
 that it does not matter whether rent is or is not reckoned as a cost, 
 since the supply is independent of all cost influences. 
 
POSITIVE THEORY AND NATURAL VALUE 369 
 
 prices, and a high value level for the production goods in 
 question. Ultimately cost is a way of expressing that we 
 cannot have more of the agent unless upon more expensive 
 terms — perhaps not even then — and can have what we have 
 only upon the present terms of expense. But the explana- 
 tion of the actually existing limitation upon the supply of 
 production goods may or may not be in the diminutions and 
 diversions due to other industries ; it may simply be that 
 there are no more agents. For the purposes of competitive 
 production, Wieser's and Boehm-Bawerk's view that a good 
 is not the basis of a cost imless the good has alternative 
 applications amounts practically to saying that nothing can 
 be a cost once that is not a cost twice. This view implies 
 also that some distributive shares for employed agents are 
 not costs at all, thus raising the question whether distribu- 
 tion need, on Wieser's own basis, have been treated prior 
 to costs. 
 
 "Practically," Wieser says, "it would seem to come to 
 this ; that the imputation of the share due to the monopoly 
 goods is made after that due to the cost goods is finished."^^ 
 This appears to be Ricardo's old rent-and-cost doctrine, 
 albeit possibly none the worse for that. But Wieser adds, 
 though with precisely what significance is not at all clear, 
 that 
 
 it is only in the individual case that such a calculation can be 
 
 made A suflBciently wide consideration shows that 
 
 monopoly goods come altogether under the ordinary conditions of 
 valuation, and differ from other economic goods only that they 
 
 display much more strikingly the character common to all 
 
 Only the greater part, not the whole, of the "undivided residue" is 
 to be imputed to the good in question.^^ 
 
 Bearing in mind that, for the most part, the criticism 
 here made attaches only to the relation set up between dis- 
 tributive shares, and bearing in mind also that, interpreting 
 monopoly goods merely as scarcity goods, — non-reprodu- 
 cible goods, — there is no very considerable objection to be 
 made to the doctrine presented in its bearing upon present 
 issues, it yet remains to be repeated that, purely as distribu- 
 tive doctrine and subjected to the requirements of theroeti- 
 
 ^^ Wieser, op. cit,, p. no. 
 '^ Ibid., pp. no, III. 
 
370 VALUE AND DISTRIBUTION 
 
 cal accuracy, it will not stand. The entrepreneur is always 
 in the background to share in or to take the residue in ques- 
 tion; it therefore cannot all go to the hired scarcity good; 
 the entrepreneur is himself a monopoly good for the pur- 
 poses of the case ; this makes two monopoly goods. ^^ 
 
 As we have already seen, there is danger of confusing 
 with each other two different sorts of land differentials, 
 (i) the entire value differential measured from the rentless 
 margin, or, as it is sometimes viewed, from the lowest-rent 
 land in use; and (2) a quasi-rent form of differential 
 expressing value-wise the superiority of land for one use 
 over its best alternative use. This second sort of land dif- 
 ferential, as representing no displacement, could not, in a 
 collectivist economy, be computed as cost. The other dif- 
 ferential, the ordinary rent of competitive production, 
 would be irrelevant to collectivist computations. For ques- 
 tions of cost in the competitive econom}^, the case is just the 
 other way about ; all competitive rent paid is cost ; the 
 quasi-rent differential is as cost irrelevant.^" 
 
 Wieser appears to confuse these two rent concepts, 
 though this can be asserted only hesitatingly, because of the 
 difficulty of being positive as to whether the discussion is in 
 the collectivist, the natural-value, field, or in the field of 
 competitive production. The early portion of his chapter 
 on "Land Rent as Cost" ^^ seems to imply that rent as a 
 general differential of value productivit}^ — rent measured 
 from the rentless land margin — is no part of cost; which 
 would be meaningless for collectivist purposes, and untrue 
 for competitive purposes. But he asserts that "when all 
 lands and all powers of the land .... bear rent," the 
 rent must be included; and this also, as applied to collect- 
 ivist production, must be untrue, irrespective of its seeming 
 implication that all powers of the land can ever be rent-bear- 
 ing. At the very close of the chapter, however, it is said: 
 
 ^ The same criticism applies to the following : "The personal 
 income which land yields is, in the last resort, dependent upon the fact 
 that the land in question yields a return such that, after the shares of 
 capital and labor are deducted, there remains a share which must, on 
 natural laws, be imputed to the land." — Wieser, op. cit., p. 114. 
 
 '" And there is really another concept of rent, the superiority 
 of a particular piece of land for a particular use over the poorest of 
 land devoted to that use ; but this third form does not concern this 
 particular discussion. 
 
 *^ Wieser, op. cit.. Book V, chap, xiii, p. 217. 
 
POSITIVE THEORY AND NATURAL VALUE 371 
 
 "That the rent of land does not enter into cost can be legiti- 
 mately applied only to land devoted of necessity to one dis- 
 tinct use, such as mines, vineyards, and the like," — an 
 accurate statement if intended only as a natural-value 
 doctrine. 
 
 But upon the same page, in substantial conformity with 
 the views already discussed of Mill, Jevons, Patten, Hob- 
 son, and others, but still not clearly in the competitive field, 
 Wieser goes on to show that "if a fertile field is employed 
 as site for a factory, the agricultural rent which in other 
 circumstances might be expected from it ... . cannot 
 be neglected in calculating the costs of the factory's 
 products The differential rents which are surren- 
 dered take effect as costs." This appears, on the whole, to 
 be competitive doctrine and as such is unacceptable: if it is 
 really intended as collectivist doctrine, the talk should be of 
 the products possible, and not of the surrendered rents. 
 
CHAPTER XX 
 
 THE ATTEMPT AT RECONCILIATION: MARSHALL^ 
 
 Marshall's treatment of demand price is a great advance 
 over that of the Austrians, and is in the main firmly and 
 consistently held, both in terminology and in essential 
 thought. Whether so much can be said for his analysis of 
 supply price is not so clear. 
 
 And there are some inadequacies in his discussion of the 
 relation between utility and price, in that, at times, he 
 seems to believe that price may, after all, to the individual, 
 stand as a measure of marginal utility.^ 
 
 ^ The sth edition of Marshall's Principles comes to hand as the 
 present work is passing through the press. It has not seemed 
 practicable entirely to rewrite this chapter, nor — from such 
 hasty examination of the new edition as has been possible — would 
 this appear to be called for ; thus, wherever in the new edition the 
 original citation has been found without substantial change, the fact 
 is so indicated by parenthetical referen'ce. 
 
 ^ "The price will measure the marginal utility to each purchaser 
 individually : we cannot speak of price as measuring marginal utility in 
 general, because the wants and circumstances of different men are 
 different." — Alfred Marshall, Principles of Economics, 4th ed., Mac- 
 millan, 1898, p. 174 (5th ed., p. 99). 
 
 And in criticism of Jevons, it is said : "He has led many of his 
 readers into a confusion .... by speaking without qualification of 
 the price of a thing as measuring its final utility, not only to an 
 individual, which it can do, but also to 'a trading body' which it 
 cannot do." — Ibid., p. 176, note (sth ed., p. loi). 
 
 "For each of [two men, one rich, one poor] the marginal 
 utility is measured by sixpence ; but this marginal utility is greater in 
 the case of the poorer man than in that of the richer." — Ibid., 
 p. 170 (5th ed., p. 95). 
 
 In fact, however, as Marshall would probably be the first to admit, 
 the sixpence gives neither any general measure of utility nor any 
 measure to any particular individual. The price that one is just 
 willing to pay is an expression of the relation in utility of the good 
 under consideration to other goods purchasable with the same money, 
 but gives no information as to the absolute utility of any of these 
 different goods. 
 
 372 
 
ATTEMPT AT RECONCILIATION 373 
 
 Substantially, however, Marshall recognizes the real 
 nature of the demand margin : 
 
 The clerk who is in doubt whether to ride to town, or to walk 
 and have some little extra indulgence at his lunch, is weighing 
 against one another the (marginal) utilities of two different modes 
 of spending his money.^ 
 
 On the supply side the meaning is less easy to arrive 
 at and the adequacy of the doctrine less clear. 
 
 In the line with the cla'ssical writers, Marshall has a 
 doctrine of real cost, but in just what way, if at all, it is 
 articulated with his doctrine of money cost or expenses of 
 production is not evident. It is said that with labor con- 
 ceived as the only productive fact, "the price required to 
 call forth the exertion necessary for producing any given 
 amount of a commodity may be called the supply price for 
 that amount." But with labor and capital in co-operation, 
 
 the exertions of all the different kinds of labor that are directly 
 or indirectly involved in making it; together with the abstinence or 
 rather the waitings required for saving the capital used in making 
 it; all these efforts and sacrifices together will be called the real cost 
 of production of the commodity. The sums of money that have to be 
 paid out for these efforts and sacrifices will be called either its 
 money cost of production, or, for shortness, its expenses of pro- 
 duction; they are the prices which have to be paid in order to call 
 forth an adequate supply of the efforts and waitings for making it; 
 or, in other words, they are its supply price.^ 
 
 This appears to say that real costs are the costs to the 
 people who sell or rent their various services to the entre- 
 preneur; while money costs are costs from the 
 point of view of the entrepreneur. This is surely 
 a valid distinction, if only, over against the danger 
 of confusion through it, there are counterbalancing 
 advantages. But is it true that the quantum of 
 the sacrifice in effort and waiting has anything to do with 
 the quantum of the payment? How close and how definite 
 is the relation? Is there in real costs any basis for money 
 costs ? What is the connection ? What is the reason that it 
 
 ^ Ibid., p. 193 (sth ed,, p. 118). 
 *Ibid., p. 418 (5th ed., p. 339). 
 
374 VALUE AND DISTRIBUTION 
 
 takes three dollars instead of two to command the day's 
 service of a carpenter, or six dollars for the mason? Is it 
 a matter of the effort pain purely, or has what the laborer 
 can get somewhere else the more to do with it? The iden- 
 tification of supply price with the necessary price is admir- 
 able and illuminating. But why are these prices thus or so ? 
 Marshall leaves it to be inferred that the solution traces 
 back to real cost ; but he does not say so, nor does he attempt 
 to trace any connection. And again, these money pay- 
 ments in compensation of the real costs seem to be identified 
 with the supply price, the entrepreneur cost; this leaves, as 
 part of necessary or minimum cost, nothing for the entre- 
 preneur. But if "the supply price of a commodity is the 
 price at which it will be delivered for sale" to those who 
 demand it, this price must be more and other .than mere 
 expense cost. 
 
 But two or three pages later the normal supply price 
 is presented through the device of the representative firm, 
 its normal expenses of production being taken as the 
 normal supply price, but these expenses being interpreted to 
 include gross earnings of management.^ 
 
 ^Marshall, op. cit., p. 422 (5th ed., p. 343). 
 
 This representative-firm notion, is so widely accepted in later 
 theory, and its influence so important for good or ill, that some 
 especial attention is called for in order to determine the precise nature 
 and content of the notioru Is it a long-time or a short-time concept? 
 If the price of any particular time is determined by the cost to the 
 representative firm of that time, is this to be taken as, for the purpose, 
 an abandonment of the marginal analysis? What about the costs of 
 the firms of lower grade? Do these firms fall short of receiving for 
 their costs full indemnity from market prices? Or are their profits 
 merely smaller, but adequate ? And what is to become of these poorer 
 firms ? and when ? and why ? 
 
 Or if the doctrine points not to present costs and their explana- 
 tion, but only to the long-time adjustment, are we to understand the 
 representative firm to be one that, in the trend of competitive forces, 
 is likely to acquire control of the market, a long-time best firm, or 
 rather a long-time average firm, or a long-time marginal firm ? 
 
 And whether or not the commensurability of price with marginal 
 entrepreneur cost, rather than with cost on marginal land, is 
 taken to hold in agriculture, is it to be understood that, in 
 manufacturing, some better or best firm fixes the price ? And if so, is 
 this victory price to be regarded as expressing any cost quantum with 
 respect to this better or best firm ? 
 
 If the representative-firm notion is an abandonment of the 
 marginal analysis, is it a substitution of the method of averages and 
 
ATTEMPT AT RECONCILIATION 375 
 
 Since business ability in command of capital moves with great 
 ease horizontally from a trade which is overcrowded to one which 
 offers good openings for it; and since it moves with great ease 
 vertically, the abler men rising to higher posts in their own trade, 
 
 normals ? Or are we rather looking for the marginal cost of an 
 average firm, long or short time as the case may be ? 
 
 And if, because there are all sorts of ups and downs in business, 
 normals and averages are to rule, why is not the average method 
 equally valid for labor computations in the cost problem, the value 
 of masons' or doctors' or lawyers' services coming to coincide with the 
 wage or salary of the average or representative man in the occupa- 
 tion — taken at the time of his medium earning capacity? 
 
 And if we have in some sort to do with the average principle, 
 shall we take the representative firm to be simply and merely an 
 average firm, or the long-time average of pretty much any firm, or 
 the long-time average of an average firm? And average in what 
 respect ? In size ? In skill of management ? In good fortune ? In 
 methods ? In manner of organization ? 
 
 But all these problems may perhaps reach their solution with the 
 unfolding of the concept : precisely what is a representative firm ? 
 
 "Though in manufacturing, at least, nearly every individual 
 business, so long as it is well managed, tends to become stronger the 
 larger it has grown ; and though prima facie we might therefore expect 
 to see large firms driving their small rivals completely out of many 
 branches of industry, yet they do not in fact do so" (p. 371) (5th ed., 
 p. 241). 
 
 "When a man has got together a great business, his descendants 
 often fail, in spite of their great advantages, to develop the high 
 abilities and the special turn of mind and temperament required for 
 
 carrying it on with equal success For a time, indeed, all may 
 
 go well By mere assiduity and caution, availing them- 
 selves of the traditions of the firm, they may hold together for a long 
 time. But when a full generation has passed .... the business 
 almost invariably falls to pieces unless it is practically handed over to 
 the management of new men who have meanwhile risen to partnership 
 in the firm" (p. 379) (sth ed., p. 299). 
 
 "The superintendence of labor is but one side, and often not the 
 most important side of business work The ideal manufac- 
 turer .... must have the power of forecasting the broad move- 
 ments of production and consumption He must be a natural 
 
 leader of men, .... a power of first choosing his assistants rightly 
 and then trusting them fully ; of interesting them in the business and 
 
 of getting them to trust him The abilities required to make 
 
 an ideal employer are so great and so numerous that very few persons 
 can exhibit them all in a high degree" (p. 377) (5th ed., p. 297). 
 
 "It is obvious that the son of a man already established in 
 
 business starts with very great advantages over others It 
 
 would, therefore, at first sight seem likely that business men should 
 constitute a sort of caste" (pp. 378, 379) (5th ed., p. 298). "But we 
 may read a lesson from the young trees of the forest as they struggle 
 upwards through the benumbing shade of their rivals. Many succimib 
 
376 
 
 VALUE AND DISTRIBUTION 
 
 .... in modern England the supply of business in command of 
 capital accommodates itself, as a general rule, to the demand for 
 it; and thus has a fairly defined supply price. Finally, we may 
 regard this supply price of business ability in command of capital 
 
 on the way, and a few only survive ; these few become stronger with 
 every year, they get a larger share of light and air with every increase 
 of their height, and at last in their turn they tower above their neigh- 
 bors, and seem as though they would grow on forever, and forever 
 become stronger as they grow. But they do not. One tree will last 
 lonjger in full vigor and attain a greater size than another ; but 
 sooner or later age tells on them all. Though the taller ones have a 
 better access to light and air than their rivals, they gradually lose 
 vitality ; and one after another they give place to others, which, though 
 of less material strength, have on their side the vigor of youth. 
 
 "And as with the growth of trees so it is with the growth of 
 businesses. As each kind of tree has its normal life in which it attains 
 its normal height, so the length of life during which a business of any 
 kind is likely to retain full vigor is limited by the laws of nature 
 combined with the circumstances of place and time, and the character 
 and stage of development of the particular trade in which it lies" 
 (pp. 394, 395) (5th ed., p. 315). 
 
 But that all this is both truly and beautifully said leaves it still to 
 be asked what it means for the purpose. Certainly there are all sorts 
 of firms, and all degrees of flux and change among them ; but so there 
 are all sorts of wage-earners, of independent producers, of land, of 
 machines ; and it has sometimes been thought that by the very fact 
 of all these differences, the marginal analysis is imperatively imposed. 
 And does it at all matter to the doctrine that, more and more, 4:he firm 
 organization is giving way to the corporate? But to continue: 
 
 "There is no rule of universal application ; but .... as a gen- 
 eral rule subject to important exceptions, an increase in the total volume 
 of any branch of production tends to increase the average size of the 
 
 businesses engaged in it Many .... economies depend 
 
 directly on the size of the individual establishments engaged in the 
 
 production An increase in the aggregate scale of production 
 
 of course increases those economies which do not directly depend on the 
 
 size of individual houses of business Correlated branches of 
 
 industry .... mutually assist one another The economies 
 
 arising from such sources as this, which are accessible to any branch 
 of production, do not depend exclusively on its own growth ; but yet they 
 are sure to grow rapidly and steadily with that growth ; and they are 
 sure to dwindle in some, though not in all respects, if it decays" 
 (p. 396) (Sth ed., p. 317). 
 
 "When we come to discuss the causes which govern the supply 
 price of a commodity, we shall have to analyze carefully the normal 
 cost of producing a commodity, relatively to a given aggregate volume 
 of production ; and for this purpose we shall have to study the expenses 
 
 of a representative producer for that aggregate volume We 
 
 shall not want to select some new producer just struggling into busi- 
 ness, who works under many disadvantages, and has to be content for a 
 time with little or no profits, but who is satisfied with the fact that he is 
 
ATTEMPT AT RECONCILIATION 377 
 
 as composed of three elements. The first is the supply price of 
 capital ; the second is the supply price of business ability and energy ; 
 and the third is the supply price of that organization by which the 
 appropriate business ability and the requisite capital are brought 
 
 establishing a connection Nor on the other hand shall we 
 
 want to take a firm which by exceptionally long-sustained ability and 
 good fortune has got together a vast business, and huge well-ordered 
 workshops that give it a superiority over almost all its rivals. But 
 our representative firm must be one which has had a fairly long life, 
 and fair success, which is managed with normal ability, and which has 
 normal access to the economies, external and internal, which belong to 
 that aggregate volume of production" (p. 397) (sth ed , p. 318). 
 
 But does this mean that the price at any particular time must be 
 the cost to this firm at this mid-time of its career ? It seems so : 
 
 "The normal supply price of any amount of that commodity may be 
 taken to be its normal expenses of production (including gross earn- 
 ings of management) by that [the representative] firm This 
 
 is the price the expectation of which will just suffice to maintain the 
 
 existing aggregate of production A price higher than this 
 
 would increase the growth of the rising firms, and slacken, though it 
 might not arrest, the decay of the falling firms, with the net result of an 
 increase in the aggregate production. And, on the other hand, a price 
 lower than this would hasten the decay of the falling firms, and slacken 
 the growth of the rising firms ; and on the whole diminish production" 
 (p. 422) (sth ed., p. 343). 
 
 But none of this appears to involve any appeal to representative 
 or average phenomena ; it is rather a typical marginal analysis ; but — 
 
 "Anyone proposing to start a new business in any trade .... 
 if himself a man of normal capacity for that class of work, .... 
 may look forward ere long to his business being a representative one, 
 in the sense in which we have used this term, with its fair share of the 
 economies of production on a large scale. If the net earnings of such a 
 representative business seem likely to be greater than he could get by 
 similar investments in other trades to which he has access, he will 
 choose this trade" (p. 449) (5th ed., p. 377). 
 
 This evidently takes the representative firm to be something like 
 an average firm ; and it is here said that any average man who con- 
 cludes that in the trade in question he would turn out to be an 
 average man, will go into the trade if he notices that the average man 
 in that trade is doing better than average men outside. True, as a 
 doctrine of opportunity cost ; but it does not need the assumption of 
 average men to be true. Any inferior or superior man will act in 
 precisely the way outlined, if he believes that men of his grade are 
 finding the trade in question more remunerative than other trades to 
 which he has access. And there is nothing in any case to indicate 
 that the cost of this average man will coincide with the price of the 
 product, or to indicate that the cost of the marginal man will not so 
 coincide. Thus the quotation as it continues presents a mistaken 
 deduction : 
 
 "Thus that investment in a trade, on which the price of the com- 
 
378 VALUE AND DISTRIBUTION 
 
 together. We have called the price of the first of these three ele- 
 ments interest; we may call the price of the second taken by itself 
 net earnings of management, and that of the second and third, taken 
 together, gross earnings of management.^ 
 
 In substance this is evidently an opportunity-cost analysis 
 of the reasons for the movement of entrepreneur ability and 
 entrepreneur capital from one industry to another ; it has no 
 necessary relevancy to the representative or to the average 
 firm, and depends for its correctness upon no assumption of 
 this sort. Accurately, however, it does imply a firm or a 
 situation where the wages of superintendence are only just 
 large enough, etc., — "the price the expectation of which will 
 just suffice to maintain the existing aggregate of produc- 
 tion," a marginal-cost price, as it would seem. But this 
 appears not to be Marshall's idea, nor is it possible — to this 
 writer at least — to make out quite precisely what the idea 
 is ; the notion of the representative firm appears to lack 
 something in point of theoretical tangibility. 
 
 Perhaps, however, the doctrine points to a firm which, 
 in the long-time adjustment, with all its ups and downs, 
 will pass for a marginal firm. But whether this be safely 
 assumed or not, Marshall's necessary price must be, on the 
 full showing, taken to include more than mere outlays, — 
 must be understood as allowing for the entrepreneur share. 
 But we still await information as to what determines the 
 
 modity produced by it depends in the long run, is governed by estimates 
 on the one hand of the outgoings required to build up and to work a 
 representative firm, and on the other of the incomings, spread over a 
 long period of time, to be got by such price" (p. 449) (sth ed., p. 377). 
 
 "The aggregate production for a general market is the outcome of 
 the motives which induce individual producers to expand or contract 
 their production. It is just here that our device of a representative 
 firm comes to our aid. We imagine to ourselves at any time a firm that 
 has its fair share of those internal and external economies, which the 
 average scale of production in that trade will cause to accrue to such a 
 business" (p. 514) (sth ed., p. 459). 
 
 This last quotation puts the case as, indeed, one of an average 
 firm, but not, seemingly, a firm of average size, but a firm that by its 
 ability or by its organization — whatever the size — strikes a fair average 
 of the economies of productions ; this average cost will, it is inferred, 
 be the market price. But as the same page shows, the cost in question 
 is the marginal cost of this average firm : 
 
 "This then is the marginal cost on which we fix our eyes ;" and 
 the marginal summary reads : "We thus get at the true long-period 
 marginal cost, falling with a gradual increase of demand." 
 
 'Marshall, op. cit., p. 392 /sth ed., p. 313). 
 
ATTEMPT AT RECONCILIATION 379 
 
 amount of this share. Is real cost its basis, or is there an 
 opportunity-cost reckoning somewhere in the background?'^ 
 
 In an earher chapter,^ it is aid: "While demand is 
 based on the desire to obtain commodities, supply depends 
 mainly on the overcoming of the unwillingness to undergo 
 'discommodities.' These fall generally under two heads : 
 labor, and the sacrifice involved in putting off consumption." 
 The "discommodity" in the labor is stated to include bodily 
 or mental fatigue, unpleasant surroundings or unpleasant 
 companions, injury to health, and displacement of recrea- 
 tion. 
 
 Now, while this account of demand and supply would, 
 as we have seen, do for the social product conceived as a 
 unit aggregate, it clearly will not apply to explain the pur- 
 chasing dispositions with reference to different classes of 
 goods relatively to one another, and will not serve to formu- 
 late the forces of resistance to the production of the various 
 different lines of supply; as a method of elucidating the 
 problem of the exchange relations between goods, nothing 
 but confusion results from this affiliation of market costs 
 upon real costs. Not only this ; but while this catalogue of 
 real costs unquestionably contains some items of true pain 
 quality — costs in this real sense — the concept is wrongly 
 permitted to include the loss of recreation pleasure, which 
 is not a cost at all in the sense of pain, but only of oppor- 
 
 ^ On page 217 (5th ed., p. 142) of the Principles, Marshall writes: 
 "It is broadly true that the exertions that any set of workers will make, 
 rise or fall with a rise or fall of the remuneration that is offered 
 them;" "which may be true for each separate man under different levels 
 of payment, but hardly true of different men relatively to each other, 
 and hardly true of all men as affected by a general rise of wages ; but 
 Marshall continues : "As the price required to attract purchasers for 
 any given amount of commodity, was called the demand price, .... 
 so the price required to call forth the exertion necessary for producing 
 any given amount of a commodity, may be called the supply price for 
 that amount." 
 
 Now not only is there overmuch suggestion of labor-pain cost here 
 but also it is difficult to make out whether Marshall at all recognizes 
 the importance of alternative remunerations. He does not so indicate ; 
 the question seems to be one of absolute exertion rather than of rela- 
 tive, and this without attention to the alternatives in results ; and yet in 
 his analysis of demand price he has clearly and satisfactorily recognized 
 the principle of competing and resisting alternatives of consumption. 
 
 * Book IV, chap, i, p. 215 (sth ed., p. 140). 
 
380 VALUE AND DISTRIBUTION 
 
 tunity. And on the side of capital costs, also, there is a 
 parallel error; the putting-off of consumption is a sacrifice 
 of a present good, a resistance to be overcome, but it is of 
 a different category from pain burden ; it is merely a choice 
 between two desirable things ; it cannot safely be forced into 
 the pain-cost, the real-cost, classification. Demand points to 
 the sacrifices of purchase; cost, to all the sacrifices of pro- 
 duction ; but whose sacrifices and whose production ? Here 
 again, however, it is difficult to determine how far, on the 
 whole, Marshall is open to criticism upon this point. For, 
 in substance, he appears to abandon the doctrine of real 
 cost as having any significance for exchange relations. 
 He recognizes that much productive activity takes place 
 entirely or mainly for its own sake, e. g., in literature and 
 in science, that much more is performed for the benefit of 
 others, and that "even where a man is working for hire, he 
 often finds pleasure in his work ; but he generally gets so 
 far tired before it is done that he is glad when the hour of 
 stopping arrives." ^ Perhaps even "he might rather work 
 for nothing than not work at all," but not generally: But 
 if at all, what becomes of the real-cost doctrine? Nor is 
 there great help in the fact that there is marginal exertion 
 and marginal production, for even so, the margin may be 
 one of choice between pleasures, — nor help in the fact that 
 the work willingly done gets paid by the measure of the 
 rest, or, as Marshall puts it, that "the price of the whole is 
 governed [ ?] by the sacrifice required from him by that 
 part of the labor which he gives most unwillingly, and is on 
 the verge of refusing to give." ^° This marginal resistance 
 may still be wholly one of choice between pleasurable occu- 
 pations, a cost by displacement of recreation. 
 
 "Marshall, op. cit,, p, 216 (5th ed., p. 141). 
 
 "^^ Ibid., p. 216. 
 
 Marshall's position as to the relation of rent to price forces him 
 into some regrettable propositions in the direction of making marginal 
 influences "determining" facts rather than mere "precisioning" facts ; 
 as, for example, when he says of the classical doctrine, "that the 
 price .... is determined by the expenses or money cost .... 
 on the margin of cultivation ; and that rent does not enter into cost, 
 
 these phrases are true in the sense in which they were meant 
 
 Those parts of the produce which yield a surplus will generally be pro- 
 duced even if that price is not maintained ; while there is no surplus 
 yielded by that portion of the produce the expenses of production of 
 which do take direct part in governing the price." — Marshall, op. cit., 
 p. 477. 
 
 But when the rent-cost position is not in hazard, the correct 
 
ATTEMPT AT RECONCILIATION 381 
 
 But whatever the doctrine of real cost may be taken to 
 signify, it is at any rate clear that Marshall's analysis really 
 accepts and adopts the point of view of entrepreneur cost : 
 "The easiest as well as most practical course is to go 
 straight to production for sale in a market." ^^ 
 
 The undertaker cares little for real cost: "He thinks 
 chiefly of the expenses of production and seldom pays much 
 attention to the efforts and sacrifices to which those pay- 
 ments more or less closely correspond," and which consti- 
 tute the "real" cost of production. "The modern 
 business man commonly takes the payments which he has to 
 make, whether for wages or raw material, as he finds 
 them ; without staying to inquire how far they are an accu- 
 rate measure of the efforts and sacrifices to which they 
 correspond." ^^ 
 
 This should doubtless better read "to which they do not 
 correspond;" marginal individual cost^ the sundown mar- 
 gin, gives no hint of the degree of "real" cost, but only 
 asserts the equality ratio between the utility of the product 
 and the forces resisting the production, whether by burden, 
 or by utility foregone, or by both. The different personal 
 wages or profits are world-wide from the correspondence 
 of remunerations to pains ; it is a commonplace that the 
 dirtiest and the most disagreeable occupations pay the 
 least." 
 
 doctrine gets its dues ; after saying on page 427 : "The remainder of 
 the present volume will be chiefly occupied with interpreting and limit- 
 ing the doctrine that the value of a thing tends in the long run to 
 measure its cost of production," he calls attention to the fact that this 
 is not precisely to say that it tends to be fixed or governed by its 
 cost of production : "We might as reasonably dispute whether it is the 
 under or the upper blade of a pair of scissors that cuts a piece of paper, 
 as whether value is governed by utility or cost of production." 
 
 But this is not inconsistent with the view — for the most part held 
 by Marshall — that the two margins together determine the price. 
 But in a note on page 580, the case is admirably and accurately put 
 as follows : "The withdrawal of iron from any one of its necessary 
 uses would have just the same influence as the withdrawal from its 
 marginal use," 
 
 " Marshall, op. cit., p. 476. 
 
 '^^ Ibid., pp. 430, 431 (5th ed., pp. 351, 353). 
 
 " Despite the fact that the discussion here avowedly concerns 
 itself not with the laborer's pains, discomforts, and sacrifices, but 
 
382 
 
 VALUE AND DISTRIBUTION 
 
 But once again, what about the entrepreneur's services as 
 items of costs? "In calculating the outgoings, the head of 
 
 with the employer's wage expenditure — not with the capitalist's for- 
 bearings and abstinences, but with the borrower's outlay of hire, — the 
 temptation is yet almost irresistible to investigate the causes of the 
 facts, to set afield to explain what, to the entrepreneur, are brute and 
 definitive data, but which are evidently world-distant from ultimate 
 resting-places for thought. Cairnes, it will be recalled, was so 
 impressed with the ultimate character of human life, in its expression 
 by effort and pain, so impressed also with the non-finality and non- 
 reality of the entrepreneur point of view and computation, that, breaking 
 with Mill, he abandoned it entirely as a significant cost category. 
 Ricardo had based entrepreneur cost upon real cost, only by assuming — 
 perhaps as self-evident, but at any rate without any attempt at proof — 
 the proportionality of wage outlays to labor burdens ; and as to the pro- 
 portionality of interest compensations to abstinence claims he had 
 greatly worried, but had on the whole believed the divergence not hope- 
 lessly wide. Marshall appears to follow Ricardo both in doctrine and in 
 argumentative method. 
 
 But if the costs are not fixed by the pains, how then are they fixed ? 
 Pain and discomfort and ill repute have obviously something to do with 
 the case, even admitting that they have not all. The mind will not rest 
 contentedly and indefinitely at the superficial entrepreneur-cost level of 
 explanation ; we must somewhere turn from the mere opaque hoiv much 
 to ask the why of the hoiv much; if we explain value by the value of 
 the costs, shall we not somewhere find an explanation of the value of 
 the costs ? And if nothing else offers, shall we not take labor pain 
 as explanation? And where can we reach bottom unless in terms of 
 human life as expressed in human labor and in human pain? 
 
 But the level of explanation next underlying the mere entrepreneur 
 quantum is the level at which, mainly, opportunity cost offers its service ; 
 but it is at this level that the relative pains and the relative pleasures 
 and remunerations of different lines of activity have chiefly to be con- 
 sidered. How great a supply of any agent may be had in any industry 
 or under any entrepreneur, and on what terms of outlay, is, no doubt, 
 in part determined by the relative irksomeness or disagreeableness or 
 ill repute of the employment in question : but in part, also, and com- 
 monly in much the larger part, by the relative remunerations possible in 
 competing industries or under competing employers. That is to say, 
 the seller of labor efficiency, like the land- or the capital-owner, com- 
 putes his refusal price— in part or entirely — according to what may 
 be had in another market or under another employer in the same 
 market. 
 
 But it must be admitted that this opportunity-cost line of explana- 
 tion, even when it is complete in its inclusion of all pain and pleasure 
 and product aspects, is not ultimate ; it explains some values merely in 
 the light of competing values ; it resolves values of products into 
 values of costs. But, by going over to the supply of instruments, by the 
 adoption of the standpoint of the employee rather than of the employer, 
 it is so far better than the mere entrepreneur point of view, in that 
 it does in some measure explain the entrepreneur situation. But are the 
 values of the costs finally and adequately explained through this appeal 
 
ATTEMPT AT RECONCILIATION 383 
 
 the business must reckon in the vahie of his own work," " 
 but there is no suggestion that this vahie has any other basis 
 than its real cost, its burden-pain significance. And, in 
 point of fact, not all of the value of the entrepreneur's 
 services can be computed as cost, but only that part which 
 represents displacement, the opportunity of gain, or a 
 recreation or other pleasure foregone, — the most desirable 
 alternative ; more accurately, the amount of money necessary, 
 as against any other total of resistance or inducement, to 
 keep him at the production in question, is the cost volume 
 in question. What remains over and above this necessary 
 compensation, the surplus called unnecessary profit or pro- 
 ducer's quasi-rent, is no part of cost. And it is surely bad 
 terminology to call one's own work, or the usance value of 
 one's own property, an expenditure ; but this is not a serious 
 matter. Doubtless, however, Marshall, like Cairnes and 
 like practically all other economists, appreciates that "the 
 business man is constantly striving so to modify his arrange- 
 ments as to obtain better results with a given expenditure or 
 equal results with a less expenditure ;" ^^ and that individual 
 effort has to be somehow allowed for as expenditure, or in 
 some other way and to some extent be computed in cost.^^ 
 But the application of the proposition to all the different 
 outlays obscures, or altogether hides, its especially impor- 
 tant theoretical aspects as applied to individual effort. 
 And, as we have already had occasion to observe, this doc- 
 trine, if consciously held and thoroughly worked out, is the 
 doctrine of opportunity cost.^'^ 
 
 to the employees' competing value opportunities? The competing 
 opportunities are themselves also value-derived rather than value- 
 explaining. It is at this point that, as ultimate determinants, the 
 situation, the actually controlling conditions, the man-and-environment 
 general status of things, assumes its place as ultimately the causal fact. 
 
 "Marshall, op. cit., p. 433 (5th ed., p. 354). 
 
 ^' Ibid., p. 433 (sth ed., p. 355). 
 
 ^' Flux (Economic Principles, p. 52), Seager {Introduction to 
 Economics, p. 157), Fetter {Principles of Economics, p. 274), and 
 Seligman {Principles of Economics, p. 354) all adopt this extended 
 sense of the word expense ; there must then, it seems, be some advan- 
 tage in it or excuse for it that the present writer has not appreciated. 
 
 " Fetter, Flux, Seager, Carver, and Seligman all recognize, more 
 or less consciously and completely, this opportunity-cost aspect of 
 necessary price. 
 
 Fetter: "The entrepreneur's cost determines the lowest price at 
 
384 VALUE AND DISTRIBUTION 
 
 On page 449 (5th ed., p. 377) is a paragraph which 
 looks somewhat toward the opportunity-cost doctrine. 
 After remarking that capital (in the sense of the entre- 
 preneur concept) goes in large measure toward building 
 up internal organization and trade connections, and is alto- 
 gether lost with the cessation of the concern; and that one 
 who is starting a new business must reckon upon this 
 chance of loss, Marshall says that a man of normal (aver- 
 age?) capacity may fairly expect his business to become 
 representative (average? marginal? price-determining?) 
 with its fair share of economies: 
 
 If the net earnings of such a representative business seem likely 
 to be greater than he could get by similar investments in other 
 trades, he will choose this trade. Thus that investment of capital in 
 
 which he can continue to sell" (p. 274). However, Fetter also says: 
 "Alternative cost is manifold and indefinite. The thought is signiiicant 
 at the moment of choice, but is not constantly measurable for practical 
 purposes. Money cost is the practical cost" (p. 274). 
 
 Flux: "Supply price .... must be a price sufficient to cover 
 cost of production, and if competition be vigorous, the excess over cost 
 of production will not be more than sufficient to afford such profits 
 as competitors need to secure in order to continue in competition" 
 (P- 57) ; which says that necessary supply price is cost ; but that each 
 man must have as part of his necessary price something above cost, 
 namely, what his competitors find to be a part of their necessary 
 price ; and that this first man's necessary excess above this necessary 
 price is his profit. 
 
 Seager : "The expenses of production .... include minimum 
 profits to the entrepreneur to remunerate him for his time and trouble" 
 (P- 1 57)' "The amount which should be charged as wages of manage- 
 ment or minimum profit is what the entrepreneur could obtain for his 
 services if he worked for wages or for a salary for a corporation or 
 other employer" (p. 159). 
 
 Seligman's view is substantially like that of Seager : "The gross 
 earnings would suffice to give him a bare compensation for his services, 
 for otherwise he would enter into some other employment as a wage- 
 earner" (p. 3S4). 
 
 But why assume, for example, that the next best tune that any man 
 can play must be played upon someone's else violin? 
 
 Carver : "If a certain individual with a certain amount of labor 
 and capital at his disposal can earn $1,000 a year by working for other 
 people .... a piece of land upon which he with his capital can 
 produce a total crop worth only $1,000 would be worth nothing to him, 
 but one upon which he could produce a crop worth $1,200 would be 
 worth approximately $200 a year." — Carver, The Distribution of Wealth, 
 p. 188 (sth ed., p. 377). 
 
ATTEMPT AT RECONCILIATION 385 
 
 a trade on which the price of the commodity produced by it depends 
 in the long run, is governed by estimates on the one hand of the 
 outgoings required to build up and to work a representative firm, 
 and on the other of the incomings spread over a long period of 
 time to be got by such a price. 
 
 This comparison is, however, of alternatives of capital 
 investment rather than of personal remunerations; but as 
 applying to capital, it may be open to the opportunity-cost 
 interpretation. Still, strictly interpreted, the passage seems 
 to say no more than this, that the long-run price depends 
 on the proportion between the expenses on the one side, 
 against incomings on the other. But whether the passage 
 really covers, or is intended to cover, opportunity cost, 
 Marshall makes later no further use of the principle. 
 
 KENT AND COST 
 
 Marshall's treatment of the relations of rent to cost is 
 perhaps the least satisfactory portion of an admittedly 
 masterly work. 
 
 He treats both extensive and intensive margins — when 
 both are — as equally rentless and equally price-determin- 
 ing, without apparent wonder that the costs should be pre- 
 cisely equal in the two cases, both nevertheless being 
 independent causes, and there existing no causal nexus 
 between them : "Rent is here taken as another name for the 
 surplus produce which is in excess of what is required to 
 remunerate the cultivator for his capital and labor." ^^ 
 
 But this statement strictly interpreted would carry to 
 the landlord as land rent all producer's quasi-rents, in the 
 sense of occupation differentials. And even though this 
 form of quasi-rent receives scant recognition from Marshall, 
 it still remains to ask what are the determinants and the 
 measure of the remuneration required by the cultivator for 
 his capital and labor. 
 
 These doctrines (that the price .... is determined by the ex- 
 pense or money cost .... on the margin of cultivation; and that 
 rent does not enter into cost) do not mean that a tenant farmer need 
 
 not take his rent into account He must count his rent in just 
 
 the same way as he does any other expense. What they do mean is 
 
 ^* Marshall, op. cit., p. 477. 
 
386 VALUE AND DISTRIBUTION 
 
 that when the farmer is doubting whether it is worth his while to 
 apply more capital and labor to the land, then he need not think of 
 his rent.'" 
 
 But this argument would also exclude interest wages 
 and profits from cost; for, as Marshall himself points out 
 a few pages later, the question whether one shall push a 
 piece of land harder or shall rent more land "is of the same 
 kind as the question whether he shall buy a new plow, or 
 try to get a little more out of his present stock of plows." 
 This is the marginal problem with plows ; this marginal 
 use "pays nothing net toward the net income earned by the 
 plow." 20 
 
 But this is no more than to leave cost to be based on 
 something other than payments for instrument services ; 
 and this would lead to the acceptance of wages as the sole 
 basis of marginal cost.^^ 
 
 In point of fact, all that this doctrine excluding rent 
 from cost amounts to is, either ( i ) that rent applies equally 
 — if at all — to all the different costs of all the different pro- 
 ducers in any given line of production, and thereby has no 
 relative importance, since, as much as cost is higher or 
 lower in rent, it is correspondingly modified in reverse 
 order with regard to other expenses for other productive 
 agents; or, (2) that when rent is paid there is a corre- 
 spondingly and compensatingly larger product. 
 
 " Marshall, op. cit., p. 478. 
 ^* Ibid., p. 492. 
 
 ^^ "A hop-grower, for instance, may find that on account of the high 
 rent which he pays for his land, the price of his hops will not cover the 
 expense" (p. 487). 
 
 "Land is' but a particular form of capital from the point of view 
 of the individual. The question whether a farmer has carried the culti- 
 vation of a particular piece of land as far as he profitably can ; and 
 whether he should try to force more from it, or to take in another 
 piece of land, is of the same kind as the question whether he should 
 buy a new plough, or try to get a little more work out of his present 
 
 stock of ploughs He weighs the net product of a little more 
 
 land against the uses to which he could put the capital sum that he 
 
 would have to expend in order to obtain it That part of his 
 
 produce which he is in doubt whether to raise by extra use of his 
 existing ploughs, or by introducing a new plough, may be said to be 
 derived from the marginal use of the plough. It pays nothing 
 net .... towards the net income earned by the plough" (p. 492) 
 (Sth ed., p. 430). 
 
ATTEMPT AT RECONCILIATION 3^7 
 
 But whether under (i) or under (2), the argument 
 applies as only within a given line of production, and 
 thereby can have no significance for the exchange relations 
 between different lines of commodities, the only point at 
 which any application can have any real significance ; for 
 the value problem is something more serious and more diffi- 
 cult than that of explaining the exchange relations of one 
 bushel of beans or of wheat with another precisely like it. 
 And what about capital goods? Marshall points out — and 
 rightly — that for the short-time adjustment, capital goods 
 bear the same relation to price as does land; the quasi- 
 rents upon capital goods are no more a cost than are land 
 rents, since in the short run the supply cannot modify 
 appreciably. But here the difficulty is that wages also will, 
 upon this reasoning, fall out of the cost category, unless 
 upon the assumption of a computation long enough, in 
 point of time, for population to have adapted in volume. 
 And even then, all the different problems as to the relation 
 between the supply of labor and the remunerations of labor 
 would present themselves. 
 
 And worked out to its logical results, this rent-cost doc- 
 trine would imply that, as a long-time doctrine, all capital 
 costs would finally disappear ; for each producer is taken as 
 devising and contriving how best to use his labor effective- 
 ness in view of his abilities and of the environment with its 
 opportunities, all conceived as means toward the productive 
 result desired; shall it be this or that capital, or more or 
 less of this or that? All costs thus resolve themselves 
 ultimately into labor cost, — not labor-purchase or. labor- 
 value cost, but a fragmentary sort of labor-opportunity 
 cost. And thus, under this principle, no indestructible fact, 
 nor the compensation for any indestructible fact, nor any 
 destructible fact for the term and the measure of its exist- 
 ence without upkeep, could figure as cost. And, finally, 
 even labor could rank as destructible fact and its wages 
 thereby function as cost, only under a reckoning long 
 enough and at a rate of compensation low enough, if such 
 level there be, so that laborers, failing to receive those 
 necessary compensations, — computed according to some 
 effective standard of life, or according to some minimum 
 standard of subsistence, — should, in some measure, restrict 
 their total number or effectiveness. 
 
 But probably no one would, by such heroic logic, attempt 
 
388 VALUE AND DISTRIBUTION 
 
 to resolve competitive costs into any such ultimate labor- 
 opportunity cost as this. In the competitive reckoning, 
 any given entrepreneur must pay to his labor enough not 
 merely to keep it alive, but to prevent its appHcation, under 
 some competitor, to the purposes of this competitor. And 
 this appears to be as far as Marshall has thought it worth 
 while to go. But this is an opportunity-cost analysis in the 
 entrepreneur computation, which, upon the chosen level, 
 calls for further application; for, under this reasoning, 
 not merely the creation of capital, the upkeep of capital, 
 and the improvement of land, but also the upkeep of land 
 must be computed as costs, since otherwise the greater 
 profit must be found in selling out the land piecemeal 
 through the method of cropping and depriving of upkeep. 
 
 But if opportunity is in any manner or degree to be 
 recognized, the computation can hardly stop with problems 
 of displacement costs related solely to the original creation 
 of production goods. The goods being once in existence, 
 and the supply of them being — by assumption — incapable, 
 for a period, of modification, something still depends on the 
 degree of their specialization ; and this applies irrespective 
 of whether the goods in question involved, in their origin, 
 any labor cost of production. Land, as we have seen, is, in 
 a collectivist economy, the basis of a cost to the extent of its 
 best alternative application ; and were it in any way legiti- 
 mate to carry over this computation into a competitive situa- 
 tion, the land use would, to this extent at least, function as 
 cost in the competitive reckoning. In neither type of 
 organization is it true that an instrument can function as a 
 cost basis only after it has imposed a cost in its production. 
 In any case, it is a cost to a collectivist society according 
 to its displaced application; if produced, it had a cost under 
 an earlier computation of displacement according to what 
 might otherwise have been produced, — or, equally well, at 
 the margin, a combined recreation-displacement and labor- 
 pain cost. Under entrepreneur-cost computations, each 
 productive fact is a basis of cost in any productive use 
 according to the measure of what it costs the entrepreneur 
 to use it in that particular way, — its highest displacement 
 for him, whether this be expressed as its hire or as some 
 outranking alternative application. 
 
 Thus, if Marshall's attempt to exclude produced appli- 
 
ATTEMPT AT RECONCILIATION 389 
 
 ances or their hire from the competitive-cost reckoning 
 were approved, the reasoning, logically extended to apply 
 to labor and its hire, would result either (i) in admitting 
 the labor as cost only up to the point of its best alternative 
 of productiveness, or (2) admitting the wage as cost only 
 up to the point of the wages obtainable in the laborer's 
 next best occupation, or (3) in denying for the wage outlay 
 any cost significance until time should elapse for a new 
 generation of workers to come upon the scene. 
 
 The classical doctrine may be restated thus: (i) The amount 
 of produce raised, and therefore the position of the margin of culti- 
 vation .... are both governed by the general conditions of demand 
 
 and supply (2) But rent takes no part in controlling the 
 
 general conditions of demand and supply or their relations to one 
 another. It is governed by the fertility of the land, the price of 
 the produce, and the position of the margin; it is the excess of the 
 value of the total returns which capital and labor applied to the 
 land do obtain over those which they would have obtained under 
 circumstances as unfavorable as those on the margin of cultiva- 
 tion.^'^ 
 
 This is in the main correct; rents do not afifect price, in 
 any ultimate sense ; but the supply of land does, and, 
 through the prices of products, affects land rents and land 
 prices. So of wages and of interest, whether capital hire 
 or time discount, the compensations are the result of the 
 value contribution, as a question of the supply of agents 
 and of the resulting products, as against the demand. So 
 the fertility of the non-marginal lands with their quantum 
 of product has much to do with the location of the margin. 
 The conditions which make rent possible, and which affect 
 the place of the miargin, affect price, but ultimately speak- 
 ing, not through affecting rents ; rent is a cause only as the 
 entrepreneur expression of the relatively limited supply 
 of land instruments : the sequence is really the other way 
 about. But rent is not "governed by the position of the 
 margin," but simply reckoned from there ; the price of the 
 product is the proximate cause, but is itself the result of the 
 whole demand for product over against the whole supply ; 
 and this supply volume traces back to the land supply as 
 one of its causes. The causal sequence, in a competitive 
 entrepreneur economy, runs, demand being assumed, from 
 
 ^Marshall, op. cit., p. 478 (sth ed., p. 427). 
 
39° VALUE AND DISTRIBUTION 
 
 supply of land powers to the products of these powers, 
 thence to price, thence to rents, and thence, under the time- 
 discount principle, to the land value. This is, indeed, the 
 sequence with all productive agents — supply "of them, sup- 
 ply of products, price of products, pay of agent. Where, 
 then, is the justification for reckoning any form of agent 
 remuneration as a cost? In this, that to the individual 
 seeking his most favorable application of his gain-making 
 possibilities, all marketable agents contributing to the exist- 
 ence of things of value are the basis of cost hires ; and 
 these cost hires, to the extent that, through the necessity 
 of them as outlays, they influence the individual's choice of 
 occupations, are influences bearing as costs on the relative 
 supply of products. It is true that, as bearing upon any 
 individual's productive activity, it does not greatly matter 
 whether he employs poor land at little rent, or better land 
 at high rent, excepting so far as individual capacity or 
 preference may play some part; but as matter of capacity 
 and preference it does somezvhat matter. The rent pay- 
 ment in either case makes a part of actual cost, and thereby 
 forms a part of his basis of comparison of the costs upon 
 various qualities of lands, and likewise forms a part of the 
 data upon which his choice is made whether he shall produce 
 one or another agricultural product, or shall produce some 
 non-agricultural product as against any agricultural 
 product. His cost of one product is, in the main, the alter- 
 native attractiveness of some other line of production, as 
 referred to the test of highest net advantage. It is by this 
 comparison that he chooses his direction of activity, and in 
 this comparison he includes his rent outlays, precisely as, 
 to arrive at the highest net advantage from competing 
 opportunities, he takes account of outlays in wages, capital 
 hire, time discount, taxes, insurance, royalties, or blackmail. 
 In short, cost of production is a matter purely of the indi- 
 vidual psychology — a complex of influences combining into 
 the one problem, a purely individual problem, of how the 
 individual in question shall to his best advantage direct and 
 apply the gain-controlling powers and agents in his control. 
 
 But all of these cost outlays trace back, for their 
 causation, to the conditions of supply of the respect- 
 ive agents in view of the opportunities for their 
 application, which agents receive their market values, 
 
ATTEMPT AT RECONCILIATION 39^ 
 
 their prices, through the competition of the differ- 
 ent producers, inchisive of the producer especially 
 under consideration. These market prices, socially- 
 established, stand to the individual producer as items of 
 cost and- as data, among other data, in view of which his 
 choice of gainful activity is made. That is to say, it is by 
 the intermediary of individual relative costs and of the 
 resulting choices of activity, that conditions of supply 
 among productive agents make themselves felt in the rela- 
 tive supplies of products, and thereby in the value of 
 products, which value is reflected back upon the agents. 
 Thus it is the limitation of the supply of agents — land, 
 for example — and not the remuneration that is, on the cost 
 side, the ultimate explanation of the value relations of 
 products. Cost of production, in the competitive sense, 
 applies here only to the sphere of individual activity, as 
 tracing out, through the the individual's choice of activity, 
 the influence of the supplies of agents upon the relative 
 supplies of goods. As individual costs, all sorts of influ- 
 ences enter, including every kind of outlay, but the leading 
 influence, by virtue of which producers become marginal, is 
 opportunity cost, the attractive influence of other industries. ^^ 
 And all of this receives occasional recognition from 
 Marshall : 
 
 The rise of ground rents in the district will thus be an indica- 
 tion of the scarcity of space which, other things being equal, will 
 raise the price of retail goods ; just in the same way as the rise of 
 agricultural rents in any district will indicate a scarcity of land 
 which will raise the marginal expenses of production, and therefore 
 the price of any particular crop.^* 
 
 The cost of production of the marginal [agricultural] produce 
 can he ascertained without reasoning in a circle. The costs of pro- 
 duction of other parts of the produce cannot. The cost of produc- 
 tion ofi the margin of the profitable application of capital and labor 
 is that to which the price of the whole produce tends, under the con- 
 trol of the general conditions of demand and supply.^ 
 
 ^' Of course, in the broader sense of the word, all •alternatives of 
 recreation or of rest or of avoidance of pain could be ranged under the 
 opportunity-cost concept. 
 
 ^Marshall, op. cit., p. 488 (5th ed., p. 452). 
 
 ^ Ibid. J p, 479 (5th ed., p. 428). 
 
392 VALUE AND DISTRIBUTION 
 
 Put in other words the argument seems to run as 
 follows: Price is used to explain rent; therefore, if price 
 is the result of cost, only that cost in which rent does not 
 figure can be used to explain price. And so it should, then, 
 follow, one infers, that if the selling-price of products 
 explains wages, wages cannot be used as costs to explain 
 price. And all this would be true if land differentials or 
 labor remunerations were worked out from the isolated or 
 collectivist point of view, instead of being a competitive 
 adjustment of the value of the instrument or agent; but to 
 the individual the rent is a datum, a fixed, opaque fact of 
 cost, and is not a thing which he determines according to the 
 price; and precisely the same reasoning holds with regard 
 to his wage or hire or time-discount outlays ; what is, for 
 market purposes, for aggregate movements, a fact of dis- 
 tribution, a value derivative and imputation, is to him a 
 fact of cost. His acts are results from the value situation 
 which he faces and out of which as opportunity he derives 
 his remunerations. That he and his costs and his decisions 
 and his derivative productive activities are in turn and in 
 their small degree reacting causes, he does not commonly 
 appreciate or need to appreciate. 
 
 So far we have treated agricultural produce as a single com- 
 modity But now we have to reckon for the competition 
 
 between the different kinds of agricultural produce for the use of 
 fertile soils Each crop strives against others for the posses- 
 sion of the land; if any one crop shows signs of being more 
 remunerative than before, relatively to others, the cultivators will 
 devote more of their land and resources to it Thus in equilib- 
 rium, oats and hops and every other crop will yield the same net 
 return to that outlay of capital and labor which the cultivator is 
 only just induced to apply. That "marginal" application which only 
 just pays its expenses, and which therefore contributes nothing to 
 rent, will yield equal net returns to the cultivator. For otherwise 
 .... it would still be open to him to increase his gains by redis- 
 tributing his crops The margin of cultivation has now to be 
 
 described as the margin of the profitable application of capital and 
 labor to all land which the competition of other crops yields to 
 oats.=' 
 
 This discussion therefore abandons cost at all but the 
 intensive margin; there is, in this sort of cases, no extensive 
 ^Marshall, op. cit., pp. 480, 481 (5th ed., pp. 434, 435). 
 
ATTEMPT AT RECONCILIATION 393 
 
 margin; the most unfavorable conditions of fertility chosen 
 for oats are, it is rightly argued, somewhat affected by the 
 fact that, for the land that is capable of growing oats, 
 
 there is so great a demand for other purposes that it affords a 
 higher rent, when used for them, than when used for growing oats ; 
 .... land which would yield a good rent under them, but which 
 yields a better rent under other crops. It is still true that rent is 
 not an element in those expenses of production of marginal oats, 
 
 to which the price of the whole conforms Jevons asks 
 
 (Preface to Theory of Political Economy, p. liv), "If land which 
 has been yielding £2 per acre rent, as pasture, be ploughed up and 
 used for raising wheat, must not the £2 per acre be debited against 
 the expenses of production of wheat?" The answer is in the nega- 
 tive. For there is no connection between this particular sum of £2 
 and the expenses of production of that wheat which only just pays 
 
 its way When land capable of being used for raising one 
 
 commodity is used for producing another, the price of the first is 
 raised by the consequent limitation of its field of production,^ 
 
 but not, Marshall rightly insists, by the rent payment, — that 
 is, not in the sense of ultimate cause. The cost price, 
 Marshall argues, is the cost at the intensive margin, and 
 this margin is at a poorer level of land because of the use 
 of the land for other things. And in any event, it is rightly 
 urged, the rent, if it figures as cost at all, must figure not 
 by what would have been paid if less had been paid, but 
 by the actual amount that is paid. 
 
 It must be admitted that to show that rent enters into 
 the individual's computation of cost is not to prove that it 
 enters into the cost of the marginal product; and it is pre- 
 cisely here that Marshall takes his stand in the denial that 
 rent is a part of cost-determining price. But by the same 
 argument it can be shown that no cost enters into price- 
 determining costs : "The amount of every item but one 
 can be increased, and another unit of product be procured 
 without any addition to the cost of that one item" (Fetter). 
 And, really, it is not true that the item of product raised on 
 rent-paying land is farther away from the margin of indi- 
 vidual production, costs less, than the item produced upon 
 non-rent-paying land ; nor is it true that the item upon the 
 intensive margin costs more than the item requiring less 
 
 ^Marshall, op. cit., pp. 482, 483 (5th ed., p. 437). 
 
394 VALUE AND DISTRIBUTION 
 
 expense for capital goods and for labor. And it is not true 
 that marginal cost controls or determines market value, or 
 that the marginal item has any other or greater effect upon 
 value than any other item. Price is fixed at mar- 
 ginal cost and not by marginal cost ; it is the whole demand 
 and the whole supply which equate at price ; and in any 
 case, the margin is always a personal margin, and not an 
 instrument margin, — or only derivatively. In the competi- 
 tive reckoning, the quantum of necessary remuneration for 
 the entrepreneur's displacements and. sacrifices is irrelevant 
 to the question of whether the land is marginal or not; 
 these costs are as likely to be upon supra-marginal as upon 
 marginal land, and away from the intensive margin as 
 upon it. It does not matter, that is, whether the land is 
 good at high rent or poor at correspondingly low rent ; and 
 this again is equally true of capital goods or of labor. 
 Nor, as a matter of individual cost — and here Marshall is 
 clearly right — is it at all essential that the land have an 
 alternative utility; it has, at all events, a value to other 
 producers ; the owner could rent it or sell it ; the tenant's 
 outlay for it is for him a displacement of other production, 
 or, at least, of consumption; in some sense, narrower or 
 broader, it is then an opportunity cost. 
 
 But two or three pages farther on we find the follow- 
 ing: 
 
 This argument does not imply that a manufacturer when making 
 up the profit-and-loss account of his business would not count his 
 
 rent among his expenses For he may think that the saving 
 
 in ground rent that he will make by moving into the country, to- 
 gether with other advantages of the change will more than counter- 
 balance its disadvantages. In a discussion as to whether it was 
 worth while to do so, the ground rent of his factory would be 
 
 reckoned among the expenses of his cloth It is no less true 
 
 that in making up the profit-and-loss account of the cultivation of 
 land, the farmer's rent must be reckoned as among his expenses. A 
 hop-grower, for instance, may find that on account of the high rent 
 that he pays for his land, the price of his hops will not cover the 
 expenses of their production where he is, and he may abandon hop- 
 growing, or seek other land for it. [And the land may then go to 
 a market-gardener, who in turn hard-pressed by his rents] in his 
 turn makes room for, say, a building company (Marshall, op. cit., 
 pp. 486, 487) (sth ed., p. 450). 
 
 It is thus difficult to make out what is meant by saying 
 
ATTEMPT AT RECONCILIATION 395 
 
 that, in its effect to make the producer marginal, rent is not 
 as much an influence as any other cost. True, it is 
 really the superior pull of market-gardening which takes 
 the land from hops and diminishes the supply of hops ; 
 but precisely parallel is the case with labor or with capital 
 goods ; this pull gets expression through the competitive 
 fixation of costs. The advantages of market-gardening 
 outrank those of hop-culture ; the rent is competitively fixed 
 at a level to which the cultivation of hops cannot adjust 
 itself. 
 
 QUASI-RENTS AND COSTS 
 
 Marshall's doctrine of quasi-rents, as indicating the 
 returns upon capital instruments, while important and even 
 epoch-making in the development of economic theory, is 
 especially disastrous to the other portions of his theoretical 
 structure. As we have seen, the doctrine is, in substance, 
 that, for short-time purposes, capital goods receive an 
 income of the same sort as that of land, — ^not as a cost, a 
 price-determining fact, but as price-determined. 
 
 Obviously, this is a view of cost, perhaps not precisely 
 collectivist in standpoint, but at all events regarding cost 
 from some other point of view than that of the entre- 
 preneur-producer of the finished commodity. Like Cairnes, 
 who approached cost, not in the conviction that "the easiest 
 as well as the most practical course is to go straight to pro- 
 duction for sale in a market," but in the conviction that not 
 what the employer pays for the labor, but the laborer's 
 own discomfort in grief and groan, is the sense in which 
 cost has to do with value, Marshall now goes over for his 
 cost computation to the point of view of the producer of 
 the capital rather than that of the borrowing entrepreneur. 
 That is to say, Marshall holds that, as a long-time doctrine, 
 improvements upon land and capital goods conform in 
 their value to the law of costs ; the making of them depends 
 upon the prospect of the compensation to be had; in the 
 long run, therefore, the cost value of the instrument must 
 stand as a price-determining cost in its relation to the 
 derived consumption good; but for short periods the capi- 
 
396 VALUE AND DISTRIBUTION 
 
 tal good receives compensation parallel to that of land and 
 is price-determined. 
 
 Perhaps one might object that it is the very gist of the 
 long-time doctrine that the compensation even then is price- 
 determined; but the long-time adjustment clearly gives time 
 for cost influences to make themselves effective in the 
 supply of instruments. The real difficulty is, however, that 
 Marshall has changed his point of view; he is now discuss- 
 ing the ultimate determinants of the costs, rather than the 
 costs as they present themselves to the entrepreneur; for 
 it is true, as Marshall himself says, that the entrepreneur 
 cares little for real costs ; his point of view has no concern, 
 as a cost computation, with the deeper and more far-reach- 
 ing questions of the processes and influences through which 
 the costs have com.e to be as they are, — the underlying and 
 directive situation facts and the past adjustments within 
 this general situation. For the entrepreneur, whatever he 
 has to pay for a productive fact is the cost of it. 
 
 But even admitting the validity of Marshall's reasoning, 
 — and for certain purposes, not entrepreneur purposes, its 
 validity is beyond question, — we have again to ask whether 
 wages are not paid upon precisely the same basis, and are 
 not therefore, in the short-time view, equalh^ quasi-rents, 
 and equally to be excluded from value determination. And, 
 in view of the possibility of wearing out almost any sort of 
 land, the possibility also, with sufficient applications of capi- 
 tal, of producing almost any sort of land, and the necessity 
 of constant capital applications in the way of land upkeep, 
 does not this cost doctrine apply, in the long-time view, 
 equally to land? 
 
 But no one more strongly than the ultra-modem oppo- 
 nent of classical doctrine would insist upon this quasi-rent 
 principle. It applies to all agents ; the seeming of price 
 determination by the hire of the productive fact is merely 
 an aspect of the entrepreneur process. And so it is true, 
 as Marshall points out, that, irrespective of past costs, there 
 may be machines barely worth using and thereby giving no 
 surplus of any sort, and that the value of other appliances 
 is in the nature of a differential measured from this value- 
 less-capital margin.-^ But it is equally clear that there is, 
 in this sense, for labor a wage differential measured from 
 
 ^ Marshall, op. cit., p. 494. 
 
ATTEMPT AT RECONCILIATION 397 
 
 idleness or from total inefficiency, and that all remunera- 
 tions are the expression of a market value in the agent just 
 that much greater than nothing.-^ 
 
 So, at all events from the point of view of the indi- 
 vidual, Marshall seems to admit that there is no better 
 reason for excluding rent than interest from cost. But 
 "from the point of view of society," he sees a difference. 
 "Land is a fixed stock for all time," ^° while capital is within 
 control and is elastic. But while this is true in a loose way, 
 — that is, it is true that the land supply has not the same de- 
 gree of elasticity as most other capital goods, — this has no 
 significance for the cost doctrine of any particular situa- 
 tion, for the analysis of the value adjustnent taken for a 
 cross-section of society, though it may point to changes 
 later to take place in some of the elements of costs, and so 
 may foretell important modifications of the terms under 
 which at a later time the value problem will have to be 
 worked out. 
 
 And so, while Marshall admits that "the hire of a pony 
 is the excess of its value over the hire of a pony which is 
 so weak as to have no hiring-value at all ; the hire of 
 ponies, like that of land, is governed by the value of the 
 services they will render," ^^ he regards this as only for the 
 time; in the long run, the value of the ponies will be modi- 
 fied as cost influences make themselves felt through the 
 changing supply of ponies. Ponies as a rule will yield no 
 surplus above normal profits ; not so with land. 
 
 But note that Marshall's position is, after all, that it is 
 not so much so with land ; for he says at the bottom of the 
 
 ^ "The earnings of every kind of capital goods can be brought 
 into the form of surpluses, or differential quantities The posi- 
 tive power of each bit of land to create wealth fixes the rent of it, just 
 as the positive power of each unit of capital to create wealth fixes 
 the value of it. The lowest grade of every instrument produces nothing, 
 and is a no-rent article. Higher grades of every instrument, land 
 included, produce something ; and if there is any advantage in calculat- 
 ing the amount of that something by saying that it is a product of the 
 good instrument minus the product of the poorest one, that calculation 
 will always yield a correct result, since the product of the poorest one 
 
 is nothing All wages are rents of labor " (Clark, 
 
 The Distribution of Wealth, p. 346.) 
 
 ^Marshall, op. cit., p. 493 (5th ed., p. 431). 
 
 '^ Ibid., p. 494. 
 
398 VALUE AND DISTRIBUTION 
 
 same page : "The supply of fertile land cannot be adapted 
 quickly to the demand for it, and therefore the income 
 derived from it may diverge permanently much from the 
 normal profits on the cost of preparing it for cultivation ;" 
 which leaves the distinction between interest and rent in 
 their relation to cost one of degree only, and not of funda- 
 mental significance, and leaves labor and wages to be 
 assimilated, for cost purposes, rather to land and rent than 
 to capital and interest. 
 
 But nevertheless there are differences to be taken into 
 account between long and short periods with regard to the 
 adaptability of supplies of agents through the mechanism of 
 costs. But, however and whenever the entrepreneur hires 
 his appliances, the rent paid by him is the market value of 
 the agent's service; and dear or cheap, his payments are 
 costs to him. And thus, what Marshall formulates as true 
 only of the long run, is really true for every case: "The 
 income that is derived from capital in this form [specialized 
 capital goods] enters into the payments by which the 
 expenses of production of the commodity in question have 
 to be covered." ^^ 
 
 And Marshall asserts that, in a stationary state of 
 society, the income of any appliance, being correctly antici- 
 pated beforehand, would accurately correspond to its cost, 
 and thus 
 
 the aggregate expenses of prodviction might then be found either 
 by multiplying these marginal expenses by the number of units of 
 the commodity; or by adding together all the actual expenses of 
 production of its several parts, and adding in all the rents earned 
 by differential advantages for production.^^ 
 
 Notwithstanding that this is a statical analysis, it never- 
 theless seems to abandon all that has gone before. 
 
 The difficulty suggested a page or two back, that, 
 according to Marshall's reasoning, wages should be 
 regarded as in the nature of a rent or of a quasi-rent, and 
 as such should be dropped from his cost computation, or at 
 all events from the short-time form of it, requires some 
 further consideration. 
 
 ^^ Marshall, op. cit., p. 495. 
 
 ^ Ibid., p. 520 (sth ed., p. 810). 
 
ATTEMPT AT RECONCILIATION 399 
 
 In Book VI, chap, v, Marshall discusses the "so-called 
 rent of labor," and regards this as "the question under 
 what head to class those extra incomes which are earned by 
 extraordinary abilities." Whether or not he is justified in 
 his assertion that "this analogy is valid and useful so long 
 as we are merely analyzing the component parts of the 
 income earned by an individual," it is for his purposes 
 safe to say that "we are not at liberty to treat the excep- 
 tionally high earnings of successful men as rent, without 
 making allowance for the low earnings of those who fail ;" 
 for it must be remarked that he is discussing the influences 
 which restrict or recruit the labor supply for any particular 
 line of activity: "for the supply of labor in any occupation 
 is governed, other things being equal, by the earnings of 
 which it holds out the prospect." With these remunera- 
 tions in view, the youth and his parents, in selecting his 
 occupation, "are very far from leaving out of account 
 the fortunes of successful men. These fortunes are there- 
 fore part of the price that is paid in the long run for 
 the supply of labor and ability that seeks the occupation; 
 they enter into the true or 'long-period' normal supply 
 price of labor in it." But in the short run, these extra 
 incomes are rents — "do not enter directly into the marginal 
 expenses of production of the goods, nor therefore into 
 their price; they are governed by that price, and there- 
 fore are rather to be regarded as a quasi-rent. But the 
 same is true of the special net return of acquired skill." 
 Doubtless wages are a rent in the sense of an efficiency 
 remuneration; but in this sense, there is no justification for 
 taking anything but absolute inefficiency as a margin. In 
 Marshall's view, however, of the return upon acquired 
 skill, the idea is one of the investment of capital, the effi- 
 ciency out of which the rent arises being regarded as an 
 addition to the native endowment. But Marshall elsewhere 
 points out that 
 
 when an artisan or a professional man has exceptional natural 
 abilities, which are not made by human eflfort, and are not the result 
 of sacrifices undergone for a future gain, they enable him to obtain 
 
400 VALUE AND DISTRIBUTION 
 
 a surplus income over what ordinary persons could expect from 
 similar exertions following on similar investments of capital and 
 labor in their education and start in life; a surplus which is of the 
 nature of a rent.'* 
 
 But notice that now the idea is of a margin measured 
 somehow from the basis of ordinary persons, while before 
 it was a differential by addition to original power. But 
 why should not remuneration for any ability possessed 
 without cost be regarded as, in its entirety, a rent? And 
 what have ordinary people to do with the case? And 
 ordinary in what grade of people or line of occupation? 
 Walker, we recall, in his doctrine of entrepreneur rent, 
 found his marginal man in the same line of production, 
 though one does not readily see why, or why not, and denied 
 that the differential profits, so measured, made any part of 
 price-determining cost: "So his doctrine would appear to 
 mean only that that part of the employer's income which is 
 due to exceptional abilities or good fortune does not enter 
 into price ;" ^^ in all of which Marshall appears to concur, 
 excepting with the reservation that cost must include the 
 blanks if it includes the prizes : "The argument, in so far 
 as it is valid, applies to the 'rare ability' of the earnings 
 of all kinds of labor as much as of earnings of manage- 
 ment." 2° 
 
 '* Marshall, op. cit., p. 704 (sth ed., p. 621). 
 
 ^ Ibid., p. 705, n. (sth ed., p. 625, n.). 
 
 ^ Ibid., p. 705, n. (5th ed., p. 624, n.). 
 
 Macfarlane {Value and Distribution) accepts the notion of quasi- 
 rents in wages, regards these quasi-rents as price-determined, and 
 interprets them not as differentials of advantage in favor of the 
 chosen employment as against the next best alternative, but as a differ- 
 ential in favor of one employment as against another (p. 311). But 
 merely as higher remuneration for higher efficiency there is no room 
 for a distinction as far as costs are concerned. And as Macfarlane's 
 acceptance of Walker's notion of entrepreneur differentials is unfor- 
 tunate, so likewise must be regretted, not the unwillingness to accept 
 the term profit as applying to this differential, but the reason for this 
 unwillingness, viz., that Walker's terminology breaks with the alleged 
 tradition that profit, in whatever variety of meanings, is constant in one 
 characteristic, that is ajlways a part of cost (p. 135). But surely there 
 is no complete consensus of opinion here ; for example. Mill some- 
 times, and Hadley always, are to the other effect ; and, as we have seen, 
 the truth appears to be that profit distributes into cost and non-cost 
 elements, into necessary and unnecessary profit. 
 
ATTEMPT AT RECONCILIATION 401 
 
 But aside from the fact that Marshall's doctrine is with- 
 in the field, not of entrepreneur costs, but of 
 the conditions underlying and determining these costs, 
 it is to be said that the whole argument miscon- 
 ceives the nature of marginality in choice of occupa- 
 tions. A man making $5,000 a year may as well be mar- 
 ginal as one making barely what he could command as 
 wage-earner.^^ 
 
 ^' Quasi-rents and costs. — In view of the principle that 
 all competing producers, no nratter what productive agents they may 
 hire, must pay for the services obtained the market value of these 
 services, it is difficult at first thought to see even a remote justification 
 for the notion that rent does not enter into the determination of price. 
 If there is any distinction possible here between land on the one side 
 and labor and capital on the other, it must be that the labor or the 
 capital will go, not merely to another producer, if it is not paid a 
 satisfactory rate by the producer in question, but will go into another 
 industry if not paid an adequate rate in this one. But this holds 
 equally with lands ; most land is less specialized than most capital 
 goods and than most forms of skilled labor. From the displacement 
 point of view, therefore, whether in the competitive or the coUectivist 
 computation, land is as rightly a basis of cost as is capital or labor. 
 
 But in the degree that any agent, whether land, labor, or capital, 
 is specialized in its adaptations, there remains something to be said for 
 the rent-cost doctrine from the point of view of a collectiyist society. 
 And even in a competitive economy, may it not be true that, viewed 
 in the large as a question of society in the aggregate, such part of the 
 compensation of any productive agent as is more than that agent could 
 earn elsewhere, such part as is purely an employment or occupation 
 diflferential, is a price-determined and not a price-determining charge? 
 But it is well to see that if such is the truth, the doctrine goes dis- 
 turbingly far. For almost all productive agents are specialized in some 
 degree ; there is in most cases a differential in favor of the current and 
 actual employment ; the alternative use represents, as a value displace- 
 ment, an appreciably smaller sum of value. Put in other terms, most 
 incomes, regarded from the point of view of the income-receivers, are 
 greater as incomes than as costs. These quasi-rent quantities attach 
 with many forms of intermediate goods, with most machinery, and with 
 by far the larger share of labor agents. The doctrine holds true not of 
 land alone, but, to an even greater degree, of much capital, much labor, 
 and of almost all professional activities, and of all or nearly all 
 managerial ability. 
 
 It is, indeed, fairly clear that if in costs we abandon the point of 
 view of him who pays the costs, and go over to the question of cost 
 from the point of view of the recipient of the remuneration, the income- 
 collector, and attempt to distribute these incomes into cost and non- 
 cost categories, we shall have, for competitive purposes, a worthless 
 computation applied to the solution of an unsolvable problem. 
 
 But in point of fact, the distinction between value-determined and 
 value-determining distributive shares is as worthless as it is unwork- 
 
402 VALUE AND DISTRIBUTION 
 
 Marshall's discussion of land rent as income requires 
 no very protracted consideration. It must, however, always 
 be a source of error, though not necessarily of very serious 
 error, to assume as basis of the discussion that the tenant 
 farmer is a man of normal — whatever that may mean — 
 ability and enterprise for that particular class of tenancy; 
 and that if he rises above that standard, he will himself 
 reap the benefit; "if he falls below it, he will bear the loss." 
 So far as there is truth in this, it is self-evident, — which is 
 no objection to it; but surely the normal man has no signifi- 
 cance in this connection, since normal men do not make 
 the price offers against which the successful tenant has to. 
 bid in his competition to rent the productive agent. 
 
 Out of the income derived from the land, the landlord, 
 it is said, obtains a share, 
 
 governed, for all periods of moderate length, mainly by the market 
 for the produce, .... and it is therefore of the nature of a rent. 
 And that part which the tenant retains, is to be regarded, even for 
 short periods, as profits entering directly into the normal price of 
 
 able. In the broader view, all agents are value-determined in their 
 remunerations, that is, the value of each is the result of the total situa- 
 tion in which each as cause has exercised only an infinitesimal, or at 
 least an unimportant part. But none the less each is in its minor 
 share a cause ; each item of supply or of demand, precisely because it 
 is a part of the total supply or of the total demand, has its effect upon 
 the price ; no marginal item, either of demand or of supply, has more 
 to do with the price than to change the price, to the extent of one item 
 of result, from what the price would otherwise have been. Is it true 
 that the last straw breaks the camel's. back? or, if with nine boys upon 
 a raft it barely floats, is there profit in inquiring whether, when a 
 tenth boy jumps on, he sinks the others or is rather sunk by them? 
 or whether in the clash of contending armies, any soldier is sweeping 
 forward or is being swept ? or in attempting to decide whether, when 
 the scales are finally tipped, the marginal increment of goods is motion- 
 determining or is motion-determined ? True it is that the rent of 
 land or the wage of labor i^ a derivative from the value situation, — is 
 price-determined in this sense ; but equally true is it that the supplies 
 are larger and the prices lower because of the productiveness of this 
 land, or of the effectiveness of this labor ; and in no other sense than 
 this is any agent or instrument price-determining. 
 
 There is nothing for the case but to keep in mind that all these 
 incomes for hired agents are, from the hiring point of view, costs, since 
 they express the market price, competitively established, of the efficiency 
 service in value creation. All remunerations are price-determined, and 
 all agents are price-determining, but as process, all this is worked out 
 through entrepreneur methods and adjustments. There is ultimately 
 no marginality anywhere in economic affairs, excepting with the mar- 
 
ATTEMPT AT RECONCILIATION 403 
 
 the produce ; because the produce would not be raised unless it were 
 expected to yield those profits.''^ 
 
 Stopping merely to query whether the share retained 
 by the tenant can accurately be spoken of as a part of the 
 income "derived from the land," it remains to object that 
 not all of the tenant's profit need be expected in order to 
 induce the production, that is, not all the profit is cost. 
 Some portion of this profit is commonly a personal differ- 
 ential, partly by virtue of peculiar adaptation to the land — 
 renter's quasi-rent — partly a peculiar adaptation to the crop 
 as against any other crop, partly a peculiar adaptation to 
 agriculture as against any other line of occupation, — unless 
 of course, the talk is of a marginal entrepreneur, which 
 case, however, cannot be in Marshall's thought, since mar- 
 ginal production, in his scheme of things, takes place only 
 on marginal land. 
 
 In summing up, it is to be said that Marshall's analysis 
 of demand and of marginal utility is a great advance over 
 
 ginal entrepreneur, or with such agents as, through their relation to the 
 entrepreneur and to his plans and circumstances, arrive in that relation 
 at this position of marginship. And to conceive of agents of production 
 in their relation to the plans and circumstances of the entrepreneur is 
 to conceive of them as members of a productive group or complex, and 
 as commanding their rent or their value by virtue of their importance 
 as marginal items in making up this group complex. 
 
 But there is no reason to suppose that all agents of any productive 
 sort may not command a quasi-rent of occupation or of employment. 
 When an agent is marginal, it is so merely in the sense that its relation 
 to the entrepreneur is such that he is on the point, if the price falls, 
 of rearranging his production group and of dispensing with the services 
 of this agent as used; but it does not follow, and, for the purposes in 
 hand it does not matter, that the agent, if relinquished, may, under 
 another entrepreneur, remain in the same line of activity, or may 
 become in some other line of activity a producing agent, or may go out 
 of use entirely. In any case some or all of the powers of the agent 
 will cease to be utilized if price falls ; it is sufficient that through it 
 some elasticity of supply obtains. 
 
 And just at this point it is worth while to repeat that the value 
 margin of rentlessness and the margin of utilization do not of necessity, 
 or even commonly, coincide. That an item of land or of machinery is 
 rentless and valueless in the market does not imply that in the hands of 
 its particular employing entrepreneur it is on the point of abandon- 
 ment ; there are possible quasi-rents of adaptation here. 
 
 And it may be remarked that for purposes of tax theory, and 
 especially in the field of shifting and incidence, these quasi-rent quanti- 
 ties are of very great significance. 
 
 ^* Marshall, op. cit., p. 716 (5th ed., p. 636). 
 
404 VALUE AND DISTRIBUTION 
 
 that of the Austrians, and leaves httle or nothing to be 
 desired; but that his account of cost of production fails 
 precisely because he does not apply here a parallel analysis 
 of margins, that is, does not conceive of marginal cost as a 
 ratio-relation in which secondary and competing demands 
 are now of paramount and now of exclusive importance. 
 That his emphasis is upon cost rather than upon utility is 
 due to the fact that he has failed, as have the Austrians, 
 to perceive that of utility and sacrifice, demand and cost, 
 each is as truly as the other mainly an expression of ratios 
 of marginal utility based upon opposing demands. 
 
 That Marshall's analysis of the relations between rent 
 and cost is so unsatisfactory is due to the fact that he has 
 not appreciated that cost as bearing upon supply is not a 
 collectivist phenomenon, but is strictly an entrepreneur 
 computation, and as such is exclusively within the sphere of 
 the individual psychology, and that what, from one point 
 of view, is not cost but income, a value-determined share, 
 cannot be carried over to the other point of view without 
 changing its significance and appearing as cost; and finally 
 that with cost, as an individual reckoning, a producer may 
 as readily be marginal upon non-marginal land as upon 
 marginal land, or may as readily be non-marginal with 
 marginal agents as with non-marginal. 
 
CHAPTER XXI 
 THE ATTEMPT AT RECONSTRUCTION: HOBSON 
 
 In the main, Boehm-Bawerk's scheme of market analy- 
 sis is followed by Hobson, to the extent of showing that 
 rigid outside limits are fixed for prices : "But to fix limits 
 for a price is not to fix a price and curiously enough 
 Boehm-Bawerk leaves his analysis at this interesting point." 
 Competition does not settle it; it is left to bargaining, and 
 Heaven knows how it would settle if each bargainer knew 
 his opponent's subjective valuations: "Why should either 
 party give way? There is no economic method of reach- 
 ing a price point here," though there might be a toss-up or 
 a splitting of the difference. "Competition stakes out a 
 ring within which bargainers fight it out by force and 
 craft." 1 
 
 On page 17 Hobson gives the first intimation of a view 
 later prolific of much bad reasoning, namely, that "the 
 effectual buyers and sellers whose subjective price limits lie 
 above and below the limits within which a price point is 
 fixed, and who, therefore, take part in the bidding of the 
 market, have no direct influence upon the price." But the 
 marginal pair — ^not pairs, Hobson rightly insists — are "those 
 members of the market whose subjective valuation fixes the 
 possible limits^ etc." 
 
 The difficulty is, of course, with the word "fixes," and 
 with the implication that the non-marginal traders have 
 little or nothing to do with the case, which implication 
 later appears to be Hobson's real position.^ 
 
 ^ John A. Hobson, The Economics of Distribution, Macmillan, 1900, 
 p. 16. 
 
 ^ This doctrine that there is an inter-marginal area of "forced 
 gains," where competition does not rule, is also emphasized by Mac- 
 farlane {Value and Distribution, chap, v), and is correct for whatever it 
 is worth ; no Austrian would question farther than upon this issue of 
 worth. It is true that the Austrian discussion of value, as an account 
 
 405 
 
4o6 VALUE AND DISTRIBUTION 
 
 The long-time or normal price, as Hobson rightly urges, 
 can give no assurance that the total gains of trade will 
 divide equally between buyers and sellers. If the thing 
 went by chance, it might be otherwise, but not so if the 
 superiority in bargaining belongs permanently to one side. 
 There is no reason for thinking that the long-time price 
 
 of the logic implicit in the market process rather. than as an accurate 
 description of the objective fact, assumes that, as the items of offer 
 and demand become more numerous, this margin interval of higgling is 
 constantly narrowed. A sufficiently minute gradation of both offer and 
 demand is taken for granted — so near an approach to infinitesimals — as 
 to justify the treatment of the selling-price as accurately a marginal 
 price for both demand and supply. Admitting all the necessarily 
 assumed conditions to be actual, viz., that all the commodities are of 
 equal desirability, all the competitors in the market simultaneously, 
 and "that the buyers and sellers make no mistakes about the actual 
 state of the market such as would prevent them from really pressing 
 their egoistic interests" (Positive Theory, p. 204) ; assuming, in short, 
 a perfectly frictionless market, all this may be accepted, as a purely 
 theoretical and logical account of the case ; but it is, of course, quite 
 another and a quite more dubious matter to assert that the point of 
 adjustment expresses marginal utilities, or measures them, or is 
 measured by them, and especially that it is £xed by them, 
 
 Hobson and Macfarlane place especial emphasis upon this inter- 
 marginal area as a matter of very considerable practical as well as 
 theoretical importance. And it is true that in many cases there is 
 appreciable room for sheer bargaining skill and bargaining guile, and 
 for oppressive use of this advantage ; for really, no two horses are 
 precisely alike, and "an actual horse market .... would not in fact 
 result in the attainment of an exact market price for a given quality of 
 horse." Nor is the gain of the purchaser dependent solely upon the 
 discrepancy between his direct subjective valuation and that of the 
 market — upon his mere consumer's rent. He is buying to sell again, 
 and "A can only value the same goods at 20 per cent, more than B 
 because he enjoys some trading or manufacturing advantage (objective) 
 which enables him to put what he has bought to a larger productive 
 use" (Hobson, op. cit., p. 24). Again, as to the seller of horses, the 
 supply is not infinitely divisible ; "there are distinct and fairly wide inter- 
 vals of valuation between the several units" : but the purchasing 
 medium is indefinitely divisible, which facts impair "the practical 
 service of the whole mathematical treatment," unless with goods like 
 corn or cotton. With these last, there is "a far closer and more effect- 
 ive competition between buyers on the one hand and sellers on the 
 other, the result being that the limits between which ordinary competi- 
 tion breaks down are much narrower" (p. 37). And, more important 
 yet, many markets are local or partly isolated in character, rather than 
 in close touch with the world-market, as, for example, with highly 
 perishable and with cheap and bulky articles ; in such cases competition 
 breaks down early. And there are rings and speculators ; farmers. 
 
ATTEMPT AT RECONSTRUCTION 407 
 
 will be a fair competitive price in the sense of excluding 
 bargaining for gain : "Average the dealings of small 
 money-lenders with their clients over a term of years; you 
 obtain a normal price of such loans, but that price reflects 
 a normal advantage possessed by such money-lenders," ^ 
 
 For problems of price change, Hobson's way of con- 
 ceiving demand and supply is helpful, — supply, the rate of 
 increase of stock, — demand, the rate of withdrawal, both 
 flows rather than funds, with prices rising or falling as one 
 flow exceeds the other. For any particular commodity the 
 demand flow is best expressed as money. Value is thus no 
 inherent quality, whether as regarded by one school as 
 expressive of cost or by the other school as expressive of 
 
 miners, and fishermen sell to middlemen under conditions of feeble or 
 non-existent competition, and are more or less at the mercy of shippers, 
 importers, and wholesalers, or of patents, secret processes, and combina- 
 tions : "These and similar causes render the conditions of free and 
 fluid competition inoperative over a vast majority of the processes in 
 the sale of goods" (p. 32). So with the renting of land or the borrow- 
 ing of capital, with the wage contract, the contracts of author with 
 publisher, of mistress with servant, of hotel-keeper with guest. 
 
 Again, the buyer is the holder of money as against the seller of a 
 specialized commodity : "the urgency of a trade use is less than the 
 urgency of a personal need." True, the buyer for personal consumption 
 is often in the reverse case, having to buy now from someone who is 
 not obliged to sell now : "so .... venders of refreshments or books 
 in a railway station enjoy a distinct advantage in bargaining." But 
 ordinarily "the uncertainty of finding a purchaser at a calculable 
 price .... must be accounted the weakness of the seller as com- 
 pared with the buyer" (p. 37). And "the scale upon which the large 
 business is conducted enables it to employ skilled specialists in buying 
 and in selling" (p. 39). 
 
 It is worthy of note that Hobson carries his idea much farther than 
 Macfarlane in pointing out that the volume of commodities not suscep- 
 tible of marginal valuation by stocks is not a minor quantity in actual 
 business but is possibly even much the more important quantity. And 
 it is doubtless important, not merely from a practical but from a 
 theoretical point of view, that all this be recognized. But the failure 
 of competition in the fixation of prices, while of vast importance prac- 
 tically and greatly in danger of overlooking, does not appear to have 
 large theoretical significance ; Hobson's criticism points to the necessary 
 allowances to be made, for practical purposes, where, as is the usual 
 case, actual market conditions, instead of being fully competitive, are 
 complicated in some measure by monopoly influences. 
 
 ^Ibid., p. 57. 
 
4o8 , VALUE AND DISTRIBUTION 
 
 utility; the one theory, as Hobson interprets it, denies the 
 bearing of all influences not acting through cost of produc- 
 tion ; the second theory admits influences from the cost side 
 only so far as they serve to operate upon utility. One 
 theory looks at costs as giving value; the other, regarding 
 the problem from the standpoint of consumption, takes 
 
 the consumer's test of the valuable — utility — to refer it back as a 
 property potentially existing in different classes of goods which are 
 on their way to blossom into really useful goods when they reach 
 
 the consumer Stand at one end of the stream of industry, 
 
 you see goods gathering cost as they pass from process to process 
 in production, and then cost appears to be the value which is grow- 
 ing; stand at the other end, value seems only to emerge from the 
 contributions which productive processes make toward the supply of 
 consumables All holders of a "cost" theory admit that valu- 
 able things must be useful, but this utility is only a condition; 
 "utility" men allow that cost affects the value of all freely produced 
 goods, but they maintain cost is the condition, utility is the efficient 
 
 cause It is difficult to comprehend why a change in the 
 
 value of a stock of wheat, due to a favorable season or a new 
 railway, should be attributed to demand, which has either not 
 changed, or the change of which has been clearly consequent upon 
 an enlargement of supply. If scarcity changes value by changing the 
 marginal utility, why is not the cost factor a determinant of utility? 
 In fact, value is affected "by changes proceeding from either side, 
 and this distinction between causes and conditions of value has no 
 ultimate validity." It will not do for the manufacturer to assume 
 that goods will sell high solely because they are costly to make; and 
 when "Mr. Beecham sells us pills which he perhaps correctly observes 
 are 'worth a guinea a box' to us and yet, with a rare spirit of self- 
 denial, consents to take i .y. lo d. he is regulating the price rather by 
 the consideration of the cost to him than the utility conferred 
 upon us."* 
 
 It is doubtless true that 
 
 from utility through demand proceed the very forces that direct and 
 
 evoke costs But though utility thus figures as the final cause 
 
 of value, it is not rightly taken as the sole efficient cause or as the 
 sole determinant of quantity of value attaching to a stock of 
 goods," 
 
 * Hobson, op. cit., pp. 66-71. 
 " Ibid., p. 75. 
 
ATTEMPT AT RECONSTRUCTION 409 
 
 for the problem of the vohime of the supply is still there. 
 And cost is perhaps the more convenient business way of 
 arriving at values, since every change in demand forces 
 will express itself as a change in the costs against which 
 the demand is equated, just as changes in cost will express 
 themselves in utility. And Hobson insists that Dietzel, in 
 his controversy with Boehm-Bawerk, was wrong in admit- 
 ting that goods limited in supply get their value from their 
 utility. Dietzel should have stood for scarcity also, it 
 being true that only as explanation for scarcity has cost 
 any significance. And so Marshall, in suggesting that, for 
 short periods, our attention is best fixed upon demand, and 
 for long periods upon supply, would be wrong if he had 
 intended to imply that cost is in ultimate analysis more 
 important than utility as a regulator of value; and in fact 
 it is not clear that more or more enduring forces affect 
 value from the production side than from the consumption 
 side. 
 
 Thus far in all of this there is remarkably little that is 
 not admirable, with the exception of the "fixation by mar- 
 gins ;" but in the latter portion of it, there is too little or no 
 recognition that changes in the demand for other lines of 
 goods, say an increased demand, must have the effect to 
 decrease the supply of the particular line of goods under 
 consideration. It is in fact by the demand for other goods, 
 — through the resistance of other industries, — that limita- 
 tion is worked upon the supply of productive goods and 
 agents in any given industry. 
 
 That Hobson does not here appreciate in its essentials 
 this displacement or opportunity aspect of cost, — this resist- 
 ing-demand aspect, is evident from his assertion that value 
 in the individual economy may be treated as a case "of 
 exchange worked out between the two sides of ourselves, 
 the idle self, which shirks effort, the greedy self, which 
 seeks satisfaction." *' This formulation would be inade- 
 quate for any non-producing individual economy, say, the 
 ordinary child or woman, or for him who finds pleasure in 
 work and yet recurrently quits work because of the greater 
 attractiveness of recreation. This last is truly a case of 
 
 * Hobson, op. cit., p. 91, 
 
4IO VALUE AND DISTRIBUTION 
 
 cost in the sense of a supply-limiting influence, but in this 
 sense only. The reservation Indians, after the govern- 
 ment distribution of supplies, get at a system of valuation, 
 each for himself, and a derivative system of exchange 
 relations for the group as a whole. 
 
 Subjective cost and subjective utility are by Hobson dis- 
 tinguished from objective cost and objective utility. 
 
 Subjective cost must be taken to consist of the actual effort 
 of workers measured in terms of disagreeable feeling and regarded 
 as a quantity, i. e., disutility in work, as estimated by the individual 
 consciousness of the worker. Objective cost must be taken to mean 
 the productive energy which attaches to this effort, referred for 
 measurement to some objective standard, i.e., hours, foot-tons, etc.'' 
 
 Apparently, then, no two things could be farther apart 
 than subjective and objective cost; the case is, indeed, not 
 one of contrast or of opposition, positive and negative, but 
 rather of entire incommensurability, incomparability, and 
 irrelevancy. Note also the use of the plural, "the actual 
 effort of workers, etc and regarded as a quan- 
 tity." Is this a group notion of an absolute feeling magni- 
 tude? 
 
 Subjective cost appears to be the opposite of subjective 
 utility, "the pleasurable feeling got out of consumption by 
 the consumer," assuming, as perhaps we may — or may not 
 ■ — ^that the consumer and the producer are the same person. 
 Objective utility, however, is not precisely the opposite of 
 objective cost, the foot-tons of energy attaching to the 
 effort of production; objective utility measures "the services 
 of consumable goods by some objective standard, i. e., the 
 power of sustaining life, or ... . the actual heating- 
 power in a hundredweight of coal." ® 
 
 [Now] while the subjective cost and utility which attach to the 
 production and consumption of wealth are evidently the true meas- 
 ure of economic prosperity .... the operations of the actual busi- 
 ness world, as expressed by money valuations, have direct reference 
 only to objective cost [foot-tons, etc.] and to objective utility 
 [life-sustaining or body-heating power and the like]. 
 
 ^ Hobson, op. cit., p. 99. 
 » Ibid. 
 
ATTEMPT AT RECONSTRUCTION 411 
 
 But whatever this means, and whether or not it is true, 
 no attempt is made to equate or to relate objective cost to 
 subjective cost, to equate, that is to say, the expenditure of 
 units of energy with the pain burden of this expenditure : 
 "A given quantity of objective cost may be related to 
 indefinitely divergent quantities of subjective cost;" workers 
 are of all grades of strength and endurance. 
 
 So also there is little or no correspondence between 
 subjective utility and objective utility; consumers vary 
 widely in capacity for enjoyment and in methods of enjoy- 
 ment, and with changes in age, financial well-being, and 
 health, each man is for the purpose a different man; "food 
 will vary in subjective utility from infinity to zero, accord- 
 ing as it passes into the possession of a starving person or 
 a fully fed one." ^ 
 
 Whether as criticism or as interpretation, it is at all 
 events to be inferred from all this (i) that there is no 
 market method of comparing, for market purposes, sub- 
 jective costs with subjective utilities; (2) periods of time 
 cannot, for market purposes, serve as measure of any sort 
 of cost; (3) nor is there any machinery in the market for 
 comparing goods according to life-sustaining power or 
 pleasure-giving service, nor any machinery for comparing 
 foot-tons of energy excepting in terms of price. 
 
 And so, objective costs not being comparable as outlay 
 so as to serve as explanation of value or of price, and being 
 comparable by the entrepreneur only in terms of price ; and 
 subjective costs not being comparable at all, since they 
 are feelings of different persons; and objective costs 
 not being reducible to subjective costs, or comparable 
 with them, it only needs the following added: "A 
 given quantity of objective utility will vary indefinitely 
 when reduced to terms of subject utility." And yet 
 somehow out of this, Hobson arrives at the notion 
 that, 
 
 ■ Hobson, op. cit,, p, loi. 
 
412 
 
 VALUE AND DISTRIBUTION 
 
 referring to our theory of Value or Importance, the terms will take 
 the following setting: 
 
 Subjective 
 Cost 
 
 Objective 
 Cost 
 
 Measured in\ 
 Measured in hours, foot- 
 units of un- tons, or 
 
 desirability 
 of effort 
 
 other meas- 
 ures of out- 
 put 
 
 Importance 
 or Value 
 
 Objective 
 Utility 
 
 Measured in 
 power of sus- 
 taining vital 
 energy, or 
 furnishing 
 mechanical 
 force, i. e., 
 nitrogenous 
 units, or de- 
 grees of tem- 
 perature 
 
 Subjective 
 Utility 
 
 Measured in 
 units of de- 
 sirability by 
 consumers 
 
 It may well be that this exposition falls far short of 
 doing justice to the actual meaning and doctrine pre- 
 sented by Hobson; for the present writer confesses him- 
 self to have not the slightest idea of what it all means. In 
 the first place, it is not clear whether the discussion is 
 intended to restrict itself to the field of subjective value. 
 The chapter is entitled "The Subjective Basis of Value," and 
 opens with the following words: "In order to mark the 
 essentially subjective nature of the theory of value, it is, 
 etc." And it is to be noticed that, despite the fact that 
 subjective value, in the established sense, or in any intelli- 
 gible sense, is purely an individual category, this "setting" 
 given to the "value and importance" problem presents the 
 case as in part a matter of "units of desirability by con- 
 sumers." And directly following upon this "setting" or 
 formulation, the discussion runs fully in terms of market 
 forces and adjustments : "The first portion that is sold 
 goes to satisfy the strongest desires of consumers, the 
 
 next portion a somewhat weaker desire, and so on 
 
 Yet all portions have the same price and the same value." ^" 
 
 It is at any rate clear that this manner of analysis is 
 intended and believed by Hobson to avoid somehow the 
 difficulty facing the utility school, "to explain how, with a 
 diminishing utility attached to the successive portions sold, 
 the value and price of the part which serves the fullest use 
 are as great as that which supplies a necessary of life." ^^ 
 
 'Hobson, op. cit., p. 102. 
 Ibid. 
 
ATTEMPT AT RECONSTRUCTION 413 
 
 The idea seems to be that value is a compound of 
 diminishing utility and increasing cost, the two being held 
 at equilibrium and equality by the fact that as the one 
 increases the other diminishes, and vice versa : 
 
 The first portion that is sold goes to satisfy the strongest desires 
 of consumers, the next portion a somewhat weaker desire, and so on 
 until the last portion that is sold satisfies the weakest desire, or, 
 using the ordinary language, has the smallest utility attached to it. 
 
 Yet all portions have the same price and the same value Our 
 
 tabulation which makes value=importance, shows that the importance 
 attaching to all portions of the supply that are sold is equal. For 
 as the subjective utility furnished by consumption of the later 
 units of supply diminishes, the subjective cost of producing these 
 has increased. The first unit of consumption which satisfies the 
 strongest-felt need is rightly considered as taking off that portion 
 of supply which would be produced if no other were produced, be- 
 cause it can be produced most easily. Each later portion .... 
 satisfies a weaker need, but is produced at greater cost, and since 
 cost plays the same direct part in assigning importance or value to 
 an article as does utility, there is no diminution of value by a reduc- 
 tion of utility accompanied by a corresponding rise of cost. The 
 last portion of supply with the least subjective utility has the 
 highest subjective cost.^ 
 
 This seems to mean that by as much as you enjoy a 
 thing more you may be sure that its producer was less 
 grievously burdened to produce it; and thereby it appears 
 that your valuation needs be low : And with the later por- 
 tions of the supply, one's wearied marginal appetite is 
 saved from positive aversion only by the knowledge that 
 the laxly regarded item was produced at the maximum of 
 pain to its producer. And so the drunkard at feast could 
 derive not even a minor enjoyment from his latest cups 
 were he so fuddled as to forget that "the last bottle .... 
 which furnishes the smallest satisfaction to the drinker, is 
 the bottle the production of which represents the last 
 hour's labor of the hardest- worked producer, i. e., has the 
 highest subjective cost attached to it." ^^ 
 
 But if, in our bewilderment as to what this may possi- 
 bly mean, we incline to query whether, after all, the talk 
 may not be purely in the field of individual production for 
 
 " Hobson, op. cit., p. 1 02. 
 ^^ Ibid., p. 103. 
 
414 VALUE AND DISTRIBUTION 
 
 personal consumption, an analysis of strictly subjective 
 phenomena, the context will serve to negative the possi- 
 bility. And even were it so, it would be hard to believe 
 that the isolated producer attributes any satisfaction in a 
 series to any particular item of productive effort, and 
 esteems all items in the pleasure series equally, under the 
 computation that as much as the pleasure of consumption 
 is more by so much the pain of production was less. 
 
 LAND RENT AND RENT COST ^* 
 
 As will later more fully appear, Hobson stands, with 
 reference to the land-rent and the rent-cost problems, for 
 the following five propositions : 
 
 1. That there are land hires that do not enter into cost, 
 and other land hires that do enter, that is, that there are 
 price-determining and price-determined rents. 
 
 2. That both land hires and product prices are deter- 
 mined by a process of margin fixation. 
 
 3. That the determinant margin is an instrument mar- 
 gin rather than a personal margin ; this, however, not quite 
 consistently. 
 
 4. That the services of land, labor [and capital goods?] 
 are reduced to a common denominator, that is, are funded 
 in terms of productivity units. 
 
 5. That the fundamental principle in the analysis, the 
 guide-thread for the labyrinth, the key doctrine in the prob- 
 lem, is the law of displacement cost, the alternative use of 
 the productive agent, that which we have already analyzed 
 as the opportunity-cost principle, applied, however, by 
 Hobson, not in the competitive sense, but from the col- 
 lectivist point of view and in the collectivist tenor. 
 
 Ricardo's method of finding price-determining cost at 
 the no-rent extensive margin of land, whereb}" all rent 
 could be regarded as the result rather than the cause of 
 price, Hobson declares to be erroneous as based upon "a 
 
 " Hobson, Tlie Law of Rent as the Basis of Co-ordination of the 
 Factors of Production, Part I. 
 
ATTEMPT AT RECONSTRUCTION 415 
 
 fallacious simplicity in the abstract setting given by Ricardo 
 to his problem" (p. 119). Of the Ricardian assumptions, 
 (i) that wheat is the only agricultural product, and (2) 
 that this product is raised upon extensive-marginal land, 
 neither is correct. But, as Hobson declares, were the 
 assumptions correct, the conclusions deduced by Ricardo 
 would be irrefutable. 
 
 "Neither of these assumptions is absolutely warrant- 
 able ;" even were there no grazing use to absorb, as against 
 wheat, the poorest grade of land, conditions might exist 
 such that if "an increase in the population and the demand 
 for wheat brings into cultivation all the land available, the 
 worst land in use may or must bear an actual rent." This 
 land rent, it is said, "will not be a differential rent, but a 
 
 forced or scarcity rent Such forced rent would 
 
 evidently be reckoned as an expense incidental to all por- 
 tions of the wheat supply, and would enter into the prices" 
 (p. 120). 
 
 But the grazing use and countless other uses are really 
 to be taken into account: "What really invalidates the 
 Ricardian treatment is the fact that most land in use has 
 several alternative uses o|* can contribute toward several 
 different suppHes" (p. 120). 
 
 That the Ricardian argument could in principle be as 
 satisfactorily worked out at the intensive as at the exten- 
 sive margin, we have already seen; and Hobson later 
 turns his attention to this aspect of the case, and points out, 
 among other objections, that a parallel line of reasoning 
 could be equally well invoked to exclude wages and interest 
 from cost. And surely the argument from the extensive 
 margin is open to the objections raised by Hobson, as well 
 as to others still more serious; the poorest of wheat land 
 does actually pay an appreciable rent, and even were there 
 any entrepreneur outlays justifiably to be excluded from 
 the entrepreneur-cost computation, there is no very evident 
 reason why, as an extensive-margin argument^ this poorest- 
 land rent should not be included. 
 
 But, as we have seen, Hobson does not greatly rely upon 
 this objection; he is, indeed, clear enough that such condi- 
 
41 6 VALUE AND DISTRIBUTION 
 
 tions might exist as to invalidate in this aspect the theoreti- 
 cal tenability of the Ricardian position, but he is not clear 
 that such conditions are actually existent. Not all land 
 anywhere available is yet in actual cultivation; the "sup- 
 ply contains more land than is required, some of which 
 is slightly inferior to the worst land in use," so that under 
 present conditions this objection "may be held to lie outside 
 of practical economics for a country in open commercial 
 relations with the world supply of land" ^* — which is cer- 
 tainly generous enough in concession — and to spare. 
 
 The serious difficulty, however, as Hobson sees it, lies in 
 the second of Ricardo's assumptions, that of the wheat 
 use as the only use necessarily to be considered in the analy- 
 sis. Thus the issue is shifted to the significance of the 
 alternative use. 
 
 The conditions, rightly insisted upon b}^ Hobson as 
 actual, may be illustratively presented as follows : Let the 
 poorest wheat land in use command a 20-per-acre rent, with 
 the better lands ranging at per-acre rents of 21, 2.2., 23, 24, 
 25, etc., up to 30; at the same time assume that fruit, gar- 
 dening, and tobacco-culture and the building demand bear 
 with such relative intensity upon the better lands that these, as 
 they are better and better, have smaller and smaller differen- 
 tials above the alternative use, that is, that the alternative dif- 
 ferentials upon the 30, 29, 28, 2"^, 26, 25, 24, 23, 22, 21, and 
 20-hire lands are respectively -^, ^, ^, ^, -^, -^%, ^^, -^%-, 
 ^^, Y%. Hobson insists, then, that it is the 30-hire land that 
 is marginal, that all of its rent is cost rent, is price-deter- 
 mining rent, and that with the other lands, ranging down to 
 the 20-hire land, the cost rents are, — 
 
 On the 29 hire land 28-^3 
 
 " " 28 " " 27A 
 
 " " 27 " " 261V 
 
 " " 26 " " 25/0 
 
 ^5 241 
 
 24 23tV 
 
 ^* Ibid., p. 120. 
 
ATTEMPT AT RECONSTRUCTION 417 
 
 On the 23 hire land 22-i\ 
 
 " " 22 " " 2ItV 
 
 " " 21 " " 20T^ 
 
 " " 20 " " 19 
 
 and that the price-determined differentials are 30—30=0; 
 29 — 28y^^=y1o; 28 — 27^=y2^, etc., increasing to a unit of price- 
 determined differential for the 20-hire land.^s 
 
 " It must in fairness be said that Hobson does not himself put his 
 case in the precise terms of the illustration offered ; the details of the 
 scheme of statement are not his, but those of the present writer ; but the 
 argument seems to imply them, and it is primarily and chiefly to the 
 end of assigning to the argument its clearest, shortest, and most 
 effective statement that this particular device of presentation is adopted. 
 It must, however, be at the same time admitted that this manner of 
 exposition is chosen in some measure with a view to bringing the issues 
 of criticism into clearer and more telling definition. If any injustice is 
 done, it may be pleaded that it is not intentional ; but there is perhaps 
 the more urgent call that whatever justification the facts afford be 
 promptly submitted : 
 
 "Though the worst grazing land may pay no rent, the worst wheat 
 land might be better for grazing than the worst grazing land, in which 
 case it can only be obtained for growing wheat by paying a little more 
 than its differential rent for grazing purposes ; this rent for the worst 
 wheat land will be a positive rent, and will enter into wheat prices ; 
 again, the worst market-garden land competing for a given market 
 may be tolerably good wheat land, and, if so, the rent which it could 
 get for wheat forms a marginal rent for market-garden land. So as we 
 ascend to the higher and more special uses of land, we find that the 
 differential rents must be measured, not from a no-rent margin, but 
 from a minimum specific rent of a higher and higher order, until we get 
 to city ground, which is measured from a minimum which must exceed 
 the rent which that land could obtain for the best agricultural use to 
 which it could be put" (pp. 120, 121). 
 
 "For the sake of simplicity I have assumed that the marginal rent 
 is directly and exactly determined by the alternative use of the worst 
 land in cultivation for each use. But this, of course, is not necessarily 
 the case. It is not necessary that the worst land should have an alter- 
 native use ; it may be some better land, enjoying a differential as well as 
 a marginal rent, which occupies that position. The worst wheat land 
 might obtain a marginal rent of 20s. per acre ; superior qualities of 
 wheat land might take higher rents rising to 40s, Suppose that some 
 of the land rented at 30s. had another use which would yield a rent of 
 2gs. ; it is evidently this land which fixes the marginal rent ; it must 
 receive 30J. in order to induce it to contribute to the wheat supply, 
 and the 20s. taken by the worst land measures its inferiority of wheat- 
 growing power as compared with the 305. land. It is possible that the 
 20s. land might continue to grow wheat, however little rent was paid ; 
 its rent is directly determined by the cost of keeping in the supply of 
 wheat land the superior land at 30J. In such a case it will be the 
 Zos. land and not the 20s. land which is the direct determinant of 
 
4l8 VALUE AND DISTRIBUTION 
 
 Precisely where Hobson finds the ultimate forces of 
 causation in the determination of the price of wheat is not 
 readily made out; but it is clearly his view that, on the 
 supply side, certain of these land hires, or, more accurately, 
 certain portions of these hires, are to be regarded as causes 
 of price rather than results, and that we must go to the 
 market price of the land use, or of part of it, in order to 
 explain the price of the product. 
 
 But (i) how are these price-determining land hires 
 themselves determined, and (2) through what bearing and 
 in what sense and to what extent are they price causes? 
 
 I. The determination of the value of the land use is 
 held to be in principle precisely like that of the determina- 
 tion of the price of consumption goods, in the sense, that 
 is, that both are market adjustments worked out under 
 
 price for the supply side in the market for sale of wheat-growing 
 power" (pp. 123, 124). 
 
 "Now what about the zqs. land, the worst wheat land in occupa- 
 tion ? .... It is quite legitimate to suppose that the owner of this 
 land, having no available alternative at any price approaching 20s., 
 might have been willing to contribute to supply even if ... . 
 the rent per acre .... had been at 16^. instead of 20s. In such 
 case it will be evident that it is the owner of the 305. land who, in 
 fixing for the supply side the price per unit .... determines the 
 amount of rent per acre of the land at the margin of cultivation" 
 (p. 125). 
 
 "The determining increment of supply is not necessarily identical 
 with the worst land contributing to that supply, commonly known as 
 the margin of cultivation. If the slackness of the demand for wheat 
 causes a fall of rent, it is not necessarily the 20s. land which passes 
 out of cultivation ; it may be the 30J., if the latter has an alternative 
 use and the former has not. The actual determination of rent by this 
 method is, of course, complicated by the fact that as a rule not merely 
 one part of the land supply, but m.any parts have alternative uses to 
 which they would succumb, were the price for one use to fall below a 
 certain figure. But it is reasonable for us to assume that the price per 
 unit of land use is always determined by the common position of one 
 part of supply, which at that price is just induced to contribute toward 
 that supply in preference to some others ; the fact that at a different 
 price per unit some other land would occupy this position need not 
 concern us" (pp. 127, 128), 
 
 This is perhaps the opportune time for presenting a resume of the 
 different rent concepts, and, so far as is relevant to the present dis- 
 cussion, Hobson's system of terminology with regard to them : 
 
 Selecting out of our illustrative scheme the 30-hire tract or acre 
 
ATTEMPT AT RECONSTRUCTION 419 
 
 entrepreneur bidding. True, the consumption good receives, 
 on the cost side, its value from the value of the instrument ; 
 and from this point of view there is doubtless a distinction, 
 in that the value of the cost good — in this case the value 
 of the land — is not, through an appeal to cost fixation, as 
 readily explained, either in whole or in part, as is the 
 value of the consumption good. On the whole, indeed, the 
 land hire appears, as we have seen, to be in part derived 
 from price and in part a determinant of price. But at any 
 rate, as a question purely of the process of market adjust- 
 ment, there is a complete parallel between the price of the 
 land use and the price of the finished consumption good: 
 
 In so far as the price of uses of factors of production is reached 
 by competition and bargaining (and this is our hypothesis through- 
 out), the mode of determining rent, interest, and wages will be 
 
 of land, the rent concepts applicable to it would catalogue as follows : 
 
 1. The entire hire, 30 shillings ; 
 
 2. The differential hire above the poorest land in actual use, 30 
 minus, say, 5=25 ; 
 
 3. The differential hire above the poorest land in use in the par- 
 ticular line of production, 30 — 20=10 ; 
 
 4. The differential hire above the best alternative use, 30 — 30=:o. 
 (With the 20 land in our illustrative scheme, this variety of differential 
 is evidently i ; on the cranberry patch of our earlier discussions, this 
 differential would include the entire hire.) 
 
 "Now since it is convenient to retain the term 'margin of occu- 
 pation or employment' to describe the worst or least efficient part of 
 supply, some other term is needed to mark that part which occupies 
 the determinant place in any given market. I propose to speak of this 
 portion as 'the determining portion of supply,' and of its owner as 
 'the determining owner.' The worst land in cultivation for a particular 
 supply will be described, in accordance with usage, as 'marginal land,' 
 and its rent as marginal rent. 'Differential rents' will be the rents 
 obtained by lands of superior productivity contributing to this supply, 
 and will be measured from the margin" (p. 129). 
 
 But upon the assumption, actually made by Hobson, that the lands 
 are funded, there is surely no occasion for ranking any of the lands 
 as worse or better or as more or as less efficient than any of the 
 others. And one is minded to ask which of the two it is, the 30-hire 
 land or the owner of the 30-hire land, that is determinant; or, after all, 
 is it not the 30 of product displacement that is determinant, the land 
 hire being merely the competitive expression of the displacement? 
 In collectivist production, at any rate, there are alternative produc- 
 tivenesses and differential productivenesses, but no rents, no hires. 
 
420 VALUE AND DISTRIBUTION 
 
 essentially the same as that of determining the price of horses or 
 wheat (p. 126). 
 
 But precisely because the consumption good is a good 
 price-determined through its costs, it must be recognized 
 that when 
 
 goods have been exchanged for goods, .... in order to under- 
 stand more fully the nature of the bargain, we must regard any 
 two commodities which have been exchanged as complexes of the 
 various quantities of the factors of production that have entered 
 into them in the various processes of production (p. 113) . 
 
 This serves merely to emphasize that to understand 
 prices, we must, on the supply side, with reference to land 
 costs, determine the nature and quantity of the rent-cost 
 elements in price; and thus we discover that 
 
 a bargain for the sale or the exchange of finished commodities 
 will depend, as far as supply forces are concerned, upon the con- 
 ditions of a number of preceding, underlying bargains for the use of 
 different kinds and quantities of land, capital, and labor power 
 (p. 113). We regard the hiring of the factors of production as 
 equivalent to the sale of their use, 
 
 and thus as subject to all the possibilities of higgling, 
 oppression, and forced gains (p. 114). 
 
 Where shall we be able to isolate a rent which is price- 
 determining in its entirety, that is, without adulteration of 
 any price-determined elements? But in any case, what- 
 ever rent comes to be selected as price-determining, it 
 must, perforce, be a rent fixed through the market process 
 of competitive entrepreneur bidding for the different land 
 uses. And it is also to be understood that all these land 
 uses are actually sold at the same ratio between their pro- 
 ductivity which they offer and the price which they com- 
 mand; that is, they are all funded into units of 
 land-productivity service : 
 
 In land, we must recognize that rent or price of land use is 
 determined, just like the price of commodities, by the relative eco- 
 nomic strength of buyers and sellers bargaining for a given quantity 
 of land use and not for a given sized piece of land, though the 
 language of these proceedings has reference to the latter. The sub- 
 
ATTEMPT AT RECONSTRUCTION 421 
 
 jective valuations [offer prices and refusal prices] of a single owner 
 and a single tenant (the final pair) fix the limit for the price of a 
 unit of this land power, the stronger of the two fixing the price 
 point (pp. 126, 128) ." 
 
 Adopting, then, the supposition that "what is really sold 
 in the bargaining between land-owners and cultivators for 
 the use of wheat land" is not merely wheat-growing power 
 or wheat-growing land but wheat land "as units of wheat- 
 growing power;" that is, recalling that the land supply is 
 conceived as a fund of abstract productive units — we turn 
 to examine the process by which these wheat-land hires are 
 adjusted. It is significant that for this purpose Hobson 
 appeals to the concrete and actual and unfunded supply of 
 
 ^* But upon an earlier page (25), the criticism against the "whole 
 mathematical treatment" was that it "rests upon the assumption of an 
 
 infinite divisibility of supply The fact that supply is not in 
 
 any case infinitely divisible impairs the practical service of the whole 
 mathematical treatment." Thus "it is easy to see that there is a far 
 greater elasticity in supply and in demand in a corn market than in a 
 horse market, a far greater variety of possible prices with a far 
 narrower interval between them. This signifies a far closer and more 
 effective competition between buyers on the one hand and sellers on 
 the other, the result being that the limits between which ordinary 
 competition breaks down are much narrower" (p. 27). But surely 
 competition should, theni, be perfect in the land market, upon the 
 assumption that it is really funded into precisely equal, inter- 
 changeable, abstract, productivity units. The truth of the case, how- 
 ever, seems to be that Hobson regards land as funded for the purposes 
 of cost theory, but as non-funded for the purposes of "forced-gain" 
 theory : 
 
 "Wheat or wool .... will, in theory and usually in practice, 
 rank as a number of separate supplies subject to entrepreneur bargain- 
 ing .... goods which are held to be identical in size and quality. 
 Now in the market for the sale of the use of labor or land no formal 
 reduction to equal-sized units takes place. Though the real object of 
 sale is a quantity of productive power in land or labor, what is 
 nominally bought and sold is the use of so many acres or so many 
 
 laborers But while the bargainers express themselves in 
 
 terms of acres or laborers, the real object of their bargain is the use 
 of land power and labor power, and they are continually engaged in 
 reducing acres and laborers to units of productive power when they 
 buy and sell" (p. 114). 
 
 "It is admitted [by whom ?] that what is really sold .... is 
 units of wheat-growing power. The fact that the nominal subject of 
 bargain is acres must not blind us to this undertruth" (p. 125). 
 
 If so, then so much the worse for forced gains ; but Hobson does 
 not so see the case : 
 
 "It is the owner of the 30s. land who, in fixing for the supply side 
 the price per unit at 5^., determines the amount of rent per acre of 
 the land at the margin of cultivation" — the 20s, land (p. 125). 
 
422 VALUE AND DISTRIBUTION 
 
 entrepreneurs and to their competitive bidding against one 
 another; and it would thus seem that all the phenomena, 
 forced gain or other, characterizing the price fixation of 
 consumption goods must equally apply to production goods ; 
 this is, indeed, Hobson's view: "If we regard the hiring 
 of the factors of production as equivalent to the sale of 
 their use, we are confronted with the investigation of the 
 market for the sale of the use of various supplies of land, 
 labor, and capital" (p. 114). 
 
 But, if so, how shall productivity be funded unless also 
 the utility in every particular stock or series of commodities 
 be also taken as funded? This view must find its argu- 
 mentative basis — if basis it have — in some sort of society- 
 as-an-organism doctrine. And what, then, becomes of 
 forced gains? 
 
 We have seen that it is the 30^.-per-acre land which is 
 believed to determine the price, that is, under the condi- 
 tions as assumed, not the worst land, the 20s. land, but the 
 best, the 30^. land, this latter being the land upon the alter- 
 native margin: 
 
 Suppose that some of the land rented at 30^. had another use 
 which would yield a rent of 2gs.; it is evidently this land that fixes 
 
 the marginal rent It is possible that the 20^. land might 
 
 continue to grow wheat, however little rent was paid; its rent is 
 simply determined by the cost of keeping in the supply of wheat 
 land the superior land at 30s. In such a case it will 
 be the 20s. land and not the 20s. land which is the 
 direct determinant of price for the supply side in the 
 market for sale of wheat-growing power (p. 124). The argument, 
 .... though quite valid for showing that differential rents do not 
 enter into price, lets into price any rents which are paid for the use 
 of marginal land contributing to any supply. Land may be graded 
 according to its economic uses ; the differential rents will be included 
 in the market (and even in normal) prices (p. 130) . 
 
 The subjective valuations of a single owner and a single tenant 
 (the final pair) fix the limits for the price of a unit of this land 
 power, the stronger of the two fixing the price point. This done, 
 the rent per acre is determined by the net yield of land power in 
 each grade of land. If the higgling of the market fixes the price 
 of a unit at 20s., the best land available for that supply may yield 
 two units of power per acre, in which case the rent per acre is 40.^., 
 the worst land only ^ a unit with a rent of io.y. per acre (p. 127). 
 
ATTEMPT AT RECONSTRUCTION 423 
 
 But if this is true, it must follow that all lands are 
 equally cheap and equally dear ; and if so, all talk of areas, 
 or of acres, or of tracts of any sort becomes irrelevant, 1,000 
 acres of poorer land being both the price equivalent and the 
 productivity equivalent of 100 acres of a better grade or of 
 10 acres of the highest grade. This funding doctrine 
 should, then, suffice to cancel all talk of marginal lands in 
 any sense of marginal entrepreneur cost, or in any other 
 sense than that of the nearness of the wheat land to the 
 line of equal desirability for some alternative use. Under 
 the doctrine as presented, all lands are equally expensive 
 for wheat purposes, and, so far as entrepreneur outlays or 
 entrepreneur grounds of interest are concerned, neither the 
 20s. land nor any other can have a non-cost element in its 
 rental. Here, indeed, it becomes clearly manifest that 
 Hobson's analysis^ unconsciously collectivist in standpoint, 
 really involves the entire abandonment of the entrepreneur 
 point of view. 
 
 For mark how this manner of computing entrepreneur 
 costs by the displaced potentialities of the instrumental 
 goods will affect the entrepreneur computation when car- 
 ried over into the labor and capital fields; for it is to be 
 recalled that Hobson protests vigorously — and rightly — 
 against "that general tendency of economic science, 
 especially in England, .... to assimilate the theory of 
 the sale of capital use and labor power to that of the sale of 
 goods, but to mark off the sale of land use as subject to 
 quite other economic laws" (p. 116). 
 
 I propose to bring the sale of the factors of production under 
 
 the general laws of value and of price For this purpose it is 
 
 necessary (i) to co-ordinate the three factors with reference to the 
 conditions which regulate their price; (2) to show that their sales 
 are in essence identical, as economic processes, with the sale of com- 
 modities (p. 117). 
 
 But if it is indeed true that the entrepreneur will reckon 
 as his cost not his wage outlay, or some alternative open to 
 him with regard to the application of his expenditure, but 
 only the worth of what the laborers could respectively pro- 
 duce in their next most productive lines of employment, 
 and if, out of his capital-hire outlays, the entrepreneur is to 
 be allowed to compute as cost only such part of this expense 
 as represents, say, what his cotton machinery would have 
 produced in a woolen mill, there is an end of all hope that 
 
424 VALUE AND DISTRIBUTION 
 
 any entrepreneur anywhere will ever be able to determine 
 his own or anyone's else cost of production of anything. 
 
 The full significance of the alternative-margin analysis, 
 as presented by Hobson, will be best appreciated if put in 
 the form of a summary: 
 
 1. Through the determinant power of the margin, we 
 arrive at a price-appraisal of 5^. per unit of land power, 
 for the land powers in the marginal land, — the 30^'. land, a 
 6-unit tract. 
 
 2. By reflection from this price, margin-fixed, we get 
 the same price for all other equal land powers, and thereby 
 a funded wheat-land-power productivity. 
 
 3. This marginal land, the 30.?. land, also determines, 
 on the land-cost side, the price of wheat, since this 30.?. land 
 was at the alternative-use margin, and held the position of 
 marginal-instrument cost. 
 
 4. Having fixed the wheat price, and having fixed the 
 rent accruing to those lands not themselves price-determin- 
 ing, this marginal land (or is it the owner of the marginal 
 land?) apportions to these other lands their supra-cost dif- 
 ferentials of rent income, that is, their rent quantities above 
 their necessary (price-determining?) rentals, attributing 
 thus to them, — in our illustrative scheme, — price-determined 
 rents of from-^ up to j^. These price-determined services 
 from non-determinant lands are thus, as it seems, cheaper, 
 for cost purposes, than the services of lands nearer to the 
 alternative use, and yet the lands are funded into equal 
 productivity units. 
 
 And thus it appears that the marginal-land instrument, 
 at the opportunity margin, is determinant and strategic to 
 a degree not before appreciated even by the most pro- 
 nounced advocates of the margin-fixation doctrine. 
 
 But despite the fact that this manner of analysis makes 
 impossible the entire entrepreneur-cost category, it still 
 remains unclear whether the detemiinant margin is pre- 
 sented as an entrepreneur margin or as an instrument mar- 
 gin. The supply of wheat being a stock of similar items, 
 
ATTEMPT AT RECONSTRUCTION 425 
 
 its price was determined, on the demand side, not by the 
 entire demand but by the marginal bidder, on the supply 
 side, not by the entire supply and not by any marginal 
 entrepreneur but by the cost of production upon the alter- 
 native-use margin, with the rent for this alternative use, — 
 seemingly a rent for unfunded land powers, — functioning 
 as one of the marginal and price-determining costs. The 
 market value of units of productivity is thereupon fixed 
 by the bidding of entrepreneurs for the services of these 
 units, in view of the market price for their products. But 
 here again it is the ozvner of the land upon the alternative- 
 use margin — the land without an appreciable wheat differ- 
 ential — who, having fixed the price of the wheat, now in 
 turn, in fixing the price per unit of land use at 5^., deter- 
 mines the amount of rent per acre for the land at the 
 margin of cultivation, that is, the per-acre rent of the 
 poorest land in the wheat use; and better lands thereupon 
 obtain their differential of income as measured from this 
 margin, according to their differentials of productiveness 
 in the unit schedule. 
 
 And thus it is on the whole evident why, with reference 
 to the precise nature of this margin, Hobson says : 
 
 Some other term is needed to mark that fact which occupies the 
 determinant place in any given market. I prefer to speak of this 
 portion as "the determining portion of the supply" and of its owner 
 as "the determining owner" (p. 128). 
 
 Both, then, seem to be determining. 
 
 But there are other difficulties : 
 
 Whether the determinant portion of supply of land be the worst 
 land or not makes no difference; the price of land power and so the 
 rent of different qualities of land, appears to be directly determined 
 by the fact that some of the land has an alternative use, and that it 
 may refuse to contribute to the supply unless a certain price is paid. 
 But though the alternative price .... determines a lower limit of 
 marginal rent, there is nothing to prevent the marginal rent rising 
 higher than this. If the 30.?. land has an alternative use, it is pos- 
 sible that use might yield only 2Ss.; now, though the owner of that 
 land would consent to take 26s. rent, he may be able to get 30.?., 
 because there is, for the time, an absolute scarcity of land available 
 for this supply. In a word, he may be able, as the final seller, to 
 take a forced gain of 5^., which corresponds precisely to the "forced 
 
426 VALUE AND DISTRIBUTION 
 
 gain" in the price of the horse in our analysis of a market for com- 
 modities. In such a case it might be best to distinguish the S^- from 
 the 2SS.J and to class it as a third form of rent (p. 129) . 
 
 But this is really not a new — a fifth — concept of land 
 rent; it is merely a landlord's quasi-rent subdivision of 
 concept I. 
 
 And now note the implications: This 30^". rent upon 
 land having an alternative use of only 25^. becomes the 
 land-cost determinant of the market price of wheat; at the 
 same time the cleverness of this particular landlord, as 
 achieving in bargaining a forced gain of rent for his own 
 benefit, has enabled him, as determinant owner of the mar- 
 ginal land, to dictate the general price of units of wheat 
 productivity, and to fix this price for all the different lands, 
 with the result that all other lands as well as his own are 
 achieving a forced gain of 2^5- above their "lower limit of 
 marginal rent." That this may be nonsense is not to the 
 purpose; to deny it is to deny to the marginal land (or to 
 the marginal owner — which?) the determination of the 
 price of products and the general rent determination for 
 the different qualities of land ; and at the same time it is to 
 deny the funding of land into productivity units. 
 
 But now as to the precise correspondence of these 
 forced gains to the forced gains in the horse market: If 
 there is the alleged correspondence, it is so much the worse 
 for the horse case; for where are the other tenant bidders 
 that, with funded lands — or without — this ^os. or 25.?. land 
 is left, with its 5^-. width of higgling-margin, to the 
 bargaining contest of this marginal pair? Or is it really 
 assumed that, except to this one tenant candidate, the land 
 is not 30.9. land in point of desirability, but only 25^. land? 
 But this would be to disturb the funding principle. And 
 if the land is really 30.?. land to him and to other tenants 
 generally, if only they would act upon their interests, are 
 the 5^., over and above the 25.?. lower limit, really forced 
 in the sense that they are unjustly gained at the tenant bar- 
 gainer's expense ? Or is the full 30^-. the fair market value 
 of the value-producing power offered for sale, so that at 
 any rent less than 30.?., there would be a forced gain for the 
 tenant at the expense of the landlord? And if the land 
 were worth only 25^-. to other cultivators, but 30^-. to this 
 one, what should be regarded as truly and justly its worth? 
 
 The validity of the argument from the intensive mar- 
 
ATTEMPT AT RECONSTRUCTION 427 
 
 gin to prove the non-cost significance of land hires comes 
 in for searching examination at Hobson's hands. His Hne 
 of reasoning in criticism of Mill and of Marshall, while 
 perhaps not of greater interest than the foregoing, is of 
 considerably greater cogency. 
 
 Not overlong insisting upon the fact that the argument 
 which at the intensive margin excludes rent from cost "can 
 be similarly applied to show that interest and wages do not 
 enter into price," Hobson proceeds to the discussion of 
 what he regards as the fundamental error in the entire 
 "dosing" method of argument, whether one or another of 
 the factors of production be taken as applied in the dosino- 
 fashion. His objection goes to the underlying supposition 
 that any one of the three factors of production can be expe- 
 diently and economically applied as the sole constituent 
 of the expense dose. "The truth is that a certain har- 
 mony of combination of factors exists for various produc- 
 tive purposes; .... if there is a short supply of one 
 of them at the former quality and price," one or both of the 
 others will be substituted, but at an increased cost per unit of 
 product; this must indicate that the proportions between 
 the factors were wrong; it would have been better to have 
 had more of the first: 
 
 So when the final dose of capital and labor on a given piece of 
 wheat land achieves a product which yields no rent, it means that 
 with the same quantity of land use as sufficed for a smaller product, 
 a larger quantity of capital and labor use has been combined; that 
 as no more land use was employed, none was paid for (p. 138) . 
 
 Or, better: 
 
 We may consider a piece of land as containing various land 
 powers, some high, some low, some powers so low that they require 
 so large a proportion of capital and labor to utilize them that they 
 only just pay to work. These low natural powers yield no net 
 economic powers of production (p. 138). 
 
 The cost is then the same for products raised upon 
 non-marginal land powers as upon the intensive margin, 
 and vice versa, since upon the intensive margin so much 
 
428 VALUE AND DISTRIBUTION 
 
 more capital and labor cost [non-land cost, entrepreneur- 
 capital cost] is incurred as the land-rent cost is less.^'^ 
 
 Or put it in still another way: 
 
 Suppose it [the extra product] is raised by a tenant farmer as 
 part of the result of an extra last hoeing and ploughing on his 
 land, it [seemingly] pays extra wages but no rent; if, however, 
 instead of this extra hoeing and ploughing the farmer decided to 
 hire one more acre of the same quality of land and spread the same 
 amount of labor power over the larger area, the product of this 
 
 last acre pays its rent but no wages The labor of working 
 
 the .... last acre of land is certainly remunerated by wages, and 
 at the same rate as ... . the other acres. Why, then, does it appear 
 from the "dosing" illustration that the product of ... . the last 
 acre pays no wage? (P. 140.) 
 
 " No question can be raised as to the force and accuracy of this 
 criticism for the purposes of the actual issue ; but it is none the less 
 true that the argument is not quite accurately made. There is, in 
 fact, no best combination of productive factors ; each entrepreneur has 
 doubtless his own separate best, as depending upon his own personal 
 equation, his total capital equipment, his credit, and his safe limit for 
 using credit. But for each entrepreneur his best combination is a 
 different one from that of any other entrepreneur, precisely because as 
 entrepreneurs they are different ; and with each entrepreneur his best 
 combination will be a new and different combination with every change 
 in the relative costs of the various instruments and agents. Perhaps, 
 however, the dosing argument might avoid the entire force of this 
 general line of attack by reformulating the dose application in terms 
 of doses of expense — of entrepreneur outlay — as applied to the land. 
 
 But what is the size of the economic "dose" ? Is there an inten- 
 sive margin to the extensive margin of land? 
 
 If every other sort of land has its intensive margin, so must also 
 the poorest of cultivated land and the poorest of pasture land ; the 
 pastured cattle are in themselves capital doses. Absolutely no-rent 
 land must then be land receiving only infinitesimally small outlays of 
 expense: Unless (i) marginal land does not, for the earlier doses of 
 expense, fall within the law of diminishing value returns ; in this case 
 and up to this limit, the "doses" should rather rank as together consti- 
 tuting one dose ; or (2) unless there is a limit of another sort to the 
 subdivision of expense doses, a long-time, a season, or employment 
 unit, adequate in point of amount to the duration of the undertaking 
 in hand, and to the nature of the undertaking in hand ; the first unit 
 dose must at any rate be large enough to make practicable the under- 
 taking of the business, its size and the time involved in obtaining 
 results both being considered. 
 
 But in any case the dose is not a capital-goods dose or a labor 
 dose but an entrepreneur-capital dose, a matter of quantum of expense 
 rather than of the nature or the detail of the technological means or 
 other means selected. 
 
ATTEMPT AT RECONSTRUCTION 429 
 
 And why, also, when an extra dose of labor is applied to 
 the land, assume that all the increase in product goes to 
 remunerate the larger quantity of labor? If it be, indeed, 
 true that more labor can now be applied to the land, why 
 was it not before applied? The rent that was being paid 
 before was paid on the basis of what the land was worth 
 under proper utilization; and when it now comes to be so 
 Utilized and comes to produce what it ought all the while 
 to have been producing, the belated increase in product is 
 not to be regarded as due in its entirety to the new labor 
 but also in part to the opportunity now belatedly utilized : 
 
 If a tenant hires a piece of land and puts five doses of capital 
 upon it when he ought to have put six, he pays a rent based upon 
 the supposition that he will make a full economic use of the land, 
 i.e., that he will put six doses on it. If, discovering his error, he 
 afterward adds the sixth dose, he only appears to pay no rent out of 
 its produce, because he has all the while been paying a rent based 
 upon the supposition that he was working his land with six doses 
 (p. 141). 
 
 The land use is thus the basis of part of the price-deter- 
 mining cost; true, no more is now being paid for the land 
 than was before paid, but the price now being paid for a 
 utilized land service was before being paid for a non- 
 utilized service; one does not have to pay more for the 
 land when adequately supplied with labor and capital than 
 before when it was inadequately supplied : 
 
 If I rent a piece of land in Picadilly, in which all houses are 
 three or four stories, the rent I shall pay will take into consideration 
 the capacity of the ground for building a three- or four-story house. 
 If I choose to put a one-story house upon the ground, the rent I 
 pay will be the same as if I had more fully utilized the site. If I 
 afterward add stories, it will seem that I pay no rent for this extra 
 accommodation, but in reality I have been paying it all the time 
 (p. 142). 
 
 Hobson's argument here appears to be unanswerable 
 for the issues as they must present themselves, if "doses" 
 are to be regarded as doses of the separate productive 
 factors, rather than as doses of entrepreneur capital applied 
 in every case under the direction of individual and peculiar 
 entrepreneur initiative. The different entrepreneurs are 
 
43<^ VALUE AND DISTRIBUTION 
 
 bidding for the use of entrepreneur capital — money, or 
 goods, or credit, each in terms of money — or of instru- 
 mental or other goods as reduced to the money denomina- 
 tor, and, as such, making part of the entrepreneur fund of 
 capital. Each entrepreneur bid, whether for entrepreneur 
 capital, or for instrumental goods reduced to terms of entre- 
 preneur capital, is never accurately a bid to get more of 
 anything to put with his land or his capital goods or his 
 employed labor, but rather to put with his entire situation 
 as a whole, with his productive complex as an aggregate, in 
 which he himself is a part. Thus, one entrepreneur will 
 be directing his capital funds to the hire, or purchase, of 
 machinery, another entrepreneur to the hiring of labor, 
 another to renting land or more land, another to the 
 purchase of fertilizers, or of barns, or work cattle, or dairy 
 cattle, or for insurance outlays, or advertising, or taxes, etc. 
 
 And out of all the entrepreneur activities in the supply 
 of agents and instruments, and out of the entrepreneur 
 competitions for the control of these agents and instru- 
 ments, there undoubtedly come about market values for the 
 raw materials, hires for the instruments and agents, a rate 
 of time discount upon business capital, and a capitalization 
 for such of the productive facts as are susceptible of 
 capitalization. 
 
 Nothing, however, so far adduced denies that the entre- 
 preneur in making his bids proceeds upon what is essen- 
 tially the dosing method, if only the capital nature or 
 capital denominator of his method be recognized. But 
 even under this interpretation, Hobson is right in insisting 
 that, in accurate analysis, neither the entrepreneur's maxi- 
 mum bidding disposition nor his actual price outlay is 
 based upon or expresses any separate and specific produc- 
 tivity of the dose fact under consideration. Any separate 
 productivity of this sort the entrepreneur himself could 
 not isolate. He needs the fact in question to go along with 
 his aggregate situation, his entrepreneur complex, and to 
 become a constituent part of it; he can easily compute 
 what he can afford to pay for the accruing advantages, due 
 in part to the independent productivity — if there be any — 
 which the new fact bears in its own right, in part to its 
 added productivity in its new setting, in part also to the 
 added productivity which the old facts take on in their 
 new association and relationship ; so far as the productivity 
 is a matter of the interrelations of the different parts in 
 
ATTEMPT AT RECONSTRUCTION 43^ 
 
 the entrepreneur complex — the entrepreneur being himself 
 a part thereof — and a matter of the organization of the 
 complex, there is a productivity which defies any attempt at 
 distribution. 
 
 It remains true, however, that the entrepreneur can 
 readily tell hozv much he would if necessary pay, and how 
 much he must pay, and this is all that, in this aspect, is 
 necessary for the validity of the dosing argument. 
 
 "But," Hobson says, "the 'dosing' illustration is 
 
 vitiated by a more fundamental flaw We may 
 
 suppose that he [the laborer] is in full knowledge of the 
 facts and has a full exercise of choice ; as a consequence, 
 he estimates that it just pays him to work five looms instead 
 of four" (pp. 142, 143). Why say that the fifth loom pays 
 him less or produces less or adds to his wage less than 
 any other one loom out of the earlier four? "The fifth 
 loom after it is added is found to be just as productive as 
 any of the other four looms. The answer is plain. The 
 fifth loom only just pays because its addition has injured 
 his work with the other four looms." That is, each of the 
 later stock is producing less than each of the earlier stock 
 produced before, but any one item of the present stock 
 produces now as much as any other one item produces now. 
 
 That all this is true may be, and must be, admitted; but 
 here again, there is doubt whether the argument is to the 
 purpose as disturbing the dosing method. Let it be 
 assumed that, to the four looms, 500 in product was to be 
 attributed, 125 for each loom; but that with the five looms 
 only 600 of product is obtainable, 120 per loom. Surely it 
 is not true that in this second case the first four looms are 
 to be credited with a return of 125 each and the fifth loom 
 with a return of only 100. Under the new situation all are 
 producing equally. Hobson is certainly right here. But 
 it is nevertheless true that the productivity of the fifth 
 loom, 120, is achieved only on terms of reducing the produc- 
 tivity of each of the four looms from 125 to 120, with the 
 result that the net advantage from having this fifth loom 
 with its 120 of productivity is only 100; this 100 is, then, 
 all that can at the outside be paid as the price of the value 
 increase accruing to the whole situation by virtue of the 
 hiring of the fifth loom. 
 
432 VALUE AND DISTRIBUTION 
 
 The next objection, the third so called, is, in truth, not 
 another objection, but merely another aspect of the first; 
 as such, it must be accepted as tenable, but this only in 
 view of the precise manner in which the issues in the 
 discussion have defined themselves : 
 
 Professor Marshall, in treating the marginal dose of labor in 
 agriculture (e.g., the last hoeing applied to a field), admits that 
 "the return to that last dose cannot be separated from the others," 
 but, he adds, "we ascribe to it all that part of the produce which we 
 believe would not have been produced if the farmer had decided 
 against the extra hoeing" (Book IV, chap, iii, p. 144, par. 2). 
 
 Marshall's argument must be admitted to be unfortu- 
 nate; to make the best case for it, it is necessary, Hobson, 
 believes, to state the thing affirmatively rather than nega- 
 tively, the question not of what would be forfeited by the 
 loss of one item out of the existing stock, but of what 
 would be gained by the addition of another item. As the 
 expense computation is forward-looking so must also the 
 return computation be forward-looking. 
 
 But Hobson, in condemning, like Wieser before him, 
 Marshall's — as also later Clark's and Carver's — backward- 
 looking, negative method of value imputation to productive 
 agents, fails, like Wieser, to see that no ultimate conclusion 
 is thereby established. Wieser had somehow deduced the 
 tenability of the forward-looking addition method; Hobson 
 infers the impossibility of any separate value imputation of 
 any kind: 
 
 Where it is essential to productivity that land, capital, and labor 
 shall all co-operate, it is impossible to assign to any one of them a 
 product based upon the supposition of a separate productivity. Simi- 
 larly, where there exists a necessary organic quantitative relation 
 between the factors, no separate product can be put down to any 
 single dose of each (p. 147). 
 
 But that this is true of the concrete commodity product 
 does not necessitate the conclusion that it is true of the 
 value product; and Hobson himself appears to assert that 
 the increase of product at the margin or under the margin 
 is due to the capital or to the labor application, since no 
 valuable use of land is actually employed.^^ 
 
 "As has already been argued, and as will later more fully appear, 
 
ATTEMPT AT RECONSTRUCTION 433 
 
 But that entrepreneurs do actually bid not only for 
 additional supplies of competitive business capital, entre- 
 preneur capital, but also for different agents and instru- 
 ments of productions — these all the while, however, reduced 
 to terms of capital outlay, and so ranking under the com- 
 mon denominator computation of entrepreneur cost — must 
 still be admitted ; and this leaves the dosing principle good 
 for all that, in the present connection, the rent-cost prob- 
 lem, it was ever supposed to be good for. The real difficulty 
 with the dosing principle is in the attempt to apply it in 
 terms of the traditional categories of productive factors. 
 The tripartite division is altogether inadequate to the case. 
 
 But to acquiesce in the dosing principle as an entrepre- 
 neur method of computation is not of necessity to concur 
 in the conclusion that all rents, or any particular class or 
 subclass of land rents, must be excluded from price-deter- 
 mining entrepreneur costs ; in truth, the dosing method is, 
 in entrepreneur computations, serviceable with reference to 
 expenses in general, or with reference to any particular 
 direction of expense. Thus we are constrained to deny 
 that "the net result of this argument is that the application 
 of the law of rent to the intensive cultivation of a single 
 factor must be rejected as fallacious," but we none the 
 less agree that the argument is fallacious as used to show 
 that any form of land rent is irrelevant to the process of 
 price fixation. 
 
 THE VARIOUS RENTS IN THEIR RELATION TO VALUE 
 
 Hobson argues, as did earlier Say, and as does later 
 Fetter, that although land and labor are commonly regarded 
 as having concrete forms, we are prone to regard the pay- 
 ment for the use of capital as payment for the use of a 
 money value of a certain volume. But Hobson insists that 
 if any common law of price or of value is to be worked out, 
 both land and labor must be subjected to the abstract- value 
 
 Hobson's position is in fact correct with regard to the value product ; 
 but the argument under consideration falls a good way short of prov- 
 ing this. However, in a paper published in the September, 1904, 
 number of the Journal of Political Economy, Hobson has presented 
 a much more searching and in many respects a satisfactory analysis 
 of this question. See, later, chap, xxii, p. 476, note. 
 
434 VALUE AND DISTRIBUTION 
 
 measurement as cost values, or capital must be conceived as 
 concrete forms of wealth serviceable in production: 
 
 The actuality of a science of industry as distinguished from a 
 science of finance requires us to take the latter course, and to treat 
 capital as consisting not in money but in concrete forms of wealth 
 serviceable in production (p. 151)- 
 
 That one and the same treatment must be accorded to 
 all productive agents and instruments ought to be accepted 
 as past doubt, and it is to be counted to the especial honor 
 of Hobson and Clark that they are first among modern 
 economists to accept and to emphasize this fact, and are 
 still almost alone in this acceptance and emphasis. But in 
 point of fact the uses of labor and the uses of land do attain 
 a value statement as everyday, commonplace, cost-value 
 items in the entrepreneur-cost computation. Hobson, indeed, 
 has himself gone so far as to reduce these land uses to an 
 abstract fund of productivity units. Other economists have 
 attempted a similar form oi funding for labor and capital, 
 based, it may be assumed, upon the evident reduction of 
 all of their productive services to the common denomina- 
 tor of market price. 
 
 But there need be no disappearance of these separate 
 and concrete existences, through the mere fact that all 
 arrive at the common denominator of exchange relations in 
 market price. And the fact that the customs and legal insti- 
 tutions of modern society deny any capitalized value to the 
 laborer, as distinguished from the daily putting-forth 
 of his labor power, need cause no perturbation ; the labor 
 use expresses itself in value precisely as do land uses and 
 capital-goods uses. And the land, in receiving not merely 
 a rental value but a capitalized value, remains despite that 
 fact none the less concrete. So' there is at this point no 
 especial occasion for Hobson to insist upon the concrete- 
 ness of capital goods, and particularly no occasion for car- 
 rying this insistence so far as to call for the abandonment 
 of the market-value expression of the capital goods and of 
 their productive services. But this latter course is the one 
 chosen, most unfortunately, by Hobson; thereby, as it 
 seems, he is compelled to abandon the common "business 
 valuation of all capital as a valuation based upon the rate 
 
 of interest No relation is possible between this 
 
 capital and our other factors of production. We must deal 
 with the concrete forms which are thus valued" (p. 152). 
 
ATTEMPT AT RECONSTRUCTION 435 
 
 And, as it seems, he makes both uninteUigible and impos- 
 sible his earlier notion of land as an abstract fund of value- 
 productive units. 
 
 Land and capital, Hobson urges, require no rent or 
 interest for purposes of upkeep ; there are indeed upkeep 
 charges, but all charges of this sort are met before the net 
 income can be computed or be capitalized into present 
 worth. But it takes some wage to maintain labor in exist- 
 ence. "Thus it comes to pass that while the margin of 
 land is no-rent land, the margin of capital no-interest capi- 
 tal, the margin of labor is (say) 15^. labor." But "this 15.?. 
 wage does not in any sense correspond to interest or rent. 
 It is simply a wear-and-tear fund of labor, the expenditure 
 necessary to replace the labor power given out in a day's 
 work and to maintain the laboring population at their 
 
 present numbers and at their present capacity 
 
 It is wages above 15^'. that correspond to positive rent and 
 interest:" and the fact that, unlike land, labor and capital 
 have no sub-marginal representatives does not impair the 
 setting; for there is a fund of capital safe to become actual 
 if the rate of interest calls for it [but, one infers, not safe to 
 relapse into non-existence if interest again falls], "while 
 any rise of payment to the marginal i^s. labor will increase 
 the supply of labor power, either by raising the population 
 rate or by improving the efficiency of labor, or by both" 
 (PP- 155, 156).''' 
 
 "• "Whether it be true or not that the prospect of obtaining interest 
 is a necessary motive to induce the creation of capital, it may dis- 
 tinctly be affirmed that interest is not necessary to secure the economic 
 maintenance of forms of capital that have been brought into existence" 
 (P- 153)- Not so; there is needed the same inducement to prevent 
 deterioration of the land, or of the capital, or the slow consumption of 
 either that was needed to induce the creation or the improvement. 
 Upkeep is a new capitalization ; if rent or interest only cover this 
 charge, there is nothing left to overcome the abstinence protest against 
 the postponed consumption involved in holding the wealth as instru- 
 mental or intermediate goods. But it is fairly to be inferred that all 
 forms of positive upkeep either of land or of capital are reckoned 
 by Hobson as within costs. But here again it must be noted that since 
 the upkeep requirement applies to land equally with capital, there is 
 with land the same opportunity for abstinence and the same elasticity 
 
436 VALUE AND DISTRIBUTION 
 
 And now to the question, What payments for use of 
 land, capital, labor, enter as elements into market price of 
 
 goods? it is repHed that — 
 
 the same reasoning which shows that differential rents of land 
 
 need not enter price shows also that differential payments for capital 
 
 and labor need not enter price Just as rent of land need not 
 
 form an element of cost or price in agricultural produce, some of 
 which is raised on no-rent land, so interest need not figure in the 
 cost or price of manufactured goods, some of which are produced 
 by no-interest businesses, while similarly no cost of labor above the 
 15^. depreciation fund need enter into the price of commodities 
 partly produced by marginal laborers (p. 157)- 
 
 It might, therefore, it is urged, be true that price should 
 be determined by the cost upon no-rent land, cultivated by 
 farmers obtaining no interest from their capital, and pay- 
 ing only a bare subsistence wage to their laborers : 
 
 But normally the last and most expensive portion of supply 
 which rules the supply price will not be produced under conditions 
 
 which exclude all rent and profit It will be more likely that 
 
 the last portion of the supply will be produced partly on no-rent 
 land, but paying an interest on capital and perhaps a wage far above 
 15^., partly by tenant farmers paying rent but earning no interest on 
 invested capital, partly by peasants paying rent or mortgage interest, 
 but living on a bare subsistence wage. [And so] if the history of 
 the most expensive portion of a wheat supply could be closely 
 traced, it might well be found that some quarters of it were raised 
 on no-rent land, others on no-profit capital, others on subsistence 
 wages; but that an average quarter of this most expensive portion 
 contained some element of rent or interest or higher wage, or all 
 three. .[And so we get as the determinant of price a cost] not neces- 
 sarily the minimum of rent interest and wages, but the lowest aver- 
 age combination of the three Differential expenses of 
 
 of supply, in, kind if not in degree, as with capital. And from the 
 point of view of the individual calculation, either is immediately 
 consumable since either may by sale be turned into immediate cash. 
 
 As to the IS J. necessary upkeep for labor, it is to be said that 
 whether or not it may apply as a long-time population doctrine, it is 
 entirely irrelevant as a business — a financial — consideration to any entre- 
 preneur producer. One can afford to deteriorate his laborers where he 
 could not his slaves or his ox ; his laborers are not his. And note that 
 the hirer of any agent has not the slightest interest, to ask how much of 
 his payment is for rent or interest and how much for upkeep ; the pay- 
 ment is in any case equally a hire and an expense. 
 
ATTEMPT AT RECONSTRUCTION 437 
 
 production above this composite limit, whether they be rent, interest, 
 or wages, will not enter into the market-price of the supply 
 (pp. 158, 159). 
 
 Probably the fitting course for one who altogether fails 
 to understand is to ask questions : What "last portion" is it 
 which, being price-determining, yet divides into "parts" or 
 "portions" raised under all possible forms of co-operation 
 of productive agents, by "numbers of farmers working 
 under widely different conditions, some in old, some in new 
 countries, .... some quarters raised on no-rent land, 
 others on no-profit capital, others on subsistence wages" ? 
 And even assuming that any portion of demand or of sup- 
 ply, or any possible pair of traders, could determine the 
 price, what has the sort of composite presented, — if any 
 such there could possibly be, — to do with price fixation? 
 And if somewhere there were found a man working on 
 good-for-nothing land, and with valueless appliances in 
 the hands of laborers paid at precisely the cost of their 
 keep, what warrant would there be for assuming that this 
 man's cost would either fix or be the market price? Why, 
 if his emplo3^ees were exceptionally " efficient men, but 
 grossly wronged under some forced-gain relationship or 
 contract should not this exceptional farmer be making an 
 especially and obnoxiously high rate of profits? Or, on the 
 other hand, is there anything, except that he has nothing to 
 lose, to prevent his making serious losses? And why 
 should we, as the seeming beginning and occasion of all our 
 troubles, have started with the assumption that good-for- 
 nothing, powerless, no-rent land is, for economic purposes, 
 land at all, or that rickety, payless, valueless hay- 
 rakes are capital at all merely by the fact of being in con- 
 crete guise and in the similitude of farm machinery? And 
 is it true that "the 15^. wage does not in any sense corre- 
 spond to interest or rent"? For is there not at any rate 
 this much of correspondence, that, under competitive con- 
 ditions, each productive agent gets recompensed in some 
 approximation to its efficiency in the process of value pro- 
 duction ? 
 
 Or if it be answered that this determining cost and 
 this determining unit or portion of the supply are not the 
 cost or the supply of any one man or of any one place, 
 whose then are they, and where are they? And if they 
 need be of no one place, need they be of some one particular 
 time, and why, or why not? And if they are some sort of 
 
438 VALUE AND DISTRIBUTION 
 
 an average compounded of different marginal producers 
 anywhere and everywhere, how compute supply as elastic 
 through some composite-man's processes and choices? 
 And of whose psychological processes could it be true that 
 only i5^.-per-day labor would be computed as cost? That 
 "the law of substitution has always to be taken into account" 
 can rightly mean not that the actual rents and wages and 
 interest are to be omitted from costs, but only that by so 
 much as the cost expense in one or another of these direc- 
 tions is less, by so much must it be more in the others ; 
 excepting for differences in entrepreneurs all the different 
 items of one supply would have the same cost. 
 
 And as with land and rent, so with labor and wages; 
 that the better lands are more highly paid than the poorer, 
 or that the best laborers receive higher wages than the 
 poorest, has no significance for the question of costs ; there 
 is no reason to suppose that any grade of agents or instru- 
 ments is better or worse paid than any other, in proportion 
 to the efficiency rendered. The cheaper lands or the low- 
 paid laborers are as dear at the price as the better. Inter- 
 laborer rents, like land differentials, have no relevancy to the 
 cost problem. If the I5.y.-man's wages enter into price, so 
 must the 20s., that a man f as efficient gets, enter into price, 
 and this to the extent not of i^s. only, but for the full 20s. 
 And as with the better lands so with the better laborers or 
 the better entrepreneurs; the best, as easily as the poorest, 
 may be nearest to the margin of alternative occupation ; but 
 not the outlay, were it less, nor any collectivist reckoning 
 of some alternative concrete product, but the outlay as it is, 
 has significance for the purposes of competitive cost. 
 
CHAPTER XXII 
 DISTRIBUTION BY VALUE PRODUCTIVITY: CLARK 
 The central thesis of Professor Clark's Distribution of 
 Wealth^ is that the different distributive shares are the 
 correlatives of productive efficiency, and that under static 
 conditions and with frictionless competition these shares 
 would be accurately correlative.^ As corollaries from this 
 
 ^ John Bates Clark, The Distribution of Wealth, a Theory of 
 Wages, Interest and ProHts, New York, Macmillan, 1899. 
 
 * "It is the purpose of this work to show that the distribution of 
 the income of society is controlled by a natural law, and that this 
 law, if it worked without friction, would give to every agent of pro- 
 duction the amount of wealth which that agent creates. However 
 wages may be adjusted by bargains freely made between individual 
 men, the rates of pay that result from such transactions tend, it is here 
 claimed, to equal that part of the product of industry which is trace- 
 able to labor itself, and however interest may be adjusted by similarly 
 free bargaining, it naturally tends to equal the fractional product that 
 is traceable to capital." — Ibid., Preface, p. i. 
 
 It is unnecessary to stop to discuss, or even to appraise, Clark's 
 limitation of the subject-matter of the problem to concrete, material 
 goods ; e. g. : 
 
 "By wealth is meant those sources of human welfare which are 
 material, transferable, and limited in quantity" (p. i). "Outward 
 material things that are appropriable and, in this specific way, useful, 
 are economic goods" (p. 41). "The great income of all society — that 
 which is to be distributed — really consists of concrete articles, all 
 of some use" (p. 13). It is unnecessary also to discuss his consistent 
 utilitarianism, — mostly by assumption or implication, — or his pro- 
 nounced and unquestioning insistence upon "natural law" as a causal, 
 directive, and compellative agency ; e. g. : 
 
 • "Is there a natural law according to which the income of society 
 is divided into wages, interest, and profits? If so, what is this law? 
 That is the problem which demands solution" (p. i). "There is, in 
 short, a deep-acting natural law at work amid the confusing struggles 
 of the labor market" (p. 2). "Where natural laws have their way, 
 the share of income that attaches to any productive function is 
 gauged by the actual product of it" (p. 3). "If the law on which 
 property is supposed to rest, the rule, 'to each what he creates,' 
 actually works, etc." (p. 9). "For the present, be it noted that 
 exchanges divide and subdivide industry ; they range its forces into 
 groups and subgroups, the functions of which are determined by 
 natural law" (p. 20). "Dynamic changes are in another and broader 
 sense natural. Nature herself is continually disturbing the regime of 
 
 439 
 
440 VALUE AND DISTRIBUTION 
 
 position or as steps in the argument by which it is reached, 
 the following propositions become of especial significance 
 
 natural prices but competition, is trying to restore it" (p. 79), etc. 
 And it is unnecessary to discuss therewith the adoption of the asso- 
 ciated ethical view inclining to identify natural law with provi- 
 dential adjustment in such sort that optimism recommends itself as a 
 scientific faith ; it is fairly to be said that while all these are issues, 
 they are not issues by which the general positions of the author's 
 theory of distribution must stand or fall. And while in this connection 
 it is only just to say that in many of these formulations, such as, "A 
 social law governs the apportionment and if this law could work 
 without friction, etc.," Clark means in the main by "social" and 
 "natural," merely static, it. is probably equally just to say that he 
 often has in mind something very appreciably different, though he 
 himself might be unable to say precisely what, — a mysterious, provi- 
 dential, intrinsic something, more or less personal and wise and benefi- 
 cent, by which it comes about, among other things, that all these 
 natural results are fair and righteous and especially calculated to 
 justify the ways of God to man, at the same time with furnishing a 
 deep scientific basis for an optimism which would otherwise and in 
 another sense be hopeless. 
 
 But it is nevertheless to be said that this optimism, limitless in 
 quantity and confirmed and radical in quality and often leading the 
 writer to justify things which are least offensive when viewed apart 
 from their moral quality, has yet no necessary part or share in the 
 argument or in the conclusions of the book. 
 
 And further : However much dissent or question may later come to 
 be expressed as to the fundamental thesis that the "income that 
 attaches to any productive function is gauged by the actual product 
 of it ; . . . .to each agent a distinguishable share in production, 
 and to each a corresponding reward, such is the natural law of 
 distribution," it is no necessary part of the criticism that Clark believes 
 that "more hangs upon the truth of it" than does really so hang. 
 With the thesis once established he must still be indefinitely distant 
 from justifying the present organization of society. It is clearly 
 untrue that "the right of society to exist in its present form, and 
 the probability that it will continue so to exist are at stake." One 
 might concur in Clark's thesis and be yet the most radical of 
 socialists. That rent is paid as the precise correlative of the pro- 
 ductive efficiency of land has nothing to say as to the right of private 
 o'wnership in land. Carver has made this clear in his review of the 
 work under consideration ; nothing remains to be said : 
 
 "The right of the present social order to exist depends upon the 
 laws which govern not functional but personal distribution. Our only 
 interest in functional distribution is due to the light which it throws on 
 the vastly more important question of personal distribution. We need 
 to be shown that the tendency of the present social order is to give 
 to each individual producer the share which he individually creates, 
 and no more." — T. N. Carver, "Clark's Distribution of Wealth," 
 Quarterly Journal of Economics, Vol. XV, p. 578 (August, 1891). 
 
 But here again Clark's argument and conclusions are in no wise 
 involved ; the substance of the work is otherwhere. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 44i 
 
 as indicating, for present purposes, the trend of the theo- 
 retical analysis : 
 
 1. Capital is regarded not as concrete capital goods but 
 as an abstract, homogeneous value fund. 
 
 2. For static purposes, land is assimilated to capital 
 goods and funded Avith them into abstract capital, socially 
 viewed. 
 
 3. Labor is also funded into value-productivity units. 
 
 4. Value expresses marginal utility, and is fixed and 
 determined by marginal utility. 
 
 5. All factor rents or hires are equally included in costs 
 and ma<ie of precisely similar relevancy to price; but these 
 remunerations are rather value-derived than value-fixing, — 
 this last, however, not quite definitely beyond misinterpre- 
 tation. 
 
 6. The possibility, under the funding principle and from 
 the group point of view, is asserted of isolating the separate 
 productivity of units of capital and of units of labor. 
 
 7. Distributive shares are determined by the value-pro- 
 ductive power of the final unit of the funded productive 
 factor. 
 
 8. Society is viewed as an organism, and derivative 
 concepts of group pain, group pleasure, group utility, 
 group cost, etc., are adopted and emphasized as necessary 
 to the argument. 
 
 9. For dynamic purposes — purposes of retrospect or of 
 prophecy — the tripartite division of productive factors, in 
 the sense of mechanica| and technological categories, is 
 made important.^ 
 
 ^Propositions (i), (2), and (3) should in this connection call 
 for no further discussion, excepting possibly to the extent that in 
 the consideration of the remaining propositions these earlier doctrines 
 may be found explicitly or impliedly involved ; nor, seemingly, need 
 any proof by quotation or citation be adduced that the positions as 
 above formulated are actually held. 
 
 With regard to proposition (4) also, when once it is established as 
 actually held, neither criticism nor discussion would appear to be 
 necessary for present purposes. 
 
 In the interests of space and as intimately associated with 1(4), 
 proposition (8) will best come in here for such citation and quotation 
 
442 VALUE AND DISTRIBUTION 
 
 Propositions (5), (6), and (7) present the issues with 
 which the immediate discussion is chiefly concerned. 
 
 as may reasonably be called for, and for such discussion as the 
 particular form of presentation may seem to demand : 
 
 "In every stage of economic evolution wealth consists of useful 
 material things ; but their utility is of the kind that we may call 
 speciUc. Each part of the supply has some importance attaching to 
 
 it Outward material things that are appropriable and, in 
 
 this specific way, useful, are economic goods. 
 
 "If an article is useful to one man, it is usually so to another, 
 and is therefore in itself exchangeable" (p. 41). "If men do in fact 
 use a number of units of consumers' goods, all of a kind, and if the 
 specific utility of these goods diminishes as they get more and more 
 of them, then what they will give for any one of them will be gauged 
 by the specific utility of the last one. If these familiar premises of 
 the modern theory of value correspond with the facts of life, the 
 theory explains the prices of goods in a modern market" (p. 42). 
 
 "The primitive [isolated] economy .... cannot test final 
 . utilities in a market, for it has no exchanges. Can it not, then, test 
 them at all, and does it not find it necessary to do so ? We may easily 
 see that it does this, and that the purpose is exactly like that for 
 which organized society makes the same test. The principle of final 
 utility belongs in the first division of a theory of economics and has to 
 be assumed in the second division" (p. 43). "The law of final utility 
 fixes the point at which such a producer will stop creating one product 
 and begin making another. A modern laborer, with money in his 
 pocket, is supposed to consult the law of final utility in making 
 purchases and to spend each dime where, in view of the supply of 
 
 different things on hand, it will do him the most good While 
 
 markets and prices are, therefore, modern phenomena, the study of 
 which has no place in a division of the science devoted to universal 
 truths, the law of final utility which directs the purchases that are 
 made in a modern market also directs the production of the isolated 
 
 man, and is a universal law of economics In modern life 
 
 these laws direct the social demand for different goods offered in the 
 shops ; but in primitive life they control the manner in which a man 
 husbands his productive power and uses it where it will do him the 
 most good. The law of final utility is common to both economies" 
 (p. 44). 
 
 "The picture of an isolated man turning his own labor from 
 making one thing, of which he now has a supply, to the making of a 
 thing that has a higher final utility, illustrates a characteristic of 
 modern life which is in danger of being overlooked. Through the 
 laws of value, society, in its entirety, is doing exactly this. It is 
 turning its collective energies from one direction to another, according 
 to the law of final utility. Markets and values afford the mechanism 
 for doing this. Think of society as 'an isolated being, turning its 
 collective energy to the making of one thing till it has enough of it, 
 
 and then making another, and you have the fundamental fact 
 
 Through the mechanism of a falling price, society is warned to turn 
 its energies to the making of something else ; and its whole procedure 
 is nothing more nor less than doing what an isolated man would do, if 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 443 
 
 It would not, perhaps, be fair to ask whether Clark 
 regards costs as determining value, or rather value as 
 
 he found his want of one commodity becoming satiated. If then we 
 individualize society, if we make it to be in its entirety one isolated 
 being, and if we give rein to that philosophy which treats a body of 
 independent beings as one organism, we find it doing what a solitary 
 man would do, under the influence of the law of diminishing utility. 
 Putting a price on each article in a market is the act of the collective 
 organism in estimating the importance to itself of each of its own 
 
 products Each man pursues his own interest; but as the 
 
 outcome of his activity, society acts as a solitary man would act 
 under the influence of the law of diminishing utility" (pp. 45, 46). 
 
 "Market value, then, is a social phenomenon ; but the principle 
 of final utility, by which values are fixed, is universal in its scope" 
 (p. 47). 
 
 "By a law that Austrian studies have made familiar, the value of 
 any article in this series of goods of one kind is fixed by the utility 
 of the final one — final utility universally gauges value" (p. 163). 
 
 "If there are marginal laborers, in the sense that there are mar- 
 ginal quantities of wheat, cotton, iron, etc., then these final or mar- 
 ginal men are likewise in a strategic position ; for their product sets 
 the standard of every one's wages" (p. 90). 
 
 "If the man gives to an employer more than he gets from him, an 
 inducement is offered to other employers to take him at a better rate 
 of pay. Men in other occupations are in the same strategic position, 
 and the wages of social labor equal the product of a composite final 
 unit of it. 
 
 "How is this product to be measured? Take away one social 
 unit of labor, and see what is lost by the withdrawal of it ; or add 
 one such unit and see what is gained by the addition. In either case it 
 is possible to note the amount of product that is separately due to a 
 unit of labor and to no other agent. Let us, then, withdraw what we 
 have called a social unit of labor. This is a composite unit, consisting 
 of some labor from every industrial group that the community con- 
 tains. We will take away cultivators of the land, smiths, carpenters, 
 weavers, etc., in carefully adjusted proportions, causing a final unit 
 of labor to vanish from every specific industry" ^(p. 169). 
 
 It will be especially in place to note here that Professor Seligman's 
 interpretation of the relation of utility to price offer and to value is 
 substantially identical with that of Professor Clark. 
 
 Under the "General Law of Value" it is said : "Value is at 
 bottom the expression of marginal utility. It follows that all prices 
 must therefore be studied from the point of view of marginal utility ; 
 that is, of the power of marginal increments of supply to satisfy the 
 marginal increments of demand. This is only another way of stating 
 that the fundamental explanation of value is marginal efficiency or 
 the capacity of marginal units to satisfy marginal wants." (Seligman, 
 Principles of Economics, p. 262.) "The contribution or efficiency is 
 
 the positive cause; the cost of production adjusts itself to this 
 
 The cost adjusts itself to the service" (p. 265). 
 
 "Cost of production is thus only a partial, and even then approxi- 
 
444 VALUE AND DISTRIBUTION 
 
 determining costs ; his analysis goes neither far nor deeply 
 into the value problem. To be strictly relevant to his 
 
 mate, explanation of value ; marginal efficiency is the universal and 
 ultimate explanation" (p. 265). 
 
 "There is an abundance of silver below the surface that is not 
 mined because it will not pay ; if the marginal efficiency or value of 
 silver should rise, these more expensive grades would at once be 
 marketed, and the new marginal cost of production would adjust itself 
 to the price. The price would not rise because the cost increased ; 
 but the higher price would be fixed at the higher cost because that 
 would now be the new point of marginal efficiency" (p. 264). 
 
 Professor Seligman's work is, however, of especial interest in 
 this connection by virtue of the thorough, consistent, and systematic 
 manner in which he has carried this society-as-an-organism concept to 
 its logical limits — whether of truth or of absurdity- — as an interpreta- 
 tion of the entire body of economic doctrine. Such further criticism, 
 then, as is pertinent to this particular aspect of Professor Clark's 
 doctrinal position may well be merged with a discussion having pri- 
 marily to do with Professor Seligman's more detailed exposition. The 
 following is, for the most part, either reproduction or abridgment of 
 the views of the present writer as elsewhere expressed in this con- 
 nection. (See "Seligman, 'Social Value,' " Journal of Political 
 Economy, March, 1906.) 
 
 It is with Seligman, as also with Clark, most difficult to deter- 
 mine the precise significance of such portions of the discussion as are 
 devoted to the investigation and exposition of the categories of indi- 
 vidual utility, individual marginal utility, individual demand, entrepre- 
 neur supply computations, entrepreneur cost, individual sacrifice, 
 individual pleasure, individual pain cost, individual profits, — surplus, 
 competitive, and differential, etc. ; for in the main, all this individual- 
 istic discussion must, seemingly, be regarded as really and funda- 
 mentally beside the point, or, at the best, as only introductory to the 
 point, — not precisely side issues, truly, and presumably not irrelevancies, 
 but rather analogical, introductory, or superficial matter ; for the heart 
 of the doctrine, the realities of the objective business situation are 
 sought otherwhere. 
 
 It is not, 'of course, to be taken as Seligman's intention to abandon 
 any of his many formulations of the strictly individualistic sort; it 
 still stands that "value is an estimate of the relative importance or 
 utility of different quantities of goods" (p. 12) ; that "when we speak 
 of the value of a commodity, we think not of the total utilitj' of the 
 quantity taken by itself, but of the marginal utility as compared with 
 that of a definite quantity of other commodities" (p. 179). 
 
 But in view of the rich-man-poor-man complication, there must 
 obviously be difficulty in finding someone to make the comparison ; 
 a pint of champagne sells for the same price as a sack of flour ; are 
 they therefore to have ascribed to them equal volumes of utility rather 
 than merely an equality of command over purchasing power? Equal 
 utility to whom ? Who makes the comparison, or for whom is it 
 made? It is evidently not enough to assert that "value is not merely 
 the expression of utility in general, but of marginal utility" 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 445 
 
 discussion, the question, — substantially the same question, 
 nevertheless, — should be formulated to ask whether distribu- 
 
 (p. 198). If values are really to be resolved into a common denomi- 
 nator of utility something further is waiting to be done. 
 
 The solution as offered runs : 
 
 "It is society as a whole which sets a value [market value] upon 
 
 things If an apple is worth twice as much as a nut, it is only 
 
 that the group that uses apples and nuts finds, after comparing 
 individual preferences, that the desire unsatisfied by the lack of an 
 apple is twice as keen as that unsatisfied by the lack of the nut. 
 Value, therefore, is not merely the expression of marginal utility ; 
 it is the expression of social marginal utility" (p. 180). 
 
 "Since value is a social conception depending on a comparison of 
 diverse goods, and since this comparison is ordinarily made in society 
 by their transfer from man to man, it is clear that the value with 
 which exchange has to deal is exchange value" (p. 183). 
 
 "Value in exchange is nothing but the expression of its true value 
 to the members of the social group, that is, of its marginal utility" 
 (p. 183). 
 
 "Exchange power is based on the comparative estimates of direct 
 social utility which gives to every owner of the commodity the indirect 
 utility that fixes value in society" (p. 183). 
 
 This, then, is the first step in the solution — that the utility which 
 underlies and explains value is not individual utility, but social utility. 
 And we have, as we shall later see, in addition to this social-utility 
 concept, concepts of social pleasure, social pain, social demand, social 
 supply, social surplus, diminishing social utility, diminishing social 
 return, a social-labor unit, a social-effort unit, social sacrifice, social 
 cost ; and finally, as the goal and summation of all this, social value, 
 that is, market value. This will evidently bear looking into. 
 
 Some linguistic uses connected with collective nouns will offer a 
 point of departure. When thought of merely as indicating an aggre- 
 gate, a unit, the collective noun takes a singular verb ; if regarded as 
 a collection of units, it takes the plural verb. And so we say, "the 
 committee was discharged," "the committee were unable to agree" 
 (with one another) ; "was unable to agree" (with the conference com- 
 mittee) ; "the army were marching" or "was marching ;" " the crew was" 
 or "were exhausted." But one could hardly say, "the committee was 
 unable to agree" (with one another) ; the agreeing has to be done by 
 more than one person. 
 
 Now, in many cases, though the act or the situation asserted 
 is really one of each individual by himself, there is no occasion for 
 insisting upon this ; no ambiguity or inaccuracy or misapprehension is 
 involved in saying that "the battalion is eating its dinner ;" it is a 
 shorthand fashion of speech, but is perfectly intelligible ; it is common 
 enough to think of a battalion as a unit, and the act of dining is a 
 simple one in which all join, and in which all comport themselves in 
 pretty much the same way ; from the point of view adopted, the 
 interest proceeded upon, the purpose in hand, no importance attaches 
 to the fundamental separateness of the activities, and to their entire 
 lack either of psychical unity or of purposive co-operation ; they are 
 
446 VALUE AND DISTRIBUTION 
 
 live shares are to be explained as derivative from value or 
 as causes of value; is value, that is, the intermediate step 
 
 simply similar — roughly simultaneous — and are thought of in block. 
 True, one man eats rapidly and another slowly, some little and others 
 much, and a few sick ones not at all ; but the expression serves, and 
 implies its own limitations of accuracy. 
 
 And so of an army, when we say that "it marches," no doubt is 
 even faintly suggested that each man does his own walking, works his 
 own muscles, uses up his own tissue, and that presumably many are 
 halt, while others limp, and some swear. But no one of these differ- 
 ences signifies for the purposes of the thought in mind ; each man is 
 separately getting ahead, moving along, like all the rest ; and so we 
 say, "the army is," etc. — serviceable speech, though in strictness 
 inaccurate, were any perversity bent on misinterpreting it. But when 
 it comes to asserting that the army is brushing its teeth, or has stubbed 
 its toe, or has a stomach ache, there is obvious difficulty. These 
 things are not done jointly, co-operatively, by aggregates, and will 
 not bear thinking over into this form ; the inaccuracy of the collective 
 idiom is obtrusively manifest. 
 
 And so we may speak of public opinion, the preference, or habit, 
 or custom, or convention, of society ; and no harm need come of it, 
 despite the fact that some men neither think nor choose in the manner 
 implied, but have their own peculiar judgments or choices or wishes, 
 and yet are members of society entitled to be included in any exact 
 formulation ; everyone knows that the thought really runs upon 
 majorities of " 'most-everybodies ;" that is, no harm need come of it, 
 if only there were not people to take the notion of a "social mind" 
 seriously, and to import into cases calling for accurate analysis, and to 
 accept as sober fact, a mere figure of speech, or at best a loose analogy 
 drawn from biological science. For to the biologists and the sociologists 
 it is to be charged — or credited — that the society-as-an-organism 
 formula has found its way into economic thought. And thus hereby a 
 doctrine long since abandoned in economic reasonings is in the way of 
 reappearing ; for have we not need of normals and averages ? Else 
 our doctrine in getting accurate and actual will get difficult also. 
 And so, by the aid of the sociologists, through the magic of the 
 society-as-an-organism incantation, a resurrection miracle has lately 
 been worked ; we salute the average man. 
 
 One hesitates to approach the invidious task of assigning primacy 
 in this new school of thought ; for that there is a new school, and that 
 it has come to include a passably generous membership — somewhat 
 localized still — and that its doctrine means much for the good or evil 
 of economic science, is the excuse, so far as there can be any, for the 
 present protest. But it is nevertheless to be said that Professor 
 Seligman is the first writer who has seriously undertaken to carry the 
 doctrine to its logical conclusions ; and thus it necessarily comes to be 
 true that whatever is further said here is, in purpose and in practical 
 bearing, impersonal, theoretical, and general in its reference, rather 
 than primarily an examination of Professor Seligman's doctrine as 
 such. 
 
 And yet one asks one's self why, if it is all thus easy — this magic 
 word "social" making all things plain — if the heart of the mystery is 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 447 
 
 toward explaining distribution, or are the distributive shares 
 to be taken as the intermediate step, and value the goal? 
 
 thus easily plucked out, why all this other talk of gross profits, neces- 
 sary and minimum cost, individual cost, individual utility, marginal 
 entrepreneurs, normal equilibria, true profits, competitive profits, and the 
 like ? Why, indeed, any talk at all ? Everything will explain as a 
 social resultant, if this passes as explanation. 
 
 In this doctrine of social cost, social sacrifice, and social value, 
 one must look to find, as apparently one does find, a renunciation of all 
 allegiance to outlay cost, and a return to the distinctly pain-cost and 
 pleasure-balance terms of analysis : 
 
 "Cost of production is the measure of value ; but it is not, as 
 Ricardo thought, individual cost. Marginal utility determines value ; 
 but it is not, as Jevons thought, individual utility. Both cost and 
 utility measure value, because .... marginal cost is always equal 
 to marginal social utility" (p. ig8). 
 
 "The sacrifice imposed upon society to secure anything is ... . 
 
 the exertion needed to replace it Thus, when we speak of 
 
 social cost, we really mean cost of production ; and when we say that 
 value is influenced by cost, we mean that value is influenced by cost 
 
 of production We think no longer of the sacrifice imposed 
 
 upon any one individual, but only of the social sacrifice, or cost, 
 embodied in the commodity ; or, rather, the sacrifice, or cost, to the 
 individual is the result and reflex of the sacrifice to the community" 
 (p. 197). 
 
 "In society .... whatever the rate of exchange, it is only the 
 social utility and the social cost of which the marginal degrees are 
 equal. If a knife exchanges for a book, it is because the demand in the 
 community as a whole is such that the marginal sacrifice to society 
 of parting with a book is equal to the marginal pleasure of society in 
 getting a knife. [Whereto goes the book, and whence comes the 
 knife?] To put it more accurately, a knife will exchange for a book 
 only because the sacrifice to society in making the knife, for which it 
 receives in turn the pleasure of books, tends to equal the sacrifice of 
 making the book, for which it receives in return the pleasure of 
 
 knives (p. 197) To any individual the sacrifice may be less 
 
 than the pleasure, but there will always be a marginal individual to 
 whom pleasure and sacrifices are equal. The marginal pleasure in the 
 aggregate tends to equal the marginal pain in the aggregate. The 
 balance or equilibrium is between the pains and the pleasures of the 
 sum of individuals The real equilibrium is a social equilib- 
 rium The real cost to any member of society which influ- 
 ences value is not the subjective cost to him" (p. 197). 
 
 Now, what does it really mean to say that the marginal pleasure 
 in the aggregate equals the marginal pain in the aggregate ? What is 
 to be aggregated, even supposing the process to be a possible one? 
 There is always a marginal person, it is said — one person "to whom 
 pleasure and sacrifice are equal." But this man can have little to do 
 with the case, for while there is such a man, "the real cost to any 
 member of society which influences value is not the subjective cost 
 to him ;" and, in point of fact, there is, after all, no such man, for 
 "it is only the social utility and the social cost of which the marginal 
 
448 
 
 VALUE AND DISTRIBUTION 
 
 Or, again, is the fundamental problem one of value or is it 
 one of distribution? Or, finally, are the two problems not 
 really two but one? 
 
 degrees are equal ;" we really think not "of the sacrifices imposed 
 upon any one individual, but only of the social sacrifice or cost, 
 embodied in the commodity ; or rather the sacrifice or cost to the 
 individual is the result and reflex of the sacrifice to the community." 
 
 Nevertheless, it is clear to Professor Seligman — and to us — that 
 things have utility to individuals ; and somehow it must be true that 
 "the estimate put by the individual on one commodity as compared 
 with another is the foundation of all value" (p. 179). "Value in 
 exchange is nothing but the expression of its true value to the mem- 
 bers of the social group, that is, of its marginal utility" (p. 183). 
 
 It is, indeed, true that by the possibility of exchange a commodity 
 may come to have a greater indirect utility to its possessor than it has 
 direct utility to him ; but can it have any utility to society greater or 
 less than it has to him ? And in this computation is he, or is he not, 
 a part of society? "Its indirect utility to me is the result of its direct 
 utility to society." But what or who is this society whose direct 
 utility is the cause of the indirect utility to the possessor? And how 
 add together utilities to different individuals, "the members of the 
 social group," so that a "direct marginal utility to society" may have 
 existence ? 
 
 It must be understood that with this latest school of value, as 
 with its predecessors, the principle that demand and supply together 
 fix price is, for whatever it is worth, freely accepted ; but all the 
 while with this difference, that demand, as conceived by this latest 
 school, is really not the aggregate of the separate individual demands, 
 each with its own particular psychology and its peculiar explanation : 
 "The demand that tells is the aggregate demand depending on the 
 social utility" (p. 20). 
 
 Likewise cost is essentially not a matter of individual outlay or 
 sacrifice, working out into the expansion or contraction of supply, 
 accordingly as individual preferences and profit may direct ; cost is 
 rather a transcendental thing: 
 
 "Since cost is a form of disutility, it follows that the real cost 
 of importance in affecting value is social cost, and not individual 
 
 cost Value is the measure of sacrifice. In what 
 
 sense? .... Evidently not of individual sacrifice. A street- 
 sweeper may work harder than a factory hand, and yet the value of 
 his services will be less. Value is a social conception ; society puts its 
 appraisal upon commodities. If value is a measure of sacrifice, and 
 if value is a social estimate, value must be the measure of social 
 
 sacrifice or cost The sacrifice of each is compared with the 
 
 needs of society as a whole. The standard is social, not material. 
 It is easier to be a street-sweeper than a skilled factory hand. Society 
 is more willing to spare the former than the latter, for to replace the 
 one, society must give up more of its energy than to replace the other" 
 (P- 193). 
 
 Note here that, precisely as when we were introductorily discuss- 
 ing individual demand and individual cost, cost was made a derivative 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 449 
 
 It is evident that Clark regards distribution as in part a 
 process under which an aggregate of value is, as product, 
 apportioned to aggregates or groups of producers; in part 
 
 of demand, so here, in the social computation, social marginal utility 
 is presented as adequate and controlling for value ; but meanwhile our 
 real problem of how to get over from the individual reckoning to the 
 social explanation obtains admirable and adequate recognition and 
 expression : 
 
 "All value is the reflex of social marginal utility. We have now 
 to study the nature of the social forces which operate to translate into 
 actual prices on the market the feelings of the individuals that com- 
 prise the group" (p. 223). 
 
 If this problem is fairly solved, nothitig will remain to be asked ; 
 but the difficulty and the regrettable fact of it all is that the transition 
 over from the individual psychology to an alleged oocial psychology 
 is nowhere seriously attempted, unless, indeed, the following may be 
 taken to suffice for the purpose : 
 
 "Cost means socially necessary cost — not pains (or their money 
 equivalent) taken, but pains saved. It is only because individual cost 
 tends to adjust itself to the socially necessary cost that we can roughly 
 speak of the price of anything depending on its cost of production" 
 (p. 244). 
 
 "Socially necessary cost .... is the amount which the pur- 
 chasers as a group are willing to give rather than make the article for 
 themselves. If the individuals cannot reduce their cost, they will stop 
 producing. If they reduce their cost below this point, the point itself 
 will move" (p. 244), And so, then, it appears that individual cost does 
 affect the quantum of the social cost. "Society will not be willing 
 to give more, because what the producer can do, the rest of society can, 
 if necessary, do. It is in this way that an equivalence is brought 
 about between individual and social cost ; and it is only because of this 
 equivalence that cost of production may be said to influence value" 
 (p. 244). 
 
 But in view of the fact that, by assumption, some individual pro- 
 ducers will not be able "to reduce their costs and will stop producing," 
 while, surely, other producers will so be able, what shall be made 
 of the proposition that what some "producers can do, the rest of society 
 can, if necessary, do" ? Are all consumers to be accepted as like all 
 the producers, despite the fact that the producers are themselves 
 unlike? 
 
 Or perhaps the following should be cited upon the point : 
 
 "Cost of production does not mean individual cost. Value, as we 
 know, is a social conception ; the real cost of production which affects 
 value is the socially necessary cost" (p. 243). 
 
 "The law of exchange may be equally well stated as the law of 
 comparative costs. I may be so much more intelligent than my 
 furnace man that I could save much coal by tending the furnace myself ; 
 yet I prefer to look after my business, and let him tend the furnace 
 because it pays each of us to do so" (p. 226). 
 
 "The important point is not that a commodity costs the producer 
 something, but that it saves the consumer something. It may save one 
 consumer more than another, but its value depends on what it saves the 
 
450 VALUE AND DISTRIBUTION 
 
 as a process under which the original group holding or 
 imputation of value is subdivided among the the smaller 
 and subsidiary process groups representative of the prog- 
 social group as a whole. This saving of social cost is what is meant 
 by socially necessary cost The cost to the individual pro- 
 ducer will adjust itself to the socially necessary cost, that is, the 
 amount which the purchasers as a group are willing to give rather than 
 make the article for themselves" fp. 245). 
 
 Evidently, however, this reduces individual cost to social demand ; 
 thereby cost comes, not to fix price, but to be fixed by price ; to make 
 the determinant of value the question of what a commodity saves the 
 social group is to abandon the cost for the utility side of the analysis. 
 And thus, finding in cost no explanation of price, we are left to our 
 further devices to explain that social price which lies behind individual 
 cost. 
 
 Or the explanation for shutting out from consideration all indi- 
 vidual peculiarities may be that they are assumed, for theoretical pur- 
 poses, not to exist. Still, if this were the view adopted, we should, 
 as has already been suggested, be precisely back to the reasoning by 
 averages characteristic of an earlier, and possibly a better, time. 
 But space fails for the discussion of this question ; and we recall that 
 our author has himself spoken decisively in condemnation of the 
 economic man. There is also the further diificulty that, with this 
 "average-man" analysis once adopted, there is necessarily an end to all 
 talk of margins, social or other. 
 
 The truth is, however, that these differences between individuals 
 are fully recognized, but are regarded as somehow merged and lost 
 in the social utility, the social cost, the social demand, etc. ; and yet 
 the reasoning repudiates the economic man, declines any overt and 
 systematic acceptance of the method of averages, and adheres 
 resolutely and consistently to the marginal analysis. 
 
 Just as upon p. 228 it was declared that "a dollar is of more 
 worth to a poor man than to a rich man — its marginal utility is 
 greater," and that "the price of an old master or a mediaeval missal 
 will often depend on the wealth of the purchaser ;" but as it was 
 nevertheless contended that "in the ordinary transactions of life, 
 where we deal in masses of commodities .... this difference in the 
 worth of money may be neglected," so now, in the discussion of the 
 theory of interest, similar differences are likewise merged, the average 
 method refused, and a cost-margin analysis — of the pain-cost type — 
 presented : 
 
 "The only way in which capital can be formed is at bottom by 
 
 saving, by waiting, by forbearing (p. 319) The problem is 
 
 one of marginal forbearance, that is, of sacrifice at the margin where 
 he must choose between consumption and saving. The richer a man 
 is, the more remote is the margin where he will have to decide. The 
 saving of a dollar means something very different to a rich man and to 
 a day laborer" (p. 320). 
 
 "When, therefore, we say that interest is the result of forbearance, 
 we really mean that interest is the result of marginal forbearance, 
 or forbearance at the margin This marginal point will indeed 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 45 1 
 
 ress of the commodity through its various stages from raw 
 material to finished product; in part, also, as a process of 
 partition of the subgroup holding of value between the 
 individual members of the subgroup. But it is not at all 
 so clear whether this threefold view of the total distribution 
 process is purely logical and analytical — merely one way of 
 looking at the case — or is rather intended as realistic- 
 ally descriptive of the objective facts, and as tra- 
 cing the actual sequence and direction of the causal 
 forces. But it is none the less important that an 
 interpretation should be arrived at upon this point. 
 
 be a different one for the rich and the poor [but not different ratio- 
 wise], for the spendthrift and the miser, but this difference will affect 
 the rate of interest as little as the relative wealth of the 
 purchaser affects the price of wheat on the exchange. The value of 
 wheat is the expression of its marginal utility to the wheat-using 
 group ; the interest on capital corresponds to the difference in the 
 marginal estimates of present and future uses for the whole capital- 
 using group. Value in the market is social value" (p. 398). 
 
 And all of this coheres logically with the doctrine of an earlier 
 page: 
 
 "Cost of production is the measure of value ; but it is not, as 
 Ricardo thought, individual cost. Marginal utility determines value ; 
 but it is not, as Jevons thought, individual utility. Both cost and 
 utility measure value, because .... marginal cost is always equal to 
 marginal utility" (p. 198). 
 
 But it is more than possible that more than justifiable space and 
 time have already been given to this social school of value. It remains, 
 however, to query why, with all these social utilities, demands, sup- 
 plies, costs, sacrifices, averages, and margins, we nowhere find any 
 social rent or interest or wages. These, indeed, as categories of dis- 
 tribution, seem to be admittedly individualistic ; though no good reason 
 offers why, if demand is social, consumption may not equally be so. 
 But if wages, rent, and interest are admitted and accepted as categories 
 of distribution — as individualistic shares received under individual 
 claims for value-producing service rendered — it must follow that 
 profit, a surplus or residual of some sort or other, is also an individual 
 category. And these incomes of rent, interest, and wages — distributive 
 shares to the recipients — are obviously costs to the entrepreneur, 
 and as such lead up to individual supply, and through supply to 
 market value, so far, at least, as market value is affected by supply 
 influences. What will the social-value school do with this situation? 
 In urging that not individual, but only social, cost is relevant to market 
 value, the school will be under obligations to work out, as factors of 
 social cost, a scheme of social wages, social rents, and social interest, 
 and, as surplus over social cost, a social profit. 
 
 In fact, however, it does not do this. For, as soon as we turn 
 from the value problem to the separate treatment of the distributive 
 shares, we find ourselves to have descended from the cloud-land 
 mysteries of transcendental economics to the old and beaten paths of 
 the traditional analysis. 
 
452 VALUE AND DISTRIBUTION 
 
 If the wages and rent shares, as determined inside 
 the subgroup, are fundamental and ultimate, the way 
 is clear for an adequate and consistent entrepreneur-cost 
 analysis, but all the while with this one difficulty, that we 
 must forthwith set about to find what determined these 
 rent and wages shares. Or if we can start with the market 
 value as cause, each group share and subgroup imputation 
 and infra-group partition will readily resolve its difficulties, 
 the entrepreneur of course being taken to be present ; but 
 the difficulty will still remain of explaining that original 
 value with which the explanation has improvidently set 
 forth. And if, for the purpose, utility or marginal utility or 
 subjective value be invoked, there is still no help, inasmuch 
 as each of these assumes as fundamental to it the exist- 
 ence of a supply. 
 
 But how does Clark present the case and dispose of it? 
 So far as, from discussions mainly introductory in charac- 
 ter, a reply may be had to questions of this sort, it must be 
 deduced from the following: 
 
 There is a kind of distribution that does not fix the rate of 
 wages and interest, but determines how much one industry, as a 
 whole, including its laborers, its capitalists and its entrepreneurs, 
 shall get, as compared with other industries. It determines whether 
 one whole branch of business shall be more prosperous than another. 
 This is an intermediate part of the general distributing operation, 
 and it is accomplished by means of prices. When wheat, for 
 example, is high in price, the farming industry is well paid, as com- 
 pared with others ; and when wheat is cheap, that industry is ill 
 paid. If what we have in mind is the so-called "market price" of an 
 article, — the immediate price of any given supply of an article, — this 
 kind of value governs what we may call group distribution. If 
 steel, for example, sells at a high rate, a large income goes to the 
 group that produces it. This income distributes itself somewhere 
 in the group; but how much of it laborers get, and how much 
 capitalists and employers get, is a question that we do not now 
 raise. This is determined by an ultimate distribution taking place 
 within the groups. Group distribution is a preliminary division of 
 this social income, and it deals with branches of industry in their 
 entirety. The terms of this primary division of the social income 
 depend on the prices of different kinds of goods. Farmers want 
 wheat to be dear, as miners want ore to be dear, etc. Prices, then, 
 fix the incomes of these groups.* 
 
 * Clark, op. cit., p. 12. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 453 
 
 The creation of such a general stock of commodities for use is 
 a great synthesis, which goes on in a systematic way. One group of 
 producers makes the article A, another group makes B, another C, 
 etc. As A is sold, the sum that is paid for it is apportioned among 
 the entire group that makes it; and as B is sold, the returns from 
 this sale are divided in the same way, among all who have helped 
 to make this article. The prices of completed articles thus fix the 
 incomes of groups in their entirety. These groups are, in an equally 
 
 exact way, divided into subgroups If wool is dear, farmers 
 
 thrive; and if the difference between the price of wool and the 
 price of cloth is large, manufacturers thrive. It is market values 
 that fix the incomes of subgroups as well as those of groups. 
 
 Neither of these price-adjusting operations, however, directly 
 fixes wages and interest. This is the final and critical part of dis- 
 tribution. It takes place within the subgroups, and it constitutes the 
 third and final division that has to be made. The portions that fall 
 to farmers, manufacturers, etc., as such, have to be further sub- 
 divided; for a share must be paid to every laborer and to every 
 capitalist 
 
 This distribution goes on in three distinct stages. There are to 
 be made a division, a subdivision, and a final subdivision of the 
 social income. The first division fixes the income of industrial 
 groups; the second fixes that of subgroups, and the final subdivision 
 adjusts wages and interests within each of the innumerable sub- 
 groups in the system. The shares of the groups and those of the 
 subgroups depend entirely on the prices of goods, and therefore the 
 fixing of market values results in the adjustment of the terms of 
 
 group distribution Let A"' represent some one completed 
 
 product, say bread; and let A represent raw material, the standing 
 wheat of which it is made. A' may then represent the wheat as 
 
 threshed A" may represent it as it is ground into flour. 
 
 .... The difference between the price of A' and that of A" deter- 
 mines the income of the flouring industry, etc. The income of each 
 subgroup in the series, then, depends directly on prices. 
 
 A philosophy that goes behind such market prices, however, 
 brings us to what are called "natural" or "normal" prices. These 
 are the values, expressed in terms of money, to which, in the long 
 run, market values tend to conform 
 
 A certain force that operates within the sphere of group distri- 
 bution establishes the normal standards to which market values 
 tend to conform Market prices fix the incomes of the differ- 
 ent groups, as such, and so control distribution in its early stages. 
 .... A deeper force, and one that also acts in distribution, controls 
 normal prices. Market prices are the cause of group distribution; 
 
454 VALUE AND DISTRIBUTION 
 
 normal prices are the effect of a certain phenomenon of distribu- 
 tion The movements that make prices "natural" are, in fact, 
 
 efforts on the part of different men to get their natural shares of 
 income." 
 
 In view of the fact that it is said that "the social 
 process of production includes exchange and distribution," 
 and that "the theory of value and that of group [italics the 
 present writer's] distribution are one and the same" 
 (p. 24), the general trend of the doctrine of the foregoing 
 might seem to be that the value field and the distribution 
 field are one field, and that the two problems are but dif- 
 ferent aspects of one problem. 
 
 But on the whole, the position seems to be other than 
 this, viz. : 
 
 1. That market value controls group distribution; 
 
 2. That the market value distributed to the group con- 
 trols the values assigned to the subgroups; 
 
 3. That normal values control market values ; 
 
 4. That (through fixing wage and interest incomes, and 
 thereby fixing entrepreneur costs?) the distribution inside 
 the group controls normal value. 
 
 Rearranging the quoted passages in such fashion as to 
 express the imputed sequence, and recognizing and accept- 
 ing the attendant dangers of misinterpretation, the doctrine 
 would run as follows : 
 
 Market prices fix the incomes of the separate groups The 
 
 fixing of market values results in the terms of group distribution. 
 .... Market prices fix the incomes of the different groups as 
 
 such, and so control the distribution in its earlier stages The 
 
 income of each subgroup in the series, then, depends directly on 
 prices . 
 
 "Natural" or "normal" prices .... tare the values .... to 
 which, in the long run, market values tend to conform. 
 
 A certain force that operates within the sphere of group dis- 
 tribution establishes the normal standards to which market values 
 
 tend to conform A deeper force, and one that also acts in 
 
 distribution, controls normal prices. Market prices are the cause of 
 group distribution The adjustment of natural or normal 
 
 ° Clark, op. cit., pp. 14-16. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 455 
 
 prices is a part of the distributive process. The movements that 
 make prices "natural" are, in fact, efforts on the part of different 
 men to get their natural shares of income. 
 
 Being again interpreted, this appears to say that normal 
 value controls market value ; that market value controls 
 group and subgroup distribution; and that the distribution 
 inside the subgroup controls the normal value ; that is, that 
 the ultimate term in the causal sequence is this infra-sub- 
 group distribution process ; everything else is derivative 
 herefrom. 
 
 If, however, there is any seeming of circuity here, it is 
 due rather to the sentence-juggling device than to the 
 intrinsic thought; the difficulty is not that the explanation 
 offered is circuitous, but that in last analysis no explana- 
 tion is offered ; but perhaps none should, at this stage of the 
 argument, be required. 
 
 Notice, at any rate, that it is not said that the actual 
 market value of any time is determined by the normal 
 value, but only that, in the long run, market value is con- 
 trolled by normal value; it may remain true, then — and it 
 really must be true — that no matter what the trend of things 
 or the necessary long-time adjustment of them may be, 
 the market values of any particular time are due to the 
 situation, the forces, and the adjustments of that particular 
 time. To subscribe to some long-time control over the 
 short-time value disturbs in no sense this principle; the 
 short-time value of any particular sort of commodity 
 remains, for its time, the determinant of the group and 
 subgroup distribution of that time. For purposes, then, 
 of any short-time analysis, it would be necessary that some- 
 thing be offered in the way of explanation of these short- 
 time market values. 
 
 But to the logical validity of Clark's position nothing 
 need have been offered in this regard; for his problem has 
 been specifically chosen as the problem of static distribu- 
 tion; all, then, that is necessary is that he explain static 
 value. The position on this point is as follows : Static 
 values, as controlling group and subgroup distribution, are 
 the result of the interest and wage apportionment , worked 
 out in the infra-group distribution process. 
 
 But it nevertheless appears to be true that the magni- 
 tude of the group distrihuendum out of which, as a static 
 problem, the specific wage and interest incomes are to be 
 
456 VALUE AND DISTRIBUTION 
 
 apportioned, is controlled by static market values. The 
 author's problem stands, then, if circuity is to be avoided, 
 as an alternative problem — either (i) to explain the static 
 value independently of the static distributive shares, or 
 (2) to explain the distributive shares independently of the 
 static values. 
 
 But it is forthwith to be added that something purport- 
 ing- to be an explanation of the distributive shares in this 
 tertiary, infra-subgroup distribution is offered, which, in 
 terms at least, makes no appeal to the support or aid of 
 market values. 
 
 The influence that brings production to this natural state is the 
 effort of laborers and capitalists to seize any special gain that may 
 be offered to them, by moving to any group in which the price of 
 the product is high. This is clearly an operation in group distribu- 
 tion. Thus an influence that originates in distribution brings about 
 a state of social production in which exchange values are normal 
 (p. 18). Prices are at their natural level when labor and capital in 
 one industry produce as much and get as much as they do in any 
 other. Normal prices mean equalized wages and equalized interest. 
 If the prices of wheat, wool, iron, lumber, etc., were such that no 
 laborer and no capitalist could acquire an enlarged producing 
 power by leaving the industry that creates one of these commodities, 
 and betaking himself to one that creates another, the price of each 
 of the commodities would be normal (p. 16). The proximate cause 
 .... is a state of production; that ultimate influence that controls 
 
 it is an action of the forces of distribution Market value 
 
 falls within the science of distribution. On the surface, it is current 
 market prices that control the distribution which takes place among 
 different groups or specific industries. These prices, however, are 
 transient, and they fluctuate about certain more permanent stand- 
 ards. The tendency of group distribution to become normal, that 
 is, to bring wages and interest to an approximate equality in differ- 
 ent industries, draws prices toward the normal standard 
 
 What then, is left to be treated under the title, exchange? Only 
 the actual passing of goods from hand to hand (p. 19). 
 
 That the ultimate determinants of value and of distribu- 
 tion must be of the general sort indicated is beyond ques- 
 tion ; all the facts must contain within themselves all the 
 explanations, causally speaking, though perhaps not descrip- 
 tively or interpretatively speaking. But, for this causal 
 explanation to stand as complete, more must be offered 
 than the mere disposition of men to seek the direction of 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 457 
 
 maximum pleasure or of minimum pain, or even the direc- 
 tion of maximum advantage or of minimum sacrifice; ac- 
 count must also be rendered of the needs and desires of men 
 for consumption goods, on the one side, — on the other side, 
 of human productive capacities and differentiations, and of 
 the objective productive equipment — inclusive of opportuni- 
 ties, franchises, good-will, trade secrets, and purchasing 
 power — in all its differentiations and adaptations and 
 specializations and distributions. 
 
 But if, for any normal equilibrium value or for any 
 temporary equilibrium value, an explanation of the sort 
 offered is the kind of explanation for which we are in 
 quest, and if it is of a character to suffice for the problem 
 of distribution within the subgroup, and thereby to furnish 
 the basis for the explanation of costs and market values, 
 and thus to establish distribution as fundamental to value, 
 why pursue this subject farther or any subject farther? 
 Why need anything more be said for either the value prob- 
 lem or the distribution problem? All the causes are surely 
 adequate to explain all the results. The difficulty, however, 
 is that on this level of explanation both value and distribu- 
 tive shares are equally results, and results of the same 
 order, and neither is — or can be — shown to be the inter- 
 mediate cause of the other. And regarded from this point 
 of view, the explanation of distributive shares, whether 
 looked at as a problem of process or of causes, is neither a 
 group nor a subgroup investigation; the individual choice 
 of personal activity and of investment application is a 
 choice wide as the whole field of capacity and opportunity. 
 
 But further : Accepting it, for the time being, as true 
 that the ultimate adjustment, when reached, is an adjust- 
 ment presenting equalized wages and equalized interest 
 (property rentals?), as the result of the free play of choice 
 between competing opportunities, and not at all stopping 
 to wonder why and in what sense all wages can possibly 
 become equal, it is still to be objected that these competing 
 opportunities are themselves mainly the expression of an 
 existing value situation; each individual's choice is made 
 within this value situation and as directed by it. True it is 
 that the entire situation of needs, capacities and posses- 
 sions, adjustments, and distributions, may be taken as 
 fundamentally directive and causal, but not so the indi- 
 vidual choices made within the conditioning and directing 
 
458 VALUE AND DISTRIBUTION 
 
 situation, nor, for that matter, all the choices, excepting 
 with the tacit assumption of all the situation and in connec- 
 tion with it. The individual choice, or even the aggregate 
 of choices, is far more result than cause, with the indi- 
 vidual activity infinitesimal reacting as cause upon the 
 entire situation. 
 
 And if any attempt is made, in the line of explanation, 
 to go farther than an appeal to this huge and vague situa- 
 tion aggregate, and if definite and detailed explanation for 
 anything be offered in terms of intermediate causes and 
 sequences, there will forthwith come the abandonment of 
 any further talk of value as the cause of any distributive 
 shares, group or other, or of distributive shares as the 
 causes of value ; the investigation will be compelled to refer 
 itself to actual business processes, to the machinery and 
 methods and adjustments of a competitive society under 
 entrepreneur organization and direction. Any investigation 
 that approaches distribution, leaving value aside or treat- 
 ing it as a problem to be solved by some casual and taken- 
 for-granted appeal to distributive shares as the basis of 
 entrepreneur costs, is for practical purposes no solution 
 at all. 
 
 But another solution may possibly be open, for what- 
 ever it is worth, a solution so readily deducible from the 
 organic concept of society that it may well have seemed to 
 dispense with any special labor of exposition : 
 
 Conceiving of Crusoe as a desiring fact as over against 
 Crusoe as a producer pain-burdened in his processes of 
 production, and setting him upon some assumed island of 
 definite possibilities and limitations, we have seen it to be 
 possible to deduce a fairly workable value doctrine for the 
 isolated economy. If, then, society may be taken as having 
 social needs and desires, and thereby a derivative social 
 marginal utility and a social subjective worth and a social 
 subjective value, — and if, over and against this demand term, 
 there are social pains and abstinences and sacrifices ade- 
 quate to function as cost terms in the value equation, no 
 further assumptions appear to be called for ; a complete 
 account has been rendered of market value, for, fortunately, 
 the environment does not also have to be obtained by this 
 process of assumption. 
 
 And thus, with the market vadues all satisfactorily 
 
BiStRIBUf ION BY VALUE PRODUCTIVITY 459 
 
 explained, nothing remains to be done but to deduce the 
 distributive shares. 
 
 Precisely so — but how deduce these? What problem 
 of distribution is open? Distribution among whom? And 
 under what basis of claim? Society did the producing and, 
 by assumption, bore the pains thereof. Who, then, is this, 
 or who are these now coming to demand that payment be 
 had by some test of distinguishable, separable, and assign- 
 able contributions, productions, and deservings? If value 
 fixation is a social fact, — costs, pains, sacrifices, pleasures, 
 marginal utilities, and effective utilities, all social facts 
 attaching to the appetitive or emotional psychology of the 
 social organism, — how comes it that "there are three generic 
 shares that are unlike in kind," and that 
 
 the entire study of distribution is .... a study of specific pro- 
 duction; is an analysis of the wealth-producing operation, and a 
 tracing back to each of the three agencies that together bring wealth 
 into existence of the part which it separately contributes to the joint 
 result. To each agent a distinguishable share in production, and to 
 each a corresponding reward — such is the natural law of distri- 
 bution.* 
 
 That by Clark land and all other instrumental goods 
 are reduced to one homogeneous fund of value units will 
 at this point require neither illustration nor proof. Labor 
 is similarly funded into a volume of homogeneous labor 
 units. And, either as included within this labor fund or as 
 basis of a distinct and separate fund, entrepreneur activity 
 also must seemingly be subjected to the funding process 
 and be reduced to a homogeneity of value units. Only so, 
 in fact, is it possible to establish the central thesis of Clark's 
 argument, the tendency, under normal conditions, of the 
 remuneration of each and every unit in the fund to express, 
 in precise equivalence, the productive contribution of that 
 unit: 
 
 There is before us the picture of social labor co-operating with 
 social capital. Both are governed by the law of diminishing returns, 
 and their earnings are fixed by the productivity of their final units. 
 
 " Qark, op. cit., pp. 3, 4, 
 
460 VALUE AND DISTRIBUTION 
 
 .... Wages conform to the final unit of social labor and interest 
 to the product of the final increment of social capital.' 
 
 But "how may we measure labor, capital, and their 
 products" so as to make certain whether this proportionality 
 of remunerations to funded units everywhere holds? "We 
 need, evidently, a universally usable measure of value." 
 
 "Provisionally, the 'doses' of capital are measured in 
 terms of money; but it is necessary to know exactly what 
 the money ultimately represents." ® Is this ultimate under- 
 lying verity — this definitive fundamental fact in value — 
 an objective labor homogeneity? Or is it a personal-sacri- 
 fice homogeneity? "If it means either of these two things, 
 it is still necessary to find some way in which to express 
 a measurement of labor or of sacrifice." And to Clark "it 
 is clear that the [value] product of the capital cannot, in 
 such connections as these, be the basis of the measurement 
 of the capital," for this would be circular in reasoning: 
 "If we say that whatever produces a unit of consumers' 
 wealth is a unit of capital, we assert nothing by adding 
 that, at any one time, all units of capital are equally pro- 
 ductive." So it is only provisionally that the doses of 
 capital are measured in terms of money; we must, it is 
 said, go deeper than this : 
 
 A universal unit for measuring economic value is necessary, if 
 the law of final productivity is to have scientific exactness. The 
 entire study of wealth is, indeed, meaningless, unless there be a unit 
 
 for measuring it Ratios of exchange alone afford no answer 
 
 to the economist's chief inquiries. The actual wealth of a com- 
 munity consists in heterogeneous things. If they are ever added 
 together, it must be because there is some one element found in all 
 
 of them and this element is absolutly measured There is one 
 
 element that is common to all the diverse things that appear in the 
 inventory of social wealth. In every commodity there is a power of 
 
 a certain kind which can be measured There resides in each 
 
 of them a certain amount of influence on human well-being 
 
 Effective utility is the name by which this potency of goods will here 
 be designated Effective utility is the basis of values." 
 
 Effective utility is, then, the common denominator into 
 which all values are to be resolved and by virtue of which 
 
 ^ Qark, op. cit., p. 373. 
 
 ^ Ibid., p. 374. ^ Ibid., pp. 375, 376. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 461 
 
 each and all come to be rational, intelligible, and compa- 
 rable. And this is in line with the doctrine, already noted, 
 that "the principle of final utility by which values are fixed, 
 is universal in its scope." '^^ 
 
 ■'Final utility universally gauges values." ^^ 
 That is to say, effective utility and final utility are 
 essentially the same. True, "amounts of wealth are usually 
 stated in money ;" but the coins are not really the measure ; 
 they merely express power over the things that afford 
 service : "They will buy goods or set men to working. 
 There resides in each one of them a certain amount of 
 influence on human well-being;" they control effective 
 utility. "Effective utility is the name by which this potency 
 of goods will here be designated." ^^ 
 
 But admittedly some things have utility not because 
 they give us pleasure but because they shield us from pain ; 
 and Clark insists that this pain-avoiding quality is the char- 
 acteristic and essential and ultimate fact in all effective 
 utility; the marginal-utility analysis does not go deeply 
 enough, or, rather, it does not bring out quite adequately 
 the important aspect, the sacrifice aspect, of things of 
 service : 
 
 Give to a man a barrel of flour and you make him by so much 
 
 better off If you had not given him the flour, he would have 
 
 got it by some sacrifice; and what you have done is, in effect, to 
 save him from sacrifice. This effect measures the value of the 
 flour.^' Take away a barrel of flour that the man now has, estimate- 
 the real detriment that he suffers, and you measure the effective 
 utility in another way." 
 
 Is this subjective worth? It looks like it; but if it is 
 assumed that the loss must be made up by labor rather 
 than submitted to directly or, perhaps, shifted to something 
 else, the doctrine diverges from the Austrian analysis, and 
 — still more — diverges from the truth. And if it be admit- 
 ted that the loss has not, of necessity, to be made good, or 
 that, if made good, it may be at the cost of some substituted 
 
 ^"Ibid., p. 47. "^Ibid., p. 376. ^*Ibid., p. 377. 
 
 ^ Ibid., p. 163. ^ Ibid., p. 376. 
 
462 VALUE AND DISTRIBUTION 
 
 service, we have nothing but subjective worth, the cost 
 aspect of utility, "the importance attached to a good as the 
 indispensable condition, etc.," a purely personal category 
 and an unrelated feeling magnitude. Clark continues : 
 
 He must [?] have food, and will get it by sacrifice of some 
 kind. He may not fully replace the sacrifice of the flour; for he 
 may live on maize, and in that case the utility of the barrel of flour 
 is gauged by the cost of the maize and the unsatisfied want of a 
 better quality [or quantity?] of food. 
 
 But later upon the same page the labor-necessity view 
 is fully adopted: 
 
 The final measure in the case is one of pain; for the ultimate 
 injury that is done to a man by depriving him of any one means of 
 pleasure, resolves itself into putting him under the necessity of 
 enduring a certain amount of personal sacrifice in the effort to 
 secure something that will effectually replace it." 
 
 But in any case, we have arived at nothing more or 
 other than the old difficulty with regard to either marginal 
 utility or subjective worth; as a purely personal experience, 
 unrelatable to the experience of any other person, and, as 
 absolute feeling magnitude only most vaguely — as mar- 
 ginal item of a series — related to any other experience of 
 the same individual, it perhaps does not greatly matter 
 whether the sacrifice be asserted to refer to the loss of 
 utility merely or to the labor pain of replacement. If mar- 
 ket value is to be resolved into a homogeneous fund of 
 utility units, there are clearly some further steps to be 
 taken, and these of a passably difficult sort. That these 
 steps are, indeed, impossible of accomplishment, earlier chap- 
 ters have sufficiently emphasized. It remains, then, to pre- 
 sent, with the minimum of comment, Clark's proposed 
 method : 
 
 It is this process .... of determining how important it is to 
 have one thing by ascertaining how much it will cost to get a very 
 different thing, that reveals one special significance of a study of 
 effective utility. Men pursue happiness in the generic, and the form 
 in which it may come is secondary. The measurement of well- 
 being, thus regarded in the abstract, is an occult but dominant fact 
 in exchanges. A man may have a monopoly of one means of pro- 
 moting happiness, yet he cannot set his own price for his wares. 
 That is fixed by the cost entailed on the community by the effort 
 
 " Clark, op. cit., p. 377. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 463 
 
 to secure, by any means whatever, an equal quantity of happiness. 
 Effective utility .... is measured by society as a whole; and in 
 this lies the significance of the phrase, "measure of effective social 
 utility." .... The price of a thing gauges its importance, not to 
 one man, but to all men, as organically related to each other. The 
 efficient serving power of an article varies in the case of different 
 
 individual users, but to society as a whole it is constant Into 
 
 the mysteries of distinctly social pyschology, therefore, the measur- 
 ing process that gauges value must be traced. Essentially simple 
 in nature is the operation, simpler even than the act of the man 
 who decides how important a horse is to himself by seeing how 
 long he must work to get a boat and a tennis outfit 
 
 It is now necessary to give definiteness of meaning to the word 
 social. There is such a thing as a unit of social improvement or 
 detriment. It happens, however, that the detriment is more avail- 
 able for measuring purposes than is the improvement; and so the 
 final unit of value is the sacrifice entailed by a quantity of dis- 
 tinctly social labor. Society, in short, sets value upon a thing by 
 ascertaining how much work is necessary to replace it or to get an 
 equivalent for it." 
 
 It would seem, then, that in order to measure a unit of 
 social utility, we must first make precise the notion of a 
 unit of "distinctly social labor;" what, then, is this? 
 
 Doubtless utility exists for each man and sacrifice exists 
 for each man; but because each man can make these 
 estimates for himself, does it safely follow that society can 
 do the same for itself? And if we know how the individual 
 man does it, shall we also know how society does it? So it 
 seems : 
 
 It may be assumed that whole articles are made by individual 
 workers. As such goods leave the makers' hands day after day, in 
 a continuous supply, they seek purchasers. No one man will take 
 
 many, but society will take them all That each class of goods 
 
 is made in great numbers by one man and consumed singly by many 
 men, is the essential thing to be noted. 
 
 It is the users of an article that can best gauge the well-being 
 that it gives them, and they make the estimate continually. Shall I 
 buy this article? .... Is this article or some other of equal cost 
 the more desirable? .... If each man could measure the useful- 
 ness of an article by the effort that it costs him to get it, and if he 
 could attain a fixed unit of effort, he could state the utility of a 
 
 "/Wd., p. 378. 
 
464 VALUE AND DISTRIBUTION 
 
 number of articles in a sum total. Similarly, if all society acts in 
 reality as one man, it makes such measurements of all commodities, 
 and the trouble arising from the fact that there are many measurers 
 disappears. A marlcet secures this result, for society acts as an 
 individual unit — like an individual buyer." 
 
 And similarly for the sacrifice, — which, we recall, has 
 thus far been presented as a better measure of the effective 
 utility than is the marginal utility itself, although this is 
 not to be taken as in any sense an abandonment of the 
 notion that all value resolves into and is nothing but effect- 
 ive utility; sacrifice is somehow a better measure of utility 
 than is utility itself; indeed, how can utility serve as its 
 own measure? And it needs measure, while, it seems, 
 sacrifice does not, or perhaps is more easily measured : 
 
 Work .... consists of concrete acts of men; and these are as 
 unlike in themselves as are the miscellaneous articles that are to be 
 measured by them. Can we make one sum of the labor involved in 
 cutting wood, in playing violins, in setting type, etc. ? Adding the 
 unlike acts that constitute social labor is, it appears, as difficult as 
 adding the products that constitute social wealth. There is need of 
 a pervasive element in the actions, and one that can be measured. 
 Such an element can be found ; for, as utility is common to all com- 
 modities, so personal sacrifice is common to all varieties of labor. 
 There is service rendered to man, on the one hand, and there is bur- 
 den imposed upon him, on the other. Social self-service — the act of 
 mankind ministering to its own needs — constitutes the whole eco- 
 nomic process A point is to be found at which social costs 
 
 of production offset and measure social gains We can .... 
 
 estimate pleasure in terms of pain.^^ 
 
 An isolated worker is the user of his own products, and he 
 naturally works each day till it does not pay to work longer. 
 Additional product might be gained by prolonging the toil, but the 
 advantage of having it could not compensate for the sacrifices of 
 
 making it The man that we are studying is a society by 
 
 himself; he makes things and he alone uses them Of a society 
 
 regarded as a unit the same is true. It produces for itself, and the 
 burden of its final labor measures the utility of its final products, 
 which is the same as the effective utility of any of its products 
 created by the same expenditure of working time. Take away the 
 articles that the society gains by the labor of a morning hour, the 
 
 "Clark, op. cit., p. 380. ^ Ibid., p. 381. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 465 
 
 necessary food, clothing and shelter that it absolutely must have, 
 and to make good the loss it will divert the work performed at the 
 approach of evening, which would otherwise have produced the final 
 
 luxuries on its list of goods The things otherwise produced 
 
 by that final labor will be the ones really lost, and their utility is meas- 
 ured by the burden entailed in the creating of them Every- 
 thing that is produced by one hour of social labor, whether that 
 labor be performed early in the day or late, possesses an effective 
 social utility that equals the absolute utility of the final complement 
 of goods consumed; and this, again, is counterpoised and measured 
 by the sacrifice which all society undergoes in the labor of its 
 
 final hour Periods of labor are equal in effective disutility, 
 
 and this makes it possible to use the labor of any period of a given 
 
 length as a unit for measuring values In the subjective 
 
 valuations of society, as an organic whole, the product of two hours' 
 labor is always worth just twice as much as is the product of one. 
 Mere labor time is an accurate gauge of the values of different 
 complements of goods.^^ 
 
 But a group of goods to serve as a social unit of con- 
 sumption is one thing, and the separate items made by 
 different individual men may be another; is "mere labor 
 time .... also an adequate gauge of the values of the 
 different articles that enter into the complement"? Here 
 the answ^er appears to be that the utility of what I sell is 
 measured by the pain of society in producing what I get 
 in exchange for what I sell : "The pain that all other men 
 suffer in making products for him represents the cost to 
 
 them of what they get from him Price is, then, 
 
 an indication of the social cost of acquisition of different 
 commodities." ^° 
 
 Recalling now that each unit of labor commands under 
 normal conditions precisely the same remuneration as every 
 other unit, we become interested to know how much labor 
 of any given individual constitutes a labor unit. Evidently, 
 laborers are not paid the same per-diem wage, but only the 
 same wage per labor unit: 
 
 ^ Ibid., pp. 383-89, passim. 
 ■ ^ Ibid., p. 391. 
 
466 VALUE AND DISTRIBUTION 
 
 A laborer of high grade embodies in himself more units of labor 
 than does an inferior one." 
 
 The final unit of labor is the sacrifice entailed by a quantity of 
 distinctly social labor.^ 
 
 A social unit of labor .... is a composite unit consisting of 
 some labor from every industrial group that the community con- 
 tains.^-^ 
 
 A minute would be a larger fraction of one man's day than of 
 another's. It is accurate enough for our purpose, however, to say 
 that the social labor is made up of a fixed fraction of a day's labor 
 of every individual.^* 
 
 Evidently it does not matter what precise quantity of 
 this social labor is taken as the unit of measurement; but 
 take now the case of a man who makes and upon the 
 market sells a commodity: 
 
 A commodity is actually measured for value on the basis of 
 the social service that it renders All society, in the end, in- 
 curs a marginal sacrifice that measures the valne The indi- 
 vidual labor which made the commodity is the economic equivalent 
 of the social labor that is induced by it and that measures its value.*' 
 
 But how does a man actually go to work to exercise 
 this inducing power over the social labor? Evidently he 
 sells his product upon the market: 
 
 If money is used in the transactions, and if the price of W and 
 that of X are equal, it is because the last unit of supply of each 
 commodity, as it is made over to the miniature society for con- 
 sumption, imparts to society as a whole a uniform addition to its 
 
 enjoyments Price is, then, an indication of the social cost of 
 
 acquisition of different commodities.^' 
 
 Thus are we able to know how much of each man's 
 labor is necessary to constitute a unit of labor; and then 
 we know that these amounts of labor will be equally paid — 
 these funded equal units ; and how do we know this ? By 
 the fact that in selling them upon the market, they will 
 draw out equal quantities of social labor. But this means 
 that the products sell for the same money price, and that 
 the two quantities of labor are equal quantities by the mere 
 fact of the equal market values of their products. And yet 
 Clark has only a few pages back insisted that it will not do, 
 
 ^^ Clark, op. cit., p. 63. '^ Ibid., p. 170. ^^ Ibid., p. 397. 
 
 "'Ibid., p. 378. ^Ibid., p. 396. -^ Ibid., p. 391. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 467 
 
 in good logic, to make "the product .... the basis of 
 measurement. If we say that whatever produces a unit of 
 consumers' wealth is a unit of capital, we assert nothing 
 by adding that, at any one time, all units of capital are 
 equally paid." ^'^ 
 
 We have now to recall that in Clark's view this resolu- 
 tion of market value into some sort of underlying and con- 
 trolling and determining homogeneity is absolutely essential 
 to the funding of capital goods and of labor into value 
 units, and likewise essential to the proof that in each fund 
 the compensations tend to be — and normally are — the same 
 for all of the units. That is to say, Clark rests the specific- 
 productivity theory of distribution upon two bases, (i) that 
 market values can be reduced to an ultimate homogeneity 
 in terms of effective-utility units, it being for this purpose 
 that the social-organism concept is invoked for service; 
 (2) that all productive agents, on the one hand, and all 
 productive instruments, on the other hand, are likewise 
 subjected to the funding process, in such fashion that equal 
 value productivity may be ascribed to the individual units 
 of each fund, and this without appeal to the quantum of 
 value productivity as determining or defining the unit. 
 
 It is, indeed, possible that Clark has admitted here 
 more than the necessities of the argument require; it is 
 conceivable that neither of these intermediate steps is 
 essential to the conclusion ; it may be that the specific pro- 
 ductivity of the productive factors may be worked out, 
 and distributive shares be found to be the precise cor- 
 relatives and equivalents of specific productivity, and all this 
 without appeal to any sort of homogeneity underlying and 
 determining market values, and without any manner of 
 recourse to the funding devices proposed. How, indeed, 
 disprove it? 
 
 And it is also forthwith to be admitted that no proof has 
 yet been offered — or can later be adduced — that society is 
 not an organism; but it is equally certain that no proof has 
 yet been anywhere adduced that it is ; and it is worth noting 
 that the sociologists themselves have long since mostly 
 
 "Ibid., p. 374. 
 
468 VALUE AND DISTRIBUTION 
 
 abandoned the doctrine. But none the less may the doc- 
 trine be true, and fertile of more truth; this, however, is 
 sheer matter of faith; and, as all propositions purely of 
 faith are, it is at once unproved, unprovable, and undis- 
 provable. And so likewise it may be true that the social 
 organism has methods of funding labor and of funding 
 capital that we wot not of; and — possibly enough — these 
 capital and labor value funds — organically valued — are not 
 derivative from the valuations organically placed upon the 
 products. We can deny no part of this in any sense of 
 thinking ourselves able to prove its falsity; to prove that 
 water babies do not exist, we must, Kingsley tells us, do 
 more than not see any water babies existing, we must see 
 a water baby not existing. We can, then, do no more than 
 to put in issue and to criticize the evidence or arguments, 
 if any have been offered, in support of the position taken. 
 Any criticism made or yet to be made must mostly confine 
 itself to questioning the logical legitimacy of this estab- 
 lishing of fundamental propositions purely by faith, and to 
 a scrutiny of the logical tenability of the relations asserted 
 or assumed between these dubiously authorized proposi- 
 tions. 
 
 But if, even faith- wise, these factor funds can be estab- 
 lished upon any other than the repudiated basis that "what- 
 ever produces a unit of consumers' wealth is a unit of 
 capital," the explanation — if explanation it is — must appar- 
 ently run substantially as follows : 
 
 Just as "effective utility .... is measured by society 
 as a whole," and as "the measurement of well-being, thus 
 regarded in the abstract, is an occult but dominant fact in 
 exchanges," and as "in this lies the significance of the 
 phrase 'measure of effective utility,' .... it was upon 
 the word 'social' that emphasis was laid;" precisely so, by 
 some occult social-organism process, do we get an appraisal 
 and a funding of capital goods and of labor, — a funding 
 non-derivative from those volumes of value product ascribed 
 and imputed to these productive factors, — and all this, also, 
 in such fashion that both a mystical, occult, and marvelous 
 parallelism and a precise proportionality are discoverable 
 between the value of the funded unit and the value of its 
 product. 
 
 But even if this social-organism method of getting 
 products and productive factors into abstract funds be 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 469 
 
 abandoned as, on the one hand, unproved, and as, on the 
 other hand, unserviceable for its purpose unless logically 
 abused, the productivity theory of distribution need not, be 
 it repeated, thereby become untenable. It seems, indeed, 
 that Clark has overestimated or wrongly located the diffi- 
 culties of his problem; and it must be remembered that it 
 is primarily this problem, and not Clark's solution of the 
 problem, that is of interest to our investigation. Take it to 
 be established, if we may, that market values will not 
 reduce to pain jelly or to utility jelly, whether by the social- 
 organism concept or by any other method ; the case of the 
 productivity theory of distribution is not forthwith to be 
 declared hopeless, if only it be true either, (i) that the 
 funding expedient is not essential, or (2) that without any 
 appeal to the hypothetical psychology of the social organ- 
 ism, the market values of products and of factors may be 
 made homogeneous on some sort of workable basis; and it 
 need not matter whether this other basis be something dis- 
 tinct from pain cost in the getting or from well-being 
 significance in the using. 
 
 It is, in any event, worthy of remark that the market 
 values of products and the market values of factors are 
 actually and patently homogeneous under the simple, every- 
 day, and commonplace guise of market price, a homogeneity, 
 that is to say, in terms of the money fact, a con- 
 ventional standard admirably adapted, as expressive of 
 homogeneous, undifferentiated purchasing power, for meet- 
 ing all the requirements of this greatly desired homo- 
 geneity. What, in fact, can capital as an abstract fund 
 possibly be, if it be anything other than a market- value 
 fund? 
 
 But, even so, we are immediately driven back upon the 
 problem of how to make use of this homogeneity in such 
 wise as to help forward the problem in hand, which is, 
 in part, precisely this of how to explain these very market 
 values or hires upon these productive factors. For it must 
 still remain true, as Clark has so well pointed out, that 
 neither capital units nor labor units, no matter in what 
 manner or how well funded, can logically be asserted to 
 possess equal value productivity and so to be equally 
 rewarded in value compensations, if all the while the units 
 are explained and established as such, only by the fact that 
 they produce equal values or get equal compensations. 
 
470 VALUE AND DISTRIBUTION 
 
 We seem compelled, then, to adventure the problem 
 under its other statement, how to explain the remunera- 
 tions attributed by the market to the different, specific, con- 
 crete factors and items employed and remunerated under 
 the productive process? Is it possible to regard the 
 remunerations as either normally or actually the precise 
 equivalent of the productive contribution? How deter- 
 mine this separate productivity for comparison with the 
 remuneration? Is any method of isolation of factors 
 possible? Or is all that can be said merely that the 
 remuneration is the market value of the value-productivity 
 contribution rather than the precise equivalent of the 
 value contribution? To this aspect of the problem, which, 
 after all, seems to be treated by Clark, we must now direct 
 attention.^^ 
 
 But precisely what is our problem? It is clear that we are 
 not now interested in any issue as to whether cost causes 
 value or value causes cost, or as to whether distributive 
 shares are better regarded as primary or as secondary ; 
 no denial is suggested that all productive instruments 
 and agents are hired in view of the value products 
 to be derived from them ; so far as this, at least, the value- 
 productivity theory of distribution must be genially 
 accepted ; nor is there question that the amount of value in 
 the joint product of the factors is the equivalent, the 
 
 ^' "The specific productivity of labor fixes wages — that is the thesis 
 to be supported in this volume" (p. 47). 
 
 "We have said that the specific productivity of labor fixes wages ; 
 and this means that pay conforms to the amount of product that is 
 specifically imputable to any one unit of labor in a working force. 
 This implies that the products of the different units are equal. In 
 like manner, the specific productivity of capital fixes interest. The 
 earnings of a dollar are what the dollar creates ; and this implies that in 
 any one fund of capital, as it is described in terms of money, the 
 products of all the different dollars are equal" (p. 49). 
 
 "A laborer's income may seem to come to him from another man ; 
 but in essence it is still the response that nature makes to his own 
 labor — it is his own virtual product" (p. 53). 
 
 "The income of each subgroup is now the value, not of a completed 
 article, but of the one particular utility that it imparted to that article" 
 (p. 54). 
 
 "Paying interest is [sometimes?] buying the product of capital as 
 paying wages is buying the product of labor. The power of capital to 
 create product is, then, the basis of interest" (p. 135). 
 
 "As value depends on final utility, so shares in distribution depend 
 on final productivity" (p. 208), 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 471 
 
 source, and the intermediate determinant of the aggre- 
 gate compensations distributed to these factors, it matter- 
 ing not at all for present purposes how this total value to 
 be distributed was caused or fixed; nor are we tempted to 
 deny that each of these distributed compensations falls 
 out in some general and approximate proportionality with 
 the value increase contributed ; but rather are we con- 
 cerned to determine whether any separate and specific 
 productivity of the different co-operating productive fac- 
 tors can be so isolated and distinguished that, actually or 
 logically, the compensation may be declared to be the pre- 
 cise equivalent of the productivity contribution. That is 
 to say, what is the meaning and what the warrant of the 
 assertion that out of the distribution of a joint product the 
 different productive agents receive the precise equivalent 
 of the value which they have contributed? Is it true that 
 this precise productivity can be arrived at otherwise than 
 by sheer reference and appeal to what they get? 
 
 This is, in truth, our old problem of imputation, the 
 problem already considered at length in an earlier chapter, 
 how to distribute between the different co-operating factors 
 not only all the value product which, if not so co-operat- 
 ing, they might have produced, but, together with this, that 
 increment or surplus of product which accrues as the very 
 result, as it was the very purpose, of their co-operation. 
 
 Assume that in isolated uses, or in other combinations, 
 each of four productive facts, e. g., land, machines, wage- 
 earners, and entrepreneur, could command 3 of recom- 
 pense, and that when the four are brought together, their 
 aggregate product is not 12 but 13 ; what distributive 
 principle shall be invoked to apportion this surplus of i ? 
 If the first of Clark's principles of imputation be accepted, 
 namely, that "the amount that is taken from the crop when 
 one cultivator is withdrawn from the force, measures the 
 effective productivity of every laborer of like personal 
 capacity," -^ this subtraction method will lead us to impute 
 to each co-operating factor a specific productivity of 4, — 
 and this despite the obvious fact that the joint product is 
 not 16 but 13. 
 
 Clark's second principle of imputation he does not him- 
 self recognize to be a second, but only the repetition of the 
 
 '^ Clark, op, cit,, p. 161. 
 
472 VALUE AND DISTRIBUTION 
 
 first: "A similar test might have been made merely by 
 adding a unit of labor, instead of taking one away." But 
 if this principle be accepted we shall come into precisely 
 the reverse difficulty. For if the proportions of factors in 
 the original complex were the correct proportions — if, for 
 the entrepreneur, the combination was the best combina- 
 tion — no increase in any one factor alone could take place 
 without its per-item productivity suffering. It follows that 
 the method of "adding a unit of labor instead of taking 
 one away" would distribute a product somewhat smaller 
 than the actual product. 
 
 But when it is known what any particular entrepreneur 
 will, at the maximum, bid for the item in question to be 
 used as part of his production complex, under his own 
 direction, is it safe to attribute all of the increase in product 
 to the new item? Is not this increase due rather to the 
 mere "togetherness" of all of the co-operating facts? And 
 is it not certain that other entrepreneurs in different cir- 
 cumstances and of different abilities must have different 
 maximum bids? And which one out of all these different 
 productivity relationships gauges the specific productivity 
 of the item in question? And does the market hire neces- 
 sarily or probably exhaust all the value significance of the 
 item to the successful bidder? And are not the cases where 
 this is even approximately true confined to those produc- 
 tive factors which are present in stocks? 
 
 Substantially the same difficulties exist for all attempts 
 at the isolation of productive factors; zones of indiffer- 
 ence, in the sense of zones of isolation, are not to be found. 
 If labor could somewhere be found supplied with no tools, 
 or with valueless tools, and working upon valueless land, 
 this would be labor suffering in compensation by reason 
 of a limitation of product due to inadequacy of equipment. 
 Where "the worn tool, the rickety engine, the unseaworthy 
 ship .... is at the point of abandonment, the labor 
 that uses it creates only wages;" this is true, but not full 
 wages. It is therefore not true that "the amount of this 
 product corresponds with and expresses the rate of 
 general wages," ^^ and would not be true even if all labor- 
 ers were alike in their relations either to equipment or to 
 entrepreneurs. 
 
 Nor — adapted to Clark's proposition — is there any zone 
 
 *" Qark, op. cit., p. 97. 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 473 
 
 of indifference, or place of isolation, for the last or mar- 
 ginal worker employed by any entrepreneur: 
 
 It is this most sterile of the fields, openings, or opportunities for 
 labor that we describe graphically as an outermost zone within 
 which men produce only their wages. This is the zone of indiffer- 
 ence from an employer's point of view, because, if he sets men 
 working within this area, he must give them all that they produce 
 as wages.'^ 
 
 But, at the most, he needs do this only upon the assump- 
 tion that he is the marginal employer, and upon the added 
 assumptions, also, that the employees are all alike and that 
 there is nothing peculiar in them or in him or in his land 
 or other capital so that another employer may not push him 
 to his highest possible bid. And even upon these assump- 
 tions, there is no reason for supposing that even the last 
 laborer is hired at precisely no gain; the employer may 
 well have some unexhausted powers of supervision still 
 left in him. And so, "if one employer offers to them less 
 than by their productive powers [working for and under 
 him] they are worth [to him]" there is no sufficient war- 
 rant for the belief that "another will offer more, pro- 
 vided competition is perfectly free and efficient." 
 
 It is, then, a most dubious doctrine that the last laborer 
 hired by the marginal employer is hired at no gain. Is 
 there any good reason for supposing the extended super- 
 vision of the employer to be non-productive? Why, then, 
 does he exercise it? And if it be urged that because of 
 limited command of capital some of the supervising abili- 
 ties of the employer must, in any case, run to waste, it is 
 to be replied that this argument recurs to an assumed 
 peculiarity in the employer's situation, and so far aban- 
 dons the attempt to explain the wages as reflecting the 
 isolated, objective, value-producing power of the laborer. 
 For note that the isolated and objective productivity in 
 question is not to be established even upon the assump- 
 tion that the production takes place upon marginal land 
 only, or at the marginal powers of land, and with the co- 
 operation of only marginal capital or the marginal powers 
 of capital; it must also be assumed that the production is 
 marginal in its relation to that marginal entrepreneur, and 
 to the supervisory productive powers of that entrepreneur, 
 
 '^ Clark, op, cit., p. no. 
 
474 VALUE AND DISTRIBUTION 
 
 who can pay least for the labor and who, hiring it, pays at 
 the same time all that he can. 
 
 And now, assuming even this case of utmost payment — 
 a payment leaving no least residue of rent or interest or 
 personal compensation for the comfort of the employer — 
 where all the produced increment goes to the laborers and 
 goes as their distinct and unquestioned value productivity, 
 it becomes so much the clearer that the wage outlays of the 
 marginal employer are not fixed by him, but fixed for him ; 
 he has no share in the results as fixed, except to the extent 
 that as one item in the demand schedule, his demand has 
 prevented that still lower wage which would have attended 
 the throwing of these laborers over to the employment of 
 some still less efficient and still weaker entrepreneur. But 
 as in such case the wages must admittedly have been lower 
 under this otherwise excluded employer, it follows that to 
 our marginal employer, or to his entire productive complex 
 as a unit, there must be ascribed some part of that pro- 
 ductivity which Clark's analysis imputes to the laborer 
 alone.^^ 
 
 ^^ Clark himself recognizes the importance of the productive com- 
 plex — recognizes, that is, — as perhaps in view of his abstract-capital con- 
 cept he logically must, — that each added dose of capital takes the form 
 not of a quantum of machinery, or of land, or of cars, or of rails, etc., 
 but of a complex or complement of co-operating factors, all applied under 
 the guise of an item or dose of productive outlay, a unit sum of capital 
 expense ; and this is admirable, only that it is assumed that, in concrete 
 manifestation, this capital outlay must take the form and guise of 
 material capital goods, rather than be applied in toto or in varying 
 fractions to all lines of gainful expenditure, inclusive of labor, insur- 
 ance, advertising, taxes, and what not : 
 
 "Here, for instance, is a new locomotive. It has not been 
 secured .... to take the place of one worn out, but is an additional 
 engine, made necessary by an enlarged traffic. Is it a final increment 
 of capital? .... It would be uneconomical to combine one poor 
 engine with an equipment of good cars, good rails, etc. This comple- 
 mentarity of producers' goods must always be considered 
 
 The quality of the new engine is determined by that of the roadbed, the 
 rails, the bridges, the cars, etc., with which it is used" (p. 248). 
 
 But note that this really denies any distinguishable and specific 
 productivity in the separate items of capital goods ; and note also that 
 this same argument applies in principle to all combinations of capital 
 with labor, or of capital goods with other capital goods, or of labor 
 with other labor. 
 
 "The competition for capital .... is an all-around struggle to 
 get concrete things that are about to be. The capital of society has no 
 existence till it is in the shape in which entrepreneurs use it. Till it is 
 raw materials and tools for the manufacturer, merchandise for the 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 475 
 
 But we have now to notice a still more important and 
 still more disastrous error in this method of analysis : 
 
 The product that can be attributed to this second increment of 
 labor is, of course, not all that it creates by the aid of the capital 
 that the earlier division of zvorkcrs has surrendered to it; it is only 
 what its presence adds to the product previously created.^' 
 
 This is crucial; in point of fact, the new labor does not 
 get all the increase ; the conditions of distribution are dis- 
 turbed to the advantage of the capital ; wages ate suffering 
 not merely from the fact of a diminishing production incre- 
 ment, but also from the fact that out of this situation every 
 unit of capital is deriving an increased income; that is to 
 say, wages are suffering not only on the production side 
 but on the distribution side. 
 
 The fundamental error in all analysis of this sort — and 
 the later economics is full of it — is traceable to the assump- 
 tion that the marginal-utility analysis for the individual 
 man can safely be carried over to society as a whole, and 
 also that the method of computation supposedly valid for 
 consumption goods can safely be applied to production 
 goods disposed of under entrepreneur bidding: 
 
 There is a commercial principle which causes the final or mar- 
 ginal part of the supply to be strategic in its action on the value 
 of the whole group. The value of the whole crop .... conforms 
 to that of the marginal bushel. If there are marginal laborers, 
 in the sense in which there are marginal quantities of wheat, cotton, 
 iron, etc., then the final or marginal men are likewise in a strategic 
 position; for their products set the standard of everyone's wages. 
 .... The last increment in the supply of any commodity fixes the 
 general price of it.'* 
 
 retailer, vehicles for the carrier, etc., capital has no existence at 
 
 all Bidding for capital, then, is bidding for something 
 
 which .... will consist mainly in a change of quality of working 
 implements" (p. 259). 
 
 "The final increment of the capital of this railroad corporation is, 
 
 in reality, a difference between two kinds of plants One of 
 
 these is the railroad as it stands The other is the road built 
 
 and equipped as it would have been if the resources had been one 
 degree less" (p, 251). All this presents the social concept of capital 
 rather than the competitive. 
 
 "'Clark, op. cit., p. 176. 
 
 ^ Ibid., p. 90. 
 
476 VALUE AND DISTRIBUTION 
 
 The difficulties are thus several in the way of .this 
 method of solution of the distributive-imputation problem: 
 
 1. With complementary production goods, no separate 
 and specific significance, like that attached to consumption 
 goods, can be ascribed to any one item. 
 
 2. Changes in the relative supplies of co-operating 
 goods work changes in the relative significance of all the 
 different classes of the co-operating goods. 
 
 (Propositions (i) and (2) would hold either in a Cru- 
 soe or in a competitive economy.) 
 
 3. In the competitive economy all possibility of ascrip- 
 tion of a single productive significance to any productive 
 item disappears ; the entrepreneurs being different in equip- 
 ment and in degrees and kinds of skill, each item has as 
 many different productive potentialities as there are differ- 
 ent productive complexes. There can, therefore, be no one 
 degree of productivity assignable as the specific produc- 
 tivity of any particular item; and there is no warrant for 
 supposing that the hire paid by the successfully bidding 
 entrepreneur coincides with even his own appraisal of the 
 prospective increased efficiency of his productive complex. 
 The successful bidder pays at the minimum what someone 
 else will pay; at the maximum, all that he can afford to 
 pay; but that he is the successful bidder does not imply that 
 he actually pays this maximum. 
 
 4. Even were productive factors always present in 
 stocks rather than — as generally — in concretely differing 
 items, an entire competitive society would have no way 
 of adding one marginal item of an increasing stock to a 
 fixed and stable volume of complementary stocks ; even the 
 individual does not commonly proceed in this way, but 
 rather, as he enlarges his business unit, enlarges it in 
 several directions at once. In competitive society, stocks 
 and classes of production goods do not take one after 
 another each its separate turn in the process of increase. ^^ 
 
 "^ The precise relation of the marginal analysis to the specific value- 
 productivity issue will be brought out in clearer definition by an account 
 of a recent controversy between Professor Carver and Mr. J. B, 
 Hobson : Hobson, "Marginal Units in the Theory of Distribution," 
 Journal of Political Economy, September, 1904 ; Carver, "The Mar- 
 ginal Theory of Distribution," Journal of Political Economy, March, 
 1905 ; and Hobson, "The Marginal Theory of Distribution," Journal 
 of Political Economy, September, 1905. 
 
 In the preceding chapter some account was given of Hobson's 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 477 
 
 repudiation of the "dosing" method of analysis and of its purported 
 bearing upon the relations of land rent to cost; and the opinion was 
 there expressed that Hobson's criticism, as formulated in his "Distri- 
 bution," falls appreciably short of seriously damaging the doctrine. 
 
 In his later contribution to the discussion he adopts, as we shall 
 see, a dosing analysis of his own, but attacks with great force and 
 cogency the notion that under any dosing analysis, properly applied, 
 is it possible to isolate and measure the separate productivity of any 
 one of the different productive factors in the production process. 
 Meanwhile, and especially after the reply of Professor Carver, other 
 interesting issues are introduced, some of them possibly not strictly 
 germane to the original question. Clark's doctrine is necessarily 
 involved, though Qark himself takes no part in the discussion. 
 
 Hobson denies that any entrepreneur, e. g., a farmer, deciding to 
 employ a fifth laborer, can properly regard the resulting increase of 
 product as representing or expressing the value productivity of this 
 fifth man: 
 
 1 . The work of this fifth man, being by assumption just like 
 that of the other men, is equally productive, and is paid for at precisely 
 the same rate, because of this precise equality in productivity ; if 
 actually there is less than five-fourths of the old product, it is in part 
 because the employment of the fifth man has lowered the value 
 effectiveness of each of the other men. 
 
 2. If the employer's managerial capacity leaves him yet able gain- 
 fully to supervise another — a fifth — man, it must follow that a share 
 of the increase in product is to be attributed to the utilization of a 
 fraction of managerial ability which hitherto had run to waste. 
 
 3. The doses applied are really not labor doses ; one does not 
 make an increase in the labor solely, but an increase partly in labor, 
 partly in capital, partly in land ; the dose is a land-labor-capital com- 
 posite, and the increase in product is an increase which, if separately 
 attributable to anything in the dose sort, must be imputed to this 
 composite dose. 
 
 Hobson also argues — perhaps unfortunately, at all events, unneces- 
 sarily — that if the employer's payment were really the full equivalent 
 of the productivity of the marginal man — if this marginal productivity 
 were actually ascertainable — and if the productivity theorists were 
 correct in asserting that this marginal productivity determines the 
 wages and expresses and measures the value productivity of the 
 wage-paid labor, it would thereupon follow, inasmuch as the other 
 men are equally productive and equally paid, all getting precisely 
 what they produce, that there could be no gain in the case for the 
 entrepreneur. Hobson holds that it is precisely because the entrepre- 
 neur gets a forced gain, something which, morally, does not belong to 
 him, that he gets a profit ; and that Clark is justified in his view, that 
 under the complete equilibrium of perfect competition, in "normal 
 equilibrium," all entrepreneur profit would disappear ; but that there 
 is, en the other hand, nothing in the competitive trend to bring 
 about this equilibrium situation ; and that even were it to be estab- 
 lished, the benefit of it would accrue not to wage-earners exclusively, 
 but in part or entirely to consumers. 
 
 Carver joins issue upon this question of profit; and taking profits 
 to indicate what is left over "after the other shares are paid," he 
 rightly proceeds to infer that competition can never cancel all entre- 
 
478 VALUE AND DISTRIBUTION 
 
 preneur remunerations ; and he undertakes a detailed analysis to show 
 that the entrepreneur, in employing more and more men, must finally 
 come upon a man marginal for the purposes of gain — as, indeed, he 
 must ; that what the entrepreneur can barely offer for this marginal 
 man is tliereby established to be what this marginal man produces ; 
 that the earlier men, as they get no more, are equally clearly to be 
 regarded as producing no more ; that the excess in product from the 
 earlier men over what they receive is really not their product at all, 
 but is economically [and morally?] the product of him who gets it. 
 Seemingly also, as with Clark, he gets it because he produced it, and 
 is known to have produced it because he gets it. 
 
 Now if one could know precisely the sense in which Hobson 
 here uses the term "profit," something could be done, were it worth 
 while for our purposes, toward an award of judgment upon the issue 
 as joined. Certainly Carver is right upon the profit issue, as he inter- 
 prets pro-fit. Certainly also Hobson is wrong in asserting that where, 
 with four laborers, there is a product of 500, and with five laborers a 
 product of only 100 more, "the competition of employers, driving 
 down profits, will raise the wages to 120 . . . .if we assume .... 
 [that] the competition of employers is as full and free as that of the 
 laborers." 
 
 On the other hand, Hobson is right in his view that a combination 
 of laborers might command approximately the whole 600 as wages, — 
 if the employer must take the five laborers or none. 
 
 But, by the way, Clark, with his definition of profit, is also right 
 in insisting that under the perfect competition of a static situation all 
 profit would be canceled, since profit, as he uses the word, connotes 
 merely that gain which is due to non-static conditions, or to incomplete 
 competition, or to both. 
 
 But such is not the issue that at present concerns us ; and such 
 was not the issue which it was in Hobson's purpose to present. Nor, 
 accurately speaking, does the question whether the work of the fifth 
 man is of equal productivity with that of the others, greatly concern 
 us; for what does the question really mean? Does it mean that it is 
 as important to the entrepreneur to have one man more to go with the 
 four as it was to have a fourth man to go with three? The question 
 as thus stated answers itself, and there is no other question. There 
 is no absolute productivity in this case or in any other case ; there 
 is only productivity relative to the entrepreneur and to his situation. 
 Hobson rightly insists that it is not separate ; nor is it intrinsic, or ~ 
 independent, or substantive ; like all forms of utility or of service, it 
 is a relation pure and simple. With a different entrepreneur it would 
 be a diflferent thing, another relation ; with changes in this entre- 
 preneur's situation or need, the significance of the instrument becomes 
 a new and a different significance, simply because it is a mere rela- 
 tion. Productivity can be such only in the sense of a contribution 
 toward value creation under the particular terms and relations of the 
 situation as it presents itself. The hire does not express the value- 
 productivity contribution, but only the market value of this con- 
 tribution. 
 
 Hobson's substantial repetition of Qark's view that the dose is 
 never one of labor alone, or of land, or of capital goods alone, but is 
 
DISTRIBUTION BY VALUE PRODUCTIVITY 479 
 
 rather a land-labor-capital composite, a unit only in the sense of a 
 unit complex, goes in one direction somewhat overfar, and in another 
 direction not quite far enough. For surely with his last dollar or last 
 thousand dollars of expense, the entrepreneur may hire nothing but 
 labor or nothing but land, or nothing but capital g-oods ; but as surely, 
 he may hire two of them or all three of them together. Nor is it 
 true that there is, under any one situation or at any one time, one 
 best technological combination for each and all entrepreneurs ; the 
 different entrepreneurs being different in degree and kind of ability 
 and of equipment, there is, in truth, never any one situation, but only 
 various situations. One entrepreneur will apply his last dose of 
 expense in one way, another in another, and these different ways may 
 none of them be of the "composite" sort, or they may all be of 
 this sort. 
 
 But, as we have seen, the truth is not far away; the dose with 
 each entrepreneur is a dose of outlay, a dose of purchasing power, a 
 dose of competitive entrepreneur capital. Nowhere in economic theory 
 more seriously perhaps than here has the traditional threefold classi- 
 fication of productive factors exerted its influence to perplex and 
 complicate and vitiate. 
 
 It must be recognized here that, for the purposes of this 
 problem, Clark's notion of abstract capital has led him to the enuncia- 
 tion of what is substantially the truth. Without at all concurring in 
 the dictum that "the idea that different parts of a product can be 
 created by an entrepreneur at greater or less advantage to himself is 
 fallacious," — this notion seeming to cut away from under Clark's feet 
 the only valuable and true thing in his entire marginal-productivity 
 analysis, — the central idea in the following must command entire 
 approval : "To him it makes no difference whether he hires one agent 
 or another or the two together since he gets the same result for the 
 same outlay in all cases" (p. 365). 
 
CHAPTER XXIII 
 THE LAWS OF RETURN 
 
 To have established in economic theory, on the one 
 hand, the distinction between long-time and short-time 
 influences or, on the other hand, the distinction between 
 the static and the dynamic in value problems is, irrespective 
 of other and possibly greater grounds of obligation, to 
 have placed the science under no small burden of debt. 
 These are, however, really distinct services ; for though, 
 at first impression, they appear to rank as merely different 
 formulations of the same principle of distinction, this is 
 seemingly neither a sympathetic nor a fair interpretation 
 of either. 
 
 Marshall's long-time reckoning points rather to such nor- 
 mal or static equilibria as are eitSier reached or always in pro- 
 cess of being reached within one general and established situ- 
 ation of fundamental conditions ; the short-time reckoning 
 allows for the minor perturbations and rearrangements 
 which yet do not imply movements or tendencies in the direc- 
 tion of radical, permanent, or fundamental change. Clark's 
 even more important recognition of dynamic forces in 
 economic life points, on the other hand, to radical and 
 permanent modifications in the ultimate determinants of 
 value — changes in those greater and ultimately directive 
 forces which have been here somewhat awkwardly denomi- 
 nated situation facts, as the basis of situation costs. 
 
 It is, however, obvious, that the two lines of distinction 
 are prone to coalesce, and that long-run influences and 
 dynamic influences, while sufficiently distinct at the extreme, 
 shade off into each other in intermediate cases. 
 
 The long-run price is a normal price, a static equilibrium 
 price as distinguished from those actual and unstable prices 
 likely to obtain at any particular moment. That there 
 
 480 
 
THE LAWS OF RETURN 481 
 
 take place a merging of actual price into normal price 
 requires the assumption both of a static society and of a 
 long-run period. Nevertheless, the long-run computation 
 is essentially one of an ideal, static, equilibrium price, the 
 normal price, and is a concept far from new in the science. 
 But up to the time of Clark, the distinction between funda- 
 mental change and temporary flux had been only vaguely 
 felt and loosely formulated.^ 
 
 But, as has already been urged, that the distinction be- 
 tween long-time and short-time influences is recognized as 
 valid and illuminating, does not deny the cost relevancy of 
 all those influences whose effect is believed to be transitory; 
 the distinction rightly employed points merely to the tempo- 
 rary nature of these costs, to the probability or the certainty 
 that they will later be greater or smaller. It is, indeed, 
 a strange doctrine that admits a cost as temporary only 
 upon the assumption that it is permanent. The distinction 
 really points the way to an investigation of the influences 
 lying behind costs, and to the level of costs which it is 
 the trend of these influences to establish. Mere seasonal 
 and climatic changes, droughts and crop failures, pesti- 
 lences, famines, whims and flurries of fashion, stand as 
 static influences which render the long-time computation 
 
 ^ "Clearly there is the necessity in economic reasoning of regard- 
 ing man as the subject and central point in economic science ; his 
 environment as his opportunity ; his industrial product as his remun- 
 eration ; his economic activity as his attempt to produce and distribute 
 this produce along the lines of least resistance (sacrifice). Normal 
 price is to be conceived as the line of least resistance not only for the 
 buyers and sellers directly engaged, but also for the producers in 
 other employments searching for those lines of activity affording the 
 highest remunerations. Market prices are found to fluctuate in either 
 direction about these normal or ideal prices and cannot, in the competi- 
 tive adjustment of sacrifice, long or widely depart therefrom. In 
 short, the normal price is that price at which no producer can, to 
 his own thinking, better employ himself in some other line of produc- 
 tion. Prices generally would stand at their normal, if no producer 
 or consumer could, to his own thinking, advantageously changie his 
 manner of economic action. But like the ocean, market values have 
 no rest. Prices ripple and wave above or below their ideal level, as 
 desires and appetites, opportunities and abilities, slowly or rapidly 
 change in force." — Davenport, op. cit., sec. 91. 
 
482 VALUE AND DISTRIBUTION 
 
 safer for purposes of understanding the larger laws of 
 price. According to Marshall, "the value of a thing in the 
 long run tends to measure its cost of production" ; not pre- 
 cisely that the value of anything tends to be fixed or 
 governed by its cost of production : "we might as 
 reasonably dispute whether it is the upper or the lower 
 blade of a pair of scissors that cuts a piece of paper ;" but, 
 "as a general rule, the shorter the period which we are con- 
 sidering, the greater must be the share of our attention 
 which we give to the influence of demand on value; and the 
 longer the period, the more important will be the influence 
 of cost of production on value" :- all of which must be rec- 
 ognized as valid, since, as we have seen, cost in one industry 
 resolves itself mostly into the demands of other industries; 
 only in the long run can these opportunity-cost influences 
 make themselves adequately felt.^ 
 
 That, as men acquire larger knowledge, strength, and 
 technical skill, they become more effective producers of 
 
 * Marshall, op. cit., pp . 428, 429 . 
 
 ' Perhaps this is as good a time as any other for working out some 
 of the detail according to which these short-time influences affect the 
 !.ong-time levels of things, and are finally absorbed into the long-time 
 placidity. What results must commonly follow some price rise in the 
 product of a particular line of industry, this rise taking place, it 
 may be assumed, through a change in the habits of consumption ? 
 
 There must first take place, in the short-time adjustment, an 
 intensified utilization of all productive appliances in that industry, 
 a recourse to some of the inferior powers of all the lands and of all 
 the other productive agents therein employed, and at the same time 
 an emphasized call upon other industries for instruments, labor, and 
 materials. 
 
 But no very great increase could be brought about in the value of 
 those productive agents existing in the largie supplies implied by the 
 mere fact of their being common to several different industries ; the 
 larger effect would be felt by those agents having, for the time being 
 at least^ an employment solely in the particular industry in question. 
 
 But this "monopoly" advantage would not work itself out fully ; 
 there are in the case important items of friction. Let it be assumed 
 that these monopoly agents are competitively rented by owners to pro- 
 ducers ; competition could hardly be so swift or so effective as, with 
 rising prices of product, fully to express the advantages in the rising 
 prices of the intermediate goods, thereby assessing these goods as 
 
THE LAWS OF RETURN 483 
 
 wealth; that, with larger and larger supplies of any con- 
 sumable good, there must go a smaller importance attach- 
 ing to each successive unit of supply ; that, upon any given 
 area of land, successive increments of product are obtain- 
 able only on terms of increasing difficulty per unit of 
 product; that, in many lines of production, the greater 
 business has, in point of economies of production, the 
 advantage over the smaller business — are propositions no 
 one of which is markedly economic or technical in import, 
 or of a nature to present overserious difficulty of compre- 
 hension, or of a character to offer especial temptations to 
 controversy. 
 
 Not precisely so, however, for the same propositions as, 
 after subjection to the necessities of economic analysis, 
 reinterpretation for the purposes of economic investigation, 
 and reformulation for the purposes of economic doctrine, 
 they present themselves transformed and rearranged into 
 the well-known "economic laws of return." 
 
 Superficially, though not thereby incorrectly, regarded, 
 the ordinary formulations of the law of diminishing return 
 may be distributed under three heads : (i) A law of falling 
 
 higher costs of production. To begin with, the machines could not be 
 easily moved or sold, and competing producers could not step into 
 possession of these monopoly appliances in their associated setting. 
 In fact, the advantages do not attach to any monopoly agent separately 
 and in isolation, but to appliances as members of a distinct producing 
 group, with a pronounced interdependency between its various con- 
 stituent members. Thus the problem of imputation within the group 
 is, at least for the short-time adjustment, incapable of solution ; prac- 
 tically speaking, the gains would appear as enhanced profits of manage- 
 ment ; but this is crude in theory. 
 
 And were the entrepreneur himself the owner of the different 
 agents, the difficulty would be precisely the same difficulty ; he could 
 not ascribe to any one agent the productive advantages enjoyed by the 
 group. The monopoly goods might be — would be — essential to the 
 situation, but so, also, would the situation as a whole be essential ; and 
 the entrepreneur's own abilities in their relation to the rest of the 
 situation would be equally essential. He could not expediently rent or 
 sell the monopoly agents ; they would not be practically mobile ; there- 
 fore no alternative application would be possible whereby to apportion 
 their shares in the group product. The problem of complementarity 
 is present in an aggravated form ; the product is simply and irreducibly 
 a group product. 
 
484 VALUE AND DISTRIBUTION 
 
 utility; (2) a law of falling product by weight and tale, a 
 diminishing productivity in terms of concrete, objective, 
 physical measures; (3) a law of falling value productivity. 
 
 1. The first formulation asserts that with successive 
 increases in the size of the productive complex, the return in 
 utility falls short of proportional increase, — obviously a 
 direct corollary from the law of satiation, if not, indeed, a 
 mere repetition of it; thus a law of unquestionable validity 
 for the purposes of the individual reckoning, and indirectly 
 of significance for problems of Crusoe valuation; but 
 equally clearly, a law only vaguely and only average-wise 
 applicable to group-utility computations; and, in any case, 
 a law relevant to market value only through the individual 
 comparison of competing utilities. 
 
 It is, however, here to be noted that, were all the dif- 
 ferent agents and instruments of production keeping 
 abreast in rapidity of increase, this fact of falling utility 
 could have no necessary bearing upon exchange relations. 
 But equally for one agent or for all agents taken collect- 
 ively, the law of diminishing utility, of falling significance 
 with relation to need, must hold, since it holds for all 
 products, unless, indeed, it is offset by the fact of increasing 
 productivity by weight and tale. 
 
 2. The law of falling volume of concrete product, rela- 
 tively to the enlarging productive complex, has evidently 
 little significance for purposes of any individual competi- 
 tive reckoning, otherwise than as the weight-and-tale aspect 
 of the case transforms itself into a value-return outcome. 
 And here, also, if all agents were manifesting the same 
 rapidity of increase, it must follow, as will later more fully 
 appear, that neither as volume nor as value need any law of 
 diminishing return obtain. 
 
 3. The third rendering of the law, as one of diminishing 
 value return, is the only formulation having direct signifi- 
 cance for any purposes of the competitive reckoning; and in 
 this regard, also, it will later appear that no matter how 
 clearly manifest the utility fall may conceivably be, there is 
 
THE LAWS OF RETURN 4^5 
 
 no possibility in industry of a generally falling value return. 
 So, upon the assumption of equality in the rates of increase 
 among productive agents, there is possible neither a dimin- 
 ishing weight-and-tale productivity nor a diminishing value 
 productivity. 
 
 Malthus and his successors long since made it clear 
 enough that, looked at solely from the point of view of the 
 land situation, the prospects of the human race are not 
 encouraging. Increasing numbers of human beings must 
 find the food problem progressively a more serious prob- 
 lem; overcrowded land is the same thing as poor land; a 
 larger and larger share of human energies must, then, with 
 expanding population be applied to the solution of the food 
 problem. The law of diminishing return for land is a 
 fundamental fact in human affairs, a fixed, opaque, and 
 brutal fact, full of bad omens and sad prophecies. 
 
 And more than this ; it is evident that but for this law of 
 diminishing return there could be no possibility of land 
 shortage, or of that inevitable derivative of land shortage, 
 rent. Thus, as with increasing population, there falls out, 
 per capita, a smaller product to divide, there must also go 
 to the landlords a larger and larger proportion of the more 
 and more tragically inadequate total. The social classes 
 disinherited of land are doomed to a double and compounded 
 pressure of adversity; this law of diminishing return 
 smites them with both edges of its sword. 
 
 But the optimists also have their innings. All this 
 would be true, other things remaining the same. But 
 other things are not to remain the same; for if 
 there is a law of diminishing return, there is also, it is 
 said, a law of increasing return. If, with relative 
 land famine, a larger share of the productive energies at 
 human disposal must be applied to the land, it will also be 
 true that, with improving methods and processes in manu- 
 factures, we can spare for the land a larger share of our 
 productive energies. Who knows that progress in one 
 
486 VALUE AND DISTRIBUTION 
 
 direction may not more than make good the deficit in the 
 other direction? 
 
 And not this alone ; progress is possible and is probable, 
 not only in the technique of non-agricultural production, 
 but also in agricultural production itself. Progress of this 
 very sort has indeed been rapid even without the increasing 
 pressure of need. For what has been the meaning of the 
 redistributions of population especially characterizing the 
 last two centuries? The urban population has far out- 
 stripped in rapidity of increase the agricultural population. 
 The growth of the small city as against the country, and 
 of the great city as against the small city is one of the 
 most obtrusive facts of modern life; the new and agri- 
 cultural countries like America and Australia, equally with 
 the older countries, manifest these population redistribu- 
 tions ; and on the other hand, in point of the degree of the 
 tendency, the thickly populated countries of Europe fall 
 not at all behind the sparsely and newly settled countries. 
 City growth is general in the modern world. 
 
 Why is it? It is fruitless to search for the fundamental 
 explanation in the improvement of industrial processes. 
 Only such men can work in manufacturing as can be 
 spared from the processes of food production. As long 
 as the food product from one man's labor sufficed for the 
 food requirement of only one man, the entire population 
 was compelled to occupy itself with agriculture; when 
 now one man's labor will feed three men, two-thirds of the 
 population may be urban. So also, the development of 
 transportation serves for the most part to explain, not why 
 so large a proportion of the population is now agricul- 
 tural, but only the distribution of the non-agricultural 
 population. To the extent solely that transportation has 
 opened up more land or better grades of land to agri- 
 cultural uses, or is itself to be ranked as one of the pro- 
 cesses of agricultural production, is transportation respon- 
 sible for the growth of non-agricultural employment. And 
 precisely here it should be remarked that to the extent 
 
THE LAWS OF RETURN 487 
 
 that, in the production of implements and appHances, 
 manufacturing ,is itself an agricultural process, to pre- 
 cisely this extent industrial improvement must have aided 
 the relative growth of the urban population. 
 
 Improving transportation, then, so far as it is not at the 
 same time to be regarded as improving agriculture, has 
 had its effect, not in emphasizing the growth of urban 
 as against agricultural population, but in fostering the 
 growth of the small city as against the village and of the 
 great city as against the small city. 
 
 Looked at from a more distinctly technological point of 
 view, this truth would read that transportation has fostered 
 the giant industry as over against many small competing 
 units. 
 
 Malthus in his formulation of the law of diminishing 
 return for land was very plainly proceeding from a purely 
 social and general point of view, rather than from the 
 point of view of the -distinct and independent and com- 
 petitive interest. That the law of increasing return, con- 
 ceived as summing up the optimistic offsets in the social 
 outlook, is equally a non-competitive formulation is equally 
 clear. 
 
 But, after all, what part, if any, of all this raw material 
 of optimism is, accurately speaking, embraced within the 
 economic law of increasing return? So far, all the 
 "returns" suggested have sounded in terms of social service 
 — of group or race utility, of quantum of productivity by 
 measure of concrete item product, a purely weight-and- 
 tale standard and basis of computation. And it is unques- 
 tionable that, for certain purposes and from certain points 
 of view, this interpretation of the laws of return is not 
 merely a possible one, but is the sole interpretation either 
 relevant or possible. But it is equally beyond question that, 
 for certain other points of view and for certain other com- 
 putations, measures of utility return at the one extreme 
 and of value return at the other extreme are much more to 
 
488 VALUE AND DISTRIBUTION 
 
 the point. For most purposes in the competitive reckon- 
 ing only laws of value return can have significance. 
 
 But does the law of increasing return, accurately- 
 formulated, have exclusive reference to such industrial 
 effects as are idue to the development of the human fac- 
 tor in production, whether in physical efficiency, in native 
 mental power, in zeal and persistency of effort, in scientific 
 knowledge, in control of technological methods and appli- 
 ances, or, finally, in the advantages and methods of "team 
 play" as exhibited in higher forms of organization? That 
 is to say, does the law merely affirm that the better the pro- 
 ducer the larger the aggregate social product, precisely as 
 in the Malthusian reasoning it is asserted that the less 
 adequate in quantity or quality the land the smaller the 
 return to human activity applied to the land? 
 
 But, so interpreted, the law of increasing return applies, 
 equally with the law of diminishing return, to agriculture; 
 and the law of diminishing return applies, equally with 
 increasing return, to manufacturing. Agriculture bene- 
 fits by good appliances, by good transportation, and by 
 zeal and care and intelligence in supervision and in organi- 
 zation; manufacturing suffers by every inadequacy of 
 equipment. 
 
 Or does the law of increasing return assert that some- 
 how, as manufacturing in the aggregate comes to employ 
 more men (or more capital?), it makes more than pro- 
 portionate increase in its weight-and-tale productivity? 
 So understood — and irrespective of the effect of concentra- 
 tion into larger and larger productive units — there is only 
 so much in the doctrine as may be implied through the 
 division and specialization of employment between indus- 
 tries ; and here again, the principle applies unequally to 
 different manufacturing industries, and while perhaps 
 applying more noticeably to manufactures as a whole than 
 to agriculture as a whole, applies to some branches of agri- 
 culture in higher degree than to some branches of manu- 
 facture. 
 
THE LAWS OF RETURN 489 
 
 Or does the law in question assert that, with organiza- 
 tion into larger production units, there results an increase 
 in the weight-and-tale productivity of manufacturing 
 industries in the aggregate? Here again, the advocates of 
 la grande culture in England or among the bonanza farm- 
 ers of the Northwest would insist that the law is also in 
 degree an agricultural law.* 
 
 Or is the law to the effect that, among competing units 
 of production, the relatively large competitor has the rela- 
 tively large weight-and-tale product? 
 
 Or does the law run that among competing producers 
 the relatively large units get better results in value product 
 in proportion to the value outlays of production? 
 
 And if by chance the law be interpreted in this com- 
 petitive and value sense, is it to be taken to compare the 
 average entrepreneur costs and average value produc- 
 tivity of different units of production, or rather only their 
 marginal value costs and their marginal value productivity? 
 
 And this leads us to the question whether the law is 
 framed as primarily of service in the determination of 
 comparative profits and thereby as explaining the trend 
 
 * Carver makes the following especially illuminating observation : 
 "Confusion has sometimes resulted from a failure to distinguish the 
 law of diminishing return from a somewhat similar law relating to 
 the comparative economy of large- and small-scale production. It is, 
 for example, sometimes stated that manufacturing is carried on under 
 the law of increasing return, because a large factory can be run more 
 economically and turn out product at a lower cost, than can a small 
 one. But this is quite different from saying that a large factory can 
 be run more economically than a small one on a given piece of land, 
 or that it would not be necessary to use more land in connection with 
 
 a large factory than with a small one of the same kind 
 
 Among the various questions on which the manager of such a unit has 
 to determine are the two following : ( i ) What is the best proportion 
 in which to combine the various factors; (2) What is the best size 
 for the whole business unit? The law of diminishing return has to 
 do with only the former of these questions. That is to say, it 
 relates to the varying productivity of an industrial unit when the 
 factors are combined in varying proportions. [Concrete productivity? 
 Value productivity?] On the other hand the law which relates to the 
 comparative productivity of large- and small-scale production has to do 
 primarily with the size of the unit." — The Distribution of Wealth, 
 pp. 64, 65. 
 
490 VALUE AND DISTRIBUTION 
 
 of industry toward the giant organization, or rather as 
 explaining the bearing of giant organization upon market 
 prices, and as explaining also the relation of these market 
 prices to the productivity and the remunerations of the 
 various productive agents. 
 
 At any rate, the law can hardly be one of increasing 
 proportional value productivity with increasing size of the 
 productive unit, unless the law is taken to apply not to 
 industries taken as a group aggregate, but to the competing 
 industries inside the group ; for it may readily be true that 
 the organization of any industry into the giant form should 
 so reduce its costs that even with an expanding product by 
 weight and tale, the aggregate value of the product should 
 be a diminished one; and this might hold of manufactures 
 as a whole as over against agriculture as a whole. 
 
 Nor can the law rightly mean that greater value pro- 
 ductiveness goes, per unit of expense, with increasing size. 
 This is not necessarily true ; it is safe to assert only that to 
 the greater industrial unit goes the relatively greater profit. 
 For, where the elasticity of consumption is not great, and 
 where competition among rival businesses is close, lower 
 prices may obtain to an extent to bring a lower value pro- 
 ductiveness for each, and a generally lower average of 
 profits; and yet it may remain true that the greater units 
 suffer least, that to the larger units there accrues a relative 
 advantage. 
 
 Or does the law run only to the effect that, in 
 industries of heavy investment and heavy fixed charges, 
 the extra cost of successive items of product is 
 less than proportional to the increase of product, 
 a law which, as of necessity, says nothing as to 
 the aggregate increase in value going with the increase 
 of product, but leaves it possible to be assumed that the 
 entrepreneur will limit his product at the point where the 
 extra expense of production, together with the falling 
 prices upon the original output, balances the extra value 
 represented in the added items? 
 
THE LAWS OF RETURN 49 1 
 
 If this last is the significance of the law, a danger 
 signal is called for; monopoly production would, it is true, 
 follow the policy outHned; but with competing producers 
 really competing, there is, as trust promoters and trust 
 apologists have correctly urged, and as the influences 
 behind railroad pooling fully illustrate, no such assurance; 
 competition may bring prices down nearly or quite to the 
 level of the costs of the extra product, practically canceling 
 the earning power of the fixed-charge portion of the 
 investment.^ 
 
 It appears, then, that to find what there really is in this 
 law of increasing return it is necessary rigidly to exclude 
 all influences of improving technique, developing human 
 beings, and all influences ranking under increasing demand 
 for products, and to confine ourselves to the sheer com- 
 petitive advantages of combination and concentration, 
 (i) for increased weight-and-tale product per unit of 
 expense, (2) for increased value product per unit of 
 expense. Evidently (i) may be found without (2), though 
 (2) is impossible in the absence of (i). 
 
 Note that no a-priori reason exists why this law of 
 increasing return might not characterize all industries. If 
 it does not, or if it does so unequally, the reason must be 
 sought in the peculiar nature of the industries in question. 
 The law may fail to hold with certain industries, because 
 by the nature of the instruments which they employ, or of 
 the processes required, e. g., as with land, the business unit 
 cannot greatly increase, the giant organization being 
 impracticable; or the market may be of so limited powers 
 of consumption as to render giant organization impossible. 
 
 At any rate, the law is not one referring by necessity 
 to the interdependence of factors or to the constitution of 
 the business unit in respect to the factors included. The 
 law might hold for one industry almost exclusively labor- 
 employing, or land-employing, or machine-employing. For 
 
 • Cf. Marshall, op. cit., pp. 448, 449 . 
 
49^ VALUE AND DISTRIBUTION 
 
 the purposes of the law more labor may apply itself to 
 labor as well as to land or capital; or the advantage of 
 increasing size may be obtained by adding more capital 
 goods to an existing capital undertaking, or by adding 
 more acres of land to the acres already employed. 
 
 The law of diminishing return is perhaps even more 
 difficult of making precise and definite. There is the same 
 tendency to oscillate between value formulations or impli- 
 cations and the weight-and-tale type of concept. Malthus, 
 as we have seen, gave to the doctrine a distinctly social 
 significance, and thereby of necessity a definitely weight- 
 and-tale type of formulation. 
 
 But earlier than the time of Malthus' formulation of 
 the law in terms of population and subsistence, the problem 
 of agricultural returns had received thoughtful and 
 authoritative consideration, wherein the two aspects of the 
 law so hopelessly confused in later discussion attained 
 some measure of vague differentiation. 
 
 Cantillon, for example, though regarding the prob- 
 lem as, on the outlay side, one of labor units of investment, 
 had yet, in prophetic anticipation of Physiocratic doctrine, 
 rendered over this labor into terms of value cost according 
 to the quantum of subsistence material, land-productive 
 power, embodied in these units. It is, however, true that 
 the significance of labor in the case is for the most part 
 regarded as measurable in units of time. 
 
 But with Quesnay the talk is, on the cost side, wholly 
 of labor and capital conceived as reduced to an entre- 
 preneur common denominator, and as aggregated under 
 the head of "depense," a competitive formulation and a 
 value rendering; at the same time, the return, the produit 
 net, is conceived as a value surplus over the invested capital 
 outlay. 
 
 Malthus' doctrine was evidently not directed to the elu- 
 cidation of the law of rent, and was formulated in advance 
 of any well-considered and widely accepted doctrine upon 
 
THE LAWS OF RETURN 493 
 
 the land-rent problem. Mostly, perhaps, because the dis- 
 cussion was innocent of rental connotations, the formula- 
 tion was consistent and free from confusion. But in later 
 discussion, and especially since there has appeared to 
 exist a close relation between diminishing return and the 
 rent-cost issue, there has prevailed an almost uninterrupted 
 confusion." 
 
 But all of this should become clearer after a catalogue 
 of the different concepts of diminishing returns has been 
 attempted and an analysis of these concepts completed. 
 
 I. Based upon the law of satiety applicable to any stock 
 of consumption goods in the hands of any single indi- 
 
 ° Proof of this assertion is in the nature of the case almost 
 impossible of giving; some random citations out of the latest of 
 economic literature are, however, offered : 
 
 "The law of diminishing returns is simply a part of the general 
 observation that the product [concrete product? value product?] of 
 any given piece of land does not .... bear a constant ratio to the 
 amount of labor [time sum? pain sum? value sum?] and capital [how 
 are labor and capital aggregated?] used in producing it." — Carver, 
 Distribution, p. 55. 
 
 "Though large applications of labor and capital may continue to 
 produce larger crops, the crops will not be as large in proportion to the 
 labor and capital." — Ibid., p. 56. [The weight-and-tale aspect of the 
 crop is here compared with labor somehow measured, plus capital of 
 some sort or other somehow reduced to homogeneity with the labor.] 
 
 And on pages 58, 59, and 60 of the same work the tables given 
 make comparisons between "days' labor with man and tools" and 
 bushels of product, and state the results in "bushels per day's labor." 
 
 But on page 60 the value formulation of the law is presented : 
 "Whenever you find a competent farmer devoting a part of his labor 
 and capital [how united?] to the growing of any crop on more than 
 one grade of land, you may be sure that he thinks it pays better to 
 do so than to concentrate all his energies on his best land." 
 
 However, later on the same page the discussion lapses into the 
 other concept : "We shall find by comparing the two tables, that if 
 he had only twenty days' labor to use, he could get more bushels by 
 concentrating them all on his best field" [time vs. bushels] . 
 
 "The law of diminishing returns relates to the amount [ ?] which 
 can be produced on a given piece of land [area?] by varying amounts 
 
 of labor and capital [ ?] After a certain point, the amount 
 
 that can be produced on any given piece of land does not increase in 
 proportion to the labor and capital used." — Ibid., pp. 63, 64. 
 
 Entirely justifiably Carver takes issue with Bullock (cf. "The 
 Variation of Productive Forces," Quarterly Journal of Economics, 
 August, 1902), in regarding the law of diminishing returns as applicable 
 
494 
 
 VALUE AND DISTRIBUTION 
 
 vidual, and upon the derived concept of marginal utility, 
 there has been, as we have already seen, somehow deduced 
 
 not only to land but to all forms of combinations of productive factors ; 
 Carver says upon this point : "A complete formula which should show 
 every possible application of this extension of the law of diminishing 
 returns would require a separate term for each and every kind of 
 
 labor, land, and capital The following simple formula will 
 
 have to suffice : 
 
 > c^ ►« 
 
 SB!? O- 
 
 
 If 
 
 X with Y will produce P 
 
 Then X with aY will produce 
 
 And aX with aY will produce 
 
 more than aP (increasing returns) 
 less than aP (diminishing returns) 
 
 (Increasing economy of 
 more than aP \ large - scale produc- 
 tion) 
 (Diminishing economy 
 less than aP \ of large-scale produc- 
 tion) 
 
 "It is assumed that a is a positive quantity greater than i" 
 (p. 66). But a of what? and I of what? We seem to meet here 
 land as superficies, plus labor and land somehow aggregated, and the 
 whole set over against weight-and-tale product. So on pages go 
 and 9 1 : 
 
 "There is another factor .... with which we must reckon, and 
 to which we may give the name of management. An industrial estab- 
 lishment is a combination of various factors under one management, 
 and the question of large- or small-scale production becomes, there- 
 fore, a question of the proportion between the factor called manage- 
 ment, on the one hand, and all the other factors, on the other. [The] 
 formula .... which was given as an expression for the law of 
 increasing or decreasing economy of large-scale production, may be 
 modified as follows, to take account of this new factor: 
 
 If M with X with Y with Z will produce P 
 
 ( (Increasing economy 
 more than aP -j of large-scale pro- 
 Then M with aX with aY with aZ ) ( duction) 
 
 will produce ) ( (Decreasing econo- 
 
 less than aP \ my of large-scale 
 
 ( production;. " 
 
 The following quotations illustrate, within the limits of the para- 
 
THE LAWS OF RETURN 495 
 
 a law of falling market price in society for any increas- 
 ing supply of consumption goods. The haziness of reason- 
 graph quoted, a shift from one point of view to the other ; questions 
 of "pay" are value questions, not "amount" questions: 
 
 "An increase in the amount of labor on a given amount of land 
 will never, in any normal case, increase the product as much as the 
 labor is increased. That is to say, except on the frontier, it always 
 pays to cultivate land beyond the point where diminishing returns 
 begin, if it pays to cultivate it at all, but it never pays to cultivate it 
 up to the point where an increase in the labor would yield no increase 
 in the gross product" (p. 73). "Similarly .... an increase in the 
 amount of land with such given amount of labor will always increase 
 the gross product. But since so little land is never profitably used in 
 connection with a given amount of labor as to produce the maximum 
 per unit of land, it follows that, in any normal case, an increase in the 
 land with such given amount of labor will not increase the product as 
 much as the land is increased" (p. 74). 
 
 In other cases the argument goes clearly over to the value-return 
 point of view; for evidently there can be no talk of substituting one 
 factor for another, or of the proper proportions of the different factors 
 in combination, excepting upon the value-return basis : 
 
 "Where each factor costs something it always pays to combine 
 them in such proportions that if any one or two of them were increased 
 it would increase the product, but not so much as the variable factor, 
 
 or factors, were increased But what is the most profitable 
 
 proportion in which to combine the various factors of production? 
 
 As already suggested, this depends upon their relative cost 
 
 There are, for example, several ways to grow a hundred bushels of 
 corn. One is to use much labor with little land, making the land pro- 
 duce a heavy crop, but getting a small product per unit of labor. 
 Another is to use little labor with much land but enabling the labor 
 
 to produce a larger amount per unit Where land is dear 
 
 and labor cheap, the former is the better method ; but where land is 
 
 cheap and labor dear, the latter method is better The 
 
 question which is the better method depends upon the relative cost of 
 the two factors" (pp. 76, 78). 
 
 Seager's formal statement of the law reads as one of labor and 
 capital set over against concrete product : "After a certain point has 
 been passed in the cultivation of an acre of land or the exploitation 
 of a mine, increased applications of labor and capital yield less than 
 
 proportionate returns in product Possible improvement in 
 
 the method of cultivation beyond the roughest scratching over of the 
 soil may and probably will yield more than proportionate returns in the 
 wheat crop, but after a certain point has been passed, all experience 
 confirms the law that further improvements aiiford less than propor- 
 tionate retarns."— —Introduction, pp. 114, 115. But the more accurate 
 rendering is elsewhere, but less formally, presented : "The final 'doses' 
 of labor and capital he applies to his land may be just paid for in the 
 price he gets for the additional produce that results from them. It is 
 to his interest to continue his cultivation so long as it is remunerative. 
 But all earlier applications of labor and capital will be more than 
 
496 VALUE AND DISTRIBUTION 
 
 ing bv which has been achieved this affihation of demand 
 price upon marginal utiHty, and of falling individual 
 demand price upon falling personal marginal utility, and 
 of market price upon some assumed social marginal utility, 
 need not here again concern us. But the further step by 
 which have been worked out a falling marginal significance 
 and a falling marginal demand price for increasing sup- 
 plies of productive instruments, requires especial attention 
 at this point. 
 
 The law of falling price with increasing supplies of con- 
 sumption goods holds in its usual formulation only because 
 the demand schedule with any one line of consumption 
 goods may be taken as a fixed fact; new supplies can be 
 
 covered by the price received for what they added to the product" 
 (p. 117). 
 
 Seligman : "In the case of agricultural land .... additional 
 doses of capital and labor will yield a relatively smaller produce." — 
 Principles, p. 306. "Whenever double the amount of exertion yields 
 more than double the amount of output, we are in presence of the 
 law of increasing returns or decreasing cost. When double the exer- 
 tion just doubles the output, we have the law of constant returns or 
 constant cost" (p. 250). 
 
 Gide {Principes d'Economie Politique, sixieme ed., p. 132) states 
 in one formulation both laws, that of produce return and that of value 
 return, seemingly upon the assumption that they are really one and 
 that it does not particularly matter whether quantity of labor be 
 compared with value of product or quantity of product be compared 
 with value of labor : "Sans doute il n'est peut-etre pas une seule terre 
 dont I'agriculteur ne put, a la rigeur, accroitre le rendement : seulement, 
 passe un certain stage de I'industrie agricole, il ne peut le faire qu'au 
 prix d'un travail qui va croissant, en sorte qu'il arrive un moment ou 
 I'efifort a exercer pour forcer le rendement serait hors de proportion 
 avec le resultat. Soit un hectare de terre qui produit 15 hectolitres de 
 
 ble Supposons que ces 15 hect. de ble representent 100 
 
 journees de travail ou, si Ton prefere s'exprimer de la sorte, repre- 
 sentent 300 francs de frais ; la proposition revient a dire que pour 
 faire produire a cette terre deux fois plus de ble, soit 30 hect., il 
 faudra depenser phis de 200 journees de travail ou plus de 200 francs 
 de frais. Pour doubler le produit, il faudra peut-etre tripler, peut-etre 
 quadrupler, peut-etre meme decupler le travail et les frais. C'est la 
 ce qu'on appelle la loi du rendement nonproportional (nonproportionel 
 au travail)." 
 
 Flux's rendering of the law, while ambiguous for the purposes in 
 hand, may, it must be admitted, easily be interpreted into accuracy : 
 
THE LAWS OF RETURN 497 
 
 marketed only on terms of such price as will tap lower 
 levels of price-pa3'ing disposition. If, however, the increase 
 is one of a productive agent, there results a new and larger 
 volume of value product and a rearrangement of the condi- 
 tions of demand ; the new level of remuneration is to be 
 worked out only as the outcome of a new problem of dis- 
 tribution, upon the assumption of a new volume of value 
 product to be imputed to a new and a rearranged and read- 
 justed set of productive agents. So, then, with popula- 
 tion increasing relatively to the other factors, there may be 
 expected a fall in the level of wages, but this only by virtue 
 of two influences, (i) a less than proportional increase in 
 the product to be distributed, (2) less favorable terms of 
 distribution for labor relatively to the other agents con- 
 cerned in the technological process. The rule and the rea- 
 
 "Increase of labor and capital devoted to the cultivation of a given 
 piece of land will, at any rate after a certain degree of thoroughness 
 of cultivation is exceeded, result in increased product, indeed, but that 
 increase will be in a constantly decreasing proportion to the labor and 
 capital to which it is due." — Economic Principles, p. 98. 
 
 In the main and in general purport Fetter's formulation sounds 
 consistently as one of value expenditure over against value return ; 
 as, e. g. : "Economic diminishing return always has reference to 
 value. If a particular kind and amount of a certain material is used 
 in varying combinations with other agents, the value of the added 
 product will not always be in the same proportion to the value of the 
 added agent. The bridge-builder must consider not only what the 
 . added material will add to strength, but what it will cost, and whether 
 the result will justify the expense. So the economic problem of 
 diminishing returns is more complicated than the mechanical one" 
 {Principles, p. 64). But it is none the less true that the discussion is 
 always near to the point of dropping into utility calculations ; as, for 
 example, on page 61 : "The phrase 'diminishingi returns of industrial 
 agents,' is the expression of the fact that there is an elastic limit to 
 the utility any indirect good can afford within a given time." And 
 again upon page 71 : "Diminishing return of indirect agents is a 
 special case of the universal law of the diminishing utility of goods. 
 Diminishing return has to do with indirect goods, while diminishing 
 gratification has to do with direct or consumption goods. They are two 
 
 species or aspects of the same general principle Any indirect 
 
 agent, added to a fixed amount of other ag(ents with which it is techni- 
 cally used, is credited with a diminished utility, just as an additional 
 supply of enjoyable goods coming to meet a fixed demand, falls in 
 value." 
 
498 VALUE AND DISTRIBUTION 
 
 soning valid for increasing supplies of consumption goods 
 will not hold for production goods.'' 
 
 II. The Malthusian rendering of the law of diminish- 
 ing returns has no concern with any principle of rising or 
 falling utility or of rising or falling price, as supplies of 
 consumption goods may either expand or contract. The 
 assertion is merely that successive increments of labor 
 applied to a fixed area of land must be remunerated by a 
 less than proportional increase in objective, concrete, 
 material output: 
 
 This law is purely a derivative from the technology of 
 agriculture; if economic at all, it is only borrowedly so; 
 it conceives labor roughly in terms of time, or, possibly, 
 in units of effort or stress or pain, but certainly not in 
 terms of value measures or of wage outlays. Nor is the 
 product thought of as in any sense a value aggregate; nor 
 are possible distributive bearings relevant to the distinctly 
 and exclusively social significance of the point of view. 
 The tacit assumptions are ( i ) that land is present in unchan- 
 ging quantities and qualities; (2) that labor, unmodified in 
 quality but increasing in quantity, must apply itself to the 
 fixed land situation. The law signifies merely that in agri- 
 cultural production different productive factors are required ; 
 with sparse population some of these factors are gratuitously 
 present ; with denser population production comes to depend 
 more and more upon the non-gratuitous factors, that is, 
 upon labor directly or upon stored-up wealth; all of which 
 sums up to mean that for all social purposes crowded land 
 is synonymous with poor land. 
 
 III. That successive increments of labor and capital, 
 applied to a fixed area of land, must be rewarded by, a less 
 than- proportionate increase in zveight-and-tale product: 
 
 '' As will later be pointed out the prevailing classification of 
 productive factors is a most dubious one, even for dynamic problems ; 
 and particularly is it unsafe to assume that labor may be treated 
 in the lump or aggregate, without distinction of grades or occupations. 
 But for present purposes these considerations are, perhaps, not 
 especially significant. 
 
THE LAWS OF RETURN 499 
 
 This is a law midway in transition from a social and 
 material computation to a competitive and value computa- 
 tion. Precisely how labor and capital are to be aggregated, 
 whether upon a value basis, or upon the notion simply that 
 capital is merely indirect labor, and how, if the value 
 aspect of the labor and capital is accepted, they are con- 
 ceived to be related to the land as mere area, and how labor 
 value and capital value and land value are competitively 
 relevant to weight-and-tale product, are evidently past know- 
 ing. The law is one of muddled thinking. 
 
 IV. That zvith an increasing money quantum of costs 
 upon a fixed area of land goes a weight-and-tale product 
 less than proportional to the increasing money costs: 
 
 This law is manifestly one of more nearly completed 
 transition to a value basis. It assumes the land area as 
 fixed and, together with this, a fixed entrepreneur activity 
 of supervision ; and it conceives the application of pro- 
 ductive energies in terms of value outlay; and it abandons 
 any distinction, for its purpose, between capital outlays for 
 labor, and capital outlays for instrumental goods ; but it is 
 not at all clear that either the fixed land area or the fixed 
 entrepreneur activity has been carried over into a value 
 rendering; the product remains a non- value fact, though it 
 would be an easy step to carry this over into the value 
 denominator, by assuming that the same price level holds 
 for the new product as for the old.^ 
 
 V. That upon a fixed area of land, an increasing 
 expense outlay, with fixed entrepreneur activity of super- 
 
 ^ In this general field of analysis, by far the best work known to 
 the present writer is that of Professor Commons in his Distribution of 
 Wealth (Macmillan, 1893). The following passages especially deserve 
 citation in this connection : 
 
 "The land-owner does not produce goods for his own consumption, 
 but for sale. Hence his land is valuable to him in proportion to the 
 
 exchange value of the product A given area of land does 
 
 not usually afford room for the production of so large a supply of 
 gioods as to affect the general supply of those goods. The prices of 
 products are determined by the general forces of society, operating 
 throughout the world So far, then, as the given area is con- 
 cerned, the price per unit of its product changes so little that we may 
 
500 VALUE AND DISTRIBUTION 
 
 vision, is not remunerated with a proportional increase of 
 value product: 
 
 Here the adoption of value outlay as over against value 
 product is approximately complete; nevertheless, the land 
 fact and the supervision fact are not fully assimilated to 
 the value reckoning. Capital is conceived as invested 
 indifferently in labor or in instrument hire, but not in land 
 hire; that is, the constitution of the production complex 
 is labor value-|-capital value-f-land area-|-entrepreneur ac- 
 tivity; these, as combined in the productive process, give 
 somehow a value product. 
 
 VI. That with a fixed investment in land, an entrepre- 
 neur cannot, with successive increments of capital outlay, 
 obtain increases of product proportional in value to the 
 increase in capital expense: 
 
 Here all factors in the production complex, with the 
 exception of entrepreneur activity of supervision, are 
 reduced to the capital-value denominator. But both land 
 value and entrepreneur activity are conceived as constants. 
 
 VH. That with fixed and valued investment in land, 
 and with fixed and valued entrepreneur activity in pro- 
 duction, successive additions of expense for labor or for 
 instrumental goods or for both are remunerated by less 
 than proportional additions to the value product: 
 
 regard it as fixed and constant. Tiie total value of its product varies, 
 therefore, exactly in proportion to the quantity of the product, and as 
 this is subject to the law of diminishing returns, so also must be its 
 value" (p. 138). 
 
 "The reason why average returns are not as high .... is 
 because successive increments yield a less return than would the single 
 increment if it were the only one invested. In other words, the concep- 
 tion of diminishing returns has reference to a possible set of circum- 
 stances showing what would occur under other conditions, when 
 
 investments might be increased or diminished Where twenty 
 
 laborers are employed with an aggregate product of 3,200 bushels, and 
 an average product of 160 bushels, if we should ascribe to the first ten 
 laborers a product of 200 bushels each, to the next two, a product of 
 140 bushels each, and to the last five, 100 bushels each .... this is 
 not the actual product of the different laborers, since they all possess 
 equal efficiency ; but from an analogy with what they tvould produce 
 under the different conditions .... we are justified in dividing up 
 the aggregate product in this manner" (pp. 152, 153). 
 
THE LAWS OF RETURN 5°! 
 
 Subjected to reinterpretation, this appears to mean no 
 more than if vahie-wise you double only a part of your 
 outlays of production, you will fall more or less short of 
 doubling- the value output, a proposition not seriously 
 questionable as doctrine and not especially fertile of new 
 truth. There is also to be noted, in passing, the assumption 
 made — an assumption common to practically all discussion 
 in this connection — that the costs imposed upon entrepre- 
 neur capital in the productive process are actually and 
 necessarily restricted to four directions of expenditure, 
 land hire, capital hire, labor hire, and supervision charge. 
 
 VIII. A law of rising costs of production generally and 
 of rising market prices for land products, with increasing 
 population: 
 
 It is assumed that with increasing population there 
 must go an increasing land scarcity; and it is assumed, 
 in addition, that, because of the relatively inelastic quality 
 of this increased consumption need, production must take 
 place at a high level of entrepreneur cost, and that this 
 production will cease only at the point where the neces- 
 sary cost outweighs the possible price; and that in the 
 process of adjusting and distributing the outlays, the 
 increased selling-price of the product will mostly go for the 
 services of these necessary agents which, relatively to the 
 increasing demand, are assumed to have become relatively 
 scarce, e. g., the land. 
 
 That is to say, this formulation of the law conceives of 
 all entrepreneur debits against production as equally costs 
 of production under the value measure; in other words, it 
 reduces land hires and all other hires, together with the 
 entrepreneur's own necessary remuneration, to the value 
 statement as supply-limiting resistances offered to entre- 
 preneur activity as applied to this particular line of produc- 
 tion. 
 
 But this formulation, while not open to attack for inaccu- 
 racy or for lack of business actuality, is evidently a formu- 
 lation which assumes, as fundamental to the entrepreneur 
 
502 VALUE AND DISTRIBUTION 
 
 computation, an existing system of value costs, and, among 
 other things, assumes such action of distributive forces as 
 have attributed a high rent, a value hire, to the better 
 qualities of land, and this by very virtue of the fact that 
 these better qualities of land excuse the producer from 
 high alternative expenses for other productive agents. 
 That is to say, this law reports the results of an economic 
 analysis instead of contributing to such an analysis; it is 
 a law summarizing distributive results rather than a law of 
 production making toward an ultimate solution of the value 
 problem ; in last analysis, it is a law of value determination 
 only in so far as it points to the underlying and funda- 
 mental conditions determinative of entrepreneur activity, 
 entrepreneur costs, and entrepreneur value adjustments. 
 The relative scarcity of those agents requisite for certain 
 products is the ultimate explanation — on the cost side — for 
 the relatively high exchange position of those products. 
 These higi; values are, in point of process, reached and 
 adjusted as the outcome of the entrepreneur system of 
 production; in the course of the process, as means to the 
 result, and as motived by the result, there come to be 
 imputed to the scarce agents, under entrepreneur bidding, 
 their high rental and sale values. 
 
 IX, That with increasing population there go in agri- 
 culture increasingly large value outlays by the entrepre- 
 neur, relatively to the value product: 
 
 But if this is true, it must be true only as based upon 
 some distributive analysis not contained in the law and not 
 in terms appealed to by the law. On the face of it, there 
 appears to be no reason why, with increasing population, 
 agriculture should become less profitable to the entrepre- 
 neur cultivator. If his costs, rent and other, become in the 
 aggregate higher, so might also the value of his products be 
 higher : or his wage outlays might be lower, though this 
 again, if true, must deduce its warrant from some source 
 outside the law, — by appeal, perhaps, to the same distribu- 
 tive analysis as that upon which the law itself is based. 
 
THE LAWS OF RETURN 503 
 
 Why, indeed, must rent be higher, or, if higher, the other 
 distributive shares also lower ? The law — valid doubtless — is 
 distributive in tenor ; land receives its larger ratio of the 
 value product, but this depends as much upon the peculiari- 
 ties of the demand for the product as upon the technological 
 conditions of its production. With some commodities, 
 indeed, increasing difficulty in production cancels all 
 the value of the agent. That there could be no land 
 scarcity but for the limited productive powers of any 
 limited area of land; that is, that high rents could not exist 
 in the absence of the technological fact of the diminishing 
 responsiveness of land, leaves it, in the absence of other 
 conditions, still possible that rent should fall with the 
 diminishing weight-and-tale return. This form of the law 
 of diminishing return is, then, not so much a law illumi- 
 nating other problems as deriving illumination from other 
 solutions; and all laws either of diminishing or of increas- 
 ing value return are necessarily of this sort. 
 
 X. That with increasing population there goes in agri- 
 culture an increasing entrepreneur value outlay relatively 
 to weight-and-tale product: 
 
 A useless formulation excepting as working out to the 
 purport of law VIII, viz., that the product being, rela- 
 tively to costs, smaller in value, the price per unit must be 
 higher. 
 
 XL That with increasing population there goes a higher 
 rental and exchange value for land: 
 
 The same assumption of progressive land scarcity is 
 made here as in VIII ; the law is, indeed, in some respects 
 practically a restatement of VIII, but with some difference 
 in emphasis. Underlying either law is the assumption that 
 the food demand increases in approximate proportion to 
 the increase in population, that despite the fact that labor 
 and capital are contributory factors, their relation to land 
 is rather complementary than substitutional, and that thereby 
 the emphasis of demand falls upon land as productive 
 instrument. 
 
504 VALUE AND DISTRIBUTION 
 
 And it is to be noted that, together with increasing 
 population, there is taken to go without saying an increased 
 supply of labor effectiveness, and, almost without saying, 
 an increased aggregate of instrumental goads — ^techno- 
 logical capital. But, in fact, were the average quality of 
 labor so much deteriorated as to amount in the aggregate to 
 no increase in labor power and as to permit no increase of 
 instrumental goods, it would still be true, the food require- 
 ment being taken as increasing with the numerical increase 
 in population, that the emphasis of demand would rest 
 upon land. All lines of product would suffer in output, 
 but non-food lines more markedly than food lines, and this 
 primarily because of so high a value upon food as to dis- 
 place, in some measure, other lines of production, to widen 
 the land-value differentials above the marginal powers, and 
 to give high rental values to the land. 
 
 But, if so, there must be behind all this the tacit condi- 
 tion or assumption that the demand for agricultural products 
 traces back to an especially inelastic quality of consumption. 
 If with a doubled population, land powers being 
 assumed to be fixed, there went no increase of labor power 
 or of capital power, there could be no increase of land 
 emphasis, if only it were as easy to cut down food con- 
 sumption as other consumption. 
 
 But still more important, because more actual, is the 
 possibility that with the increase in population should go 
 a more than proportional increase in the per-capita effi- 
 ciency of men as wealth-producers : what then ? The pres- 
 ent rendering of the law appears to say that, with the 
 factors of production other than land outstripping land in 
 rate of increase, those products markedly of land origin 
 will rise in value, and that therewith will also rise the rent 
 and the value of the unit area of land. 
 
 But inasmuch as land is not the only productive factor 
 in agriculture, it must be recognized that the demand for 
 agricultural products is at the same time a demand for 
 non-land instruments of production, that is to say, a demand 
 
THE LAWS OF RETURN 505 
 
 for labor and capital. Therefore, were it true that labor 
 and capital were in the main substitutionary rather than 
 complementary in their technological relations to land in 
 agricultural production, there could be no such redistri- 
 bution of production-distribution advantages as is implied 
 in the law as formulated. Thus, also, if it were true of 
 land that it could take the place of labor and capital in any 
 large share of their uses, rather than serving as co-operat- 
 ing complementary productive instrument with them, land 
 could never have experienced the fall in rents and in 
 market price characteristic of the past half-century. 
 
 It follows that, under the assumed conditions of increas- 
 ing population, of only proportionately increasing food 
 requirement, and of more than proportionately increasing 
 labor effectiveness and capital expansion, there is no basis 
 of foretelling the effect upon land rents and land values 
 otherwise than accordingly as assumptions are made as to 
 the direction of human development. Improvements in 
 transportation or in the technique of production may be so 
 great in the direction of agriculture as to make even the 
 best grades of land free land, and thus to cancel the impor- 
 tance of rent in the computation of costs, and to leave the 
 food supply to find its relative cost purely in the relative 
 outlays for labor and for non-land instrumental goods. 
 
 But in the degree that the actual inelasticity of the con- 
 sumption of agricultural products — not all are food prod- 
 ucts — is overstated in the assumption, and in the degree 
 that the development of human productive powers may 
 not take place in food-product directions, must this solu- 
 tion undergo modification. On the other hand, a gain in 
 land rent must follow upon an increase of non-substitu- 
 tionary supplies of labor; but whether this would be 
 accompanied with any marked rise in the prices of food 
 products would depend greatly upon the character of the 
 increase in the supply of labor, whether, for example, and 
 in what degree, it were adapted to other than agricultural 
 production. 
 
5o6 VALUE AND DISTRIBUTION 
 
 If these solutions shall appear to be disappointingly 
 vague and conjectural, the explanation must be sought in 
 the nature of the problem and of the assumptions neces- 
 sarily attendant. 
 
 The foregoing analysis of the various different con- 
 cepts of diminishing return — and there are possibly still 
 others waiting to be catalogued — should have sufficed to 
 make it clear that such formulations of the law as prom.ise 
 significance or serviceability for economic purposes of any 
 sort, competitive or collective, are three in number : 
 
 1. A dynamic and sociological generalization foretell- 
 ing a diminution in the per-capita command of consum- 
 able goods, by reason solely of the society coming to 
 contain more members, these being assumed to be substan- 
 tially unmodified in all relevant aspects. 
 
 2. A law in the dynamics of competitive economics ; a 
 forecast of changes in the relative distributive shares 
 accruing to the different agents and instruments in produc- 
 tion technologically viewed, changes due solely to changes 
 in the relative supply of these concrete factors; thereby, 
 changes in their relative value through the capitalization of 
 their income-earning power; and thereby, also, upon the 
 supply side (and for whatever the cost of production com- 
 putation may be worth), and solely by reason of these 
 distributive shares functioning as costs in competitive entre- 
 preneur production, a forecast of the relative changes in 
 the market prices of the various sorts of commodities 
 technologically dependent in various degrees upon the use 
 of these differently remunerated productive facts. 
 
 3. A static, competitive, entrepreneur law expressing 
 the disadvantages accruing to the entrepreneur from any 
 relative excess or defect in the quantities employed of any 
 productive agent or agents, in view of the existing levels 
 of compensation for these different agents — a law formu- 
 lating the disadvantage from the unskilful combination of 
 cost goods. 
 
THE LAWS OF RETURN 5°? 
 
 It is to be noted with regard to Law (i), the popula- 
 tion-food law, that the reasoning- upon which it is formu- 
 lated abstracts entirely from the possibility that human 
 development may — at least in some measure — avail to 
 enlarge the land supply, from the possibility also that agri- 
 cultural technique and transportation effectiveness may 
 appreciably modify the situation, and finally from the pos- 
 sibility that the sources of food supply may not remain 
 essentially agricultural, and that the food requirement may 
 not increase precisely in the ratio that the labor supply 
 increases. That, upon the assumptions made, the social 
 product, food and other goods together, must be unfavor- 
 ably affected seems to be a ready and necessary inference 
 from the general principle that if some, but not all, of 
 the productive factors are doubled, the weight-and-tale 
 product will not fully double. 
 
 Law (3) carries over into the competitive field this 
 principle that a shortage in any one factor of production 
 affects the product unfavorably; those factors increasing 
 least rapidly, or not at all, take on relatively a more or 
 less pronounced scarcity, and thereby acquire scarcity 
 values as compared with the increasing factors, the degree 
 of the scarcity depending upon the degree of technological 
 monopoly held by the factor in question, that is, upon the 
 substitutions and upon the terms of the substitutions pos- 
 sible in the case, — a changing problem with every change 
 in the direction of human efficiency in the technique of 
 production. 
 
 With every change in the per-capita productiveness of 
 society, human needs and desires being assumed as a con- 
 stant, there goes, of course, a fall in the average signifi- 
 cance of new increments of product, a law of diminishing 
 utility return per item of weight-and-tale product. But 
 while this law is consistent with an expanding weight- 
 and-tale productivity — depends indeed, upon it — the law is 
 not inconsistent with unchanging conditions of value produc- 
 tivity. For value productivity is distributive in reference — 
 
5o8 VALUE AND DISTRIBUTION 
 
 has to do, that is, with the different factors con- 
 sidered as share-takers in the division of product, and with 
 the relation of the different shares to one another. Being 
 a question of value, of exchange relations, it becomes a 
 question of the relative shares in the total output of value 
 product. Thus if all factors in production were increasing 
 with, equal relative rapidity, two yards of cloth, two pairs 
 of shoes, and two bushels of wheat being produced where 
 before the product was only one of each, there is no 
 necessary reason why there should be either increasing or 
 decreasing value productivity for any factor in production. 
 If, then, there is occasion to forecast diminishing returns 
 for any factor, it seemingly must be by reason of some 
 relative inelasticity of supply supposed to attach to some 
 other factor or factors in production. It looks, then, as if 
 the peculiar conditions surrounding the land supply must 
 furnish the only serious basis and occasion for all dimin- 
 ishing-return discussion, so far as it is something more 
 than an entrepreneur law of disadvantage from a badly 
 constructed production complex.^ 
 
 But upon what assumption could there really take place 
 
 ' It is of course unfortunate that the established terminology 
 should speak of this principle as "diminishing returns for land ;" where 
 there are diminishing returns of any sort, these are not for the land 
 but for the factors co-operating with the land. But purely as a pro- 
 duction process, the returns are neither separately for the land nor for 
 the other factors, but only for the factors in the aggregate, as a pro- 
 duction complex. When a separation is made so that the talk may be 
 either of the absolute or of the relative shares, the discussion has 
 passed over from the field of technological production to the field of 
 value distribution, — is no longer, that is to say, a matter of causes from 
 the point of view of production, but of results from the point of view 
 of distribution, — not a question of quantum or of relative share pro- 
 duced by any separate factor, but of the value result attributed or 
 imputed to that factor. And, as distributive result, the fact may be 
 that, despite a diminishing return to the aggregate complex, there may 
 be an increasing return, both relative and absolute, to some among the 
 factors. As a distributive doctrine, then, the terminology should 
 rather speak of diminishing returns to the non-land factors ; while as a 
 production doctrine, no question of the separate shares of the factors 
 should arise ; the talk should be of diminishing returns in agriculture, 
 or of diminishing returns in landed production, but not of diminishing 
 returns to the land. 
 
THE LAWS OF RETURN 5^9 
 
 this equal proportional expansion in all productive factors, 
 in such sort as to leave the value resultant one of unmodi- 
 fied exchange ratios and the distributive outcome one of 
 unchanged proportionate shares? Only upon the assump- 
 tion that the increase in the supply of each factor of pro- 
 duction has been accompanied by a proportionate increase 
 in the demand for the various commodities especially 
 dependent technologically upon the respective factors. But 
 increase in labor supply, if it comes by increase in number 
 of human beings, rather than by expanding individual 
 efficiency, is certain to do at least one thing, viz., to bring 
 with it an approximately proportional increase in the food 
 requirement; and precisely the contrary will be the fact, if 
 the increase of labor power accrues through higher per- 
 capita powers of production. 
 
 And precisely as the food requirement is the most 
 inelastic of needs in face of shortage, so it is least expan- 
 sive in the event of expanding supplies. It follows that 
 what appears upon its face to be a prospect of constant 
 value return may turn out to be one either of falling or of 
 rising distributive advantage for land. And as we have 
 already seen, this is further complicated by considerations 
 relating to the direction in which technological develop- 
 ment may take place. 
 
 Our third law of return, the static law of the proper 
 proportions for the productive factors in the entrepreneur 
 complex, is obviously the only one of the three laws having 
 significance for the cost problem of any particular entre- 
 preneur at any particular time. Law (2) is a forecast of 
 probable changes in the conditions under which the cost- 
 value problem must come to be worked out. That the hire 
 of any particular factor will be — or may be — greater or 
 less than it now is, does not make greater or less the pres- 
 ent hire, and does not modify the present relation of the 
 present hire to present cost and present value. It is unneces- 
 
5IO VALUE AND DISTRIBUTION 
 
 sary to look ahead fifty years in order, by finding what the 
 costs will be then, to know what the costs are now. 
 
 It must now be noted that, simply because this law of bad 
 proportions between productive factors is an entrepreneur 
 law, it must, in any accurate formulation, take into account 
 the entrepreneur himself as a productive fact. As entre- 
 preneur, he is a fixed quantity, and at some point or other 
 the law of disadvantageous combination, of diminishing 
 value return, must apply to any further increases in the 
 magnitude of his operations, and must set a limit to the 
 application of the law of increasing returns with the 
 greater size of the production complex. 
 
 It remains once more to call attention to the danger- 
 ously technological tenor of all this diminishing-return dis- 
 cussion. For purposes of retrospect or of prophecy, and in 
 the field of value distribution no less than in the field of 
 social welfare, there are meaning and interest attaching to 
 the broadly admitted threefold classification of productive 
 factors. But it is equally clear that the classification is 
 inaccurate and unworkable for close theoretical purposes ; 
 that the technological relations between the different pro- 
 duction goods are in a state of constant flux; that the sub- 
 stitutionary relation is everywhere found in a measure, and 
 is almost as likely to obtain between classes of factors as 
 within any one class, while the complementary relation is 
 not appreciably rarer within a class than between classes; 
 that the determination in any specific case of what share is 
 land instrument and what share non-land is impracticable 
 or impossible; and finally and chiefly, that in competitive 
 production no one. is concerned in any way either with the 
 validity of the classification or with the accuracy of its 
 application. 
 
 For, from the point of view of the individual, all ques- 
 tions of cost are questions of value expense, and capital is 
 merely the fund out of. which the costs are advanced and 
 
THE LAWS OF RETURN Sii 
 
 into which the instrumental charges and all other produc- 
 tion expenses are reduced. Thus while, if one likes, he 
 may distribute this capital expense among its different 
 technological and other items, including much that cannot 
 be classified as either land, labor, or capital, it will remain 
 true that the outlay for labor hire is a capital outlay, the 
 outlay for capital goods likewise a capital outlay, the outlay 
 for land also equally a capital outlay, and therefore that the 
 law of diminishing return is, for competitive purposes, a 
 law of diminishing return upon capital and not upon land 
 or instruments or labor. And to show that this falling 
 return upon capital is or is not due to unfortunate com- 
 binations of technological items indefinite in variety and 
 susceptible of indefinite classification and subclassification, 
 tripartite or other, would leave it still true that, for all 
 competitive purposes, the only falling return having sig- 
 nificance or interest must be the falling return upon value 
 cost, expressed under the private-capital denominator. But 
 all this will become clearer, as approached from a slightly 
 different point of view, in the next chapter. 
 
CHAPTER XXIV 
 THE DYNAMICS OF VALUE AND OF DISTRIBUTION 
 
 As has already been sufficiently shown, the long-time 
 computation of costs, the dynamic aspect of economic 
 theory, points not to a new value theory or even to a 
 supplementary value theory, but simply to the tendencies 
 and influences making for change in the fundamental con- 
 ditions under which the value problem must later be worked 
 out, the costs fixed, and the production distribution reached. 
 
 These changes in fundamental conditions are evidently 
 restricted to two sorts, (i) changes in the demands for 
 consumption goods, and (2) changes in the supplies or in 
 the ownership of the productive agents, instruments, rights, 
 and opportunities. 
 
 That either of these two lines of influence may affect 
 the remunerations of productive factors, and thereby their 
 values, is readily seen ; that changes in the demand for 
 products should have the same result carries its own war- 
 rant in the very statement; so, also, that changes in the 
 supply of any factor of production must affect the remunera- 
 tion of it commends itself as obvious — looks, indeed, much 
 simpler and clearer than it really is. But that changes in 
 the supply of some factors have of necessity direct and 
 important bearing upon the remunerations of other factors 
 is a long distance away from self-approving. 
 
 It is nevertheless true : 
 
 A demand for means of production arises only when, on the 
 one hand, we are obliged to employ them or else go without what 
 they produce; and when, on the other hand, we can employ them, 
 inasmuch as we have at our disposal the necessary complimentary 
 
 goods It follows .... that the effective demand for means 
 
 of production must vary, not only when there is a variation in per- 
 sonal wants, but also when there is a variation in the quantity of 
 complementary goods.^ 
 
 ^ Wieser, Natural Value, p. 102. 
 
 512 
 
DYNAMICS OF VALUE AND DISTRIBUTION 513 
 
 The demand for plows is truly derivative from the 
 demand for foods, but not directly; in any event, it is 
 equally to be said that the supply of land furnishes the 
 demand for plows; lumber affords a demand for nails, 
 horses for wagons, wagons for horses, plows for land, men 
 for plows, plows for men, horses for stables, stables and 
 horses for carpenters and for stable boys, horses and 
 wagons for harnesses and for drivers, etc. 
 
 It is true that not rarely the possibility of substitution 
 exists between different orders or varieties of productive 
 agents, — that one sort takes the place of another, supplies 
 the demand for it, rather than furnishes a demand for it. 
 But more commonly it is through the principle of comple- 
 mentarity rather than of substitution that most of the 
 dynamic forces in economics exert their influence upon sup- 
 plies of products, upon entrepreneur bidding, upon costs 
 and distributive shares, and upon the exchange relations of 
 goods, as it is likewise under this same principle of com- 
 plementarity that various perplexing theoretical problems 
 both in static-value imputation and in dynamic-value impu- 
 tation are presented. New combinations of productive 
 factors entail what new value results and what new dis- 
 tributive outcomes? 
 
 The usual treatment of the problem, as one centering 
 about questions of multiplying human beings as over against 
 a geographically limited land supply, emphasizes what is, 
 for economic prophecy, the most important and interesting 
 phase of this investigation ; for it is again to -be emphasized 
 that only in the expectation that some factor or factors of 
 production will come to be relatively scarce is there any- 
 thing to be discussed. The laws of increasing return are 
 laws of change in one aspect of human productive ability 
 and adaptability; the laws of diminishing return are laws 
 reflecting the influence of change in the relative supplies of 
 the different factors of production. It is, perhaps, true, 
 practically speaking, that, but for the limitation upon the 
 
514 VALUE AND DISTRIBUTION 
 
 land supply, there could be nowhere any question of dimin- 
 ishing returns for social or dynamic problems. 
 
 And it is again to be emphasized that, with changing 
 supplies of productive factors, such changes of combina- 
 tion, of product, of value of product, and of values of 
 agents as take place, must take place under the guidance of 
 entrepreneur activity and as problems of entrepreneur 
 management. Technological productive contributions are 
 such only relatively to the entrepreneur need, the entre- 
 preneur combination, and the entrepreneur bid. As dis- 
 tinguished, then, from the ordinary threefold classification 
 of productive factors, land, labor, and capital, there must, 
 at the least, be established a fourfold classification includ- 
 ing the activity of entrepreneurship. And our most serious 
 problem is thereupon to decide whether, even as modified, 
 the traditional distribution of productive categories is either 
 workable in theory or serviceable in applications. 
 
 Precisely how the dynamic forces shall be classified is, 
 from one point of view, perhaps not an important matter. 
 Clark's fivefold division into changes, (i) in population, 
 (2) in capital, (3) in industrial methods, (4) in business 
 organizations, (5) in human wants, is possibly as service- 
 able as any other. Making some effort, however, toward 
 arriving at a classification more nearly approaching the 
 ultimate, we shall, perhaps, settle upon something like the 
 following: (i) modifications in humanity, (2) in environ- 
 ment. Under modifications in humanity are to be cata- 
 logued the following lines of change: 
 
 (a) in numbers. 
 
 ! changes in aggregate wants, 
 changes in relative intensity, 
 changes in kind and direction. 
 
 i changes in industriousness or strength, 
 changes in technique, 
 changes in organization. 
 
DYNAMICS OF VALUE AND DISTRIBUTION 515 
 
 Under modifications in environment : 
 
 , . . 1 J j changes in the sources of food supply, 
 
 ^ ^ \ changes in the sources of raw materials of industry. 
 
 (b) non-land changes, capital goods. 
 
 Sfrom the point of view of each entrepre- 
 neur an objective, environmental fact; 
 from the social point of view merely re- 
 lations among men; perhaps properly 
 to fall under "modifications in human- 
 ity." 
 
 But here again the question presents itself as to what 
 purpose, other than schematic, this classification may be 
 made to serve; but if for nothing further, it will, at any 
 rate, afford a convenient guide for purposes of exposition. 
 
 Doubtless it is possible to make some broad generaliza- 
 tions with regard to the effects of increasing population 
 upon land values and upon land rents in the aggregate, 
 irrespective of whether all lands must equally share in 
 these effects. Possibly also, though less securely, some- 
 thing might, in wide generalization, be said of the effects 
 of increasing machinery upon rents or upon wages, all this, 
 likewise, without attempt to differentiate the sorts of 
 machinery, and also without attempt to distribute labor into 
 different sorts and grades in its technological relation to 
 machinery. 
 
 But the difficulty with all this is that all of it has its 
 basis in the technological relation of different instruments 
 and agents to one another, and that these technological 
 relations will not classify in even a loose and general coin- 
 cidence with the traditional threefold classification of pro- 
 ductive factors. 
 
 Increase of literary ability is technologically irrelevant 
 to the increase of inventive power in industry ; increase of 
 artisan skill may intensify the demand for some machinery, " 
 the while that it displaces other. Again, the multiplication 
 of unskilled labor may in some directions displace skilled 
 labor or the labor-saving appliances produced by it. It is, 
 for example, practically impossible, because unprofitable, 
 
5i6 VALUE AND DISTRIBUTION 
 
 to introduce labor-saving machinery into Mexico or India; 
 crude labor in those countries is too cheap compared with 
 artisan labor. At the same time, enlarged supplies of some 
 grades of labor furnish a demand for other grades of 
 labor, e. g., carpenters for architects and masons, masons 
 for hod-carriers, spinners for weavers, and so on indefi- 
 nitely. Again, some machinery creates demand not for 
 land as complementary good, and not, in any appreciable 
 degree, for labor, but for other machinery. In the history 
 of English industry, the spinning jenny placed an immense 
 premium upon the invention of the power loom, and both 
 called shrilly not for more men but for the introduction of 
 power machinery.^ 
 
 And mere increase in population, to the extent that it 
 should be attended by the traditionally menaced poverty, 
 would not greatly intensify the demand for champagne 
 lands, or place, high values on diamond fields ; something 
 would result of advantage for apple and prune orchards, 
 a lower degree of advantage to orange and walnut groves, 
 great stress upon fuel and iron mines, and famine rents for 
 the sources of the coarser foods. New coal lands would 
 injure the wood lots, and benefit the iron mines. New 
 fisheries would probably lower the income from pasture 
 lands, and, perhaps, intensify the demand for cereal lands. 
 
 The truth is that all these relations, on the one hand, of 
 complementarity, on the other, of substitution, depend upon 
 the particular situation in point of technique, and have not 
 even the remotest relation to the land-capital-labor classi- 
 fication. It is possible enough, it is indeed characteristic 
 of modern life, that modifications in technique, that is to 
 say, in the human factor of production, greatly reduce the 
 pressure upon land. This is especially noticeable in the 
 effect of farm machinery toward the lowering of agricul- 
 tural rents taken in the aggregate. Improvements in trans- 
 portation work in the same direction, and at the same time 
 
 ^ Fully worked out, the doctrine of this paragraph has some impor- 
 tant applications to immigration problems. 
 
DYNAMICS OF VALUE AND DISTRIBUTION 517 
 
 do another thing, they create accessibility; thus, practically 
 speaking, they create land. 
 
 So, new knowledge is constantly sending much old 
 machinery — and some new machinery — to the scrap pile, 
 and this, not rarely, with the requirement of no new 
 machinery. 
 
 So again, changes in the standards of living or changes 
 merel}^ in the direction of consumption may cancel the 
 alleged effects of the m.ultiplication of human beings upon 
 rent and interest: for example, vegetarianism would post- 
 pone the land famine for a succession of centuries. 
 
 And changes in technique may conceivably be so far- 
 reaching as to leave to humanity practically no land prob- 
 lem at all, or, at least, only a mining-land and dwelling- 
 land problem : 
 
 Chemistry may some time solve the problem of food production 
 without recourse to agricultural methods. The secret once known, 
 the nitrogen in the air of the back yard and the ton of coal in the 
 bin may furnish food for an ordinary family for a year.' 
 
 But none of this is to deny that there is a dynamics to 
 the value problem, or rather to the distribution-and-cost 
 aspect of the value problem, but only to deny that much 
 more can be done with it than to surmise here and there, 
 as well as may be, what are the probable changes in condi- 
 tions, and then to deduce the probable and possible eco- 
 nomic significance of some few of these changes. 
 
 Increasing population appears reasonably probable, 
 though there is question enough as to the races and the 
 
 ' Davenport, op. cit., sec. 352. 
 
 It is a noteworthy as well as a perplexing fact that one of the 
 economists firmest in adherence to the separate land and capital cate- 
 gories, and strongest in the conviction that interest and wages are cost 
 facts while rent is not, should have given allegiance to doctrine which, 
 suiificiently elaborated and worked out to its necessary conclusion, 
 must cancel the possibility of all discussion of the laws of return as 
 based upon the threefold division of categories ; and incidentally also, 
 would strike the pen across most of the pages of his own admirable 
 anld suggestive work upon the distribution of wealth. (See Carver, 
 Distribution of Wealth, p. 85, or quotation, note ante, p. 131.) 
 
5i8 VALUE AND DISTRIBUTION 
 
 classes likely to furnish the increase. No attendant changes 
 appear probable of a sort to prevent an increasing stress 
 upon land, varying in degree, it is likely, according to the 
 different qualities and capacities of the land, but probably 
 affecting in some measure all or almost all lands. But the 
 swamps of the Amazon or the African jungle may for a 
 long time remain an undisturbed surplus. And in this 
 connection also it would be possible for the growth of 
 land rent to impose important changes in the distribution of 
 purchasing power in society, and thereby to work appre- 
 ciable modifications in the direction and volume of different 
 consumption demands, with wide and conflicting circles of 
 varying interaction. 
 
 From the land source, together with other influences 
 bearing upon the consumable product at the disposal of the 
 human race, more or less pronounced effects may be deduced 
 as probable upon the standards of living of the different 
 races and nations of men, these effects being different with 
 the different races and in the different levels of society of 
 each different race. And various interactions between 
 standards of living and rates of multiplication may be more 
 or less dubiously asserted. And possible bearings of 
 standards of living upon wages may be worked out through 
 the general relation of the density of population to the 
 wage level. 
 
 But what is, in truth, other things remaining unchanged, 
 the bearing of increasing population upon the wage 
 level ? 
 
 To make the question accurately intelligible it must be 
 as'sumed that the different grades and kinds of labor 
 increase proportionally. And even then will it do to assert 
 that wages must fall? How comes it to be true, if it is 
 true, that the volume of population influences the wage 
 level? Is it, for example, possible to say, with Carver, 
 that "the wages of labor are determined by an equilibrium 
 of two forces, — the productivity of labor, on the one hand, 
 
DYNAMICS OF VALUE AND DISTRIBUTION 519 
 
 creating the demand for it, and the standard of Hving, on 
 the other hand, Hmiting the supply of it." * 
 
 Not at all denying the bearing of these two forces as 
 somehow influencing wages, each in its own way and time, 
 it is yet to be objected that the ways and the times are 
 separate, that the offered explanation of wages is really a 
 mixture of long-time and short-time influences, — on the one 
 side a static category, a situation, on the other side a 
 dynamic variant making for possible changes, — and then a 
 balance somehow struck between them. The analysis 
 neither stays in nor abandons the field of entrepreneur 
 wage costs, but confuses the costs as they are with supposed 
 causes of the costs, and with possible or probable variations 
 of the costs. But, even so, the argument is open to further 
 serious criticism; for in reality the standard of living is 
 itself a derivative from the productivity of the labor; the 
 standard of living, as supply term, set over against pro- 
 ductivity as the demand term, will, then, hardly serve as a 
 full explanation of wages. But however this may be, it is 
 in any case clear that as a question of existing wages the 
 productivity of today cannot, for any purpose of present 
 costs or present wages, or under any entrepreneur compu- 
 tation, be equated against the labor supply of some years 
 hence. The wages of all the yesterdays and of today may 
 possibly have something to do with the supply of labor 
 twenty years hence ; and the supply of labor of that time 
 will doubtless equate against the demand of that time. The 
 supply of today has precisely that same relation to the 
 demand of today. Today there is no equating of the 
 demand or supply of today with the demand or supply of 
 any other time. Any alleged effect from wages, through 
 standards of living, on the supply of labor, — whether, on the 
 one hand, the position urged be that high wages and high 
 standards of living stimulate the birth-rate and the per- 
 centage of maturities, or whether, on the other hand, the 
 
 * Carver, "The Marginal Theory of Distribution," Journal of 
 Political Economy, March, 1905, p. 263. 
 
520 VALUE AND DISTRIBUTION 
 
 effect be asserted to be precisely the reverse — may be equally 
 well admitted or denied with equal irrelevancy to all prob- 
 lems of the current adjustment of wages; productivity is 
 as it is. Investigation of these lines of influence is, then, 
 merely a more or less successful attempt at a historical 
 explanation of the present labor supply, and, so far as the 
 labor supply has to do with the individual wage, is an 
 attempt to explain some of the causes of the present condi- 
 tions controlling or influencing the ruling level of wages. 
 But the ruling level of wages will be the same 
 whether or not the historical explanations offered 
 be well supported. So the wages to rule twenty years 
 hence may today be possible of vague conjecture; and 
 in the making-up of the prophec}^ some bearing may 
 be ascribed to the expected population totals of that time; 
 and these totals may, with more or less justification, be 
 attributed to the standards of living prevailing today. But 
 all this is prophecy, and has nothing to say for the wages 
 of today. 
 
 Nor — and this is the important fact for the present dis- 
 cussion — even after the twenty-years' term has expired, 
 will such population changes as may have taken place have 
 overmuch to say; it is vastly dangerous doctrine to assert, 
 even on the supply side, the dependence of wages on the 
 supply of labor. For consumption goods, truly, the reason- 
 ing rightly runs that an increased supply diminishes price; 
 but for production goods the doctrine, so far as it is appli- 
 cable at all, applies in quite other significance and to quite 
 different results. Whenever the very increase in supply 
 itself implies and necessitates a change in the volume of 
 demand, the demand-and-supply formula, entirely accurate 
 for consumption goods, becomes, for production goods, 
 entirely misleading unless used in a very dift'erent sense. 
 
 If the labor supply increases, how can anyone know 
 that the wages must fall ? Is it certain that either the per- 
 capita productivity by weight and tale or the per-capita 
 value productivity must suffer? Not unless the other 
 
DYNAMICS OF VALUE AND DISTRIBUTION 521 
 
 classes and qualities of agents have failed to make a corre- 
 sponding increase. And suppose that they have not ; with 
 an increased labor ^supply the social dividend is increased; 
 is it to be assumed that only the old total of wages can, 
 under the new aggregate productivity of labor, be dis- 
 tributed among laborers? If labor has doubled and all 
 kinds of it have doubled, but if, at the same time, the other 
 productive factors have failed to increase or to increase 
 with corresponding rapidity, it may be taken as true that 
 not quite twice as much aggregate social product will be 
 possible; and out of this somewhat smaller per-capita 
 product a larger relative share will go to the agents rela- 
 tively scarce, and a somewhat smaller relative share to the 
 laborers. And this is all there can possibly be of truth in 
 the proposition that "the wages of labor are determined 
 by an equilibrium of forces — the productivity of labor, on 
 the one hand, creating the demand for it, and the standard 
 of living of laborers, on the other hand, limiting the 
 supply of it" (Carver). 
 
 To put it another way: Since with the change in the 
 supply of labor the value product to pay with is all the 
 while changing, that is, the productivity demand is chan- 
 ging, the effect upon the wage level must sum up as the 
 solution of two inquiries : ( i ) in what measure, relatively 
 to the increase of labor, is there a resulting increase in the 
 total product to be distributed? (2) in what measure does 
 labor, in the distributive process, fail of receiving the whole 
 of the increase in product resulting from the labor increase ? 
 It is evident that an appeal to the ordinary demand-and- 
 supply formula does not promise great results for the 
 purposes of this problem. 
 
 Inasmuch as changes in population can take place only 
 with attendant changes in the demand for goods and in the 
 production of goods and in the distribution of purchasing 
 power, there is room here for all sorts of varying influence 
 upon values and upon distributive shares. No especially 
 
5^2 VALUE AND DISTRIBUTION 
 
 serious difficulties, however, present themselves in this 
 regard. 
 
 Possible changes in the productivity of human effort, 
 through increases in vigor, in earnestness, in trustworthi- 
 ness, and in skill, require some attention. And, for the 
 moment, let changes in technique be excluded from con- 
 sideration, so that the case may stand simply as one of 
 emphasized power in lines and methods and directions 
 already established. Twice as efficient a man is, for pro- 
 duction purposes, two men; on the production side, this 
 amounts, then, to a population increase. Are land rents to 
 be thereby increased, or is the value imputation in general 
 to be otherwise affected disadvantageously to labor? 
 Seemingly so; for while, with larger weight-and-tale pro- 
 ductivity and a greatly augmented social product, the abso- 
 lute share of labor may increase, its ratio share will suffer. 
 But all this is subject to amendment accordingly as the 
 increased purchasing power, attendant upon higher pro- 
 ductivity and higher wages, turns out to be directed. If, 
 for example, all this new demand power were directed to 
 the purchase of new sorts of personal service, or to lines 
 of goods in which labor alone could be applied, the new 
 labor power could furnish no new demand for land or for 
 any other instrumental good, and no advantages in distri- 
 bution could accrue to any of these non-human factors of 
 production as against labor. 
 
 Better organization of production may be merely insti- 
 tutional, or it may point directly to an increase in entre- 
 preneur efficiency; if, however, it be assumed that the 
 increase of product is due solely to an improvement in 
 entrepreneur ability, it may, prima facie, be expected that, 
 out of the resulting higher social dividend, the larger share 
 will be distributed to the non-increasing factors, employee 
 labor being here included. But here also the breadth and 
 the undiscriminating inclusiveness of the accepted classi- 
 
DYNAMICS OF VALUE AND DISTRIBUTION 523 
 
 fications destroy all promise of accuracy in the conclusions. 
 Better organization does not apply equally to all grades and 
 kinds of labor, or equally in all businesses and industries, 
 or equally to all kinds and varieties of instruments. The 
 threefold classification must be especially misleading here. 
 But even more misleading is the traditional classifica- 
 tion as related to changes in technique. Hygiene may 
 render pill-rolling machinery useless ; inventions may 
 largely displace both labor and instrumental goods, and 
 may shift the emphasis over upon land generally or upon 
 particular kinds and qualities of land. There is, in truth, 
 no limit to the possible and the probable permutations here ; 
 here, indeed, it is always the unexpected that is the 
 probable. How complicated these problems are, and how 
 dependent for their solution upon assumptions tacitly made 
 or unconsciously implied, may be seen in an analysis of 
 the relations of improvements in transportation and in 
 crop-raising technique to the rental values of land.^ 
 
 ° Traditional discussion of the rent problem has assumed a prac- 
 tically inelastic consumption for the products of agriculture. Making 
 no question that, relatively to other consumption goods, food products 
 manifest a great inelasticity of consumption, it is nevertheless to be 
 asserted that this inelasticity has been, in almost all rent discussion, 
 past or current, greatly exaggerated, to the serious prejudice of the 
 theoretical deductions. It is at any rate clear that "the law of 
 diminishing returns falls far short of a full theoretical equipment 
 for the analysis of rent movements. This law points merely to one 
 very important fact in the supply aspect of the problem. But dimin- 
 ishing returns are the condition upon which rents depend rather than 
 
 their ultimate cause No economic explanation in terms of 
 
 supply alone is exhaustive or satisfactory How rapidly, for 
 
 example, rents may advance with an enlarging market for products, 
 must depend upon the measure in which demand will be retired by 
 rising prices. How rapidly rents may be made to fall by the opening 
 up of new lands, is incapable of estimate till something is known of the 
 degree in which falling prices may be expected to attract a larger 
 consumption. All rent tendencies must be studied, not alone from the 
 point of view of the facts peculiar to supply, but as well from the 
 point of view of the peculiar nature of the demand. 
 
 "Commodities vary greatly in the elasticity of consumption. With 
 falling prices, the demand for books, for example, greatly expands, 
 while higher prices would be met by greatly decreased consumption. 
 Where consumption is very elastic, small changes in price work large 
 changes in consumption. It follows, then, that small changes in supply 
 
524 
 
 VALUE AND DISTRIBUTION 
 
 The relations of expanding capital supplies to land 
 rentals and to wages can be, so far as they are profitable of 
 
 must work small changes in price, while large changes in supply work 
 only limited changes in price. 
 
 "But where the consumption is inelastic, the reverse of all this is 
 true. Small increments in supply are marketable only at considerable 
 decrease in price, while large increases in supply work enormous price 
 reductions. Much that is peculiar to rent movements is to be explained 
 by the fact that the consumption by society of the products of the 
 earth, and particularly of agricultural products, is extremely inelastic. 
 Consumption of food products cannot be very largely increased, nor is 
 it possible without acute suffering greatly to reduce consumption. 
 It is true that in considerable measure one product may be substituted 
 for another by reason of minor changes in price, but the total volume of 
 consumption adjusts itself to the total volume of supply only through 
 relatively great price fluctuations. Were the fact otherwise, advances 
 in rents following upon increased population would have been much 
 less considerable, and a fall in rents resulting from the opening up of 
 new supplies of land would be relatively unimportant. 
 
 "Bearing in mind that increasing supplies of agricultural products 
 are unmarketable unless at rapidly falling prices, it becomes evident 
 that all causes tending to increase the per-acre productiveness of land 
 will mostly manifest themselves in the abandonment of marginal lands 
 and the decrease of rental totals. Thus all progress in agricultural skill, 
 like better methods of crop rotation, or improvements in the applica- 
 tions of chemistry to the production of fertilizers, by which the per- 
 acre output of land is increased, will tend toward the disuse of the 
 poorer qualities of land. Likewise all improvements in transportation 
 facilities, by which new and more fertile lands are brought into use and 
 the abandonment of poorer lands made possible, must reduce the rent 
 differential. 
 
 "And even with the new lands only equally fertile with the 
 old, the reductions in the cost of transportation would reduce 
 the differential of advantage enjoyed by the lands 
 nearer the market. Not less land would be used, 
 14 2 30 17 but the difference in advantages would be lowered. 
 In the diagram the transportation charges of 2, 4, 
 6, 8, etc., give rentals of 14, 12, 10, etc. Reducing 
 the cost of transportation by one-half lowers the 
 differentials to 7, 6, 5, 4, etc. It is true that this 
 cheaper transportation would cause some of the 
 more distant lands to be brought into cultivation. 
 But only a small increase in products could be 
 marketed without so great a fall in price as 
 seriously to affect rents generally. 
 
 "Assuming, however, that the land opened up 
 is of distinctively inferior quality, one might look 
 for a rise in rents. But the question is whether 
 this wider differential of fertility can be sufficient 
 to more than offset the diminished differential of 
 transportation. 
 
 "Suppose that the land is 30, 28, 26, 24, etc., in 
 productiveness, and that the transportation charges are 2, 4, 6, 8, 10, 
 
 
 LAND 
 
 2 
 
 30 
 
 4 
 
 30 
 
 6 
 
 30 
 
 8 
 
 30 
 
 10 
 
 30 
 
 12 
 
 30 
 
 14 
 
 30 
 
 16 
 
 30 
 
 
 30 
 
 3 S 
 
 4 4 
 
 5 3 
 
DYNAMICS OF VALUE AND DISTRIBUTION 525 
 
 discussion here, mostly deduced from the principles already 
 established. But much depends upon the sense in which 
 
 etc., as in the previous illustration. Each grade of land, from the 
 margin, increases in rent by 2 for differential of fertility, and by 2 more 
 for diiferential of freight. 
 
 "If now the freight differential falls to i for each grade, the 
 rent payments will fall from 20 + 16 + 12 + 8 + 4 to 15 + 12 + 9 + 6 + 3. Even 
 
 could cultivation extend two girades 
 lower without a material fall in prices, 
 io+5~iS this would carry the rent payments only 
 to 21 + 18+15 + 12 + 9 + 6+3. In fact, 
 8 + 4 = 12 however, prices would greatly fall upon 
 the assumption of this extension. These 
 6+3~ 9 lands could no longer be treated as 
 30-, 28-, etc. (bushel) times one (dol- 
 4+2= 6 lar) lands. The 2, 4, 6, 8, etc., as dif- 
 ferential in bushels, would still remain, 
 ^ ■" ^ ~ 3 but these bushels would have greatly 
 shrunk as measured in terms of 
 
 market value 
 
 "It is not even true that improve- 
 ments in the art of agricultural neces- 
 sarily lower rent, if these improve- 
 ments are such as to apply solely or 
 mostly to the better lands. If, for 
 example, there were in cultivation 
 
 2 units of 30-bushel land 
 
 3 " " 29- " 
 
 5 " " 28- " " 
 
 6 " " 27- " 
 
 and some method were devised of doubling the output of classes i and 
 2, it would still remain necessary to cultivate some of the 27-bushel 
 land, while the 30 and 29 lands would have become 60 and 58 lands 
 with their rent differential measured from the old margin of 2."], 
 
 "In no case, then, is it safe to assume that the mere fact of the 
 extension of cultivation to inferior lands means of necessity an 
 increase in rents. For anything like an accurate forecast of rent 
 tendencies in any case, there is required a Gregory King's law of 
 altogether unattainable accuracy. Were the demand for agricultural 
 products as elastic as is the demand for books, or sewing-machines, or 
 bicycles, improved arts of transportation would probably raise rents. 
 If, for example, rent differentials were due one-half to lower expenses 
 of transportation, and these expenses were reduced by one-half, it 
 would become practicable to cultivate much larger areas of land, if the 
 demand for products were such that the prices should not sharply 
 fall. In this case, rents would increase in the total. 
 
 "Ultimately, then, we fall back upon the character of the demand 
 as the critical point in our rent investigation. The law of diminishing 
 returns explains the existence of rent only after demand is assumed. 
 The degree of rise or fall in rent can be guessed at only in view of 
 the demand. 
 
 "Some questions we can hardly even guess at. It is com- 
 
 IO-HlO = 20 
 
 30 
 
 8+ 8 = 16 
 
 28 
 
 6-H 6 = 12 
 
 27 
 
 4+ 4= 8 
 
 24 
 
 2+ 2= 4 
 
 22 
 
 
 20 
 
 
 18 
 
 
 16 
 
 
 14 
 
$26 VALUE AND DISTRIBUTION 
 
 the term capital is to be understood. If taken as loan-fund 
 or as competitive capital in the most inclusive sense, it 
 would follow that cheaper capital, meaning merely lower 
 rates of interest, might raise or might lower rents accord- 
 ingly as, under the prevailing conditions of technique, the 
 borrowed purchasing power should be directed to comple- 
 mentary or to substitutionary goods. 
 
 But if the term capital be taken to mean non-land pro- 
 ductive instruments, further assumptions become necessary. 
 How elastic is the consumption -of agricultural products? 
 And how far is it taken as possible that non-land 
 instruments can be made to function successfully on lands 
 which were before submarginal? Costless capital goods 
 might conceivably go so far in substitutionary lines as to 
 destroy all differentials of serviceability between different 
 lands, or even as to render all lands equally valueless. 
 
 But all this detail grows wearisome, simply because 
 there can never come any end to it ; at the best, it is mostly 
 
 monly assumed that improvements in farm machinery work in line 
 with improved fertilizers and improved methods to reduce rents. This 
 is correct for such machinery as increases the per-acre output. But 
 for the most part, these labor-saving devices are not land-saving 
 devices. They increase the amount of land employed in producing a 
 given amount of product ; thereby they lower the margin of fertility, 
 exactly reversing the effect of fertilizers. If rents fall, it must be 
 from the fact that cultivation is carried so far upon inferior soils, as 
 through a considerable expansion of supply, to lower prices, and to do 
 this to such an extent that the influence of an increased differential 
 in product is overcome by the necessity of marketing the products at 
 lower prices." — Davenport, op. cit., pp. 86-91 (somewhat adapted). 
 
 But a caution is needed here. Doubtless the lands especially 
 affected by new transportation facilities may exhibit a marked rise of 
 rentals. So likewise the opening up of America may have had more 
 effect to advance rents here than to depress rents in Europe alone. 
 This means merely that to the extent that the agricultural market is 
 world-wide, so must also be the rent generalizations, if they are to be 
 theoretically safe. 
 
 But neither in theory nor in fact does room for doubt remain as 
 to the validity of the point at present urged. Improvements in trans- 
 portation and in agricultural technique, improvements, that is, in the 
 efficiency of human effort as applied to production, serve to reduce the 
 pressure upon the land factor in production, — function, that is to say, 
 as substitutionary rather than as complementary agents. 
 
DYNAMICS OF VALUE AND DISTRIBUTION $27 
 
 a disciplinary gymnastic. But this much, at least, stands 
 forth clearly : Every problem in the dynamics of value, in 
 its distributive aspect, must seek its solution along two 
 lines of inquiry: (i) how does the new development 
 affect the social dividend; (2) does the new development 
 bear, as complementary good or process, to make relatively 
 greater the demand for the instrument or agent under 
 examination, or rather is the relation one of substitutionary 
 good or process, summing up, that is, in the emergence of a 
 new competitor, or, practically, in an increase in the supply 
 of the goods under examination? 
 
 The bearing of education upon the various distributive 
 shares must be worked out as in parallel with other develop- 
 mental influences making toward increase in the productive 
 efficiency of human effort ; but allowance must be made for 
 the different effects upon different grades of human activ- 
 ity, — the probable effect, for example, to lessen the differen- 
 tials in favor of entrepreneur activity as against employee- 
 ship. And other effects toward increase in the volume and 
 in the variety of consumption requirements would come 
 in here for discussion, 
 
 A seemingly more difficult question is that of the prob- 
 able future tendency in the rate of time discount. So far 
 as the trend of things is toward an increasing social pro- 
 ductiveness and an increasing per-capita share in that prod- 
 uct, and thereby a diminished pressure of subsistence needs 
 upon the individual income, it would seem safe to infer an 
 increasing volume of deferred rights of consumption offer- 
 ing themselves upon the market. On the other hand, there 
 appears probable a progressive development in the science 
 and technique of industry. Temporarily, then, at any rate, 
 the greater ease of saving may be offset, in effect upon the 
 discount rate, by the increasing weight-and-tale productive- 
 ness of indirect methods of production. 
 
 But here again much depends upon the degree and direc- 
 
528 VALUE AND DISTRIBUTION 
 
 tion in which improvements in technique express them- 
 selves in the form of substitutionary devices and instru- 
 ments rather than of complementary instruments in relation 
 to the general stock of instrumental goods. It is con- 
 ceivable that knowledge of ways of getting on without 
 capital should greatly limit the capital-goods field of invest- 
 ment for the loan fund. 
 
 So the increase of savings and the growth of capital 
 goods might go so far, in directions substitutionary to 
 particular grades or qualities of labor, as to depress the 
 wages of these laborers even below the permanent subsist- 
 ence minimum. But it is difficult to conceive how laborers 
 in the aggregate could seriously suffer through any pos- 
 sible increase of capital instruments produced in the main 
 by labor, unless, indeed, these instruments were of a sort to 
 function with reference to labor as substitutionary goods, 
 and at the same time, with reference to land, as comple- 
 mentary goods. In such case, manifestly, no difficulty 
 could arise in any lack of supplies of consumption goods at 
 human disposal, but only with the distributive titles under 
 which the distribution would take place; rent would tend 
 to absorb the entire social product. Parallel theoretical 
 possibilities present themselves in connection with such 
 developments in methods and devices as should tend to dis- 
 place either capital goods or labor or both. 
 
 And there is possibility in many industries of monopoly 
 organization going so far and so profitably, through the 
 increase of savings and of capital goods by entrepreneurs, 
 and through the decrease of consumption demand on the 
 part of the laborers, and through the displacement of 
 labor by substitutionary instruments, as to bring about 
 either a progressive non-employment of labor, or an 
 employment upon increasingly harsh conditions, and to 
 bring about at the same time a tendency toward an increas- 
 ing volume of consumption loans, represented either by 
 an increasing volume of indebtedness from the non-capital- 
 izing classes to the capitalizing classes, or, more probably, 
 
DYNAMICS OF VALUE AND DISTRIBUTION 529 
 
 an increasing resort to public debts both by the employee 
 class seeking employment and by the capitalizing classes 
 seeking avenues of investment.^ 
 
 " But all of this leads up to questions falling within the problem of 
 what has been termed the "fallacy of saving," — upon which problem the 
 present writer is disposed to confess himself sorely perplexed. 
 
 Ruskin, Robertson, Hobson, and Veblen seem to have done the 
 best work here, not perhaps toward the solution of the problem, but to 
 the development and definition of it. Surely, the ordinary "capital" 
 talk, with its assumption that capital must be both concrete goods and 
 relatively to labor complementary goods, is crassly superficial. And the 
 whole subject is seemingly in intimate and intricate relations with the 
 phenomena of industrial depressions. (See page 227, note.) 
 
 The truth may be something as follows : 
 
 So long as industrial technique will permit the utilization of new 
 supplies of production goods, at results surpassing in service the dis- 
 placed products or the displaced consumption represented by the 
 intermediate appliances, so long private saving may be a clear 
 advantage to society as a whole, but this only upon the assumption that 
 the saving goes to the increase of productive equipment, rather than to 
 private consumption loans, or to fiscal extravagance, or to the orgies of 
 war. 
 
 But on what terms can any agency making for increased volumes 
 of products render service to society? Only upon the condition that 
 the products are to be consumed, upon the condition, that is to say, 
 that the standard of consumption keeps pace with the increase in 
 productive efficiency. 
 
 But even so, something may depend upon what classes of society 
 do the consuming. Is it well that those classes receiving large incomes 
 of purchasing power shall further capitalize to the indefinite increase 
 of instrumental goods, or would they better consume? 
 
 Note that the question is not at all whether these disposable 
 incomes were reputably earned, or were institutionally justifiable, or, on 
 the contrary, were predatorially obtained, or were better otherwise 
 distributed, but only whether, once obtained, and however obtained, 
 they are, from the point of view of the other classes of society, better 
 consumed forthwith by their recipients, or are better directed into the 
 creation of new technological equipment. 
 
 We must, then, first inquire whether and in what degree tech- 
 nological capital may, in ordinary times, affect the distributive shares 
 of other factors and claimants in production. 
 
 If it were true that, for whatever addition to product were due to 
 the new instruments, an equivalent income accrued to the owners of 
 these instruments, it would follow that other claimants could have no 
 interest in the increase of capital. The problem is, then, in this 
 aspect, a problem in the theory of distribution ; for it is clear that in 
 the imputation of distributive shares, the other claimants will receive 
 some share of that product mechanically attributable to the enlarged 
 supplies of technological goods. In this sense only, and by this method 
 only, does the employer's capital benefit the laborers or other claim- 
 ants. Any solution which directly deduces from the fact of an 
 increasing social dividend made possible by capital, or from the fact of 
 
530 VALUE AND DISTRIBUTION 
 
 But let it be assumed that an advance in rentals is to 
 accrue to certain classes of instrumental goods, e.g., land; 
 will this advance in rentals express itself in a higher per- 
 
 better tools in the hands of labor, a larger wage for the laborer, is a 
 solution superficial in reasoning and inaccurate in conclusions. 
 
 Thus it is clear that such part of private capital as actually goes 
 to the increase of productive equipment benefits the laborers, and other 
 claimants, if and when the consuming disposition of society is keeping 
 pace with its productive power ; but this advantage is limited to what 
 the technological equipment adds to product more than the distributive 
 share imputed to the equipment. 
 
 It is then mostly or largely true that the capitalist's role is here 
 only one of postponed consumption on terms of receiving later an 
 increased volume of consumption. There is, however, in the total, an 
 advantage to labor, so long as there is market both for its product and 
 for the product of the extra equipment. But when and how far is 
 there this market? Is consumption by the capital-owners and by 
 the rich generally a necessary fact, if the volume of consumption ik 
 to keep pace with the volume of product? And when this is answered, 
 what about the private capital which is unrepresented by technological 
 equipment and the correlative incomes unrelated to increased product ? 
 
 The question whether standards of consumption do commonly keep 
 pace with productive power so that, commonly, no surplus productive 
 equipment comes to exist, and the question whether standards of con- 
 sumption must commonly thus keep pace, are distinct and separate 
 questions. To the present writer it appears to be true that, excepting 
 in times of postycrisis depression, the standards of consumption do 
 now, in most modern societies, manifest the requisite power of expan- 
 sion, but that there is no theoretical necessity for this ; and it appears 
 equally clear that in post-crisis times there is a distinct and disastrous 
 restriction of consumption, with the result (i) that much equipment is 
 temporarily a surplus, and (2) that in some measure there takes place 
 in industrial processes a displacement of labor by capital goods. 
 
 And it appears to be true that the very fact that, through develop- 
 ing technique and increasing equipment, a high per-capita productivity 
 obtains, with a large margin of average individual income over impera- 
 tive individual need, explains how it may occur and does often occur 
 that the volume of consumption varies, and that, through sharp restric- 
 tion of consumption, industry is subjected to periodic reverses and to 
 the periodic wastes, insolvencies, and starvations which bad times 
 connote. 
 
 We seem, then, to have come safely thus far : that, from the social 
 point of view, saving should neither go to the extent of subtracting 
 from present consumption more in utility than is added by the later 
 increase of output, nor so far as to increase the later product to the 
 extent that the later consuming disposition will not absorb it ; the 
 limits of rational saving are, then, set by the prospective elasticity of 
 consumption. 
 
 But now, precisely where, if anywhere, does this leave us with 
 regard to the problem of luxurious consumption for those times when 
 
DYNAMICS OF VALUE AND DISTRIBUTION 531 
 
 centage ratio of time discount, or in a higher capitalized 
 value with an unchanged rate of discount? 
 
 Such reply as may be given is neither precisely to the 
 
 the general attitude is one of overabstinence, — of overemphasis, that is, 
 upon future consumption as against present consumption ? 
 
 If in prosperous times the consumption of the rich displaces, in 
 the main, only their own later consumption, it must be still clearer 
 that any expansion of consumption in times of depression cannot be 
 at the expense of the consumption of others. And obviously, if the 
 luxury of the rich employs productive energies that otherwise would 
 not function, such harm, if any, as can result to others must be found 
 in the direction of influences peculiar not to luxurious but to ostenta- 
 tious consumption, that is to say, not in the direction of any influence 
 to restrict the absolute size of the incomes of others, but only the 
 significance of those incomes. And if, in times like these, charity 
 would be in any aspect justifiable, these luxurious expenditures have 
 some obvious advantages over charity. 
 
 But what in such case are the economic effects of charity? 
 
 People who can find no work to do live somehow out of the 
 actual product of industry, whether by the using-up of their own saved 
 purchasing power, or by charity, or by loan. If we may assume that, 
 through offered charity, their consumption is increased, and yet not 
 at the expense of the consumption of others, but only with the result 
 that more goods have been caused to be produced, it would appear to 
 be true that the charity has meant added consumption for the 
 recipients and added employment for others ; and if, with their larger 
 income, these others should be minded to increase their present rate 
 of consumption, this indtistrial stimulus would be passed forward 
 one degree. 
 
 The case would, then, stand as follows : by means of the substi- 
 tuted consumption of the recipients, an existing claim against the 
 products of others has been collected in the present and canceled, 
 instead of being postponed for collection and cancellation to the future; 
 and the collection has taken place at a time when society has been 
 able to achieve the cancellation through the employment of productive 
 energies that otherwise would have gone to waste. 
 
 This argument, if valid — which is doubtful enough — means much 
 for the methods and the times of the carrying-forward of public 
 work. But even without the support of this particular argument, it 
 should be fairly obvious that public improvements ought to be under- 
 taken in times only of slack employment, and ought to be paid for in 
 times of prosperity, rather than, as in present practice, carried on in 
 prosperous times and on terms of displaced production, and paid for 
 in times of depression. 
 
 But what does the argument imply for the social advantage of 
 such savings as does not express itself in the increase of the productive 
 equipment of society, but instead, flows into consumption loans or 
 goes to finance fiscal deficits ? Here nothing but condemnation is 
 possible. Any private investment which, for any considerable period of 
 
532 VALUE AND DISTRIBUTION 
 
 one effect nor to the other. The value of each and every 
 instrument will be a capitalization based upon the current 
 discount rate; but this discount rate will be the point at 
 which all the savings in loan- fund form, the general-pur- 
 chasing-power form, find a market among the various 
 demands of borrowers for consumption purposes, for soci- 
 ally productive purposes, and for privately acquisitive pur- 
 poses. The technological demand is only a part of the 
 entire demand. 
 
 time, takes toll from social product by other title than of equivalent 
 addition to that product is a socially disastrous thing. No matter 
 what personal or moral justification there may seem to be, and 
 as between man and man may really be, the case is, in last analysis, 
 nothing but serfdom on the one side, and parasitism on the other. 
 
CHAPTER XXV 
 THE ADJUSTMENT OF PRICE 
 
 Such examination of the psychology of utility and of 
 valuation as falls within the sphere of economics to under- 
 take has already been attempted, with something over. 
 (See note, p. 307.) For present purposes it suffices that 
 market prices may always safely — albeit superficially — be 
 reduced to a problem of adjustment between the forces of 
 demand and supply. But, even so, there remain some 
 aspects both of demand and supply and of the process of 
 adjustment still requiring attention. 
 
 For purposes of analysis and of exposition, the device 
 of plotting demand and supply volumes into intersecting 
 curves expressive, at their point of intersection, of the 
 place and the method of market-price adjustment, has suffi- 
 ciently demonstrated its claim to serviceability.^ It is, 
 
 ^ Oddly enough, the general adoption of the plotting methods has 
 not availed to remove the old-time ambiguities connected with the 
 demand and supply notions. Potential demand, or excluded demand, 
 and potential, or excluded, supply, are clearly brought out in the 
 plotting device, as are also the respective relations to the actual and 
 the possible adjustments of price. Nevertheless, the bad logic of the 
 terminology which employs the concepts of demand and of supply to 
 explain price and then defines demand and supply as derivatives of 
 price, still abides. Ruskin's inspirational methods touched the heart 
 of the case when he wrote, "The economists mean by demand 'the 
 quantity of a thing sold.' I mean by it the force of a buyer's capable 
 intention to buy. In good English, a person's demand is not what he 
 gets, but what he asks for." (Munera Pulveris, chap, iii, "Ad 
 Valorem.") 
 
 And so Pantaleoni : 
 
 "When price falls, a determined scale of wants being given, more 
 consumers purchase ; when, on the contrary, prices rise, fewer con- 
 sumers purchase. Here we have to do with the extension or restric- 
 tion of consumption in accordance with a given and determinate law 
 of demand. But the extension or restriction of consumption is termed 
 an extension or restriction of the demand, which gives rise to endless 
 ambiguities. By the use of the graphic method these ambiguities 
 are avoided. . . •. . The consumption, to speak accurately, or 
 
 533 
 
534 VALUE AND DISTRIBUTION 
 
 however, at the same time true that the uses actually 
 made of curves of utility and curves of demand have been 
 prolific of much loose thinking, — this, for the most part, 
 because of the lack of differentiation between curves of 
 individual utility and curves of group or social utility, and 
 between curves of individual demand price and curves of 
 group demand price. 
 
 As referring to the individual, precisely what may 
 demand or utility curves be made to express? As of any 
 one time, and for any individual, it is undoubtedly pos- 
 sible to construct a curve of utility for all of the various 
 items of a stock of precisely similar goods ; but it is seem- 
 ingly impossible, and it is certainly profitless, to attempt to 
 include in the formulation more than one kind and one 
 grade of goods. And with reference to any one kind and 
 grade of goods, at any given point of time, a demand curve 
 m terms of price is also easily possible of construction for 
 the individual; and for any given point of time, a total- 
 expenditure curve, expressive of the distribution of pur- 
 
 figuratively the demand, is extended or restricted ; but it neither rises 
 nor falls" (Pure Economics, Macmillan, 1898, pp. 148, 167). 
 
 Flux also is accurate in essentials : 
 
 "The state of demand may be really unaltered while the amount 
 demanded [ ?] responds to changes of price quotations. Price change, 
 in fact, leads to extension or restriction of the amount demanded, or, 
 as is conimonly said, of the demand, though, this phraseology does not 
 really describe the true nature of what is occurring" {op. cit,, 
 p. 30). 
 
 The following, however, are examples of the more common but 
 less defensible usage : 
 
 Seager : "The general law of demand is that it varies directly 
 with changies in the intensity of wants, and inversely with changes in 
 
 the prices that must be paid for goods When demand 
 
 increases or decreases readily in response to price changes, it is said 
 to be elastic" {op, cit., p. 66). 
 
 Hadley : "In any given market, the supply of an article, in its 
 technical sense, is the amount offered at a given price. It tends to 
 
 increase as the price diminishes The demand for an article 
 
 is the amount which will be taken at any given price. It tends to 
 
 increase as the price diminishes The market price for an 
 
 article .... is the price at which the demand is equal to the supply" 
 {op. cit., p, 74). 
 
 Fetter : "In the case of any good .... a change in its ratio 
 to other goods will increase the demand" {op, cit., p. 29). 
 
THE ADJUSTMENT OF PRICE 535 
 
 chasing power, in terms of some standard, among all the 
 different grades and kinds of commoidities is, theoretically, 
 within easy accomplishment. 
 
 But for any group of individuals, a utility curve is, 
 as we have seen, a hopeless impossibility. A group 
 demand-price curve for any one kind and grade of article 
 is readily attainable; and a group demand-price curve for 
 commodities in general is also a possibility; but this last 
 only in the sense that, as such, no curve remains, but only 
 an aggregate market-price adjustment expressive of the 
 price relations of all the different exchanging goods. All 
 this, however, may require elaboration: 
 
 For any one kind and grade of commodity, the indi- 
 vidual curve. of falling utility per unit of commodity, as 
 distinguished from a falling price-paying disposition, could 
 have little or no significance as expressive of absolute utility 
 magnitudes ; not that some common denominator, in units 
 of pleasure, or of satisfaction, or of desirability, or of 
 choice, might not exist in the individual psychology; but, 
 if existent, it could hardly be expressed, and, if expressible, 
 could hardly be of service. The significance of the curve 
 is in the expression not of the absolute utility magnitude 
 of the different items of the stock, but only of their relative 
 significance. The marginal item also could become only 
 vaguely quantitative in meaning, quantitative in the sense 
 merely of asserting a smaller utility than that of any other 
 item in the series. 
 
 There is, therefore, no measure function anywhere 
 expressed in the utility or marginal-utility analysis; the 
 very fact that the series is a series, and that the law of 
 satiation which it expresses implies that the items are of 
 diminishing utility volume, makes each item incapable 
 of serving accurately as the utility equivalent or measure of 
 any other. 
 
 Nor, as we have seen, is it, with the individual demand- 
 price schedule, possible to find a measure of utility in 
 money. The limit of price offer expresses merely an 
 
536 VALUE AND DISTRIBUTION 
 
 equivalence in utility between the thing in prospect and 
 some foregone alternative. (See page 315.) 
 
 It follows that the total-expenditure schedule of the 
 individual indicates not absolute utilities, but only what 
 uses will be made of the individual's fund of purchasing 
 power as against the competing claims of other desirable 
 commodities. And no item of expenditure among all the 
 items need be marginal in the sense of being at indifference 
 between the actual direction and the alternative direction 
 of purchase. The marginal unit of expenditure will be 
 merely the lowest-service unit of all, without any neces- 
 sary or probable implication as to the absolute size of it. 
 Any attempted reduction for the individual of all the 
 different commodities into one utility curve or schedule 
 could, at best, be a mere repetition of the original expendi- 
 ture curve. 
 
 But it can hardly be too many times repeated that, so far 
 as concerns utility schedules, we can never get beyond the 
 individual. Society can have no utility curves or computa- 
 tions, unless upon some heroic assumption — nevertheless 
 possibly inevitable in socialism — that all men are alike, or, 
 at all events, that their differences may or must be over- 
 looked. As between different individuals, there can be no 
 comparison of utilities either quantitatively or qualitatively. 
 
 There may, however, be constructed for any one kind 
 and grade of commodity a social or market price-demand 
 curve, a curve indicative of the varying volumes of com- 
 modity marketable at the different prices set in the schedule. 
 But neither for the group, nor for society as a whole, nor 
 for any individual within the group is the price offer 
 indicative of any absolute utility magnitude.^ 
 
 ^ As forcibly illustrating this mixup between the individual utility 
 curve and the individual price-offer curve, — ^between the possible indi- 
 vidual utility curve and the impossible group or social utility curve, 
 and between the individual demand-price curve and the group or social 
 demand-price curve, Macfarlane's "graphic representation of the 
 marginal-utility theory" (Value and Distribution, p. 37) is espe- 
 cially worthy of citation. "The utility of successive increments of 
 commodity is represented by lines at right angles to M Ac- 
 
THE ADJUSTMENT OF PRICE 
 
 537 
 
 The relations between the individual desire and the 
 individual price-offer curve, and of both of these to the 
 market-price-offer curve, require some further attention. 
 
 How much of today's fund of purchasing power, 
 money or credit, shall a given individual turn toward the 
 acquiring of wheat? Not merely the hunger of today, but 
 the foreseen hunger of later days must be taken into the 
 reckoning, as must also the expected future supplies of 
 wheat and the expected future command of purchasing 
 power, and over against all this must be examined the same 
 
 cording to the marginal utility theory, the value of the whole com- 
 modity is determined by the utility of the last increment of supply." 
 So "A U or M N represent severally the marginal utility or value 
 per unit of the commodity." 
 
 Accurately, this curve might represent the utility curve of any one 
 commodity for any one individual at any given time, or it would serve 
 for his price-demand curve, or for the price-demand curve of society 
 as bearing upon any one commodity at any one time ; but it cannot 
 serve for utility curve and price-demand curve together, whether for 
 some one individual or for society. A price-demand curve differs 
 from a utility curve, where this latter is possible, in that the price- 
 demand curve shows the effect of the desire for other things. Thus, 
 even though the utility curves of several different men could be 
 identical, there would be as many different demand curves as there 
 were different men, and the demand curve of any one man would vary 
 with different days, even though the utility curve might conceivably 
 not do so. So, when Macfarlane is going to have A U or M N repre- 
 sent the marginal utility or unit value of the commodity, he is 
 again confusing the possible interpretations of the diagram ; he is 
 really treating the curve not as a utility curve of any sort but as a 
 social demand-price curve expressive of different volumes of purchas- 
 ing disposition in view of the differing individual comparisons and 
 decisions as to the respective applications of purchasing power. 
 
538 VALUE AND DISTRIBUTION 
 
 total of considerations as bearing upon the competing 
 claims of all other directions of expenditure. That is to 
 say, a purely personal system of discounting future facts 
 into bases of present activity must be applied over a wide 
 commodity field, before the individual can decide, in any 
 given case, whether he shall buy wheat or raiment, or 
 rather hold for future occasions certain items of unspe- 
 cialized purchasing power. Thus today's hunger-utility 
 line, if it could be drawn, and today's price-demand line, as 
 it can be drawn, must both be lines of steep descent, since the 
 appetite for food, and particularly for any one sort of 
 food, is quickly satiated. Not so, however, when the long- 
 time aspect is included in the computation. As the needs 
 of days ahead, or even of weeks and months, make them- 
 selves felt in thought, the price-offer line descends not at 
 all so sharply; possibilities of storage, of decay, of ravages 
 by vermin, as well as possibilities or probabilities on the 
 side of future supplies, future needs, and future purchasing 
 power, all are data in the problem. But in view of each 
 man's situation and prospects, the law of satiety holds, 
 and a limit comes to the purchasing disposition as reaching 
 out toward wheat. This curve does not, however, find its 
 lowest offer item at the point of satiation but at the point 
 where some stronger pull attaches upon the purchasing 
 power in hand. The items of price offer in the individual's 
 wheat-demand schedule will therefore probably scatter 
 themselves along at considerable intervals in the construc- 
 tion of the individual's general-expenditure schedule or 
 curve, this last curve serving to express the same facts 
 which, from another point of view, might stand as the indi- 
 vidual's money-utility curve. 
 
 It is now to be noted that the individual's price-offer 
 curve for any particular line of goods, and the individual 
 expenditure schedule, are both worked out upon the assump- 
 tion of a given price situation for each and every line and 
 grade of commodity ; very considerable modifications, there- 
 fore, in the amount of each commodity demanded, and in 
 
THE ADJUSTMENT OF PRICE 539 
 
 the general distribution of purchasing power, might follow 
 upon a change in the price of any single commodity. The 
 action of each individual in the market is, as we have seen, 
 to be regarded rather as the result of the market situa- 
 tion than as the cause, though each individual activity is 
 in turn to be taken as part of the entire cause. 
 
 And out of all these individual offer dispositions, how 
 construct the aggregate or social price-offer curve? This 
 problem applies to only one commodity, and can refer only 
 to the various amounts of this good which will be, under 
 given conditions, purchased at different levels of price. 
 And here again an existing medium of exchange and an 
 established general level of prices are assumed. Precisely 
 how, otherwise, the aggregate demand bearing upon any 
 one commodity could be expressed or formulated, or even, 
 for present purposes, described, is, indeed, hard to con- 
 ceive; to the present writer, at least, the problem would 
 seem hopeless. The solution for the individual case is 
 clear enough, but is precisely of a sort that will not com- 
 bine with other individual solutions in a way to render pos- 
 sible of construction an aggregate barter-demand curve. 
 For, as has been already pointed out, each individual desir- 
 ing to barter away any part of his possessions, and failing 
 to find an opportunity to exchange the particular item to be 
 sold against the precise thing demanded, will barter for 
 such third sort of commodity as seems to him most likely to 
 serve best as an intermediate ; and it is not to this writer at 
 present evident how these various lines of barter exchange 
 and this multiplication of media could be made theoretically 
 manageable in a market-value analysis. Seemingly each 
 instance of barter would be a matter of separate bargain 
 adjustment, modified only by the report of how similar 
 trades were elsewhere being made, and also by each indi- 
 vidual trader's opportunities and devisings as to some other 
 possible roundabout method of achieving his ends. 
 
 The social demand-price curve presents nothing like 
 similarity in direction to any of the individual demand- 
 
540 
 
 VALUE AND DISTRIBUTION 
 
 price curves combining to make it. The individual price- 
 offer curves of A, B, C, D, and E, say for bread, being 
 assumed as respectively depicting price demands of 9, 8, 
 7, 6, 5 ; 8, 7, 6, 5, 4; 7, 6, 5, 4, 3 ; 6, 5. 4, 3. 2; 5, 4, 3. 2, i, 
 and as represented in plotting as lines of a 45-degree declen- 
 sion, would, as an aggregate demand volume of 9, 8, 8 ; 7, 7, 
 7; 6, 6, 6, 6; 5, 5, 5, 5, 5; 4, 4, 4, 4; 3> 3» 3; 2, 2; i, plot 
 into a group demand curve represented as follows : 
 
 \ 
 
 
 "v 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 \ 
 
 \ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 -^ 
 
 
 •\^ 
 
 
 
 ■^^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '•«. 
 
 
 
 
 ^ 
 
 
 'v 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^* 
 
 
 
 ■'\ 
 
 
 ■~— 
 
 S- 
 
 -^ 
 
 
 
 
 
 \^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^*^ 
 
 
 
 'v 
 
 
 
 '^ 
 
 
 
 N^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 \^ 
 
 
 '^ 
 
 
 ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■\ 
 
 
 
 
 ^ 
 
 \ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 \ 
 
 
 \ 
 
 
 The value equation requires a supply as well as a 
 demand term; but it does not require the assumption of a 
 produced or of an elastic supply. To make, therefore, still 
 clearer the concept of demand, and to prepare for the 
 introduction of supply considerations, let there be assumed 
 an existing supply, truly, but a supply fixed and limited in 
 volume, in the sense that all sources of new supply are 
 taken as, for the time being, closed. 
 
 Nor is this an especially heroic assumption ; the eco- 
 nomics of child-trading approximates this case; and the 
 situation among the reservation Indians after a general 
 issue of supplies is a still closer approximation. How would 
 demand present itself under this gift-supply assumption? 
 And how would values adjust themselves? 
 
 Trading actually goes on briskly in these cases, and 
 doubtless would do so, if confined entirely to barter pro- 
 cesses ; but the barter problem has already been sufficiently 
 considered, and, even if capable of satisfactory analysis, 
 would not afford an analysis serviceable for our existing 
 
THE ADJUSTMENT OF PRICE 541 
 
 money economy. There is, therefore, also to be assumed 
 an existing medium of exchange, a price standard. 
 
 Nor will it greatly advance our problem, the determi- 
 nation of the demand and of the price of any one article, to 
 appeal to the proposition, obviously true for certain purposes, 
 that the existing volume of commodities at any time is in one 
 aspect demand, and in the other aspect supply, and that 
 therefore any increase in the total supply is at the same 
 time an increase in the total demand. The problem in 
 hand is to determine what amounts of money or of equiva- 
 lent purchasing power are, under all the conditions and 
 influences bearing upon the situation, at present held to be 
 expended for any given commodity at its various levels of 
 price — what purchasing-power demands are now extended 
 toward the commodity in question. All the different holders 
 of different goods, the exchange prices of which are to be 
 offered against the commodity under consideration, must 
 be assumed as having transferred their various commodity 
 holdings into the homogeneous purchasing-power medium, 
 before any one of these possessors of commodities or any 
 one of these commodities can figure as data in the analysis 
 of the fixation of price. Our question is, what money 
 demands center upon any selected commodity; we have no 
 concern with demand and supply as aggregates in relation 
 to the entire market for the total of commodities. 
 
 Each and every individual in the assumed group of five 
 persons will be assumed as disposed to purchase some share 
 of the assumed fixed supply, if only the price turns out to 
 be low enough to attract him ; each, that is, represents 
 potential demand. Individual A will take one item if the 
 price fixes itself at 9; five items if the price is 5; and evi- 
 dently this disposition not to give more than 5 for the 
 fifth item, or more than 6 for the fourth item, etc., expresses 
 a situation which must obtain some further expression, 
 were we to attempt the construction of demand schedules 
 for other commodities. We have, then, a schedule of dif- 
 ferent purchasing dispositions at different price levels, — our 
 
542 VALUE AND DISTRIBUTION 
 
 earlier schedule under a different statement; one item pur- 
 chasable at price 9, three at 8, six at 7, ten at 6, fifteen at 
 
 5, nineteen at 4, twenty-two at 3, twenty-four at 2, twenty- 
 five at I. 
 
 Does this complete our demand schedule? Suppose a 
 certain number of articles to be for sale; at what level will 
 the price be adjusted? Here we must obviously take 
 account of two different possible assumptions, (i) that the 
 holders of the comm.odity will sell at any price that they 
 can get, (2) that there are refusa.1 prices. 
 
 Upon the first assum.ption, that of a demand schedule or 
 curve expressing maximum price offers of 9, 8, 8, 7, 7, 7, 
 
 6, 6, 6, 5, 5, 5, 5, 5, etc., ten items of unreserved supply can 
 be absorbed by the market only upon terms of a price as 
 low as 5. 
 
 No such result will, however, obtain under the second 
 assumption; here, obviously, the outcome must be a dif- 
 ferent one accordingly as different assumptions are made 
 with regard to the reservation prices set by the various 
 sellers. The truth is that a case falling within this second 
 class is a case where the supply schedule really contains 
 demand items; the seller plays two roles. If two men, one 
 with a price-offer limit of 30, and other of 10, want to buy 
 a certain horse, for Avhich the owner will refuse anything 
 under 20, there are really three demand prices bearing 
 upon the horse; the case is not that, on the part of the 
 seller, of a willingness to sell at any price, in which case 
 we should reckon only two demands, but is rather like that 
 of an auction with an authorized bidder-in. 
 
 If now, together with our original price-offer schedule 
 of 9, 8, 8, 7, 7, 7, 6, 6, 6, 6, 5, 5, 5, 5, 5, 4, 4, 4, 3, 
 3, 3, 2, 2, I, it be assumed that the ten supply items are 
 offered only as subject to a reservation schedule expressing 
 minimum prices of 10, 9, 8, 7, 6, 5, 4, 3, 2, i, and if also these 
 reservation prices be transposed to appear as demand prices 
 under the demand schedule, our problem will then present 
 itself as one with an unreserved supply of ten items as over 
 
THE ADJUSTMENT OF PRICE 543 
 
 against a demand schedule or curve of lo, 9, 9, 8, 8, 8, 7, 7, 7, 7, 
 6, 6, 6, 6, 6, 5, 5, 5, 5, 5, 5, 4, 4, 4, 4, 4, 3, 3, 3, 3, 2, 2, 2, 
 I, I. The price will then adjust itself at the point where 
 the market demand will absorb ten items of supply, that is 
 to say, at some price greater than 6 and not greater than 7. 
 
 The manner of market analysis especially characteristic 
 of the Austrian school has, under the name of the mar- 
 ginal method, now established itself among practically all 
 economists, although there remain different views enough 
 as to the possible purposes which this analysis may serve. 
 "In isolated exchange, exchange between one buyer and 
 one seller, the price is determined somewhere between the 
 subjective valuation of the commodity by the buyer as 
 upper limit and the subjective valuation of the seller as 
 lower limit." ^ 
 
 ^Positive Theory of Capital, p. 199. 
 
 No one would be disposed to dissent further than to remark that 
 Boehm-Bawerk has here shifted his subjective-worth concept over into a 
 something derivative from the comparison of subjective worths — a 
 true subjective valuation expressed in terms of price. B, the seller of 
 the horse, and A, the buyer, work out the price-result by higgling. 
 But it is worth while once more to urge that the case is more complex 
 than it seems upon the face of it. What are these different subjective 
 valuations? A is concerned not merely with the utility of the horse, 
 but also with the utility of what he must let go in order to get the 
 horse. B likewise has really two things in mind — the horse to be sold 
 and the return therefor to be received. Evidently, there is present in 
 the problem a medium of exchange, and tacitly and indirectly present 
 a whole range of commodities into which the transferred medium may be 
 exchanged. For ideally simple conditions, the case should be assumed 
 as one in which B has only horses for sale, A only sheep, and neither 
 A nor B the disposition, at the same time with the opportunity, to 
 part with the property to be acquired. If, then, B's supply of horses 
 is such as to make horses a burden to him, while A is equally over- 
 stocked with sheep, the terms of exchange may be anything — thirty 
 horses for one sheep or thirty sheep for one horse ; there are no limits 
 but those of skill in bargaining. But, directly it is assumed that each 
 finds in both horses and sheep a utility for himself, there comes about 
 a valuation by both A and B, not, however, a valuation by B of his 
 horses or by A of his sheep in terms of some unrelated marginal useful- 
 ness, but a comparison by B of the marginal usefulness of his horses 
 in terms of the marginal usefulness of the sheep offered, by A of the 
 sheep in terms of the horses offered. That is to say, upon a basis of 
 one marginal utility for each exchanger there can be no limit prices 
 between which the exchange price must finally be found. Each trader 
 
544 VALUE AND DISTRIBUTION 
 
 This explanation of value is based upon the assumption 
 that, as the items of offer and demand become more numer- 
 ous, the margin interval within which the higgling process 
 may be operative is constantly reduced. A sufficiently 
 minute gradation of both offer and demand is assumed — so 
 near an approach to infinitesimals — as to justify the treat- 
 ment of the selling-price as accurately a marginal price for 
 both demand and supply. Admitting all the necessary 
 attendant conditions, namely, that all the commodities are 
 of equal desirability, all the competitors in the market 
 simultaneously, and "that the buyers and sellers make no 
 mistakes about the actual state of the market such as would 
 prevent them from really pursuing their egoistic interest" * 
 — assuming, in short, a perfectly frictionless market, this 
 may be admitted as an accurate account, descriptively, of 
 the market process; but it is another matter to assert that 
 the point of adjustment expresses marginal utilities, or 
 measures them, or is measured by them. As we have seen, 
 two marginal utilities must be compared by each marginal 
 trader — utilities must become marginal relative utilities — 
 before a trader can become a marginal trader. It is still 
 another matter to assert that these marginal traders are, as 
 against the opposing in-pressing volumes of commodity 
 and of purchasing power, the causal facts determining the 
 ultimate price adjustment. It is yet even more questionable 
 to assert that, while the market price coincides with the 
 price limits of both marginal traders, the price is invariably 
 determined by the price limit of only one — the buyer. All 
 these questions really resolve themselves into the one great 
 question, What are the causative forces in the market 
 adjustment? 
 
 must be concerned with two marginal utilities, and must have based 
 his subjective valuation upon the outcome of this comparison. It is 
 only upon these conditions that A can set his minimum offer at ten 
 sheep for one horse, or B determine, as his limit, to accept five sheep 
 for one horse, and the price limits be declared fixed at ten to one as 
 upper limit and five to one as lower limit. 
 
 The importance of the further assumption of an exchange medium 
 and a surrounding commodity market is now sufficiently evident. To 
 say that B will accept fifty dollars for his horse, and that A will, as 
 limit, give sixty dollars, is to say that B prefers as against the utility 
 of the horse the things which fiftj' dollars will purchase, and that, even 
 as against the utility of the things that sixty dollars will purchase, A 
 prefers the utility of the horse. 
 
 * Positive Theory, p. 204. 
 
THE ADJUSTMENT OF PRICE 
 
 545 
 
 The illustration — quoted from Positive Theory — of 
 isolated exchange has already received sufficient examina- 
 tion. No talk of determination of price by margins or at 
 margins, but only between margins, can be made for this 
 case. 
 
 Consider now the illustration of competition confined 
 to the selling side. If ^ is the only buyer, with 30 as 
 his price limit, and if together with B, with a minimum 
 price of 10, there are other items of supply, B^ at 12, B^ 
 at 15, B^ at 20, and B^ at 25, the price must be made at 
 somewhere between 10 and 12 as the limit.^ 
 
 This second case gives little support to the theory that 
 the price adjustment either expresses a demand price or 
 is limited in either direction by demand margins. Both 
 the upper and the lower limits are fixed by offerers' prices. 
 
 It appears, indeed, that only where, at a certain mini- 
 mum of price as set by supply, the demand items out- 
 number the supply items, can a demand schedule furnish 
 both price limits ; but cases of this sort are presented only 
 in the one-sided competition of buyers : 
 
 "Assume now that, in addition to A-^ and A 2, three other 
 buyers, A^, A^, and A^, compete for the horse, and their 
 respective circumstances are such that they count the pos- 
 session of the horse equivalent to 22, 25, and 28, respect- 
 ively As will bid to the limit of 22, A^ to 25, 
 
 and A^ to 28." « 
 
 Thus at 28 Aj^ and A^ would close, so A^ must pay a 
 price somwhere between 28 and 30. 
 
 TWO-SIDED COMPETITION 
 
 Buyers 
 Ai values a horse at 30, and would buy at any price under 30 
 
 A, 
 As 
 A, 
 As 
 
 A6 
 Ay 
 
 As 
 
 A, 
 
 A.\Q 
 
 <( (( 
 
 (( (< 
 
 (< (< 
 
 (( (< 
 
 (( (( 
 
 (< (( 
 
 (( (( 
 
 28, 
 
 " 26, 
 "24, 
 "22, 
 "21, 
 
 " 20, 
 
 " 18, 
 
 " 17, 
 
 " 15, 
 
 a « 
 
 (( <( 
 
 ii It 
 
 ci l( 
 
 a It 
 
 (( It 
 
 II tt 
 
 t( a 
 
 28 
 26 
 24 
 22 
 21 
 20 
 18 
 17 
 15 
 
 ^Positive Theory, p. 201. 
 « Ibid. 
 
546 
 
 VALUE AND DISTRIBUTION 
 
 Sellers 
 Bi rates a horse at lo, and would sell at any price over lo 
 
 Bs 
 B, 
 Bs 
 Bo 
 B, 
 
 IS, 
 17, 
 20, 
 
 2ii, 
 
 25, 
 
 26, 
 
 II 
 
 15 
 17 
 
 20 
 
 25 
 
 26 
 
 "At any price over 20 only six horses are demanded and 
 five offered The solution becomes essentially differ- 
 ent when the rising bids have reached the limit of 21. At 
 that price Aq is compelled to cease bidding, and there 
 
 are now only five sellers against five buyers The 
 
 bargain may be concluded at the price of 21." But at 
 the price of 211^ "there would be a sixth possible seller in 
 
 the form of Bg The limits within which the 
 
 price must necessarily be determined are narrowed to 21 
 and 211^.'"^ 
 
 But meanwhile observe that, though in an isolated 
 exchange, B and A get at the terms of sale by higgling, 
 and though, in the case of the one seller B, in face of A^ 
 and A 2, the price is fixed by the bargaining oi B with A-^^, 
 it is a hazardous step to conclude that any similar pairing- 
 off can obtain under the two-sided competition of the ordi- 
 
 '' Positive Theory, pp. 203-206. 
 
 Recasting! the problem so as to make reservation prices appear in 
 the demand column, the supply schedule stands as eight items for sale 
 without reservation as against offers of 10, 11, 15, 17, 17, 18, 20, 20, 
 21, 21 J4, 23, 25, 25, 26, 27, 28, 30. The price outcome is, of course, 
 the same as before. 
 
 It is worthy of note that this view of supply as having also a 
 demand aspect and as leaving both the upper and the lower price limits 
 to be furnished from the demand schedule affords scant comfort to the 
 demand school of value, since it remains true that the number of 
 items in the supply schedule must determine between which limit 
 pair of demands the price shall finally settle. Otherwise than by 
 somehow showing that the volume of the supply schedule is itself to be 
 traced back to demand forces and explained by them, the demand point 
 of view fails to make out its case. 
 
 But, in whichever manner the problems are analyzed, it is evident 
 that no warrant has yet been given for asserting the paramount impor- 
 tance of either demand or offer in the determination of price. Admit- 
 ting that for cases where infinitesimals have excluded higgling, "we 
 now see that every market price is a marginal price" {Positive 
 Theory, p. 209), the existence and origin of any one determining force 
 must still be held in doubt. To justify the Austrian interpretation, 
 supply has yet to be resolved into demand. 
 
THE ADJUSTMENT OF PRICE 547 
 
 nary market, no matter how idealized may be assumed to 
 be the conditions. It can hardly be true that, in order to 
 reach the price adjustment, any particular individuals 
 must get together; yet our rationalized schematic narrative 
 has it that the least anxious actual buyer who would pay 
 22, if necessary, and the least anxious actual dealer with 
 his limit of 20 — the marginal bargainers — arrange the 
 price adjustment through their skill of fence in the bar- 
 gaining process. They certainly need not; all that the 
 perfect market assumes is that such a price be reached as 
 shall leave no one having the willingness to sell below the 
 price to cry his wares without a purchaser, and as shall 
 leave unsupplied no purchaser who would yet take the 
 commodity at any slightest fraction above the price estab- 
 lished. The price which will fulfil these conditions may 
 be established in no matter w^hat wise ; it is sufficient that it 
 will not be disturbed. The chances are evidently thousands 
 to one that the marginal traders will not get together to 
 higgle, and it is by no means clear that these are the traders 
 of especially marked disposition to higgle. That they are 
 the most indifferent of all, in point of the volume of quasi- 
 rents at stake, may not indeed fairly imply that they are the 
 least interested in the particular penny or two to be con- 
 tended for ; but in actual fact not the number of pennies at 
 stake, but the kind of people playing for these pennies, will 
 mostly determine who will do the higgling and how much 
 higgling will be done. Women of the shopping and bar- 
 gain-counter mania deserve especial attention in this con- 
 nection. There is no sufficient reason for supposing them 
 to be purchasers at or near the margin of indifference. 
 
 And, even were it true that the traders nearest the 
 margin chiefly do the higgling, their activity could be 
 effective in setting the last touches to the price adjustment 
 only so far as they were assumed not to be marginal. It 
 is of the essence of the theory that in a perfect market 
 higgling is not a force to modify the outcome ; and, even 
 upon the assumption of an inter-marginal area, it could be 
 only within this narrowest of limits and as putting, so to 
 speak, a fine edge on the price that bargaining could avail 
 to fix the terms of the exchange. Certainly, in the broad 
 view, these marginal or quasi-marginal bargainers are the 
 results of the price limit, and not the cause of it. The 
 marginal item, whether of demand or supply, differs from 
 any other item only that through it as marginal increment 
 
548 VALUE AND DISTRIBUTION 
 
 a determination may schematically be made of just what 
 effect it, or any other single item, has had upon the_ price 
 adjustment, measurement being made from the point at 
 which all the other forces in the market would otherwise 
 have left the price. Not to the soldier who fires the last 
 gun is the victory to be accounted, nor is the smallest boy 
 who touches off a fire-cracker to be held responsible for 
 the Fourth-of-July hubbub. If there is truly a marginal 
 buyer, the marginal price must coincide with his valuation; 
 but neither the point of adjustment nor the buyer at this 
 point is the determinant of price. This buyer is the least 
 forceful among all the buyers. True it is that, if he were 
 not in the case, the price would have been other; but so is 
 this true of all other buyers. The marginal demand is one 
 among the whole number of demands, and as such has its 
 part in the resulting adjustment; but it is the entire demand 
 in equilibrium with the entire supply which gives this 
 market adjustment. Almost as well talk of the child who 
 chases the wave up and down the shingle as fixing the 
 wave- front. 
 
 For most purposes the marginal traders are observers. 
 It is true that their added weight in the market may 
 move the price from one margin to another, but the basis 
 on which they build or to which they add is made by 
 thousands of other demands in face of thousands of 
 offers.® 
 
 ^ That this needs saying is evident not merely from numberless 
 cases of careless statement — some of the present writer's among them 
 — ^but from cases where the marginal doctrine is made the basis of 
 really absurd conclusions : 
 
 "At first sight it may appear strange that so few persons, and 
 those so little conspicuous, should decide the fate of the whole market ; 
 but on closer examination this will be found quite natural. If all are 
 to exchange at one market price, the price must be such as to suit 
 all exchanging parties ; and since naturally the price which suits the 
 least capable contracting party suits, in a higher degree, all the 
 more capable, it follows quite naturally that the relations of the last 
 buyer whom the price must suit, or, as the case may be, the first buyer 
 whom it cannot suit, afford the standard for the height of price." — 
 Positive Theory, p. 213. 
 
 "We may go a little farther, and affirm that, so far from the 
 money demand proper being the regulating demand, in the adjustment 
 of ratios between the precious metals and other commodities that 
 
 money demand can hardly ever be the regulator [It] can 
 
 hardly ever be that last margin of demand to which the last margin of 
 supply is adjusted, and by which the ratio of exchange between the 
 precious metals and other articles will be finally settled." — Giffen, 
 The Case against Bimetallism, pp. 94, 95. 
 
THE ADJUSTMENT OF PRICE 549 
 
 The fact appears to be that the , marginal method of 
 analysis is of very limited application as an account of the 
 concrete facts of industry, and is of even less value as a 
 statement of causal sequences. As a thoroughly rational- 
 ized statement of that which never remotely approaches 
 the rational — as a formulation of the logic implicit in the 
 market — it has, in some directions, an important function 
 in economic investigation ; but it says merely that, with the 
 various occasions of friction eliminated, with things differ- 
 ent in degree merely, the forces and tendencies of the mar- 
 ket would work out in conformity with the illustrative 
 scheme. It has nothing to say as to the nature or causal 
 interplay of these forces. 
 
 This is in no sense to deny the important service of the 
 marginal method, but rather to define and limit its pur- 
 pose. Only by such close analysis of what is characteristic 
 in marginal relations does the ready and sensitive response 
 of value to market influences become intelligible, or a 
 rational and detailed account of the ultimate relations of 
 demand and supply to each other, and of both to market 
 prices, become possible. 
 
 Precisely as demand at any given time must include all 
 the purchasing dispositions in possession of money or of 
 equivalent purchasing power translated into terms of money 
 — credits, deposit rights, goods appraised in terms of money 
 — so the supply schedule, in whatever manner it is formu- 
 lated, must allow for all the commodities for sale on any 
 mone3^-price terms. As an intermediate step in the elucida- 
 tion of the price problem, supply no more than demand is 
 to be formulated as a derivative from the price adjustment. 
 
 And here we may stop to question whether anything is 
 really gained by distributing into the demand schedule 
 the demand elements hidden in supply. Is the price adjust- 
 ment thereby made either more intelligible or easier of 
 manipulation ? 
 
 Probably not; no preference is urged; it is only when, 
 presently, under cost-of -production influences, the supply 
 volume of any particular commodity is to be explained, or 
 when an analysis is attempted of the influences by which 
 
55° VALUE AND DISTRIBUTION 
 
 the volume of supply will, with passing time, be modified, 
 that theoretical significance attaches to the proposed recast- 
 ing of the demand and supply schedules. 
 
 But it remains true that, speaking generally of modern 
 entrepreneur production, goods when once produced are 
 sold for what they will bring; which really amounts to say- 
 ing that in the main the practical significance of all reserva- 
 tion prices must be sought in the field of costs. 
 
 For it now becomes necessary to attempt some account 
 of the bearing of cost-of -production influences upon supply. 
 All influences tending to restrict the relative output of any 
 commodity express themselves in the entrepreneur compu- 
 tation as cost influences of the most unquestionable sort; 
 and chief among these are the value-productive opportuni- 
 ties open in other lines of production. 
 
 But, in point of fact, inasmuch as cost of production is 
 purely a computation of the individual entrepreneur, there 
 is hardly any limit to the influences that may bear to cancel 
 or limit his production; but each such influence, by the 
 very fact that it is supply-restricting, is the basis or the 
 expression of a cost; whether it applies to one or to many 
 or to all lines of product is irrelevant to the present pur- 
 pose. No individual entrepreneur knows or cares as to 
 the effect upon the relative volumes of different supplies. 
 Possibly enough, the hazard or the tedium, or the ill repute, 
 or the time discount, or the rent, may in other industries be 
 equally as serious burdens as in the line of production 
 pursued; but there is, in any event, the alternative of non- 
 production. The only cost-of-production question is, then, 
 what remuneration must be received to maintain the out- 
 put. This remuneration must be sufficient to keep the pro- 
 ducer from deserting his line of production for another 
 fine, or from retiring, entirely or in part, to leisure. Thus 
 the cost margin may be one of change of product or of 
 restriction of product or of retirement. But, in any 
 case, cost is the money statement of the necessary compen- 
 sation. 
 
THE ADJUSTMENT OF PRICE 55 1 
 
 Superficially viewed, there is, however, apparent force in 
 the doctrine that all such burdens or expenses — if any such 
 there are — as are common to all industries, could be omitted 
 from cost computations, not as excluded from cost, but as 
 irrelevant to relative costs ; for, after all, it is, in the broad 
 view, true that cost as bearing upon value must be cost in 
 the relative sense. And it must be admitted that it would 
 be possible to regard entrepreneur qualities, capacities, 
 conditions, and preferences as the sole variant influences 
 upon cost, taken in this relative sense, were it not for the 
 fact that the different industries vary greatly in their tech- 
 nique in respect to the relative call for one productive 
 agent or class of agents as against another. So were all 
 industries alike in this respect, or, so far as the technology 
 of production were concerned, were the different agents and 
 instruments practicably interchangeable at their established 
 price levels, so that no agent or instrument could be in 
 relatively short supply, their could remain no basis for 
 variations in the relative costs of commodities, other than 
 through such differences as depended strictly upon dif- 
 ferences in entrepreneurs. 
 
 As the outcome of this discussion — more or less repeti- 
 tious, — we arrive at a clearer view of the relation of costs 
 to value and of the ultimate determinants of value as 
 expressing themselves through costs. Taking entrepre- 
 neurs as they are, with all their differences, and as competi- 
 tively operating under given and common conditions of 
 technological development, and placing these entrepre- 
 neurs, with their different abilities and adaptations, over 
 against the conditions of human needs and wants on the 
 one side, and over against the existing supply of instru- 
 ments and the actual limitations and conditions upon the 
 supply of these instruments, on the other side, we have a 
 full explanation for the relative volumes of products and 
 for their respective market prices. Cost of production is 
 merely the entrepreneur computation under which these 
 
552 VALUE AND DISTRIBUTION 
 
 underlying forces and conditions exert their determinative 
 influence upon the relative volumes of products. 
 
 Cost, then, is to the entrepreneur something more than 
 a return for the outlays of production, often something 
 more also than a personal justification for activity as 
 against idleness. The producer must in most cases also 
 justify his occupation against any other line of gainful 
 activity open to him. As bearing upon price, cost is, we 
 repeat, nothing more than the inducement, expressed in 
 money, necessary to the bringing- forth of product. The 
 search for the maximum price remuneration for the pro- 
 ductive energies and opportunities at one's disposal dis- 
 closes what is commonly the most important element in 
 cost in any particular line of production. 
 
 Or, again, cost may be stated as the refusal price 
 below which, as a margin, the advantages of some alterna- 
 tive of production or of recreation will tip the scales of 
 choice. Taking account, in this refusal price, of its most 
 important constituent, the relative advantages of some 
 other line of employment, the compensations held forth for 
 the ministry to other demands, supply takes on a distinctly 
 dynamic aspect; it is no longer an inert or passive fact as 
 the recipient of demand, and as having the capacity to 
 affect value only as it satiates demand. It has rather the 
 aspect of a resistance, since it is, in large part and in the 
 relative computation, almost solely the expression of 
 demands in other directions. 
 
 If it be granted that the supply schedule is equally a 
 demand schedule, the futility of the contest between the 
 utility school and the cost school becomes apparent. Each 
 of the contestants will have to make room for the other, 
 with both elements recognized as dynamic in precisely the 
 same sort. Relatively speaking, however, the demand 
 schedule is, doubtless, a fixed one. However fully, then, 
 the primal and causal nature of demand be recognized, 
 there is much to say for the view that, given man as he is, 
 with his equipment of desires and tastes and habits and 
 
THE ADJUSTMENT OF PRICE 553 
 
 customs, modifications in price are most profitably studied 
 from the point of view of variations in the supply term. 
 Diminishing relative costs now here, now there, are the 
 characteristics of a progressive economy; the proximate 
 causes of modifications in value are, therefore, to be found 
 in those changes of productive processes which, by dimin- 
 ishing the relative cost of particular commodities, expand 
 their supply. A better process implies simply that per 
 unit of product it is now necessary to divert a smaller 
 total of productive forces from other lines of production. 
 Prices fall until the rising curve of product cuts the falling 
 curve of price at a new equilibrium point of compensations. 
 Productive energies and the derived remunerations dis- 
 tribute themselves in view of the marginal urgency of 
 the different demands. But the more clearly, then, is it an 
 inadequate formulation to say that the market, having 
 become overstocked at the old price, the increased supply 
 makes it necessary to make sale connections with wants of 
 lower intensity — that the larger supply has, so to speak, 
 uncovered lower levels of demand, so that the market price 
 is still the marginal demand price of the newly attracted 
 purchasers. Doubtless so it is, but it is equally the mar- 
 ginal supply price. Neither the relative-marginal-utility- 
 demand items nor the marginal-utility-supply items can be, 
 either alone or in conjunction, taken as fixing value, but 
 only as commensurate with value. 
 
CHAPTER XXVI 
 DISTRIBUTION 
 
 Fundamental to all problems of costs, and, indeed, to all 
 aspects of distribution, is the problem of the fund or 
 quantity of goods to be distributed. What is the dis- 
 tribuendum, the group or social dividend? 
 
 Suppose Farmer A to have succeeded during the year 
 in covering his living expenses and to have added $500 to 
 the value of his farm; what is his income, $500 or $1,000? 
 
 Mr. Cannan stands for the view that within income 
 must be included (i) the things enjoyed, (2) the increase 
 made in personal capital, the $1,000 solution.^ Professor 
 Fisher, on the contrary, insisting that income is strictly to 
 be distinguished from capital — income being taken to consist 
 purely of psychic services, the flow, while capital stands 
 solely for the fund of possessions from which this flow 
 is derived — holds that the $500 of improvement added to the 
 farm is really not present income but rather the postpone- 
 ment of present income, and that the increase in the value 
 of the farm is merely the present worth, the capitalized 
 value, of a prospective increase in income.^ 
 
 For the purposes of the present discussion, Professor 
 Fisher's view appears to be the better one; human affairs 
 may, if one likes, be regarded in two aspects, on the one 
 side, the appetitive side, an analysis of human desires for 
 valuable services, on the other side, an investigation of the 
 productive processes and the distributive forces under 
 which these desires reach their more or less of satisfaction. 
 Consumption is the final goal of production, psychic income 
 (utility) the ultimate significance of the production-distribu- 
 tion process. If by drouth or fire or murrain and before any 
 
 ^Economic Journal, Vol. VII, p. 284. 
 
 ^Ibid., pp. 534, 535- 
 
 554 
 
DISTRIBUTION 555 
 
 enjoyment had accrued, our capitalizing farmer had seen 
 his improvements canceled, they could not be held to have 
 furnished income, in any sense with which ultimately the 
 distribution problem is concerned. 
 
 But how about the products of the farmer's kitchen 
 garden, making part of his $500 of "living" suppHes, or 
 about the eggs and butter produced and consumed upon the 
 farm, and, generally, about all those commodities and serv- 
 ices which might have been, but were not, marketed? 
 
 Or how about the fresh air breathed and the fine views 
 commanded and the neighborhood privileges enjoyed upon 
 the farm — all facts controlled and appropriated under the 
 right and title of the farm ownership, and all in their share 
 contributing to its command of those rental incomes, of the 
 long series of which the value of the farm stands as the 
 capitalized present worth ? Is it necessary that a potentially 
 marketable fact pass through the market crucible, before 
 this fact can stand as an item in the social distrihuendumf 
 
 And what shall be said of the housewifely activities of 
 the women folk at home, their errand-goings and slipper- 
 bringings and nurselike ministrations? Are these to be 
 accounted unproductive merely by the fact that they are 
 not, in any usual sense, paid for? And if productive, what 
 is the relation of the product to the national dividend? 
 What also about the labor of the domestic servant? And 
 how exclude this, without applying the same rule to the 
 efforts of the actors, teachers, and preachers? Or is the 
 line of distinction still this one of appearance or non- 
 appearance in market exchanges? 
 
 And, theoretically, these are far from being the most 
 serious difficulties. If it be agreed that, even at the margin 
 of withdrawal, work may be pleasurable, and yet be aban- 
 doned at the point where the pleasure of the activity, 
 plus the pleasure from the product, is outweighed by the 
 advantages attaching to other pleasant work or to leisure, 
 where, then, shall be drawn the line between work and 
 
556 VALUE AND DISTRIBUTION 
 
 play ? Shall it be said that anything is work which is done 
 with any slightest regard to the resulting product, and that 
 only that is play which is done purely and solely for the 
 very joy of the activity? This is probably the more com- 
 mon formulation; but what is product for the purposes of 
 the case in hand? If one hires someone to play the violin 
 for him, the activity of the player is clearly productive; 
 that is why it is paid for. And if gratuitously rendered — 
 a gift of service — is the playing thereby to be regarded as 
 the less a service and the less productive? And why is not 
 equally productive the act of playing for oneself? Is 
 the distinction purely in the fact that in this last case there 
 is no external and marketable somewhat? Or is the dis- 
 tinction merely one of the degree of roundaboutness of the 
 path by which the service arrives? 
 
 Surely if one spend some days in making a violin, later 
 to be useid for one's self-amusement, the process of making 
 must be accounted productive. Is the distinction then 
 between the productive and the unproductive one of exter- 
 nality of result? or of roundaboutness? If one apply him- 
 self to grievous study in preparation for the making of 
 violins, this must be regarded as productive effort, unless, 
 indeed, the denial rest upon the fact that as yet there are 
 no external results, the study being regarded rather as a 
 preparation for producing than as actual production, and 
 the skill rather as producer than as product, and its remun- 
 eration rather as wages than as interest. 
 
 But would it at all matter for the purpose, were the study 
 a preparation not to make violins for oneself, but to play 
 violins to oneself? In economic usage, it is difficult to 
 call this sort of preparation work, but in any lay sense of 
 the term, difficult to call it anything else. But, clearly 
 enough, no product has yet manifested itself, of a sort to 
 rank as a psychic income, or to function as rent or hire or 
 wage with relation to the aggregate product to be dis- 
 tributed. It seems, then, that not all desirable results fall 
 within the dividend concept. 
 
DISTRIBUTION 557 
 
 Possibly another line of approach to the problem will 
 better serve. Leisure and recreation cannot altogether be 
 excluded from the field of economic reasoning, since they 
 rank as among the costs setting a limit to productive activ- 
 ity; not merely the outlays of production, but the pains of 
 production, and likewise the pleasure displacements of pro- 
 duction, are facts affecting the money recompense required 
 to induce production. That is to say, recreation wants are 
 value-affecting influences to be taken into account in the 
 computation of costs. 
 
 All this, however, idoes not involve the inference that, 
 from the market-value point of view, recreation is produc- 
 tive. Recreation never looks toward marketable product, 
 and is therefore irrelevant to market value, otherwise than 
 in this aspect of cost. In the market-value sense, at any 
 rate, it is not productive. 
 
 But how, from the individual point of view, say, in the 
 Crusoe reckoning? Shall basking in the sun be, from this 
 point of view, accorded productivity, even though it be a 
 productivity without activity? Plainly, the result is a satis- 
 faction, a utility, a psychic income. What does it signify in 
 Crusoe's economic life — his zvirthschaftlichen Lehen — 
 whether or not somewhere in the process an external fact 
 presents itself? The truth seems to be that basking in the 
 sun and every ordinary sort of play can fall short of eco- 
 nomic quality not by any test of externality, but only by the 
 fact that free goods are not economic goods ; they need no 
 economizing. In the economic sense, the production of 
 free utilities is not production at all. So if, aside from any 
 market aspect of the case, violin-making were an enjoyable 
 activity — a costless process, it could not become economically 
 productive by the mere fact that a desirable thing resulted 
 from it, any more than the playing of the violin for self- 
 amusement becomes productive by the mere fact that it 
 gives amusement. No matter how greatly prized mud 
 pies may possibly be when once they are made, they are not 
 thereby economic goods — and this, simply because they are 
 
5S8 VALUE AND DISTRIBUTION 
 
 free — costless — goods; one may have them to the limit of 
 his desires, exempt from all conditions of burden. 
 
 But again, what if the case be one where the recreation 
 is really appreciated as a costly thing, as displacing some 
 valuable product which, but for the overbalancing claims 
 of recreation, would have been produced? In this case, 
 the recreation must, it seems, be accepted as a productive 
 fact ; the resulting good is no longer a free good but a good 
 obtained on terms of conscious sacrifice. Many a man 
 foregoes an outing, not solely as a question of the expense 
 of the trip, but in part because of the attendant suspension 
 of earnings. 
 
 And surely the pleasure that, in any way, one pays for 
 has a value ; it is, indeed, the essential characteristic of 
 all valuable psychic income that, in some sort, it costs to 
 get it. 
 
 We conclude, then, that much that is called play, and 
 much that is ignored, either as unproductive or as irrele- 
 vant to market-value computations, must, in the individual 
 psychology, be held to be productive, and that only such 
 activities are, in the individual reckoning, unproductive as 
 are, in the actual thought of the individual, held to be 
 costless. 
 
 This conclusion receives corroboration from the fact 
 that where another plays the violin for your pleasure, and 
 yet does it without charge, the naive common-sense would 
 rank the case as neither more nor less productive than 
 is one's own activity for one's own amusement. 
 
 But to declare an activity productive, whether indi- 
 vidually or socially, is not precisely to establish its product 
 as an item in the social distribuemdum. Not all product is 
 implicated in the distributive process ; there is much pro- 
 ductivity against the result of which no competing and con- 
 flicting claims on behalf of co-operating productive factors 
 can attach, or, at all events, do attach, and which has no 
 other relevancy to the distributive problem than is implied 
 
DISTRIBUTION 559 
 
 in the fact that the production of it may have had some 
 bearing to restrict the quantum of distributive goods. ^ 
 
 Regarding, then, the social dividend as made up solely 
 of products ripe for consumption, and as including not all 
 of these, but only such as, either by the conditions of their 
 production or by the manner of their consumption, come 
 to be involved within the distributive process, we are now 
 concerned to note that all consumption goods ripening to 
 service within the economic process, as distinguished from 
 crime, or warlike foray, or other non-market predation, 
 fall to their recipients under the guise of economic income. 
 But not all incomes are received by title either of inde- 
 pendent production or of co-operative contribution to pro- 
 duction. If we are to render any adequate account of the 
 forces determining the apportionment of the social distribu- 
 endum, it will be necessary to explain the actual distribution 
 of purchasing power in society. This the productive- 
 distributive process is adequate to do only in part. And 
 productivity of income is something other and more inclu- 
 sive than mere technological productivity, present or past. 
 Goods for consumption are acquired through the posses- 
 sion and offer of current purchasing power; and this in 
 turn may have been acquired by inheritance, by gift, by 
 speculation, by gambling, by stealing, as well as by title of 
 
 ^ It would be hard to decide whether the net result of this discus- 
 sion is concurrence in the prevailing doctrine or divergence from it. 
 So far as the present writer is aware, surprisingly small thought has 
 been directed to making the social-dividend concept precise. The dis- 
 cussions of Cannon, Fisher, and Fetter bearing upon the concept of 
 income are both pertinent and illuminating for the purposes of the 
 problem ; and yet— as it seems to this writer — the social dividend is 
 something appreciably smaller than the aggregate of all individual 
 incomes. Smart {The Distribution of Income, chap, xi) has discussed 
 with great acuteness some aspects of the question, and concludes not 
 only that the work of the housewife is productive, as it surely is, 
 but that the product is to be included within the social dividend. It 
 is, then, evident that the view here taken goes farther than the 
 prevailing opinion in extending the notion of productiveness, at the 
 same time verging toward extreme restriction in deciding what share 
 of the aggregate product is to be included in the distribuendum. 
 
560 VALUE AND DISTRIBUTION 
 
 having produced, or of having helped produce, a valuable 
 commodity. For, in truth, not merely the distribution of 
 the landed and other instrumental, income-commanding 
 wealth in society, but also the distribution of general pur- 
 chasing power and of rights to wield and direct the appli- 
 cation of general purchasing power, are, at any moment in 
 society, to be explained only by appeal to a long and com- 
 plex history, a distribution resting, no doubt, in part upon 
 technological value productivity, past or present, but in 
 part also tracing back to bad institutions of property rights 
 and inheritance, to bad taxation, to class privileges, to 
 stock-exchange manipulation, political favor, legislative 
 and administrative corruption, pensions, tolls, royalties, 
 perquisites, patents, interest on public loans, interest on 
 consumption loans, and, as well, to every sort of vested 
 right in iniquity. 
 
 And some of these mere rights of tribute come to be 
 included in the production process, and to rank there 
 as valuable market advantage or opportunity to such indi- 
 viduals as control these rights, e. g., business blackmail, 
 royalties on patents and processes, tolls, transportation 
 impositions, and the like. But there being no apparent 
 method of bringing this class of facts within the orderly 
 sequences of economic law, we shall — perhaps — do well to 
 dismiss them from our discussion, merely stopping, how- 
 ever, to note that the incomes upon them — to the extent that 
 these incomes are so far vested as to promise future 
 revenues — are capitalized under the discount principle, are 
 salable like other acquisitive goods, are wealth for all indi- 
 vidual ends of gain or of social prestige, and carry with 
 them the right to participate in the enjoyment of the social 
 product. 
 
 But none the less is there a distribution by right of pro- 
 ductive contribution. And under this title must, among 
 other things, be discussed the compensations allotted to 
 human labor and human supervisory activity, as wages, 
 
DISTRIBUTION 5^1 
 
 salaries, and profits, — to the owners of instrumental goods, 
 as rents, and to capital-owners, as time discount upon 
 wealth in its time aspect. 
 
 But in order that the difficulty of the distribution prob- 
 lem be not exaggerated or its importance disparaged, 
 recourse must be had to the principle that production pre- 
 cedes and conditions and limits consumption, and that 
 therefore the production-distribution process logically pre- 
 cedes and theoretically underlies all such other distribution 
 influences as have no basis in productivity rendered, and as 
 modify — even profoundly — the ultimate apportionment of 
 consumption rights. Interest received upon public war 
 loans is of this secondary-distribution sort; so pensions, 
 sinecure salaries, subsidies, profits upon corrupt contracts, 
 and not a few of the secondary effects of taxation. 
 
 The chief theoretical difficulty in the subject is, indeed, 
 to draw the line between this primary and this secondary 
 distribution, and to make allowance for the mutual inter- 
 actions ; for example, consumption loans, by affecting the 
 supply of funds for loan in productive directions, exercise an 
 influence upon the discount costs of production. Such 
 taxation, also, as can be appreciated by the contributor as 
 falling upon his productive process rather than upon his 
 consumption, are treated by him as production costs. Taxes 
 also which burden a distinct line of raw materials function 
 as cost items in particular industries. And taxes which 
 burden distinct lines of consumption, and thus disturb the 
 relative volumes of consumption goods to be marketed, may 
 superficially appear to have no further effect than to redis- 
 tribute the productive energies of society, but, nevertheless, 
 by modifying the relative hires of productive agencies, do 
 appreciably disturb the distribution of purchasing power in 
 society. Privately achieved or publicly granted monopolies 
 of production, patents, process royalties, trade secrets of 
 method, and any exclusive control of sources or of methods 
 of supply — all command rents, and thereby affect the dis- 
 tribution of purchasing power; and, on the other hand, 
 
562 VALUE AND DISTRIBUTION 
 
 the opportunities and advantages paid for under the form 
 of these rents hold the same relation to cost of production 
 as are held by land and other instrument differentials of 
 advantage; these costs, in turn, are mostly passed along 
 under the guise of enhanced market prices, and are ulti- 
 mately mainly a burden upon the consumers of the goods, 
 whereby, again, redistributions of purchasing power are 
 initiated. 
 
 Monopolies or privileges of sale — as distinguished from 
 those of production — function in this regard like taxes 
 upon consumption. Transportation charges, whether justi- 
 fiable or predatory, also operate like taxes, and are produc- 
 tion costs or mere consumption tribute accordingly as the 
 original incidence is upon production rather than upon 
 consumption ; but in either case the final burden rests in 
 most cases and for the most part upon consumers.* 
 
 The broad principle for all problems of cost of produc- 
 tion is, however, that any outlay or sacrifice for a differ- 
 ential opportunity, whether this be a mere permit or a 
 license, or be attached to the possession of some agent or 
 instrument of production, is a cost. For, as we have seen, 
 any production cost is merely another way of looking at 
 what is, from another point of view, a distributive share in 
 the product. But that all agent or instrument hires are 
 costs is far from saying that they include all costs. The 
 technological point of view, which sums up costs as' a total 
 
 * From this reasoning if accepted as correct, applications of very 
 considerable significance may be made to important problems in the 
 theory of taxation and to the general principles upon which import 
 duties should be levied. So also the merits of the competitive organi- 
 zation of society should therefrom receive some illumination. But 
 all this would be aside from our main purpose of realistic description 
 and theoretical analysis. It must here suffice to note that such 
 imperfections as, from the present point of view, are incident to the 
 competitive system refer not so much to the processes and the results 
 of the primary — the production — distribution, as to the political and 
 property institutions under which the secondary distribution takes 
 place, and to the modifications of the primary distribution due to 
 reactions upon it from the secondary distribution. (See in this con- 
 nection note, p. 565.) 
 
DISTRIBUTION 5^3 
 
 of wages, interest, rent, and profits, is in its general accept- 
 ance little short of astounding; for even if taxes, insurance, 
 advertising, and like outlays may finally be traced to labor 
 or capital-goods bases, — which, by the way, is not a simple 
 matter with, say, taxes to pay interest on war debts — it is, at 
 all events, clear that these are not outlays for labor or capital 
 as technological factors in production. The tripartite, or 
 any other technological classification of productive factors, 
 must be especially misleading for purposes of the entrepre- 
 neur-cost computation. 
 
 And once again must it be repeated that the mere fact 
 that cost-distribution shares are received through the entre- 
 preneur as intermediary, does not imply either that no part 
 of the entrepreneur remuneration, profit, is cost, or that 
 all of it is cost. For it is precisely at this point of entre- 
 preneur remunerations that costs and distributive shares 
 fail of coincidence. All of the entrepreneur remuneration 
 is a distributive share, but only for the marginal entrepre- 
 neur, or only for the marginal items of each entrepreneur's 
 production, is all of the compensation cost. All quasi-rents 
 of entrepreneurship, all unnecessary or supra-minimum 
 profits, are distributive shares falling outside of costs. 
 
 But this does not mean that all occupation or instru- 
 ment-employment .differentials above the next most attract- 
 ive opportunity are non-cost facts wherever found. Cost 
 is an entrepreneur reckoning; the entrepreneur knows 
 what hire in the actual employment competition forces 
 him to pay; but he cannot know, and he need not care, 
 what hire in some other employment the agent or instru- 
 ment might command. For competitive purposes, occupation 
 differentials are non-cost facts only for those indi- 
 viduals who receive the hire of them and to whom it, at 
 the same time, falls to compute costs. It is the entrepre- 
 neur alone whose occupation differentials fulfil both these 
 requirements. The self-employed laborer — entrepreneur- 
 ship at its simplest — computes his costs as the money state- 
 
564 VALUE AND DISTRIBUTION 
 
 ment of his best alternative line of conduct, whether this be 
 one of independent production, or of wage-earning, or of 
 leisure. The employee might — ^but without any bearing 
 upon market cost of production — compute for himself in 
 what degree his compensation was greater than an equiva- 
 lent for his pain, or greater than his wage under another 
 employer, or in another industry. And so, with equal irrele- 
 vancy tO' any market-value problem, might the land-owner 
 compute what his rent as actually received was greater (i) 
 than that which he himself could make out of the land, or 
 (2) than another in the same line of production would pay, 
 or (3) than some tenant in some other line of production 
 would pay. Or a collectivist society could properly com- 
 pute as its land cost of any given product only the dis- 
 placed alternative products. But the entrepreneur must 
 compute as his cost not what he would pay if he paid less, 
 but what he does pay, as compelled thereto by all the facts 
 of the situation. 
 
 Land worth 100 as wheat rent but only 90 in its next 
 best use would permit, for collectivist computations, only 
 90 of cost; in a competitive society, this land will pay its 
 owner in rent 10 more than it could command in any other 
 line of production, and may, under the actual tenant, pay 
 the owner i of rent more than any other tenant could or 
 would pay. But since the land costs the cultivating tenant 
 100 of rent, it is a 100 cost for him. 
 
 This does not carry the cost computation to its closest 
 approximation to accuracy, though even at its closest, 
 something, as we have seen, must commonly be lacking to 
 the entire accuracy of the productive imputation. If the 
 actual renter at 100 is conscious that he could, in another 
 line of production, make the land count him for 102 of 
 return, the while that it is actually paying him 103 
 in wheat, he must compute against its actual productivity 
 of 103 a cost not of 100, the rent outlay, but of 102, the 
 foregone opportunity. His cost, so far as it is a land cost, 
 is in his best foregone alternative; in the case supposed, 
 
DISTRIBUTION 5^5 
 
 this best alternative was not to keep his money in his 
 pocket. The necessary price to induce the production of 
 the wheat was not, in point of land cost, loo but 102,^ 
 
 Were all entrepreneurs, albeit of unequal abilities, yet 
 equal in equipment of wealth, credit, and instrumental goods, 
 and alike in adaptation to the equipment in hand, alike also 
 in relative adaptation to alternate lines of employment, 
 all costs would be equal in each respective line of produc- 
 tion, and no entrepreneur more marginal than any other, 
 or marginal at a different output of commodity product. 
 But, even so, there would be no warrant for expecting all 
 profits to fall to the general wages level — if such a level 
 there were — unless it were also assumed that all men were 
 equally able and equally well equipped and equally disposed 
 to undertake entrepreneurship. With fluid and perfect com- 
 petition among unlike entrepreneurs, instrument rents and 
 time discounts would be forced to so high a level that the last 
 dose of expense, and each instrumental good employed 
 thereunder, would be employed at a rate of remuneration 
 so high as barely to leave to the entrepreneur an induce- 
 
 " The law of costs, correctly formulated, is applicable to all things 
 competitively produced, no matter how many scarcity goods may 
 enter into the production process. In the accurate sense, the term 
 monopoly connotes conditions of non-competition, or, in degree, of 
 restricted competition. But, in any case, the law has no reference to 
 the underlying influences explaining the actual cost situation ; it takes 
 the situation as it is without attempt to investigate the causes. 
 
 And even in monopoly conditions the cost law may, without undue 
 violence, be made to cover the computation under which a restriction 
 of output becomes advantageous. The cost law at its broadest indi- 
 cates the point at which product, or added product, cancels as many 
 price-measured facts as it adds to selling-price ; production ceases at 
 the point at which value costs are at balance against value product. 
 
 The monopoly computation applies this principle ; on the credit 
 side of the account is computed the increment of product at the new 
 level of price attendant upon its production ; to be charged against this 
 are (i) the extra outlays of production, and (2) the loss in price 
 suffered by the earlier items of product through the addition of the 
 new items. The point of equation between the two sides of the account 
 is the limit upon production. 
 
 For cost purposes, in truth, small occasion exists for any extended 
 discussion either of monopoly problems, or of the relation of corporate 
 
S66 VALUE AND DISTRIBUTION 
 
 ment further to burden himself with supervision and 
 further to increase the volume of his product. But still 
 there would exist no warrant for asserting the equality of 
 costs with the aggregate compensations of the productive 
 factors, in any other sense than that competition could 
 carry these compensations no higher. The distributive shares 
 out of the product would be the higher for all entrepre- 
 neurs, as entrepreneur ability should be scarce relatively 
 to instrumental goods and to employee labor. Instrumental 
 goods of different sorts would be better paid relatively to 
 labor or to entrepreneur ability accordingly as they were 
 respectively in limited supply. 
 
 For it is to be remembered that, the demand for con- 
 sumption good being assumed, the demand for any instru- 
 mental good or agent is conditioned by the quantum of 
 instrumental goods or agents adapted to co-operate with 
 it and unadapted to serve as substitutes for it. Just 
 as it is the limitation upon the supply of productive 
 instruments and agents that makes value possible, so 
 
 organization to the traditional theory and terminology of the science. 
 However important and, indeed, overshadowing in modern business the 
 phenomena of the later methods of business organization may be, not 
 much interest attaches to them for purposes of value theory. Nor for 
 distributive theory does great significance attach to the corporate 
 aspects of business organization, excepting as these are, in practical 
 affairs, associated with the monopoly feature. 
 
 As to corporations purely and simply as such, there is little 
 greater occasion for separate treatment than for partnerships. The 
 theoretical aspects of the new problems presented have already been 
 sufficiently summed up in an earlier examination of the bearing of 
 corporate organization upon the established concepts and terminology 
 of the cost-of-production problem. (See note, p. 98.) 
 
 Monopolies also offer few difficulties of analysis so far as the 
 effects are confined exclusively either within the field of primary 
 distribution, the cost and value analysis, or within the field of second- 
 ary distribution ; very often, however, this simplicity of effects is 
 not present. 
 
 Particularly are the activities of the operator in the field of 
 "high finance" difficult to distribute between the two categories of 
 market-value productivity — primary distribution — as over against 
 predation or parasitism — secondary distribution. 
 
 The activities of the lace-weaver, the bonnet-trimmer, the 
 diamond-polisher, the patent-medicine manufacturer, the clown, and 
 
DISTRIBUTION 5^7 
 
 it is the relatively limited supply of one class of 
 productive factors that attaches to it a high remun- 
 eration relatively to the co-operating factors. The ultimate 
 explanation for the value of any commodity, be it repeated, 
 is found, on the one side, in the demand for the commodity, 
 on the other, in the fact that the supply of productive 
 means is limited, whether by the absolute scarcity of these 
 productive facts, or by a scarcity due to the diverting 
 influences exerted by the demand for other commodities. 
 And the actual level of remuneration is everywhere reached 
 through the bidding of entrepreneurs for increased pro- 
 ductive intermediates to be added to the productive effi- 
 ciency already in hand; and the actual payment is thus 
 commonly in some rude approximation to the amount 
 which the successful bidder is able to pay for the purpose 
 of enlarging his production complex. 
 
 With goods present in stocks of similar items, this 
 approximation is theoretically close accordingly as entre- 
 preneur competition is close. Where each item of goods 
 
 the prostitute, are, in the economic sense of the term, clearly enough 
 productive ; on the other hand, the three-card-monte man, the shell- 
 game man, and the gold-brick man, would be, at least by the iiaive 
 intellige/nce, ranked as agencies of secondary distribution, under 
 methods more or less ingenious and interesting. Somewhere near the 
 line between these two extremes are to be ranked the methods most 
 distinctly characteristic of high finance, at all events, most notorious 
 in connection with it. 
 
 The promoter or underwriter is in the business of producing 
 stocks and bonds for the investment and the speculative markets ; the 
 products are commonly of considerably greater worth than those of the 
 patent-medicine vender, and, indeed, are often of the very highest 
 title to market recognition. Relatively small stores of instrumental 
 wealth, much good-will or franchise or monopoly, more of pros- 
 pectus and gilded promise are, under the guidance of high ability and 
 ingenious skill of organization, combined into a marketable commodity 
 most profit-giving to the producers, commonly, truly, of moderate 
 advantage to the purchasing investors, and sorely disastrous to the 
 general public. All this is hard to rule out of the category of market 
 productivity and of productive distribution. 
 
 The later processes by which the market is rigged through bear 
 stories and through artificially low dividends, or by declaration of 
 unearned or bookkeeping dividends, may, as more or less reputable 
 predation, be safely classed as entirely within the field of secondary 
 distribution, (Cf. Veblen, Theory of Business Enterprise, passim.) 
 
568 VALUE AND DISTRIBUTION 
 
 is sui generis, the room for higgling is appreciably more 
 ample and the point of price adjustment is quite possibly 
 found at considerably below what the successful bidder 
 would, if necessary, have consented to pay. 
 
 With the recognition that entrepreneurs are different 
 must come the abandonment not only of the notion that 
 profits can arrive, in any conceivable state of equilibrium, 
 at equality, but also of the notion that, at no matter what 
 point of development in technique, there can ever be any 
 one best formula for the combining of the various differ- 
 ent factors or classes of productive agents. There is, indeed, 
 no such best combination for any one entrepreneur, except- 
 ing upon the assumption of an established level and ratio of 
 prices and of hires upon the different productive agents; 
 with each change in these relative hires, that which was 
 best becomes not best, and the production complex under- 
 goes a reconstruction. And finally, with varying financial 
 resources, the best combination is again a different combina- 
 tion. Most men are compelled to adapt their productive 
 combinations to the conditions set by their capital and their 
 credit; what additions or subtractions of different factors 
 are expedient depends not so much upon what would be 
 advantageous if the entrepreneur could command the neces- 
 sary resources, as upon what he can with reasonable caution 
 attempt. 
 
CHAPTER XXVII 
 
 SUMMARY OF DOCTRINE 
 
 In the interests of economy of space, and to avoid the 
 further detailed repetition of what has already been suffi- 
 ciently set forth in earlier pages, the following propositions 
 are presented: 
 
 Value is a ratio of exchange between two goods, quanti- 
 tatively specified. The concept of a general market value 
 depends upon the assumption of an established medium of 
 exchange, and finds its only expression as price. 
 
 The primary fact in the explanation of value is the 
 existence of human needs and desires. Utility as expressed 
 in the existence of goods is merely the relation of adapted- 
 ness of the thing or fact to the human need or desire. 
 Limitation upon the supply of goods relatively to the need 
 gives value. Thus value in producible goods is ultimately 
 explained by human desires over against a limitation of sup- 
 ply due either to the shortage of instrumental goods or to 
 the irksomeness of effort or to both. 
 
 With great esteem for good singing and with the rarity of good 
 singers, the high gains of prima donnas find sufficient explanation. 
 
 With scarce iron mines and a relatively high need for iron, a 
 high value upon iron is readily explicable. 
 
 With relatively scant equipment of land, and a high need for 
 wheat, the high value of wheat land would be explained, irre- 
 spective of the fact that various other uses for land further greatly 
 restrict the supply of wheat land. 
 
 Human needs and their relative intensity being assumed, 
 the value-causal sequence runs from relative scarcity of 
 agents to relative scarcity of products; from relative 
 scarcity of products to high exchange power of products — 
 
 569 
 
S70 VALUE AND DISTRIBUTION 
 
 high value, relatively high price ; from relatively high price 
 of products to relatively high remuneration of agents ; 
 from relatively high remuneration of agents to relatively 
 high present worth of agents. 
 
 Under the competitive activity of various and differing 
 entrepreneurs, each seeking his most advantageous line of 
 activity in view of his particular situation in point of capi- 
 tal, credit, ability, and preference, market supplies of prod- 
 ucts are worked out in adjustment with the price demand; 
 and under the competitive bidding of entrepreneurs for 
 productive auxiliaries, the market values of instruments 
 and agents are worked out, and the cost situation confront- 
 ing each individual entrepreneur determined. 
 
 That underlying the competitions and costs of entre- 
 preneurs is a situation, a controlling complex of funda- 
 mental facts, under the influence and direction and deter- 
 mination of which the details of market production and of 
 value adjustment take place, and with changes in which most 
 commonly take place changes in the resulting market adjust- 
 ment, furnishes us with the principle from the point of 
 view of which must be examined the dynamics of value 
 and of distribution, a group of problems having to do with 
 the manner and degree of change in market adjustments 
 attendant upon different probable or possible changes in the 
 underlying situation. 
 
 Neither in utility on the demand side nor in pain cost 
 on the supply side can there be found a common denomina- 
 tor or standard or determinant of market value, or of price 
 as its money expression. The only common denominator 
 of value is found in the selection of a conventional stand- 
 ard for the purpose, a price commoidity. 
 
 Neither in terms of market-value equivalence nor 
 in terms of pain or cost, but only in terms of 
 
SUMMARY OF DOCTRINE 571 
 
 utility equivalence is to be sought the standard of 
 deferred payments. Equivalence in terms of unspecialized 
 purchasing power, expressed under some conventional price 
 standard, is the only resource for the case. 
 
 The equation of demand with supply is an explanation 
 for value only in the sense that the entrepreneur-cost situa- 
 tion and the condition of price demand reflect and express 
 the effects of the underlying and determining situation. 
 Therefore both demand and supply themselves require 
 analysis and explanation. 
 
 DEMAND 
 
 Utility, marginal utility, and subjective worth are pri- 
 marily categories leading up to the explanation of the 
 demand side of the value equation, as expressed in terms of 
 purchasing power, and as bearing upon the price adjust- 
 ment of any particular commodity. 
 
 Marginal utility — a purely individual category and an 
 absolute magnitude — is a step toward explaining subjective 
 worth — a purely subjective and individual fact and an abso- 
 lute feeling magnitude, the cost aspect of marginal utility. 
 Two subjective worths in comparison explain price offer, or 
 refusal price, this latter being merely a demand fact in 
 another aspect. 
 
 To different men, utilities, marginal utilities, and sub- 
 jective worths are, as such, incapable of comparison; nor is 
 it possible to give to utility, marginal utility, or subjective 
 worth expression or measurement in terms of money. A 
 maximum demand price expresses merely the equivalence, 
 in point of subjective worth, of the thing bid for and the 
 thing otherwise to be obtained through the purchasing 
 power. 
 
 COST 
 
 The emergence of value is not dependent upon cost-of- 
 production influences as a prerequisite, but only upon there 
 
572 VALUE AND DISTRIBUTION 
 
 being a supply limited relatively to human desires. But so 
 far as the cost-of -production investigation bears to explain 
 the relative volumes of supply of different commodities, it 
 bears to explain the values of these commodities. 
 
 For competitive purposes, cost of production is purely 
 a computation of the individual entrepreneur; for any item 
 or quantum of product, it is the price statement of the 
 compensation necessary to the forthcoming of that product. 
 
 Outlay costs to the entrepreneur are distributive shares 
 to the recipients; the distributive share of the entrepreneur 
 also — his profit — is cost, to the extent that it is necessary 
 profit. 
 
 But the distribution that takes place under the production 
 process and as part and parcel of it, is not the only distributive 
 process in society. Such incomes as are received otherwise than by 
 title of separate or co-operative productivity, find their explanation 
 in those other social facts and forces which distribute purchasing 
 power in society. 
 
 All productive-distributive compensations come by the 
 same and equal title of contribution to value productivity; 
 but they are the market value of the value contribution 
 rather than the accurate equivalent of the value productive- 
 ness; this last varies for each instrument with each entre- 
 preneur, and is nowhere precisely ascertainable by any. 
 
 Only relative costs of production have to do with the 
 exchange relations of goods. 
 
 All influences making to increase the indemnity-price 
 total which a commodity must afford to its producer if it is 
 to be produced, rank, under the price denominator, as 
 costs ; chief among these influences is commonly opportunity 
 cost — demand in another direction functioning as resist- 
 ance in the given direction. 
 
SUMMARY OF DOCTRINE 573 
 
 The resistance attractiveness of recreation or of rest may also 
 be included within the opportunity-cost concept if interpreted 
 broadly. Instrument and agent costs are often accurately to be 
 reckoned as costs only in this opportunity aspect. 
 
 As a cost concept capital is neither technological nor 
 social in significance; it stands for the total invested fund 
 of value, inclusive of all instrument values, and of all 
 general purchasing power devoted to the gain-seeking en- 
 terprise; it is an acquisitive category. 
 
 For competitive purposes, the capital concept should be 
 formulated in the individual, private, and competitive 
 sense. It should include all things, facts, or rights having 
 value so that to them abstinence — the postponement of con- 
 sumption — applies. Capital in this sense is a private fund 
 of wealth expressed under the price denominator and 
 viewed in the time aspect. The market value of any basis 
 of income is the present worth of its entire series of 
 putative incomes. 
 
 Market time — discount — interest in the accurate and ulti- 
 mate sense — is the premium, expressed as a rate per cent, 
 per unit of time, which any fact, as present purchasing 
 power expressed in terms of the conventional standard, 
 commands over future purchasing power likewise expressed. 
 
 The surplus in any instrument hire over upkeep or 
 depreciation is a market time-discount fact; expressed as a 
 ratio between the value of the instrument and the hire, it 
 is interest in the accurate sense. 
 
 All costs are merely sacrifices of production reduced to 
 terms of the price denominator. Costs, then, include, 
 among other items, all necessary indemnities for capital 
 outlays in production, and a time-discount charge upon the 
 capital fund invested. 
 
574 VALUE A'ND DISTRIBUTION 
 
 But the cost to the individual entrepreneur is not a funda- 
 mental explanation of anything; it assumes values upon instrumental 
 facts as a step toward value explanation. Nor does the aggregate 
 activity of entrepreneurs explain the cost conditions facing each, 
 unless and until the great underlying facts of human wants and 
 capacities, and of instrumental equipment and opportunity are in- 
 cluded in the survey. 
 
 Static-value analysis takes as definitive and ultimate the actually 
 existing total situation, inclusive of human needs and productive 
 powers, and with all the existing supplies and existing limitations 
 of equipment and opportunity, and all this irrespective of how far 
 the situation is due to an original bounty or to an original inade- 
 quacy, and irrespective of whether human activity has in the past 
 added or subtracted relevant elements, aspects, or facts. Not the 
 outlays for productive facts, or these same outlays regarded as 
 incomes, but the scarcity of these productive facts relatively to the 
 human need, is responsible for the emergence of scarcity of prod- 
 ucts anywhere and for the relative scarcity of products which under- 
 lies and explains exchange relations. 
 
 But the inadequacy of the general equipment does not explain 
 the market values of any particular line of products, that is to say, 
 the exchange relations beween different classes of goods. Inside the 
 general situation of inadequacy of productive factors must be worked 
 out the relative inadequacy of productive equipments for the various 
 lines of commodities, in view of the relative strength of the pur- 
 chasing power disposable in these various commodity directions. 
 Here enter the influences of various different lines of production to 
 restrict the supplies of productive factors in each particular line of 
 industry. 
 
 All rent outlays, whether for land or for other instru- 
 mental goods, and all wage outlays and all discount charges 
 upon the capital fund employed in production are equally to 
 be included within costs of production as an intermediate 
 explanation of the supply side of the value equation. 
 
 Nowhere is the distinction between price-determining and price- 
 determined costs valid. In the main, the value of each productive 
 fact is value-determined; but as part of the supply of productive 
 facts, each is, through its products, in its small measure, a value- 
 affecting influence. So also each individual activity bearing upon 
 price or related to price, whether, on the one hand, of production or 
 of sale offer, or, on the other hand, of price offer or of price 
 refusal, is, in the main, price-determined, because chosen in view 
 
SUMMARY OF DOCTRINE 575 
 
 of the actual price situation and in adaptation to this situation; but 
 each such activity, as aflfecting in its own small measure the aggre- 
 gate of supply or of demand, must thereby and pro tanto act as a 
 price-determining influence. 
 
 The only one of the several rent concepts important to 
 the cost analysis is that of the actual hire; but as oppor- 
 tunity cost, the land or any other productive fact may 
 figure as cost at something vaguely more than the actual 
 hire paid. 
 
 Costs to the entrepreneur are mostly but not entirely 
 traceable (i) to value serviceability to entrepreneurs in 
 other lines of production, or (2) to value serviceability to 
 entrepreneurs in the same line of production, or (3) to 
 alternative value possibilities of the productive facts, 
 inclusive of the entrepreneur's ov\rn productive power, when 
 under his own employment. But pain and weariness and 
 displaced recreation have also their place in fixing the total 
 remuneration necessary to the forthcoming of product. 
 
 All margins are ultimately personal and not instru- 
 ment margins. Instruments are marginal only with refer- 
 ence to the entrepreneur and relatively to him and to his 
 situation; marginality is a psychological attitude with 
 reference to productive activity or to the productive employ- 
 ment of instruments. 
 
 Marginal instruments are variously understood to indicate (i) 
 valueless instruments, a market-value standing, not inconsistent with 
 the rendering of services for which the user would, if necessary, 
 pay an appreciable hire; (2) instruments having neither market- 
 value nor personal-value significance; (3) instruments which at the 
 actual market charge are just barely worth employing by the actual 
 employer. 
 
 Number one is a concept derivative from the relationships of 
 instrumental goods to entrepreneur activity, but not necessarily giv- 
 ing a precise expression to any one of these relationships. Numbers 
 two and three are meaningless excepting in terms of relativity to 
 entrepreneur activity. Marginality is, in last analysis, an entre- 
 preneur attitude with relation to one's own productive activity or to 
 the productive efficiency of agents and instruments. 
 
INDEX 
 
 Abstinence: Carver on, 225, n. See 
 Cost of Production; Interest; Cap- 
 ital. 
 
 Abstract Capital, 170-74. See 
 Capital. 
 
 Austrian School: terminology 
 criticized, 308-11. See Boehm- 
 Bawerk; Wieser; Utility, Cost and 
 Utility, Subjective Value. 
 
 Average Man, 446, n. 
 
 Bagehot, Walter: cited, 166, n. 
 
 Banking: Essential nature of, 231, 
 n., 255, n. 
 
 Boehm-Bawerk, Eugen v.: chaps, 
 xvii, xviii, xix; explanation of in- 
 terest, chap, xiv; controversy with 
 Clark, 201-12; controversy with 
 Dietzel, 339-51; on capital, 155, 
 n., 211, 215, n.; on price adjust- 
 ment, 543-48. See Interest. 
 
 Bxtllock, C. J. : on laws of return, 
 493- 
 
 BONAR, J. : on Hedonism, 307, n. 
 
 C 
 
 Catrd, Edward: on Hedonism, 213, 
 n. 
 
 Cannan, Ebwin: savings vs. in- 
 come, 554; on income, 559, n. 
 
 Cairnes, J. E. : chap, vi; cost as 
 life-draft, 382, n.; loan-fund capi- 
 tal, 165. 
 
 Cantillon, R.: laws of return, 492. 
 
 Capital: chaps, x, xi, xii. 
 
 — Is land capital ? chaps, x, xi; 50; 
 socially viewed, chap, xi; competi- 
 tively viewed, chap, xi; fixed and 
 circulating, 170, n.; Ricardo's, 
 Smith's, Senior's, James Mill's, 
 J. S. Mill's, views on, 170, n.; 
 productivity of, and interest, 
 chaps, xiv, xv. See Factors of 
 Production; Loan Fund. 
 
 — As loan fund: chap, xii; Cairnes's 
 view, 165; Ricardo's confusion, 
 42; related to banking, 165-69. 
 Are men capital? 154, n. 
 
 — Various concepts: Boehm-Ba- 
 werk, 15s, n.; Fetter, 147, n., 
 154, n.; Fisher,_ 147, n., 157, n.; 
 Smith, 149; Ricardo, 151; J. S. 
 Mill, 151, n.; Tuttle, 154, n.; 
 Veblen, 153; Clark, 170-74. 
 
 — ^Wage-fund capital, 148. 
 
 — ^Abstract capital, 170-74. 
 
 — Competitive capital, chap. xi. 
 
 Carver, T. N. : on abstract capital, 
 172, n., 173, n.; abstinence and 
 interest, 225; factors of produc- 
 tion distinguished, 131, n.; on op- 
 portunity cost, 383, n.; profits re- 
 lated to cost, 100, n., 106, n.; wage 
 determination, 518; measure of 
 value, 181, n.; laws of return, 489, 
 493, n.; criticism of Clark, 440, n. ; 
 controversy with Hobson, 476, n. 
 
 Charity: expenditure for, 529, n. 
 
 Clark, J. B.: chap, xxii; abstract 
 capital, 170-74; entrepreneur cap- 
 ital, 479, n.; on interest — contro- 
 versy withBoehm-Bawerk,2oi-i2; 
 on roundaboutness, 208, n. ; doses 
 of outlay, 432, 434; labor as fund, 
 263; nature of rent, 397, n.; dy- 
 namic forces, 480, 514. 
 
 Commons, J. R.: laws of return, 
 499. n. 
 
 Competitive Capital. 5ee Capital. 
 
 Consumption: productive and un- 
 productive. See Productivity. 
 
 Cost of Production: various cost 
 concepts, chap, i; Adam Smith's 
 doctrine, chap, ii; Ricardo's doc- 
 trine, chap, iii; labor-purchase 
 cost, I, 8; labor-time cost, 3; labor- 
 value cost, 4; labor-pain cost, 3, 
 62-83; non-competitive groups, 
 71-80; labor not always painful, 
 48, 82; abstinence as pain cost — 
 Senior, 45; skill and cost, 75; real 
 
 577 
 
578 
 
 VALUE AND DISTRIBUTION 
 
 costs — Marshall, 373; cost in 
 Crusoe economy, 84. 
 
 -Opportunity cost, 5, 6; Adam 
 Smith's doctrine, 10-12; Ricardo's 
 doctrine, 31; Senior's doctrine, 
 48, 49; Austrian doctrine, 356; 
 displaced utility as, 85, 347, 366; 
 any displacement as, 87; alterna- 
 tive use as rent, 290-5; as related 
 to profit, 89-92; various views as 
 to profit opportunity — Fetter 98, 
 n. — Seager, 99, n. — Flux, 99, n. — 
 Carver, 100, n. — Seligman, 100, n. 
 
 -Collectivist cost, 291, 356. 
 
 -Abstinence as cost: as to land — 
 Senior, 50; capital-use cost, 5. 
 
 -Interest as cost: J. S. MiU's ex- 
 planation, 58, 59. 
 
 -Wage-subsistence cost, 24. 
 
 -Profit as cost, 56; only part is, 65; 
 relation of profit to cost, 88; Had- 
 ley's doctrine, 89; Mill's, 90; 
 Walker's, 91; Fetter's, 104; Sea- 
 ger's, 104; Carver's, 106; Flux's, 
 106; Seligman's, 100. 
 
 -Cost merely relative, 85, 262; com- 
 parative cost — Cairnes, 64; J. S. 
 Mill, 60; is opportunity cost, 60. 
 
 -Entrepreneur cost, 10; adopted 
 byj. S.Mill, 52, 56. 
 
 -Rent and cost, chap, xvi; J. S. 
 Mill's doctrine, 60; Say's 116-18; 
 Ricardo's controversy with Say, 
 109-13; Malthus' doctrine, 283; 
 Senior's, 50, 283; Adam Smith's, 
 24, 27; Ricardo's, 36, 38; Hob- 
 son's, 414-35; Wieser's, 371. 
 
 -Marginal cost, chap, xvi, 262; in- 
 cludes various influences, 87, n.; 
 extensive and intensive margins, 
 426; price-determining vs. price- 
 determined, 401, n., 425; margin- 
 determining vs. margin-deter- 
 mined, chap, xvi, 273. 
 
 -Land as opportunity cost — ^J. S. 
 Mill, 59, 61; views of Patten, 
 Jevons, A. S. Johnson, Macfar- 
 lane. Fetter, Hobson, Hyde, 290- 
 95; Marshall, 385-98. 
 
 -Relation of different factors to cost, 
 
 135-37- 
 -Risk cost, 98. 
 -Utility vs. cost, 339-52. 
 -Ultimate determinants — situation 
 
 cost, 282, 283, 285, 294. 
 -Skill and cost, 75. 
 
 D 
 
 Davenport, H. J. : Outlines of Eco- 
 nomic Theory, cited, 186, n., 187, 
 n.; depressions, 228, n.; normal 
 price, 279 n.; normal value, 481, 
 n.; rent, 523, n. 
 
 Deferiied Payments. See Standard 
 of Deferred Payments. 
 
 Demand: curves, chap, xxv.; de- 
 fined, 532, n. 
 
 DiETZEL, Heinrich: criticized by 
 Hobson, 409; controversy with 
 Boehm-Bawerk, 339-51. 
 
 Diminishing Return. See Return. 
 
 Distribution: chap, xxvi; by 
 value productivity, chap, xxii, 360 
 364- 
 
 Doses: of outlay, 427; size of, 
 478, n.; views of Hobson and Car- 
 ver, 476, n. See Rent. 
 
 Dynamics: of value and distribu- 
 tion, chap. xxiv. 
 
 E 
 
 Effective Utility. See Marginal 
 UtiUty. 
 
 Entrepreneur Capital. See Capi- 
 tal. 
 
 Expenses of Production: ex- 
 penses vs. costs, 273, 383, n. See 
 Cost of Production. 
 
 Factors of Production: a techno- 
 logical classification, 126-35, 128, 
 n.; Carver's view, 131, n.; Sen- 
 ior's view, 137, n. See Land; 
 Labor; Capital; Cost of Produc- 
 tion. 
 
 Fetter, F. A.: definition of de- 
 mand, 532, n.; interest theory, 
 208, n., 212; roundaboutness, 
 207; income, 559, n.; profits re- 
 lated to cost, 98, n., 104, n.; ex- 
 pense cost and opportunity cost, 
 383, n.; utiHty and marginal util- 
 ity, 315, n.; laws of return, 497, n. 
 See Capital. 
 
 Fisher, Irving: on income, 559, n.; 
 savings vs. income, 554; interest 
 theory, 242, n. See Capital. 
 
 FiTE, Warner: on Hedonism, 
 308, n. 
 
INDEX 
 
 579 
 
 Flux, A. W. : definition of demand, 
 532, n.; profits related to cost, 99, 
 n.; 106, n.; expense cost and 
 opportunity cost, 383, n.; laws of 
 return, 496, n. 
 
 F'ONDING of productive factors, 263. 
 
 Forced Gains, 422, 426; Hobson 
 on, 405, n. 
 
 G 
 
 Galiani, F., 107, 231, n., 233. 
 GiDE, Charles : on laws of return, 
 
 496, n. 
 GiTFEN, Robert: determination of 
 
 value, 548, n. 
 GONNER, E. C. K., 30. 
 Green, D. I., 93. 
 
 H 
 
 Hadley, a. T.: definition of de- 
 mand, 532, n.; profits related to 
 cost, 89. 
 
 Hedonism, 48, n., 303-10. 
 
 HoBSON, J. A.: chap, xxi; forced 
 gains, 405, n.; rent and cost, 414- 
 35; displaced rent and cost, 290; 
 controversy with Carver, 476, n.; 
 savings, 529, n.; utility and value, 
 
 Hollander, J. : rent and cost, 290; 
 
 intensive margin, 266. 
 Hyde, A. M. : rent and cost, 290. 
 Hyndman, H. M. : labor measure of 
 
 value, 177, n. 
 
 I 
 
 Increasing Return. See Returns. 
 
 Income: vs. capital, 554. 
 
 Interest: chaps, xiv, xv; defined, 
 188; problem stated, 190-93; pro- 
 ductivity theory, chap, xiv; as 
 cost; see cost of production; risk, 
 95; roundaboutness, 207; Boehm- 
 Bawerk on, 194; Fisher, 242, n.; 
 Ricardo's difficulty, 36-41; Veb- 
 len as to relation to credit, 255, n. 
 
 J- 
 
 Jevons, W. S.: relation to eco- 
 nomic doctrine, 334, n.; on utility, 
 316, n.; definition of wealth, 314, 
 n.; displaced rent and cost, 290; 
 subsistence goods as capital, 209. 
 
 Johnson, A. S.: displaced rent as 
 
 cost, 290. 
 Johnson, J. F.: on loan capital, 
 
 174, n. 
 
 Labor: as cost: ^ee Cost of Produc- 
 tion; as fund, 263, 459; produc- 
 tive and unproductive: see Pro- 
 ductivity; as cost denominator, 15, 
 25, 118; as cost determinant, 15; 
 as standard of deferred payments, 
 15; real value of, 11; as real price, 
 8, 11; value proportioned to — 
 Ricardo, chap, iii, Cairnes, chap, 
 vi. See Factors of Production. 
 
 Lamarck, J. B. P. A., 308, n. 
 
 Land: as capital: see Capital; as 
 funded, 263, 414, 419, 422; up- 
 keep, 435; incidence of tax on, 
 248, n. See Factors of Produc- 
 tion; Rent. 
 
 Laughlin, J. L.: measurement of 
 value, 181, n. 
 
 Laws of Return. See Returns. 
 
 Loan Fund: Ricardo on, 160. See 
 Capital. 
 
 Luxury, 529, n. 
 
 M 
 
 Macfarlane, C. W. : utility and de- 
 mand curves, 536, n.; forced gains 
 405, n.; Walker's definition of 
 profit, 400; rent of labor, 400, n.; 
 labor as fund, 263, n.; interest, 
 206, n. 
 
 Mackenzie, J. : on Hedonism, 307, n. 
 
 McCuLLOCH, J. R.: interest as cost, 
 37> 40. 
 
 Malthus, T. R. : laws of return, 
 chap, xxiii; doctrine of cost, 283; 
 on general glut, 218, n., 231, n.; 
 labor as cost measure and deter- 
 minant, 118, n.; rent and cost, 55, 
 n., 56, n.; cost doctrine criticized 
 by Senior, 48, n. 
 
 Margins: extensive and intensive: 
 see Cost of Production; personal 
 or instrumental, 424, chap, xvi; 
 in price fixation, 405; nature of 
 land margin, 286; cause or result, 
 375; various kinds, 87, n., 378, n. 
 
58o 
 
 VALUE AND DISTRIBUTION 
 
 Marginal Utility: chap, xvii; as 
 value determinant, chap. xxii. 
 
 Marshall, Alfred: chap, xx; 
 measurement of utility by price, 
 372; on Jevons, 337, n.; displaced 
 rent as cost, 290; margins and 
 cost, 273; long-time reckoning, 
 480; criticized by Hobson, 409. 
 
 Marx, Karl: on money, 238; labor 
 measure of value, 177, n.; labor as 
 fund, 263. 
 
 Menger, Anton: relation to eco- 
 nomic doctrine, 334; definition of 
 subjective value, 327; principle of 
 imputation, 360; capitalization, 
 208, n. 
 
 Mercantilists: value doctrine, 107; 
 notion of productivity; see Pro- 
 ductivity. 
 
 Mill, James: interest as cost, 37, 
 39-41; general glut — controversy, 
 with Malthus, 118, n., 231, n. 
 See Capital, fixed and circulating. 
 
 Mill, John Stuart: chap, v; 
 cost, chap, xvi; marginal cost and 
 relative cost, 262; profit related to 
 cost, 90; displaced rent as cost, 
 290. See Capital; Productivity. 
 
 Money: its place in value theory, 
 217-20; function in deferred pay- 
 ments, 217-20. See Price. 
 
 Monopoly: cost in, 565, n. 
 N 
 
 Non-competitive Groups, 71-80. 
 O 
 
 Opportxtnity Cost. See Cost of 
 Production. 
 
 Ostentation: in industrial depres- 
 sions, 529, n. See Luxury. 
 
 Outlay Cost. See Cost of Produc- 
 tion; Entrepreneur Cost. 
 
 Overproduction, 227, n.; possi- 
 bility of, 231, n.; in industrial de- 
 pressions, 231, n. 
 
 P 
 
 Pain Cost. See Cost of Production. 
 
 Panics: depression following, 231, n. 
 
 Pantaleoni, Matfeo: relation to 
 economic doctrine, 338, n.; defini- 
 tion of demand, 532, n.; Hedon- 
 
 ism, 310, n., 311 n., on Galiani, 
 233. n. 
 
 Patten, Simon: recreation cost, 48, 
 n.; displaced rent and cost, 290. 
 
 Physiocrats: cost theory, 107. See 
 Productivity. 
 
 Pierson, N. G. : on cost, 268, n. 
 
 Pleasure. See Utility. 
 
 Population: redistribution of, 486; 
 and wages, 519. See Subsistence. 
 
 Price: defined, 218; adjustment of, 
 chap, xxv; peculiarities in theory 
 of, 238, n.; normal, 279, n.; rent 
 and price. See Rent. 
 
 Production: what is, 555. See 
 Factors of Production. 
 
 Productivity: defined, 121-24; 
 productive labor, 122, n.; produc- 
 tive consumption, 122, n.; Mer- 
 cantilist notion, 122, n.; Physio- 
 cratic notion, 122, n.; funded, 460; 
 distribution by, 285; interest ac- 
 cording to, chap. xiv. See Fac- 
 tors of Production. 
 
 Profits: as cost; only part are cost, 
 65; necessary or minimum, 90; 
 net or competitive, 102, n.; rela- 
 tion to cost, 89-91; Hadley's view, 
 89; J. S. Mill's, 58, 90; Walker's, 
 91; risk profit, 96-98. See Cost 
 of Production. 
 
 Promotion: profits of, 557, n. 
 
 Q 
 
 Quantity Theory, 241, n. 
 
 Quasi-Rents: and costs, 395-98, 
 401, n. 
 
 QuESNAY, Francois : laws of re- 
 turn, 492. 
 
 R 
 
 Rent: various concepts, 370, 419, 
 n.; causes of — Malthus, Ricardo, 
 Senior, 283, 284; on labor, 399; 
 affected by improved technique, 
 523, n.; incidence of tax on, 248, 
 n.; as cost: see Cost of Produc- 
 tion. 
 
 Representative Firm, 374, n. 
 
 Return, Laws of, chap, xxiii. 
 
 Ricardo, David: chap, iii; pain 
 cost, 3; controversy with Say on 
 cost, 109-13; riches vs. value, 3; 
 
INDEX 
 
 581 
 
 cause of rent, 283. See Rent; 
 
 Cost of Production; Capital, fixed, 
 
 circulating, and Loan Fund. 
 Robertson, J. M. : on saving, 5 29, n. 
 RoxTNDABOUTNESS. See Interest. 
 RusKiN, John: on saving, 529, n.; 
 
 definition of demand, 532, n. 
 
 Savings: as loan fund, chap, xiii; 
 "fallacy of," 529, n.; market for, 
 in prosperity and in depression, 
 231, n.; howfar desirable, 221-25; 
 upkeep, 435, n. See Capital; In- 
 terest; Abstinence. 
 
 Say, J. B.: chap, ix; on capitaliza- 
 tion, 208, n.; controversy with 
 Ricardo on cost, 109-13; loi de 
 debouchees, 238, n. 
 
 Seager, H. R. : expenses and oppor- 
 tunity cost, 383, n.; profit related 
 to cost, 99, n., 104, n.; on Hedon- 
 ism, 309, n.; definition of demand, 
 532, n.; laws of return, 495, n. 
 
 Seligman, E. R. A.: social-organ- 
 ism doctrine, 443, n.; expenses 
 andopportunitycost,383,n.; profit 
 related to cost, 100, n., 103, n.; 
 displaced rent and cost, 292, n.; 
 on Hedonism, 309, n.; utiHty and 
 marginal utility confused, 315, n.; 
 laws of return, 496, n. 
 
 Senior, W. N. : chap, iv; definition 
 of wealth, 314, n.; abstinence as 
 pain cost, 45; opportunity cost, 
 48; causesof rent, 284, n.; utihty, 
 317, n. See Capital; Factors of 
 Production. 
 
 Sevs^all, H. R., 107. 
 
 Sedgwick, H., 225, n. 
 
 Single Tax, 248, n. 
 
 Skill: related to cost, 75. 
 
 Smith, Adam: chap, ii; various cost 
 doctrines, 2; capital concept, 148; 
 rent and cost, 27. See Capital. 
 
 Social Dividend: defined, 121, 
 chap. xxvi. 
 
 Social Organism: chap, xxii, 441, 
 n., 458. 
 
 Standard of Deferred Payments : 
 chap, xiii; labor, utility, or value, 
 15-18, chap. xiii. 
 
 Standard of Living, 518, 529, n. 
 Subjective Exchange Value, 330. 
 Subjective Value: chap. xvii. 
 Subjective Worth, 347; a cost 
 
 concept, 354. 5ee Subjective Value. 
 Subsistence: relation to wages, 
 
 435> ^-'t goods as capital, 208-10. 
 Supply: defined, 532, n.; curves of, 
 
 chap. XXV. 
 
 Taxation: incidence of, on land 
 and rent, 248, n. 
 
 Thackeray, W. M., 300, n. 
 
 Transferability, 314, n. 
 
 Transportation: an agricultural 
 process, 486; effect of improve- 
 ments on rent, 523, n.; chap. xxiv. 
 
 Turcot, A. R. J., 107. 
 
 Tuttle, C. a.: capital concept, 
 154. n- 
 
 U 
 
 Underconsumption. See Overpro- 
 duction. 
 
 Upkeep: of land and of labor, 435. 
 See Interest. 
 
 Utility: displaced as cost; see Cost 
 of Production, Opportunity Cost; 
 curves of, chap, xxv; intrinsic or 
 extrinsic, 317, n.; absolute and 
 relative, 3 1 7, n. ; relative marginal , 
 299; comparabihty, 300, 302-14; 
 vs. cost, 339-51. See Marginal 
 UtiHty; Subjective Value; Cost 
 of Production. 
 
 Value: real and exchange, 31, 34; 
 vs. riches, 33; can it be measured ? 
 177, 178, 181, n.; views of social- 
 ists, 177, n.; Marx's, 177, n., 181, 
 n.; LaughHn's, 181, n.; Carver's, 
 181, n.; Walsh's, 188, n.; natural 
 value, 358. See Subjective Value; 
 Price. 
 
 Veblen, T. B.: profits and time, 97, 
 n. ; credit related to price, interest, 
 and profit, 255, n.; profits of pro- 
 motion, 567, n.; saving, 529, n. 
 
582 VALUE AND DISTRIBUTION 
 
 W Whittaker, a. C. : on Adam Smith, 
 
 Wages: subsistence minimum, 435, 23, 25, n.; Malthus, 56, n.; Ri- 
 
 n. See Labor; Cost of Produc- cardo, 34, n.; MiU, 59, n.; Semor, 
 
 tion; Subsistence. 5 2) n. 
 
 Walker, Francis: profit related to Wieser, Friedrich, v.: chaps. 
 
 cost, 91; marginal cost, 265; rent ^vu, xix; mterest, 199, 2ooj capi- 
 
 of labor, 400. tahzation, 208, n.; pnnciple of 
 
 „r T 1 ^- ^ imputation, ^60-62; demand for 
 
 Walras, Leon: relation to eco- productive goods, 512. 
 
 nomic doctrme, 334, n. /^ j r °, I 
 
 Walsh, C. M. : standard of deferred ^ork: defined, 556. 
 
 payments, 188, n. Z 
 
 Wealth: defined, 314, n. Zones of Indifference, 472. 
 
 Weissmann, a., 308, n. Zxjckerkandl, R., 339, 341. 
 
 Jl'L 
 
 04