The Conception of Value
( Originally Published Early 1900's )
VALUE has already been defined, and the method of measuring it described. We have now to consider value as expressing a certain relation between men and their wants as the one term, and wealth and its capacity for gratifying those wants as the other term.
The Conception of Value. The conception of value as a quality admitting of measurement offers peculiar difficulties to the student, owing to its intangible character. No one has any difficulty in conceiving of length, area, weight, temperature, and other physical qualities, because these qualities may all be made evident to the senses. But in the case of value we have nothing that is evident to the senses. One may be given a barrel of flour, and furnished with the most perfect means of measuring all its physical properties, without being able to form any estimate of its value. The latter will in fact depend on where the flour is, and how much people have to eat either where it is now or where it is to be taken to.
It follows that value is not a quality inherent in the commodity, but depends upon the relation of the latter to the persons desiring it. Things have no value unless they are in such a position that those who desire them can command them. If a barrel of flour were buried a hundred feet under the earth, it would, under present conditions, have no value, though not a single one of its physical properties might have suffered.
Many definitions of value have been given ; it is called " Cost of production," " Cost of reproduction," "Estimate of resistance to be overcome in order to command the commodity," etc. These and many other definitions are useful in suggesting a simple idea which hardly admits of an entirely satisfactory formal definition. We may regard value either as intensity of desire or as utility. When a man pays $5 for a barrel of flour, we may assume that his desire for that barrel of flour is a little greater than his desire for $5, and that the desire of the grocer is a little less. Taking an average, the general desire is equal to that for the money. If the value of a commodity A is $2, that of B $7, and that of C $100, we may imagine that people in general desire these three commodities with intensities proportional to 2:7:100.
We may also say that the value of a commodity in the market is its utility to those who purchase it. This definition agrees with the other, because utility, in economics, means capacity for satisfying desire; and, when we suitably restrict the meaning of our terms, we may say with logical correctness that intensity of desire on the part of the person, and capacity of satisfying that desire on the side of the commodity, are equal. But the word utility has another application which we must distinguish from the present one.
The Economic Conceptions of Utility and Value. Economists have claimed that, although utility is necessary to value, it alone does not suffice to give value; for example, that the utility of iron far exceeds that of gold, although gold has a higher market value. Again, air is far more useful than either, since we should die without it; yet it has no value whatever. The rule was therefore laid down that value depended not only on utility, but on difficulty of acquirement; that which could be acquired without labor having no value, how great soever its utility. Thus arose the conception of two kinds of value—value in use, or utility, and value in exchange, or market value.
The two Categories of Things in which Utility inheres. We shall now show that "value in use" and "value in exchange" are not in reality two distinct kinds of value, but rather the same kind of value inherent in two distinct categories of things. The one category is that of things in general, as gold in general, iron in general, and air in general. The other category is that of particular things—the cargo of iron which has just arrived in port; a particular ingot of gold; the air which one is at the moment breathing.
Utility in the two Categories. When we say that iron is more useful than gold, we do not mean that a single bar of iron really possesses higher utility than a similar bar of gold would. What we mean is that iron in general, or all the iron in the world, is more useful than gold in general, or all the gold in the world. But a single bar of iron is, under the actual conditions in which men are placed, less useful than a bar of gold, for the simple reason that if the bar of iron were lost or annihilated there are plenty of other bars to take its place; whereas there are not plenty of bars of gold.
It might be said, in reply to this, that the fact of there being plenty of other bars of iron does not really lessen the value or importance of the service rendered by any particular bar, and that it is this service considered in itself which determines the utility of the bar. But a little consideration will show that we cannot make this kind of utility, that is, the utility of things or services in themselves, the subject of any precise thought or estimate. If we tried to do so, we should conclude that the utility of everything which supports life is infinite. For ex-ample, in travelling by rail, we might say that the utility of every separate rail over which we pass is infinite, because it keeps the train in which we ride from destruction. It is clear that such a conception of utility cannot be exactly measured.
The more reasonable definition is this : The utility of an object is measured by the disadvantage which we should have suffered if the object had never existed. Adopting this definition, the utility depends not merely on what thé object does for us, but on what would have happened if the object had not existed. Now, if the bar of iron were non-existent, we should merely have been put to the labor and expense of making another bar to take its place. So it is this labor and expense which measure its utility, as well as its market value. And every one knows that this labor and expense would be far greater in the case of a bar of gold than in that of a bar of iron.
Value in the two Categories. On the other hand, if we attempt to assign a market value to air, or iron in general, we shall find it to correspond to the utility. If the inhabitants of the planet Mars should offer to purchase our atmosphere, they would find that the market value we set upon it would be infinite, because to part with it would be instant death to the inhabitants of this planet ; hence the " value in exchange" of air in general is not zero, but is rather infinitely great. Again, if the inhabitants of Mars should offer to purchase all the iron on our planet with an equal weight of gold, we should not accept the offer. That is, iron as a sum total has a higher market value as well as a greater utility than gold as a sum total. There is therefore no objection to defining the value of commodities as equivalent to their utility, provided that we always attach the correct idea to the word utility. But utility will then be identical with value.
This principle is closely related to an improved theory of value formulated by Professor Jevons. Consider a man in a situation where the command of food is difficult or uncertain. A daily supply of a pound of bread will be of the greatest value to him ; to secure it he would give all his time if necessary. It would be of equal utility, because it would keep him from starving. The addition of a second pound per day would be of less utility, and would also have less value. If he were offered a third pound per day, the value and the utility would both be still smaller. If the loaves offered went on increasing, a point would soon be reached when he would prefer some-thing else than food, say clothing. The utilities of successive supplies of clothing would go on diminishing in the same way. If the supply were houses of increasing size, their utilities would go on diminishing. A point would thus arise in the case of each and every commodity at which the utility of an additional portion would be so small that it would be indifferent whether a person did or did not undergo the labor or privation necessary to command it. This Mr. Jevons calls final utility. Thus final utility is synonymous with value which is measured by price.
Now, what is ordinarily bought and sold in the market are not sums total comprising the whole of any commodity which exists, but little portions each of which is insignificant along-side of the whole. It is therefore with final utilities alone that the operations of commerce and the laws of economics are commonly concerned.
It is sometimes said that economics has nothing to do with anything but this market value, and knows no other measure of value. Although this is true in the generality of cases, it is a grave mistake to regard it as universal. In any case where the question is one respecting the effect of a material increase or diminution in the supply of an article, the benefit or injury cannot be expressed by the market value of small portions. For example, the injury and suffering which would be inflicted on mankind by a general failure of the crops is not to be measured by the market value lost. In fact it would be found that the value of a short crop would exceed that of an abundant one. So with capital. The utility to non-capitalists of all the capital accumulated by others is incomparably greater than the interest they pay upon it. This principle is of special importance in all cases where the question at issue is that of a general policy which will tend to change quantities total of any product. If all the laborers of the country should combine together to materially change the conditions of production, the corresponding change of value would afford no criterion of the benefit or injury to society. This limitation upon the doctrine of value will have important applications.
Value has a relation to human needs which, although commonly simple enough, is sometimes seriously misunderstood. Its origin depends on two factors, which must be kept separate in thought. These factors are (1) need on the part of man, and (2) capacity to gratify that need on the part of the wealth valued. To a man who is as happy as he can be and wants nothing, no wealth can have any value. It is only when he needs to better his condition that value arises. The result of this is that increase of value may imply not only an increase of power to gratify our needs, but also an increase of those needs. By making a man very thirsty and cutting off his water-supply we give value to water. By threatening to inundate him with the Mississippi River we give value to the dikes which keep that river from overflowing his fields. By clearing away the forest we give greater value to the limited quantity of wood that remains. By adding more people to the number who must be fed from one farm we increase the value of the farm and everything upon it. A cold climate increases the value of houses, shelter, and clothing.
The result of all this is that although value is the measure of wealth, it is very dangerous to take it, as is often done, as the measure of human welfare. It may equally be the measure of the increase of human necessities, and it is very difficult to draw an exact line between the two eases. It is only when we compare two different values in cases where men are similarly situated that we can say whether the difference between the values corresponds to the difference of general welfare. If we should find by comparing the two States of Ohio and Indiana that the wealth of one far exceeds. that of the other in pro-portion to its population, we might fairly conclude that, the inhabitants of the wealthier State were on the whole better off. But we could not make a similar comparison of the people of Switzerland with those of Minnesota, because the necessities of the former lead them to assign a higher value to roads and fields than these objects possess in Minnesota.