Chapter XI: The Ultimate Relation of Cost to Value (4)

[243] Whenever, of course, the man acting for himself, places himself in the relation with the good which permits its power to become effective. Compare the discussion in section ii of this chapter. No apology is offered for the present “discussion of mere words” as it might be termed by the hostile. These discussions contribute to clearness of thought upon questions of theory, and clearness of thought in theory is certain from time to time to be of benefit to discussions of many proximate and practical issues. For instance, we find recently a well known writer explaining that “scientifically” the distribution of money among nations is so governed that money reaches the level of equal “marginal utility” in the different countries. See a paper entitled “The Distribution of Money,” _Journal of Political Economy_, vol. ix, p. 49. This proposition has no meaning, and is authorized by nothing in the Austrian theory, though the writer quotes the Austrians freely. A little “word discussion” by “practical” writers might enable them to see when they are covering up the absence of an explanation by mere conjuring with formulæ whose real meaning has not been ascertained.

[244] The term “disutility” is almost universally used as equivalent to “discomfort,” that is, as being purely subjective. This makes it available as an opposite of satisfaction (or of utility according to the usage of those writers who use the latter as a subjective term) but the same usage debars its employment as the opposite of utility in the sense advocated in the present essay.

[245] The determination of Crusoe’s supply of a good at this point, which fixes the subjective value of the good, bears a few obvious analogies to the determination of competitive exchange values in the social market at the point of “normal equilibrium of supply and demand,” as described by Professor Marshall.

[246] Reasons will appear later, it is believed, to show that when we reach the complex case of real social industry and exchange value the control of cost over value will be much more impaired than that of utility.

[247] It has already been shown why it is quite impossible to hold to the opinion that cost is the essence of value. _Cf._ _ante_ pp. 34-5.

[248] A man may receive part of his income by gift or inheritance and earn a part. The latter part becomes in this case a sort of marginal portion. Though all of his dollars have not cost him disutility, some of them have, and upon principles already discussed, any dollar has the “effective” disutility cost of the most costly dollars. This is just as true as the fact that the first hours of labor may sometimes be play and yet their product always counts as having a disutility cost because of the disutility of the final hour.

[249] The reader should bear in mind that the “theory of price,” in which exchange value is explained according to the utility theory of value, involves so comparison whatever of the satisfactions of different persons. See _ante_, § 4.

[250] This kind of affirmation is, however, very common, and hence the presumption is that it has a legitimate meaning.

[251] Suppose a machine is destroyed in the making of 100 units of a certain product. Then the total labor cost of each of these units contains ¹⁄₁₀₀ of the total labor cost of this machine. This is explained by Ricardo and by recent followers of Ricardo, as for instance by Professor Macvane in his text book. Another earlier machine was partly used up in making this first one. Perhaps it contributed ¹⁄₁₀₀₀₀ of its total labor cost to this first. Then each of our products contains in its total labor cost ¹⁄₁₀₀ of ¹⁄₁₀₀₀₀ of the total labor cost of the machine of the second generation back.

[252] Using capital here in the sense of means of production that are themselves products of labor. We will go so far in our illustration as to suppose that the land has never had labor expended upon it to drain it, or in any other way to “fix an element of capital in it.”

[253] In this illustration the marginal cost is five times as high as the “total cost” or total average cost of a bushel, but this ratio could have no significance even if the data of our illustration were approximately true with respect to the _direct_ labor cost of wheat on good land, for we have eliminated from the real total labor cost all of what Ricardo called the “indirect” labor cost, by eliminating capital.

[254] Ricardo frequently supposed his doses to consist of sums of money expended by the farmer, or to consist of increments of money capital. These doses of money, however, would be expended for capital goods and labor power conjointly.

[255] Traced in the fifth chapter of the present essay.

[256] That is to say, when we affirm that in our theory we can disentangle the specific product of labor, we mean that entrepreneurs in practical effect do ascertain the marginal product of labor in making up their labor forces.

[257] Sometimes “pure capital.”

[258] _Distribution of Wealth_, p. 119.

[259] See _ante_, chap. vii, §§ 4 and 5.

[260] Adopting the view of the income of capital taken by Professor Clark and advocated with so much force by Professor F. A. Fetter.

[261] By this phrase we mean always _in relative proportion_, so that the value of A is to that of B, as the cost of A is to that of B.

[262] Put in proximate and practical language, the amount of ore that can be taken profitably from a mine depends jointly on the price of the ore at the surface and the wages of labor.

[263] A rise of the exchange value of the specific product of labor compensates for superior disutility by enabling the laborer to purchase things of higher esteem value with his enhanced wages. In other words, we have been explaining the familiar doctrine that wages tend to be higher in employments of higher cost. If a laborer were free to choose the precise length of his own working day, he would stop when the final disutility of the labor and the utility of the commodities purchased by the marginal increment of wages are equivalent.

[264] Or, as Walsh states, it may also be defined as the article’s purchasing power over all goods including itself. This is not the same concept, but is one equally entitled to the name “general purchasing power.” _Op. cit._, p. 13.

[265] The meaning of this condition, it is hoped, will be apparent from the discussion in section 6.

[266] See p. 151.

[267] See p. 151.

[268] This proposition is stated loosely as being that an increase of supply lowers value by reducing marginal utility. In many cases, exchange value is lowered by a decline of marginal utilities, but not always. See p. 152-4.

[269] Compare p. 160.

[270] See p. 179.

[271] Even as economic quantities go. For concept of total pain cost see p. 182.

[272] See p. 183.

INDEX OF AUTHORS MENTIONED.

Böhm-Bawerk, 62, 68, 95, 135, 147-9.

Cairnes, 9, 14, 29, 80n, 93n, 111, chap. x, 128, 134.

Clark, J. B., 37, 59, 108, 120n, 133n, 166-71, 178, 183-7.

Davenport, H. J., 136.

Dietzel, H., 45, 136, 137, 138n, 153.

Fetter, F. A., 187n.

Giddings, F. H., 120n.

Gossen, 37, 128, 166.

Green, D. S., 136.

Ingram, J. K., 18n.

Jevons, 37, 98, 114, 128.

Lauderdale, 89.

Lloyd, W. F., 128.

Longfield, Mountifort, 128.

Macvane, S. M., 149n, 183n.

Malthus, 9, 11, 12, 14, 15, 21, 26, 37, 41, 50, 52, 63, 74, chap.
vii, 93n, 94, 95, 102, 104-5, 112, 132, 139, 163n.

Marshall, 9, 14, 80n, 115, 133n, 150, 151n, 163n, 165n, 175n, 194.

Marx, 36, 42, 47, 61, 64-70, 129, 132n.

McCulloch, 9, 11, 31n, 42, chap. vi, 93, 95, 101.

Menger, 20, 89, 128, 143, 145, 171.

Mill, James, 9, 11, 31n, chap. vi, 87n, 93.

Mill, J. S., 9, 14, 15, 56, 80n, 89, chap. ix, 115, 116, 121, 133-4.

Pantaleoni, 141n.

Ricardo, 9, 10, 11, 14, 15, 21, 26, 27, 31, 35, 36, chap. v, 61, 62,
64, 68, 69, 73, 74, 79, 80, 82-8, 89, 90, 91, 93n, 94, 101,
102-3, 104-5, 106, 108, 109, 110, 111, 112-13, 124-6, 129,
130-2, 133, 137, 163n, 182, 185.

Roscher, 167.

Say, J. B., 14, 44, 46, 89, 93n, 94, 97, 101, 129.

Scrope, 95n.

Seligman, 128.

Senior, 9, 41, chap. viii, 104-5, 106, 112-13, 114, 116, 123, 133.

Smart, Wm., 152, 169n.

Smith, 9, 11, 13, 14, 15, chaps. ii-iv, 41, 43, 44, 45, 50, 56, 80,
81, 87, 88, 89, 90, 91, 98, 128, 129-30, 137, 138n, 139, 181.

Torrens, 9, 11, 32n, chap. vi, 89, 93, 95, 138.

Walras, 128.

Walsh, C. M., 140n, 141, 191n.

Wieser, 12, 43, 131n, 135, 146n, 156.

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