Chapter I: Preface

This series of books owes its existence to the generosity of Messrs. Hart, Schaffner, and Marx of Chicago, who have shown a special interest in directing the attention of American youth to the study of economic and commercial subjects, and in encouraging the systematic investigation of the problems which vitally affect the business world of to-day. For this purpose they have delegated to the undersigned Committee the task of selecting topics, making all announcements, and awarding prizes annually for those who wish to compete.

In the year ending June 1, 1910, the following topics were assigned:--

1. The effect of labor unions on international trade.

2. The best means of raising the wages of the
unskilled.

3. A comparison between the theory and the actual
practice of protectionism in the United States.

4. A scheme for an ideal monetary system for the United
States.

5. The true relation of the central government to
trusts.

6. How much of J. S. Mill's economic system survives?

7. A central bank as a factor in a financial crisis.

8. Any other topic which has received the approval of
the Committee.

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

The present volume was awarded the second prize.

PROFESSOR J. LAURENCE LAUGHLIN, _University of Chicago, Chairman_.

PROFESSOR J. B. CLARK, _Columbia University_.

PROFESSOR HENRY C. ADAMS, _University of Michigan_.

HORACE WHITE, ESQ., New York City.

PROFESSOR EDWIN F. GAY, _Harvard University_.

A NOTE

The following study is the outgrowth of investigations in the "Quantity Theory" of money, carried on in the seminar of Professor Jesse E. Pope, at the University of Missouri, during the term 1904-5. That a satisfactory general theory of value must underlie any adequate treatment of the problem of the value of money, and that there is little agreement among monetary theorists concerning the general theory of value, became very evident in the course of this investigation; and that the present writer's conception of value, as expressed in a paper written at that time on the "Quantity Theory," was not satisfactory, became painfully clear after Professor Pope's kindly but fundamental criticisms. The problem of value, laid aside for a time, forced itself upon me in the course of my teaching: my students seemed to understand the treatment of value in the text-books used quite clearly, but I could never convince myself that I understood it, and the conviction grew upon me that the value problem really remained unsolved. Hence the present book. It was begun in Dean Kinley's seminar, at the University of Illinois, in the term 1909-10. The first three parts, in substantially their present form, and an outline sketch of the germ idea of the fourth part, were submitted, in May of 1910, in the Hart, Schaffner & Marx Economic Prize Contest of that year. Part IV was elaborated in detail, and minor changes made in the first three parts, during the year 1910-11, at Columbia University. The book is submitted as a doctor's dissertation to the Faculty of Political Science of that institution.

My obligations to others in connection with this book are numerous. I cannot refrain from thanking my old teacher Professor Pope, in this connection. I owe my interest in economic theory, and the greater part of my training in economic method, to the three years I spent in his seminar at Missouri. I am also indebted to him for substantial aid in the critical revision of the proofsheets. At the University of Illinois, Dean Kinley and Professors E. L. Bogart and E. C. Hayes were of special service to me, as was also Mr. F. C. Becker, now of the department of philosophy at the University of California. Dean Kinley, in particular, criticized several successive drafts, and made numerous valuable suggestions. My chief obligations at Columbia University are to Professors Seligman, Seager, John Dewey, and Giddings. My debt to Professors Seligman and Dewey is, in part, indicated in the course of the book, so far as points of doctrine are concerned. Both have been kind enough to read and criticize the provisional draft, and Professor Seligman has supervised the revision at every stage. My wife's services, in criticism, in bibliographical work, and in the mechanical labors which writing a book involves, have been indispensable.

It is due Professor J. B. Clark, since I discuss his theories here at length, to mention the fact that, owing to his absence from Columbia University during the year 1910-11, I have been unable to talk over my criticisms with him, and so may have misinterpreted him at points. Of course, there is a similar danger with reference to every other writer mentioned in the book, but the reader will not be likely to think, in the case of others, that the interpretations have been passed on by the writers discussed, in advance of publication. I must also mention here Professor H. J. Davenport, whose name occurs frequently in the following pages. Chiefly he has evoked criticism in this discussion, but it goes without saying that his _Value and Distribution_ is a most significant work in the history of economic theory, and my indebtedness to it will be manifest.

THE AUTHOR.

COLUMBIA UNIVERSITY, May, 1911.

ANALYTICAL TABLE OF CONTENTS

PART I. INTRODUCTION

CHAPTER I

PROBLEM AND PLAN OF PROCEDURE

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

PART II. CRITIQUE OF CURRENT VALUE THEORY

CHAPTER II

FORMAL AND LOGICAL ASPECTS OF THE VALUE CONCEPT

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

CHAPTER III

VALUE AND MARGINAL UTILITY

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

CHAPTER IV

JEVONS, PARETO AND BOeHM-BAWERK

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

CHAPTER V

DEMAND CURVES AND UTILITY CURVES

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

CHAPTER VI

THE VICIOUS CIRCLE OF THE AUSTRIANS

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

CHAPTER VII

PROFESSOR CLARK'S THEORY OF SOCIAL VALUE

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

PART III. THE PRESUPPOSITIONS OF ECONOMIC THEORY

CHAPTER VIII

THE PHILOSOPHICAL AND PSYCHOLOGICAL PRESUPPOSITIONS

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

CHAPTER IX

THE SOCIOLOGICAL PRESUPPOSITIONS

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

PART IV. A POSITIVE THEORY OF SOCIAL VALUE