Arthur Kitson

A Fraudulent Standard

CHAPTER V

WHAT DETERMINES THE VALUES
OF COMMODITIES ?



HITHERTO we have dealt merely with the methods of expressing or registering the exchange values of commodities without inquiring into the cause of these values.  It may be asked why a certain quantity of one commodity should be regarded as the exact exchange equivalent of so much of another, and why these relative quantities vary from time to time ?  What determines the values of commodities ?  Although properly speaking this is not within the scope of this inquiry, a few observations may serve to throw some light upon what is probably the most complicated problem in the sphere of economics.  Between what should be and what is, a great gulf has hitherto been fixed, consisting of laws, privileges, customs, superstition and ignorance.  The basis of every economic system should be justice, the reign of which has not yet commenced, and the meaning of which is little understood in spite of our much vaunted civilization.

It may be well to understand, however, that without justice, without fair exchange, no satisfactory system of economics can exist.

Dealing principally with human actions, economics is necessarily related to and should be considered a branch of the science of ethics.

But what constitutes a fair exchange ?  This problem has afforded a mental diversion to economists for ages, but the only serious attempt to solve it on a strictly ethical basis was when Socialism offered as the true measure of exchange values of commodities, the “ socially-necessary labour-time ” required to produce them.  This solution, however, has one serious flaw—it offers a premium for slackness instead of industry, for the minimum rather than the maximum output.  The smaller the product in a given time the higher the value per unit, reckoned by the labour standard.  Competition in slackness is not a desirable condition to offer as an incentive to production.

To be valuable, a commodity must first be useful or desirable, and secondly it must be relatively scarce.  We do not pay for things which are useless, nor for things we do not desire, nor for things which are so abundant they may be had for the asking or for the trouble of picking up.  If bread were rained daily like manna from heaven, it would cease to be valuable in the economic sense.

When a patent medicine firm desire to make some speciality valuable, they first protect it either by making the ingredients a secret or by patenting the formula or registering a trade-mark.  The object of this is to enable them to control the supply, i.e., make it relatively scarce.  The second step is to advertise it extensively and create a public demand for it, i.e., get the public to believe in its utility and desirability.  The greater the relative supply (relative to the demand) of any article the less its value and vice versa.  Conversely, the greater the relative demand (relative to the supply) the greater the value and vice versa.

Hence values are said to be the result of the operations of the two forces of supply and demand.  Where both vary simultaneously and in exactly the same proportion, values remain unchanged.  If demand grows more than the supply, values increase ;  and if supply grows faster than the demand, values fall.

Demand is sometimes called the parent of supply.  Certainly no one would undertake to produce or manufacture an article without knowing or believing there would be a demand (i.e., a sale) for it.

But demand in our economic system does not mean the natural demand.  It refers solely to the effective demand, viz., demand backed by purchasing power, i.e., money or credit.  Thousands of hungry people may be clamouring for food, but the demand, serious enough in all conscience, does not raise the market value of the loaf one farthing, unless the starving multitude can offer money in exchange.

We may, therefore, consider these two forces in the following interesting light.  Supply, which is the product of all the necessary factors of production, the land, labour, machinery—in short, the whole industrial world—operates in the direction of reducing and destroying scarcity, which is the enemy of mankind ;  whilst demand, represented by money and credit, works in the direction of maintaining scarcity.

This contrast throws a flood of light upon the relation of finance to industry and explains the true cause of the eternal conflict between labour and capital.  Finance, which controls capital, is essentially the opponent of labour, since each is working to destroy the object which the other desires.  Labour desires such an abundance of wealth that all may enjoy the good things of life “ without money and without price.”  Finance desires relative scarcity so that money shall be all­powerful in controlling both wealth and labour.

The manufacturer and the general business man, who are compelled by conditions to stand between the interests of labour on the one hand and those of the financier on the other, are thus between “ the Devil and the deep sea,” and are made to suffer accordingly.

Neither employers nor employees have hitherto been able to see that their interests, although fundamentally mutual, are made antagonistic by the sinister influence of finance which acts as an “ agent provocateur.”

In my youthful days there was a certain kind of pyrotechnics highly appreciated by schoolboys called “ the Devil among the tailors.”  Its appellation is said to have been received from the following legend.  In his journeyings up and down the world, the Devil once chanced upon a merry company of tailors intent upon their daily tasks.  Determining to put an end to their sociability, he boxed the ears of one, tweaked the nose of another, pulled the hair of a third, pinched the leg of a fourth, and so on, with the result that within a few seconds the tailors were flying at each other’s throats, and their merriment soon ended in a riot.  The moral of this legend will be found in a comparison of the industrial conditions existing in all countries during the past century with those which prevailed prior to the birth of what is now known as “ cosmopolitan finance ” and its colleague the gold standard.

Although the causes of labour unrest are apparently numerous and varied, the fundamental cause can invariably be traced to disputes regarding money.

The industrial world is engaged in the creation of VALUES, whilst the financial world occupies itself with the control of the instrument which determines PRICES, and between the two we have a perpetual conflict.

To this cause may also be traced what is known as “ trade warfare.”

To this cause chiefly the refusal of most nations to embark upon the policy of Free Trade may also be ascribed.

A scarcity of money means a scarcity of demand for goods and labour.  Hence we find trade and business depression side by side with all the essential factors for industrial prosperity, viz., an abundance of available labour, land and capital, together with a vast and unsatisfied public demand.  But the dearth of currency, an insufficiency of monetary tokens, will suffice to convert prosperous into hard times, industry into idleness, a condition of plenty into one of poverty.

The increased volume of credit and legal tender now in circulation, which the financiers denounce as “ inflation,” coupled with the general increase in wages, has resulted in an era of prosperity which the working classes have never before experienced in this country.  And if the nation were only employed in producing the munitions of life instead of the instruments of destruction, this prosperity might continue indefinitely (provided the bankers and moneylenders were prevented from contracting the currency), and the nation would be growing in wealth at a rate hitherto undreamt of.  If instead of raining explosive shells for the purpose of destroying towns, villages and trenches in France, our armies were engaged in tearing down and rebuilding our own dirty, slovenly towns like certain parts of London, Birmingham, Sheffield, Leeds, Glasgow, and all our unsightly industrial centres, if they were building new railways to connect our towns more directly with each other, replacing the disgraceful cattle-sheds and barns which we politely call “ railway stations,” opening up and improving our canals, constructing a decent system of underground telegraph and telephone wires, opening up new ports and widening and improving our present ones, building larger and better railway cars, carriages and locomotives, in fact doing the very opposite to what they are now doing, in place of a National Debt we should soon see a vast mine of National Wealth ;  instead of burdening our citizens with taxes, the Government would soon be able to free us of them entirely, and our industries, our trade and commerce would grow by leaps and bounds !  Will our statesmen have the intelligence to see this, and exercise the same zeal and courage in employing all the national resources towards creating wealth and enriching the Empire when the war is over which they have shown in the vast work of destruction ?

To return to the subject of values, cost of production is necessarily one of the prime factors in determining these.  Here again the question of money and credit figure in the result.  The rate of interest on money has a marked result on the cost of production.  A nation enjoying the advantages of a cheap credit-currency system—other things being equal—will have no difficulty in competing in neutral markets with a nation like ourselves, whose variable and high bank rate is a serious hindrance to industrial success.  Monopoly has also a serious effect upon values.  The high prices fixed for diamonds are entirely the result of a rigid monopoly.  Had the mines of Kimberley been worked competitively, the output of these precious stones would have reduced their values to a fraction of what they have been hitherto.  The same is true of petroleum and its products.  Indeed there are few commodities to-day that may be said to be the product of free conditions.

Again, values may be greatly affected by law.  The Defence of the Realm Act, forbidding the lighting of public thoroughfares and the exposure of household lights, created a huge demand for electric hand-torches, heavy window-blinds and lamp-shades.  Similarly, as already pointed out, the present value of gold is due first to nature’s limited supply and secondly to the legal tender laws of all nations, which have created an unlimited market for coinage purposes.  These legislative acts not only affect the public demand for such commodities, but they direct the industrial activities of a portion of the producing classes into economically unprofitable channels, causing the production of goods which, in the absence of such laws, would probably never be manufactured, or to a much smaller extent.

Such measures sometimes seriously affect the whole of our industrial life.

Freedom of contract is supposed to be one of the necessary conditions under which production is maintained in all industrial and civilized countries.  But it would be difficult to point out where such freedom really exists, save to a limited degree.  Our modern social and economic conditions give the average wage-earner and salaried employee about the same economic freedom that the chain gives to the chained house-dog.  It is the sort of freedom enjoyed by the Belgian and French enslaved populations under the Huns, who offer their victims the choice between making munitions to destroy their Allies and starvation !  “ You work for us on our terms or you starve ” has been the condition of the average “ free citizen ” in all industrial countries to a greater or less degree for generations.  With the State­accorded privileges, private land ownership, monopolies, special banking Acts, such as the Bank of England Charter and legal tender laws, all the conditions which are necessary to enable the industrial classes to freely contract for their labour and products are to-day mainly non existent.  Hence exchange-values are not the result of either free or fair conditions.  They are the result of economic necessities under unjust conditions.