Chapter V.


“ Value is the corner-stone of the Economic edifice.”—PROUDHON.

WE have now to consider the most important, ambiguous and perplexing conception with which economics deals, viz., Value.  When we remember the warfare that has been waged and the vast amount of literature produced on this subject during the past few years, we read with amusement John Stuart Mill’s remark, made nearly fifty years ago, that “Happily there is nothing in the laws of value which remains for the present or any future writer to clear up ;  the theory of the subject is complete.”1  So far was this statement from the truth, that since it was written an entirely new economic school has been established, founded upon a wholly different conception from that propounded by Mill, and the school of Adam Smith.

It is true, however, as Mill says, that “ Almost every speculation respecting the economical interests of a society implies something of value, and the smallest error on that subject infects with corresponding error all our other conclusions ;  and anything vague or misty in our conception of it creates confusion and uncertainty in everything else.”2  This is doubly true when considered in its relation to the money question.  In fact, we might almost say that the solution of this question depends upon the interpretation put upon the word “value.”  This term is so indissolubly bound up with the word “utility” or usefulness, that we cannot treat one without regard to the other.

Every commodity presents itself to us in two ways.  When we think of consuming or enjoying a thing, we have regard to its usefulness.  When we contemplate disposing of it, we have in mind what we can get in return for it.  We may for convenience imagine every commodity possessing two faces.  To the consumer it appears as something useful, something to eat, drink, wear or use.  To the seller it appears as an object of value, something to exchange.  These two different aspects of goods were noticed by Aristotle more than 2000 years ago.

“ Of everything which we possess,” he says, “ there are two uses, both belonging to the thing as such, but not in the same manner ;  for one is the proper and the other the improper or secondary use of it.  For example, the shoe is used for wear, and it is used for exchange ;  both are uses of the shoe.”3  The connection or relation between these two aspects has been the ground of contention among economists for years.  Adam Smith used the word “ value “ in the two senses, prefixing the words “ use ” and “ exchange ” according to its application.  He says : “ The word value has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys.  The one may be called ‘ value in use,’ the other ‘value in exchange.’  The things which have the greatest value in use, have frequently little or no value in exchange ;  and on the contrary, those which have the greatest value in exchange, have frequently little or no value in use.  Nothing is more useful than water, but it will purchase scarce anything ;  scarce anything can be had in exchange for it.  A diamond, on the contrary, has scarce any value in use, but a very great quantity of goods may frequently be had in exchange for it.”4

The unfortunate application of the same term to these two aspects of commodities, viz., utility and exchange, is entirely responsible for the great confusion and ambiguity into which this question has been brought.  The term use-value is becoming obsolete, and the much better word utility or usefulness has taken its place.  Smith employs the word utility in a positive sense.  Certain things are known to be absolutely essential for the support of life, and are termed the “necessaries ” of life.  The utilities of such, Smith and his school regarded as inherent properties.  Hence, water was regarded as very useful, and “ yet will purchase scarce anything,” whilst a diamond, having scarce any value in use, will purchase a very great quantity of goods.  Value and usefulness or utility were therefore considered to be independent qualities.  Modern economists employ the term utility in a very much wider sense, viz., capacity to satisfy a desire or serve a purpose, irrespective of the nature of the desire or purpose.  Thus, Professor Jevons says :  “Anything which an individual is found to desire and to labor for, must be assumed to possess for him utility.”  So Professor Smart writes :  “ The economic ‘ want’ is not necessarily a rational or healthy want.”5

The Austrian school divides value into two parts :  subjective or personal value, and objective value.  In treating these two divisions, Professor Smart says :  “ Value in the subjective sense we may call, generally, the importance which a good (commodity) is considered to possess with reference to the well-being of a person.  In this sense a good is valuable to me when I consider that my well-being is associated with the possession of it—that it ‘avails ’ for my well-being.”

“ Value in the objective sense is a relation of power or capacity between one good and another good.  In this sense a good has value when it has the power of producing—or ‘ avails ’ towards—some objective effect.  There are, consequently, as many objective values as there are objective effects.  Thus while the subjective value of coal to me is the amount of good I get from the fire, its objective value is the temperature which it maintains in the room, or the amount of steam it can raise in the boiler, or the money it brings me if I sell it.  This kind of value is very much synonymous with the word ‘power’ or ‘capacity’;  it is as common to speak of ‘ heating power’ as of ‘ heating value.’”6

Economics, however, deals not with the “powers” and “ values ” of objects which are purely physical, such as the power of steam or the heating value of coal.  It is merely exchange values and purchasing powers that the science deals with—that is, the relation of commodities to the wants and desires of men.

According to this same school, value depends upon utility, and it is the “utility on the margin of economic employment,” or what is termed its “ marginal utility,” that determines the value of a commodity.  We may put the matter in this way.  The ability of commodities to satisfy human wants and appetites creates a desire to possess them.  This ability to satisfy wants is termed utility or usefulness.  The desire for possession prompts men to undergo exertion and make sacrifices, in order to obtain the means for satisfying wants.  They are willing to give something, either labor or some commodity, to possess what they want.  Now the quantitative relationship which men, in their desire to obtain possession of them, establish among commodities, is termed value.7  It is expressed by the ratio of the quantity of one thing that men are willing to exchange for a given quantity of another thing.  Thus, both utility and value are merely relations.  They are neither qualities nor properties of things.  They are not inherent, but merely “accidents of a thing arising from the fact that someone wants it.”8  And it is the proportion of the number and degree of urgency of these wants for a thing, to its available supply, that determines its value relation.  In fact, the difference between the useful and the valuable is a quantitative one.  When things are abundant, like air, water, sunshine, etc., no matter how necessary they may be to life, value does not appear.  Value arises only where things are limited in quantity, that is, among things where economy is necessary.

Economic value is, therefore, purely a quantitive term.  “ Value,” says Le Trosne, “consists in the ratio of exchange, which takes place between such and such a product, between such a quantity of one product and such a quantity of another.”

“ Hence it is clear,” says Macleod,  “that value a ratio.”

“ Value in exchange expresses nothing but a ratio,” says Prof. Jevons ;  “ and the term should not be used in any other sense.”  And again, “Every act of exchange thus presents itself to us in the form of a ratio between two numbers.  The word ‘value’ is commonly used, and if, at current rates, one ton of copper exchanges for ten tons of bar iron, it is usual to say that the value of copper is ten times that of iron, weight for weight.”

The foregoing definitions would be ordinarily sufficient to give the reader a perfectly clear idea of what economists mean by this term.  But unfortunately its misuse is so general that one finds it difficult, even after acquiring the correct idea, to avoid its misuse.  For instance, how difficult it is to refrain from saying, “this thing has value,” or “that object possesses great value.”  And yet it is very evident that if the definitions above given are correct, it is wrong to speak of anything possessing value.  Prof. Smart says :  “ But it is almost impossible to use the term without suggesting an inherent property.  Value always implies a relation.”  The economists themselves, after clearly defining the word, often fall into its popular misuse, with the inevitable result of mixing up themselves and their readers in inextricable confusion.  Take Prof. Jevons, for instance, whose definition has already been given.  He says :  “But value, like utility, is no intrinsic quality of a thing ;  it is an extrinsic accident or relation.  We should never speak of the value of a thing at all without having in our minds the other thing in regard to which it is valued.”  Further on he says :  “ Bearing in mind that value is only the ratio of quantities exchanged, it is certain that no substance permanently bears exactly the same value relatively to another commodity,” etc.  In another place he adds :  “ A student of economics has no hope of ever being clear and correct in his ideas of the science if he thinks of value as at all a thing or an object, or even as anything which lies in a thing or object.  People are thus led to speak of such a nonentity as intrinsic value.”

In spite of these clear and comprehensive definitions, he says in another chapter :  “ Since money has to be exchanged for valuable goods, it should itself possess value, and it must therefore have utility as the basis of value.”  How can a thing possess “ an extrinsic accident or relationship ” ?  In the same chapter he says :  “It might seem that money does not really require to have substantial value.”  If value “is an extrinsic accident or relation,” what is the meaning of the expression that “ Money does not really require to have substantial extrinsic accident or relation ” ?

Macleod, after defining value as “ The ratio in which any two quantities will exchange,” says in another part :  “ The value of anything is always something external to itself.”  But a ratio is the relation of two numbers to each other, it involves two quantities.  Again he says :  “ Value is an affection of the mind.”  Is a ratio an “ affection of the mind ” ?

With such a confusion in the use of terms it is not surprising that this subject has been so long submerged in ambiguity.  The idea of value in economics arises only in connection with the quantities of things.  It is expressed in the question, “How much of this commodity must I give for so much of that ?”  It has, therefore, nothing to do with substances or qualities.9

It has wholly to do with the quantitative relationship of commodities to each other.  Since all commodities are exchangeable in certain proportions, in units of their respective measurements, these proportions or ratios are termed values.  Value is a term somewhat analogous to distance.  It is a relation between two objects.  We cannot say a thing possesses distance or equality.  A single point cannot express, define or measure distance.  Two points are essential to convey the idea.  The standard unit of length, for instance, is the distance between certain two points or knobs.  Similarly, value is not expressed or defined by a single thing.  Two quantities are necessary to express value, just as two lines are required to express an angle.  “ Hence,” says Macleod, “ a single object cannot have economic value.  A single object cannot be equal or distant.  If an object is said to be equal or distant, we must ask equal to what ?  Distant from what ?  So, if any quantity is said to have value, we must ask, value in what ?  And as it is absurd to speak of absolute or intrinsic equality, or absolute or intrinsic distance, so it is equally absurd to speak of absolute or intrinsic value.”

The correct definition of value, as used in the science of exchanges, is, therefore, the exchange relationship existing between two commodities, and it is expressed by the ratio in which the two quantities exchange.  There seems to be the need of a word that expresses the idea we desire to convey when we speak of a thing “having” value.  Karl Marx suggested the use of the Saxon word “worth.”  We frequently say that a thing of value has “worth,” or is “worth” so much.  The 17th century writers, however, used “worth” for utility.10  In this work, I have employed the term “purchasing power” in this sense.  A thing has purchasing power when it has power to procure some other thing in exchange.  The measure of a commodity’s purchasing power is whatever it will exchange for.

1 “ Principles of Political Economy.”

2 Ditto.

3 “ Politics.”

4 “ Wealth of Nations.”

5 Introduction to the “ Theory of Value.”

6 Introduction to the “ Theory of Value.”

7 Objective exchange value is all we are now considering.

8 Prof. Jevons.

9 “ If a ton of pig-iron exchanges in a market for an ounce of standard gold, neither the iron is value nor the gold, nor is there value in the iron nor in the gold.  The notion of value is concerned only in the fact or circumstance of one exchanging for the other.  Thus it is scientifically incorrect to say that the value of the ton of iron is the ounce of gold ;  we thus convert value into a concrete thing ;  and it is of course equally incorrect to say that the value of the ounce of gold is the ton of iron.  The more correct and safe expression is, that the value of the ton of iron is equal to the value of the ounce of gold, or that these values are as one to one.”—JEVONS, “ Theory of Political Economy.”
     [It seems to me that this expression is as incorrect as the other.  If value is a ratio, what sense is there in saying that “ the ratio of the ton of iron is equal to the ratio of the ounce of gold ” ?  The proper expression would be, the value of iron to gold is one ton to one ounce.  It must be remembered that we are dealing here entirely with objective exchange value.—AUTHOR.]

10 One great difficulty economists labor under is in striving to carry two distinct ideas under one term, viz., ratio and purchasing power.  Whether we define value as a relation of powers or of quantities, it can only be expressed by a ratio between the two quantities of the commodities exchanged.  Thus, referring to the foot-note on page 66, whilst it is incorrect to say the value of one ton of iron is an ounce of gold, it is quite correct to say the purchasing power of one ton of iron is an once of gold.  I have devoted a succeeding chapter to this part of the subject.