[197] "La psychologie en économie politique," Rev. Philosophique, vol. xii, p. 238.
CHAPTER XVII
THE THEORY OF VALUE AND THE THEORY OF PRICES
In most English treatises on economics, a price means a sum of money given in exchange for a commodity, or the ratio between the money and the commodity, or the ratio between the value of the money and the value of the commodity. In any case, price as a rule involves the idea of money. With the Germans, on the other hand, Preis means any exchange ratio (or a quantity of commodities of any sort given in exchange for a good), whether or not one of the terms of the ratio involves money, and the distinction between price and value (Preis and Wert) is, commonly, the distinction between the measure and the thing measured, or between "relative value" and "absolute value" in Ricardian phrase.[198] The conception of price has been broadened by some later writers in English, however, to correspond with the German usage, notably by Professor Patten,[199] and by Professor Schumpeter,[200] in an English article contributed recently to the Quarterly Journal. I do not care to argue a merely terminological question, and I readily concede that there are disadvantages in departing from familiar usage. But, on the other hand, since I am convinced that ratios of exchange in general, and money prices in particular, are generically the same, while ratios of exchange and values are generically as unlike as it is easily possible for two things to be, I shall use the term price in this wider meaning, and confine the word value, in the exposition of my own theory, to the non-relative meaning.
The distinction between prices in this sense and absolute values appears in Adam Smith and in Ricardo. These writers do not adhere very strictly to either meaning of the term, value, however.[201] The conception of absolute values is lost by J. S. Mill, and the distinction which he draws in connection with the problem of the standard of deferred payments (not so called by Mill) is between values (relative) and cost of production.[202] In Cairnes, the two conceptions are hopelessly confused on a single page,[203] while Marshall's whole treatment runs in terms of price.
In what follows, I wish to generalize the conception of price, to show the function of the price concept in economics, to distinguish carefully between the theory of value and the theory of prices, and to see what light the theory of value outlined in this book throws upon the problems of the price analysis.
In chapter ii, the distinction between "absolute and relative values," or, in our present phrase, between values and prices, was sufficiently indicated not to need further elaboration here. The relation between them was made clear—the absolute value must first exist before the price, which is the expression of the value of a good in terms of some other valuable object which is chosen as a measure, can be determined. In fact, two values, the value of the good measured, and the value of the good which is to serve as the measure, must first exist, as absolute quantities, before a price-ratio can be made between them, and their "relative values" shown. In the chapter on the psychology of value, the notion of price was generalized, and we spoke of the price measure of values of non-economic sort. This notion is one of very general application and one of significance for the whole realm of social and psychical phenomena: not merely where the question of exchanging economic goods is involved, but wherever choice among alternative goods, or courses of action, or men, or institutions, or works of art, or other objects of value, is necessary, we compare them with each other, we measure them by each other, we price them in terms of each other. We arrange them in scales of value, or in series, seeing which is higher and which lower. Where only two goods are involved, we may call either the measure, depending on the point of view. But where many goods are to be compared, it is highly convenient to pick out some one as the common measure of all, so that they may be reduced to common terms. For measuring economic goods, money is, of course, the standard, or common measure par excellence, for most purposes. If we are measuring the value of the political institutions of various countries, we usually take the institutions of our own country, with which we are most familiar, as the common measure or standard. Or, in measuring the moral systems, or the literary masterpieces, of other countries, we again find those of our own people the most convenient standard. But it is significant of the correctness of our general point of view that values of different species may be measured in terms of each other. Money, in particular, is a very general measure, which may serve for many values outside the economic sphere. Thus, I have pointed out how legal values may be measured in terms of money, as when the fine for one offense is five dollars, and that for another twenty-five. Gabriel Tarde[204] points out that by comparing the theatre receipts of theatres representing different dramatic schools we may compare the vogues of each, or that by comparing the income of the clergy in different periods we may get some index of the variations of religious sentiments. He suggests that while money as a measure of economic values usually functions in exchange, it may, as a measure of beliefs or other social forces, function through gifts, through popular subscriptions to build this or that statue, for the support of scientific work or philanthropies, or even through thefts: "Quelquefois même c'est par des vols où se montre la perversion d'un esprit sectaire, l'aberration et la profondeur de ses convictions passionées."
Commonly, indeed, money performs even this function, that of measuring currents of belief, passion, enthusiasms, etc., through the process of exchange, and, ordinarily, it is difficult to get any single current separately. We simply get the resultant of an equilibrium of a complex of forces in economic values. But sometimes a single factor stands out so prominently that we can abstract from the rest, and let money changes measure changes in it alone. For example, during the three days of the battle of Gettysburg, the premium on gold, as measured in terms of Federal paper, fell from forty-five per cent to twenty-three and a fourth per cent.[205] For the market, this means simply a change in the economic value of Federal paper. But for one who cares to look even superficially behind the scenes, it means an increased volume of belief in the triumph of the Federal arms—a belief that at once affected economic values, and was measured in terms of money. Or, the economist may abstract a single legal factor, as a tax law, and measure its influence on the assumption that the rest of the situation is constant, in the well-known laws of shifting and incidence.