A failure to recognize the distinction between value theory and price theory seems to lie behind the complaint which Professor Davenport makes against the "Social Value School" in his criticism of Professor Seligman: "As soon as we turn from the value problem to the separate treatment of the distributive shares, we find ourselves to have descended from the cloud-land mysteries of transcendental economics to the old and beaten paths of the traditional analysis."[213] To this complaint the obvious answer is that we have turned from fundamental value theory to abstract, quantitative price analysis. And the social value theorist has as much right to do this as has any other economist—in fact, if our theory be true, only on the basis of a social value doctrine has any economist a right (logically) to take up price analysis.
The theory of value, as I conceive it, is, then, not a substitute for detailed price analysis, but rather a presupposition of it. The theory of value is to interpret, validate, and guide the theory of prices. If the theory here outlined be true, it will have significant consequences for the theory of prices, in that it will open up new problems for the price analysis to attack. There are many social forces which can be measured with substantial accuracy, and many more which can be, for purposes of theory, disentangled from the complex in which they appear, and treated by the methods of price analysis already discussed, which economic theory has not yet thought it worth while to attack. The economist must emulate the practical business man, in trying to treat in price terms the various social changes which affect economic values. There is much left for the theory of prices to do. The theory defended here, with its sharp sundering of values and prices, will, of course, criticize the mixing of the two. One chief criticism of the Austrian theory, and also of the theory of the English School in so far as it attempts to give a "real cost" doctrine, is that they are attempts to give both a theory of value and a theory of prices at the same time. Certainly we must object to Böhm-Bawerk's contention that the solving of the price problem ipso facto solves the value problem.[214] The purpose of this book is, not destructive, but reconstructive. A detailed criticism of the various economic theories that have appeared, as theories of prices, is manifestly too big a task to be undertaken here. All of them cannot, of course, be accepted in toto, for there are, doubtless, irreconcilable differences among them at points. But it is the belief of the writer that the great bulk of what has been done in the study of the quasi-mathematical laws of prices is of substantial worth, that a recognition of the distinction between value theory and price theory, and of the confusions that result from mixing the two, will remove many seemingly irreconcilable differences between opposing schools, and that existing price theories are less to be criticized for what they affirm than for what they ignore and deny.
Much of the significance of the theory of value for the interpretation of price theory has been indicated from time to time, in what has gone before. Prices have meanings. They express values. To understand the meanings of prices, we must know what the values mean. There is one further point in this connection which is so important that we shall give a separate chapter to it.
FOOTNOTES:
[210] Vide supra, chaps. v and xi.
[211] Natural Value, passim.
[212] Mill's self-congratulation on having written two books of his treatise without taking up the theory of value has been commented on by many economists. He was able to do this, because value theory meant price theory for him. Value theory in the sense of the theory of the forces of social control and motivation does appear in plenty in Mill's first two books, and also the wealth concept, which he connects with the idea of value, and a quantitative value concept, not formally defined, but probably all the more useful on that account. It was a sound instinct that led Mill to take up the problem of distribution before taking up the problem of "value." Really, in discussing distribution as he did, he was making a very real contribution to the ultimate value problem.
[213] Value and Distribution, p. 451.
[214] Vide supra, chap. iv.