The Value of Money

by Benjamin M. Anderson

The value quality is psychological in character. It rests in human minds. But not in the minds of individuals thought of separately. It is a complex of many individual mental activities, highly institutionalized, and including legal and moral values, hopes and beliefs and expectations, as well as the immediate intensities of men's wants for consumption goods.

The ultimate test of scientific theory must be practice. If a theory aids in manipulating facts, if it leads to the discovery of ways of doing things which are better than old ways, if it solves problems which have hitherto remained unsolved, or carries the solution of problems farther than has hitherto been the case, it is a good theory. It need not be the best possible theory. It need not be a final theory. The chief claim for the present theory of value is that it not only unlocks all the doors that earlier theories have unlocked, but also others which have resisted the old keys. The man who goes into the modern stock market armed with marginal utility and the quantity theory is like the man who would fight Hindenburg with bows and arrows. Bows and arrows are effective in the hands of expert archers, and the great figures in the history of economics have done wonderful things with marginal utility, "real costs," and the quantity theory. But the social value theory is offered as a better weapon.

The writer believes that the problem of the value of money has not been solved by the older theories of value. He believes that the social value theory will solve it. He proposes on the basis of the social value theory to make clearer the nature of credit phenomena, and to assimilate the laws of credit to the general laws of value. He proposes with the social value theory to bring together in a higher synthesis two divergent types of economic theory, the "static" and the "dynamic." He thinks that a rigorous and consistent application of the absolute concept of value will clarify confusions at various points in the general body of price theory, as the laws of supply and demand, etc.

He offers the social value theory as the only way of giving a psychological explanation to the demand-curve, and a marginal value explanation of marginal demand-price. Demand-curves are social value curves, on the assumption of the fixed social value of the dollar. The utility theory, as will appear in the chapter on "Marginal Utility," has failed to give psychological magnitudes corresponding to any point on the demand-curve. In general, he offers the social value notion as the justification for the assumption of a quantitative value which, as we shall see, underlies the whole of our current price analysis.

The theory here outlined has been, as stated, developed and defended more fully in a previous book. For the rest, the author would have it judged by its usefulness or failure as a tool of thought in the investigations which follow.

Note. It has seemed best not to break the main course of the argument of this chapter for the elaboration of one point on which there has appeared to some critics to be vagueness in the exposition of the social value theory in my earlier volume, namely, the relation of social values to the individual values of those who are moved by the social values. Social values have as their function the guidance and control of the activities of men. But men are also moved by their own individual feelings, interests, and desires.

What is the relation between these two sets of factors? In what has gone before, it has been made clear that social values present themselves to the individual as opaque, objective facts, largely beyond his control, to which he must adjust himself. They represent the minds of other men, acting in corporate and organic ways, putting pressure on him, or offering him lures. Now the individual reckons with these social values in the same way that he reckons with any other of the facts affecting the economy of his life. He must adjust himself to them in the same way that he must, if he is a blacksmith, adjust himself to the technical qualities of the iron he is manipulating. This does not mean that he is passive before them, any more than he is passive before the iron. He rather seeks to carry out his personal purposes and desires by actively adapting himself to objective facts, whatever they be. This means that different individuals will react in different ways to the same social value. The fear of the law will keep one man from burning dead leaves in the street where it will not keep another man from murder. A given degree of social pressure will make one man crease his trousers, while another man will not even know that the pressure to crease one's trousers exists! There are great individual variations in responsiveness and sensitiveness to social pressure. In part, these variations are due to inborn qualities. In larger part, they are due to social education, and to social status. Thus, the fact that one man will work all day in a ditch in response to the lure of a dollar and a half, while another will not work in the ditch for a hundred dollars a day, may rest in slight degree on the greater inborn sensitiveness of the latter to the physical pain of labor, but rests primarily on the fact that the latter doesn't need the money, and has a social standard, growing out of his class-associations and education, which would make him ashamed to be seen in the ditch. Indeed, we may think of the social standard in question as a social value acting on him, rather than in him. He fears ridicule. The same degree of social power, luring men toward the ditch, exists in the dollar in each case, but the response is very different in the two cases.

Later formulations of the utility theory and the labor cost theory, as represented by the theory of Schumpeter, which we shall discuss in the chapter on "Marginal Utility," give us, in a scheme of purely static equilibrium, a picture of the adjustment of the individual values to the social values. As we shall see, they give us no account whatever of the social values. They do not explain causation at all. But they do show that there is a tendency for the individual marginal utilities of consumption to become proportional to the social values of the goods consumed by each individual; and for the individual marginal disutilities in production to become proportional to the social values of the rewards that come to producers. The scheme is highly unrealistic. It has been emphatically repudiated by Böhm-Bawerk, so far as the disutility equilibrium is concerned. ("Ultimate Standard of Value," Annals of the American Academy, Vol. V, pp. 149-209.) But it is worth something, not as explaining social values or market prices, but rather, as showing how individuals conform to social values and market prices. Cf. Social Value, pp. 43-44, n. 2, and 148.

The theory that individual marginal utilities and disutilities are proportional to market values is unrealistic enough, in the light of the analysis of individual utilities which we have given, even for the utilities. It is quite impossible to make anything of importance of it from the side of individual disutilities. The length of the working day is not fixed for each worker by a comparison of his own labor pain with the satisfactions he expects from his wages. It is fixed by conditions largely external to him, and the whole group works the same number of hours, with the machine. The law may limit the working day. Trades-union effort may do it. Opportunities for alternative employment may do it, for the labor force of a factory as a whole. But the theory, which really must rest in the notion that each individual has many options, and that the working period is flexible, cannot mean much. The prosperity of the laborer does more to limit the working day than does his suffering!

The reactions of individuals as consumers or producers on the social values modify the social values. But, as we have shown, the primary explanation of the social values is not to be found in the individual utilities and disutilities of those who react to them. Utilities and labor pains are parts, but minor parts, in the explanation of social values.