[577] Cf. my review-article, "Schumpeter's Dynamic Economics," Pol. Sci. Quart., Dec. 1915, p. 645.
[578] Distribution of Wealth; Essentials of Economic Theory.
[579] Theorie der wirtschaftlichen Entwicklung.
[580] Cf. my Social Value, pp. 139-140, n.
[581] Purchasing Power of Money, ch. 4.
[582] Theory of Business Enterprise.
[583] Vide my discussion of Professor Patten's Reconstruction of Economic Theory in the Political Science Quarterly of March, 1913, and the American Economic Review, Supplement to the March number, 1913, pp. 90-93.
[584] Cf. Schumpeter, loc. cit., pp. 1-101, and passim. That the quantity theory is essentially "static" will appear strikingly if the statements in the text be compared with Fisher's discussion in chs. 5-7 of The Purchasing Power of Money.
[585] It is only as a matter of highly abstract statics that the capitalization theory (as presented in earlier chapters) can be maintained with any strictness. In fact, capital values are not always passive shadows, yielding freely to changes in anticipated income, and to changes in the rate of discount. Very often capital values become themselves substantial, become divorced from their presuppositions, can no longer be explained by any imputation process. This is particularly likely to be the case with lands in inactive markets. The income-bearer is as much an object of value as is the income; is often immediately, for its own sake, an object of value. The long-run tendency to assimilate this value to a capitalization of prospective incomes may be exceedingly slow in working out, if it ever works out. Indeed, a high capital value may sometimes be a means of increasing the income, since in the minds both of lessor and lessee the usual percentage return on capital will be a factor in determining what is a "proper" rental. If a capital value, no longer justified by prospective income, has behind it the sanction of actual cost-outlay, there may easily be a reflex from it on the size of the income itself. Such a capital value, unjustified by prospective income, but still believed in by the market, may function just as effectively as any other capital value. Book-values, not marked down to correspond with changed income-prospects, even when they cannot command purchasers, may still serve as a basis for loans—Veblen's theory of crises rests, as we shall see, in part on this fact.
Considerations of this sort strengthen still further the case against the marginal utility theory of value. To pass,—as Fetter and the Austrians in general seek to do—from marginal individual consumption values to market prices of consumption goods, then to prices of production goods, or to magnitudes of distributive shares, then, simply, by the capitalization theory, to capital values, with the notion that the original marginal utilities supply the psychological explanation at every stage of the process, the remoter values being merely built up of the original marginal utilities, is quite invalid. At every stage there is a hitch: the marginal utilities do not explain the prices or values of the consumption goods, as has already been elaborately pointed out; and the relation between the values of consumption goods and the capital values is very much looser and less direct than the static theory requires. Institutional, legal, and moral forces come in, not alone at the first step, in giving social weight to the wants of special classes and individuals, but also at the second, giving prestige to certain enterprises, and so higher values to their securities, giving banking support here and refusing it there, giving popular and patriotic support here, and not there, giving direct action of law, custom and tradition on certain prices (whence, indirectly on values), and leaving prices free to change readily in other cases. (Cf. my discussion in Quart. Jour, of Economics, Aug. 1915, pp. 699-701.) The static theory of capitalization describes an ideal logical relation, while capital values are, in fact, built up by a psychological process which is logical only in part. In large degree, especially when the market lacks perfect fluidity, capital values are immediate, and not merely derived, values. In this, I think, I am in accord with the view briefly stated by A. S. Johnson in his recent review of Böhm-Bawerk (Am. Econ. Rev., March, 1914, pp. 115-116).