The Value of Money

by Benjamin M. Anderson

The theory of prices, as an abstract formula of description, is of primary interest to the scientist, who has nothing to do with the manipulation of concrete values, and who has no interests at stake in the behavior of particular values at a particular time. His purposes are ultimately practical, no doubt, but the practical ends he has in view are, after all, only to lay down general rules of public policy, of a high degree of generality, and he consequently may abstract from a great deal of the concrete causal process. The theory of value, in its concrete fulness, is the special interest of the active business man, and especially of the business man who wishes, not merely to adapt himself to changes in values, but also in part, to control and manipulate those values. He must study every factor which does, in fact, bring about changes in the value system. We do not find the market-letter of a brokerage house, or the calculations of a captain of industry, or trust promoter, troubling themselves about marginal utilities or labor-pains! Notions of supply and demand, and the relations of the prevailing interest rate to the capital values of securities, they do employ. Notions of money-costs of production they make use of. But they also give very close attention to questions of governmental policy, to court decisions, to movements in the field of labor organization, to money-market phenomena, and particularly to gold movements and the state of the exchanges, to political campaigns, to the strength of the prohibition movement, to changing fashions and modes, and, above all, to the general tone, the consensus, so far as it is ascertainable, as to whether business is good or bad, whether men are buoyant or depressed, to the ups and downs of business confidence. They pay marked attention to the opinions expressed by certain men, great bankers or industrial leaders, not merely because they think these men good judges, but also, and in part primarily, because these men are centres of power, "radiant points of social control," whose opinions make the opinions of others, and whose statements that times are good tend to make them good, and that times are bad tend to make them bad. For static theory, nothing is more contemptible than the view which "demagogues" often express in Congress that great men in Wall Street make and unmake prosperity, bring about and check panics. For static theory, the only way that big men can lower prices is by selling, and the only way they can raise prices is by buying.[591] Their power to raise and lower prices is thus limited by the amount of their wealth which they are willing to employ in this way. As it is not likely to be profitable to be a bull when the general condition of the "fundamentals" calls for falling prices, and as bear operations, contrary to the fundamentals, are likewise usually costly, the inference would be that the big men will not, even if they could, alter the course of the market. Their wealth is, after all, not so tremendous, as compared with the aggregate wealth of the rest of the community. But the market takes the big men more seriously! When they are selling heavily, other men are often afraid to buy, such is their prestige. When they give out opinions, these opinions become the opinions of a host of others, almost automatically. When Morgan stepped into the breach in the Panic of 1907 with $25,000,000, it was quite as much the fact that Morgan had acted, as it was the millions themselves, which relieved the situation. Indeed, it was in no small degree the prestige of Morgan which relieved the disorganization, which restored the discipline, and made it possible for the elements in the market to work in harmony and coöperation again. Society is a functional unity, and the "tone of business," the ups and downs of prosperity, depend in large measure indeed on the degree to which the lines of communication between the different parts are kept open, on the question of whether each part does its expected task at the right time and in the right way, on the all-together-functioning, the integration, of the elements. These are phases of the matter from which static theory abstracts. They are organic problems, not mechanistic problems. Of course, mechanisms get out of order too. But tightening a bolt is a very different thing from restoring confidence and discipline to a market!

Those who wish to control values have their own technology. There is a technology of industry, a mechanical technology, running in terms of pistons and levers and soil-fertility-equivalents, and butter-fat-content, and ton-miles, which is governed by the values. But there is also a technology of controlling values which involves advertising, making sentiment, keeping up social discipline, effecting the equilibration of values by exchange, keeping "interstitial" adjustments smooth, which involves a different kind of activity, thought, and ability, and which employs different instrumentalities. Its problems are problems of human nature and social relationships, its laws are psychological laws, particularly the laws of suggestion, imitation, and the like, its tools are the newspaper, the sign-board, the whispered word, the cigar and the dinner with wine, sound logic, money and credit instruments, the prestiges of men and institutions. For men whose work lies in controlling and making values, rather than in making passive technical adjustments to existing values, the theory of value, as I have defined it, is of supreme importance.

This, I may say for the critic who may consider the social value theory a highly speculative and theoretical notion, does not mean that the active business man or the advertising writer, has formulated the social value theory in terms of a social mind, conceived of, in the light of modern functional psychology, as a functional unity of individual minds! The advertising writer is a student of modern psychology, and reads books on the psychology of advertising, which discuss the psychology of suggestion, and the like. But long before such books were written for him, he studied the phenomena involved in his own way. It is not his business to construct a theoretical economics! It is his business to make a market for his wares. He is interested in the scientific theories of modern social psychology only in so far as they help him in that task. He has no occasion to construct a vast conspectus, which shall summarize the whole economic situation, in its social setting. But my point is, simply, that the kind of phenomena which he does study are indicated and stressed and brought into a system in the theory of social value which I have tried to elaborate. As his purposes are different from those of the economist, his method of approach, and his range of investigation, will necessarily be different.

The notion of dynamics has been in a way connected with the idea of evolution, of historical process in time, while the notion of statics has been essentially connected with the notion of a cross-section, a stage, an equilibrium of contemporary forces. How, then, bring the two together? Of course, we may conceive the evolutionary process itself as a series of stages, and the mind does tend almost inevitably to do that. The fact is, of course, a perpetual flow, with unceasing change. The mind grasps such a notion with difficulty, if at all. Logic is mechanical and mathematical, and mathematics and mechanics are static.[592] But further, we may in large measure bring the historical considerations into a cross-section picture, when it is a value system that is involved. Past facts exert their influence through present values; and future facts, which may be expected to modify future values, come into the present equilibrium as discounted present worths.

When we view the situation realistically, moreover,—which means, when we view it as a living organic, psychological process,—our cross-section does not need to be narrowed to a moment of time. We may see the values not yet in stable equilibrium, but in process of equilibration, with marginal values and prices fluctuating, tending toward a static goal, but hindered by various cross-currents, of "friction," of uncertainty, of momentary values which rest on beliefs regarding the process of transition itself—as when a "bull" on the war-stocks turns bear temporarily, because he thinks that prices may fall before recovering themselves, and going higher. We may see obstacles in the way of readjustment whose importance is itself subject to static measure—labor temporarily out of work, and labor-time lost, at so much per day; uncertainties which give rise to speculation, which calls for the employment of extra banking credit, at such and such per cent; capital-instruments which have to be "scrapped," representing the loss of so many dollars. We may see the process of building up new trade connections, at such and such a cost, to replace others which formerly functioned, but which no longer serve, which were once worth so much, and which now are valueless. Watching the realistic process of transition, through a period of time, we may still apply our static yardstick to many of its features.

Above all, do we get in this connection a realization of the fact that the "immaterial capital" of which Veblen speaks is true social wealth.[593] Whatever is necessary for the carrying on of economic life, whatever, if destroyed, must be replaced, before the economic process can go on, and will be replaced by the expenditure of labor and thought and money, is capital. The sales-force is as truly a part of the labor-force of a corporation as are the mechanics. The trade connections which the sales-force has built up is as truly a part of the capital of the business as the machines which the mechanics have made. The static theory which abstracts from this easily leads to dangerous conclusions. Removing a tariff may well, after the transition is completed, give a greater productive efficiency to a country. But what of the cost of transition? May not the values destroyed, and to be recreated, in the form of trade connections, social organization, accomplished adjustments, and the like, be greater than the new values to be gained by better adaptation of industry to the physical resources or the capacities of the labor supply, of the country? In large measure, this question, in a given case, is susceptible to a quantitative answer. The statesman who reckons only the gains which the final static adjustment will bring, and neglects the costs of reaching it, costs not alone in "scrapped" machines, but also, in "scrapped" social organization, has missed a substantial part of his problem.

The theory of prosperity, and the theory of value, are largely concerned with just this system of social control, by means of which value scales are altered, and by means of which altered values are brought into a new equilibrium. It is a complicated fabric of psychological relationships, partly institutionalized, partly non-institutional. The institutions—as banks, big corporations, speculative exchanges, and the like, are the nuclei, about which centre much that is temporary, shifting, and flexible. Given time, the whole system is highly flexible—it is organic, and not mechanical.

The serious injury of this system in a country may well be a greater disaster than the destruction of physical items. Let unscrupulous men—or misguided men—bring about a legal repudiation of debts, and the disaster may be greater than the destruction of a city by an earthquake. That creditors have been robbed is a minor matter, but that credit has been shaken, so that men will fear to lend again or to sell except for cash, may well mean industrial paralysis.

Considerations like these enable us, in substantial degree, to reduce "transitional" considerations to common terms with "normal" considerations. We can apply the static measure to the "transitional considerations," and we find the values which come into equilibrium in the "normal" period to be generically like those whose variations interest us in the period of transition. Indeed, the "normal equilibrium," if it were ever reached, would also contain these intangible capital items, though many of them would be much reduced, since the work that they have to do would be largely gone, if the normal equilibrium were persistent.

It does not follow from the foregoing that many of the elements in "modern business capital" are not, as Veblen's analysis suggests, sinister and anti-social. To say that their values are true social economic values, generically the same as the values of wheat or corn or whiskey or opium or Sanatogen or milk or tickets to burlesque shows, or silver sacramental sets, or Ford automobiles, is not necessarily to give them a good moral character! Some of these intangible capital goods are thoroughly anti-social, and should be destroyed. This is particularly true of monopoly power, and of popular brands whose value rests in popular delusion. But even here, caution is needed. Is it socially wise to destroy a wine cellar, containing an hundred thousand dollars worth of fine wines, even assuming that Demon Rum is as black as he is painted, and that Veuve Cliquot is his favorite daughter? Will not the economic values which have been destroyed in this moral fervor be recreated? And will not this tend to divert labor and capital from the creation of a corresponding amount of more wholesome economic goods? Might it not be wiser from the standpoint of the temperance movement itself, to sell the wine cellar—at private sale, of course!—and use the proceeds in the campaign fund of the prohibition party? Of course, there is more still to the story. The destruction of the wine cellar may be done so dramatically, and may be so well advertised, that it will arrest public attention, and tend to create new social values, of a moral and legal sort, which will prevent the recreating of that wine, by changing the direction of demand, and by lessening the sources of supply. Similarly with trade connections, and other intangible capital items. If destroying one means merely that labor and capital will be employed in making others no better, the social gain is very doubtful. And some sort of system of control of interstitial adjustment, of overcoming friction, etc., there must be.