It is a common saying that values were formerly determined largely by custom, but that competition has supplanted the latter; and no doubt this is true in the sense that the stability of local custom is broken up. In a somewhat different way, however, custom—the influence of the past—is as great a factor in the market now as it ever was. Now as always it is the main source of the habits of thought that control demand and supply, and so value. An obvious case is that of funerals. Why is it that so large a part of the expenditure of the poor goes for this purpose, so large that a special branch of insurance is carried on to meet it? Evidently the reasons are historical, reaching back in fact to prehistoric society. And although this case appears exceptional, because this particular convention has lost most of its force among the educated classes, it is none the less true that we draw our values from the current of historical influence. What we are willing to spend money for, as individuals, as classes, as nations, can be understood only by a study of historical influences and of their interaction and propagation at the present time.
I have explained the distinction which I think should be made between human-nature values and institutional values, the latter being those which have social antecedents of so complicated a character that we cannot understand them except as the outcome of a special institutional development. It is apparent that the values of the pecuniary market fall under the latter head. Their immediate source is a social mechanism, whatever their indirect relation to human nature may be. You do not find them wherever man is found, but only where there is a somewhat developed system of exchange, a commodity recognized as money, and an active market.
Pecuniary values, however, are by no means all upon the same level as regards the degree in which they are institutional. All are so in the sense just indicated—that they require the mechanism of the market to define and develop them. But if we go back of this we find that some are based (so far as demand is concerned) upon rather simple human-nature values, in which the factors of special tradition and organization play no very great part. It is remarkable, when you come to think of it, how few such values there are; but those of meat and flour, of lumber, fuel, and the simpler kinds of clothing are relatively of this sort. Some, on the other hand, are the outgrowth of a complex institutional history through which it is difficult to trace the threads which connect them with the permanent needs of human nature. Such are the values of ornamental or ceremonial dress, of many of our foods, of our more elaborate houses and furniture, our amusements and dissipations, our books; and those connected with our systems of education, our churches, political institutions, and so on. The same difference runs through the values set on the services of different kinds of men. Why society should pay a substantial price for farmers and carpenters is obvious; but when you come to lawyers, stock-brokers, promoters, men of science, advertising men, and the like, not to speak of the holders of capital, who seem to be paid large sums for doing nothing at all, it is clear that the explanation is institutional, not to be reached without a study of the organic growth and interaction of social forms. And it seems clear also that values of this latter sort greatly and increasingly preponderate in our social system.
There is a fallacious kind of reasoning often met with in discussions of value, which consists in taking the simplest conceivable transactions, generally those of an imaginary primitive life, noticing the principles upon which they may have been based, and then assuming that the same principles suffice for a general explanation of the complex transactions of our own life. “It is the same thing now, only more intricate,” is the supposition. This, of course, overlooks the fact that even granting that such analyses are otherwise sound, which is very questionable, the social complexity is for many purposes the essential thing in the actual value process. It involves an institutional character, which changes with the social type, which may be understood only through a knowledge of institutional organisms, and which can be reformed only by working upon and through such organisms. The study of value-making institutions becomes, then, the principal means of arriving at practical truth.
The market (meaning by this the system of pecuniary transactions regarded as one organic whole) is as much an institution as the state or the church, which indeed it somewhat overshadows in modern life. I mean that it is a vast and complicated social system, rooted in the past, though grown enormously in recent times, wielding incalculable prestige, and, though manned by individuals like other institutions, by no means to be understood from a merely individual point of view. It would be as reasonable to attempt to explain the theology of St. Thomas Aquinas, or the Institutes of Calvin, by the immediate working of religious instinct as to explain the market values of the present time by the immediate working of natural wants.
This is one of many points of view from which we may see the insufficiency of the usual treatment of the value-making process in treatises of political economy. This treatment starts with demand as a datum, assuming that each individual has made up his mind what he wants and how much he wants it. There is seldom, I believe, any serious attempt to go back of this, it being assumed, apparently, that these wants spring from the inscrutable depths of the private mind. At any rate it has not been customary to recognize that they are the expression of an institutional development. From most of the standard works the student would get the impression that if institutions and classes exist at all they have nothing to do with valuation.
The truth, I suppose, is that the idea of institutions, classes, and the like as organic forms or processes, having a significance and power not to be grasped from the standpoint of individuals or of general human nature, is alien to the philosophy underlying orthodox economics, and hence difficult of assimilation with orthodox theory. So far as such ideas are recognized they are, I should say, rather patched on, than woven into, the original stuff of the garment.[[66]] Economists, however, are latterly becoming aware of the somewhat obsolete character of the philosophy involved in the orthodox tradition.[[67]]
At any rate the result of the individualistic treatment of pecuniary value has been to saddle the whole institution—the market—upon human nature. Commercialism as we find it had to be explained, and as there was nothing else available poor human nature had to bear it. The simple formula, “The people want it, and the law of supply and demand does the rest,” will explain anything. But if we allow ourselves to ask why the people want it, or just who the people are that want it, or why they can make their wants effective, we discover that we have everything to learn. The accepted economic treatment would seem to be equivalent to a renunciation of any attempt to understand the relation of value to society at large; or, in other words, of any attempt to understand value itself, since to understand a thing is to perceive its more important relations. I do not deny that the method of analysis in question has its very important uses, but if it is allowed to be the only method it becomes the source of the gravest errors.
Just what does it mean, from the individual’s standpoint, when we say that the market, as a historical institution, is a main factor in values? Not merely that pre-existing individual estimates are summed up and equilibrated in accordance with the formulas of economic science, though this is one phase of the matter, but also that the individual estimates themselves are moulded by the market, at first in a general way and then, in the process of price-making, drawn toward a somewhat mechanical uniformity. The individual and the system act and react upon each other until, in most cases, they agree, somewhat as in fashion, in religious belief, and the like. The influence of the market is not secondary either in time or importance to that of the person; it is a continuous institution in which the individual lives and which is ever forming his ideas. The actual transactions are potent suggestions for new ones, and the actual transactions are the latest expressions of an institutional development in which class rule and a confused and one-sided commercialism have been chief factors. Thus the institution largely dictates the valuations which it afterward equilibrates.
To neglect this and treat demand and supply as a summation of original individual estimates involves an inadequacy of the same nature as there would be in explaining fashion as due to a summation of individual ideas about dress. The explanation would be true at a given instant, in fashion as in the market, but in the case of the former no one could fail to perceive how superficial, how delusive, it would be. This is obvious in the case of fashion because its changes are so rapid and conspicuous that we are compelled to notice them, and to see that the individual takes his ideas from the social current. The slower movement of ideas which determines our more stable wants is, however, of the same character, and the superficiality of treating it as originating in the individual is quite as great, amounting to no less than ignoring the historical factors in pecuniary value. The relation of the individual to the system is not essentially different in this case from what we may see in any institution. The ordinary man is a conformer; he lives in the institution and accepts its established valuations, though not without impressing some degree of individuality upon them. In this way we get our ideas and practices regarding religion, marriage, dress, and so on. So in pecuniary matters one accepts in a general way the current values but has a certain individuality in his choices which makes him to some extent a special factor in the market. There is no absolute conformity; we do everything a little differently from any one else; but this does not prevent our being controlled, in a broad way, by the prevailing institutions. This is what the usual economic analysis ignores, or perhaps omits as beyond its proper range.