In its simplest economic sense value denotes purchasing power, or importance in exchange. As such, it may be either individual or social; that is, it may mean the exchange importance attributed to a commodity by an individual, or that attributed by a social group. In a competitive society social value is formed through the higgling of the market, and is expressed in market price.
Now individual value is utterly impracticable as a measure of exchange equivalence in the wage contract. Since the value attributed to labour by the employer differs in the great majority of instances from that estimated by the labourer himself, it is impossible to determine which is the true value, and the proper measure of just wages.
The doctrine that the social value or market price of labour is also the ethical value or just price, is sometimes called the classical theory, inasmuch as it was held, at least implicitly, by the majority of the early economists of both France and England.[217] Under competitive conditions, said the Physiocrats, the price of labour as of all other things corresponds to the cost of production; that is, to the cost of subsistence for the labourer and his family. This is the natural law of wages, and being natural it is also just. Adam Smith likewise declared that competitive wages were natural wages, but he refrained from the explicit assertion that they were just wages. Nevertheless his abiding and oft-expressed faith in the theory that men's powers were substantially equal, and in the social beneficence of free competition, implied that conclusion. Although the great majority of his followers denied that economics had moral aspects, and sometimes asserted that there was no such thing as just or unjust wages, their teaching tended to convey the thought that competitively fixed wages were more or less in accordance with justice. As noted above, their belief in the efficacy of competition led them to the inference that a free contract is also a fair contract. By a free contract they meant for the most part one that is made in the open market, that is governed by the forces of supply and demand, and that, consequently, expresses the social economic value of the things exchanged.
All the objections that have been brought against the rule of the prevailing rate apply even more strongly to the doctrine of the market rate. The former takes as a standard the scale of wages most frequently paid in the market, while the latter approves any scale that obtains in any group of labourers or section of the market. Both accept as the ultimate determinant of wage justice the preponderance of economic force. Neither gives any consideration to the moral claims of needs, efforts, or sacrifices. Unless we are to identify justice with power, might with right, we must regard these objections as irrefutable, and the market value doctrine as untenable.
The Mediæval Theory
Another exchange-equivalence theory which turns upon the concept of value is that found in the pages of the mediæval canonists and theologians. But it interprets value in a different sense from that which we have just considered. As the measure of exchange equivalence the mediæval theory takes objective value, or true value. However, the proponents of this view did not formally apply it to wage contracts, nor did they discuss systematically the question of just wages. They were not called upon to do this; for they were not confronted by any considerable class of wage earners. In the country the number of persons who got their living exclusively as employés was extremely small, while in the towns the working class was composed of independent producers who sold their wares instead of their labour.[218] The question of fair compensation for the town workers was, therefore, the question of a fair price for their products. The latter question was discussed by the mediæval writers formally, and in great detail. Things exchanged should have equal values, and commodities should always sell for the equivalent of their values. By what rule was equality to be measured and value determined? Not by the subjective appreciations of the exchangers, for these would sometimes sanction the most flagrant extortion. Were no other help available, the starving man would give all he possessed for a loaf of bread. The unscrupulous speculator could monopolise the supply of foodstuffs, and give them an exorbitantly high value which purchasers would accept and pay for rather than go hungry. Hence we find the mediæval writers seeking a standard of objective value which should attach to the commodity itself, not to the varying opinions of buyers and sellers.
In the thirteenth century Albertus Magnus[219] and Thomas Aquinas[220] declared that the proper standard was to be found in labour. A house is worth as many shoes as the labour embodied in the latter is contained in the labour embodied in the former. It is worthy of note that the diagram which Albertus Magnus presents to illustrate this formula of value and exchange had been used centuries before by Aristotle. It is likewise noteworthy that this conception of ethical value bears a striking resemblance to the theory of economic value upheld by Marxian Socialists. However, neither Aristotle nor the Schoolmen asserted that all kinds of labour had equal value.
Now this mediæval labour-measure of value could be readily applied only to cases of barter, and even then only when the value of different kinds of labour had already been determined by some other standard. Accordingly we find the mediæval writers expounding and defending a more general interpretation of objective or true value.
This was the concept of normal value; that is, the average or medium amount of utility attributed to goods in the average conditions of life and exchange. On the one hand, it avoided the excesses and the arbitrariness of individual estimates; on the other hand, it did not attribute to value the characters of immutability and rigidity. Contrary to the assumptions of some modern writers, the Schoolmen never said that value was something as fixedly inherent in goods as physical and chemical qualities. When they spoke of "intrinsic" value, they had in mind merely the constant capacity of certain commodities to satisfy human wants. Even to-day bread has always the intrinsic potency of alleviating hunger, regardless of all the fluctuations of human appraisement. The objectivity that the mediæval writers ascribed to value was relative. It assumed normal conditions as against exceptional conditions. To say that value was objective merely meant that it was not wholly determined by the interplay of supply and demand, but was based upon the stable and universally recognised use-qualities of commodities in a society where desires, needs, and tastes were simple and fairly constant from one generation to another.