The Ultimate Standard of Value [14]
Ricardo held that costs of production, and Jevons held that marginal utility was the determinant of value, Marshall holds that both enter into the determination of value, and that, like the two blades of a pair of shears, they are co-equal factors in this determination. Nor does he assume this position in any tentative way, but rather holds that he has found the solution for a problem long in dispute.(29*) No matter who is responsible for this confounding of the cost of the empirical law of cost with the disutility of labor, the fact remains that the confusion does exist. In order to distinguish as sharply as possible between the two principles referred to, I may remark that there is a rule which may be called the law of disutility, according to which the value of all goods that come under its influence tend to be in equilibrium with the amount of the pain involved in their production. But this is far from being the same as the great empirical law of cost. It depends upon quite different assumptions, and upon the play of other and intermediate motive. Finally, it has a different and much smaller field of operation. On the one side, it includes but a small part of the territory covered by the empirical law of cost, and on the other, it include a certain portion of territory which is not covered by the law of cost. This somewhat minute and pedantic, though none the less necessary, examination of the famous law of cost leads us to the following conclusion. The law of cost, as applied to the actual facts of our economic life, is susceptible of verification, in the sense that the synchronously reckoned cost, or the sum of the value of goods expended in production, coincides with the price of the product. Again, under the assumption that this synchronously reckoned cost can all be resolved historically into labor, it is possible to verify the proposition that the price of the product is determined by the sum of the labor expended, measured in terms of the value of this labor. But the law of cost is certainly not true in the sense that the price of those goods which are within the domain of the law of cost is determined by the amount of the pain involved in their production.
V. The Law of Cost and the Value of Labor.
I would now ask, and my colleague of the Austrian school ask with me, what advance have we made toward a solution of our problem. Even though it be shown by means of the famous law of cost, that the value of freely reproducible goods may be resolved into the value of their means of production, or into the value of the most ultimate or elementary factor in production, i.e., labor, we still must ask, what progress has been made in explaining the value of goods? Manifestly this translation of the value of goods into the value of the means of production, does not give us the final solution for our problem, for we must still further inquire, how we are to determine the value of these means of production; or if we regard the means of production as resolvable historically into the labor previously expended, how are we to determine the value of this labor? Let us proceed immediately to the consideration of the second half of our question. This will bring us at once to the root of the problem. For the sake of clearness I will accept as the basis of the argent the doctrine proposed by those who are in opposition to me in this matter. In Professor Marshall's most admirable book which may fairly be taken as representative of the present status of economic theory in England, may be found several answers to the question: What determine the value of labor? In one place, he teaches that "free competition tends in the direction of making each man's wages equal to the net product of his own labor; by which is meant, the value of the produce which he takes part in producing, after deducting all the other expenses of producing it."(30*) He also holds, that "the wages of every class of labor tend to be equal to the net produce due to the additional labor of the marginal laborer of that class. It may be
V. The Law of Cost and the Value of Labor.
I would now ask, and my colleague of the Austrian school ask with me, what advance have we made toward a solution of our problem. Even though it be shown by means of the famous law of cost, that the value of freely reproducible goods may be resolved into the value of their means of production, or into the value of the most ultimate or elementary factor in production, i.e., labor, we still must ask, what progress has been made in explaining the value of goods? Manifestly this translation of the value of goods into the value of the means of production, does not give us the final solution for our problem, for we must still further inquire, how we are to determine the value of these means of production; or if we regard the means of production as resolvable historically into the labor previously expended, how are we to determine the value of this labor? Let us proceed immediately to the consideration of the second half of our question. This will bring us at once to the root of the problem. For the sake of clearness I will accept as the basis of the argent the doctrine proposed by those who are in opposition to me in this matter. In Professor Marshall's most admirable book which may fairly be taken as representative of the present status of economic theory in England, may be found several answers to the question: What determine the value of labor? In one place, he teaches that "free competition tends in the direction of making each man's wages equal to the net product of his own labor; by which is meant, the value of the produce which he takes part in producing, after deducting all the other expenses of producing it."(30*) He also holds, that "the wages of every class of labor tend to be equal to the net produce due to the additional labor of the marginal laborer of that class. It may be