1. The earlier theories of political economy implied a dismal view of the future of the masses. The theory of value one holds is sure to affect his view of economic progress and of social reform. The theories from the middle of the eighteenth to the middle of the nineteenth centuries, however varied they were in other respects, nearly all gave a gloomy view of the condition of the laboring-men. The physiocratic school in France, the so-called "orthodox" economists in England (that is, the writers from about 1800 to 1850 that were in sympathy with the landholding or commercial classes), and the socialistic or laboring-class theorists, all inclined to this view. It was while this view prevailed that Carlyle characterized political economy by the term still sometimes heard - "the dismal science." The thinkers of that time started their study of value at wages, and assumed that population would always increase so fast as to force labor to a bare subsistence. The other shares (or the other classes of society) were supposed then to absorb all the surplus income. Economics today is not especially lugubrious, and its more cheerful note is due as well to its changed theory of value as to the evidence of advancing welfare among the masses.

"Orthodox" political economy.

The gloomy socialistic theory.

2. The socialistic theory of value, akin to the other, holds that capitalists absorb all the benefits of progress. The socialists (of the radical school) claim that their theory is merely the logical conclusion to be drawn from the old "orthodox" theory, stated in its extremest form. Usually, however, the orthodox theorists softened and modified greatly the statement of their harsher views. The socialists have not been willing to recognize any ameliorating conditions. They say: economic theory shows that under a competitive condition of society the laboring-man must be forever ground down in helpless misery; therefore the only hope of the laboring masses is to do away with competitive society and to substitute for it central, governmental control of all industry. They did not and do not attempt to distinguish carefully the part of production, due to brains and effort, from the part due to ownership of capital. The socialist theory is a plan for political agitation rather than a scientific theory of value. It was originated or elaborated by men such as Karl Marx, Frederick Engels, and Ferdinand Lasalle, as labor leaders and political agitators, who found a ready weapon in the bungling economic analysis of the time. The claim of a scientific basis for socialism has continued to be proudly made by their followers, but it has a tottering support in their defective theory of value.

3. The single-tax theory of value is that ground-rent automatically absorbs all benefits of progress. This is the most notable example of a plan of social reform growing out of an abstract theory of value. While the socialists first had their plan of social reform (or revolution), in whose support Marx's fanciful theory of value was invented, Henry George appears first to have got hold of a theory of value that suggested his plan of social reform. Studying the political economy of Ricardo and Mill, he accepted their ideas regarding the hopeless outlook of the laboring classes, and their conception of the theory of ground-rent with its false implication that land-owners get all the surplus in society. George thus came to believe that, with private ownership in land, competition steadily robbed all but landlords, even the non-1andholding capitalist, of any share in the benefits of progress. This theory of value is thought to explain all the poverty in the world. It calls, in the single-taxer's opinion, for a radical measure of reform, namely, the taking of all rent of land for public purposes as a common instead of an individual income. If the theory of value on which it is based were sound, the doctrine would have irresistible reasons in its favor; if it is false, most of the argument falls to the ground, though there may still be substantial reasons of a different nature for the exceptional treatment of ground-rents for purposes of taxation.

George's single-tax theory.

4. Recent theories of value assign to labor a more hopeful position. A most optimistic theory of wages is " the residual claimant theory/ presented by Francis A. Walker. His view was that the various shares of production, such as land-rent, the income from machinery, etc., and the enterpriser's profits, were fixed by forces independent of wages, and any increase in the product must therefore fall to the laborer as the residual claimant. This conclusion has the one merit of explaining somehow the rise in wages in the past century, but the fallacy of its method is too evident to call for exposure. Not to enter into the details of the method, it is enough to note that it involves the circular reasoning that land-rent is a surplus over cost of production, and is fixed regardless of wages, whereas the cost of production itself is made up of money wages.

Recent hopeful theories of wages; Walker's.

Clark's wage theory.

Another American economist, John B. Clark, is led by his theory of profits to a most hopeful conclusion as to the future of wages. Profits he considers to be essentially the reward for improvements in productive processes, which gradually accrue to the general benefit. As profits thus disappear, the average wage-earner is correspondingly uplifted, a conclusion quite as hopeful as that of Walker. In discussing profits above, dissent from the narrow conception of their source has been expressed.

Some facts lend support to every one of these theories of social progress, but other facts refuse to be harmonized. The temptation to get a simple, dogmatic explanation of value should be resisted. When the interrelation of the factors is recognized there is little likelihood of concluding that some one of them will absorb all the benefits of progress. One is not driven to the extreme either of optimism or of pessimism. While the theory of value is not in itself a theory of society, it greatly influences social conclusions. Clear economic analysis is a condition to sound thinking on practical questions.

Organic nature of the productive process.