1. The industrial process is a unity and the different agents bear an organic relation to each other. The problem of value is not one of physical division; it is one of logical analysis, and this is not possible in isolation or without the competition of men. Production as now carried on is a social process; the determination of market price is a social process. The different agents are complementary goods, each necessary to the best use of the various other agents. The value of seed is not to be found apart from the use of the ground; or the value of the leather apart from the shoemaker or the thread he uses. When these things are brought together in society their value is found by the comparison and measurement of marginal utilities. Economic forces, like other classes of forces, act and react upon each other. Two bodies attract each other in space; two chemicals uniting are both transformed into a substance differing from either. The economic result of materials and men cooperating is something differing from either factor, yet dependent on both.

2. The divisions of the older political economy are aspects of the general problem of value. The divisions conventional in the text-books on political economy, namely, "production, exchange, distribution, and consumption, ' have not been observed in the plan of this work. It has not seemed possible,, to accept the view that each of these phases of the vita| economic process could be discussed completely apart from the others. Consumption must be studied at the beginning] as the basis of exchange value, and again at the end, when the circle of thought has returned to the use man makes of wealth; and it pervades the whole subject of value, for back of every price is the potential utility of the good. Exchange is coextensive with the whole process of associated industry; for wherever there is a price, there is exchange. Subjective value outside a market forms a small, though not negligible, part of the problem for the student of today. Production is implied in every exchange, as exchange is in all social production. They are, indeed, but different phases of the larger phenomenon, the economic process. Nor is distribution, considered in its impersonal or economic form, any other than the logical valuing of the shares of the factors in economic production. Impersonal distribution is coextensive with economic production. Whatever a good, logically considered, contributes to value in production, that is its share of the product. Personal distribution, it is true, brings in other great influences which have been partly considered, but which will be treated more fully in the division to follow, on the influence of the state in the distribution of income.

The conventional divisions of economics.

The broadest principle of value.

3. The law of diminishing returns is the broadest principle of value. The one character common to all goods is that their importance varies with their quantity in any given connection. This is true of direct goods whose power to gratify wants falls as the supply grows; it is true of indirect goods, whose technical importance diminishes as the quantity increases, and which when taken at any given cost can be applied, after a point, only with diminishing advantage. The gradual extension of the marginal principle from land used in agriculture to every conceivable economic agent is the most important development of the last century of economic theory.

Generality of the law of value.

It being true that things are measured by the utility of the unit used last, logically considered, the least change in the combination alters the value of all the factors. Practical economic problems, therefore, are dynamic, not static. The view that the shares of the different factors are fixed by quite separate laws has not been accepted here. The law of rent is the same as the law of wages in its essential point and principle. It is a general law of value applied to a particular kind of want-gratifier. The law of substitution likewise is a general law, for within limits some substitution of factors is always possible along the margin. That being true, every movement of price creates its own resistance; substitutes will be found for materials, demand will decline, and a new equilibrium of price will be attained.

Mutual employment of the factors.

4. The factors and agents of production mutually furnish the field of employment for each other. Each factor is dependent for its technical efficiency on the presence of the other factors. If labor is plentiful and machines are scarce, machines bear a high rent. In accordance with the law of diminishing returns, the last unit of labor in that case contributes little to the product, and labor gets low wages, while more is attributed to the machine. Each machine thus may be considered to offer a field for the employment of labor. If population increases and land remains fixed, the need for food raises the rental value of land. But if population increases slowly, and capital and science progress, the field for the employment of labor is enlarged; and if new lands are opened up or new resources are discovered beneath the surface of the land, the field for labor is still more enlarged and a greater share is attributed to labor. This changing character of the problem must be recognized; no share is foreordained in size.

The pursuit of the analysis of value along the lines of marginal utility thus leads to conclusions far less mechanical, and, to the superficial student, less simple than were the the doctrines prevailing in the older economics. But the conclusions are, let us hope, more exact and more applicable to the real world, enabling the student to arrive at juster views of the present interests and of the future welfare of society.

An ever changing problem.

Questions On Chapter 43. Survey Of The Theory Of Value

1. Mention any cases you can think of where merely changing the place of things added to their value; or changing their form; or where the mere lapse of time added to the value of the thing.

2. What effect on wages and interest does the bringing in of foreign capital have?

3. If, through greater efficiency of labor, wealth increases, which share benefits?

4. What would be the effect on wages, interest, and land rent of a sudden addition of rich land to the country?

5. What would be the effect on interest, land rent, and wages of a great increase of national saving?

6. What concern have the poor in the abundance of capital? The rich in the abundance of labor?

7. Walker says that the laborer gets what is left after the other shares are deducted according to their law; wages are the residual claimant. Are the other shares independent of wages?

8. Can wage-earners be shut out from all advantages in the land of the country?

9. Are high wages and high interest seen to go together? Give such examples as you think of.

10. Do improvements in agriculture increase or decrease the rent of land?