Many writers on the theory of value have been disposed to put these cases aside as not coming in the purview of a theory of value. Thus J. S. Mill1 goes so far as to limit his treatment to competitive prices only, holding that no laws are possible otherwise. If the social value theory chose to limit its problem similarly, it would have much easier sailing. It seeks, however, to be more realistic than that. But it may be observed that those who define value in terms of exchange have no right to ignore these cases, for real exchange does take place here. And the relative conception must be, not merely as narrow as exchange, but also as wide as exchange. The social value theory, putting law, moral forces, and economic values into the same general class, makes it possible to treat these cases by an extension of the marginal analysis, and is not obliged to ignore them, or to put them aside into a category of things which it is bad form to discuss, because there is "no apparent method of bringing this class of facts within the orderly sequences of economic law." 1

VIII

Professor Clark's "power-to-chop-wood "illustration suggests a point with reference to the notion of value as power in exchange." Power to chop wood, if all the wood be of the same kind, all equally free from knots, if the ax be kept at a given sharpness, and the weather conditions do not change, may be considered adequately measured in the size of the pile of chopped wood, and men's power in this particular

or their strength in general, if this be the only possible mani

1 Principles, Bk. III, ch. i, par. 5.

2 Davenport, Value and Distribution, p. 560. This passage appears in a different connection, but illustrates the same methodological view-point as that here criticized.

festation of strength -may be safely compared on this pragmatic basis. But the notion of power in exchange is no such simple notion. For a good, say a bushel of

wheat, may have power to purchase a hat, or a pig, or a day's labor, or a dollar. Is it the same power in all these cases ? How assert this, unless the resistances overcome in each case are in some way equal unless the various alternative goods named have some common quality with respect to which equality may be asserted? Does not the notion of power in exchange thus require the more fundamental value notion for its validation? The resource, questionable on other grounds, of saying that these various goods are all equal in power in exchange itself is not open, if one gets away from the unrealities of the assumption of a fluid market where everything has perfect exchangeability, because a test would show that they are not perfectly interchangeable, that you cannot necessarily trade wheat for pigs, just because you could trade pigs for hats and then hats for wheat. The "want of coincidence in barter," one of the commonplaces in the theory of money, is a fact by no means entirely removed by the use of money, and prevents the possible funding of diverse goods on the basis of "power in exchange" alone. Even if that resource were not thus precluded, it would still be either mere tautology, or else a vicious circle,1 to use it.

IX

As illustrating what can be done when the relative notion of value is applied with entire consistency, I wish to call attention to a striking point in Professor Schumpeter's novel theory of interest, set forth in his Theorie der Wirtschaftlichen Entwicklung. Professor

1 Cf. Social Value, pp. 18-19.

Schumpeter's main thesis is that interest is a phenomenon of economic evolution, that it grows out of business profits, and that it would disappear if evolution ceased. There would be no interest in the "static state." In the static state, the imputation process would lead all values back to the original factors of production, land and labor, leaving no source from which interest could come. He is met with the obstacle, however, that in that case the land would have an infinite value, since if we attribute, undiminished, to the land all the value of all the future services of the land, services which may be expected to continue through unlimited time, even a small rent of a small piece of land would mount to an infinite sum. The capitalization theory would see in the absurdity of this conclusion sufficient evidence that interest would survive, even in Schumpeter's static state, as a factor in the capitalization process, as a rate of discount to be applied to the future rents of the land, reducing the otherwise infinite capital value to a finite sum, the limit of an infinite convergent series. Not so, Schumpeter answers. The land has neither a finite nor an infinite capital value. The land has no capital value at all! The land is not exchanged as a whole, but only the yearly rents are sold. Where no exchange takes place, no value exists. And, in the static state there is no occasion, as a consequence of the static hypothesis, for land to be sold.1 At the application of the absolute value notion, this whole fabric melts away. Whether or not the situation calls for changes in land ownership by exchange, the land

1 "Der Boden dagegen wird im normalen Kreislauf des wirtschaftsprozesses nicht veräussert, sondern nur seine Leistungen. Nur deren Werte und nicht die Bodenwerte als solche sind daher Elemente der Wirtschaftspläne. Und die Vorgänge des normalen Kreislaufs können uns nichts über die Wertbildung des Bodens lehren. Nur die Entwicklung schafft den Bodenwert, sie kapitalisiert' die Rente, mobilisiert' den Boden. In einer Volkswirtschaft ohne Entwicklung würde der Bodenwert als allgemein volkswirtschaftliche Erscheinung gar nicht existieren." Op. cit., p. 334.

has a capital value, and one which can be calculated by the method of the capitalization theory. That value would manifest itself in the expense which would be incurred to protect land in the Missouri River bottom from being washed away by a shift in the current, if so indecorous a thing as a shifting current could exist in the "static state," and would also receive a pretty precise test in the amount of capital that could be borrowed (or, if already borrowed in the pre-static state, could be kept as a loan) on the basis of a mortgage on the land. In any case, less precisely measured, it would exist as a psychological attitude of the group toward the land. It would be considered valuable, and not infinitely valuable. Schumpeter's argument is perfectly logical on the basis of the relative concept. Will not this make the capitalization theorists a little more friendly toward the non-relative notion? The capitalization theory has always been presented as part of the general body of static, abstract theory, independent of the notion of economic change.2

X

To summarize: while recognizing and insisting that the formal and logical aspects of value theory must be divorced as far as possible from the question of causal theory, I do not believe that the two aspects can be entirely divorced. My main argument, however, has

1 To make my illustration of the shifting current meet the most rigorous tests of the most heroic static conception, I shall assume that the current shifts in a hundred year cycle, endangering every piece of land in the river bottom once every hundred years; I shall assume that the cycle is perfectly understood, and that every land-owner knows exactly when, and to what extent, he will be endangered. This leaves nothing to chance or uncertainty or ignorance. The economic life of the community runs smoothly on even keel in a static equilibrium. And yet, once every hundred years, without exchange, the capital value of every piece of land in the river bottom is tested and measured.

For the sake of record, I wish to express considerable doubt as to the adequacy of the capitalization theory outside the static state!

rested in logical and methodological considerations, particularly in connection with the actual use of the value concept in specific economic theories. The cases discussed may be offered, not merely as illustrations of my abstract reasoning, but in part as inductive proof of the doctrine maintained. "The relativity of value" has a number of different meanings, and different philosophic roots: one root is in the false psychological theory that contrasts constitute the essence of consciousness; another root is in the geometrical theory of the relativity of space; another root, leading to a different kind of relativity notion, is the idea of a definitely fixed sum total of psychological energy. Some writers seek to rest the case for relativity on a badly made dictionary. Common to most forms of the relative theory of value are the (a) contention that values cannot simultaneously rise or fall, and (b) the contention that if one piece of wealth existed alone, it could have no value. The absolute notion of value denies both these contentions. It finds values manifesting themselves not merely in comparison and exchange with other values, but also, and more fundamentally, in influencing the conduct of men. The relative theory involves the confusion of existence with knowledge of existence, and of quantity with measurement of quantity. Thus “purchasing power " and "ratio of exchange" are alike untenable notions, if treated as ultimate: both need behind them an absolute value to give them locus standi. The "ratio" notion, however, because of its more precise mathematical character, makes this need more evident, unless the ratio is to be a ratio between pure, abstract arithmetical numbers, in which case it is of little if any use to the economists a contention which is made even by those who define value as purchasing power," notably Carver, Böhm-Bawerk