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Following still the method chosen, he will distinguish between two kinds of production. One is the primary, indispensable production of simple utility. The other is the secondary, immensely important, but not indispensable production of that complex utility called value.
Nearly every economist since Ricardo has been careful to assure us that wealth comprises only those useful articles that have value. But as a matter of fact, value is a comparatively late phenomenon in the evolution of wealth, and the conception of value is by no means a primary one in the evolution of economic science. The pioneers who clear farms in the wilderness and store their cellars with food, and wear clothing spun and woven in their own kitchens, may have no experience of the facts of value in the economic sense, but for all that, they are producers of wealth. Primitive communities periodically dividing their lands, or cultivating them in common, and dividing the produce, show us nothing that, in the strict economic sense, can be called value, but are they therefore destitute of wealth? Concrete embodiments of utility are what the unlettered man understands by wealth.
The production of these is the primary economic process, and I think that no one who has carefully studied the profound work of Professor Jevons will hesitate to admit that “the best employment of labor and capital by a single person"—the entire phenomena of exchange and value being left out of consideration—is a question that must yet be treated in economic science.
Furthermore, I wish to maintain that value itself is a mode of utility. It is with diffidence that I vent
ure to criticise Professor Jevons, but I am obliged to think that he just fails of carrying out his thought to its legitimate conclusion. Defining value as ratio of exchange he says that it depends on utility. Now value is not a ratio, though its mathematical expression is a ratio, and it does not depend on utility for it is utility, evolved in a certain specific way, and quantitatively limited. The whole difficulty attaching to this subject seems to have arisen from substituting the quantitative expression for the thing expressed. If we should speak of weight as a quantity or measure of gravitation, and then make abstraction of the gravitation, we should have left a mathematical formula only, and that formula would not be a definition of weight. So it is with value. Weight is not the ratio by which the measurement of gravitation is expressed, it is gravitation measured. Value is not the ratio by which the measurement of utility is expressed, it is utility measured. It is when a comparison of utilities begins, and one utility is measured in terms of another, that value in its most general form arises. This process of comparison cannot go far save in one specific way, which has its origin in the fact that utility is relative, arising, as Professor Jevons says, « from commodities being brought in suitable quantities and at the proper times into the possession of persons needing them.” large extent this is done by an immediate process, in the production, by labor, of concrete goods to be consumed by the laborer. But to a considerable and always increasing extent this process fails. The laborer finds that, in spite of his best endeavors, he produces more of some things than he can use and less of others than he wants. His surplus would
be useful if put into the possession of persons needing it, and this potential utility is therefore made actual by exchange. It is this potential utility that is habitually compared, measured, valued, as a part of the process of exchange. Consequently, value, in the economic sense, is the potential utility that is measured and made actual by exchange.
It follows that exchange is a secondary process of production. It is complex production in distinction from simple production, and value is complex in distinction from simple utility. The creation by labor of immediate, actual utility, plus more or less of potential utility, is the primary process. The creation of value presupposes the creation of unexchanged utility. A community may exist without the secondary process, it can not exist without the primary. The primary is constant and universal, the secondary merely common; and that definition of Political Economy which calls it the science of exchanges, is absurd.
Perhaps another result of the method here proposed will be a more distinct recognition than we have had of the incidental character of the process of distribution. As Professor Clark has so clearly shown in his “Philosophy of Wealth," there is no separate process of distribution.
There is no part of the social organism having distribution for its specific function. Distribution is simply an incidental consequence of production. The less developed a society is, the more largely is distribution determined by the primary process of production. What the fisherman or the peasant farmer produces of actual utility, he has. The more perfectly developed a society is the more largely is distribution determined by the secondary process of production; that is, by exchange. Goods are now produced to sell. The condition of the market, commercial advantage or disadvantage, relative skill in buying and selling, determine the shares of wealth that men obtain.
We shall never fully understand either distribution, exchange or simple production, considered as results of individual economic effort, until we get firm hold of the truth that these are not three separate processes but only three developments of one process, in which distribution cannot be separated from exchange and simple production, nor exchange from that production of utility by labor which it presupposes. The traditional partition of economic science into departments of production, exchange, distribution, etc., not only does not correspond to the objective fact, it misrepresents the objective fact.
Individual economic efforts are coördinated chiefly through an unconscious physical process by the tendency of all activities, considered as physical forces, to reach an equilibrium. The highest and most difficult achievement in this part of economic science is to determine the laws of equilibrium of the complex system of forces in action. Among the difficult problems that have not yet received their final solution are those of demand and supply, cost of production, the relation of competition to combination, the relation of commodities to money and of money to prices, and the rhythms of credit and industrial prosperity. All these are problems of economic physics, and will be solved, when they are solved, by the application of the mathematical method of Gossen, Jevons and Walras. The common mistake of the mathematical economists is in assuming that there is nothing in Political Economy but economic physics.
In affirming, a moment ago, that distribution, exchange and simple production are but developments of a single process, I was careful to say, “considered as results of individual
individual economic effort.” The necessity of this qualification becomes apparent when we turn our attention to the economic function of the social consciousness. We then discover at once that this function consists, in large measure, in deliberately separating production, exchange and distribution, into distinct processes. It distributes wealth to some extent by actually taking it from the hands in which production and exchange would leave it, and giving it to others. It decides when, how and to what extent exchange shall be permitted. It prohibits the production of certain things and the production of anything under certain conditions.
The study of this economic action of the social organism through its self-consciousness corresponds very nearly to the study of what Adam Smith meant by "systems of Political Economy,” that is,
" the systems of economic policy which nations consciously adopt and put in force by legislation. It comprehends all that modern writers have included under the designation of applied political economy, conscious that it is something that the economist connot neglect, but debarred by the old conceptions from treating it as an integral part of the science. If there is but one social organism which acts in the two broadly contrasted ways that have been described, we can have no complete theory of production and distribution by neglecting one-half of the process, and the study of the economic action of the social organism through its self-consciousness is just