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 price; but a very little experience in the theory or history of economics will show that it is often desirable, and sometimes necessary, to contrast value with price. “At the same time and place,” says Adam Smith, “money is the exact measure of the real exchangeable value of all commodities. It is so, however, at the same time and place only.” If, however, the exchange value of a thing is not its price, what is it? According to Mill, “The value of a thing is its general power of purchasing, the command which its possession gives over purchasable commodities in general.” But what, we may well ask with Mill, is meant by command over commodities in general? Are we to understand the complete national inventory of wealth, or the total of things consumed in a given time by a nation? Obviously such conceptions are extremely vague and possibly unworkable. If, however, we make a selection on any representative principle, this selection will be more or less arbitrary.

The elaborate work of C. M. Walsh on the Measurement of General Exchange Value (1901) gives a critical analysis of the views of the chief writers on the subject and indicates the advances made since Mill. Mill is to some extent aware of the difficulties, although he never subjected them to a rigorous analysis; and he points to the obvious fact that a coat, for example, may exchange for less bread this year than last, but for more glass or iron, and so on through the whole range of commodities it may obtain more of some and less of others. But in this case are we to say that the value of the coat has risen or fallen? On what principles are we to strike an average? The attempt to answer these questions in a satisfactory manner is at present engaging the attention of economists more than any other problem in the pure theory. Mill, however, instead of attempting to solve the problem, frankly assumed that it is impossible to say except in one simple case. If, owing to some improvement in manufacture, the coat exchanges for less of all other things, we should certainly say that its value had fallen. This line of argument leads to the position: “The idea of general exchange value originates in the fact that there really are causes which tend to alter the value of a thing in exchange for things generally, that is, for all things that are not themselves acted upon by causes of similar tendency.” There can be no doubt as to the truth of the latter part of this statement, especially if we substitute for one commodity groups of commodities. But it is doubtful if the idea of general exchange value arises from a consideration of the causes of value; and later writers have constantly emphasized the distinction between any change and the causes of the change. Following out the idea in the last sentence quoted, Mill goes on to say that any change in the value of one thing compared with things in general may be due either to causes affecting the one thing or the large group of all other things, and that in order to investigate the former it is convenient to assume that all commodities but the one in question remain invariable in their relative values. On this assumption any one of them may be taken as representing all the rest, and thus the money value of the thing will represent its general purchasing power. That is to say, if for the sake of simplicity we assume that the prices of all other things remain constant, but that one thing falls or rises in price, the fall or rise in price in this thing will indicate the extent of the change in its value compared with things in general. There can be no doubt that, in discussing any practical problem as to the changes in the relative value of any particular thing, it is desirable to take the changes in price as the basis, and much confusion and cumbrousness of expression would have been avoided in the theory of the subject if, to adapt a phrase of Cournot’s, money had by Mill and others been used to oil the wheels of thought, just as in practice it is used to oil the wheels of trade.

By this method of abstraction the treatment of the theory of value becomes essentially an examination of the causes which determine the values of particular commodities relatively to a standard which is assumed to be fixed. Cournot compares this hypothetical point of the standard of value to the “mean sun” of astronomers. In

order that anything may possess value in this sense, that it may exchange for any portion of standard money or its representatives, it is evident on the first analysis that two conditions must be satisfied. First, the thing must have some utility; and secondly, there must be some difficulty in its attainment. As regards utility, Mill apparently regards it simply as a kind of entrance examination which every commodity must pass to enter the list of valuables, whilst the place in the list is determined by variations in the degree of the difficulty of attainment. Later writers, however, have given much more prominence to utility, and have drawn a careful distinction between final or marginal and total utility. Following Jevons, most

economists have adopted this distinction, and the writers of the Austrian school in particular have made it of 'vital importance, and by attempting to introduce it when the conception is inappropriate have often caused much unnecessary complexity. The distinction is certainly useful in throwing light on the advantages of, and motives for, exchanging commodities. Suppose that on a desert island A possesses all the food, so many measures—(say) pecks—of corn, and B all the drinking water, so many measures—(say) pints. Then A, taking into account present and future needs, might ascribe to the possession of each portion of his stock so much utility. The utility of the first few pecks of corn might be regarded as practically infinite; but, if his stock were abundant, and a speedy rescue probable, the utility ascribed to successive portions would be less and less. In the same way B might make an estimate of the utility of successive measures of the drinking water. Now, if we regard only total utilities from the point of view of each, both are infinite. If an exchange were made of the total stocks of both men, the position of neither would be improved. But, if A sets aside (say) half his stock, then it may well happen that he could advantageously exchange the rest against part of B’s drinking water. In precisely the same way B might set aside so much of his stock for his own consumption, and then the utility of the remaining portion would be much less than the utility he would gain if he obtained in exchange A’s surplus. Thus, if the two men exchange their remainders, both will gain in utility; in the case supposed they will make an enormous gain. For simplicity we have supposed each stock to be divided into two portions, but nothing has been said of the principles of the division. It is, however, clear that A can advantageously go on exchanging a measure of corn for a measure of water so long as by doing so he makes a gain of utility. Conversely B can advantageously offer water so long as he gains greater utility from the corn received in exchange. The utility of the last portion of corn retained by A (or of water by B) is the final or marginal utility of the stock retained, and similarly the utility of the last measure obtained in exchange may be called the final utility of the stock purchased. A will have done his best if these utilities are just equal. For at this point, if he were to offer (at the same rate of exchange) more corn, it is clear that he would lose more utility than he would gain. Mutatis mutandis, the same reasoning applies to B; and thus the rate of exchange will be so adjusted as to bring about this equality of marginal utilities on both sides. It follows that, if A gains on the last portion received just as much utility as he loses on the portion parted with, on all the other portions received he will have gained more than he lost. The total of these gains over successive portions has been called by Professor Marshall consumer’s rent or surplus.

However useful this theory of marginal utility may be in throwing light on the fundamental nature of value, and on the advantages of exchange, it is obviously too abstract to be applied to the explanation of the relative values of the endless series of commodities and services which constitute a nation’s stock of valuables at any

time. For this purpose we must resort to the law of supply and demand, which requires a very careful statement owing to the ambiguities of popular language. Mill has succeeded in getting rid of most of these ambiguities, but he has hardly given due emphasis to the fundamental character of the law. Ho argues, after the brief consideration allotted to the element of utility, that the other preliminary condition necessary for value*