bought and sold. We are accustomed, however, to impute these market prices to all other existing goods of the same kinds. When wheat is sixty cents a bushel, the only bushels of wheat actually valued by the market at that price are the ones actually sold at that price. Yet we impute or ascribe the same value to all other bushels of the potential supply of wheat in the same market.

Notwithstanding the hypothetical nature of this imputed value, it is often treated as though it were a real thing. Statistical attempts to state the wealth of a nation in terms of dollars and cents are only estimates of the sums of these imputed values. A merchant's inventory of his stock in trade is often accompanied by an estimate of its value. Whether this value will be realized or not depends upon the constancy of business conditions, the caprices of fashion, and whether it can be sold in the regular course of trade or whether it has to be disposed of at a forced sale. Many kinds of consumption goods, such as household furniture, are not customarily thought of by the owner in terms of exchange value. It is often necessary for purposes of taxation to ascribe value to them, but this is frequently a difficult and somewhat arbitrary process.

The Prices of Production Goods. Throughout our analysis of exchange value it has been assumed that the commodities valued were wanted by consumers for the satisfaction of their wants; that is, that they were consumption goods. It is not altogether incorrect to say that producers' goods- capital and land— have a marginal utility, which varies with the importance attached to the possession of them. While one could thus, with substantial accuracy, include producers' goods in the scope of the foregoing analysis, there is a more instructive way of approaching the problem of the prices of land and of capital. Consumption goods have value because they satisfy human wants; that is, they yield an income of satisfactions, while production goods are valued because they have the power of gaining a money income for the owner. Just as the values of consumers' goods vary with the intensity of the wants they satisfy, so the values of producers' goods vary with their power

to yield a money income. The problem of the prices of producers' goods will, accordingly, be discussed in the chapters on the rent of land and the interest on capital.

Other Theories of Value. The older economists used to emphasize the relation between the price of a thing and the amount or the expense of the labor spent in producing it, a relation much closer under the old methods of hand production than it is at present. The development of a systematic labor theory of value was, however, the work of Karl Marx, the founder of modern" scientific " socialism. This theory is, in essence, that labor produces all value and that the interest on capital and the rent of land are deductions from the real wages of labor deductions that are made possible only by the existence of the system of private property in producers' goods. It is so obvious that things do not exchange today in proportion to the amount of labor involved in producing them, that to point this out in detail, as some economists have done, is unnecessary. Karl Marx himself recognized that his "values" were not measured by the actual prices of the market. They seem to have been conceived as some mysterious essence or quality in things. But the only economic values that can be recognized from the modern scientific point of view are the values that really exist the actual values of the market. Nor can we say that things ought to exchange in proportion to their labor costs, without begging the whole question in favor of the abolition of private property in land and capital. Moreover, it will be shown later that rent and interest would not be eliminated, although they might be changed in form, by a change from private to common ownership of producers' goods. Although the labor theory of value is still held by many followers of Marx, its place in the creed of scientific socialism is diminishing in importance.

The relation between price and the expenses of production has sometimes been stated in such a way as to lead to the inference that cost of production is the cause of value. The expense of production theory of price, when so stated, is open to much the same objections as the labor theory. Suppose I perfect a

machine at the expense of ten thousand dollars which will blow soap bubbles at the rate of a thousand an hour. Will it be worth ten thousand dollars? Certainly not; but why not? The theory of costs will not explain it. To say that the labor and materials have not been wisely used is simply to say that the machine has no value, which is just what we are trying to explain. As a fact, it is not worth ten thousand dollars simply because no one is willing to give ten thousand dollars for it. The expenses of production do not create value, but there is a sense in which price is the cause of the expenses of production. That is, men think it worth while to expend money in producing things because they think that the products will sell for enough to recompense them for the expenses of production.

Many of the economists who have written in the past about the subject of price took the facts of demand for granted, and devoted most of their treatment of the subject to an examination of the relation between price and the expenses of production. This was in part an expression of a general tendency to regard the production of wealth as something to be desired for its own sake; the fact that the satisfaction of human wants is the real goal of most economic efforts being underemphasized. In more recent years economic writers have developed the analysis of human wants; the fact that utility in the economic sense is not utility in general, but the utility of a particular unit of a commodity, being the most significant point in this new analysis. Some writers have even gone so far as to take the facts of supply for granted, and to assume that price is explained when marginal utility is described. As a determining cause of price, utility has a logical priority over scarcity, in the sense that demand is usually the cause of supply. Yet in the analysis of the actual price-making process we have to recognize that utility and scarcity, demand and supply, are forces operating simultaneously, neither of which can be neglected without obscuring the fundamental facts of the market.

QUESTIONS

I. Is there any relation between the price of a lead pencil and the expense of producing it?

2. What elements of a farmer's expenses are "constant"? What are "variable"?

3. What different possible standards of just price can you suggest?

4. Combine demand curves with long-period supply curves like those shown on page 175 (the general conditions of demand being assumed to be constant) and interpret the meaning of the resulting diagrams.

5. Are the passenger service and the freight service of a railway joint products?

6. What different possible meanings can be attached to the expression "natural value"?

7. Discuss the following statement:

"The fact is that labor once spent has no influence on the future value of any article; it is lost and gone forever. In commerce bygones are forever bygones; and we are always starting clear at each moment, judging the value of things with a view to future utility." -Jevons, Theory of Political Economy, p. 164.

REFERENCES

CHAPMAN, S. J. Outlines of Political Economy, Chaps. xv-xvii.
FLUX, A. W. Economic Principles, Chaps. iv and v.

MARSHALL, ALFRED. Principles of Economics, 6th ed., Book v, Chaps. ii-viii, xi.

MILL, J. S. Principles of Political Economy, Book iii, Chaps. iii and iv. TAUSSIG, F. W. Principles of Economics, Vol. i, Chaps. xii-xiv, xvi.

CHAPTER XII

MONOPOLY

The Idea of Monopoly. One of the economic terms most frequently used nowadays is monopoly, and at the same time it is one of those terms which are peculiarly vague and ill-defined in popular discussion. Even in law and economics, contradictory meanings have been attached to the term, although recently there has been a marked clarification of thought both on the part of economists and jurists. While there has been confusion of thought with respect to monopoly, all have agreed that something to be called monopoly has existed, and that it has been the cause of perplexing scientific and practical problems.

In economics, as in life, categories shade off into each other, and at the boundaries discrimination is difficult. It is best, therefore, to find highly developed, plainly marked types to furnish us the subject-matter for definition and to compare one type with another. This is an especially desirable mode of procedure in the present case, because the term " monopoly " at once suggests the term " competition," with which it is inevitably contrasted. When monopoly exists, competition is thought of as absent. A state of full and free competition, on the other hand, is incompatible with monopoly.

Competition means a market with rival sellers and buyers, and prices determined, on the one hand, by efforts of sellers, acting independently of one another, to dispose of commodities and services, and on the other hand, by efforts of purchasers, acting independently of one another, to secure commodities and services. We have seen the forces that under competition limit producers and purchasers, and thus determine prices, and we have seen that competitive prices are beyond the control of any one buyer or seller.