Value and Distribution: an Historical, Critical, and Constructive Study in Economic Theory. By C. W. MACFARLANE, Ph.D. (Philadelphia: J. P. Lippincott Co. Pp. 317. 1899.)

THIS book has some resemblance in the aspects which it presents for criticism to the work which we have just reviewed. The concrete element of statistics, indeed, is not here prominent. But we have some compensation in the historical matter with which Dr. Macfarlane has enriched his learned pages. Witness his compendious history of the doctrine of rent in English and German economics, given in the first book of the part relating to distribution.

Like Professor Davidson, Dr. Macfarlane leads up to his own theory by improving upon the theory of predecessors. Many of his criticisms appear to us very just and instructive. For instance, as to the famous distinction between "subjective and objective exchange value," he fails to see any fundamental difference, and regards the "speaking of two marginal utilities for the same commodity" as a serious defect. Again, on the Austrian theory of cost in relation to price :—

"So far as the present writer can see, this entire discussion as to the precedence of utility or disutility in the determination of price, is not only without any real profit, but is actually misleading. For no matter what the seeming order of precedence may be, the fact remains, that in the case of freely reproducible goods (normal price) the determination is contingent not upon one, but upon two factors. It is true that the price of such goods may be measured either in terms of marginal utility, or of marginal disutility, but its determination depends upon the coincidence of these two factors.

Contending with the great Austrian leader on the theory of interest Dr. Macfarlane appears to us to be victorious all along the line. One could wish, perhaps, that he had not made the line so extended, that he had not followed the tactics of his adversary in distinguishing and discussing separately the "exploitation theory" of interest, the "use theory," the "productivity theory," the "abstinence theory," the "exchange theory," and so forth.

When the author proceeds from the "historical and critical" to the "constructive" part of his study, we find it less easy to follow him. The expectations which his sound judgment and dialectical power have. raised will perhaps be realised more fully in some future volume. Meanwhile his original theories present some difficulty.

"It is the contention of the present writer, that while value is determined by marginal utility price is never so determined save in the case of normal value and price. In the case of scarcity of goods or the great bulk of the world's commodities, the marginal utility of the goods to the consumer and its marginal

1 By "value" the author explains in a footnote, is here meant the subjective importance of a good. This is measured in terms of marginal utility. By price is meant the quantity of money, or of the objective money commodity, for which he good in question will exchange.

The estimate of the labourer is the resultant of two factors-one positive one negative—the utility of the reward and the disutility of the labour the estimate of the employer is, on the whole, dependent on the indirect ut afforded by what he purchases, or rather by the discounted value of the pr created by the labourer's exertions. Should the labourer place too hig estimate upon what he offers to sell, or the employer too low an estima what he wishes to pay, no exchange will be effected

"Between these two estimates the value of labour is determined by the by which all exchanges are effected. These two estimates are a maximun a minimum

(p. 140).

"We have here a failure of the equation of exchange. We can only say wages will be determined somewhere between the limits by the compar strength and knowledge of the bargainers" (p. 142).

The labourer's "estimate is not represented by an amount of commod but by that amount of commodities which will afford an equation of utilit disutility" (p. 147).

"The upper limit of wages is the employer's estimate of what the lab is worth to him" (p. 153).

66

'Wages are the result of an equation, if we must use the term, of the su estimate and the demand estimate, and if the equation is not establish first the solution of the problem is reached, as it is reached in all other bu and selling, by bargaining."

In the chapter from which we have quoted, the author expressed himself at length on his cardinal doctrine; and he is deficient in the powers of exposition. It is probably our fault tha have failed to grasp his theory of limits. Perhaps he would have well to supplement his verbal explanations by the use of mathema phraseology. We are compelled to resort to that method, in orde indicate our difficulty: debarred as we are by the narrow limits review from a full discussion of the subject. It must suffice he say briefly that after the closest attention we are uncertain whe the "limits" of which the author speaks so much relate to total marginal utility; whether they should be represented by the so-c "indifference-curves," the OP and OQ of Professor Marshall's n ematical note XII, or rather, pertain to demand- and supply-cury conceived perhaps, not as geometrical lines, but as strips or ban sensible breadth, such that the two points in which a vertical r senting price may intersect the outer and inner boundary of the correspond respectively to the higher and lower estimates which pl large a part in the author's theory. But we are by no means ce that either of these widely different conceptions is suited to illus. the author's meaning. On the strength of the general solidity o rest of the book, we are disposed to think that the chapter o bargain theory of wages would repay further investigation. We sl be prepared to find that the theory is substantially identical with which has been more clearly stated by Professor Marshall with re to supply and demand in general, and the labour market in partic F. Y. EDGEWOI

utility to the producer only establish limits within which the price may vary. Its final location depends upon the relative monopoly strength of consumer and producer, and so is incapable of any exact determination. This is in brief the Monopoly Theory of Price which will here be proposed" (p. 54).

"The law of cost is only true under the assumption of an ideal condition of free competition among producers. It is the purpose of the present chapter to show that the law of marginal utility is likewise based upon the assumption of an ideal condition of free competition" (p. 43).

But first, as to the competition among producers, is it so certain that, as the author says elsewhere, "scarcity values are not the exception, but the rule"? The iteration of this statement (pp. 120, 121, 130, 224, 243, 255, 305, &c.) does not make it more true. What if, in spite of temporary appearances to the contrary, "now, as ever, the main body of movement depends on the deep silent strong stream of the tendencies of normal distribution and exchange! "1

With respect to the competition between consumers, the author's revolt against the classical conceptions appears to us to be even less justified; so far as he attributes a greater degree of roughness to the theory of the market than is generally allowed by economists gifted with common sense, for instance, by Mill, in a well-known passage at the end of his chapter on "Competition and Custom." He himself notices the greater facility for combining which the producers enjoy. Still he is confident that

46

a theory of price, which rests upon the assumption of free competition among consumers, is without sufficient warrant."

"We find a list of admitted exceptions to the law of marginal utility that is at least as formidable as any that can be urged against the law of cost."

Perfect "two-sided competition" is often wanting; there "are many goods sold in markets that are neither large nor well organised."

"Why may there not be at any point a non-competing group, or an interference with the freedom of competition among buyers, as well as among sellers, among consumers, as well as among producers? If such an interference with the freedom of competition does arise, then the price may be fixed at a point, which is somewhat less than the valuation of the thousandth buyer and somewhat higher than the valuation of the thousand and first' (p. 50).

The author seems to regard the fact of an inelastic demand, e.g., "with salt at present prices, with pepper, matches, and a number of other commodities" as confirmatory of his opinion (p. 52). No wonder that he has some sympathy with Thornton in his view that "price cannot possibly be subjected to law."

The notion of monopoly superseding the classical conception of competition still meets us when we proceed from value to distribution. Profit, we read, is a "monopoly surplus." As a price-determining surplus it is contrasted with rent, which does not enter into the determination of price.

1 Cf. Marshall, Principles of Economics, Book VI. ch. xi. § 9 (third edition).

All save the marginal entrepreneurs will receive a differential surplus or rent, whose amount is determined by their several degrees of skill. Since, however, we are here dealing with a scarcity good, it follows that each and every entrepreneur engaged in the production of this commodity, the marginal man as well as the most skilful, will receive an additional surplus to which I would restrict the term profit" (p. 122).

.

"If the prevailing economic conditions' were those of free competition '' "the marginal or monopoly surplus to which I have restricted the term profit would not appear" (p. 308).

There are those, however, who regard the remuneration in different occupations not as a case of monopoly value, but as tending to correspond in net advantage, or at least in attractiveness, in the long run, to the efforts and sacrifices required by the preparation for and exercise of those occupations. Those who take this general view will not trouble themselves much about "marginal surplus." While admitting the theoretic distinction between payments which do and do not enter into the determination of price, they will recognise the practical impossibility of separating the two elements. The earnings even of rare Utilities are often to be regarded rather as a quasi-rent than as a rent proper.

Perhaps Dr. Macfarlane when he distinguishes between what does and what does not "enter into the determination of price," has hardly realised what difficulty that form of word presents to some minds. We are disposed to regard as the criterion of a payment "not entering into price" the circumstance that if a tax is imposed upon that payment, the price will not be affected. Using this criterion, we are unable to follow Dr. Macfarlane's criticism of Mill's dictum that,

"When land capable of yielding rent in agriculture is applied to some other purpose, the rent which it would have yielded is an element in the cost of production of the commodity."

Since, if a tax were imposed on the rent of land used for agricultural purposes, the amount of land used for that purpose, rather than the other, would tend to be contracted, and therefore the intensity of cultivation to be increased, and therefore the price to be raised, it appears to us very intelligible to say with Mill that rent is an element in the cost of production.

Dr. Macfarlane encumbers himself with a superfluity of surpluses:

"When Mill included the rent paid for one use of land as part of its rent in another employment, he included a scarcity marginal or monopoly surplus under the caption of rent" (p. 131).

Rent is the differential surplus in a single industry " (p. 132).

He seems to have a glimpse of the truth that, in the words of Professor Marshall, the doctrine [of rent not entering into cost] is not misleading with regard to agricultural produce as a whole, but when the doctrine is applied to any one kind of produce taken separately it is