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 1. 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. 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. WIESER, F. VON. Natural Value, Book v, Chaps. i-vi. 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. Monopoly, as the term contrasted with competition, means combination and unified action, signifying restraint on the free offering of commodities and services by rival sellers and on the free purchase of these commodities and services by rivals who desire to secure them. The word "monopoly " itself means a condition in which there is a single seller or a single purchaser, and signifies unity in management of some kind of business in some essential particular. The particular in which unity is secured in the case of monopoly may be in production, it may be in sales, it may be in purchases; or it may be in any two or all three of these particulars. This use of the term "monopoly " gives us a clear scientific concept which is workable; and on its basis we may then formulate this definition of monopoly: Monopoly means that substantial unity of action on the part of one or more persons engaged in some kind of business which gives exclusive control, more particularly, although not solely, with respect to price. This definition of monopoly is in accordance with good English usage, and is also in harmony with the meaning given to the corresponding word in other modern languages by those who use these languages with discrimination. In legal utterances, too, though they have been contradictory and inconsistent in various particulars, we find, nevertheless, a sound tendency to emphasize unified control of business as an essential characteristic of monopoly.1 The Idea of Monopoly and Industrial Evolution. But the meanings of economic categories change with industrial evolution. Even such terms as freedom and liberty have to be newly interpreted with every new stage and even with every marked 1 Lord Coke, in the seventeenth century, said that monopoly consisted of power granted "to any person or persons, bodies politic or corporate, for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade" (3 Institutes, 181). Blackstone, in his Commentaries on the Laws of England, gave almost precisely the same definition in the following century. The Supreme Court of the United States (National Cotton Oil Co. v. Texas, 197 U. S. 129) has accepted the definition of monopoly given in the text, above. |