VALUE, EXPLANATION OF There are three distinct attributes of goods which are of fundamental economic importance : their utility, their value, and their cost. Refer ence has already been made to the first and third of these attributes. We are new in posi tion to consider the character of value, and the laws which determine its variation.
By the value of_a commodity we mean its cost to the consumer, its power in exchange, the measure of its effective utility, its full impor tance to the society of which the individual owner, or would-be purchaser, is an integral part. These several phrases, each of which may be regarded as an equivalent for the term "value," themselves demand explanation. Such explanations will throw light upon the real nature of value, and will enable us subsequently to formulate a satisfactory definition.
154 I The cost of a commodity to the consumer differs from its real or producer's cost, and gen erally exceeds it. The real cost to society is the amount of physical or mental exertion, the loss of vitality, involved in its production. In describing the making of goods it was necessary to dwell upon some of the physical conditions of which man's economic activities must take account. Changes in those conditions are con tinually modifying the relative costs of different commodities, Making it harder to produce some, and easicr to produce others. When the en vironment as a whole becomes more favorable, the total cost to society may be reduced for all classes of goods, but not usually for all classes in equal degrees. It is conceivable that a wide spread physical malady might so far reduce the vitality of all producers as to make the costs of production universally greater. When cost, in economics, is contrasted with utility, or with value, it is cost in this sense of producer's ex penditure of energy that is meant. Cost in this sense is not the equivalent of value, and does not stand in any constant relation to it.
Early economic theories attempted to base value upon cost of production, but so many ex ceptions have been found to every law which has been formulated in accordance with such theories, that the attempt has been all but abandoned. But consumer's cost is a different
thing, and is, indeed, only another name for value. It denotes, not the actual cost of production, but rather the precise amount of some other com modity that must be given up at any given time to secure or retain possession of the commodity in question. We may contrast consumer's cost with the real cost of production, just as we con trast the latter with value. If the producer of any commodity, dealing directly with the con sumer, finds himself, after selling the commod ity, in precisely the same position as when he began the act of production, with only a suffi cient remuneration to make good his actual loss of energy, then in that special instance cost and value, or, in other words, consumer's cost and real cost, are equal. But this is not the normal result of production and exchange.
Value may properly be called power in ex change, if it is understood that the expression does not imply any inherent power in the good which is valued. The reason why value came to be looked upon as power in exchange, is that, in the distribution of products, men are willing to interchange only goods of equal value. The value does not depend upon this fact. Value would exist even if there were no ex change. It is even possible to find other exter nal tests of value than this. The amount of value does not come from the ability of the pos sessor to obtain in exchange such and such goods. This ability, on the contrary, is the effect of the value already existing in the good. The interchange of products is of enormous advantage to society, and the regulator of that process is the value of the products to be ex changed; but the significance of value is even more far-reaching, and its origin lies elsewhere than in the market. Power in exchange is an equivalent for value only when value is being used to determine the relative quantities which either party to the exchange can afford to give up to the other. It does not exhaust the mean ing of the word " value " and is therefore not a complete equivalent.