Tuesday, January 20, 2015



In the early stages of civilization the satisfaction of human wants is usually accomplished by exchanging one kind of commodity for another without the intervention of any material medium. Thus, corn is exchanged for cattle, wine for silver, and so on. Such transactions are termed barter. For many ages and among many people the only form of exchange was that of barter, pure and simple. Economists tell us how impossible it would be for commerce to exist without the aid of money. Whilst admitting the great

assistance that this intervention is, it must not be forgotten that commerce existed long before money was known. With our modern system of trade, However, the benefits derived from a just monetary system would unquestionably be beyond conception. It must not be supposed, as some writers assert, that absence of the medium of exchange prevents the possibility of satisfactory exchanges. The fact of an exchange taking place, providing the conditions are free, evidences satisfaction, since this is its natural result. Neither is it true that without a material medium it would be impossible to compute the proportion or ratio in which two different commodities should exchange. This computation of ratios, which will be considered more fully in another chapter, undoubtedly accompanied every act of barter by man in the primitive stage. Products were not exchanged for products without some regard to the cost of production, or difficulty of attainment. Thus we learn that there are African tribes who compute the value of things by a purely ideal system. "They calculate the values of things in a sort of money of account called macutes. They say one thing is worth ten macutes, another fifteen, another twenty. There is no real thing called a macute, it is a conventional unit for the more convenient comparison of things with one another." (J. S. Mill, "Political Economy”)

It is unnecessary to show the inconvenience that would naturally arise in striving to carry on exchange without the intervention of money. Endless examples are given in the various works treating this subject. A formal expression of a single barter transaction is an equation, as follows:

Commodity A = Commodity B.

The sign of equality is generally used in expressing such a transaction, and means “will exchange for," or "exchanges for." A single exchange involves two dissimilar commodities. It constitutes the exchange of one kind of utility for another. Men do not exchange commodities for like, but for unlike commodities. It also involves two persons and therefore two distinct desires, or two distinct classes of desires. Further, since the exchange is brought about by the desires of two persons to acquire each what the other possesses, “an exchange evidently requires a concurrence of two minds." (Macleod, "Theory of Credit”)

The cause of barter or exchange may, therefore, be defined as reciprocal desires; and since its object is to satisfy these desires the effect of a complete exchange is reciprocal satisfaction; and as commodities are those products that by their nature or operation satisfy human desires, we may say that the test of a complete exchange transaction is reciprocal satisfaction. The importance of this test will be fully realized only when we come to discuss the subject of money.


"Value is the corner-stone of the Economic edifice.” — Proudhon

We have now to consider the most important, ambiguous and perplexing conception with which economics deals, viz., value. When we remember the warfare that has been waged and the vast amount of literature produced on this subject during the past few years, we read with amusement John Stuart Mill's remark, made nearly fifty years ago, that "Happily there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete." (“Principles of Political Economy”) So far was this statement from the truth, that since it was written an entirely new economic school has been established, founded upon a wholly different conception from that propounded by Mill, and the school of Adam Smith.

It is true, however, as Mill says, that "Almost every speculation respecting the economical interests of a society implies something of value, and the smallest error on that subject infects with  corresponding error all our other conclusions; and anything vague or misty in our conception of it creates confusion and uncertainty in everything else." (Ibid) This is doubly true when considered in its relation to the money question. In fact, we might almost say that the solution of this question depends upon the interpretation put upon the word "value." This term is so indissolubly bound up with the word "utility" or usefulness, that we cannot treat one without regard to the other.

Every commodity presents itself to us in two ways. When we think of consuming or enjoying a thing, we have regard to its usefulness. When we contemplate disposing of it, we have in mind what we can get in return for it. This consideration is from the standpoint of its value. We may for convenience imagine every commodity possessing two faces. To the consumer it appears as something useful, something to eat, drink, wear or use. To the seller it appears as an object of value, something to exchange. These two different aspects of goods were noticed by Aristotle more than 2000 years ago.

"Of everything which we possess" he says, "there are two uses, both belonging to the thing as such, but not in the same manner; for one is the proper and the other the improper or secondary use of it. For example, the shoe is used for wear, and it is used for exchange; both are uses of the shoe." {Aristotle, “Politics”) The connection or relation between these two aspects has been the ground of contention among economists for years.

Adam Smith used the word "value” in the two senses, prefixing the words "use" and "exchange" according to its application. He says: "The word value has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use,' the other 'value in exchange.' The things which have the greatest value in use, have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange, have frequently little or no value in use. Nothing is more useful than water, but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use, but a very great quantity of goods may frequently be had in exchange for it." (Smith, “Wealth of Nations”)

The unfortunate application of the same term to these two aspects of commodities, viz., utility and exchange, is entirely responsible for the great confusion and ambiguity into which this question has been brought. The term use-value is becoming obsolete, and the much better word utility or usefulness has taken its place. Smith employs the word utility in a positive sense. Certain things are known to be absolutely essential for the support of life and are termed the "necessaries” of life. The utilities of such. Smith and his school regarded as inherent properties. Hence, water was regarded as very useful and "yet will purchase scarce anything," whilst a diamond, having scarce any value in use, will purchase a very great quantity of goods. Value and usefulness or utility were therefore considered to be independent qualities. Modern economists employ the term utility in a very much wider sense, viz., capacity to satisfy a desire or serve a purpose, irrespective of the nature of the desire or purpose. Thus, Professor Jevons says: "Anything which an individual is found to desire and to labour for, must be assumed to possess for him utility." (Ibid) So Professor Smart writes: "The economic 'want' is not necessarily a rational or healthy want." (“Introduction to the Theory of Value.”)

The Austrian school divides value into two parts: subjective or personal value, and objective value. In treating these two divisions, Professor Smart says: "Value in the subjective sense we may call, generally, the importance which a good (commodity) is considered to possess with reference to the well-being of a person. In this sense a good is valuable to me when I consider that my well-being is associated with the possession of it — that it 'avails' for my well-being.'

Value in the objective sense is a relation of power or capacity between one good and another good. In this sense a good has value when it has the power of producing — or "avails" towards — some objective effect. There are, consequently, as many objective values as there are objective effects. Thus while the subjective value of coal to me is the amount of good I get from the fire, its objective value is the temperature which it maintains in the room, or the amount of steam it can raise in the boiler, or the money it brings me if I sell it. This kind of value is very much synonymous with the word 'power' or 'capacity;' it is as common to speak of 'heating power' as of 'heating value.' " (Ibid)

Economics, however, deals not with the "powers” and "values" of objects which are purely physical, such as the power of steam or the heating value of coal. It is merely exchange values and purchasing powers that the science deals with — that is, the social relation of commodities and their relation to the wants and desires of men.

According to this same school, value depends upon utility, and it is the "utility on the margin of economic employment," or what is termed its "marginal utility" that determines the value of a commodity. We may put the matter in this way. The ability of commodities to satisfy human wants and appetites creates a desire on the part of men to possess them. This ability to satisfy wants is termed utility or usefulness. Now the desire for possession prompts men to undergo exertion and make sacrifices, in order to obtain the means for satisfying wants. They are willing to give something, either labour or some commodity, to possess what they want. Now the quantitative relationship which men, in their desire to obtain possession of them, establish among commodities, is termed value if It is expressed by the ratio of the quantity of one thing that men are willing to exchange for a given quantity of another thing. Thus, both utility and value are merely relations. They are neither qualities nor properties of things. They are not inherent, but merely "accidents of a thing arising from the fact that someone wants it." (Jevons) And it is the proportion of the number and degree of urgency of these wants for a thing, to its available supply, that determines its value. In fact, the difference between the useful and the valuable is a quantitative one. When things are abundant, like air, water, sunshine, etc., no matter how necessary they may be to life, value does not appear. Value arises only where things are limited in quantity, that is, among things where economy is necessary.

Economic value is, therefore, purely a quantitive term. "Value," says Guillaume-François Le Trosne 1728-1780, "consists in the ratio of exchange, which takes place between such and such a product, between such a quantity of one product and such a quantity of another."

"Hence it is clear," says McLeod, "that value is a ratio."

"Value in exchange expresses nothing but a ratio," says Prof. Jevons, "and the term should not be used in any other sense." And again, "Every act of exchange thus presents itself to us in the form of a ratio between two numbers. The word 'value' is commonly used, and if, at current rates, one ton of copper exchanges for ten tons of bar iron, it is usual to say that the value of copper is ten times that of iron, weight for weight."

The foregoing definitions would be ordinarily sufficient to give the reader a perfectly clear idea of what economists mean by this term. But unfortunately its misuse is so general that one finds it difficult, even after acquiring the correct idea, to avoid its misuse. For instance, how difficult it is to refrain from saying, "this thing has value," or "that object possesses great value." And yet it is very evident that if the definitions above given are correct, it is wrong to speak of anything possessing or having value. Prof. Smart says: "But it is almost impossible to use the term without suggesting an inherent property. Value always implies a relation." The economists themselves, after clearly defining the word, often fall into its popular misuse with the inevitable result of mixing up themselves and their readers in inextricable confusion. In other words, from a purely economic standpoint, whatever is said to have value is always meant in comparison to something else in a numerical ratio.

Take Prof. Jevons, for instance, whose definition has already been given. He says: “But value, like utility, is no intrinsic quality of a thing; it is an extrinsic accident or relation. We should never speak of the value of a thing at all without having in our minds the other thing in regard to which it is valued." Further on he says: "Bearing in mind that value is only the ratio of quantities exchanged, it is certain that no substance permanently bears exactly the same value relatively to another commodity,” etc. Quite so, and this is what Riegel called price relativity. We'll see whether Kitson comes up with a fixed in time means of value measurement. Unless he did so, his object will not have been met, for once it is understood that value always implies a ratio (compared to what?) and that the true purpose of sound money is to represent that to which every other good or service must be compared, he will have presented us with just another commodity with which to judge the value of all other commodities and we are no longer free from speculation as regards money, which is one of our goals.

In another place Jevons adds: "A student of economics has no hope of ever being clear and correct in his ideas of the science if he thinks of value as at all a thing or an object, or even as anything which lies in a thing or object. People are thus led to speak of such a nonentity as intrinsic value.” To understand Jevons correctly then, it would be impossible to make statements such as, “gold and silver have intrinsically more value than paper money,” because economic value is always a comparison, a ratio (compared to what?) and while all three have some value in terms of exchange for goods and services, their value relative to each other is in a constant state of flux because all three are traded commodities. Indeed, a good check for $10,000 even being a piece of paper is certain to carry more intrinsic value, at least until the time on the check expires, than either an ounce of silver or of gold. Let that thought sink in and “gold bugs” be damned!

In spite of these clear and comprehensive definitions, Jevons says in another chapter: "Since money has to be exchanged for valuable goods it should itself possess value, and it must therefore have utility as the basis of value.” How can a thing possess "an extrinsic accident or relationship?” In the same chapter he says: "It might seem that money does not really require to have substantial value.” If value "is an extrinsic accident or relation,” what is the meaning of the expression that "Money does not really require to have substantial extrinsic accident or relation?” We can jump ahead and assert that Riegel was correct when he said that money should have close to no intrinsic value in and of itself otherwise that value itself participates in the trade. Clearly Jevons was close to understanding the truth. One cannot just say that value is a ratio and then suggest that money itself has to have some intrinsic value without falling back into using one commodity to judge in price every other commodity and subject all who use such a system (what we have now) to the whims of speculators.

Macleod, after defining value as "The ratio in which any two quantities will exchange," says in another part: "The value of anything is always something external to itself.” But a ratio is the relation of two numbers to each other, it involves two quantities. Again he says: "Value is an affection of the mind." Is a ratio an "affection of the mind?" Clearly not. What you are observing here is intelligent people faced with the awesome gravity of the predicament that actual economic value in free and fair exchange must be handled by a money that represents a value; a ratio itself at a specific point in time by which the values of everything else are to be fairly judged, priced in an exchange, and they can't allow themselves to accept it! Riegel may have been the very first ever to do so. We'll see whether Kitson gets it.

With such a confusion in the use of terms it is not to be wondered at that this subject has been apparently submerged in hopeless ambiguity. The idea of value in economics arises only in connection with the quantities of things. It is expressed in the question, " How much of this commodity must I give for so much of that commodity?" It has, therefore, nothing to do with substances or qualities. ...in and of themselves, quite so. (''If a ton of pig-iron exchanges in a market for an ounce of standard gold, neither the iron is value nor the gold, nor is there value in the iron nor in the gold. The notion of value is concerned only in the fact or circumstance of one exchanging for the other. Thus it is scientifically incorrect to say that the value of the ton of iron is the ounce of gold; we thus convert value into a concrete thing; and it is of course equally incorrect to say that the value of the ounce of gold is the ton of iron. The more correct and safe expression is, that the value of the ton of iron is equal to the value of the ounce of gold, or that these values are as one to one."— Jevons, “Theory of Political Economy.” And again, because both the gold and iron are commodities, they are subject to price speculation, a factor involving time, and therefore without a specific time identified, the actual ratio representing economic value is imprecise.)

It seems to me that this expression is as incorrect as the other. If value is a ratio, what sense is there in saying that "the ratio of the ton of iron is equal to the ratio of the ounce of gold ?” The proper expression would be, the value of iron to gold is one ton to one ounce. Without the time mentioned this is still ambiguous! It must be remembered that we are dealing here entirely with objective exchange value. And unless the time element is included the ratio remains ambiguous as today the ratio might hold but what about tomorrow, next week, next year or in a century?

It has wholly to do with the quantitative relationship of commodities to each other. Since all commodities are exchangeable in certain proportions, in units of their respective measurements, these proportions or ratios are termed values. Value is a term somewhat analogous to distance. Except that distance does not change over time, at least not significantly. If the distance between 2 points is 200 miles, it is likely to change less than a fraction of that distance over a normal human lifetime. The comparison between true economic value and distance is thus proved inaccurate.

Economic value is a relation between two objects. We cannot say a thing possesses distance or equality. A single point cannot express, define or measure distance. Two points are essential to convey the idea. The standard unit of length, for instance, is the distance between certain two points or knobs. Similarly, value is not expressed or defined by a single thing. Two quantities are necessary to express value, just as two lines are required to express an angle. "Hence," says Macleod, “a single object cannot have economic value. A single object cannot be equal or distant. If an object is said to be equal or distant, we must ask equal to what? Distant from what? So, if any quantity is said to have value, we must ask value in what? Without a time given, value in an economic exchange is still ambiguous. And as it is absurd to speak of absolute or intrinsic equality, or absolute or intrinsic distance, so it is equally absurd to speak of absolute or intrinsic value."

The correct definition of value, as used in the science of exchanges, is, therefore, the exchange relationship existing between two commodities, and it is expressed by the ratio in which the two quantities exchange. Again, correct only in relation to a time at which the exchange occurs.

There seems to be the need of a word that expresses the idea we desire to convey when we speak of a thing "having" value. Karl Marx suggested the use of the Saxon word "worth." We frequently say that a thing of value has "worth" or is "worth" so much. The employment of this word avoids the ambiguity arising from the misuse of the term value. No it does not, as a hunk of cheese might trade for so much money this week and another amount of money the next. Again, he is missing the element of time.

The 17th century writers, however, used "worth" for utility. (One great difficulty economists labour under is in striving to carry two distinct ideas under one term, viz., ratio and purchasing power. Whether we define value as a relation of powers or of quantities, it can only be expressed by a ratio between the two quantities of the commodities exchanged. Thus, whilst it is incorrect to say the value of one ton of iron is an ounce of gold, it is quite correct to say the purchasing power of one ton of iron is an ounce of gold. I have devoted a succeeding chapter to this part of the subject. We'll see. Unless the time of the exchange is included, he has missed it entirely.) In this work, I have employed the term "purchasing power" in this sense. A thing has purchasing power when it has power to procure some other thing in exchange. The measure of a commodity's purchasing power is whatever it will exchange for. Purchasing power and value are somewhat analogous to force and distance. A force is measured by what it does, by its effects; likewise with purchasing power. Distance requires two points or objects for its expression. Value requires two quantities for its expression. It should be abundantly clear that this is so imprecise as to allow the machinations of speculators and cheaters. Without time included, the purported definition for economic value cannot be accepted as a fixed ratio between anything. If one says a piano will be worth $100 in 1900 dollars (offered in a Sears catalogue of that year), that would be quite impossible to hold using 2014 dollars. Ratios expressing economic value must therefore include time, which is negligible concerning distance and perhaps non-existent regarding force, but don't count on it.

(In place of the term value, the word potent might be used to express what we really wish to convey when we say that a thing is of value, or has value. For instance, we might say that an exchangeable article was potent, or had potency. This term would at least avoid much the confusion created by the double meaning given to the term value. It would serve to distinguish between two ideas that are so often confounded, viz., powers or capacities and the relation between two different powers or capacities.)

What blockheads! The missing element is clearly TIME! What TIME is it that an ounce of gold equals a ton of iron? The value of the exchange is fixed only at a particular TIME and is ambiguous or meaningless without it. In fact all the derivatives, futures contracts, options, etc. all the means speculators used to influence prices of commodities of all kinds are referenced to TIME. Therefore ANY AND ALL attempts to come up with a viable alternative money that neglects TIME are forthwith discarded! That certainly includes bitcoin, etc. as well as any so called “Constitutional silver dollar” simply because the so called standard dollar would have to reference its purchasing power at the close of business in 1792!

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