CHAPTER IV

VALUE AND PRICE

I. The social nature of value and price.

A. The concept of value and the element price are

essentially social phenomena. They are manifestations of human society. Although the one is a mental attribute that motivates the actions of man, and exists irrespective of association, it does not appear as an economic factor until two or more persons exchange goods with each other. On the other hand, the element price, which is a quantitative measurement, presupposes an industrial organization, in which a group of persons engage in the production of different kinds of utilities to be exchanged between the members. In primitive economy where the individual produces everything that he consumes, and does not barter or trade for the wares of another, price does not exist. He has no occasion to reduce the value of one commodity into terms of another. What he owns is regarded as property inseparable from his person. The amulet is worn about the neck to ward off evil spirits, and consequently possesses a subjective value that is difficult to measure. It is usually as great as the desire for life, for it stands as a barrier against possible death. Other possessions may not embody qualities that are equally desirable. This nature-man will conceivably part with his crude spear, grass net, or his family, but it is doubtful

whether he would be willing to divest himself of the charmed talisman, no matter what the consequences. Among all beings that have the capacity of judgment, however simple, evaluation is exercised between the various things that come within their experience. They are governed largely by instinct and fear. Social relationships being undefined the higher wants do not enter as distinct factors operating to project the individual concept into a highly integrated social structure. Thus, in the primitive mind are to be found the imperfect and undeveloped ideas of value, that increase in latitude as civilization advances.

Without qualifying the nature of value, it may be defined as the subjective appreciation of a utility.

B. The exchange of goods is a practice that is traceable to the lowest types of people. Strange as it may appear, barter among tribes has always been more prolific for articles of decoration than for the necessities of life. This is a fundamental principle of economics that was to be confirmed among the civilized people by Ernst Engel. It is a trait characteristic of all races at all times.

One man sees an object which another person has, and immediately he is possessed with an overwhelming desire to own it. If there is a reciprocal desire the exchange may be accomplished. Usually the valuation of each approximates the other, although the trade materializes because each values the other more than his own. Trade or commerce in the broader sense developed out of war, because it is a more effective way to

obtain the other's goods. As a result there developed a system of dumb barter1 among different tribes. It is a common form of trade carried on between the white man and primitive peoples. Money, in any form, is seldom used. The value of one commodity being expressed in terms of the other.

1. Price is the exchange relationship that exists between utilities.

II. The economic concept of value.

A. Since value is subjective appreciation, it connotes

that all things capable of satisfying wants are valuable. Air, sunlight, water are absolutely indispensable to mankind. Yet no one would consider paying a price for any, excepting under circumstances, it be water. They are free goods, and are not appropriable. Therefore, a person cannot exchange the privilege of breathing air for an automobile. He will not relinquish something he produced for a "gift of nature" that circulates in abundance. From the economic point of view the definition of value must consider two aspects to an exchange.

1. Individual or consumer.

a. Value is subjective appreciation for utilities that are appropriable and limited in quantity, that determines the amount of utilities or effort that a person is willing to give in exchange for them. This is value in use.

'Traders bring their goods to a savage locality and leave them. The savages in turn bring their goods and leave them. The first return to examine the savage offering and if satisfactory take it, leaving their own. Usually the savages retire at least one mile during the exchange. They have the option of stealing the traders' goods or leaving some of their own. They usually do the latter.

2. Social, or commercial.

a.

Value is the ratio of exchange between utilities realized in a market at the present time. This is commonly designated as market or exchange value.

III. Relation of subjective value to exchange value. A. Subjective value represents a quantitative measure of desire in the individual mind. Expressed in price it is the amount of money a person is willing to pay for a utility. Expressed in labor cost it is the amount of effort he would undergo to secure the utility. Hence, it is a force that works itself out in a market where others bring their goods and services for exchange. Operating on the other side of the market are the producers or sellers, having a supplementary valuation based on the cost of production. This represents the minimum they are willing to accept. There are several buyers with a varying degree of subjective values. There are the poor, and the rich; those having intense wants, and those whose wants are not as intense. Some are willing to pay but a small amount-the measure of their subjective valuation determined by their ability to buy others are not concerned about the price. Among the sellers are producers who had relatively high costs, and producers with lower costs. These several elements operate to set a price at which the goods will be sold. To some of the buyers the price will be high, to others it will be a "bargain"; whereas, among the sellers the price that has been realized will be profitable to the low cost producers and unprofitable to the high cost producers. Thus it may be noted that

IV. Price.

narrow, restricted markets, in which there are few buyers and few sellers will not resemble altogether, wider markets in which trade is more general. The one is frequently established by custom, reputation, or monopoly control, and is not subject to the fluctuations of the other where buyers and sellers are numerous, and the expansion or contraction in trade is reflected by the addition or subtraction of traders.

A. Modern commerce is greatly facilitated by the use of an intermediate utility called money. Were it not for a common standard or measure of value it is doubtful whether civilization could progress very rapidly. Generally speaking, price is the exchange relationship that exists between utilities. This embraces barter economy and commercial economy. However, for modern usage the definition must be modified to include the function of money, thereby reducing the phenomenon to the present system of exchange.

1. Price is the exchange relationship that exists between utilities, expressed in terms of money.

V. Supply and demand.

A. The price of a commodity is arrived at by the interrelation of buyers and sellers. The motive prompting the buyers is the satisfaction of wants; the motive prompting sellers is profit. All persons are buyers and sellers, either of goods or services. They buy goods in one market and sell in another. They are constantly exchanging utilities. The operation of these two classes