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AHistoryofValueTheory
MartinFogartySeniorSophister
Formillennia,literally,scholarsandtheoristshavetriedtodeducehowitemsattainedtheir'value'.Frompre
ChristiantopreKeynesiantimes,variousstrandsofthoughthaveproposed(oftendivergent)explanationsfor
thisphenomenon.InthispaperMartinFogartyanalysesthe'value'propositionsofseveralprominentthinkers,
looselygroupedasPreClassical,ClassicalandNeoClassicaltheorists.
'Hewhocannotdrawon3000yearsofhistoryislivingmerelyfromhandtomouth'Goethe
Thedebateonthetheoryofvalue,whichwasinitiatedinAncientGreeceandwhichbecamedormantduringthe
MiddleAges,laterreemergedatthecloseoftheseventeenthcenturytodominateeconomicthoughtforthenext
200years.EventodayitsprimaryimportanceissuchthatSchumpeterclaimedthat'theproblemofvaluemust
alwaysholdthepivotalposition,asthechieftoolofanalysisinanypuretheorythatworkswitharational
schema.'Similarhypotheticalsolutionsvariedfromtimetotime.Henceforth,itistheintentionofthispaperto
tracethehistoryofvaluetheoriesfromthelate1600'stothelate1800'swhichiscrucialtoanunderstandingof
economicthoughttoday.
Consideringthatthispieceishyperbolicinscope,theanalysisshallbenarroweddowntothefollowing
structure.Firstly,anoverviewtotheessayshallbecreatedbybrieflysketchingAristotelian,Scholasticand
Mercantilisticviewsonvalue.Secondlywillfollowananalysisofthecontributionofpreclassicalistwriterslike
Petty,Cantillon,GalianiandLawtothedebate.Thirdly,thesupplyorientedtheoryofvalueputforwardby
classicaleconomistslikeSmith,Ricardo,MarxandMillshallbeexamined.Fourthly,JevonsandMengers'neo
classicalattempttoreplacetheclassicalistswiththeirdemandorientedtheoryofvaluewillbescrutinised.
Finally,bothWalras'andMarshall'srespectiveresolutiontotheconflictshallbeinvestigatedbyindividually
accommodatingtheinteractionsofbothsupplyanddemandasdeterminantsofvaluewithintheiroverall
economicframework.
EarlyEconomicThought
Thefirstgreatlandmarkinthelongandtortuousintellectualstrugglewiththeriddleofvalue,waslaidbythe
philosophersoftheAthenianAcademyinthe4thcenturyBC.ItwasAristotle(384322)whoheldthatthe
sourceofvaluewasbasedonneed,withoutwhichexchangewouldnottakeplace.Originally,itwashewho
distinguishedbetweenvalueinuseandvalueinexchange'Ofeverythingwhichwepossess,therearetwouses
Forexampleashoeisusedforwearanditisusedforexchange'.Despitethesenovelinsights,thelegacyof
Aristotleisminimizedduetohislackofinvestigationinthisarea.
WhiletheScholasticslateradoptedandaccommodatedtheseviewstoChristianthought,liketheAristotelian
philosophersbeforethem,economicswasnotregardedasanindependentdisciplinebutmerelyasanintegral
partofethicalandmoralphilosophy.Asaresult,thedebateonvaluewascentredandhenceforthretardedbya
normativeapproachwhatvalueshould'justly'be,insteadofwhatactuallyis.Duringthisperiod,utilitywas
widelyheldasthedeterminantofvaluewithonlyaminorityoftheoristssuchasSt.ThomasAquinas(1225
1274)andJohnDunsScotus(12651308)takingnoteofthecostoftheproductionside.However,historians
commonlyexcusetheschoolmenfortheirlackofinsightonvalueas'Earlymedievalsocietywasnotasuitable
environmentforanunrestrictedplayofforcesofsupplyanddemand.'
Thesearchconcerningvaluewascontinuedinthedirectionofutilitybyearlymercantilistsduringthe16thand
thefirsthalfofthe17thcentury.Thesupremacyofthisargumentwashighlightedin1588whenBernardo
DavanzatiunsuccessfullyattemptedtoconstructautilitytheoryofvalueinLectureOnMoney.Itisnot
surprisingthattheyconcentratedonthedeterminantsofthedemandforgoods(utility),sincethemerchants'
profitsdependedontheexploitingofthedifferencebetweenthemarketbuyingandthesellingpricesratherthan
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controllingtheproductionprocess.Formedievaltheorists,valuedependednotonanyintrinsicvaluebuton
utilityandscarcity.Shakespeare'sRichardIIIbattleplea'Ahorse,ahorse,mykingdomforahorse'epitomises
thesubjectiveapproachtovalueofthisera.Yetdespitethefailingsandlimitationofthisonesidedmethod,this
periodisviewedasembryonicwithregardtovaluetheories,andonewhichwouldspawnsubsequenteconomic
developments.
PreClassicalThought
ItwasonlyattheendoftheseventeenthcenturywheneconomistsfollowingaCartesianphilosophyof
deduction,brokeawayfromthedominantmercantilisticutilityviewandlookedforasolutioninthecostof
production.WilliamPetty(16231687)whowasinfluencedbythescientificadvancesofhisera,abandonedthe
subjectivetheoryofvalueandinsteadobjectivelysearchedforthenaturalandintrinsiclawsofrealityofwhich
'naturalvalue'wasoneofthem.AccordingtoPetty,themarketprice('actualprice')ofanycommoditywould
fluctuateperpetuallyarounditsnaturalvalue('naturalprice').Thedeterminantsofthisnaturalvaluewere
deducedasthefactorsofproductionlandandlabour.
Inkeepingwithhismathematicalnature,Pettyattemptedtoreducehistheoryofvaluetoalabouroneonly,by
lookingfora'par'valueforlandintermsoflabourforces.InthepoliticalAnatomyofIreland(1691),hestates
thattheunitofmeasureconsistedof'Theeasiestgottenfoodoftherespectivecountriesoftheworld'average
dailydietnecessarytosustainaworker.AlthoughhesuccessfullyanticipatedtheclassicalMarxiantheoryof
subsistencewagesandsurplus,healsoinheritedtheendlessdifficultiesassociatedwithalabourcosttheoryof
value.
RichardCantillon(168?1734)whowasanotherpractitioneroftheCartesianapproachalsobeganwiththe
labourandlandtheoryofvalue.Although,similartoPettyinthathereducesthedeterminantsofintrinsicvalue
intermsofonefactor,unlikehim,Cantillon,whowasinfluencedbyFrenchagrarianprotectionists,choseland.
Cantillonfindshis'par'valuebyequatingthevalueofalabourerwiththatoftwicetheproduceofthelandhe
consumes,whileallowingforvariationsinthelabourers'skillsandstatus.Oncethis'par'valueiscalculated,the
intrinsicvaluesofanygoodcanbereducedtolandonly.Withhisassumptionsofconstantreturnstoscale,
Cantillonprovidesuswithhislandtheoryofvalue.Healsooriginallyshowsushowresourceswereallocated
betweendifferentmarketswhenthemarketpricedivergesfromhisintrinsic'land'value.Unfortunately,
Cantillon'slandtheory,likePetty'slabourtheory,wasonlyatruedescriptionofvalueinhighlyspecificcases.
Meanwhilethemedievalsubjectiveapproachtovaluewascontinuedbyanotherbranchofpreclassical
economistswhichincludedpeoplelikeNicholasBarbon(16401698)whothoughtthatthenaturalvalueof
goodswassimplyrepresentedbytheirmarketprice.Forhim'thevalueofallwaresarisefromtheirusethings
ofnouse,havenovalue,astheEnglishphraseis,theyaregoodfornothing'.Furthermore,onthecontinent,the
ItalianFerdinandoGaliani(17281787)borrowedtheearlymercantilisticwritingsofDavanzatiandMontanari
onthesubjectivenatureofvalue.Hedevotedhistimetodevelopingatheoryofutilityvalueandevenimplicitly
describedthenotionofdiminishingmarginalutility.Hisdeductionsjust'lackedtheconceptofmarginalutility'
oftheneoclassicaleconomists,JevonsandMenger.
AlthoughGalianivaguelyaccountedforthecostofproductioninhisutilityvaluetheory,hefailedtodevelopit
intoafullyfledgedsupplyanddemandanalysis.ThismonumentalprojectwastakenupbytheScotsmanJohn
Law(16711729).InhisEssayonaLandBank,Lawoutlinedtheoldwater/diamondparadoxofvalue,in
whichcomparatively'useless'diamondsaremorehighlyvaluedthanthemore'useful'waterandreconciledthe
mysterybyusingasupplyanddemandanalysis.Unlikehispredecessorsandhisimmediatesuccessors(until
WalrasandMarshall),Lawusedbothdemandandsupplyfactorsindeterminingthevalueofagoodwhichhasa
useinsociety.Henceforthanychangesinthevalueofgoodswereduetoachangeinthequantitysuppliedor
demanded.
AlthoughJohnLocke(16321704)in,SomeConsiderationsontheConsequencesofLoweringofInterestand
theRaisingtheValueofMoney,haddevelopedatheoryofpricedeterminationearlier,itlackedtheclarity,
precisionandunderstandingofLaw.InMoneyandTradeConsidered,LawcorrectsLocke'sunpolishedvalueby
statingthat'Thepricesofgoodsarenotaccordingtothequantityinproportiontothevent,butinproportionto
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thedemand'.Surprisingly,Law'searlysolutiontovaluetheorygainedlittlefollowingowingprobablytohis
failedfinancialoperationsinFrance.EvenmoresurprisinglyhasbeenthereductionofLaw'scontributionsin
thisareatomerefootnotesinthemainstreameconomichistorybooks.Unfortunately,forthedevelopmentof
valuetheory,thisdualisticanalysiswassuppressedforalmost200years,untilitsresurrectionatthecloseofthe
19thcentury.
ClassicalThought
ThepublicationofAdamSmith's(17231790)WealthofNationsin1776heraldedtheriseoftheclassical
schoolandswungthevaluedebatebacktowardsPetty'sobjectivelabourtheoryofvalue.AccordingtoJ.
Niehans,theclassicalemphasisonthelabourcostwas'astepbackward'comparedtothepreclassicalanalysis.
Indeed,Smithwhoborrowedthewater/diamondparadoxfromLawwithoutacknowledgingit,failedtoresolve
theriddleandtheresultingrelationshipbetweenusevalueanduseexchange,bymistakenlyfocusingontotal
ratherthanmarginalutility.
Hisconfusionisfurthershowninhisexperimentationwiththreevaluetheories.Heprovidedalabourcostanda
labourcommandtheoryofvalueforaprimitivesocietyandfinallyacostofproductiontheoryforanadvanced
one.Inhis'Nationofhunters'analogy,Smith'snotionoflabourcostofvalueisdeterminedbythequantityof
labourwhichismeasuredbywageswhichisalsoextendedtohislabourcommandtheory'Valueofany
commodity.......tothepersonwhoprocessesitandwhomeansnottouseorconsumeithimself,buttoexchange
itforothercommodities,isequaltothequantityoflabourwhichenableshimtopurchaseorcommand'.
However,whenheperceivedthatifwageswerenotthesameproportionatepartoffinalpricesofallgoods,he
thenrealisedthathislabourtheoryofvalueforanadvancedeconomywouldnothold.Instead,itappearsthathe
optedforacostofproductionvaluetheoryconsistingofland,labourandcapitalvaluetheory.
DavidRicardo(17721823)whoadoptedSmith'sabandonedlabourhypothesistriedtoavoidhiscircular
reasoningofmeasuringlabourwithwages.Insteadhefeltthatvaluedependeduponthequantityoflabour
necessaryforproductionwhichwouldbecalculatedbytime.MorepreciseandclearerthanSmith,Ricardo
statedthat'Possessingutility,commoditiesderivetheirexchangeablevaluefromtwosources:fromtheir
scarcityandfromthequantityoflabourrequiredtoobtainthem.'Althoughheacknowledgedthatvaluecouldbe
determinedbyscarcityalone(e.g.raredocuments),hefeltthatthesewereinsignificantcases.Hisvaluetheory
thereforeonlyappliestofreelyreproduciblegoodsincompetitivemarkets.
DiscardingSmith'slabourcommandandcostofproductiontheoriesofvalue,Ricardoattemptedtoprovehis
labourtheoryofvalueagainstitsinherentdifficulties.Tobolsterhishypothesis,heusedtimeasameasureof
labourquantity,accommodatedthedifferentskillsoflabourbycomparingwagestoproductivityandalso
assumedthatcapitalinfluenceonvaluewasneutralisedsinceitwasmerelystoredupinlabour.Healsoaddeda
theoryoflandrent,inwhichheclaimedthatrentispricedetermined(notpricedetermining)andprovided
reasonswhyprofitshadvaryingeffectsonvalue(differentcapitalintensiveindustries).Despitetheseattempts,
Ricardointheendwasforcedtoacceptthattherewereotherforcesaffectingvaluewhichpreventedapure
theoreticallabourtheoryofvalue.Neverthelesshestillbelievedthatitwasthequantityoflabourtoproduce
goodsthatwasthecrucialelementinhiscalculation.
KarlMarx's(18181883)approachtovaluewasessentiallyRicardo'slabourtheoryofvalue.Accordingto
Marx,thevaluesof'Allcommoditiesareonlydefinitemassesofcongealedlabourtime.'Asanadvocateof
Ricardo'soriginaltheory,healsofollowedandbuiltonhissolutionstothelabourvaluetheory'sinherent
deficiencies.AlthoughMarxusedtheclassicalconceptsofvalueheappliedhisvastphilosophicaland
sociologicalknowledgetoreachconclusionsinCapitalthatdivergedradicallyfromthem.Inhislabourtheory,
hedevelopedhisoriginalrateofexploitation(s'=s/v)anditsresultingcritiqueofcapitalism'Derrierele
phenomeneduprofitsecachelarealitedosurtravail.'LikeAristotle,exchangeofvalueormoreappropriately
exchangeof'just'valuehadforMarx,moralandjudicialimplicationsaswellaseconomicones.
DespiteJohnStuartMill's(18061873)claimtothecontinuityofRicardo'slabourtheoryofvalue,hisworkin
retrospectwasclosertoMarshallandtotheapproachingneoclassicalschool.Millgaveuptheclassical
Ricardiansearchforabsolutevalueforhisbeliefthat'Thevaluewhichacommoditywillbringinanymarketis
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nootherthanthevaluewhich,inthatmarket,givesademandjustsufficienttocarryofftheexistingsupply.'
Althoughlackingthetoolsofthesupplyanddemandschedules,Millclearlyrecognisedtheeffectsofdemand
onthesupplyindifferenttimeperiodsofavaluetheory.Althoughheacquiredamoreadvancedcomprehension
onthesubjectofvaluethanhiscontemporarytheoristsdid,unfortunatelyitledhimtoprematurelyand
embarrassinglystatein1848that'Happily,thereisnothinginthelawsofvaluewhichremainsforthepresentor
anyfuturewritertoclearupthetheoryofthesubjectiscomplete.'
NeoClassicalThought
AlthoughtheoriginsofmodernutilitytheorycanbetracedbacktoMountifortLongfieldin1834atTrinity
CollegeDublinitwasWilliamJevons(18351882)withhisTheoryofPoliticalEconomyandCarlMenger's
(18401921)PrinciplesofEconomicswhobothdevelopedthenewtoolofmarginalanalysisin1871asameans
ofunderstandingvalue.Fortherisingneoclassicalschoolinthe1870s,theclassicalcostofproductiontheory
ofvalueseriouslylackedgeneralityespeciallyindeterminingvalueofgoodswithinelasticsupplycurves.
Instead,JevonsandMengerseparatelyformulatedtheirmarginalutilitytheory,inwhichitwascalculatedthat
'Valuedependsentirelyonutility.'LikeDavanzatiinthe16thcentury,theyfeltthatnomatterwhatcostswere
incurredinproducingagood,whenitarrivedonamarketitsvaluewoulddependsolelyontheutilitythebuyer
expectstoreceive.
Mengerusedhismarginalutilitytabletoexplaintheoldwater/diamondparadox.Thevalueofdiamondswas
greaterthanthevalueofwaterbecauseitwasmarginalutilityandnottotalutilitythatdeterminesconsumer
choiceandhencevalue.Fromthistheyalsoarguedthatvaluecomesfromthefutureandnotpastproduction.
Henceforth,thefactorsofproductionarenotpricedeterminingbutpricedetermined,asJevonsclearlystates
'Costofproductiondeterminessupply,supplydeterminesfinaldegreeofutility,finaldegreeofutilitydetermines
value.'JevonsandMengerliketheirpredecessorsbefore,erredintryingtofindasimpleoneway,causeand
effectrelationshipbetweenvalue,andintheircaseutility.IttooktheintellectofLeonWalrasandAlfred
Marshalltoseethatboththecostofproduction(supply)andutility(demand)wereinterdependentandmutually
determinantofeachother'svalues.
LeonWalras(18341910)alsoindependentlydiscoveredtheconceptofmarginalutilityalthoughhewent
beyondJevonsandMengersapplicationofittomerelyautilityvaluetheory.Hedidnotseetheirsimpleand
directcausallinkfromsubjectiveutilitytovalue.Instead,hesawacomplexinterrelatedandinteractive
economicsystem.InhisElementsofPureEconomics,hecreatedhistheoreticalmodelofGeneralEquilibrium
asameansofintegratingboththeeffectsofthedemandandsupplysideforcesinthewholeeconomy.This
mathematicalmodelofsimultaneousequationsconcludedthat'Ingeneralequilibriumeverythingdependsupon
everythingelse'.
Meanwhile,AlfredMarshall(18421924)wasalsoamalgamatingthebestofclassicalanalysiswiththenew
toolsofthemarginalistsinordertoexplainvalueintermsofsupplyanddemand.Heacknowledgedthatthe
studyofanyeconomicconcept,likevalue,ishinderedbytheinterrelativenessoftheeconomyandvaryingtime
effects.Asaresult,MarshallwhodifferedfromWalras'generalschema,insteadusedapartialequilibrium
framework,inwhichmostvariablesarekeptconstant,inordertodevelophisanalysisonthetheoryofvalue.
Marshalldividedhisstudyintofourtimeperiods.Firstly,inthemarketperiodwheretimeissoshortthatsupply
isfixed,valueofagoodisdeterminedbyitsdemand.Secondly,intheshortrunperiod,firmscanchangetheir
productionbutcannotvarytheirplantsize,whichallowssupplyaswellasdemandtohaveaneffectonvalue.In
thelongrunperiodswhereplantsizecanbealtered,thelargeeffectsofthesupplysideonvaluedependson
whethertheindustryofaparticulargoodhasconstant,increasingordecreasingcoststoscale.Finally,inthe
secularperiodinwhichtechnologyandpopulationareallowedtovary,thesupplysideconditionsdominate
value.
ForMarshallacorrectunderstandingoftheinfluenceoftimeandinterdependenceofeconomicvariableswould
resolvethecontroversyoverwhetheritwasthecostofproductionorutilitywhichdeterminesvalue.Ingeneral,
howeverhefeltthatitwasfruitlesstoarguewhetherdemandorsupplydeterminesvalueas'wemightas
reasonablydisputewhetheritistheupperorunderbladeofapairofscissorsthatcutsapieceofpaper,as
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whethervalueisgovernedbyutilityorcostsofproduction.'Anyattempttofindonesinglecauseofvalueas
othershadunsuccessfullyattemptedinthepast,weredoomedtofailure.
Conclusion
Fromitsoriginsinmedievaltimes,thehistoricalevolutionofthevaluedebatebecamelockedintoacenturies
olddialecticalconflictbetweentheobjectiveandsubjectiveapproaches.Thisstudyhastracedthewavesof
valuetheorieswhichoscillatedbackandforthtowardseachapproach,untilWalrasandMarshallaccommodated
bothrivalingapproachesofvaluewithintheirseparateGeneralandPartialEquilibriumframeworks.YetJohn
LawinhisEssayontheLandBank,hadprovidedthissupplyanddemandapproachalmosttwocenturiesbefore
whichhasremainedunacknowledgedandignoredbymostconventionaleconomichistorybooks.Thisepisode
showstheimportanceandvalueofwritingsfromearliereconomictheoristswhomaypossessinsightsinto
presentdayandfutureproblems.Armedwiththeknowledgeofeconomicthoughtfromvariousepochs,current
economistswhoareinevitablychainedtotheircontemporaryconditioncanhenceforthavoidthetheoretical'cul
desacs'oftheirancestors.OnelamentsthefactthatifclassicaleconomistshadheldGoeth'sappreciation,and
closeinvestigationofpasttheorists,economicsmightnothavebeencondemnedtothefruitlessonedimensional
(supplyoriented)approachofvaluetheory,untiltheendofthe19thcentury.Inthelightofthisfailinginthe
historyofvaluetheory,oneshouldrememberthebiblicalwarning'Thosewhoforgethistoryarecondemnedto
reliveit'.
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