Since Ricardo's book appeared another half-century has fled, and, since the Wealth of Nations, more than a century. In that time the demands on the social sciences have grown apace. In Adam Smith's day people explained the existing condition of things by the "original" nature of man and the "original" state of things, and were content. We, on the other hand, like to explain reality by reality. Philosophy itself has become empirical. It allows no argument which is not drawn from well-founded experience. The historical state, positive law, the economy of every-day life, are the objects of research, and, at the same time, the ultimate sources of the instruments of research. If Adam Smith and Ricardo were writing to-day, they would be full of the spirit of to-day, and even if they had not command of the abundance of observation and knowledge which the genius of the one and the acuteness of the other have put at our service, their books would be ever so much more perfect than they could have been in their time.
Certainly they would avoid the mistakes which the human spirit since their day has outgrown.
Their school, however, still pursues the path they trod, hesitating between uncomprehended empiricism and the purest speculation. And it is a great school. It is strange indeed to find that while, as regards questions of politics and of method, whole sides have renounced the English parent school, -- from the socialists to the adherents of the historical school in Germany, -- as regards the old economic problem of value many of the newer economists have remained true to its dogmas. As a man's judgment about value, so, in the last resort, must be his judgment about economics. Value is the essence of things in economics. Its laws are to political economy what the law of gravity is to mechanics.
Every great system of political economy up till now has formulated its own peculiar view on value as the ultimate foundation in theory of its applications to practical life, and no new effort at reform can have laid an adequate foundation for these applications if it cannot support them on a new and more perfect theory of value.
Of course the ruling theories of value have, in many respects, put themselves in antagonism to the theory of Adam Smith and Ricardo, particularly in Germany -- although, indeed, in that country there as of late years been a widening acceptance of the labour theory. The advances which theory has made therefrom can scarcely be overestimated. More particularly may it be noted that Use Value has now been put by the side of Exchange Value, and that, besides the economic life of the individual, we now take cognisance of national and other more general economies.
Here, again, the connection between the theory of value and practical politics is strikingly shown. Hostility to the individualist reading of the conception of value took sides with the struggle against the individualist tendency in economics. It seems, however, as if this branch of the ruling doctrine also has exhausted its force, and that this movement also hangs on the "dead centres." As economic research stands to-day, people, on the whole, are investigating, not the phenomenon of value, but the popular conception or conceptions of value. I have said in another place that, for the sciences which deal with human action in any of its departments, the peculiar danger is that of missing their mark. Passing by the act and its motive, they are too ready to investigate the meanings which men take out of their own actions. Thus we get "popular theories," particularly those which can be read out of the ordinary meaning of the terms in which phenomena they deal with are expressed. This remark seems to me peculiarly applicable to the value theories just spoken of.
That the theory of value needs reforming from the very foundation no one will, I think, deny. The imperfection of the prevailing views is confessed even by their own adherents. But while the great majority of economists are still at a loss where to turn, a new theory has come to the front. At first unnoticed, and then for long but little thought of, worked out by men who, for the most part, did not know of each other but yet agreed where so many had doubted and disagreed, came a new theory based on a new foundation -- an empirical theory on an empirical foundation.
The new theory starts from the old proposition, that the value of goods comes from the Utility of goods, or -- what is the same thing -- from the satisfactions of want which goods assure.
To find the laws of value, then, one must first know the laws of want. Now, in this pursuit, we come upon the fact that the want for the same things -- even in the same person, and in given economic conditions -- is of quite different strengths, varying according to the degree in which the want has already been satisfied through the employment of goods. But since the employment of goods depends upon the amount of goods which one possesses, the quantity of goods obtains a decisive influence on the valuation of wants and so on the source of value itself. This observation is the starting-point of the wider investigation. In itself it is of great importance because it ultimately gives the solution of the paradoxical phenomenon that value falls as goods increase. But it is as important through its effects on economic method, because it guides the economist, from the false objects to which speculative methods and ordinary language point, to the empirical heart of the phenomenon of value.
