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now determined by boards representative of employers and employed. The building trade has its National Wages and Conditions Council; the iron and steel industry has fourteen Conciliation, Arbitration, and Wages Boards, and there are now few important industries in which the principle of Joint Industrial Councils, on the lines suggested by the Whitley Committee, has not been accepted. Down to the end of 1920 seventy-three such councils had been established, covering, together with the interim industrial reconstruction committees, 3,500,000 workpeople.

Courts

The State, while encouraging all these efforts for securing Industrial industrial harmony, takes no direct part, with the excep- Act, 1919. tions already noted, either in operating the machinery or enforcing the awards. Where, as in England, employers and employed are alike, for the most part, well organized and keenly alert, it is better so; but the abnormal conditions induced by the war and by its cessation seemed to many to justify such a measure of interference as was embodied in the Industrial Courts Act, 1919. This Act empowered the Ministry of Labour to employ three methods for the settlement of industrial disputes: (1) conciliation; (2) arbitration; (3) investigation, or court of inquiry. It further swept away all the elements of compulsion in arbitration which had been necessitated by war conditions, and set up a permanent Court of thirteen persons, engaged 'solely and exclusively in industrial arbitration'. Of the 914 cases of industrial disputes settled, during the year 1920, by the several methods entrusted to the Ministry of Labour, 628 were settled by arbitration and 286 by conciliation. Of the former, 540 were due to awards of the Industrial Court, 75 of single arbitrators, and 15 of ad hoc boards of arbitration.1 Dr. Macnamara, a recent Minister of Labour, would seem, therefore, to have some ground for the optimistic view that there is emerging 'a change in the method of settling wage problems that is going to bear the happiest and most fruitful results in the future'.

That his prediction may be justified to the hilt will be

1 Gee, Industrial Year Book, p. 688.

the sincere hope of all persons of goodwill. But the practical adjustment of wages disputes is one problem; the theoretical determination of the laws which define the limits within which such adjustments are possible is another. The distinction should be observed both by moralists and economists. It is vain either for the State or for philanthropic individuals to attempt that which is economically impossible; but economists on their part will be wise, in view of the development of economic thought on the subject treated in this chapter, to beware of dogmatism. If, however, as I incline to believe, the theory propounded by Walker and Jevons is sound, optimism is justified by science. The increased productivity of labour will, apart from temporary fluctuations, be reflected in the upward tendency of wages, and that without detriment to the interests of those who provide the other requisites of production. Whether enhanced wages will command an increase in the necessaries and comforts of life will depend, however, on considerations which remain to be investigated. Of these determinants the most important is the value of the commodities which labour helps to supply, and which, in return, it demands. To the problem of exchange or value we must, therefore, proceed.

BOOK IV. THE PROBLEM OF EXCHANGE

CHAPTER XII

VALUE AND PRICE

'Value is the life-giving power of anything; cost the quantity of labour required to produce it; price the quantity of labour which its possessor will take in exchange for it.'- RUSKIN, Munera Pulveris.

'Value only indicates the relation or ratio of quantities which pass in an act of exchange. . . . Every free act of exchange must imply increase of utility.'-STANLEY JEVONS, Principles, p. 51.

'Of everything which we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper and the other is the improper or secondary use of it. For example, a shoe is used for wear, and is used for exchange.'ARISTOTLE, Politics, I. ix. 3.

'The exchange value of every offered commodity depends... on the education of buyers, and on all the moral elements by which their disposition to buy this or that is formed.'-RUSKIN, Unto This Last, p. 113.

T

the basis

of Econo

HE basis of Economics, it has been truly said, is 'Want' human want. Man desires something and in order to get it will, if necessary, give something: it may be mics. his own labour, or goods of which he has become in one way or another possessed. So fundamental is this process that some have actually proposed to abandon the term Economics-the science and art of household management, and substitute for it the term Catallactics-the Science of Exchange. To do so would, it is submitted, be to perpetrate an error as gratuitous as it is grave. Yet the preceding chapters should have made it clear that implicit in the argument with which they were concerned is a problem not hitherto discussed-the problem of relative values or exchange. Acutely conscious of this difficulty some economists have preferred to treat the problem of value

Value and utility.

Ruskin and

'Values'.

before discussing that of distribution, or even that of production. Desire does logically precede production; it is to satisfy a want that man works. Yet the traditional order of treatment would seem to be justified. Production is stimulated by wants, but the satisfaction of wants does not necessarily involve exchange. The production or acquisition of commodities is the fundamental fact in Economics. Under the modern industrial system the distribution of the product, or its equivalent in money, follows hard upon production, but only after the commodity has been produced or acquired does the desire to exchange some portion of it arise.

Nevertheless, the problems to which the exchange or circulation of commodities gives rise are so important, alike from the standpoint of scientific economics and from that of social well-being, that they demand close analysis.

The older school of economists were wont to distinguish between two kinds of value: value in use, and value in exchange. Evidently there is a wide distinction. Some of the most satisfying things are free to all without payment and without price-for example the air we breathe, or beautiful natural scenery. Many things may yield to their possessor satisfaction which is out of all proportion to the satisfaction which they would yield to any one else. A knife given to me by a dead comrade may possess such value to me that I would not, as the phrase goes, exchange it for its weight in gold. But these are sentimental values with which the economist, as such, is in no way concerned. For them it is better to employ the term utility.

Ruskin, at war with orthodox economics, contends that, owing to the false teaching of the economists, the world at large has got a perverted or inverted sense of values. 'Value', according to his definition, is 'the life-giving power of anything'. As a definition of value, however, this is misleadingly wide; as a definition of utility unnecessarily narrow. The old gun-metal watch given to me on my tenth birthday by my father may be 'valuable' to me beyond the price of rubies; yet its life-giving power is

negligible or nil, though its utility is high. Ruskin's criticism is, therefore, not so much unsound as irrelevant. The economist, without at all depreciating the 'value' to Mr. Ruskin, and maybe to many others of the things which he prizes, is clearly entitled to define his own terms; and the term value will, therefore, be used in this treatise, in accordance with the best modern usage, as 'the power which an article confers upon its possessor, irrespective of legal authority or personal sentiments of commanding, in exchange for itself, the labour or the products of the labour, of others. Elliptically we may define it as power-inexchange.

Exchange is clearly a primitive instinct in man, for the schoolboy, who reproduces primitive instincts with singular fidelity, invariably wants to 'swop' his own possessions for those of his mates. Immediately, however, there arises the question: On what terms? How many marbles will he give in exchange for one apple? Why not several apples for one marble? If B demands for his apple more marbles than A thinks it worth', the exchange will not take place. But what considerations decide A and B in determining the relative' worth' of apples and marbles?

This raises one of the most important and one of the most difficult problems in Economic Science. Why should so much of commodity 'A' exchange for so much of commodity 'B'. What, in fine, determines value?

of Value.

To this question the answers suggested by different Theories writers vary almost indefinitely: but most of the answers may be classified under four main heads: (i) that value is absolute or intrinsic; (ii) that it depends upon the amount or quality of labour expended upon the commodities respectively given and received in exchange; (iii) that it is measured by cost of production-in which, of course, labour is an important ingredient; and (iv) that it depends upon the final or marginal utility possessed by the commodities which are the subject of exchange for those who exchange them.

1 Walker, Political Economy, p. 81.

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