Value In Exchange and Labor

Epigraphs to Book II

Definitions are the basis of systematic reasoning.

-- Aristotle

The mixture of those things by speech which are by nature divided is the mother of all error.

-- Hooker

Bacon made us sensible of the emptiness of the Aristotelian philosophy; Smith, in like manner, caused us to perceive the fallaciousness of all the previous systems of political economy; but the latter no more raised the superstructure of this science, than the former created logic.... We are, however, not yet in possession of an established text-book on the science of political economy, in which the fruits of an enlarged and accurate observation are referred to general principles that can be admitted by every reflecting mind; a work in which these results are so complete and well arranged as to afford to each other mutual support, and that many everywhere and at all times be studied with advantage.

-- J.B. Say, 1803

We may cite as examples of such inchoate but yet incomplete discoveries the great Wealth of Nations by Adam Smith -- a work which still stands out, and will ever stand out, as that of a pioneer, and the only book on political economy which displays its genius to every kind of intelligent reader. But among the specialists and the schools, this work of genius which swayed all Europe in its day, is laid upon the shelf as an antiquated affair, superseded by the smaller and duller men who have pulled his system to pieces and are offering us the fragments as a science most of whose first principles are still under dispute.

-- Professor (Greek) J.P. Mahaffy, "The Present Position of Egyptology," "Nineteenth Century," August, 1894.

Henry George
The Science of Political Economy

Book II, The Nature of Wealth

Chapter XII
Value In Exchange Really Related To Labor

Showing That Value Does Not Come From Exchangeability, But Exchangeability From Value, Which Is an Expression of the Saving of Labor Involved in Possession

Root of the assumption that the sum of values cannot increase or diminish -- The fundamental idea of proportion -- We cannot really think of value in this way -- The confusion that makes us imagine that we do -- The tacit assumption and reluctance to examine that bolster the current notion -- Imaginative experiment shows that value is related to labor -- Common facts that prove this -- Current assumption a fallacy of undistributed middle -- Various senses of "labor" -- Exertion positive and exertion negative -- Re-statement of the proposition as to value -- Of desire and its measurement -- Causal relationship of value and exchangeability -- Imaginative experiment showing that value may exist where exchange is impossible -- Value an expression of exertion avoided 01

From the assumption that economic value is not merely what we have found it convenient to call value in exchange, but in reality is exchangeability -- a quality of power by which the owner of a valuable thing may, by surrendering his ownership to some one else, obtain from him by similar transfer the ownership of another valuable thing -- value is thought of as proceeding from value, and existing in a circle of which each part must have a relation of proportion or ratio to all other parts. It is this that gives axiomatic semblance to the proposition that while there may be increase or decrease in some values, this must always involve reversely decrease or increase in some other values, and hence that increase or decrease of all values, or of the sum of values, is impossible. If value be really a relation of proportion, this indeed is self-evident.


But is value really a relation of proportion or ratio? What is the fundamental idea of proportion or ratio? Is it not that of the relation of the parts of a whole to that whole? When we use such a phrase as one-eighth we mean the relation of a part represented as one of eight equal partitions to a whole represented by one. When we use such a phrase as 10 per cent. we mean a relation of a part represented by ten of 100 equal partitions to a whole represented by 100. So such propositions as 1/8 + 1/8 = 1/4; or .153 + .147 = .3; or 4 : 8; 6 : 12; or 5% + 4% = 9%, depend for their validity upon the relations of the proportions spoken of to a whole or totality, which is the sum of all possible proportions. That there cannot be increase or decrease in all proportions follows from the axiom that a whole is equal to the sum of its parts.


But if value be a relation of proportion or ratio, what is the whole which it implies? How shall we express this totality? Or by what calculus shall we fix the relations of its parts, the numberless and constantly changing articles of value? Might we not as well try to think of or express the relation of each particular hair of our heads to the sum of the hairs in the heads of all humanity?


The truth is that we cannot think of value in this way, nor do we really try to, and the more ingenious and elaborate the attempts that have been made to give something like solid support and logical coherency to the prevailing theory that value is really nothing more than exchangeability only the more clearly show its utter inadequacy. Thus the latest and most elaborate of these attempts, that of the Austrian or psychological school, which has been of recent years so generally accepted in the universities and colleges of the United States and England, and which derives value from what it calls "marginal utilities," is an attempt to emulate in economic reasoning the stories told of East Indian jugglers, who throwing a ball of thread into the air, pull up by it a stouter thread, then a rope, and finally a ladder, on which they ascend until out of sight, and then -- come down again!


For whoever will work his way through the perplexities of their reasoning will find that the adherents of this school derive the value of pig-iron, for instance, or even of iron ore in the vein, from the willingness of consumers to pay for higher and more elaborate products into the production of which iron enters, deriving that willingness from a mental estimate on the part of consumers of the utility of these products to them. Thus, as coolly as such stories of Indian jugglers ignore the law of gravitation, do they ignore that law which to political economy is what gravitation is to physics, the law that men seek to satisfy their desires with the least exertion -- a law from which proceeds the universal fact that as a matter of exchange no one will pay more for anything than he is obliged to.


These elaborate attempts to link value on utility, and utility on individual will or perception, in order to find a support for the idea of value, only show that there is no resting -- place in the supposition that value proceeds from exchangeability, and can only be relative to other values. The plausibility of this supposition comes from confusion in the use of a simple word.


Of all words in common use in the English tongue the word "thing" is the widest. It includes whatever may be an object of thought -- an atom or a universe; a fact or a fancy; what comes into consciousness through our senses and what constitutes the peopling and furniture of our dreams; that which analysis cannot further resolve and that which has no other coherence than a verbal habit or mistake. But this comprehensiveness of the word we are sometimes apt to forget, or not fully to keep in mind, and to use such phrases as "all things" or "anything" when we really have in mind only things of one particular kind.


When we wish to test the proposition that value is a relation of exchangeability between valuable things, we usually proceed to make a mental experiment with some few valuable things, for it would be impossible to take them all, and tiresome to attempt it. For the things selected for this experiment we are apt, as examination and observation will show, and as is evident in the writings of economists, to take such things as are most widely known and commonly exchanged, turning the particular into the general when required, by the formula, expressed or implied, "and other valuable things." Thus, for instance, we think of money, or as the most widely known representative of money, a piece of gold, and say to ourselves: "Here is a piece of gold. Why is it valuable? It is that it can be exchanged for wheat, hardware, cotton goods and other valuable things. If it could not be so exchanged it would have no value, and the measure of its value is the value of the wheat, hardware, cotton goods and other valuable things for which it is exchangeable. If the relation of exchangeability alters so that for the same piece of gold one can obtain more wheat, hardware, cotton goods and other valuable things, the value of the gold rises, and that of the other valuable things falls. If the relation of exchangeability alters so that the piece of gold will exchange for less of these things, the value of the gold falls and that of the other things rises." Then, we reverse the standpoint of examination, taking in turn wheat, hardware or cotton goods, as representative of a particular instance of value, and gold, as representing other valuable things; and seeing that their value depends upon their exchangeable relation in the same way as that of gold in our first experiment, we conclude that value is indeed a relation of exchangeability, and that that is the beginning and end of it.


Thus, that value depends on value, and springs from value and can only be measured by value -- that is, by the selection of some particular article having value, from which relatively and empirically the value of other articles may be measured -- seems to us perfectly clear, and we accept the doctrine that there can be no general increase or decrease in values, as if it were but another statement of the axiom that a whole is equal to the sum of its parts, and consequently that all those parts can never be increased or diminished at the same time. The habitual use of money as a common measure of value is apt to prevent any realization of the fact that we are reasoning in a circle.


I think I have correctly described the line of reasoning which makes the derivation of value from exchangeability so plausible. I do not of course mean to say that labor is never taken into account. It is often expressly mentioned and always implied to be one of the valuable things in the category of valuable or exchangeable things. But the weight of the examination is, I think, always thrown upon such things as I have named -- things resulting from the exertion of labor; while labor itself is passed over lightly as one of the "other valuable things," and attention never rests upon it.


And, furthermore, I am inclined to think that there always lurks in this examination -- which is in reality an examination of the relative value of products of labor -- the tacit assumption that the quantity of the valuable things (thought of as products of labor) existing at the specific moment presumed in the examination is a fixed quantity, so that there can be no exchange between those possessed of valuable things (i.e., products of labor) and those possessed of no valuable things (i.e., no products of labor). This, I think, is the case even where there is an assumption of giving the value of labor a place in the category of considered values, for what the reputed economists since Smith have called the "value of labor" is in reality the value of the products of labor paid to laborers in wages, which has been usually assumed to come from a (at any given moment) fixed quantity, capital. And on another side, any rigorous examinination of the nature of value has been prevented by the universal disposition of economists, not really questioned until Progress and Poverty was published, to slur over the nature of the value of land, and practically to assume, what was indeed the common assumption, that it was of the same origin as the value attaching to such things as gold, wheat, hardware, cotton goods or similar products of labor.


That it takes two to make an exchange, as certainly as "it takes two to make a quarrel," is clear. But that value in one person's hands does not, as is impliedly or expressly taught in economic works, necessarily involve the existence of value in the hands of others, may be seen by another imaginative experiment:


Let us imagine some remote and as yet undiscovered island, where men still live as in the Biblical account our first parents lived before the Fall, taking their food from never -- failing trees, quenching their thirst from ample and convenient springs, sleeping in the balmy air, and without thought of clothing, even of aprons of fig-leaves. The power of exerting labor they would of course possess, as Adam and Eve possessed it from the first; but of that exertion itself and of the toil it involves, we may imagine them as ignorant as Adam and Eve in their first estate are supposed to have been. On that island there would clearly be no value. Yet if valuable articles were brought there, would they necessarily lose their value? Could they be parted with only by gift, and would there be no possibility of exchanging them?


Imagine, now, a ship containing such merchandise as would tempt the fancy of a primitive people to come in sight of the island and cast anchor. Would exchange between the ship's people and the islanders be impossible because of the lack on the part of the islanders of anything having value? By no means. If nothing else would suffice, the offer of bright cloths and looking-glasses would surely tempt the Eves, if it did not the Adams; and though never exerted before, the islanders would exert their power of labor to fill the ship with fruit or nuts or shells, or whatever else of the natural products of the island their exertion could procure, or to pull her on the beach so that she might be calked, or to fill and roll her water-casks. There was nothing of value in the island before the ship came. Yet the exchanges that would thus take place would be the giving of value in return for value; for on the part of the islanders value that did not exist before would be brought into existence by the conversion of their labor power through exertion into wealth or services. There would thus be what so many of our economists say is impossible, a general increase of values. Even if we suppose the islanders to relapse into their former easy way of living when their visitors sailed off, there would still remain on the island, where there was no value before, some things having value, and this value would attach to these things until they were destroyed or so long as such desire as would prompt any of the islanders to render labor in exchange for them remained. On the other side, the value that the ship would carry off would certainly be not less than the value she contained on arrival, and in all probability would be much more.


Now the way thus illustrated is the way in which the value that attaches to the greater number of valuable things originates. I do not mean merely to say that this was the way of the first appearance of value among men, but that it is the way in which the value that attaches to what are properly articles of wealth now originates. I do not mean merely to say, as Adam Smith said, that it was "by labor that all the wealth of the world was originally purchased." I mean to say that it is by labor that it is now purchased.


Nothing, indeed, can be clearer than this. Even in the richest of civilized countries, the ultimate purchasers of the greater mass of valuable things, are not those who have in store valuable things that they can give in exchange. The great body of the people in any civilized society consist of what we call the working-class, who live almost literally from hand to mouth, and who have in their possession at any one time little, or practically nothing, of value. Yet they are the purchasers of the great body of articles of value. Where does the value which they thus exchange for value which is already in concrete form come from? Does it not come from the conversion of their labor power, through exertion, into value? Is not the exchange which is constantly going on, the exchange of the potentiality of labor, or raw labor power for labor power that by that transfer has already been converted into value? In common phrase, they exchange their labor for commodities.


How does this fact -- the fact that the great body of valuable things pass into the hands of those who have no value to give for them except as they make valuable what before had no value, and are consumed, by being eaten, drunk, burned up or worn out, by them -- consort with the theory that value is a relation of exchangeability between valuable things, and that there can be no general increase or decrease of values? Does it not utterly invalidate the theory? Must there not be a constant increase of value to make up for the constant destruction of value, and in spite of it, to permit such growth of aggregate values as we see going on in progressive countries? And in times when the ability to convert labor into values is checked by what we call "want of employment" and great numbers of workers are idle, is there not a clear lessening of the sum of values, a general decrease in values, as compared with the times when there is what we call "abundance of employment," and the great majority of them are at work, turning labor power through exertion into value?


The truth is that current theories of value have resulted from the efforts of intelligent men to mold into a semblance of coherency teachings built upon fundamental incoherencies. Let me point out what gives them plausibility, the fallacy involved in the inclusion of labor as an "other valuable thing," while the real stress of the examination is laid upon the relative values of such things as gold, wheat, hardware and cotton goods -- things that are products of labor. It is a fallacy which our habit of speaking of the buying and selling and exchanging of labor, and our habit of thinking of the value of labor as we think of the value of gold or wheat or hardware or cotton goods, conceals from attention, but which is in reality a fallacy of the kind named by the old logicians "the fallacy of undistributed middle."


Here we come to another instance of the care needed in political economy in the use of words. By the word "labor" we sometimes mean the power of laboring -- as when we speak of the exertion of labor, or of labor being employed, or of labor being idle or wasting. Sometimes we mean the act of laboring -- as when we speak of the irksomeness or toil of labor, or of the results or products of labor. Sometimes we mean the results of laboring -- as is the case in most or all of the instances in which we speak of buying, selling or exchanging labor -- the real thing bought, sold or exchanged being the results of laboring, that is to say, wealth or services. And sometimes, again, we mean the persons who do labor or the persons who have the power and the willingness to labor.


It is clear that labor in the first-mentioned sense of the word, that of the power or ability of laboring, is not an exchangeable thing and cannot come into any category of values. It resides in the individual body and cannot be taken out of that body and transferred to another, any more than can sight or hearing, or wisdom or courage or skill. I may avail myself of another's skill, courage or wisdom, of his hearing or of his sight, by getting him to exert them for my benefit. And so I may avail myself of another's ability to labor by getting him to do me services, or to produce things which I am to own. But the power of laboring he cannot give, nor I receive. While there are results of its expenditure that may be transferred, the power itself is intransferable, and therefore unexchangeable.


Now the failure to keep in mind these different senses of the word labor, the failure to distribute the term, as the logicians would say, operates to shut off inquiry as to whether the cause of value is not to be found in labor. For since in some senses labor is thought of as having value in exchange, the term, without distinction as to its various senses, is apt to pass in our minds into the category of exchangeable things, with gold or wheat or hardware or cotton goods, or "other products of labor;" and thus the question is unconsciously begged.


But, when we realize that, in whatever other sense of the word we may say that labor is a valuable thing, we must carefully exclude the sense of labor power, or ability to labor, a confusion is cleared up which has made the search for the true nature of what we call value in exchange a fruitless "swinging round a circle." For since value does not exist in labor power, but does appear where that power takes tangible form through exertion, the fundamental relation of value must be a relation to exertion.


But a relation to exertion in what sense? A relation to exertion positively, or a relation to exertion negatively?


I exchange gold for silver, let us say. In this I give something positively and receive something positively. I get rid of gold and acquire silver. The other party to the exchange gets rid of silver and acquires gold. But when I exchange gold for exertion or toil, do I get rid of gold and acquire toil, and does he get rid of toil and acquire gold? Clearly not. No one wants exertion or toil; all of us want to get rid of it. It is not exertion in a positive sense which is the object of exchange, but exertion in a negative sense; not exertion given or imposed, but exertion avoided or saved; or, to use the algebraic form, the relation of the quality of value is not to plus -- exertion, but to minus -- exertion. Value, in short, is equivalent to the saving of exertion or toil, and the value of anything is the amount of toil which the possession of that thing will save the possessor, or enable him, to use Adam Smith's phrase, "to impose upon other people," through exchange. Thus, it is not exchangeability that gives value; but value that gives exchangeability. For since it is only by exertion that human desires can be satisfied (those cravings or impulses that can be satisfied without exertion not rising to the point of desire) whatever will dispense its owner from the toil and trouble of exertion in the satisfaction of desire in that acquires exchangeability.


Let me put the proposition in another form:


The current theory is that it is when and because a thing becomes exchangeable that it becomes valuable. My contention is that the truth is just the reverse of this, and it is when and because a thing becomes valuable that it becomes exchangeable.


It is not the toil and trouble which a thing has cost that gives it value. It may have cost much and yet be worth nothing. It may have cost nothing and yet be worth much. It is the toil and trouble that others are now willing, directly or indirectly, to relieve the owner of, in exchange for the thing, by giving him the advantage of the results of exertion, while dispensing him of the toil and trouble that are the necessary accompaniments of exertion. Whether I have obtained a diamond, for instance, by years of hard toil or by merely stooping to pick it up -- a movement which can hardly be called an exertion, since it is in itself but a gratification of curiosity which does not involve irksomeness -- has nothing whatever to do with its value. That depends upon the amount of toil and trouble that others will undergo for my benefit in exchange for it; or what amounts to the same thing, which they will dispense me of in the satisfaction of my desire, by giving me things in exchange, for which others will undergo toil and trouble.


That which may be had without the toil and trouble of exertion has no value. That for which the desire to possess is not strong enough to prompt to the toil and trouble of exertion has likewise no value. But everything having value, has that value only when, where and to the degree that its possession will, without exertion on the part of its possessor, satisfy through exchange a desire that prompts to exertion.


In other words, the value of a thing is the amount of laboring or work that its possession will save to the possessor.


Desire itself, which is the prompter to exertion, cannot be measured, as the most recent school of pseudo -- economists attempt vainly to measure it. It is a quality or affection of the will or individual Ego, which, being in its nature subjective, can have no objective measurement until it passes through action into the field of objective existence. Even in the individual it is not a fixed quality or affection, but resembles more the illumination produced by a movable search -- light, which, as it brings one object in the landscape into focus, throws another into shade. All that we can say of it is that it has a certain scale or order of appearance, so that when the more primitive desires that we call "wants" or "needs" slumber in satisfaction, other desires appear; or as they are enkindled again, these others disappear.


But desire impels to action, as what we call energy or force impels to movement. And while we can no more measure desire in itself than we can measure force in itself, we can measure it in the same way that we measure energy or force -- by the resistance it will overcome. Now, while the resistance to movement is inertia -- probably resolvable into gravitation and chemical affinities; so the resistance to the gratification of desire is the toil and trouble of exertion. It is this that is expressed by and measured in values.


To repeat: Since the desire for material satisfactions is universal among men, and the only way in which these satisfactions can be obtained from Nature is by exertion, which men always seek to avoid, whatever will satisfy desire without calling for exertion is for that reason desired of itself, not for its own uses, but because it affords the means of gratifying other desires, and thus becomes exchangeable whenever the existence of others than its owner makes exchange possible. Normally, at least, value and exchangeability are thus always associated and seemingly identical. But in the causal relationship, value comes first. That is to say, it is not true, as economists since the time of Adam Smith have erroneously taught, that a thing is valuable because it is exchangeable. On the contrary, it is exchangeable because it is valuable. Exchange is in fact the mutual transfer of value. Of all other qualities of things, value is the only quality of which exchange takes note.


A little use of imaginative experiment will make it clear that what we call value in exchange is in reality not dependent on exchangeability, but may exist when exchange is impossible.


A Robinson Crusoe during his period of isolation could make no exchanges, for there was no one with whom he could exchange, and it was only the hope of being sometime discovered and relieved that could have prompted him to take his pieces of eight ashore. Yet, as this hope faded it is not true that his estimate of the different things he possessed would be entirely based on their utility to him, and that he would have no sense of the relation which we call value in exchange. Even if the hope of being sometime relieved had entirely disappeared from his thought, something essentially the same as value in exchange would be brought out in his mind by any question of getting or saving one of two or more things. Of several things to him equally useful, which he might find in the wreck of his ship or on the shore line under conditions which would enable him to secure but one; or of several equally useful to him, which were threatened by a deluge of rain or an incursion of savages, it is evident that he would "set the most store by" that which would represent to him the greatest effort to replace. Thus, in a tropical island his valuation of a quantity of flour, which he could replace only by cultivating, gathering and pounding the grain, would be much greater than that of an equal quantity of bananas, which he might replace at the cost of plucking and carrying them; but on a more northern island this estimate of relative value might be reversed.


And so all things which to get or retain would require of him toil would come to assume in his mind a relation of value distinct from and independent of their usefulness, a relation based on the greater or less degree of exertion that their possession would enable him to avoid in the gratification of his desires.


It is this relation which lies at the bottom of value in the economic sense, or value in exchange. In the last analysis value is but an expression of exertion avoided.


To sum up:


Value in exchange, or value in the economic sense, is worth in exertion. It is a quality attaching to the ownership of things, of dispensing with the exertion necessary to secure the satisfaction of desire, by inducing others to take it. Things are valuable in proportion to the amount of exertion which they will command in exchange, and will exchange with each other in that proportion.


The value of a thing in any given time and place is the largest amount of exertion that any one will render in exchange for it. But as men always seek to gratify their desires with the least exertion, this is the lowest amount for which a similar thing can otherwise be obtained.


But while value means always the same quality -- that of dispensing with exertion in the satisfaction of desire -- yet there are various sources from which this quality originates. These may be broadly divided into two -- that which originates in the toil and trouble involved in production, and that which originates in obligation to undergo toil and trouble for the benefit of another. The failure to note this difference in the sources of value is the cause of great perplexity.