IV.

We have hid stress on the theory of prices as necessary for dealing with distribution, since its explanation rests on individual marginal utilities; but we have also seen that we can represent the phenomena of the market, and therefore of distribution, by what we called general demand and supply curves. This does not, however, enable us to leave out of account the theory of prices. For, as has been explained, these "general curves" cannot be constructed without the help of the concept of prices; they, in fact, embody the whole theory of prices and represent its results.

Now, to make it quite clear that the theory of distribution cannot be based on value sans phrase, but can only be indirectly so based with the help of the theory of prices, let us discuss the following example. Let us, for the moment, consider land-owners, capitalists, and workmen as three distinct groups, each organized so as to exclude competition between its members and enable the group to act as a unit. Then rent, interest, and wages appear to be the result of a barter between these groups. The outcome, as we are taught by the theory of prices, is indeterminate; we cannot give an exact formula fixing it, but only limits between which it must fall. An equilibrium will be attained in each concrete case, but other equilibria would be, from the standpoint of pure theory, just as possible as the one which happens to result, — and just as unstable.

What our case teaches us is this: the utilities of the services of land, capital, and labor are perfectly determined,-since each group values its agent according to a definite scale, — and so are their marginal utilities. Nevertheless, their prices and consequently their share in the social product lack determination. Hence we see, at least in one special case, that values of productive factors do not necessarily determine their shares of products, and that we cannot find the shares if we do not know their prices. We may conclude that distribution has directly more to do with prices than with values, in spite of prices being, in their turn, dependent on values. Nor is this all. If society, consisting of our three groups, would form utility curves of its own and enforce them upon the groups, even then, if they were allowed to. fight for their shares, the results of distribution could not be foretold. Determination of values and determination of prices, therefore, are vastly different things.

There is, however, one possibility of making our problem determinate. If our three groups aim at the greatest satisfaction, not of their own wants, but of those of all of the three, — that is, those of "society," — then their shares become determinate. But, in this case our society realizes all the characteristics of a communistic one, and is so for all intents and purposes. Here social value would become a reality and play its true role. But this shows more clearly than anything that, at least in the case supposed, a theory based on the concept of social value leads to results that differ from those reached under the assumption of individual values, — to results which are true for certain cases, but cannot be extended to others.

It could be replied that competition alters all that. Indeed, only for a régime of perfect competition is it held that every one gets what his contribution is worth to the community. Free competition only is said to bring about results such as can be represented by social utility curves and social marginal utilities, — results which are identical with what they would be if brought about by the conscious action of society as a whole. Competition is supposed to fix marginal utilities determining the shares of productive agents and having every right to be called social ones. Distribution, so regulated, works out for all members of the community and for the community as a whole in such manner that they reap a maximum of benefit, and hence competition overcomes all the difficulties we found in the case just discussed. It indicates and justifies the representation of distribution in a non-communistic society by social curves and the theory that distribution can be directly explained by the phenomenon of value.

To this we offer the following remarks: —

(1) What is determined now (competition having been introduced), and has not been determined before, is not values, but prices. Values — utility curves as well as marginal utilities — were fully determined before. It is, therefore, due only to the phenomena described by the theory of prices that the concept of social value can be applied at all in a non-communistic society, and that we are able to speak of social marginal utilities regulating distribution. To understand thoroughly how it is that in a non-communistic society things work out in some such way, it is not sufficient to say that "social valuation decides," but it is necessary to study the theory of prices. Some knowledge of it is indispensable, and, even if the theory of social value were otherwise quite satisfactory, it would not enable us to explain distribution without the theory of prices.

(2) Nobody gets, or can get, all that his productive contribution is worth to the community, which is its total-value. For total-value is an integral of the function representing marginal utility. Nobody gets as much as that, but everybody is, by the theory under discussion, supposed to get what Professor Irving Fisher has called utility-value; that is, the product of the social utility of the productive agent he has to offer with the quantity of it he sells. This product, depending on marginal value only, is very independent of total-value. Every one, therefore, necessarily gets less than his contribution is worth to the community. Even if the total-utility of what he contributes were very great, he might get very little if the marginal utility of it happened to be small.

(3) It is true that equilibrium in a non-communistic society corresponds to a maximum of satisfaction, just as does equilibrium in a communistic one; but the two maxima are different, for they are subject to the conditions of given circumstances. Both are maxima of that satisfaction which can be attained under those circumstances. Among the circumstances, in a non-communistic society, is a. given distribution of wealth, where only that maximum will be attained which is compatible with the existing distribution. In the case of a communistic society there is no such condition. If we represent the phenomena of distribution under a competitive régime by "general curves," then it must be borne in mind that they relate not to given quantities of productive agents simply, but to given quantities in a given distribution among the members of the community; and the consequences of this, as contrasted with what would happen in a communistic society, can be explained only by the study of the phenomenon of prices.

Only one point remains to be mentioned. The smallest or marginal utilities of commodities within the community can be said to decide what each commodity will fetch in the market; and so the smallest or marginal utilities of land, capital, and labor may, in the same sense, be said to determine the distribution of the social product. There is, for this reason, some ground for calling them social marginal utilities as distinguished from those of the individuals. In fact, if there is any phenomenon in the market which has a claim to that name, it is such marginal utility, and we are far from denying the value of this terminology. But there are social reservations to be made. It is clear, to begin with, that they cannot be called marginal utilities of society in the same sense as individual marginal utilities are the marginal utilities of some individual. For they are not derived from social utility curves, but are merely marginal utilities of those individuals who, in each case, happen to be "marginal sellers" or "marginal buyers." They do not enable us to do without the theory of prices, since we need it to tell us why these marginal utilities play their role and by what influences they are put in the position to play it. Not being derived from social wants and social utility curves, but representing the outcome of a struggle between individuals, they do not tell us all that might naturally be expected from them. They do not reflect the state of satisfaction of the community as a whole, — do not indicate up to what degree society is able to satisfy its wants. There may be wants, much more important from the social standpoint, which remain unsatisfied for lack of means of those who feel them, so that it would be wrong to represent the social marginal utility as the lowest ordinate of a steadily declining social curve. We cannot say whether the weakest buyer, whose marginal utility is the social one, is the weakest because he is the poorest, or because he cares least for the good, — a fact which deprives this marginal utility of much of its interest. It is also not sure whether what in this sense is the social marginal utility of labor — that which has been said to determine wages — is equal to social marginal disutility. For the workman who is the weakest in one sense is not necessarily the one who feels the pain of labor most heavily, but perhaps the one who, having some other means of subsistence, does not compete keenly for work. This case may be of little practical importance, but it helps to clear up the question of principle.

Finally, we must not overrate the importance of these marginal utilities. It is true that, in a certain sense, they determine prices; but they cannot be called the cause of them. It would, in some cases, be just as true that prices determine the marginal utilities of productive agents, because they decide how much of them will be offered for the production of a certain commodity. There are several ways of expressing these facts, and none of them has an exclusive claim to use. The whole truth is not contained in any of them; but the key to it under any form of expression is the clear recognition of mutual interdependence of all individual quantities, values, marginal values, and prices of all commodities within society. All these things govern each other, as is shown by the theory of prices. It is possible, for many purposes, to call some of them the causes of .the others; but the reverse is also true. Besides, four social marginal utilities are said to determine prices. This does not mean that all the other marginal utilities of those individuals who are not marginal sellers or buyers are indifferent. Every one has his marginal utility for each commodity; and for every one, if equilibrium is to be attained, it must be true that for the commodities to which they relate prices must express ratios between his marginal utilities, and that prices must have the same proportions to each other as every one's marginal utilities for the same commodities.

But this is brought about only by the joint action of marginal and intra-marginal sellers and buyers; and the result would be different if the marginal utilities of any of them were not what they are. All of them contribute towards fixing prices. It appears, therefore, that the theory of prices is not to be dispensed with in a full explanation of social distribution; and this theory of prices is based on individual values.