Thursday, April 5, 2012

On Value - Frédéric Bastiat - 3

On Value


Jean-Baptiste Say, unless I am mistaken, was the first writer to shake off the yoke of the concept of the materiality of value. Very explicitly he made value a moral quality—an expression that perhaps overshoots the mark, for value is neither physical nor moral; it is simply a relationship.
But the great French economist had himself said, “It is not granted to any man to arrive at the outermost limits of knowledge. Scholars climb upon one another's shoulders to explore a horizon that keeps on extending farther and farther.” Perhaps Say's glory (as far as the present question is concerned, for in other respects his claims to fame are as numerous as they are imperishable) is to have passed on to his successors a fruitful insight into the subject.
Say's axiom was this: The basis of value is utility.
If it were a question here of utility as related to human services, I should have no argument with him. At the very most I could say that the axiom is so self-evident as to be superfluous. It is quite clear that no one consents to pay for a service unless, rightly or wrongly, he considers it useful. The word service is so completely included in the idea of utility that it is simply the translation, and even the literal carrying over, of the Latin word uti, to serve.
But, unfortunately, this is not the way Say meant it. He found the principle of value not only in human services rendered through the medium of things, but also in the useful qualities that Nature imparts to things. By so doing, he again placed upon his neck the yoke of materiality, and, we must add, he did nothing to tear away the harmful veil that the English economists had thrown over the question of private property.
Before discussing Say's axiom on its own merits, I must indicate what its logical implications are, so as to avoid the reproach that I involved myself and the reader in a tedious dissertation.
There can be no doubt that the utility Say speaks of is the utility that resides in material things. If wheat, wood, coal, cloth have value, it is because these products have qualities that fit them for our use, to satisfy our need to be fed, warmed, clothed.
This being the case, since Nature creates utility, it also creates value—a most harmful confusion of ideas that the enemies of private property have forged into a terrible weapon.
Suppose I buy a product—wheat, for example—at the market for sixteen francs. A large part of the sixteen francs is distributed, through countless ramifications, through an inestimable maze of advances and repayments, among all the men, far and near, who have helped to put the wheat at my disposal. There is something for the man who plowed the field, the man who sowed the seed, who reaped the crop, who threshed the grain, who carted it away, as well as for the smith and the wagoner who made the equipment. Up to this point there is no disagreement, whether one is an economist or a communist.
But I perceive that four of my sixteen francs go to the owner of the land, and I have every right to ask whether this man, like all the others, has rendered me a service assuring him, like all the others, an unquestioned right to compensation.
According to the doctrine that it is the purpose of this book to establish, the answer is categorical. It is a very emphatic yes. Yes, the owner has rendered me a service. What is it? It consists in the fact that he or his ancestor has cleared the land and fenced it off; he has cleared out the weeds and drained off the stagnant water; he has fertilized the vegetable garden; he has built a house, barns, and stables. All this represents long hours of labor that he has performed himself or, what amounts to the same thing, paid others to perform for him. These are certainly services for which, by virtue of the just law of reciprocity, he should be reimbursed. Now, this owner has never been remunerated, at least to the full extent. Nor could he be, since he could not charge the whole amount to the first man who came along and bought a bushel of wheat. What, then, is the arrangement that has been worked out? Truly, the most ingenious, the most legitimate, and the most equitable in the world. It is this: Whoever wishes to buy a sack of wheat will pay not only for the services of the workers we have just enumerated but also for a small part of the services rendered by the owner; in other words, the value of the owner's services will be distributed over all the sacks of wheat that come from this field.
Now, we may ask whether this remuneration, set here at four francs, is too much or too little. I reply: This question does not concern the science of political economy, which notes that the value of the services of the owner of real property is governed by exactly the same laws as all other services; and that is sufficient.
Some may object that this system of piecemeal reimbursement would eventually result in the complete amortization of the owner's outlay, and consequently should lead to the cancelation of his property rights. Those who make this objection are not aware that it is the nature of capital to produce perpetual income, as we shall learn later.
For the moment, however, I must not stray longer from the subject, and I shall observe (for this is the gist of the matter) that out of my sixteen francs there is not a centime that is not used to pay for human services, that there is not one that corresponds to the so-called value that Nature is supposed to have imparted to the wheat by giving it utility.
But, if, basing your argument on the axiom of Say and the English economists, you assert, “Out of the sixteen francs, twelve go to the plowmen, sowers, reapers, wagon-drivers, etc.; two to pay for the owner's personal services; then two others represent a value that has as its basis the utility created by God, by natural resources, without any human co-operation”; do you not see that you will at once be asked, “Who is to profit from this part of value? Who has a right to this remuneration? God does not come forward to claim it. Who will dare stand in His place?”
The more Say tries to explain private property according to this hypothesis, the more vulnerable his position becomes. First, quite properly, he compares the land to a laboratory where chemical experiments are conducted with results useful to mankind. “The land,” he adds, “is therefore the producer of a utility, and when it [the land] exacts payment in the form of a profit or a rent for theowner, it has indeed given something to the consumer in return for what the consumer gives it. It has given him a utility that it has produced, and because it has produced this utility, the land is just as productive as labor is.”
Thus, the assertion is clear-cut. Here are two claimants who come forward to divide the payment the consumer owes for the wheat, namely, land and labor. They have identical rights, for the land, says Say, is just as productive as labor is. Labor demands payment for a service, the land for a utility; yet the land does not request the payment for itself (under what form could it be made?), but forits owner.
Whereupon Proudhon summons the owner, who calls himself the land's authorized agent, to produce his credentials.
You tell me to pay you, in other words, to render you a service, says Proudhon, for receiving utility produced by natural resources, without assistance from man, who has already been paid separately.
But I insist on asking: Who will profit from my payment, that is, my services?
Will it be the producer of the utility, that is, the land? That is absurd, and I can bide my time quite easily until the land sends the bailiff after me.
Will it be a man? On what grounds? If it is for having rendered me a service, well and good. But in that case you share my point of view. Human service is the thing that has value, not Nature's; that is the conclusion to which I wished to lead you.
However, that is contrary to your own hypothesis. You say that the human services are paid fourteen francs, and that the two francs that complete the payment for the wheat correspond to the value created by Nature. In that case, I repeat my question: By what right can any man lay claim to them? And is it not unfortunately only too clear that, if you apply specifically the name of landowner to the man who claims the two francs, you are justifying that too-famous maxim: Property is theft?
And let no one think that this confusion between utility and value is limited to undermining the foundations of real property. After questioning the legitimacy of the idea of land rent, it leads also to questioning interest on capital.
Machines, tools of production, are, in fact, like the land, producers of utility. If this utility has value, it must be paid for; for the word “value” implies a right to payment. But to whom is it paid? To the owner of the machine, of course. Is it for a personal service? Then simply say that the value is in the service. But if you say that there must be first a payment for the service, and then a second for the utility produced by the machine, independently of any human action already paid for, we ask you to whom does this second payment go, and how can the man who has already been paid for all his services have the right to demand something more?
The truth is that the utility produced by Nature is free of charge, and therefore common to all, just like the utility produced by the tools of production. It is free of charge and common to all on one condition: that we take the pains, that we perform the service, of helping ourselves to it; or, if we ask someone else to take the pains or perform the service for us, that we render him an equivalent service in return. The value resides in these comparative services, and not at all in the natural utility. The pains can be great or small, a fact that changes the value, but not the utility. When we are near a gushing spring, the water is free to all, provided we are willing to stoop down to get it. If we commission a neighbor to go to this trouble for us, then I see an agreement, a bargain, a value, but the water remains free of charge, nevertheless. If we are an hour's distance from the spring, the terms of the bargain will be different in degree, but not in principle. Value will not on that account have passed into the water or into its utility. The water will continue to befree of charge on condition that we go and get it or pay those who, after free bargaining, consent to spare us this trouble by assuming it themselves.
The same holds true for everything. Utilities are everywhere about us, but we have to stoop to pick them up. This effort, sometimes very simple, is often very complicated. Nothing is easier, in most cases, than helping ourselves to water, whose utility has been prepared by Nature. It is not so easy to gather in wheat, whose utility has also been prepared by Nature. That is why the value of these two efforts differs in degree, but not in principle. The service is more or less exacting; consequently, it is worth more or less. The utility is and always remains free of charge.
Suppose a tool of production is introduced, what then is the result? The utility is more easily made available. Therefore, the service has less value. We certainly pay less for books since the invention of printing. An admirable and misunderstood phenomenon! You say that tools of production produce value. You are wrong. You should rather say that it is utility, and gratuitous utility, that they produce; as for value, far from producing any, they progressively destroy it.
It is true that the maker of the machine has rendered a service. He receives a remuneration that increases the value of the product. It is for this reason that we are inclined to think that we pay for the utility produced by the machine, but this is a delusion. We pay for the services contributed by all those who had a part in making it or operating it. So little value resides in the utility that has been produced that, even after we have paid for the new services, we obtain the utility on better terms than before.
Let us, then, learn to distinguish between utility and value. An understanding of the science of economics comes only at this price. I maintain, without fear of indulging in paradox, that the ideas of utility and value, far from being identical or even reconcilable, are opposites. Want, effort, satisfaction—this, we have said, is man from the economic point of view. Utility is related to want and satisfaction. Value is related to effort. Utility is the good that terminates want with satisfaction. Value is the evil, for it is born of the obstacle that intervenes between want and satisfaction. If it were not for obstacles, there would be no efforts to be made or exchanged; utility would be infinite, unconditionally free of charge and common to all, and the notion of value would never have been brought into the world. Because of the presence of obstacles, utility is free of charge only on condition that there be an exchange of efforts, which, when compared with one another, constitute value. The more obstacles are reduced by the bounty of Nature or the progress of science, the nearer utility comes to being absolutely free of charge and common to all; for the cost in terms of effort and, consequently, the value decrease along with the obstacles. I should consider myself fortunate indeed if, through all these dissertations, which may well appear unnecessarily subtle, which fill me with misgivings because of their length and at the same time because of their conciseness, I should succeed in gaining acceptance for this reassuring truth: Private ownership of value is legitimate; and this other comforting truth: Utility tends constantly to become the gratuitous and common possession of all.
Still another observation: Everything that serves us is useful (uti, “to serve”). Accordingly, it is highly doubtful whether anything exists in the universe, whether force or matter, that is not useful to man.
In any case, we can affirm, without fear of being mistaken, that countless things are useful to us without our being aware of the fact. If the moon were placed higher or lower in the heavens, it is quite possible that the mineral kingdom, consequently the vegetable kingdom, and consequently also the animal kingdom, would be profoundly modified. If it were not for this star shining so brightly in the sky as I write, perhaps the human race could not exist. Nature has surrounded us with utilities. We recognize this quality of beinguseful in many substances and phenomena; science and experience reveal it to us in others every day; in still others it exists, though completely and perhaps for all time unknown to us.
When these substances and these phenomena exert their useful action upon us, but without our agency, we have no interest in comparing the degree of utility they have for us; and, what is more to the point, we hardly have the means of doing so. We know that oxygen and nitrogen are useful to us, but we do not try, and should probably try in vain, to determine in what proportion. They do not furnish us with the elements necessary for evaluation, for value. I could say the same thing for the salts, the gases, the forces that abound throughout Nature. When all these agents move and combine so as to produce utility for us, but without our contributing to it, we enjoy this utility without evaluating it. When our co-operation is introduced and, above all, is exchanged, then and only then appraisal and value make their appearance, but they are applied to our co-operation, not to the utility of substances or phenomena of which we are frequently ignorant.
That is why I say: Value is the appraisal of services exchanged. These services may be very complex. They may have required vast amounts and various types of labor in times remote or recent. They may be transmitted from one hemisphere or generation to another hemisphere or generation, involving numerous contracting parties, necessitating credits, the advancing of funds, varied arrangements, before the general balance is arrived at. Yet the principle of value always resides in them, and not in the utility of which they are the vehicle, a utility which is essentially free of charge, which passes from hand to hand into the bargain, if I may be permitted the expression.
After all, if anyone persists in attributing the basis of value to utility, I have no quarrel with him; but let it be well understood that we do not mean that utility which is in things and phenomena by the gift of Providence or the power of science, but the utility of human services compared and exchanged.


According to Senior, of all the circumstances that influence value, scarcity is the most decisive. I have no objection to make to this remark, unless it is that by its form it assumes that value is inherent in things—an hypothesis that I will challenge if it is even hinted at. Fundamentally, the word “scarcity,” as used in connection with the subject with which we are dealing, expresses in abridged form this idea: Other things being equal, a service has greater value according to the difficulty we should experience in performing it for ourselves, and consequently, according to the more exacting terms we encounter when we ask someone else to do it for us. Scarcity is one of these difficulties. It is one more obstacle to surmount. The greater it is, the more we pay those who surmount it for us. Scarcity often occasions very high remunerations; and that is why I refused to agree a little earlier in this work with the English economists' position that value is in direct proportion to labor. We must take into account Nature's miserliness toward us in certain respects. The word “service” embraces all these meanings and shades of meaning.


Storch attributes value to the judgment that enables us to discern it. Of course, every time we are confronted with a question of the relation between two things, we must compare and judge. Nevertheless, the relation is one thing, and the judgment we pass on it is another. When we compare the height of two trees, their heights and the difference between their heights are distinct from our evaluation of them.
But in determining value, what is the relation that we are to judge? It is the relation between two services that are exchanged. It is a question of knowing, when services are rendered and received, what is the value of the one in respect to the other. It is a question of knowing, when services, involving the transfer of acts or the exchange of things, are rendered and received, what the one is worth in respect to the other, keeping in mind all the circumstances, rather than concerning ourselves with the amount of intrinsic utility these acts or these things may contain; for this utility may fall partially outside the realm of human activity and therefore outside the realm of value.
Storch is not aware of the fundamental error that I am attacking, when he says:
“Our judgment enables us to discern the relation that exists between our wants and the utility of things. The verdict that our judgment pronounces on the utility of things constitutes their value.”
And, further on:
“In order to create value, three circumstances must coincide: (1) Man experiences, or conceives, a want. (2) Something exists that is capable of satisfying the want. (3) His judgment pronounces a favorable verdict on the utility of the thing. Hence, the value of things is their relative utility.”
During the daylight hours I experience the want of seeing clearly. Something exists that is capable of satisfying the want, sunlight. My judgment pronounces a favorable verdict on this thing's utility, and .... it has no value. Why? Because I enjoy it without having to ask a service from anyone.
At night I experience the same want. Something exists that is capable of satisfying it very imperfectly, a candle. My judgment pronounces a verdict on the utility, but on the relatively slight utility of this thing, and it has value. Why? Because the person who took the pains to make the candle is unwilling to render me the service of letting me have it unless I render him an equivalent service.
What we must compare and judge, to determine value, is not, therefore, the relative utility of the things, but the relation between the two services.
Expressed in these terms, I do not reject Storch's definition.
Let us summarize briefly to show that my definition includes all that is true in my predecessors' definitions and corrects all that is erroneous through their inclusion of too much or too little.
The principle of value, as I have said, resides in a human service. It is derived from the appraisal and comparison of two services. Value must be connected to effort. Service implies an effort of some sort. It supposes a comparison of efforts that are exchanged, or at least exchangeable. Service implies the term giving and receiving.
In fact, however, it is not proportional to intensity of effort. Service does not necessarily imply such a proportion.
Many outside circumstances influence value without becoming value themselves. The word “service” takes all these circumstances into account in their proper measure.

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