XIV

What is Value?

Dear Mr.——,—I hope when thinking about Socialism and discussing it with your friends that you will never let yourself be frightened or put off by the technical language of political economy, or be driven from what seems to you a sound view because this or that great name is brought up against you and you are told that what seems to you common-sense is contrary to Mr. So-and-so's theory or statement. Political economy or Economics is the science of exchange, and though the tree may be very complicated at the top, with an enormous number of interlacing branches, it has only one stem, and that is the true and just definition of value, or rather exchange value. I say "exchange value" instead of simply "value to prevent confusion. People are apt to use" value" as if it were the same as "usefulness." Exchange value means not only usefulness, but the quality of being exchangeable—the quality page 77 which makes people willing to give something in exchange for an object. If men would only keep a clear understanding in their minds of what exchange value is, and how it arises, they would find economics very greatly simplified, and we should see very many paradoxes and false theories now flourishing wither away. People sometimes talk as if exchange value can belong to a thing because it has had labour expended on it, or, as they put it, that labour is the sole cause of value, and therefore of wealth. It is, indeed, on the assertion that the sole cause of value is labour that the whole of modern Socialism was built up by Marx. Though I believe some of the modern Socialists declare that they do not hold with the Marxian definition of value in this absolute form, they in fact still base all their theories upon it. A moment's thought will show how untrue is this definition.

Suppose you take a hard and ugly block of stone and hire two or three men to carve it and bore holes through it in various ways. Next, suppose that these men hew it and hack it so much that it ceases to have any strength as a block of stone, while at the same time, as might easily be the case, acquiring no artistic beauty whatever. Some £20 or £30 worth of labour might have been put into the stone, and yet it would have no exchange value whatever, but might very well be worthless except as broken page 78 stone. Clearly here labour would not have been the source of value.

It is also not possible to say that a thing has value because it has utility—because, that is, people want it. Sea-water has utility, for it can be made into salt, and it is therefore in demand, and yet on the seashore, where any amount of it can be obtained, it has no exchange value.

What is wanted to give exchange value to an article is the presence of two things—demand and the limitation of supply, or, in other words, demand and a certain amount of scarcity. These two requisities are like the two poles in electricity. When they are brought together, but only then, the electric spark of exchange value is produced. Test this rule in any case you like, and you will find that it is always true. There is always a demand for drinking-water among human beings. But it has no exchange value unless there is a limitation in the supply—that is, scarcity. Men will pay nothing for water if they are living on the shores of a lake, and can get it with perfect ease. When, however, they are away from the shores of the lake, and the water has to be brought to them in pipes—i.e. when it has become limited in supply—it has an exchange value, and men will give other things for it. The same may be said of fresh air. Here you see that demand alone-—everybody demands air and water—does not give exchange value. In the same way, limitation of page 79 supply—mere scarcity—will not give exchange value alone. There are a certain number, though a very small number, of pebbles on the seashore of an ounce in weight—in other words, there is a limitation of supply in the matter of pebbles of an ounce in weight. Since, however, there is no demand for them, their scarcity alone does not give them value. Suppose, however, that pebbles weighing an ounce each were urgently needed in considerable quantities, for some purpose or other. Then at once such pebbles would have an exchange value, because the two things would have come together—demand and limitation of supply.

Perhaps the clearest way to put the matter is this. Demand is the first essential for value, because unless somebody wants a thing nobody is going to offer anything in exchange for it. The next essential is that it shall be limited in supply, because, again, nobody is going to give anything in exchange for something which, owing to the fact that it is unlimited in supply, he can get for himself for nothing.

wisdom as to the determination of value. The degree of value or price of a particular object can only be ascertained by finding out what people will give for it. Their conduct here is governed by the proportion between demand and supply. Let me say again that if you keep this simple theory of value clear in your mind, you will find it a sure guide through the labyrinth of political economy. Whenever you find a theory propounded by an economist, no matter how distinguished, which contradicts these plain facts as to exchange value, you may be sure it is wrong.—Yours very sincerely,