Benjamin M. Anderson

“ We resist the new as the new. Even those who are most disposed to innovate are still conservative, with reference to propaganda that they themselves are not concerned with. The great mass of activities of all men, even the most progressive, are rooted in habit, and resist change. When, however, a new value has won its way, has become familiar and established, the very forces which once opposed it now become its surest support. Or, waiving this unreflecting inertia of society, as things become actualized they are seen in new relations. ”

“ But why do we need a quantity theory of money, with all its artificial assumptions, and its law of strict proportionality, to enable us to assert the simple fact that gold, like other commodities, has a value not independent of its quantity? What theory of money would deny it? Surely not the commodity or bullionist theory. For that theory, which seeks the explanation of the value of money in the value of gold in the arts, it would go without saying that an increase in the supply of gold for the arts would lower its value there and consequently, its value as money. ”

“ A greater or less proportion of capital works with labor in producing different things, and the value of product, in that case, varies not merely with the labor, but also with the amount of capital, and the length of time the capital is employed. How say, then, that labor alone governs value? How reduce labor-cost and capital-cost to homogeneous terms? James Mill tried to do it for him by making capital merely stored up or petrified labor, which gives up its value again in production. ”

“ Money is the measure of all things in economic theory—except money and gold bullion! Of course there are economic values other than those of gold which do not actually come into the market, but even there we can commonly, by the accountant's methods, make use of the money measure. In very high degree, our conventional curves of all sorts run in money terms, and assume a fixed value of money. Clearly the money curve of diminishing value for gold would tell us nothing. ”

“ Now it is clear that the institution of money is to the social advantage. It is clear that it is to the advantage of every individual who has money that everyone else should be ready to accept it in unlimited amount, in return for his goods and services. But it is not clear, on the surface, why everyone should be ready to take metal disks in unlimited amount in return for goods and services. People will not take coal or horses or hay or land or white elephants in unlimited amount in return for goods and services. ”

“ Joseph Schumpeter, in his Theorie der wirtschaftlichen Entwicklung, has made much of the rôle of the banker in economic evolution. He sees in the banker a creator of "Kaufkraft," by means of which an entrepreneur, a dynamic man who has a new idea which he wishes to actualize, is able to wrest from the unwilling "static economic subjects" their land, labor and instrumental goods for the purpose of putting his new plan through. This new Kaufkraft is the true Kapital which the new enterprise requires. Capital, thus defined, is not an accumulation of goods, is not embodied in goods. ”

“ Hold rigidly to the assumption that there are no changes in utility schedules. Will there not be, none the less, a radical readjustment of prices? Will not the prices of Riverside palaces and steam yachts sink and the prices of things which the poor esteem rise? The utility-curves of the erstwhile rich, assumed to remain unchanged, no longer count for so much as before in the market. The rich cannot go so far down their curves in the consumption process as before. The poor, or those who had been poorest, now count for more in the market. ”

“ Indeed, it was in no small degree the prestige of Morgan which relieved the disorganization, which restored the discipline, and made it possible for the elements in the market to work in harmony and coöperation again. Society is a functional unity, and the "tone of business," the ups and downs of prosperity, depend in large measure indeed on the degree to which the lines of communication between the different parts are kept open, on the question of whether each part does its expected task at the right time and in the right way, on the all-together-functioning, the integration, of the elements. ”

“ To say that goods command a price because they have power in exchange is like saying that opium puts men to sleep because it has a dormitive power. Physicians now recognize that this is no solution of difficulties, that it is merely a repetition of the problem in other words. If we wish to explain exchange, we must seek the explanation in something anterior to exchange. If value is to be distinguished from ratio of exchange at all, it cannot be defined as "power in exchange." ”

“ What are the economic differences between long and short time loans? How shall we draw the distinction between the "money-rates" and the long time interest rate on "capital?" Why can some things serve as collateral in the money market when others cannot? What sorts of credit are appropriate to commerce, to manufacturing, to agriculture? Is credit capital? Is an increase in credit an increase in values? The last two of these questions imply that we have a definition of credit. ”

“ I shall show that the quantity theory conflicts with most of our doctrines of prices, as worked out in our systems of economics. I shall show that, in important cases, the quantity theory conflicts with the law of supply and demand, with the doctrine of cost of production, with the capitalization theory, and with the doctrine of imputation as worked out by the Austrians, whereby the prices of labor, land, and other agents of production rise or fall with the prices of the consumption goods which they produce. ”

“ The law does not get its power from the emotion of the judge who gives a decision, nor does the value of a rare painting rest chiefly in the intensity of desire of the few rich connoisseurs who compete for it. Back of the judge, giving validity to his decision, stands the will of the group; back of the rich connoisseurs stand the legal and other social values concerned with the distribution of wealth, by virtue of which they are able to make their wants felt in the market. ”

“ In the phenomena we have simply cases of buying and selling (in a generalized sense of those terms) of rights, at prices (by a very slight extension of the term, price, to which the market is well accustomed) . The terms of these exchanges, the prices, are governed by values, social economic values, in no wise different from the values which govern the prices in exchanges which we do not class as credit transactions. I say that credit phenomena are exchanges of rights. This is true of all exchanges. We do not exchange rights for money. We exchange rights to other things for rights to money. ”

“ The man who extends his business when nobody is in the mood to buy, when no one will make contracts with him, runs a very fair chance of bankruptcy, even though there be, in the technical facts of industry, no reason for the prevailing pessimism. A man with large resources, which are not fully employed, seeing that the prevailing "bad business" is "largely psychological" may, indeed, take advantage of the fact, get his labor and raw materials cheaply, and produce some staple in advance of his market. If he can afford to hold his surplus, he may make large profits by so doing. ”

“ Cairnes seeks to reconstruct the notion of supply and demand, in such fashion as to make it possible to apply it universally, and takes up the question of the comparability of supply conceived as a quantity of goods, and demand, conceived, not as a quantity of goods, but as desire combined with the ability to pay. He concludes that in both supply and demand there is a physical, as well as a mental, element. Demand he defines as the desire for a commodity backed by general purchasing power; supply as the desire for general purchasing power, backed by the offer of a commodity. ”

“ The production of gold and silver, for the great Eastern empires, was like the rearing of the pyramids in Egypt. All power was centered in the hands of a few despots. Control of vast masses of laborers was in their hands. The social values—it is difficult to classify them as legal, economic and religious, since all three are blended—gave little weight indeed to the desires of the masses, and tremendous weight to the slightest whims of the despot. ”

“ Those who buy and sell are primarily interpreters, students, of impersonal, social forces, seeking to adjust themselves to them, to forecast them, in such a way as to derive profit from them. Their choices and decisions are also factors. Indeed, it is possible to view the matter in such a way as to make their decisions the whole story. In the same way, it is possible to make the mind of the judge the final explanation of the legal value. But the speculators themselves are under no such illusion. They know very well that if they run counter to the facts they will lose money. ”

“ If everything that needs to be marketed is perfectly marketable, if the stream of business flows regularly and without friction in the same channels, if all contingencies are foreseen and dated in advance, a bank needs no cash reserve. All payments can be made by bank-credit. Banks bookkeeping becomes merely a refinement of barter, with money remaining as a measure of values, a unit for reckoning, but not being used as a medium of exchange, or as a bearer of options, or in reserves. The measure of values function is the great static function of money. ”

“ But this is not to assert the doctrine of the commodity school, that its value must arise from the metal of which it is made, or in which it is expected to be redeemed. Nor is it to deny that the money function may add to the original value. On the contrary, the services which money performs are valuable services, and add directly, under conditions which we shall analyze more fully in a later chapter on the functions of money, to the value derived from non-pecuniary sources. Value is not physical, but psychical. And value is not bound up inseparably with labor-pain or marginal utility. ”

“ The analysis of the factors controlling the value-scales is the problem of value theory. And here is, indeed, the central problem of the "theory of prosperity." What are the causes controlling the mutations of values? What factors cause values to rise, intensifying economic activity, stimulating trade, spreading prosperity? What brings about the crash in economic values (and consequently in prices) , in panics and crises? Why the low values of the period of depression, giving slight stimulus to industry and trade, leaving economic life lethargic, inert? ”

“ To a given individual in the market, the economic value of a good [Pg 26] is a fact as external, as objective, as opaque and stubborn, as is the weight of the object, or the law against murder. There are individual values, marginal utilities, of goods which may differ in magnitude and in quality from man to man, but there is, over and above these, influenced by them in part, influencing them much more than they influence it, a social value for each commodity, a product of a complex social psychology, which includes the individual values, but includes very much more as well. ”

“ Is it true that while change may occur from causes outside the equation of exchange in volume of money, volume of trade, and velocities of circulation, a change in the price-level from causes outside the equation is impossible? Must the average of prices be a passive function of M, the V's, M ́ and T? Such is the general contention of the quantity theory, and such, very explicitly, is Fisher's contention. The price-level is always effect, and never cause (with slight modifications of the doctrine for transition periods) in its relations to the other magnitudes in the equation of exchange. ”

“ When a young business man borrows capital from a neighbor, giving no security because he has no marketable wealth which would serve as security, he is, none the less, exchanging a valuable right for the loan. He is giving the lender a right to a preferential share in his future income. The lender has considered the young man's abilities as sources of income, in conjunction with the capital lent. Incidentally, the lender retains rights, preferential rights as against the young man himself, in the quantum of value he has turned over to him. ”

“ How can the world level have a close connection with the volume of gold, if different elements in the world price-level, the price-levels of different countries, can vary so widely and divergently as compared with one another? Even granting—which I do not grant, and which I maintain I have disproved—that the price-level in one country has a close connection with its stock of gold, would it not be true that the average price-level for the world would vary greatly, with the same world stock of gold, depending on which countries had the gold? ”

“ It is not so easy to make the differentiation when we view the thing from the standpoint of the consciousness of men who are at the centre of the situation, to whose consciousness the social values are presented. We may put at the very forefront of the economic value of oranges the gustatory feelings or desires of those who consume them; at the forefront of the moral value of a heroic rescue by a fireman the thrill that runs through the onlookers. ”

“ Money-expenses of production, entrepreneur outlay, plus wages of management, or including wages of management, are the factors with which Mill reckons. He is no longer concerned with psychological ultimates, or real costs. Cairnes criticised Mill sharply for this. No distinction is more fundamental he holds, than that between costs or sacrifice on the one hand, and rewards on the other. Labor, abstinence and risk are sacrifices; wages, interest, profits are rewards. None the less, in cost doctrine, as in supply and demand doctrine, it is Mill's view which has prevailed. ”

“ The raison d'être of the new credit is the new values which have come into existence: the new plan of the entrepreneur, validated by the banker, attains a value equal to the present worth of the extra products which it promises. I repeat that it is values which are significant as the basis of loans, that values are not all embodied in physical goods, and that value is essentially a psychological thing. ”

“ Business men contemplating the marketing problem may well balance the cost of creating a new brand against the cost of buying an old one, and may balance the cost of creating a new brand against the profit to be made from allowing an old one to deteriorate, through cheapening its process of manufacture. Trade-connections are capital items. They are also items which have been created by patient thought and labor and expense. Franchises, since the days when the public awoke to their value, have cost money to the corporations that possess them, and figure in corporate bookkeeping often. ”