Expected value

“ Whether there is any object, which, though it cannot measure the power of purchasing generally under the varying facilities of production and varying state of the demand and supply by which different commodities are affected, may be a correct measure of absolute and natural value as above described, is the specific object of the present inquiry. ”

“ Now in one sense, it is my own contention that the price-level can never be a cause of anything. The price-level is an average. Averages may be indicia of causation, but they are not themselves causes. They are not, in reality, anything at all. Causation is a matter which pertains to the particulars of which the average is made. But this is not the doctrine of the quantity theory. ”

“ When we consider farther, that value itself is relative, and that two things are necessary to constitute it, independently of the third thing which is to measure it; we may define a Measure of Value to be something, by comparing with which any two other things, we may infer their value in relation to one another.
In this sense, any commodity will serve as a measure of value at a given time and place; since we can always infer the proportion in which things exchange for one another, when we know the proportion in which each exchanges for any third thing. ”

“ Of the proportion, which the product of any region bears to the people, an estimate is commonly made according to the pecuniary price of the necessaries of life; a principle of judgment which is never certain, because it supposes what is far from truth, that the value of money is always the same, and so measures an unknown quantity by an uncertain standard. ”

“ The reason why it affords a safe and accurate intermediate value for the actual divergent values, is that for many of the ordinary purposes of life, such as purchase and sale, we come to exactly the same result, whether we take account of those existent divergences, or suppose all the objects equated to their average. ”

“ The value of any commodity estimated in a measure of this kind might with propriety be called its absolute or natural value; while the value of a commodity estimated in others which were liable to variation, whether they were one or many, could only be considered as its nominal or relative value, that is, its value in relation to any particular commodity, or to commodities in general. ”

“ Consequently, the value of the variable quantity of produce which, under different circumstances, forms the wages of a given number of men, being composed of the values of the two elements, labour and profits, varying as above described, must be constant, and may therefore, with propriety, be proposed as a standard measure. ”

“ But when we consider what such a measure implies, we must feel certain that no one object exists, or can be supposed to exist, with such qualities as would fit it to become a standard measure of this kind. It would imply steadiness of value, not merely in one object, but in a great number, which is contrary to all theory and experience. ”

“ We say that a man is tall, or heavy, or that the room is hot—qualitative statements; or we may say exactly how tall, or how heavy, or how hot—quantitative statements. The distinction between qualitative analysis and quantitative analysis in chemistry implies the same idea. Thus we may speak of a piece of wealth as having a definite quantity of value, or say that the value of the piece of wealth is a definite quantity. ”

“ The value of the first, must always be estimated according to its usefulness after the modification it has received is entirely 362destroyed, and when by the nature of the thing both must be consumed together, then the total value is the sum of both. The value of the second must be estimated according to the labour it has cost to produce it. ”

“ But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself continually varying in its own value, can never be an accurate measure of the value of other commodities. ”

“ Bearer of options.
The common measure of value function rests in the intellectual needs of man. It grows out of the necessity for calculation, for bookkeeping, for understanding what is going on. Any object of value may be used to measure [Pg 419] the value of anything else, just as any object of weight—say an irregular mass of iron—may be put in the balance against some other object, and the relation between the absolute weights of the two objects thus more or less definitely ascertained. ”

“ Just as when we estimate the value of any commodity by a definite quantity of the use-value of some other commodity, so in estimating the value of the former in gold, we assume nothing more than that the production of a given quantity of gold costs, at the given period, a given amount of labour. ”

“ If we then ask him what he means by value, he tells us that things are valuable in proportion as they possess utility. If again we ask him to explain to us by what means we are to judge of the utility of objects, he answers, by their value. Thus then the measure of value is utility, and the measure of utility is value. ”

“ The quantity theory, in its usual formulations, is a theory, not of the value of money, in the absolute sense of value, but of the general price-level, the average price of goods exchanged for money. It is not a psychological theory. ”

“ If we assume the quantity of goods on sale, and the number of times those goods are resold, to be fixed quantities, the value of money will depend upon its quantity, together with the average number of times that each piece changes hands in the process. ”

“ It is, in fact, obvious that in order to decide correctly at what state of things we ought to aim, we must not only consider what results it is possible for us to obtain, but also which, among equally possible results, will have the greatest value. And upon this second enquiry the comparative valuation of known goods has a no less important bearing than upon the investigation of the Absolute Good. ”

“ A study of this kind, to be of any value, must cover the monetary demand as well as the monetary supply. Any test of the validity of the quantity theory consisting merely of a comparison of the amount of money in circulation with the general price-level is as worthless as would be a test of the power of a locomotive by a simple reference to its speed without taking into account the load it was carrying or the grade it was moving over. ”

“ It must be allowed, then, that whenever two elements are necessary to the supply, and enter into the composition of commodities, their value cannot depend exclusively upon one of them, except by accident, or when the other can be considered as a given or common quantity. ”

“ These traits are not affected by the judgment. They exist; they are given. But as given they are not determinate values. They are not objects of valuation; they are data for a valuation. We may have to take pains to discover that these given qualities are, but their discovery is in order that there may be a subsequent judgment of value. Were they already definite values, they would not be estimated; they would be stimuli to direct response. If a man had already decided that cheapness constituted value, he would simply take the cheapest suit offered. ”

“ Money values can no more be measured without a standard of value than distances without a standard of extent, or quantities without a standard of weights or measures, and it is as necessary that there should be a money unit as that there should be a unit of extent, or of weight, or quantity. ”

“ Of such a commodity we have no knowledge, and consequently are unable to fix on any standard of value. It is, however, of considerable use towards12 attaining a correct theory, to ascertain what the essential qualities of a standard are, that we may know the causes of the variation in the relative value of commodities, and that we may be enabled to calculate the degree in which they are likely to operate. ”

“ For the purpose of the valuation process through which the impulse is so conveyed, human nature may, therefore, be accepted as uniform; and the theory of the valuation process may be formulated quantitatively, in terms of the material forces affecting the human sensory and of their equivalents in the resulting activity. In the language of economics, the theory of value may be stated in terms of the consumable goods that afford the incentive to effort and the expenditure undergone in order to procure them. ”

“ For my thesis is, that no such connection subsists between the two as warrants any inference that the real value is great because the quantity it buys is great, or small because the quantity it buys is small; or, reciprocally, that, because the real value is great or small, therefore the quantities bought shall be great or small. From, or to, the real value in these cases, I contend that there is no more valid inference, than from, or to, the nominal value with which it is contrasted. ”

“ The economists seem always to have understood by the measure of value only a standard, a sort of original unit, existing by itself, and applicable to all sorts of merchandise, as the yard is applicable to all lengths. ”

“ As value resides in human estimation, it will frequently vary as to the same object. An intending purchaser may have one notion of the value of an article, an intending seller another. Money, therefore, is a measure of value in the sense that it is a measure of the average human judgment—from which results price. ”

“ With respect to the variations in value, of which every thing valuable is susceptible, if we could for a moment suppose that any substance possessed intrinsic and fixed value, so as to render an assumed quantity of it constantly, under all circumstances, of an equal value, then the degree of value of all things, ascertained by such a fixed standard, would vary according to the proportion betwixt the quantity of them, and the demand for them, and every commodity would of course be subject to a variation in its value, from four different circumstances. ”

“ Provided only that the conditions of production remain stable, averages of large numbers will always practically present much the same general characteristics. The far more important distinction lies between the average of a few, with its fluctuating values and very imperfect and occasional attainment of its ultimate goal, and the average of many and its gradually close approximation to its ultimate value: i.e. to its objective point of aim if there happen to be such. ”

“ If the quantity theory is not valid here, if the price-level is not absolutely fixed, helpless to change, with these assumptions, then the quantity theory, even as a minor tendency, must be surrendered, and the quantity theorist must admit that the whole line of thought has been fallacious. ”

“ Economic values, and the objects of economic value, have been the data of the static theorist. Given scales of economic value, such that for one quantity of goods of a given kind, a given value per unit will obtain, given all of these value-scales, and given the quantities of goods and services whose values are in question, and static theory will furnish an equilibrium picture, in which the price relations of different kinds of goods are made clear, and their values are measured. ”

“ Wherever a determinate good exists, there is an adequate stimulus to action, and no judgment of what is to be done or of the value of an object is called for. It is frequently assumed, however, that valuation is a process of applying some fixed or determinate value to the various competing goods of a situation; that valuation implies a prior standard of value and consists in comparing various goods with the standard as the supreme value. This assumption requires examination. If it is sound it deprives the position which has been taken of any validity. ”

“ Where the mind has not precisely ascertained its wishes, it is sometimes useful to consider extremes; by determining what price you will not pay, we shall at length ascertain the value which you set upon the object. ”

“ The question put by C. H. is too general to admit of a positive solution; but should he specify the commodity and place of investment in the seventeenth century and to-day of the 1000l., our statistics might still be at fault, and deny us even a proximate determination of his inquiry. Even his 1000l., which he may consider a fixed measure of value, or punctum comparationis, is varying in value (=power of purchase) daily, even hourly, as regards almost every exchangeable product. ”

“ The statement of the later economists that exchange value depends on, and is determined by, the ratio between subjective values in no way conflicts with the above statement that value is determined by the ratio between demand and supply, for the demand for a commodity is determined by10 its subjective value and by that alone, and must vary with it. Hence, as the quantity of anything increases and its subjective value lessens, the demand for it relative to the quantity of other articles also lessens, and its value falls, and vice versa. ”

“ The differing values of men in a social population are determined, as other values are measured, by the working of the law of diminishing returns.
Roughly stated, this law is that successive additions of any valued thing bring ever diminished returns. The first quantity of anything is of infinite value. ”

“ Endeavor will be made to set forth clearly underlying principles and their detailed application to the chief items met in the average balance sheet as viewed from the standpoint of a going concern. Elsewhere, notably in Chapter XXXV, some principles of another type of valuation will be discussed.
In any consideration of valuation, it is necessary to seek out the sources and kinds of value to determine in the one case its basis, and in the other to establish the type of value applicable to the given conditions. Value is not of spontaneous origin; it cannot be created out of nothing. ”