VALUE 49 Expenses if pro- luction. Wages ind values. Normal value. acting by natural forces upon raw material. But, since both the forces and the produce of nature require labour and capital for their exploitation, the elements that must be considered primary and fundamental in the case of com modities that can be indefinitely increased are labour and capital. Capital, again, is itself a product of labour, and it is also wealth set aside by the owner for future use instead of for present consumption. Accordingly, in order that a thing may be continuously produced, labour must obtain a sufficient reward for toil and capital a sufficient reward for "abstinence," or for preservation and accumu lation of wealth. Thus the ultimate elements in the real cost of production are the toil and trouble and irksomeness of labour and of saving. But this toil and trouble will not be submitted to unless in any particular case the fair reward of industrial competition is forthcoming. However much pleasure a good workman may take in his work or a prudent man in his savings, in the industrial world as at present constituted both labour and capital will be attracted towards the point of highest reward (compare WAGES) ; and, accordingly, it is a necessary condition of the produc tion of any article that the price obtained will yield the average rate of wages and profit obtainable for that species of work. Now these rates of wages and profit can be expressed in terms of money, and may be designated, following Prof. Marshall, the expenses of production as distinguished from the real cost. The real cost of produc tion would on analysis consist of a confused unworkable mass of " efforts and abstinences," and the relation of these mental strains to their material rewards is the problem of wages and profits. But for the purpose of relative values it is not necessary to push the analysis so far, and thus, if we regard the capitalist as the producer, we may look on the elements of production as consisting of wages and profits. And this is quite in accordance with customary thought and language : every one who asks for the details of the cost of a thing expects to have a statement of the wages and profits directly involved, and of the material, which again directly involves wages and profits. So far, then, as freely produced commodities are concerned, the general law is that they tend to sell at such a price as will yield on the average the ordinary rate of wages and profits which by industrial competition the occupation can command. It is at this point that the difficulty emerges as to the precise nature of the connexion between the prices of commodities and the money wages and profits of producers. Are we to consider that the former are deter mined by the latter, or the latter by the former 1 If, for example, commodity A sells for twice as much as com modity B, are we to say that this is because wages are higher in the former case, or are the wages higher because the price is higher 1 The answer to this question is given in the theory of WAGES (q.v.). It is sufficient to state here that, in discussing relative values, we may assume that industrial competition has established certain relative rates of wages and profits in various employments, and that any prices of articles which yielded more than these rates, whilst in other cases no corresponding rise took place, would be unstable. Thus, in discussing the normal values of freely produced commodities, we have to consider the quantity of labour and the rates of wages and the quantity of capital and the rate of profits, the normal rates of these wages and profits being given. The use of the term "normal" requires some explanation. The word norma properly refers to the square used by masons and carpenters, &c., and thus a thing may be said to be in its normal position when no change will be made : that is to say, the normal position is the stable position, or it is the position to which the workman will try to adjust his work. And, similarly, by the use of normal as applied to wages and profits, we mean the stable rate or the rate towards which they are attracted. It is thus quite possible that the normal rate may differ from the average rate or the rate obtained over a term of years. For it may easily happen that as regards wages, for example, a high rate for a short period may lead to such an increase in that kind of production that for a much longer period the rate will fall below the normal. The normal rate seems to refer to the actual conditions of industry, the rate which can be obtained for a given amount of exertion, taking the average of employments at the time, rather than to the particular rate obtained for some class of work over a period of years. With these explanations the proposition holds good that the normal values of freely produced commodities tend to be equal to their cost, or rather expenses, of production, and any price which yields a greater or less return to labour and capital is unstable. If all commodities were produced directly by the ex- Elements penditure of labour, and in such a way that capital need of ex " not be considered, as in the simple natural state of society ^ e " j 63 taken by Ricardo, then the only element to consider in tj OI1> value would be the quantity of labour. And in a society of a more developed character, in which wages are paid, if we consider that the rate of wages is uniform, and that profits may be disregarded in comparison with wages, the quantity of labour is the most important considera tion, and a fall in the relative value of any article can only take place through some economy of labour. But, as we approach more nearly to the actual constitution of modern industrial societies, we find serious differences in the rates of wages in different employments, the use of fixed capital becomes of greater importance, and in some cases the lapse of time necessary for the completion of the commodity is considerable. Thus interest and profits, as well as the differential rates of wages, have to be taken into account just as much as the quantity of labour, and it is generally convenient to consider also the established differences in various returns to capital under different conditions (risk, irregularity, c.). Indirectly, of course, since all capital in the ordinary sense is the result of labour, the quantity of labour is always of primary importance ; but, in considering the proximate causes of relative values, it is best to consider capital and labour as independent factors. It follows, then, that, in order to compare the relative values of two commodities, A and B, freely produced in a modern industrial society, we must take into account, first of all, the relative wages and rela tive profits, and the relative amounts of labour and capital employed. If the producers of A are skilled workmen, and if the return to the capital is uncertain, whilst in the case of B the labour is unskilled and profit steady, then the value of A will be higher than that of B, supposing each produced by the same amount of capital and the same quantity of labour. Obviously, too, any change in the relative wages and profits will affect the relative values. If the commodities considered are not capable of division into similar parts (such as yards of cloth or silk), but must be considered in their entirety (e.y., ships and houses), then we must take into account also the different quantities of labour and capital required for their completion, as well as the relative rates of wages and profits. As regards changes of value in this case, it will be observed that, if the proportions are different in which labour and capital are employed in the production of two commodities, then any change in the general rates of wages and profits will affect relative values. By making various suppositions as to changes in the different elements of the expenses of production, a great many cases may be obtained, as is done, for example, by Mill (Pol. E<-on., bk. iii. cli. iv.). All the
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