Table Of ContentVALUE THEORY
AND
BUSINESS CYCLES
bnr
ROBERT OWEI\'$ L\BOR TIME ;-';OTF-
;'I;llte. :--:0one on studv Robert Owen's Labor Time Nore of one
hundred vc.irs ago "'ithout recognizing at once thJr ir \\.".1; rhc orig
in.,1 "T'erhnr.crari: EI'g" so cnthusiasricallv proposed recently by
Mr. SCali vnd his TechnocrJtic collc.>gucs .l~ rhe molgic money that
would sake thc world's economic ~t)d mone[.1ry problems, set the
world to worl, eliminate uncmplovmcnr, and balance production
,md consumption. H:ld [he,· been economists in,(e~d of engineers,
rhcv would h.ivc known tn:lt their experiment had been tried before,
.1nd [he rcnsons for its fJilure. (Sec"Tullf1')Cf(Jty Smolhei (he Price
Svsrr»!" bv How.ird Scott. Harper> M.,g.17.ine, .J~I\. 1933 )
V A L U E !-H E,OR Y ,
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AND ',,'.':
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BUSINESS CY·CLES'·<".'
By
HARLAN LINNEUS McCRACKEN, PH.D.
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Lecturerin Economics
University ofMinnesota
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Copyrig'ht) 1933
by
Fi\LCOi\ PRESS) INC.
PRIJ>;TF.D IN THE UNITED STATES or A:MEkJ(;A
BY THE VAIL-BALLOU PH.ESS, I~C., llIl\;GIIAll.iTON, N. s.
PREFACE
The past t\VO decades have brought forth a vast number of
books and articles on business cycles and price movements.
I\10st of these treatises have dealt with description, quantitative
measurement, causes and cures. The views presented have been
highly divergent, and in many instances distinctly contradictory.
A partial explanation of this situation would seem to lie in the
fact that many have proceeded directly to an analysis and ex
planation of price movements and business cycles without recog
nizing that these phenomena are definite problems in applied
economic theory, especially value theory.
It is the purpose of the present study to show the vital relation
between business cycle theory and value theory. In fact, the
study is intended to contribute quite as definitely to the eco
nomics of value as of business cycles.
Book I deals with embodied value theory and price move
ments. The analysis appears to show that no embodied value
theorist can logically explain a business cycle. He either in
volves himself in a dual theory of value, a logical inconsistency,
or explains nothing but a secular trend. The presentation isquite
critical, since it deals, as we believe, withthe "false trails," based
upon an erroneous theory of value, formulated by Ricardo, and
utilized in a modified form by the Socialists, Anarchists, Green
backers, and those affiicted with "Lawism."
Book II deals with business cycles in relation to the marginal
utility theory of value, as developed by the Austrian School.
The "fore-runner" of this theory was T. R. Malthus, who
coined the term "Commanded Value." Malthus serves as a
logical starting point for the consideration of business cycles,
first, because he stressed the importance of "short run" factors,
and second, because his value approach was from the demand
v
vi PREFACE
side. Consistent with his theory of value, he held that business
might be depressed, either by a voluntary failure of demand on
the part of those who had the po\ver but not the will, or by
an involuntary failure of demand by those who had the will
but not the po\ver. The former is pursued much further by
Aftalion in the light of the completed statement of the marjrinal
utility theory of value by the Austrians. The latter is presented,
though less successfully, we believe, by Foster and Catchings.
Fisher and Keynes extend the argument still farther by showing
how a failure of demand may result from unstable 1110ney and
unsound banking policies.
Book III deals directly with the problem of business equili
bration, showing how certain forces contribute to instability, and
suggesting \vays and means for the achievement of greater
business stability.
The positive argun1ent in this work nlay be followed quite
successfully by reading the first chapter in Book I and then
proceeding directly to Books II and III.
Bankers and other business men who n1ay be interested
primarily in the monetary sections, should be able to read with
profit, chapters \,1 and "1 on "La\visn1" together with chapters
XIV and XV, by Fisher and Keynes. Everyone interested in
the general problem of business instability even though un
familiar with economic literature and terminology, should be
able to follow quite easily the argument in Book III as it is
purposely written in non-technical language.
The author is indebted to numerous friends and colleagues
for helpful suggestions and criticisms. First of all I am obliged
to Professor John R. Commons of the University of Wisconsin
who was a helpful counsellor in the early stages of preparation,
while I was a graduate student at Wisconsin, and who has made
helpful suggestions at all stages. I am next indebted to Dr.
W. E. Zeuch, who first developed the "Commanded Value"
concept as given by Malthus, and placed before me the results
of his labor. The Ricardian theory of value has been made
clearer and more accurate by being privileged to "sit in" with
PREFACE Vll
Professor F. B. Garver of the University of Minnesota in his
graduate seminar. Helpful suggestions have been received from
my colleagues at the University of Minnesota, especially, Pro
fessors Alvin H. Hansen, Bruce D. Mudgett, Roy G. Blakey,
Walter I~. Myers and Mr. Herbert Tout. At the University of
'T.
Chicago) Professors Frank H. Knight and Garfield COX were
of great assistance by \vay of cooperation and constructive criti
cism. Additional help came from Professor I~agnarFrisch of the
University of Oslo. The monetary section dealing with Fisher
and Keynes has benefited by valuable suggestions made by
Irving Fisher, himself, after a careful reading of those chapters.
For these kind favors, I am extremely grateful.
H. L.
l\1CCRACKEN
University of Minnesota
Minneapolis.
CONTENTS
BOOK I
Ef\,1BODIED VALUE THEORY IN ITS RELi\TION TO
BUSINESS CYCLES
PART I
PRICE ftl0VEMENTS IN A PRECIOUS METALS ECOJ.lOMY
CHAPTER PAGE
Ricardo's Theory of Value . 3
Ricardo and Malthus in vital disagreement over value.
Ricardo's theory of exchange value. Effect of demand and
supply on value. Possibility of overproduction. Appraisal
and criticism, Ricardo deals with "the long run," Malthus
deals with "the short run." Alfrcd Marshall deals with
both.
II Sismondl's Theory of Commercial Crises 15
The multiple causes of crises. (a) Industrial Revolution
and the Factory System. (b) The "false calculus" of en
treprencurs. (c) Freedom of competition. (d) The role
of banks. (e) Government protection of industry. (f)
Mieu» Value. The possibility of general over-production.
J.
B. Say, Ricardo and Sismondi, debate the "Law of Mar
kets." Sismondi's theory of value, Appraisal and criticism.
Errors and inconsistencies.
III KarI "'1arx . 4I
Theory of value and price. Explanation of price level.
S.urplus value and the business cycle. Appraisal and criti
cisrn.
PART II
EMBODIED llALUE THEORY AND PRICE MOVEMENTS
IN A PAPER ftl0NEY ECONOMY
IV Early Types of Currency and Banking . 57
A. Paper money as commodity tickets. The Commodatum
and Bailment period. B. Paper money as commodity-
ix
