Creative Intelligence · John Dewey
II
With this, then, appears to fall away all ground for a one-sided, or even a sharply two-sided, conception of the process of fixation of market-values. A "marginal utility" theory and a "cost of production" theory of market price alike assume that the factor chosen as the ultimate determinant is a fixed fact defined by conditions which the actual spatial and temporal meeting-together of buyers and sellers in the market cannot affect. In this logical sense, the chosen determinant is in each case an ante-market or extra-market fact and the same is true of the blades of Marshall's famous pair of scissors. The price of a certain article let us say is $5. According to the current type of analysis this is the price because, intending buyers' and sellers' valuations of the article being just what they are, it is at this figure that the largest number of exchanges can occur. Were the price higher there would be more persons willing to sell than to buy; were it lower there would be more persons willing to buy than to sell. At $5 no buyer or seller who means what he says about his valuation when he enters the market goes away disappointed or dissatisfied. With this price established all sellers whose costs of production prevent their conforming to it must drop out of the market; so must all buyers whose desire for the article does not warrant their paying so much. More fundamentally then, Why is $5 the price? Is it because intending buyers and the marginal buyer in particular do not desire the article more strongly? Or is it because conditions of production, all things considered, do not permit a lower marginal unit cost? The argument might seem hopeless. But the advantage is claimed for the principle of demand. Without demand arising out of desires expressive of wants there would simply _be_ no value, no production, and no price. Demand evokes production and sanctions cost. But cost expended can give no value to a product that no one wants.
Does it follow, however, that the cost of a commodity in which on its general merits I have come to take a hypothetical interest can in no wise affect my actual price-offer for it? Can it contribute nothing to the preciser definition of my interest which is eventually to be expressed in a price offer? If the answer is "No, for how can this external fact affect the strength of your desire for the object?"--then the reason given begs the question at issue. _Is_ my interest in the object an interest in the object alone? And _is_ the cost of the object a fact for me external and indifferent? It is, at all events, not uncommon to be assured that an article "cannot be produced for less," that one or another of its elements of cost is higher than would be natural to suppose. Not always scientifically accurate, such assurances express an evident confidence that they will not be without effect upon a hesitant but fair-minded purchaser.
And in other ways as well, the position of sellers in the market is not so defenseless as a strict utility theory of price conceives--apart from the standpoint of an abstract "normality" that can never contrive to get itself realized in empirical fact.[63] It is true that, in general, one tends to purchase an article of a given familiar kind where its price, all things considered, is lowest. In consequence the less "capable" producers or sellers must go to the wall. But the fact seems mainly "regulative" and of subordinate importance. Is it equally certain that as between branches of expenditure, such as clothing, food, and shelter, children, books, and "social" intercourse, the shares of income we expend upon them or the marginal prices we are content to pay express the original strength of separate and unmodified extra-market interests? On the contrary we have paid in the past what we have had to pay, what we have deemed just and reasonable, what we have been willing experimentally to hazard upon the possibility of the outlay's proving to have been worth while. In these twilight-zones of indetermination, cost as well as other factors of supply have had their opportunity. Shall we nevertheless insist that our "demands" are _ideally_ fixed, even though in fallible human fact they are more or less indistinct, yielding and modifiable? On the contrary they are "in principle and for the most part" indeterminate and expectant of suggested experimental shaping from the supply side of the market. It is less in theory than in fact that they have a salutary tendency (none too dependable) toward rigidity.
Ideas discussed in this chapter
Text from Project Gutenberg, public domain in the United States.