74 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK
phi Le of
for the purposes of exchange to reduce them to common units
of value. Due to the tendency of labor and capital to seek the
most profitable lines of employment and the consequent tendency
of wages of similar laborers to approach equality and of the
interest rate to approach uniformity, the margin of production
for both labor and capital runs through all industries and must
therefore be measured in terms of value. It is idle to deny that
this introduces grave complications into the theory of marginal
productivity.
Thus the value of a worker to an employer is measured by the
money addition which he makes to the income of the concern
rather than in terms of the benefit which he creates for society.
Thus the process of reasoning by which the manufacturer of a
quack patent medicine decides whether he shall engage another
chemist is precisely the same as that by which a dairyman
decides whether he shall employ another milkmaid. Each worker
will tend to yield less profit to his employer than his predecessor
although in one case the profits will come from conveying worth-
less articles to adults and in the other from producing milk for
children. Similarly those who are employed in giving an employer
a competitive advantage over his fellows without increasing the
national product as such all come under the principle of marginal
productivity as do those who may actually decrease the total
product in which they share.
Yet even this dilemna may be mitigated if we measure the
output of industry in the form of a composite of physical goods
and of services as has been attempted in the various indexes of
production compiled by Day, Stewart and others. Granted that
there are parasitical elements within each volume of output, it
will be enough if we assume that the proportion of parasitism
remains the same, and consider the change in the product as a
whole which accompanies changes in the quantity of the factors.
And if it be objected that it is impossible to construct such an
index of production because the values of commodities change
from year to year, it can be pointed out that the problem has
been virtually solved by Professor Irving Fisher's “ideal” index
number whereby the weighted geometric mean of the ratios of
value in the base year and in succeeding years may be secured.’
1 See Thorstein Veblen’s paper, “Industrial and Pecuniary Employments,”
reprinted in The Place of Science in Modern Civilization.
2 Fisher. The Making of Index Numbers.