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more all fall, or all rise, than a dozen runners can each outrun all the rest, or a hundred trees all overtop one another. Simple as this truth is, we shall presently see that it is lost sight of in some of the most accredited doctrines both of theorists and of what are called practical men. And as a first specimen, we may instance the great importance attached in the imagination of most people to a rise or fall of general prices. Because when the price of any one commodity rises, the circumstance usually indicates a rise of its value, people have an indistinct feeling when all prices rise, as if all things simultaneously had risen in value, and all the possessors had become enriched. That the money prices of all things, should rise or fall, prowided they all rise or fall equally, is, in itself, and apart from existing contracts, of no consequence. It affects nobody's wages, profits, or rent. Every one gets more money in the one case and less in the other; but of all that is to be bought with money they get neither more nor less than before. It makes no other difference than that of using more or fewer counters to reckon by. The only thing which in this case is really altered in value, is money; and the only persons who either gain or lose are the holders of money, or those who have to receive or to pay fixed sums of it. There is a difference to annuitants and to creditors the one way, and to those who are burthened with annuities, or with debts, the contrary way. There is a disturbance, in short, of fixed money contracts; and this is an evil, o: it takes place in the debtor's favour or in the creditor's. But as to future transactions there is no difference to any one. Let it therefore be remembered (and occasions will often rise of calling it to mind) that a general rise or a general fall of values is a contradiction; and that a general rise or a general fall of prices is merely tantamount to an alteration in the value of money, and is a matter of complete indifference, save in so far as it affects existin contracts for receiving and paying j Pecuniary amounts, and (it must be

added) as it affects the interests of the producers of money.

# 5. Before commencing the inquiry into the laws of value and price, Ihavé one further observation to make. I must give warning, once for all, that the cases I contemplate are those in which values and prices are determined by competition alone. In so far only as they are thus determined, can they be reduced to any assignable law. The buyers must be supposed as studious to buy cheap, as the sellers to sell dear. The values and prices, therefore, to which our conclusions apply, are mercantile values and prices; such prices as are quoted in price-currents; prices in the wholesale markets, in which buying as well as selling is a matter of business; in which the buyers take pains to know, and generally do know, the lowest price at which an article of a given quality can be obtained; and in which, therefore, the axiom is true, that there cannot be for the same article, of the same quality, two prices in the same market. Our propositions will be true in a much more qualified sense, of retail prices; the prices paid in shops for articles of personal consumption. For such things there often are not merely two, but many prices, in different shops, or even in the same shop; habit and accident having as much to do in the matter as general causes. Purchases for private use, even by people in business, are not always made on business principles: the feelings which come into play in the operation of getting, and in that of spending their income, are often extremely different. Either from indolence, or carelessness, or because people think it fine to pay and ask no questions, three-fourths of those who can afford it give much higher prices than necessary for the things they consume; while the poor often do the same from ignorance and defect of judgment, want of time for searching and making inquiry, and not unfrequently from coercion, open or disguised. . For these reasons, retail prices do not follow with all the regularity which might be expected, the action of the causes which

determine wholesale prices. The influence of those causes is ultimately felt in the retail markets, and is the real source of such variations in retail prices as are of a general and permanent character. But there is no regular or exact correspondence. Shoes of equally, good quality are sold in different shops at prices which differ considerably; and do price of leather may fall without causing the richer class of buyers to pay less for shoes. Nevertheless, shoes do sometimes fall in price; and when they do, the cause is always some such general circumstance as the cheapening of leather: and when leather is cheapened, even if no difference shows itself in shops

frequented by rich people, the artisan . the labourer generally get their shoes cheaper, and there is a visible diminution in the contract prices at which shoes are delivered for the supply of a workhouse or of a regiment. In o reasoning about prices, the proviso must be understood, “supposing all parties to take care of their own interest.” Inattention to these distinctions has led to improper applications of the abstract principles of political economy, and still oftener to an undue discrediting of those principles, through their being compared with a different sort of facts from those which they contemplate, or which can fairly be expected to accord with them.



§ 1. THAT a thing may have any value in exchange, two conditions are necessary. It must be of some use; that is (as already explained) it must conduce to some purpose, satisfy some desire. No one will pay a price, or part with anything which serves some of his purposes, to obtain a thing which serves none of them. But, secondly, the thing must not only have some utility, there must also be some difficulty in its attainment. “Any article whatever,” says Mr. De Quincey,” “to obtain that artificial sort of value which is meant by exchange value, must begin by offering itself as a means to some desirable purpose; and secondly, even though possessing incontestably this preliminary advantage, it will never ascend to an exchange value in cases where it can be obtained gratuitously and without effort; of which last terms both are necessary as limitations. For often it will happen that some desirable object may be obtained gratuitously; stoop, and you gather it at your feet; but still, because the continued iteration of this stooping exacts

* Logic of Political Economy, p. 13.

a laborious effort, very soon it is found, that to gather for yourself virtually is not gratuitous. In the vast forests of the Canadas, at intervals, wild strawberries may be gratuitously gathered by shiploads: yet such is the exhaustion of a stooping posture, and of a labour so monotonous, that everybody is soon glad to resign the service into mercenary hands.” As was pointed out in the last chapter, the utility of a thing in the estimation of a purchaser, is the extreme limit of its exchange value: higher the value cannot ascend; peculiar circumstances are required to raise it so high. This topic is happily illustrated by Mr. De Quincey. “Walk into almost any possible shop, buy the first article you see: what will determine its price? In the ninety-nine cases out of a hundred, simply the element D—difficulty of attainment. The other element U, or intrinsic utility, will be perfectly inoperative. Let the thing (measured by its uses) be, for your purposes, worth ten guineas, so that you would rather give ten guineas than lose it; yet, if the difficulty of producing it be only worth one guinea, one guinea is the price which it will bear. But still not the less, though U is inoperative, can U be supposed absent? By no possibility; for, if it had been absent, assuredly you would not have bought the article even at the lowest price. U acts upon you, though it does not act upon the price. On the other hand, in the hundredth case, we will suppose the circumstances reversed; you are on Lake Superior in a steam-boat, making your way to an unsettled region 800 miles a-head of civilization, and consciously with no chance at all of purchasing any luxury whatsoever, little luxury or big luxury, for the space of ten years to come. One fellow passenger, whom you will part with before sunset, has a powerful musical snuff-box; knowing by experience the power of such a toy over your own feelings, the magic with which at times it lulls your agitations of mind, you are vehemently desirous to purchase it. In the hour of leaving London, you had forgot to do so; here is a final chance. But the owner, aware of

our situation not less than yourself, is determined to operate by a strain pushed to the very uttermost upon U, upon the intrinsic worth of the article in your individual estimate for your individual purposes. He will not hear of D as any controlling power or mitigating agency in the case; and finally, although at six guineas a-piece in London or Paris you might have loaded a waggon with such boxes, you }. sixty rather than lose it when the

st knell of the clock has sounded, which summons you to buy now or to forfeit for ever. Here, as before, only one element is operative: before it was D, now it is U. But after all, D was not absent, though inoperative. The inertness of D allowed U to put forth its total effect. . The practical compression of D being withdrawn, U springs up like water in a pump when released ‘rom the pressure of air. Yet still that D was present to your thoughts, though the price was otherwise regulated, is evident; both because U and D must coexist in order to found any case of exchange value what

ever, and because undeniably you take into very particular consideration this D, the extreme difficulty of attainment (which here is the greatest possible, viz. an impossibility) before you con sent to have the price racked up to U. The special D has vanished; but it is replaced in your thoughts by an uhlimited D. Undoubtedly you have submitted to U in extremity as the regulating force of the price; but it was under a sense of D's latent presence. Yet D is so far from exerting any positive force, that the retirement of D from all agency whatever on the price—this it is which creates as it were a perfect vacuum, and through that vacuum U rushes up to its highest and ultimate gradation.” This case, in which the value is wholly regulated by the necessities or desires of the purchaser, is the case of strict and absolute monopoly; in which, the article desired being only obtainable from one person, he can exact any equivalent, short of the point at which no purchaser could be found. But it is not a necessary consequence, even of complete monopoly, that the value should be forced up to this ultimate limit: as will be seen when we have considered the law of value in so far as depending on the other element, difficulty of attainment.

§ 2. The difficulty of attainment which determines value, is not always the same kind of difficulty. It sometimes consists in an absolute limitation of the supply. There are things of which it is #iei, impossible to increase the quantity beyond certain narrow limits. Such are those wines which can be grown only in peculiar circumstances of soil, climate, and exposure. Such also are ancient sculptures; pictures by old masters; rare books or coins, or other articles of antiquarian curiosity. . Among such, may also be reckoned houses and building-ground, in a town of definità extent (such as Venice, or any fortified town where fortifications are necessary. to security); the most desirable sites in any town whatever; houses and parks peculiarly favoured by natural beauty, in places where that advantage is uncommon. Potentially, all land whatever is a commodity of this class; and might be practically so, in countries fully occupied and cultivated. But there is another category, (embracing the majority of all things that are bought and sold,) in which the obstacle to attainment consists only in the labour and expense requisite to produce the commodity. ithout a certain labour and expense it cannot be had : but when any one is willing to incur these, there needs be no limit to the multiplication of the product. If there were labourers enough and machinery enough, cottons, woollens, or linens might be produced by thousands of yards for every single yard now manufactured. There would be a point, no doubt, where further increase would be stopped by the incapacity of the earth to afford more of the material. But there is no need, for any purpose of political economy, to contemplate a time when this ideal limit could become a practical one. There is a third case, intermediate between the two preceding, and rather more complex, which I shall at present merely indicate, but the importance of which in political economy is extremel great. ere are commodities j can be multiplied to an indefinite extent by labour and expenditure, but not by a fixed amount of labour and expenditure. Only a limited quantity can be produced at a given cost; if more is wanted, it must be produced at a greater cost. To this class, as has been often repeated, agricultural produce belongs; and generally all the rude produce of the earth; and this peculiarity is a source of very important consequences; one of which is the necessity of a limit to population; and another, the payment of rent.

§ 3. These being the three classes, in one or other of which all things that are bought and sold must take their place, we shall consider them in their order. And first, of things absolutely limited in quantity, such as ancient sculptures or pictures.

Of such o: it is commonly said,

that their value depends upon their scarcity: but the expression is not sufficiently definite to serve our purpose. Others say, with somewhat greater precision, that the value de. }. on the demand and the supply. ut even this statement requires much explanation, to make it a clear expo. nent of the relation between the value of a thing, and the causes of which that value is an effect. The supply of a commodity is an intelligible expression: it means the ..". offered for sale; the quantity that is to be had, at a given time and place, by those who wish to purchase it. But what is meant by the demand 2 Not the mere desire for the commodity. A beggar may desire a diamond; but his desire, however great, will have no influence on the price. Writers have therefore given a more limited sense to demand, and have defined it, the wish to possess, combined with the power of purchasing. To distinguish demand in this technical sense, from the demand which is synonymous with desire, they call the former effectual demand.* After this explanation, it is usually supposed that there remains no further difficulty, and that the value depends upon the ratio between the effectual demand, as thus defined, and the supply. These phrases, however, fail to satisfy any one who requires clear ideas, and a perfectly precise expression of them. Some confusion must always attach to a phrase so inappropriate as that of a ratio between two things not of the same denomination. What ratio can there be between a quantity and a desire, or even a desire combined with a power? A ratio between demand and supply is only intelligible if by demand we mean the quantity demanded, and if the ratio intended is that between the quantity demanded and the quantity supplied. . . But again, the quantity demanded is not a fixed quantity, even at the same time and place; it varies according to the value: if the thing is cheap, there is usually a demand for more of it than when it is dear. The ilemand, therefore, partly depends on the value. But it was before laid down that the value depends on the demand. From this contradiction how shall we extricate ourselves? How solve the paradox, of two things, each depending upon the other? Though the solution of these difficulties is obvious enough, the difficulties themselves are not fanciful; and Ibring them forward thus prominently, because I am certain that they o scurely haunt every inquirer into the subject who has not openly faced and distinctly realized them. Undoubtedly the true solution must have been frequently given, though I cannot call to mind any one who had given it before myself, except the eminently clear thinker and skilful expositor, J. B. Say. I should have imagined, however, that it must be familiar to all political economists, if the writings of several did not give evidence of some want of clearness on the point, and if the instance of Mr. De Quincey did not prove that the complete nonrecognition and implied denial of it are compatible with great intellectual ingenuity, and close intimacy with the subject matter.

* Adam Smith, who introduced the expression “effectual demand,” employed it to denote the demand of those who are willing and able to give for the commodity what he calls its natural price, that is, the price which will enable it to be permanently produced and brought to market. — See his chapter on Natural and Markot Price (book i. ch. 7.)

§ 4. Meaning, by the word demand, the quantity demanded, and remembering that this is not a fixed quantity, but in general varies according to the value, let us suppose that the demand at some particular time exceeds the supply, that is, there are persons ready to buy, at the market value, a greater quantity than is offered for sale. Comi. takes place on the side of the uyers, and the value rises: but how much? In the ratio (some may suppose) of the deficiency: if the demand exceeds the supply by one-third, the value rises one-third. By no means: for when the value has risen one-third,

the demand may still exceed the sup. ply; there may, even at that higher value, be a greater quantity wanted than is to be had; and the competition of buyers may still continue. If the article is a necessary of life, which, rather than resign, people are willing to pay for at any price, a deficiency of one-third may raise the price to double, triple, or quadruple.* Or, on the contrary, the competition may cease before the value has risen in even the proportion of the deficiency. A rise, short of one-third, may place the article beyond the means, or beyond the inclinations, of purchasers to the full amount. At what point, then, will the rise be arrested?. At the point, whatever it be, which equalizes the demand and the supply: at the price which cuts off the extra third from the demand, or brings forward additional sellers sufficient to supply it. When, in either of these ways, or by a combination of both, the demand becomes equal and no more than equal to the supply, the rise of value will stop. he converse case is equally simple. Instead of a demand beyond the supply, let us suppose a supply exceeding the demand. The competition will now be on the side of the sellers: the extra quantity can only find a market by calling forth an additional demand equal to itself. . This is accomplished by means of cheapness; the value falls, and brings the article within the reach of more numerous customers, or induces those who were already consumers to make increased purchases. The fall of value required to re-establish equality, is different in different cases. The kinds of things in which it is commonly greatest are at the two extremities of the scale; absolute

* “The price of corn in this country has risen from 100 to 200 per cent and upwards, when the utmost computed deficiency of the crops has not been more than between onesixth and one-third below an average, and when that deficiency has been relieved by foreign supplies. If there should be a deficiency of the crops amounting to one-third, without any surplus from a former year, and without any chance of relief by importation, the price might rise ove, six, or even tenfold.”— Tooke's History of Prices vol. i. pp. 13–5.

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