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XVII. But every fall of profitslowers, in some degree, the cost value of things made with much or durable machinery, and raises that of things made by hand; and every rise of profits does the reverse.

§ 2. Such is the general theory of Exchange Value. It is necessary, however, to remark that this theory contemplates a system of production carried on by Capitalists for profit, and not by labourers for subsistence. In proportion as we admit this last supposition —and in most countries we must admit it, at least in respect of agricultural produce, to a very great extent—such of the preceding theorems as relate to the dependence of value on cost of production will require modification. Those theorems are all grounded on the supposition, that the , producer's object and aim is to derive a profit from his capital. This granted, it follows that he must sell his commodity at the price which will afford the ordinary rate of profit, that is to say, it must exchange for other commodities at its cost value. But the peasant proprietor, the metayer, and even the peasant-farmer or allotment-holder— the labourer, under whatever name, producing on his own account—is seeking, not an investment for his little capital, but an advantageous employment for his time and labour. His disbursements, beyond his own maintenance and that of his family, are so small, that nearly the whole proceeds of the sale of the produce are wages of labour. When he and his family have been fed from the produce of the farm (and perhaps clothed with materials grown thereon, and manufactured in the family) he may, in respect of the supplementary remuneration derived from the sale of the surplus produce, be jompared to those labourers who, deriving their subsistence from an inflependent source, can afford to sell their labour at any price which is to their minds worth the exertion. A easant, who supports himself and his amily with one portion of his produce, will often sell the remainder very much

below what would be its cost value to the capitalist. There is, however, even in this case, a minimum, or inferior limit, of value. The produce which he carries to market, must bring in to him the value of all necessaries which he is compelled to purchase; and it must enable him to pay his rent. Rent, under peasant cultivation, is not governed by the principles set forth in the chapters immediately, preceding, but is either determined by custom, as in the case of metayers, or, if fixed by competition, depends on the ratio of population to land. Rent, therefore, in this case, is an element of cost of production. The easant must work until he has cleared is rent and the price of all purchased necessaries. After this, he will go on working only if he can sell the produce for such a price as will overcome his aversion to labour. The minimum just mentioned is what the peasant must obtain in exchange for the whole of his surplus roduce. But inasmuch as this surplus is not a fixed quantity, but may be either greater or less according to the degree of his industry, a minimum value for the whole of it does not give any minimum value for a definite quantity of the commodity. In this state of things, therefore, it can hardl be said, that the value depends at . on cost of production. It depends entirely on demand and supply, that is, on the proportion between the quantity of surplus food which the peasants choose to produce, and the numbers of the non-agricultural, or rather of the non-peasant population. If the buying class were numerous and the growing class lazy, food might be permanently at a scarcity price. I am not aware that this case has anywhere a real existence. If the growing class is energetic and industrious, and the buyers few, food will be extremel cheap. This also is a rare case, thoug some parts of France perhaps approxi. mate to it. The common cases are, either that, as in Ireland until lately, the peasant class is indolent and the buyers few, or the i. industrious and the town population numerous and opulent, as in Belgium, the north of Italy, and parts of Germany. The price of the produce will adjust itself to these varieties of circumstances, unless modified, as in many cases it is, by the competition of producers who are not peasants, or by the prices of foreign markets.

§ 3. Another anomalous case is that of slave-grown produce : which presents, however, by no means the same degree of complication. The slaveowner is a capitalist, and his inducement to production consists in a profit on his capital. This profit must amount to the ordinary rate. In respect to his expenses, he is in the same position as if his slaves were free labourers working with their present efficiency, and were hired with wages equal to their present cost. If the cost is less in proportion to the work done, than the wages of free labour would be, so much the greater are his profits: but if all other producers in the country, possess the same advantage, the values of com

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modities will not be at all affected by it. The only case in which they can be affected, is when the privilege of cheap labour is confined to particular branches of production, free labourers at proportionally higher wages being employed in the remainder. In this case, as in all cases of permanent inequality between the wages of different employments, prices and values receive the impress of the inequality. Slavegrown will exchange for non-slavegrown commodities in a less ratio than that of the quantity of labour required for their production; the value of the former will be less, of the latter greater, than if slavery did not exist. The further adaptation of the theory of value to the varieties of existing or possible industrial systems may be left with great advantage to the intelligent reader. It is well said by Montesquieu, “It is not always advisable so completely to exhaust a subject, as to leave nothing to be done by . reader. The important thing is not to be read, but to excite the reader to thought.”

CHAPTER WII.

OF MONEY.

§ 1. HAviNG proceeded thus far in ascertaining the general laws of Walue, without introducing the idea of money (except occasionally for illustration), it is time that we should now superadd that idea, and consider in what manner the principles of the mutual interchange of commodities are affected by the use of what is termed a Medium of Exchange.

In order to understand the manifold functions of a Circulating Medium, there is no better way than to consider what are the principal inconveniences which we should experience if we had not such a medium. The first and most obvious would be the want of a common measure for values of different sorts. If a tailor had only coats, and wanted to buy bread or a

horse, it would be very troublesome to ascertain how much bread he ought to obtain for a coat, or how many coats he should give for a horse. The calculation must be recommenced on different data, every time he bartered his coat for a different kind of article; and there could be no current price, or regular quotations of value. hereas now each thing has a current price in money, and he gets over all difficulties by reckoning his coat at 4l, or öl, and a four-pound loaf at 6d. or 7d. As it is much easier to compare different lengths by expressing them in a common language of feet and inches, so it is much easier to compare values by means of a common language of pounds, shillings, and pence. In no * Spirit of Laws, conclusion of book xi.

other way can values be arranged one above another in a scale; in no other can a person conveniently calculate the sum of his possessions; and it is easier to ascertain and remember the relations of many things to one thing, than their innumerable cross relations with one another. This advantage of having a common language in which values may be expressed, is, even by itself, so important, that some such mode of expressing , and computing them would probably be used even if a pound or a shilling did not express any real thing, but a mere unit of calculation. It is said that there are African tribes in which this somewhat artificial contrivance actually prevails. They calculate the value of things in a sort of money of account, called macutes. They say, one thing is worth ten macutes, another fifteen, another twenty.” There is no real thing called a macute: it is a conventional unit, for the more convenient comparison of things with one another. This advantage, however, forms but an inconsiderable part of the economical benefits derived from the use of money. The inconveniences of barter are so great, that without some more commodious means of effecting exchanges, the division of employments could hardly have been carried to any considerable extent. A tailor, who had nothing but coats, might starve before he could find any person having bread to sell who wanted a coat: besides, he would not want as much bread at a time as would be worth a coat, and the coat could not be divided. Every person, therefore, would at all times hasten to dispose of his commodity in exchange for anything which, though it might not be fitted to his own immediate wants, was in great and general demand, and easily divisible, so that he might be sure of being able to purchase with it whatever was offered for sale. The primary neces. saries of life possess i. properties in a high degree. Bread is extremely divisible, and an object of universal desire. Still, this is not the sort of

. Montesquieu, Spirit of Laws, book xxii. ch, 8,

thing require i ; for, of food, unless in expectation of a scarcity, no one wishes to possess more at once, than is wanted for immediate consumption; so that a person is never sure of finding an immediate purchaser for articles of food: and unless soon disposed of most of them perish. The thing which people would select to keep by them for making purchases, must be one which, besides being divisible, and generally desired, does not deteriorate by keeping. This reduces the choice to a small number of articles.

§ 2. By a tacit concurrence, almost all nations, at a very early period, fixed upon certain metals, and especially gold and silver, to serve this purpose. No other substances unite the necessary qualities in so great a degree, with so many subordinate advantages. Next to food and clothing, and in some climates even before clothing, the strongest inclination in a rude state of society is for personal ornament, and for the kind of distinction which is obtained by rarity or costliness in such ornaments. After the immediate neces. sities of life were satisfied, every one was eager to accumulate as great a store as possible of things at once costly and ornamental; which were chiefly gold, silver, and jewels. These were the things which it most pleased every one to possess, and which there was most certainty of finding others willing to receive in exchange for any kind of produce. They were among the most imperishable of all substances. They were also portable, and containing great value in small bulk, were easily hid: a consideration of much importance in an age of insecurity. Jewels are infe. rior to gold and silver in the quality of divisibility; and are of very various qualities, not to be accurately discriminated without great trouble. Gold and silver are eminently divisible, and when pure, always of the same quality; and their purity may be ascertained and certified by a public authority.

Accordingly, though furs have been employed as money in some countries, cattle in others, in Chinese Tartary cubes of tea closely pressed together,

the shells called cowries on the coast of Western Africa, and in Abyssinia at this day blocks of rock salt; though even of metals, the less costly have sometimes been chosen, as iron in Lacedaemon from an ascetic policy, copper in the early Roman republic from the verty of the people; gold and silver ave been generally preferred by nations which were able to obtain them, either by industry, commerce, or conquest. To the qualities which originally recommended them, another came to be added, the importance of which only unfolded itself by degrees. Of all commodities, they are among the least influenced by any of the causes which produce fluctuations of value. No commodity is quite free from such fluctuations. Gold and silver have sustained, since the beginning of history, one great permanent alteration of value, from the discovery of the American mines; and some temporary variations, such as that which, in the last great war, was produced by the absorption of the metals in hoards, and in the military chests of the immense armies constantly in the field. In the present age the opening of new sources of supply, so abundant as the Ural Mountains, California, and Aus. tralia, may be the commencement of another period of decline, on the limits of which it would be useless at present to speculate. But on the whole, no commodities are so little exposed to causes of variation. They fluctuate less than almost any other things in their cost of production. And from their durability, the total quantity in existence is at all times so great in proportion to the annual supply, that the effect on value even of a change in the cost of production is not sudden: a very long time being required to diminish mate. rially the quantity in existence, and even to increase it very greatly not being a rapid process. Gold and silver, therefore, are more fit than any other commodity to be the subject of engagements for receiving or paying a given uantity at some distant period. If the engagement were made in corn, a failure of crops might increase the burthen of the payment in one year

to fourfold what was intended, or an exuberant harvest sink it in another to one-fourth. If stipulated in cloth, some manufacturing invention might permanently reduce the payment, to a tenth of its original value. Such things have occurred even in the case of payments stipulated in gold and silver; but the greatfall of their value after the dis. covery of America, is, as yet, the only authenticated instance; and in this case the change was extremely gradual, being spread over a period of many years. When gold and silver had become yirtually a medium of exchange, by becoming the things for which people generally sold, and with which they generally bought, whatever they had to sell or buy; the contrivance of coining obviously suggested itself. By this process the metal was divided into convenient portions, of any degree of smallness, and bearing a recognised proportion to one another; and the trouble was saved of weighing and assaying at every change of possessors, an inconvenience which on the occasion of small purchases would soon have become insupportable. Governments found it their interest to take the operation into their own hands, and to interdict all coining by private persons; indeed, their guarantee was often the only one which would have been relied on, a reliance however which very often it ill deserved; profligate governments having until a very modern period seldom scrupled, for the sake of robbing their creditors, to confer on all other debtors a licence to rob theirs, by the shallow and impudent artifice of lowering the standard; that least covert of all modes of knavery, which consists in calling a shilling a pound, that a debt of a hindred pounds may be cancelled by the payment of a hundred shillings. It would have been as simple a plan, and would have answered the purpose as well, to have enacted that “a hundred” should always be interpreted to mean five, which would have effected the same reduction in all j contracts, and would not ave been at all more shameless. Such strokes of policy have not wholly

ceased to be recommended, but they have ceased to be practised; except occasionally through the medium of paper money, in which case the character of #: transaction, from the É. obscurity of the subject, is a ittle less barefaced.

§ 3. Money, when its use has grown habitual, is the medium through which the incomes of the different members of the community are distributed to them, and the measure by which they estimate their possessions. As it is always by means of money that people provide for their different necessities, there grows up in their minds a powerful association leading them to regard money as wealth in a more peculiar sense than any other article; and even those who pass their lives in the production of the most useful objects, acquire the habit of regarding those objects as chiefly important by their capacity of being exchanged for money. A person who parts with money to obtain commodities, unless he intends to sell them, appears to the imagination to be making a worse bargain than a person who parts with commodities to get money; the one seems to be spending his means, the other adding to them. Illusions which, though now in some measure dispelled, were long powerful enough to overmaster the mind of every politician, both speculative and practical, in Europe. It must be evident, however, that the mere introduction of a particular mode of exchanging things for one another, by first exchanging a thing for money, and then exchanging the money for something else, makes no difference in the essential character of transactions. It is not with money that things are really purchased. Nobody's income (except that of the gold or silver miner) is derived from the recious metals. The pounds or shilings which a person receives weekly or yearly, are not what constitutes his income; they are a sort of tickets or orders which he can present for payment at any shop he pleases, and which entitle him to receive a certain value

of any commodity that he makes choice

of The farmer pays his labourers and his landlord in these tickets, as the most convenient plan for himself and them; but their real income is their share of his corn, cattle, and hay, and it makes no essential difference whether he distributes it to them directly, or sells it for them and gives them the rice; but as they would have to sell it for money if he did not, and as he is a seller at any rate, it best suits the purposes of all, that he should sell their share along with his own, and leave. the labourers more leisure for work and the landlord for being idle. The capitalists, except those who are producers of the precious metals, derive no part of their income from those metals, since they only get them by buying them with their own produce: while all other o have their incomes paid to them y the capitalists, or by those who have received payment from the capitalists, and as the capitalists have nothing, from the first, except their produce, it is that and nothing else which supplies all incomes furnished by them. There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order. The introduction of money does not interfere with the operation of any of the Laws of Value laid down in the preceding chapters. The reasons which make the temporary or market value of things depend on the demand and supply, and their average and permanent values upon their cost of production, are as applicable to a money system as to a system of barter. Things which by barter would exchange for one another, will, if sold for money, sell for an equal amount of it, and so will exchange for one another still, though the process of exchanging them will consist of two operations instead of only one. The relations of com

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