First, with regard to the definition of the principal terms, we have already seen that the word "value" has two meanings: that people sometimes employ it to denote simply usefulness, and at other times exchange value or power of purchasing; and that it is in the latter sense that the term is used in political economy. This must be carefully remarked, for the ambiguity in the word has very often been the source of misconceptions and false reasoning. The distinction between value and price should also be noted. The value of a commodity means its general power of purchasing; whereas the price means the value in money, that is, the quantity of money for which it exchanges.

When we consider the meaning of the word "value," it is evident that it expresses no quality inherent in a commodity itself, but only a relation between it and other commodities. The value of a thing is the quantity of other things for which it exchanges. Value is therefore a relative term. When one thing rises in value, something else must necessarily fall. There cannot be a general rise or fall of values; the very idea of such an occurrence involves a contradiction. There may however be a general rise or fall of prices, from variations in the quantity of the circulating medium, whether of coins or notes. This distinction between values and prices, with regard to their general rise or fall, is obvious, and yet it is frequently overlooked. In fact, there is scarcely any topic in political economy, on which there has been so much false reasoning and baseless speculation, as on the advantages of a general rise of prices. Many writers (for example, the celebrated David Hume, Mr. John Gray, Mr. Attwood, Sir A. Alison, Mr. Thomas Doubleday, and others) have asserted that this is of vast importance to national welfare; and many schemes have been devised for effecting it, such as the adoption of an inconvertible currency, and large issue of paper money. There seems to be a vague idea, that when prices rise, values rise also, and every one grows richer. But such a thing as a general rise of values is impossible; and with regard to the rise of prices, instead of being an advantage, it is a great evil. Society in general are unaffected by a general rise of prices; for although people receive more money for their goods and services, they have also to pay more. The value of commodities in relation to each other remains as before, that of money alone being altered; and all the difference which this makes to society at large, is that they have more counters or pieces of paper to reckon by. It is therefore immaterial to the community at large, whether the amount of the currency be great or small. "The uses of money," says Mr. Mill, "are in no respect promoted by increasing the quantity which exists and circulates in a country: the service which it performs being as well rendered by a small as by a large aggregate amount. Two million quarters of corn will not feed so many persons as four millions; but two millions of pounds sterling will carry on as much traffic, will buy and sell as many commodities as four millions, though at lower nominal prices." The only persons who are really affected by a general rise or fall of prices (which is equivalent to a fall or rise in

the value of money), are those who have fixed sums of money to pay and to receive, such as debtors and creditors; and to whichever side the advantage accrues, it is an evil, as it defeats the claims of justice. Money, the standard of value, should be as invariable as the nature of things permits. It is not therefore a general rise of values (which is impossible), nor of prices (which is an evil) that is to be desired. What is really wanted, is that the productiveness of labor should be increased; that there should be a greater mass of commodities in proportion to the numbers of the community; and that bread, meat, &c., should fall, and labor rise, in value. These great objects cannot be attained by multiplying pieces of paper, but solely by restraining population, so as to lighten its pressure on the productive powers of the soil.

Having examined the meaning of the word value, the next question is, On what causes does the value of commodities depend? what is it, for example, that makes gold so much more valuable than copper, or diamonds than corn? Why is the value of labor so much lower in England than in the United States or Australia? These effects, like all others in nature, depend on definite causes, which it is the part of political economy to ascertain.

All things which possess an exchange value must have two qualities, Utility, and Difficulty of Attainment; in other words, they must be capable of satisfying some want, and they must not be obtainable gratuitously or without exertion. Neither of these qualities can be absent without destroying value. For instance, if a thing (such as the air) possess utility, without difficulty of attainment, or if another thing (such as a rope of sand) be difficult to obtain, and yet have no utility, neither of them can have any power of purchasing. These two qualities, therefore, are the necessary conditions, or causes, of value. But though neither of them can be absent, they need not both be directly operative. In fact, in the case of most articlesthose whose value depends on Cost of Production-the element utility, as will be seen presently, has nothing whatever to do with their permanent or average value. It is not indeed absent, for it acts on the mind of the purchaser; but it does not act on the price. In those cases however, where the value depends on Demand and Supply, utility has a more or less powerful influence in determining it.

The other element, namely, Difficulty of Attainment, is always operative, and the price of most things depends on it alone. There are three different degrees of difficulty in the attainment of commodities. The supply of some cannot be increased at all; that of others can be increased indefinitely at what may be termed, for practical purposes, a uniform expense; while in a third class of cases, the supply can be indefinitely increased, but not at a uniform expense; if more than a certain quantity be required, a greater expense must be incurred in order to obtain it. All commodities whatsoever that are bought and sold, are included under one or other of these three divisions, to each of which a different law of value applies. Under the first class come those things whose quantity is absolutely limited;

such as ancient pictures or statues, or choice wines which can be grown only in peculiar situations. The second class comprehends the majority of marketable articles; such as shoes, hats, glass, &c. Agricultural and mineral products, and in general all the raw produce of the earth, belong to the third class. We will consider in succession the causes which determine the value of each of these three classes of commodities.

The value of those belonging to the first class depends on Demand and Supply. As the law of demand and supply is very important, and is often somewhat vaguely conceived, it deserves an attentive consideration.

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The supply of a thing is the quantity offered for sale; but the demand for it needs some explanation. It is not a mere desire. beggar may desire a diamond," says Mr. Mill, "but his desire, however great, has no influence on its price." The demand, which does affect price, and with which we are alone here concerned, is defined by economists as a desire combined with a power of purchasing, and is termed effectual demand. But secondly, in order to obtain a clear idea of the relation between supply and demand, we should understand by the latter term the quantity demanded; for in this way only can an intelligible comparison be drawn between things of so different a nature as a quantity and a desire. Lastly, it should be remembered that the quantity demanded is not a fixed quantity, but varies with the price of the commodity. It generally increases when the price falls, and diminishes when it rises.

Understanding then by demand the quantity demanded, and by supply the quantity supplied, the law is, that the value of commodities always adjusts itself so that the demand is made equal to the supply. If the demand at any time exceed the supply; in other words, if a greater quantity of the article be required than can be supplied at a given value; the value will rise from competition among the buyers, until the demand be so reduced by the increasing dearness that the supply is again made equal to it. If on the other hand, the supply exceed the demand, the value will fall from competition on the side of the sellers, until additional purchasers are called forth by the cheapness, or until part of the supply is withdrawn from the market. In all cases, where competition is active on both sides, the value settles at that point, where the quantity demanded and the quantity supplied are exactly equal to each other.

The law therefore may properly be called the Equation of Demand and Supply. The value of commodities will be such that the demand and supply of them are made equal. Mr. Mill shows that this is a more correct expression of the law, than to say, that value depends on the proportion between the demand and the supply. The latter phrase is indeed frequently employed from its convenience (as for instance, in the law of wages, which is a case of the general law of demand and supply), but it is apt to suggest an erroneous impression. It might lead us to suppose that the value rises or falls, in the exact ratio in which the supply falls short of or exceeds the demand. But this is

by no means the case. Suppose for example that the supply of corn in the market is one-third below the demand; in other words that there are purchasers willing to take one-third more corn at the market value than the quantity offered for sale. The value will rise; but it may rise in a very different proportion from one-third. When it has risen a third, the demand may still exceed the supply. The value may continue rising, until it has reached a point several times higher than the original deficiency in the supply: and its rise will only be checked, when from the increasing dearness, either the number of purchasers is diminished, or a larger quantity of corn is brought into the market, so that the demand and supply are equalized. “The price of corn in this country," says Mr. Tooke, the highest authority on the subject, in his History of Prices, "has risen from 100 to 200 per cent. and upwards, when the utmost computed deficiency of the crops has not been more than between one-sixth 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 five, six, or even ten-fold." Again, suppose the converse case, that the supply of corn exceeds the demand. The value will fall, probably in a considerably greater ratio than the excess of the supply. It will settle at the point where the demand and supply are again made equal to each other; either by an increased consumption consequent on the cheapness, or by the farmers and corn dealers withdrawing part of the supply from the market, and storing it up for future sale. The rise or fall of value necessary to equalize demand and supply, is different in different commodities. It is generally greatest in the case of absolute necessaries, or of those luxuries the consumption of which is confined to a small class.

"Thus we see," says Mr. Mill, "that the idea of a ratio as between demand and supply, is out of place, and has no concern in the matter; the proper mathematical analogy is that of an equation. Demand and supply, the quantity demanded and the quantity supplied, will be made equal. If unequal at any moment, competition equalizes them, and the manner in which this is done is by an adjustment of the value. If the demand increases, the value rises; if the demand diminishes, the value falls: again, if the supply falls off, the value rises; and falls, if the supply is increased. The rise or the fall continues until the demand and supply are again equal to one another; and the value which a commodity will bring in any market is no other than the value which, in that market, gives a demand just sufficient to earry off the existing or expected supply."

It should be borne in mind that the reasonings upon values and prices contained in economical works are more particularly applicable to the prices in the wholesale market. Here competition is active on both sides; the buyers as well as the sellers are men of business, and are attentive to their own interests; so that in this case the economical axiom is generally true that "there cannot be two prices in the same

market” for an article of the same quality. But in the retail market we all know that there are frequently two or more prices for the same article, not merely at different shops, but even in the same shop. The reason is, that the law of demand and supply is counteracted by other causes, such as the carelessness or ignorance of the buyers, who do not take pains to learn the lowest price at which the article may be had. "In all reasonings about prices," says Mr. Mill, "the proviso must be understood, supposing all parties to take care of their interests."

The cases to which the law of demand and supply is applicable, are the following.

In the first place, it determines the temporary, or as it is called the market value, of all commodities whatsoever.

Secondly, it determines the permanent or natural value of those commodities the supply of which cannot be indefinitely increased. The quantity of some things (such as ancient statues, choice wines, &c.), is strictly limited by natural causes. Here the competition is wholly on the side of the buyers, and the value is termed a scarcity value. In other cases the limitation of the supply proceeds not from natural but artificial causes. This is the case with those articles which are the subject of a monopoly; such as tobacco in France, and salt and opium in British India. A monopoly is an exclusive privilege of furnishing the market with certain kinds of goods or services. By it the free action of competition is prevented, and the gains of a favored few are kept on a higher level than those of the rest of the community. It is often said that the value of monopolized articles is arbitrary, and depends wholly on the will of the sellers. This is in one sense true; but it is not the less true that the value depends on demand and supply. The monopolist can indeed fix the price for his goods at any amount short of the utmost that purchasers are willing to give; but he can only do so by limiting the supply. He cannot both sell his goods at a high price, and dispose of a large quantity of them. A monopoly value is therefore in reality a scarcity value; it is kept above its just level solely by limitation of the supply; and the case forms no exception to the ordinary law of demand and supply.

Thirdly, although but few commodities are permanently insusceptible of being increased at will, yet any commodity whatever may be temporarily in this condition. Such for example is habitually the case with agricultural produce. The supply of corn cannot be increased till the next harvest, and during the whole interval the value is regulated by demand and supply. The quantity of some other things, such as houses, or gold and silver, is capable of being rapidly increased, but cannot be rapidly diminished. If the demand for these durable articles falls off, their value may continue for some time considerably below the cost of production; and will rise to the natural level only when, by the wearing out of the buildings, &c., the supply is no longer excessive. In this case also, the value may be for some length of time governed by demand and supply.

Fourthly, there are some commodities of which, though susceptible