VALUE IN EXCHANGE.

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largely into the calculations of practical economists, and complicates matters, namely, the value in exchange. If all commercial intercourse were simple barter, there would be little difficulty in this matter. But since all commodities are frequently exchanged, passing through many hands from the time of their production until they are finally consumed, they receive a certain exchange value which sometimes, but not invariably, is the price or equivalent given in the purchase. Now this value in exchange has been made the alpha and omega of political economy, and we must therefore carefully look into it. Moreover, it is the want of clear views on this subject that often has given a handle to socialistic writers in their attacks on private property. Now, actually exchange value is simply the estimate we form in our own mind of the relative values of the commodities to be exchanged, i.e. a comparison between the two values of cost and use. After this antecedent judgment of the mind, we are ready or unwilling to pay the price in so far as it seems to us a proper equivalent or cost for the use of the tendered commodity.

No doubt there is some complexity in the process of weighing the comparative values of expenditure and enjoyment, as indicated by the exchange value of any commodity. Here we have no longer the simple problem of Robinson Crusoe, but that of a whole community of economic human beings engaged in constant exchanges of the multifarious production and consumption of commodities in which all have a share. Here the producer must anticipate the value of his product to the consumer, what it will fetch in the market; he must be guided by the demand for his goods.] On the other hand the consumer has to consider, not merely the cost of production of the article he requires, but the lowest amount at

which it can be procured. And the function of valuation becomes more complex by the necessary interference of merchants, agents, and speculators, who become the medium of exchange between the producer and consumer. Take, for example, the following case. The manufacturer of raw iron buys iron ore, the merchant buys the raw iron and sells it again to the steel manufacturer. From him again another merchant buys the manufactured steel, and sells it to the cutler who, in his turn, produces the knife, which is finally bought by the consumer for a certain price in money. Here, instead of a simple comparison of the values of the cost and use, there are successive valuations through all the multifarious commercial transactions. The steel manufacturer inquires, what was the cost of steel to me? and he asks himself when and where will my manufactured article attain its highest market value? and so all the rest, in their calculations, aim at buying in the cheapest and selling in the dearest market. Exchange value, then, in each individual case, is the value put on any given article with a view to profit.

The price therefore of any commodity is not invariably the real value in exchange, but simply the result of the two estimates as to the cost and use of the commodity ultimately formed by the buyer and seller respectively. Now these considerations will assist us in dispelling hazy and deceptive views with regard to the non-agreement between the ever-varying value in exchange and the original cost and the real value in use of any commodity. It is quite true the actual price paid does not coincide always with the cost price, and each successive retail price rarely harmonizes with the former purchase value of the article. This is a natural result of a widely extended system of human economy in commerce, having for its

EXAMPLES OF VALUE IN EXCHANGE.

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object the attainment of the most useful commodity at the least expenditure. The best and most cautious calculator must draw the greatest advantage. But where illegitimate steps are taken by him to influence price oscillations (as spreading of false reports, etc.) he is deserving punishment or contempt. These price oscillations themselves, however, are merely indicators in social economy, just as the motions of the manometer point out the exact amount of tension in the steam-engine. Again, it is to be noticed that for all practical purposes the value in exchange may be regarded as represented in the price of any article. The purchaser always considers the last price paid by him for it, and the probable price to be obtained for it from the next buyer. Thus in the final price is condensed the whole series of previous individual value-estimates, as so many fixed points round, which revolve the various processes of trade.

And

And thirdly we have to point out that value in exchange is not simply the marketable value or purchasing power of a commodity, as some affirm. It represents the previous cost in producing it as much as, according to Mill, the "deferred value in the use of it." the comparison is assisted by the use of that common measure, money. But although price is the consequence of an antecedent judgment formed in the minds of buyer and seller as to the value of the article, regarding the cost of production or its ultimate use, still a great deal depends on the state of the market, on supply and demand. A. buys a certain quantity of corn, and estimates its value at fifty shillings; this is the exchange value of the corn to him personally. But suppose B. tenders the same quality of corn in the same market at forty shillings, this will be the price of corn, and A. will not pay more; and the difference of ten

shillings represents the deviation of price from value in exchange. Price then is the result of a compromise between different estimates of value formed by many individuals. It is not exactly the exchange value of the commodity, but the value which results from the state of the market at a certain time and place.

From this it follows that exchanges effected between different parties may be profitable to all, though not in equal proportion. Exchange effects an economic equalization or average of all the various estimates of value formed by different individuals, belonging to different nationalities, and inhabiting places at considerable distances on our globe, but linked together by the same social bond, commerce. A Chinaman who can produce as much silk in ten days as an Englishman would in one hundred, and the Englishman who can produce as much hardware in ten days as the Chinaman could in one hundred and twenty, are both gaining in the exchange effected between silk and hardware produced in ten days by each respectively. The Chinaman saves one hundred and ten, the Englishman ninety days of labour, provided the former in producing silk estimates its value at one hundred days of labour, and the latter producing hardware estimates the value at one hundred and twenty days' labour saved.

The time has not yet arrived for the full explanation of this process, against which the most important attacks of socialism are being directed. But thus much it was necessary to establish, in order to show how, according to our existing social community of production, an enormous economy is effected. Now everybody can be provided with any commodity at the lowest cost at which it can be produced at any given time or place, whatever be its actual value to the purchaser.

And

MENTAL OPERATIONS DETERMINE MARKET-PRICE. 27

also it was necessary to show how the market price effects the most economical mode of production and consumption, expelling as it does from the ranks of manufactured commodities supplied all those the cost price of which exceeds the market price, and stopping as it does the demand for all commodities whose market price exceeds their estimated value. For it would be equally absurd to produce at a loss, or to buy at ruinous prices.

Market price, then, is a sort of regulator of the social movement, in its rise attracting, and in its fall deterring, production, and in the same way by the fall of prices encouraging demand, and by a rise in prices discouraging it. It is, as it were, the fly-wheel which equalizes the various irregular and restless motions of individual valuation, in order to effect the most economical provision for all, with all conceivable commodities, under the most varying requirements. Whilst therefore, the inner processes of ratiocination, with regard to the mutual relationship between the values of cost in production, and use of the purchasable commodity, are of paramount importance, the market price serves as a check to correct any individual miscalculations, and competition for the highest amount of profit compels all in the commercial arena to avoid excessive expenditure in the original cost, and prevents misdirected efforts in production. Thus the process becomes more regular and evenly balanced practically, and the subjective valuation is corrected by objective interests, and that in the most effective manner for the good of society.

Here we see, what seems to have been so frequently overlooked, the importance of a correct apprehension, and the use of the reason in superintending all economic activity. Without the operation of a ruling mind,