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IV. The natural value of some things is a scarcity value: but most things naturally exchange for one another in the ratio of their cost of production, or at what may be termed their Cost Value. V. The things which are naturally and permanently at a scarcity value, are those of which the supply cannot be increased at all, or not sufficiently to satisfy the whole of the demand which would exist for them at their cost value.

VI. A monopoly value means a scarcity value. Monopoly cannot give a value to anything, except through a limitation of the supply.

VII. Every commodity of which the supply can be indefinitely increased by labour and capital, exchanges for other things proportionally to the cost necessary for producing and bringing to market the most costly portion of the supply required. The natural value is synonymous with the Cost Value, and the cost value of a thing, means the cost value of the most costly portion of it.

VIII. Cost of Production consists of several elements, some of which are constant and universal, others occasional. The universal elements of cost of production are, the wages of the labour, and the profits of the capital. The occasional elements are, taxes, and any extra cost occasioned by a scarcity value of some of the requisites. IX. Rent is not an element in the cost of production of the commodity which yields it: except in the cases, (rather conceivable than actually existing) in which it results from, and represents, a scarcity value. But when land capable of yielding rent in agriculture is applied to some other purpose, the rent which it would have yielded is an element in the cost of production of the commodity which it is employed to produce.

X. Omitting the occasional elements; things which admit of indefinite increase, naturally and permanently exchange for each other according to the comparative amount of wages which must be paid for producing them, and the comparative amount of profits which must be obtained by the capitalists who pay those wages.

XI. The comparative amount of wages does not depend on what wages are in themselves. High wages do not make high values, nor low wages low values. The comparative amount of wages depends partly on the comparative quantities of labour required, and partly on the comparative rates of its remuneration.

XII. So, the comparative rate of profits does not depend on what profits are in themselves; nor do high or low profits make high or low values. It depends partly on the comparative lengths of time during which the capital is employed, and partly on the comparative rate of profits in different em ployments.

XIII. If two things are made by the same quantity of labour, and that labour paid at the same rate, and if the wages of the labourer have to be advanced for the same space of time, and the nature of the employment does not require that there be a permanent difference in their rate of profit; then, whether wages and profits be high or low, and whether the quantity of labour expended be much or little, these two things will, on the average, exchange for one another.

XIV. If one of the two things commands, on the average, a greater value than the other, the cause must be that it requires for its production either a greater quantity of labour, or a kind of labour permanently paid at a higher rate; or that the capital, or part of the capital, which supports that labour, must be advanced for a longer period; or lastly, that the production is attended with some circumstance which requires to be compensated by a permanently higher rate of profit.

XV. Of these elements, the quantity of labour required for the production is the most important: the effect of the others is smaller, though none of them are insignificant.

XVI. The lower profits are, the less important become the minor elements of cost of production, and the less do commodities deviate from a value proportioned to the quantity and quality of the labour required for their production.

XVII. But every fall of profits lowers, | below what would be its cost value to in some degree, the cost value of things the capitalist. made with much or durable machinery, and raises that of things made by hand; and every rise of profits does the reverse.

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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 peasant must work until he has cleared his 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.

§ 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 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 The minimum just mentioned is his capital. This granted, it follows what the peasant must obtain in exthat he must sell his commodity at change for the whole of his surplus the price which will afford the ordi- produce. But inasmuch as this surplus nary rate of profit, that is to say, it is not a fixed quantity, but may be must exchange for other commodities either greater or less according to the at its cost value. But the peasant degree of his industry, a minimum proprietor, the metayer, and even the value for the whole of it does not give peasant-farmer or allotment-holder- any minimum value for a definite the labourer, under whatever name, pro- quantity of the commodity. In this ducing on his own account-is seeking, state of things, therefore, it can hardly not an investment for his little capital, be said, that the value depends at all but an advantageous employment for on cost of production. It depends his time and labour. His disburse- entirely on demand and supply, that is, ments, beyond his own maintenance on the proportion between the quantity and that of his family, are so small, of surplus food which the peasants that nearly the whole proceeds of the choose to produce, and the numbers of sale of the produce are wages of labour. the non-agricultural, or rather of the When he and his family have been non-peasant population. If the buying fed from the produce of the farm (and class were numerous and the growing perhaps clothed with materials grown class lazy, food might be permanently thereon, and manufactured in the at a scarcity price. I am not aware family) he may, in respect of the sup- that this case has anywhere a real plementary remuneration derived from existence. If the growing class is the sale of the surplus produce, be energetic and industrious, and the compared to those labourers who, de- buyers few, food will be extremely riving their subsistence from an in- cheap. This also is a rare case, though dependent source, can afford to sell some parts of France perhaps approxitheir labour at any price which is to mate to it. The common cases are, their minds worth the exertion. A either that, as in Ireland until lately, peasant, who supports himself and his the peasant class is indolent and the family with one portion of his produce, buyers few, or the peasants industrious will often sell the remainder very much 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

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 the reader. The important thing is not to be read, but to excite the reader to thought."*

CHAPTER VII.

OF MONEY.

§ 1. HAVING proceeded thus far in ascertaining the general laws of Value, 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. Whereas now each thing has a current price in money, and he gets over all difficulties by reckoning his coat at 4l. or 5l., 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 necessaries of life possess these 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. eh. 8.

thing required; for, of food, unlessin 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 necessities 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 inferior 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 | to fourfold, what was intended, or an of Western Africa, and in Abyssinia exuberant harvest sink it in another at this day blocks of rock salt; though to one-fourth. If stipulated in cloth, even of metals, the less costly have some manufacturing invention might sometimes been chosen, as iron in Lace- permanently reduce the payment to a dæmon from an ascetic policy, copper tenth of its original value. Such things in the early Roman_republic from the have occurred even in the case of paypoverty of the people; gold and silver ments stipulated in gold and silver; but have been generally preferred by na- the great fall of their value after the distions which were able to obtain them, covery of America, is, as yet, the only either by industry, commerce, or conauthenticated instance; and in this quest. To the qualities which ori- case the change was extremely graginally recommended them, another dual, being spread over a period of came to be added, the importance of many years. which only unfolded itself by degrees. When gold and silver had become Of all commodities, they are among virtually a medium of exchange, by the least influenced by any of the becoming the things for which people causes which produce fluctuations of generally sold, and with which they value. No commodity is quite free generally bought, whatever they had from such fluctuations. Gold and silver to sell or buy; the contrivance of coinhave sustained, since the beginning of ing obviously suggested itself. By this history, one great permanent altera- process the metal was divided into contion of value, from the discovery of venient portions, of any degree of smallthe American mines; and some tem- ness, and bearing a recognised proporporary variations, such as that which, tion to one another; and the trouble in the last great war, was produced by was saved of weighing and assaying the absorption of the metals in hoards, at every change of possessors, an inand in the military chests of the im- convenience which on the occasion of mense armies constantly in the field. small purchases would soon have In the present age the opening of new become insupportable. Governments sources of supply, so abundant as the found it their interest to take the Ural Mountains, California, and Aus-operation into their own hands, and to 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 materially 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 quantity 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

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 hundred 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 pecuniary contracts, and would not have been at all more shameless. Such strokes of policy have not wholly

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