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BOOK III.

EXCHANGE.

CHAPTER I.

OF VALUE.

§ 1. THE subject on which we are now about to enter fills so important and conspicuous a position in political economy, that in the apprehension of some thinkers its boundaries confound themselves with those of the science itself. One eminent writer has proposed as a name for Political Economy, "Catallactics," or the science of exchanges: by others it has been called the Science of Values. If these denominations had appeared to me logically correct, I must have placed the discussion of the elementary laws of value at the commencement of our enquiry, instead of postponing it to the Third Part; and the possibility of so long deferring it is alone a sufficient proof that this view of the nature of Political Economy is too confined. It is true that in the preceding Books we have not escaped the necessity of anticipating some small portion of the theory of Value, especially as to the value of labour and of land. It is nevertheless evident, that of the two great departments of Political Economy, the production of wealth and its distribution, the consideration of Value has to do with the latter alone; and with that only so far as competition, and not usage or custom, is the distributing agency. The conditions and laws of Production would be the same as they are, if the arrangements of society did not depend on exchange, or did not admit of it. Even in the present system of industrial life, in which employments are minutely subdivided, and all concerned in production de

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pend for their remuneration on the price of a particular commodity, exchange is not the fundamental law of the distribution of the produce, no more than roads and carriages are the essential laws of motion, but merely a part of the machinery for effecting it. To confound these ideas, seems to me not only a logical, but a practical blunder. It is a case of the error too common in political economy, of not distinguishing between necessities arising from the nature of things, and those created by social arrangements: an error, which appears to me to be at all times producing two opposite mischiefs; on the one hand, causing political economists to class the merely temporary truths of their subject among its permanent and universal laws; and on the other, leading many persons to mistake the permanent laws of Production (such as those on which the necessity is grounded of restraining population) for temporary accidents arising from the existing constitution of society-which those who would frame a new system of social arrangements, are at liberty to disregard.

In a state of society, however, in which the industrial system is entirely founded on purchase and sale, each individual, for the most part, living not on things in the production of which he himself bears a part, but on things obtained by a double exchange, a sale followed by a purchase-the question of Value is fundamental. Almost every speculation respecting the economical interests of a society

thus constituted, implies some theory of Value: the smallest error on that subject infects with corresponding error all our other conclusions; and anything vague or misty in our conception of it, creates confusion and uncertainty in everything else. Happily, there is nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it and to do this, some minuteness of exposition, and considerable demands on the patience of the reader, are unavoidable. He will be amply repaid, however, (if a stranger to these inquiries) by the ease and rapidity with which a thorough understanding of this subject will enable him to fathom most of the remaining questions of political economy.

§ 2. We must begin by settling our phraseology. Adam Smith, in a passage often quoted, has touched upon the most obvious ambiguity of the word value; which, in one of its senses, signifies usefulness, in another, power of purchasing; in his own language, value in use, and value in exchange. But (as Mr. De Quincey has remarked) in illustrating this double meaning, Adam Smith has himself fallen into another ambiguity. Things (he says) which have the greatest value in use have often little or no value in exchange; which is true, since that which can be obtained without labour or sacrifice will command no price, however useful or needful it may be. But he proceeds to add, that things which have the greatest value in exchange, as a diamond for example, may have little or no value in use. This is employing the word use, not in the sense in which political economy is concerned with it, but in that other sense in which use is opposed to pleasure. Political economy has nothing to do with the comparative estimation of different uses in the judgment of a philosopher or of a moralist. The use of a thing, in political economy, means its capacity to satisfy a desire,

or serve a purpose. Diamonds have this capacity in a high degree, and unless they had it, would not bear any price. Value in use, or as Mr. De Quincey calls it, teleologic value, is the extreme limit of value in exchange. The exchange value of a thing may fall short, to any amount, of its value in use; but that it can ever exceed the value in use, implies a contradiction; it supposes that persons will give, to possess a thing, more than the utmost value which they themselves put upon it, as a means of gratifying their inclinations.

The word Value, when used without adjunct, always means, in political economy, value in exchange; or as it has been called by Adam Smith and his successors, exchangeable value, a phrase which no amount of authority that can be quoted for it can make other than bad English..__Mr. De Quincey substitutes the term Exchange Value, which is unexceptionable.

Exchange value requires to be distinguished from Price. The words Value and Price were used as synonymous by the early political economists, and are not always discriminated even by Ricardo. But the most accurate modern writers, to avoid the wasteful expenditure of two good scientific terms on a single idea, have employed Price to express the value of a thing in relation to money; the quantity of money for which it will exchange. By the price of a thing, therefore, we shall henceforth understand its value in money; by the value, or exchange value of a thing, its general power of purchasing; the command which its possession gives over purchaseable commodities in general.

§ 3. But here a fresh demand for explanation presents itself. What is meant by command over commodities in general? The same thing exchanges for a great quantity of some commodities, and for a very small quantity of others. A suit of clothes exchanges for a great quantity of bread, and for a very small quantity of precious stones. The value of a thing in exchange for some commodities may be rising, for

others falling. A coat may exchange | considering the causes which raise or for less bread this year than last, if the lower the value of corn, we suppose harvest has been bad, but for more that woollens, silks, cutlery, sugar, glass or iron, if a tax has been taken timber, &c., while varying in their off those commodities, or an improve- power of purchasing corn, remain ment made in their manufacture. Has constant in the proportions in which the value of the coat, under these cir- they exchange for one another. On cumstances, fallen or risen? It is im- this assumption, any one of them may possible to say: all that can be said be taken as a representative of all the is, that it has fallen in relation to one rest since in whatever manner corn thing, and risen in respect to another. varies in value with respect to any one But there is another case, in which no commodity, it varies in the same one would have any hesitation in manner and degree with respect to saying what sort of change had taken every other; and the upward or downplace in the value of the coat: namely, ward movement of its value estimated if the cause in which the disturbance in some one thing, is all that needs be of exchange values originated, was considered. Its money value, theresomething directly affecting the coat fore, or price, will represent as well as itself, and not the bread, or the glass. anything else its general exchange Suppose, for example, that an inven- value, or purchasing power; and from tion had been made in machinery, by an obvious convenience, will often be which broadcloth could be woven at employed by us in that representative half the former cost. The effect of character; with the proviso that money this would be to lower the value of a itself do not vary in its general purcoat, and if lowered by this cause, it chasing power, but that the prices o would be lowered not in relation to all things, other than that which we bread only or to glass only, but to all happen to be considering, remain unpurchaseable things, except such as altered. happened to be affected at the very time by a similar depressing cause. We should therefore say, that there ad been a fall in the exchange value or general purchasing power of a coat. The idea of general exchange value originates in the fact, that there really are causes which tend to alter the value of a thing in exchange for things generally, that ris, for all things which are not themselves acted upon by causes of similar tendency.

In considering exchange value scientifically, it is expedient to abstract from it all causes except those which originate in the very commodity under consideration. Those which originate in the commodities with which we compare it, affect its value in relation to those commodities; but those which originate in itself, affect its value in relation to all commodities. In order the more completely to confine our attention to these last, it is convenient to assume that all commodities but the one in question remain invariable in their relative values. When we are

§ 4. The distinction between Value and Price, as we have now defined them, is so obvious, as scarcely to seem in need of any illustration. But in political economy the greatest errors arise from overlooking the most obvious truths. Simple as this distinction is, it has consequences with which a reader unacquainted with the subject would do well to begin early by making himself thoroughly familiar. The following is one of the principal. There is such a thing as a general rise of prices. All commodities may rise in their money price. But there cannot be a general rise of values. It is a contradiction in terms. A can only rise in value by exchanging for a greater quantity of B and C; in which case these must exchange for a smaller quantity of A. All things cannot rise relatively to one another. If one-half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half; and reciprocally, the fall implies a rise. Things which are exchanged for one another can no

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8 5. Before commencing the inquiry into the laws of value and price, I have 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

more all fall, or all rise, than a dozen | added) as it affects the interests of the
runners can each outrun all the rest, producers of money.
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 ima-
gination 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 be-
come enriched. That the money prices
of all things should rise or fall, pro-
vided they all rise or fall equally, is, in
itself, and apart from existing con-
tracts, 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 con-
trary way. There is a disturbance, in
short, of fixed money contracts; and
this is an evil, whether it takes place
in the debtor's favour or in the cre-
ditor's. But as to future transactions
there is no difference to any one. Let
it therefore be remembered (and occa-
sions 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 existing
contracts for receiving and paying fixed
pecuniary amounts, and (it must be

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 the 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 and 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 all 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.

CHAPTER II.

OF DEMAND AND SUPPLY, IN THEIR RELATION TO VALUE.

§ 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,* 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 esti"tomation 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

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