CHAPTER I. ON VALUE AND PRICE BOOK III. CH. 1. Reasons previously consider ing value. HE subject of exchange is so intimately connected with every question of political economy, that many writers on this science consider that the production and distribution of wealth cannot be understood without previously for not ascertaining the laws of exchange. There is reason for this opinion, because it is quite true that many commodities are only produced to be exchanged for other commodities, and the distribution of wealth of course implies the exchange of wealth. We believe, however, that clearness of conception is obtained by the arrangement adopted in this work, for the laws of the production and distribution of wealth have been discussed, without anticipating any of the laws of exchange, which will now be explained. The words value and price have already been occasionally employed without receiving any precise definition. Before investigating the laws of exchange, it is most important to define these words accurately; for many of the most wide-spread errors with regard to economic science arise from confusing the words value and price. The difference in their meaning will be best marked by an illustration. If a sack of wheat exchanges for a ton of coal, or if, in other words, a person who possesses a sack of wheat can obtain a ton of coal in exchange for it, then a ton of coal is the value of a sack of wheat; or, employing more popular phraseology, a sack of wheat is worth a ton of coal. It therefore appears that value implies the comparison of one commodity with another; for a sack of wheat has some particular value with Distinction be tween value and price. BOOK III. CH. I. A general rise or fall of value is impossible. Price is mated in regard to every commodity for which it can be exchanged. If a sack of wheat could be exchanged for six pounds of tea, then six pounds of tea would be the value of a sack of wheat, when estimated in this particular manner. Value, therefore, is a relative expression; for instance, if the value of wheat compared with any particular article falls to a certain amount, there must be a corresponding rise in the value of this commodity, compared with wheat; for if wheat declines in value, so that it will only exchange for half as much tea, then tea must manifestly rise in value, since it will now exchange for twice as much wheat. When, therefore, the general value of a commodity declines, less of every commodity can be obtained for it in exchange; but if this be so, the value of all these commodities must rise when compared with the particular commodity in the value of which it has been supposed a decline has taken place. These considerations demonstrate the erroneous nature of a statement not unfrequently made, that there is a general rise or fall in the value of all commodities. This is as impossible as it would be for each one of six rowers to row faster or slower than the other five. A. cannot row faster than his five companions, except by each of these rowing slower than A. În a similar manner value is a relative expression, and essentially implies comparison. It is quite impossible that there should be a general rise of values, for if there is a rise in the value of one commodity, there must be a fall in the value of all the commodities with which this one is compared. All that is here stated may appear so simple, that it will perhaps be supposed that time is being wasted in explaining self-evident truths. These truths however are by no means self-evident when involved in the entanglement of more complicated propositions. A shade of error has been cast over the writings of some eminent political economists because they have neglected to keep steadily in view the correct meaning of the word value. Price is a particular case of value. If the value of a value esti- commodity is estimated by comparing it with those precious metals which civilised countries employ as money, then it is said that the price, and not the value of a commodity, is ascertained. If a sack of wheat is exchanged for a quantity of gold, termed a pound sterling, it would the metals used as money. CH. I. be perfectly correct to say that the value of a sack of BOOK III. wheat, estimated in gold, is one pound sterling; but, for reasons which will be afterwards explained, it is found convenient to single out this case of value from every other, and consequently it receives a particular name, for it is not termed value, but price. The price of a commodity may therefore be defined as its value, when estimated by comparison with those precious metals which by general consent have been adopted as money. Although there cannot be a general rise or fall in values, there can be a general rise or fall in prices. If the precious metals become much more plentiful, their value compared with all other commodities declines; since a certain quantity of gold or silver will exchange for a diminished quantity of all other commodities. If the value of the precious metals, compared with other commodities, is diminished, the value of all other commodities, compared with the precious metals, must be increased; but, as before stated, the value implied in this latter comparison is termed price, and consequently the price of all commodities will be increased. In political economy a system of propositions may be enunciated, which treat of the value of commodities, and not of their price. This course is usually adopted, but it only adds to the difficulty of the subject, without attaining any practical object of utility; for none of the transactions of trade and commerce in civilised countries are ever arranged without the machinery of a monetary standard. Money has aptly been described as the universal medium of exchange. If it is desired to ascertain how much of one commodity another will exchange for, the calculation is always made in money; the prices of the commodities, and not their values, are considered. If for instance, a person who possessed wheat desired to purchase coal, it would be important for him to estimate the value of wheat compared with coal; but he would not attempt to do this by actually bartering away his wheat for coal; such bartering would be cumbrous and expensive. All that it would be necessary for him to do would be to ascertain how much money his wheat would exchange for. When he thus knew the price of a sack of wheat, and also the price of a ton of coal, the value of wheat Reasons for con sidering price instead of value in this trea tise. BOOK III. CH. I. Ordinary econo mists. estimated in coal would be immediately known, because the quantity of coal for which a certain quantity of wheat would exchange would be accurately ascertained. As therefore, in practice, questions of value involve a method of comparison of prices, our investigations will be simplified political if the laws regulating the price of commodities are considered, without attempting to establish propositions with regard to the values of commodities. But until the functions of money are explained it will be necessary carefully to bear in mind that a certain assumption is made in all the investigations which involve the consideration of price. The assumption is this; that when the price of a commodity varies, the variation is always supposed to be produced by something which affects the value of the commodity, and not the value of the precious metals. We will endeavour to explain our meaning still further, assume at by an illustration. Suppose it is observed that the price We shall present that the value of the precious metals is not affected by any change in the mines. of wheat rises; this rise in the price of wheat may be due to two very distinct causes. In the one case, wheat may become scarcer, and therefore dearer; in the other case, wheat in common with every other commodity may rise in price, in consequence of new discoveries of the precious metals, such as those made in Australia and California, during the last few years. In the following chapters, therefore, which precede the discussion of the theory of money, the assumption is made that variations in price are not caused by an alteration in the value of the precious metals. |