CHAPTER I.

Exchangeable Value—How it is determined—Conditions required to render a Commodity invariable in its Exchangeable Value—Cost or real Value—How it is determined—Conditions required to render a Commodity invariable in its Cost—Quantity of Labour required to produce a Commodity different from the Quantity for which it will exchange—Corn not invariable in its Value—Changes in the Value of Money.

We endeavoured to show, at the commencement of this work, that the value and the utility of commodities are totally distinct qualities, and cannot be confounded, or regarded in the same point of view, without leading to the most erroneous conclusions. An article is useful, or possessed of utility, when it has the power or capacity of exciting, satisfying, or gratifying one or more of the various wants and desires of man. But an article is not valuable, or possessed of value, unless it may be exchanged for some quantity of voluntary labour, or of some article or product, obtainable only through the exertion of such labour.

Without utility of some sort or other, no article will ever be desired. But the most useful article, if it be a spontaneous production of nature, and may be freely enjoyed by every individual, is wholly destitute of value; for none will either labour, or give the produce of labour, for that which Providence gratuitously supplies. That an article may have value, it is indispensable that some expenditure of labour, or, which is the same thing, some sacrifice of toil and trouble, should be required for its acquisition, and that it should be capable of being appropriated or enjoyed by one individual or more, to the exclusion of others. The maximum of utility, if it be obtained independently of any sacrifice, can give no value to anything. What can be more useful than atmospheric air Edition: current; Page: [234] and the rays of the sun? and what can be more completely destitute of value?

An article or product possessed of utility and value must derive the latter from one of two sources, or from both. Labour must have been required for the production or appropriation of a valuble article, or it must exist in a limited quantity, or under such circumstances that the supply is inferior to the demand. All those articles and products of which the supply may be indefinitely increased, and which are not subject to any artificial restraints, derive their value either wholly from the labour expended upon them, or partly from that cause, and partly from the accidental circumstance of their supply being inferior to the demand; but the value of such articles and products as exist only in limited quantities, and the supply of which, not admitting of an indefinite extension, is really subjected to a natural or an artificial monopoly, is altogether independent of the labour required to produce them; and is derived partly, as in the case of waterfalls, from the labour they are fitted to save, and partly, as in the case of antique gems, statues; &c., from the mere competition of those who wish to obtain them.

We must, therefore, carefully distinguish between the exchangeable value of an article, or the quantity of produce or labour for which it will exchange, and its cost, or, as it is sometimes termed, its real value; meaning, by cost or real value the quantity of labour originally required to produce or acquire an article.

I.Exchangeable or Marketable Value.—The capacity of exchanging for or buying other things is inherent in all commodities, which are not spontaneous productions, when they happen to be in demand; but it can neither be manifested nor appreciated except when they are compared with each other, or with labour. It is, indeed, quite impossible to speak of the value of a commodity without referring to some other commodity, or to labour, as a standard. No article or Edition: current; Page: [235] product can have exchangeable value, except in relation to something else that is or may be exchanged for it. We might as well talk about absolute height or absolute depth, as about absolute value. A is said to possess value, because it exchanges for some quantity of B or C; and it is evident, that the quantity of B or C for which A exchanges, forms the only attainable measure of, or expression for, the value of A; just as the quantity of A forms the only attainable measure of, or expression for, the value of B or C.

Exchangeable value being the power which a commodity has of exchanging for other commodities, or for labour, it follows that the exchangeable value of no single commodity can vary without occasioning a simultaneous variation in the exchangeable value of those with which it is compared. Suppose a bushel of wheat exchanged, in 1750, for an ounce of silver, and that it now exchanges for two ounces: on this hypothesis, it is evident that wheat has doubled in value as compared with silver; or which is the same thing, that silver has lost half its value as compared with wheat. This case is, mutatis mutandis, the case of all commodities or products exchanged for each other. If A rise, it must be in relation to something else, as B; and if B fall, it must be in relation to something else, as A; so that it is obviously impossible to change the relation of A to B, without, at the same time, changing that of B to A.

It appears, therefore, that no commodity can be constant or invariable in its exchangeable value, unless it will at all times exchange for, or purchase, the same quantity of all other commodities and of labour. Suppose A exchanges for 1 B, 2 C, 3 D, &c., its exchangeable value will be constant, provided it always preserves its present relation to them, but not otherwise. And it is obvious, that to communicate this constancy of value to A, it is indispensable that those circumstances, whatever they may be, that now determine its relation to, or power of exchanging for or purchasing B, C, D, &c., should, in all time to come, continue to exert precisely the same influence Edition: current; Page: [236] over it and them.1 Experience, by exhibiting the values of commodities, as compared with each other, in a state of constant fluctuation, sufficiently proves that the circumstances under which they are respectively produced are perpetually varying. Perhaps, however, it may be worth while to observe, that had different commodities been always produced under the same circumstances or conditions, not A only, but every other commodity, would have been an invariable standard; as any given commodity in a market may be used as a standard to which to refer the value of every one else. It is evident, too, that the possession of such an invariable standard would be of no use whatever; all that it would teach us would be, that the circumstances which first made A exchange for B, C, &c., continued equally to affect them all; but of the nature of those circumstances, and the intensity of their operation, it would leave us wholly in the dark.

II.Cost or Real Value.—Having thus seen that the exchangeable value of commodities is expressed by the relation which they bear to some other commodities or to labour, the next subject claiming our attention is, the investigation of the circumstances which determine this relation, or of the source and regulating principle of value.

A person destitute of an article, and wishing to acquire it, has two ways of effecting his object; he may set about producing the article, or he may exchange a quantity of labour, or the produce or equivalent of a quantity of labour, for it. In either case, the cost of the article is to be estimated by the quantity of labour directly or indirectly expended on its acquisition. Demand may, therefore, be considered as the ultimate source or origin of both exchangeable and real value; for the desire of individuals to possess themselves of articles, Edition: current; Page: [237] or rather the demand for them originating in that desire, is the sole cause of their being produced or appropriated; and the quantity of labour, or of sweat and toil, required to render a demand effectual—that is, to produce or obtain articles or products—forms the single principle by which their cost or real value is, in all cases, regulated and determined.

It has been already stated, that some commodities exist only in limited quantities, and are, consequently, subject to a natural monopoly; while the production of other, the supply of which might be indefinitely increased, is sometimes subject to artificial restraints. The marketable or exchangeable value of such commodities bears no definite proportion to their cost or real value, but varies in every different degree, according to the closeness of the monopoly, and the competition for them. They may, however, be always readily discriminated from those that may be freely produced in unlimited quantities; and are but few and unimportant compared with the latter.

If the demand and supply of freely produced commodities were always exactly proportioned to each other—that is, if the supply brought to market were uniformly such as could be taken off by those who were desirous of obtaining them, and willing to pay the cost of their production, their exchangeable value would always bear the same proportion to their real value, or cost. That this would be so is obvious; for, under the circumstances supposed, there is nothing that could affect the value of commodities, except the labour expended upon them.

Practically speaking, the supply of commodities is, owing to an infinity of causes—such as changes of fashion, of seasons, and of the usual channels of commercial intercourse, the miscalculations of producers, the speculations of merchants, &c.—seldom or never adjusted precisely in proportion to the effectual demand, or the demand of those who are able and willing to buy them. But it will be shown in the next chapter, that fluctuations of value, arising from these causes, are confined Edition: current; Page: [238] within certain limits; that the producers always exert themselves to reduce the value of those that yield more than the fair average rate of profit, and to elevate those that do not; and that the common level of value and price which is thus attained, may be considered as identical with the cost of production, being, generally speaking, determined by the quantity of labour required to produce commodities. But as we are only endeavouring at present to establish the leading or constant principles with respect to value, we shall suppose that these accidental causes of variation do not exist, or that allowance has been made for them, and confine ourselves to an investigation of the circumstances which determine the value of freely produced commodities, when their supply is about commensurate with the demand.

Suppose that a commodity, A, the supply of which is neither in excess nor defect, varies in relation to some other commodity, B, supplied in a similar way; the cause of this variation will be found in the fact of the labour required to produce them having varied in the same proportion. Thus, suppose A and B are now equal: if, twelve months hence, A should be worth 2 B, this change must be occasioned by the quantity of labour required to produce A having doubled, while that required to produce B has remained stationary; or by that required to produce B having diminished a half, while that required to produce A has been constant; or the labour required to produce them both may have varied in the same or in opposite directions, but so that the quantity required to produce A has doubled as compared with the quantity required to produce B. There cannot, however, be, in most cases, much practical difficulty in deciding in which of these modes the variation has been really brought about. An improvement is made in the manufacture of cotton, for example, and its value immediately declines as compared with other things in which no improvement has been made, or in which the improvement has been less; and it will obviously do this, not because these others have increased in cost or real value, Edition: current; Page: [239] but because it has sunk. Thus, if we suppose that a still greater improvement had been, at the same time, made in the woollen manufacture, cottons would rise as compared with woollens, not because they had risen in real value, but because they had not fallen so much as woollens.1

The products obtained by equal quantities of sweat and toil are not always equal; but their cost depends on the labour expended, and not on the mode on which it is expended, or on the degree of its productiveness. The inventions and discoveries which augment the productiveness of labour add nothing either to its value, or to that of the commodities produced by its means. A day’s labour in a rude state of society, when the arts are in their infancy, and machinery unknown or inefficient, yields a very different quantity of produce from a day’s labour in an advanced period, when the arts are highly improved, and the most powerful machinery universally introduced. Nothing, however, can be more obvious than that the sacrifice made by the labourer is as great in the former case as in the latter. The variation is not in the amount of physical force, or of labour, exerted by the agent that produces, but merely in the mode in which that force is applied. But, however the same amount of labour may be laid out, and whatever may be its produce, Edition: current; Page: [240] it unavoidably occasions the same sacrifice to those by whom it is performed; and hence it follows, that the products of equal quantities of labour or of toil and trouble, how great soever the differences amongst them, are identical in their cost, and consequently, also, in their real value. Nothing that is valuable can be obtained except by the exertion of labour, or physical force. This is the price that man must pay for all things with which he is not spontaneously furnished; and it is by the magnitude of the price so paid, and not by the magnitude, shape, or quality of the things themselves, that their cost or real value is to be estimated.

A given quantity of labour is not, therefore, to be considered in the same light as a given quantity of its produce, or of commodities: for, whether the commodities produced by a fixed quantity of labour do or do not vary, the value of that quantity, in the estimation of the producer, is necessarily constant; and he will be disposed to exchange it for an equal quantity, or for the produce of an equal quantity, of other men’s labour. Suppose an individual could produce two pecks of wheat by a day’s labour in 1850, but that, owing to his being obliged to cultivate a comparatively poor soil, a day’s labour will now only yield one peck, this single peck will be deemed by him, and by every one else, of exactly the same value that the two pecks were before; for it has cost the same amount of sweat and toil to raise it; and it will, consequently, exchange for, or buy the same quantity of other things that the two pecks did in 1850, unless some increase has taken place in the cost of their production.

In an open market, when the supply of freely produced commodities is nearly proportioned to the effectual demand, the labour required for their production determines the proportions in which they exchange for each other, and for labour. It is material, however, to observe, that, speaking generally, commodities uniformly exchange for or buy more labour, or the produce of more labour, than was required for their production. And unless such were the case, a Edition: current; Page: [241] capitalist would have no motive to lay out stock on the employment of labour; for his profit depends on his getting back the produce of a greater quantity of labour than he advances. When he buys labour, he gives the produce of that which has been performed for that which is to be performed. It is obvious, too, inasmuch as there is no fund except capital, or the commodities already produced and actually existing in a country, to feed and support labourers, that the quantity of produce they receive in exchange for their labour, or their wages, must vary with the variations in the amount of that capital, and in their number. At one period, they may be so numerous, compared with capital, that a labourer may be willing to offer a future day’s work for the produce of five or six hours work already performed; while, at another period, their number, as compared with capital, may be so much reduced, that they may be able to obtain the produce of ten hours’ performed labour for twelve hours’ future labour. But the cost, and, in all ordinary states of the market, the exchangeable value of commodities is not affected by these variations. The change is not in the principle that regulates and determines value—that is, in the physical exertion, or sweat and toil of the labourer—but in what he obtains for it. What he produces, or acquires by equal quantities of labour, always costs him the same sacrifice, and has, therefore, the same real value, whether it be large or small. He gives a constant, but receives a variable quantity in its stead.

The statements now made show the error of the opinion held by Adam Smith, that the quantity of labour required to produce any article, might be taken as the measure of the quantity for which it would exchange. Owing to variations in the efficacy of the labour required in production, or rather in the efficacy of the modes in which it is applied, to changes of fashion, and other causes, it may happen that an article that required a day’s labour for its production no very long time ago, would not now exchange for one whose production Edition: current; Page: [242] cost an hour’s labour. “It is,” says Ricardo, “the comparative quantities of commodities which labour will produce, that determines their present or past relative value, and not the comparative quantities of commodities given to the labourer in exchange for his labour.”1

In stating that the quantity of labour required to produce commodities is the determining principle and measure of their cost, and generally, also, of their exchangeable value, it is, of course, taken for granted, that all sorts of labour are reduced to the same common standard of intensity. The inequalities in the physical force of those individuals who have attained to their full growth, and are perfectly formed, are in themselves not very material, and when considered in a general point of view entirely disappear, inasmuch as any superiority that may obtain among a few on the one hand, is sure to be balanced by a corresponding deficiency amongst as many on the other.

It will be shown, in a subsequent chapter, that the circumstance of certain sorts of labour being of the description called skilled, and of their being paid at a higher rate than those common sorts that all may perform, does not affect the correctness of the principles we have been endeavouring to establish with respect to the value of commodities.

The result of these investigations may be thus briefly recapitulated:—

1st. That nothing can possess exchangeable value, unless it be in demand, and unless some portion of voluntary human labour be required for its production or appropriation, or both.

2d. That the cost, or, as it is sometimes called, the real value of a commodity, is dependent on, and exactly proportioned to, the quantity of labour required for its production or appropriation.

3d. That the exchangeable value of a commodity is dependent partly and principally on its cost, and partly on Edition: current; Page: [243] accidental variations of supply and demand; and is measured by the quantity of any other commodity, or of labour, for which it will exchange.

The amount of labour expended on the production of commodities being the sole measure of their cost, it follows that, if any commodity required at all times the same quantity of labour for its production, its cost would be invariable. It is obvious, however, that there is no such commodity. The varying fertility of the soils, mines, &c. to which recourse must successively be had, and the improvements that are constantly being made in the application of labour, occasion perpetual variations in the quantities thereof required for the production of commodities. And, hence, it is not to any one commodity, or set of commodities, but to some given quantity of labour, that we must refer for an unvarying standard of cost or real value.

It has sometimes been said, that if any commodity were invariable in its value, it might be appealed to on all occasions as an unerring standard by which to ascertain the exchangeable value of other things. But it is obvious that it could not be so appealed to, unless the value of commodities and their cost were always identical. This, however, as will be more fully shown in the next chapter, is but occasionally and rarely the case. The value of commodities may be raised above their cost, either by a sudden increase of the usual demand, or by a sudden deficiency of the usual supply, and may be depressed below it by the opposite circumstances. And though it be true that any given fluctuation is seldom of considerable duration, yet, as the causes of fluctuation are perpetually recurring, a special inquiry must be made in each particular instance, to ascertain whether they are really in operation, and the extent of their disturbing influence. We should, therefore, draw a most inaccurate conclusion, were we to assume that the mere equality of the labour required for the production of a commodity, rendered it, in all cases, an Edition: current; Page: [244] accurate measure or standard of marketable value; for the value of that commodity might vary from the influence of causes affecting itself, though extrinsic to, and independent on, the quantity of labour required for its production; or it might vary from similar causes operating on the commodities with which it was compared. If A were always produced by the same quantity of labour, and if B and C were produced by varying quantities of labour, then, if value in exchange depended on nothing but quantities of labour, or if it always bore the same proportion to these quantities, we should be able, by comparing B and C with A, to say at once whether their value had remained constant, or to point out the precise extent to which it had varied. But when there are other causes which may affect the value of A itself, as well as the values of B and C, it is obvious we should not be able, by merely comparing A with the others, to say when a variation took place in the relation that previously obtained amongst them, whether it had been occasioned by causes exclusively affecting A, or exclusively affecting B and C, or whether they had all been affected, though in different degrees.

But, notwithstanding what has now been stated, Smith, and, more recently, Say, Garnier, and others, have contended that corn may be assumed as an invariable standard of value; and that, taking the prices of corn for a few years together, to get rid of the disturbing effects of variable harvests, whatever fluctuation may take place in them must be in the value of the money or commodity in which the price of corn is estimated, and not in the value of corn itself, which they regard as constant. Founding upon this hypothesis, attempts have been made, by comparing the prices of corn with the prices of other things mentioned in history, to determine the fluctuations of their value. It is, however, to be regretted that the learning and ingenuity displayed in this research have not been more profitably employed. It is hardly necessary, after what has been previously stated, to make any Edition: current; Page: [245] observations to show that the hypothesis referred to is altogether visionary. Adam Smith says, that the value of corn is invariable, because the demand is always proportioned to the supply; increasing when it increases, and diminishing when it diminishes. Now, admitting that such is the case, what has this constancy of demand to do with the value of corn? It will not, it is true, be produced if it be not demanded; but its value, when produced, depends not on the demand, but on the quantity of labour required for its production. The growers of corn in Kentucky, Gallicia, Holland, and England, have all an effectual demand for their produce; but owing to the different fertility of the soils which they cultivate, or the different quantities of labour required to make them yield the same quantities of corn, its cost, and consequently, also, its marketable value and price, is hardly half so great in some of those countries as in others.

If we knew the quantity of labour required, in any period of antiquity, to produce a quantity of wheat in Italy or Greece, and what is now required for its production in England, we should be able readily to determine its value, as compared with other things, the relation of which to corn was known at both periods. It is plain, however, that if we knew the quantity of labour required to produce any other commodity at the periods in question, it would serve for a standard quite as well as corn. There is nothing about the latter to render it invariable more than there is about most other things. Say, indeed, supposes that the influence of improvements in agriculture in reducing the price of corn is about equal to the influence which the necessity of resorting to poorer soils has in raising it!1 But if this were really the case, agricultural industry would be always about equally productive; and capital, and consequently population would increase with nearly the same rapidity, whatever might be the quality of the soils under tillage. We shall Edition: current; Page: [246] afterwards endeavour to trace and exhibit the real influence of improvements; at present it is enough to remark, that the supposition that they are in all cases capable of neutralizing the influence of increasing sterility, is inconsistent with the best established principles, and contradicted by the experience of every nation.

Although, however, the mere comparison of corn and silver be incapable of communicating any information with respect to the variations that have taken place in the value of either or both of them, still it is, on several accounts, desirable to know the proportion which the one has borne to the other. According to Say,1 or rather to Garnier,2 the hectolitre of wheat exchanged, at an average, in antiquity, for 289 grains of pure silver; and for

245	grains,	under Charlemagne,
219	grains,	under Charles VII. of France, towards 1450,
333	grains,	in 1514—(America was discovered in 1492,)
731	grains,	in 1536,
1130	grains,	in 1610,
1280	grains,	in 1640,
1342	grains,	in 1789,
1610	grains,	in 1820.

There is, however, reason to think that Garnier has under-valued the price of wheat in antiquity. The learned M. Létronne3 has endeavoured to show, that the price of the hectolitre of wheat in Greece, in the age of Socrates, should not be reckoned at less than 468 grains of pure silver; and that its price at Rome, in the reign of Augustus, was about 550 grains. The statements of Létronne seem to be fully Edition: current; Page: [247] established; and if so, it will follow that the value of silver, as compared with corn, instead of having, as Say supposes, fallen to a sixth part of its value in antiquity, has not fallen to quite a fourth part of its value in Greece, about 400 years before the Christian æra, and to about a third part only of its value in Rome, at its commencement.

We also have no doubt that the difference between the values of corn, as compared with silver, in 1789 and 1820, in the foregoing statement, is a great deal over-rated. The latter, indeed, was not a fair term to be taken for a comparison; for agriculture had not then fully recovered from the disturbance occasioned by the previous war, commerce had not resumed its old channels, and the paper money issued during the contest had not been wholly withdrawn from circulation. But at present (1863), and for some years past, the value of corn, as compared with silver, has not differed materially, in most European markets, from its value in 1789: certainly it is not more than from 5 to 6 per cent. higher, if so much.

The influence caused by the discovery of the American mines over prices in Europe, appears to have ceased by the middle of the seventeenth century; and we doubt whether the value of money, compared with the mass of commodities usually brought to market, has sensibly fallen in the interval. It is commonly, indeed, supposed that 100l. or 1,000l. was worth as much in the reigns of William III., Anne, and George I., as 200l. or 2,000l. at present. There is really, however, no such difference in the value of money at these epochs. Corn is not materially higher at this moment than it was a hundred or a hundred and fifty years ago; and though the prices of butchers’ meat, beer, leather, and a few other articles have risen in the interval, that rise has been nearly if not wholly countervailed by the extraordinary fall that has taken place in the price of almost all sorts of manufactured goods, colonial products, &c. We admit, indeed, that 100l. or 1,000l. will not go nearly so far in housekeeping at present as it would have done in the first half of last century. That, however, is not a consequence Edition: current; Page: [248] of the enhanced cost of commodities, but of the vastly improved and more expensive mode of living; the better quality of houses, the superiority of their furniture and other accommodations, the better tables that are now kept, the improved and more costly education of children, the greater number and cost of servants, &c. Those who should now live as our forefathers did in the reigns of Anne and the first George, would, we apprehend, find that 100l. would go about as far as it did then.

The wages of household servants have risen most materially during the last century and a half; but it is questionable whether the services of agricultural labourers, artisans, &c., cost more now than in 1700 or 1750. These parties receive, it is true, a higher rate of wages, if estimated by the day; but when compared with the services rendered, or the work done, it is doubtful whether their wages have increased. We are well satisfied that, speaking generally, the Scottish labourers of the present day execute in a given time from twice to three times the work that was executed by their predecessors previously to the peace of Paris in 1763; and during the same period a great, though not an equal, increase has also taken place in the labour performed in England.

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