The Basis of Value and of Supply and Demand

Book 2: The Distribution of Wealth

Chapter 1 The Basis of Value and of Supply and Demand

Book 1 explained:

• how human industry, with the aid of capital and of natural agents and properties, produces every kind of utility, which is the primary source of value
• how social institutions and public authority operate to the benefit or the prejudice of production.

Book 2 will explain the distribution of wealth by analyzing:

1. The nature of value as the object of distribution
2. The laws, which regulate the distribution of value, when once created amongst the various members of society, so as to constitute individual revenue.

What is it, then, that determines this current price of commodities?

The want or desire of any particular object depends upon the physical and moral constitution of man, the climate he may live in, the laws, customs, and manners of the particular soci- ety, in which he may happen to be enrolled. He has wants, both corporeal and intellectual, social and individual; wants for himself and for his family. His bear-skin and reindeer are articles of the first necessity to the Laplander; whilst their very name is unknown to the lazzarone of Naples, who cares for nothing in the world if he get but his meal of macaroni. In Europe, courts of justice are considered indispensable to the maintenance of social union; whereas the Indian of America, the Tartar, and the Arab, feel no want of such establishments. It is not our business here to inquire, wherein these wants. originate; we must take them as existing data, and reason upon them accordingly.

The valuation of an object is nothing more or less than the affirmation, that it is in a certain degree of comparative esti- mation with some other specified object; and any other object possessed of value may serve as the point of comparison. A house, for instance, may be valued in corn or in money.

To say that it is worth 4000 dollars conveys a more accurate notion of its value, than to say that it is worth 4000 bushels of wheat, solely because the habit of reckoning the value of all commodities in coin makes it easier for the mind to form an idea of the value of 4000 dollars in other commodities, that is to say, of the quantity of other commodities obtainable for that sum, than of that obtainable for 4000 bushels of wheat. Yet, if wheat be 1 dollar a bushel, the degree of value ex- pressed by each is the same.

Of these wants, some are satisfied by the gratuitous agency of natural objects; as of air, water, or solar light. These may be denominated natural wealth, because they are the sponta- neous offering of nature; and, as such, mankind is not called upon to earn them by any sacrifice or exertion whatever; for which reason, they are never possessed of exchangeable value. Other wants there are, that can only be satisfied by the em- ployment of objects possessed of an utility, which they could not have been invested with without some modification by human agency, — without having undergone some change of condition, and without some difficulty having been sur- mounted for the purpose. Of this kind are the products of agriculture, commerce, and manufacture, in all their infinite ramifications. To them alone is any value attached; and for a very obvious reason; because the very act of production im- plies an act of mutual exchange, in which the producer has given his personal agency for the product obtained by its ex- ertion. Wherefore, he will hardly resign it without receiving what is, in his estimation, an equivalent. These may be called social wealth, both because an act of exchange is in itself a social ati cause exclusive property in the product obtained by personal exertion, or by an act of exchange, can only be se- In every act of valuation, the object valued is the fixed da- tum. In the instance first given, the house is the datum= it is a definite amount of materials, put together in a definite man- ner, upon a definite site. But the point of comparison is vari- able in amount, according to the degree of estimation in the mind of the valuer. If valued at 4000 dollars, the house is reckoned to be equivalent to so many pieces of silver coin of the weight of 416 grains, with a mixture of 179-1664 parts of alloy; if at 4500 dollars, or 3500 dollars, it is but a variation of the quantity of the commodity, that is the specific point of comparison. So likewise, if that point be wheat, the variable quantity of that commodity would express the degree of value. Valuation is vague and arbitrary, when there is no assurance that it will be generally acquiesced in by others. The owner of the house may reckon it worth 4500 dollars, while an in- different person would value it at no more than 3500 dollars, and probably neither would be right. But if another, or a dozen other persons be willing to give for it a specific amount of other commodities, say 4000 dollars, or 4000 bushels of wheat, we may conclude the estimate to be a correct one. A house that will fetch 4000 dollars in the market is worth that sum. 1 But if one bidder only will give that price, and he is unable to re-sell it without loss, he will give more than it is worth. The only fair criterion of the value of an object is, the quantity of other commodities at large, that can be readily obtained for it in exchange, whenever the owner wishes to part with it; and this, in all commercial dealings, and in all money valuations, is called the current price. 2

pared one with another; 4 that the value of products is not founded upon that of productive agency, as some authors have erroneously affirmed; 5 and that since the desire of an object, and consequently its value, originates in its utility, it is the ability to create the utility wherein originates that desire, that gives value to productive agency; which value is proportion- ate to the importance of its co-operation in the business of production, and forms, in respect to each product individu- ally, what is called, the cost of its production. cured by social institutions. Social wealth, it is to be observed, As the only part of human wealth, that can form the subject of scientific research. 1. Because it is the only part that is the object of human estimation, or at least of such estimation, as is not altogether arbitrary and mental. 2. Because it is the only one which is created, distributed, and destroyed, accord- ing to any rules that can be assigned by human.

The knowledge of the ground-work of the quality, value, or rather exchangeable value, leads to the perception of its ori- gin. The items of social wealth are invested with value by the necessity of giving something to obtain them; and that some- thing is productive exertion. When once obtained, when this sacrifice has been male in the attainment, the party is really more wealthy; he has wherewithal to satisfy more wants; and, if the object obtained by this sacrifice be unsuited to the per- sonal wants of the owner, he may make use of it for the attainment of some object of personal desire, by the way of exchange for some other product; which other product will itself be the result of similar productive exertion; so that, in fact, the exchange will be a mere mutual transfer of the productive exertion on either side, whereof the two products respectively are the result. When a bushel of wheat is given for 7 pounds of coffee, there is a mere transfer of the productive agency exerted in creating the one, for that exerted in the creation of the other. 3

The utility of a product is not confined to one human being, but applies to a whole class of society at the least, as in the case of particular articles of clothing; or to a whole community, as in that of most of the articles of food that are adapted to human consumption in general, without distinction of sex or age.

For this reason, the demand for a specific object, or product, or act of productive exertion, has a certain degree of extent. The aggregate demand for sugar in France is said to exceed 500,000 quintals per annum. Even the individual demand of a specific product for individual consumption may be more or less urgent. Whatever be its intensity, it may be called by the general name of demand; and the quantity attainable at a given time, and ready for the satisfaction of those who are in want of the specific article, may be called the supply or amount in circulation.

But this must be understood with some limitation; for there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification. There must, therefore, be some bounds to demand; and the most effectual limitation is, the ability to give some other equiva- lent product for the object of desire.

All the porters in a commercial city might desire to have a coach and six for the more comfortable execution of their business, without raising the price of horses and carriages a tittle.

The objects, which each individual has to give as an equivalent for the object of his desire, are no other than the products of his own productive means, which are limited even in the case of the most wealthy member of society.

Wherefore, there is a current value or price established for productive service as well as for products. For, if the agency exerted in the creation of a bushel of wheat can obtain, as its reward, in the way of exchange, either a bushel of wheat or seven pounds of coffee indifferently, what is there to prevent its obtaining in the same way any other equivalent product, say a yard of cotton cloth, 5 yards of ribbon, a dozen plates, or any thing else? Should the bushel of wheat be exchange- able for a less amount of any of these commodities respectively, the productive agency exerted in the creation of wheat would be proportionately less rewarded, than that exerted in the creation of the specific commodity; and a portion of the former would be attracted to the latter branch of production, until the recompense of labour in each department should find its fair level.