Real and Relative Variation of Price

When revenue is added to capital, it thenceforth ceases to be revenue, or, as such, to be capable of satisfying the wants of the proprietor. It can only yield an increased revenue, being an item of productive capital, consumable in the manner of capital, that is to say, in such way as to yield a product in exchange and return for the value consumed.

The price of an article is the quantity of money it may be worth; current price, the quantity it may be sure of obtaining at the particular place. Its locality is material, for the desire of a specific object varies in relation to the quantity procurable according to the locality.

When capital or land, or personal service, is let out to hire, its productive power is transferred to the renter or adventurer in production, in consideration of a given amount of products agreed upon beforehand.

It is a sort of speculative bargain, wherein the renter takes the risk of profit and loss, according as the revenue he may realise, or the product obtained by the agency transferred, shall exceed or fall short of the rent or hire he is to pay.

Yet one revenue only can be realised; and, though a borrowed capital may yield to the adventurer an annual product of 10 per cent instead of 5% which he pays in the shape of interest, yet the revenue of the capital, the productive service it affords, will not be 10% for in that gross product is included the recompense of the productive agency, both of the capital and of the industry that has turned it to account.

The price obtained upon the sale of an article represents all other articles procurable with that price. To say, that the price of an el of broad-cloth is 8 dollars, implies, that it is exchange- able either for so much coined silver, or for so much of any other product or products as may be procurable with that sum. Money-price is selected for the purposes of an illustration, in preference to price in commodities at large, merely for greater simplicity; but the real and ultimate object of exchange is, not money, but commodities.

Price, in this sense, may be divided into buying price and selling price; that is to say, the price given to obtain posses- sion of an object, and the price obtainable for the relinquish- ment of its possession.

The actual revenue of each individual is proportionate to the quantity of products at his disposal, being either the immedi- ate fruit of his productive means, or the result of those trans- formations from its primitive state, which his revenue may have undergone, until it have assumed the shape of the ulti- mate object of his consumption. The ratio of that quantity, or of utility inherent in it, can only be estimated from its current price in the dealings of mankind. In this sense, the revenue of an individual is equal to the value derived from his produc- tive means; which value, however, is the greater, in respect to the objects of his consumption, in proportion to the cheap- ness of those objects, which augments his command of other than his own immediate products.

The price paid for every product, at the time of its original attainment or creation, is, the charge of the productive agency exerted, or the cost of its production. 9 Tracing upwards to this original price of a product, we unavoidably come to other products; for the charge of productive agency can only have been defrayed by other products.

The daily wages of the weaver engaged in producing broad-cloth are products; they consist either of the articles of his daily subsistence, or of the money wherewith he may procure them. both which are equally products.

Wherefore the production, as well as the subsequent interchange of products, may be said to resolve itself into a barter of one product for another, conducted upon a comparison of their respective current prices. But there is one important particular, that requires the most assiduous at- tention, the neglect or oversight of which has led to abun- dance of error and misrepresentation, and has made the works In like manner, the revenue of a nation is the more consider- able, in proportion to the intensity of the value whereof it 162Book II= On Distribution cured with an equal charge of production, and without any alteration in the revenues of either buyers or sellers= there will be more actual wealth, more means of enjoyment, with- out any increased expenditure of productive means; the ag- gregate utility will be augmented; the quantum of products procurable for the same price will be enlarged; all which are but varied expressions of the same meaning. of many writers calculated only to mislead the students in this science.

An ell of broad-cloth, that has, in the production, required the purchase of productive agency at the price of 8 dollars, will have cost that sum in the manufacture; but if 3/4 only of that productive agency can be made to suffice for its production; if, supposing one kind of productive agency only to be requisite, 15 instead of 20 days’ labour of a single work- man be enabled to complete the product, the same ell of broad- cloth will cost 6 dollars to the producer, at the same rate of wages. In this case the current price of human productive agency will have remained the same, although the cost of production will have varied in the ratio of the difference be- tween 6 dollars and 8 dollars. But, as this difference in the relation between the cost of production and the current price of the product holds out a prospect of larger profit than ordi- nary in this particular channel, it naturally attracts a larger proportion of productive agency, the exertion of which, by enlarging the supply, reduces again the current price to a level with the bare cost of production. 10

But whence is derived this accession of enjoyment, this larger supply of wealth, that nobody pays for? From the increased command acquired by human intelligence over the produc- tive powers and agents presented gratuitously by nature. A power has been rendered available for human purposes, that had before been not known, or not directed to any human object; as in the instance of wind, water, and steam-engines: or one before known and available is directed with superior skill and effect, as in the case of every improvement in mecha- nism, whereby human or animal power is assisted or expanded. The merit of the merchant, who contrives, by good manage- ment, to make the same capital suffice for an extended busi- ness, is precisely analogous to that of the engineer, who sim- plifies machinery, or renders it more productive.

This kind of variation in the price of a product I shall call real variation of price, because it is a positive variation, involving no equivalent variation in the object of exchange, and both may, and actually does occur, without any cotemporaneous variation of the price, either of productive agency, of the prod- ucts wherewith it is recompensed, or of those, for which the specific object of this real variation is procurable. The discovery of a new mineral, animal, or vegetable, pos- sessed of the properties of utility in a novel form, or in a greater degree of abundance or perfection, is an acquisition of the same kind. The productive means of mankind were amplified, and a larger product rendered procurable by an equal degree of human exertion, when indigo was substituted for woad, sugar for honey, and cochineal fox the Tyrian dye. In all these instances of improvement, and those of a similar nature that may be hereafter effected, it is observable..hat, since the means of production placed at the disposal of man- kind become in reality more powerful, the product raised al- ways increases in quantity, in proportion as it diminishes in value. We shall presently see the consequences of this cir- cumstance. 11

It is otherwise with regard to the variation of price of prod- ucts already in existence one to another, without reference to their respective cost of production. When the wine of the last vintage that a month before sold at 40 dollars the tun, will fetch no more than 30 dollars, money and all other objects of desire to the wine-vender have actually advanced in price to him; for the productive agency exerted in raising the wine, receives a recompense of but 30 dollars, instead of 40 dollars in money, and of commodities in a like Proportion, which is an abatement of ¼; whereas, in the instance above cited, an equal amount of productive agency will receive an equal rec- ompense in all other products; for a degree of agency, which has both cost and received 6 dollars, will be equally well paid with one that cost and received 8 dollars.