VALUE AND RICHES, THEIR DISTINCTIVE PROPERTIES.
"A man is rich or poor," says Adam Smith, "according to the degree in
which he can afford to enjoy the necessaries, conveniences, and
amusements of human life."
Value then essentially differs from riches, for value depends not on
abundance, but on the difficulty or facility of production. The labour
of a million of men in manufactures, will always produce the same value,
but will not always produce the same riches. By the invention of
machinery, by improvements in skill, by a better division of labour, or
by the discovery of new markets, where more advantageous exchanges may
be made, a million of men may produce double, or treble the amount of
riches, of "necessaries, conveniences, and amusements," in one state of
society, that they could produce in another, but they will not on that
account add any thing to value; for every thing rises or falls in value,
in proportion to the facility or difficulty of producing it, or in other
words, in proportion to the quantity of labour employed on its
production. Suppose with a given capital, the labour of a certain number
of men produced 1000 pair of stockings, and that by inventions in
machinery, the same number of men can produce 2000 pair, or that they
can continue to produce 1000 pair, and can produce besides 500 hats;
then the value of the 2000 pair of stockings; or of the 1000 pair of
stockings, and 500 hats, will be neither more nor less than that of the
1000 pair of stockings before the introduction of machinery; for they
will be the produce of the same quantity of labour. But the value of the
general mass of commodities will nevertheless be diminished; for
although the value of the increased quantity produced in consequence of
the improvement will be the same exactly as the value would have been of
the less quantity that would have been produced, had no improvement
taken place, an effect is also produced on the portion of goods still
unconsumed, which were manufactured previously to the improvement; the
value of those goods will be reduced, inasmuch as they must fall to the
level, quantity for quantity, of the goods produced under all the
advantages of the improvement: and the society will, notwithstanding the
increased quantity of its commodities, notwithstanding its augmented
riches, and its augmented means of enjoyment, have a less amount of
value. By constantly increasing the facility of production, we
constantly diminish the value of some of the commodities before
produced, though by the same means we not only add to the national
riches, but also to the power of future production. Many of the errors
in political economy have arisen from errors on this subject, from
considering an increase of riches, and an increase of value, as meaning
the same thing, and from unfounded notions as to what constituted a
standard measure of value. One man considers money as a standard of
value, and a nation grows richer or poorer, according to him, in
proportion as its commodities of all kinds can exchange for more or
less money. Others represent money as a very convenient medium for the
purpose of barter, but not as a proper measure by which to estimate the
value of other things: the real measure of value according to them is
corn,[27] and a country is rich or poor, according as its commodities
will exchange for more or less corn. There are others again, who
consider a country rich or poor, according to the quantity of labour
that it can purchase.[28] But why should gold, or corn, or labour, be
the standard measure of value, more than coals or iron?--more than
cloth, soap, candles, and the other necessaries of the labourer?--why,
in short, should any commodity, or all commodities together, be the
standard, when such a standard is itself subject to fluctuations in
value? Corn, as well as gold, may from difficulty or facility of
production, vary 10, 20, or 30 per cent., relatively to other things;
why should we always say, that it is those other things which have
varied, and not the corn? That commodity is alone invariable, which at
all times requires the same sacrifice of toil and labour to produce it.
Of such a commodity we have no knowledge, but we may hypothetically
argue and speak about it, as if we had; and may improve our knowledge of
the science, by shewing distinctly the absolute inapplicability of all
the standards which have been hitherto adopted. But supposing either of
these to be a correct standard of value, still it would not be a
standard of riches, for riches do not depend on value. A man is rich or
poor, according to the abundance of necessaries and luxuries, which he
can command; and whether the exchangeable value of these for money, for
corn, or for labour, be high or low, they will equally contribute to the
enjoyment of their possessor. It is through confounding the ideas of
value and wealth, or riches, that it has been asserted, that by
diminishing the quantity of commodities, that is to say, of the
necessaries, conveniences, and enjoyments of human life, riches may be
increased. If value were the measure of riches this could not be denied,
because by scarcity the value of commodities is raised; but if Adam
Smith be correct, if riches consist in necessaries and enjoyments, then
they cannot be increased by a diminution of quantity.
It is true, that the man in possession of a scarce commodity is richer,
if by means of it he can command more of the necessaries and enjoyments
of human life; but as the general stock out of which each man's riches
are drawn, is diminished in quantity, by all that any individual takes
from it, other men's shares must necessarily be reduced in proportion as
this favoured individual is able to appropriate a greater quantity to
himself.
Let water become scarce, says Lord Lauderdale, and be exclusively
possessed by an individual, and you will increase his riches, because
water will then have value; and if wealth be the aggregate of individual
riches, you will by the same means also increase wealth. You
undoubtedly will increase the riches of this individual, but inasmuch as
the farmer must sell a part of his corn, the shoemaker a part of his
shoes, and all men give up a portion of their possessions for the sole
purpose of supplying themselves with water, which they before had for
nothing, they are poorer by the whole quantity of commodities which they
are obliged to devote to this purpose, and the proprietor of water is
benefited precisely by the amount of their loss. The same quantity of
water, and the same quantity of commodities, are enjoyed by the whole
society, but they are differently distributed. This is however supposing
rather a monopoly of water than a scarcity of it. If it should be
scarce, then the riches of the country and of individuals would be
actually diminished, inasmuch as it would be deprived of a portion of
one of its enjoyments. The farmer would not only have less corn to
exchange for the other commodities which might be necessary or desirable
to him, but he and every other individual would be abridged in the
enjoyment of one of the most essential of their comforts. Not only
would there be a different distribution of riches, but an actual loss of
wealth.
It may be said then of two countries possessing precisely the same
quantity of all the necessaries and comforts of life, that they are
equally rich, but the value of their respective riches would depend on
the comparative facility or difficulty with which they were produced.
For if an improved piece of machinery should enable us to make two pair
of stockings, instead of one, without additional labour, double the
quantity would be given in exchange for a yard of cloth. If a similar
improvement be made in the manufacture of cloth, stockings and cloth
will exchange in the same proportions as before, but they will both have
fallen in value; for in exchanging them for hats, for gold, or other
commodities in general, twice the former quantity must be given. Extend
the improvement to the production of gold, and every other commodity;
and they will all regain their former proportions. There will be double
the quantity of commodities annually produced in the country, and
therefore the wealth of the country will be doubled, but this wealth
will not have increased in value.
Although Adam Smith has given the correct description of riches, which I
have more than once noticed, he afterwards explains them differently,
and says, "that a man must be rich or poor according to the quantity of
labour which he can afford to purchase." Now this description differs
essentially from the other, and is certainly incorrect; for suppose the
mines were to become more productive, so that gold and silver fell in
value, from the greater facility of their production; or that velvets
were to be manufactured with so much less labour than before, that they
fell to half their former value; the riches of all those who purchased
those commodities would be increased: one man might increase the
quantity of his plate, another might buy double the quantity of velvet;
but with the possession of this additional plate, and velvet, they could
employ no more labour than before; because as the exchangeable value of
velvet and of plate would be lowered, they must part with
proportionally more of these species of riches to purchase a day's
labour. Riches then cannot be estimated by the quantity of labour which
they can purchase.
From what has been said, it will be seen that the wealth of a country
may be increased in two ways: it may be increased by employing a greater
portion of revenue in the maintenance of productive labour,--which will
not only add to the quantity, but to the value of the mass of
commodities; or it may be increased, without employing any additional
quantity of labour, by making the same quantity more productive,--which
will add to the abundance, but not to the value of commodities.
In the first case, a country would not only become rich, but the value
of its riches would increase. It would become rich by parsimony; by
diminishing its expenditure on objects of luxury and enjoyment; and
employing those savings in reproduction.
In the second case, there will not necessarily be either any diminished
expenditure on luxuries and enjoyments, or any increased quantity of
productive labour employed, but with the same labour more would be
produced; wealth would increase, but not value. Of these two modes of
increasing wealth, the last must be preferred, since it produces the
same effect without the privation and diminution of enjoyments, which
can never fail to accompany the first mode. Capital is that part of the
wealth of a country which is employed with a view to future production,
and may be increased in the same manner as wealth. An additional capital
will be equally efficacious in the production of future wealth, whether
it be obtained from improvements in skill and machinery, or from using
more revenue reproductively; for wealth always depends on the quantity
of commodities produced, without any regard to the facility with which
the instruments employed in production may have been procured. A certain
quantity of clothes and provisions will maintain and employ the same
number of men, and will therefore procure the same quantity of work to
be done, whether they be produced by the labour of 100 or of 200 men;
but they will be of twice the value if 200 have been employed on their
production.
M. Say appears to me to have been singularly unfortunate in his
definition of riches and value in the first chapter of his excellent
work: the following is the substance of his reasoning: riches, he
observes, consist only of things which have a value in themselves:
riches are great, when the sum of the values of which they are composed
is great. They are small when the sum of their values is small. Two
things having an equal value, are riches of equal amount. They are of
equal value, when by general consent they are freely exchanged for each
other. Now, if mankind attach value to a thing, it is on account of the
_uses_ to which it is applicable. This faculty, which certain things
have, of satisfying the various wants of mankind, I call utility. To
create objects that have a value of any kind is to create riches, since
the utility of things is the first foundation of their value, and it is
the value of things which constitutes riches. But we do not create
objects: all we can do is to reproduce matter under another form--we can
give it utility. Production then is a creation, not of matter but of
utility, and it is measured by the value arising from the utility of the
object produced. The utility of any object, according to general
estimation, is pointed out by the quantity of other commodities for
which it will exchange. This valuation, arising from the general
estimate formed by society, constitutes what Adam Smith calls value in
exchange; what Turgot calls appreciable value; and what we may more
briefly designate by the term _value_.
Thus far M. Say, but in his account of value and riches he has
confounded two things which ought always to be kept separate, and which
are called by Adam Smith, value in use and value in exchange. If by an
improved machine I can, with the same quantity of labour, make two pair
of stockings instead of one, I in no way impair the _utility_ of one
pair of stockings, though I diminish their value. If then I had
precisely the same quantity of coats, shoes, stockings, and all other
things, as before, I should have precisely the same quantity of useful
objects, and should therefore be equally rich, if utility were the
measure of riches; but I should have a less amount of value, for my
stockings would be of only half their former value. Utility then is not
the measure of exchangeable value.
If we ask M. Say in what riches consist, he tells us in the possession
of objects having value. If we then ask him what he means by value, he
tells us that things are valuable in proportion as they possess utility.
If again we ask him to explain to us by what means we are to judge of
the utility of objects, he answers, by their value. Thus then the
measure of value is utility, and the measure of utility is value.
M. Say, in speaking of the excellences and imperfections of the great
work of Adam Smith, imputes to him, as an error, that "he attributes to
the labour of man alone the power of producing value. A more correct
analysis shews us that value is owing to the action of labour, or rather
the industry of man, combined with the action of those agents which
nature supplies, and with that of capital. His ignorance of this
principle prevented him from establishing the true theory of the
influence of machinery in the production of riches."
In contradiction to the opinion of Adam Smith, M. Say, in the fourth
chapter, speaks of the value which is given to commodities by natural
agents, such as the sun, the air, the pressure of the atmosphere &c.,
which are sometimes substituted for the labour of man, and sometimes
concur with him in producing.[29]
But these natural agents, though they add greatly to _value in use_,
never add exchangeable value, of which M. Say is speaking, to a
commodity: as soon as by the aid of machinery, or by the knowledge of
natural philosophy, you oblige natural agents to do the work which was
before done by man, the exchangeable value of such work falls
accordingly. If ten men turned a corn mill, and it be discovered that by
the assistance of wind, or of water, the labour of these ten men may be
spared, the flour, which is the produce of the work performed by the
mill, would immediately fall in value, in proportion to the quantity of
labour saved; and the society would be richer by the commodities which
the labour of the ten men could produce, the funds destined for their
maintenance being in no degree impaired.
M. Say accuses Dr. Smith of having overlooked the value which is given
to commodities by natural agents, and by machinery, because he
considered that the value of all things was derived from the labour of
man; but it does not appear to me, that this charge is made out; for
Adam Smith no where under-values the services which these natural
agents and machinery perform for us, but he very justly distinguishes
the nature of the value which they add to commodities--they are
serviceable to us, by increasing the abundance of productions, by making
men richer, by adding to value in use; but as they perform their work
gratuitously, as nothing is paid for the use of air, of heat, and of
water, the assistance which they afford us, adds nothing to value in
exchange. In the first chapter of the second book, M. Say himself gives
a similar statement of value, for he says that "utility is the
foundation of value, that commodities are only desirable, because they
are in some way useful, but that their value depends not on their
utility, not on the degree in which they are desired, but on the
quantity of labour necessary to procure them." "The utility of a
commodity thus understood, makes it an object of man's desire, makes him
wish for it, and establishes a demand for it. When to obtain a thing, it
is sufficient to desire it, it may be considered as an article of
natural wealth, given to man in an unlimited quantity, and which he
enjoys, without purchasing it by any sacrifice; such are the air, water,
the light of the sun. If he obtained in this manner all the objects of
his wants and desires, he would be infinitely rich: he would be in want
of nothing. But unfortunately this is not the case; the greater part of
the things which are convenient and agreeable to him, as well as those
which are indispensably necessary in the social state, for which man
seems to be specifically formed, are not given to him gratuitously; they
could only exist by the exertion of certain labour, the employment of a
certain capital, and, in many cases, by the use of land. These are
obstacles in the way of gratuitous enjoyment; obstacles from which
result a real expense of production; because we are obliged to pay for
the assistance of these agents of production." "It is only when this
utility has thus been communicated to a thing (viz. by industry,
capital, and land,) that it is a production, _and that it has a value_.
It is its utility which is the foundation of the demand for it, _but the
sacrifices, and the charges necessary to obtain it, or in other
words, its price_, limits the extent of this demand."
The confusion which arises from confounding the terms "value" and
"riches" will best be seen in the following passages.[31] His pupil
observes: "You have said, besides, that the riches of a society were
composed of the sum total of the values which it possessed; it appears
to me to follow, that the fall of one production, of stockings for
example, by diminishing the sum total of the value belonging to the
society, diminishes the mass of its riches;" to which the following
answer is given: "the _sum_ of the society's riches will not fall on
that account. Two pair of stockings are produced instead of one; and two
pair at three francs, are equally valuable with one pair at six francs.
The income of the society remains the same, because the manufacturer has
gained as much on two pair at three francs, as he gained on one pair at
six francs." Thus far M. Say, though incorrect, is at least consistent.
If value be the measure of riches, the society is equally rich, because
the value of all its commodities is the same as before. But now for his
inference. "But when the income remains the same, and productions fall
in price, the society is really enriched. If the same fall took place in
all commodities at the same time, which is not absolutely impossible,
the society by procuring at half their former price, all the objects of
its consumption, without having lost any portion of its income, would
really be twice as rich as before, and could purchase twice the quantity
of goods."
In the first passage we are told, that if every thing fell to half its
value, from abundance, the society would be equally rich, because there
would be double the quantity of commodities at half their former value,
or in other words, there would be the same value. But in the last
passage we are informed, that by doubling the quantity of commodities,
although the value of each commodity should be diminished one half, and
therefore the value of all the commodities together be precisely the
same as before, yet the society would be twice as rich as before. In the
first case riches are estimated by the amount of value: in the second,
they are estimated by the abundance of commodities contributing to human
enjoyments. M. Say further says, "that a man is infinitely rich without
valuables, if he can for nothing obtain all the objects he desires;" yet
in another place we are told, "that riches consist, not in the product
itself, for it is not riches if it have not value, but in its value."
Vol. ii. p. 2.