CHAPTER III.

OF REAL AND RELATIVE VARIATION OF PRICE.

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.

The price obtained upon the sale of an article represents all other articles procurable with that price. To say, that the price of an ell of broadcloth is 40 fr., implies, that it is exchangeable 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 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 possession of an object, and the price obtainable for the relinquishment of its possession.

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.* 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 attention, the neglect or oversight of which has led to abundance of error and misrepresentation, and has made the works 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 40 fr., will have cost that sum in the manufacture; but if three-fourths only of that productive agency can be made to suffice for its

* Vide Wealth of Nations, book i. c. 5.

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production; if, supposing one kind of productive agency only to be requisite, 15 instead of 20 days' labour of a single workman be enabled to complete the product, the same ell of broadcloth will cost but 30 fr. 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 between 30 fr. and 40 fr. 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 ordinary 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.

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 products wherewith it is recompensed, or of those, for which the specific object of this real variation is procurable.

It is otherwise with regard to the variation of price of products 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 200 fr. the ton, will fetch no more than 150 fr., 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 150 fr., instead of 200 fr, in money, and of commodities in a like proportion, which is an abatement of 4; whereas, in the instance above cited, an equal amount of productive agency will receive an equal recompense in all other products; for a degree of agency, which has both cost and received 30 fr., will be equally well paid with one that has both cost and received 40 fr.

In the former case, then, of a real variation, the wealth of the community will have received an accession; in the latter, of relative variation, it will have remained stationary; and for this plain reason; because, in the one case all the purchasers of cloth will be so much the richer, without the seller being any poorer; while, in the other, the gain of the one class will be exactly equipoised by the corresponding loss of the other. In the former case, a larger amount of products will be procured with an equal charge of production, and without any alteration in the revenues of either buyers or sellers: there

The cost of production is what Smith calls the natural price of products, as contrasted with their current or market price, as he terms it. But it results from what has been said above, that every act of barter or exchange, among the rest even that implied in the act of production, is conducted with reference to current price.

will be more actual wealth, more means of enjoyment, without any increased expenditure of productive means; the aggregate utility will be augmented; the quantum of produce procurable for the same price will be enlarged; all which are but varied expressions of the same meaning.

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 productive 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 steamengines: or one before known and available is directed with superior skill and effect; as in the case of every improvement in mechanism, whereby human or animal power is assisted or expanded. The merit of the merchant, who contrives, by good management, to make the same capital suffice for an extended business, is precisely analogous to that of the engineer, who simplifies machinery, or renders it more productive.

The discovery of a new mineral, animal, or vegetable, possessed of the properties of utility in a novel form, or in a greater degree of abundance or of 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 for the Tyrian dye. In all these instances of improvement, and those of a similar nature that may be hereafter effected, it is observable, that, since the means of production placed at the disposal of mankind become in reality more powerful, the product raised always increases in quantity, in proportion as it diminishes in value. We shall presently see the consequences of this cir

cumstance.*

A fall of price may be general and affect all commodities at once; or it may be partial and affect certain commodities only; as I shall endeavour to explain by example.

Suppose that, when stockings were made by knitting only, thread-stockings, of a given quality, amounted to the price of 6 fr. the pair. Hence, we should infer, that the rent of the land whereon the flax was grown, the profits upon the labour

Within the last hundred years, the improvements of industry, effected by the advance of human knowledge, more especially in the department of natural science, have vastly abridged the business of production; but the slow progress in moral and political science, and particularly in the branch of social organization, has hitherto prevented mankind from reaping the full benefit of those improvements. Yet it would be wrong to suppose they have reaped none at all. The pressure of taxation has indeed been doubled, tripled, or even quadrupled; yet population has increased in most countries of Europe; which is a sign, that a portion at least of the increase of produce has fallen to the lot of the subject; and the population, besides being augmented, is likewise better lodged, clothed, and conditioned, and I believe better fed too, than it was a century ago.

and capital of the cultivators, those of the flax-dresser and spinner, with those likewise of the stocking-knitter, amounted altogether to the sum of 6 fr. for each pair of stockings. Suppose that, in consequence of the invention of the stockingmachine, 6 fr. will buy two pair of stockings instead of one. As the competition has a tendency to bring the price to a level with the cost of production, we may infer from this reduced price, that the outlay in land, capital, and labour, necessary to produce two pair of stockings, is still no more than 6 fr.; thus, with equal means of production, the product raised is doubled in quantity. And what is a convincing proof that this fall is positive, is the fact, that every person, of what profession soever, may thenceforward obtain a pair of stockings with half the quantity of his own particular product. A capitalist, the holder of five per cent. stock, was before obliged to devote the annual interest of 120 fr. to the purchase of a pair of stockings; he now gives the interest of 60 fr. only. A tradesman selling his sugar at 2 fr. per lb. must before have sold 3lb. of sugar to buy a pair of stockings, now he need but sell 14lb.: he therefore sacrifices in the purchase of a pair of stockings only half the means of production he formerly devoted to the acquisition of the same object.

We have hitherto supposed this product alone to have fallen in price. Let us suppose two products to fall, stockings and sugar: that, by an improvement of commerce, 1lb. of sugar cost one fr. instead of 2. In this case, all purchasers of sugar, including the stocking-maker, whose product has likewise fallen, will sacrifice, in the purchase of 1lb. of sugar, but half the productive means, which they before allotted for that purpose.

The truth of this position may be easily ascertained. When sugar was at 2 fr. per lb. and stockings at 6 fr. the pair, the stocking-maker was obliged to sell one pair of stockings, before he could buy 3lbs. of sugar; and, as the charges of producing this pair of stockings were 6 fr., he in reality bought 3lbs. of sugar at the price of 6 fr. value in his own productive means; in like manner as the grocer bought a pair of stockings for 3lbs. of sugar, that is to say, in his case also, for 6 fr. value of his peculiar productive means. But when both these commodities have fallen to half their price, one pair only, or productive means equivalent to 3 fr., would buy 3lbs. of sugar; and 3lbs. of sugar, procurable at a charge of production amounting to 3 fr., will suffice to purchase a pair of stockings. Wherefore, if two kinds of products, which we have set one against the other, and supposed to pass in exchange the one for the other, can both have fallen in price at the same time, are we not authorized to infer, that this fall is a positive fall, and has no reference or relation to the prices of commodities one to another? that commodities in general may fall at one and the same time, some more, some less, and yet that the diminution of price may be no loss to any body?"

It is for this reason, that, in modern times, although wages stand in nearly the same relation to corn as they did four or five hundred years ago, yet the lower classes now enjoy many luxuries, that were then denied them; many articles of dress and household furniture, for instance, have suffered a real diminution of value; and that the same individuals are more scantily supplied with others, as with butcher's meat and game,* because they have sustained a real increase of value.

Every saving in the cost of production implies the procurement, either of an equal product by the exertion of a smaller amount of productive agency, or of a larger product by the exertion of equal agency, which are both the same thing; and it is sure to be followed by an enlargement of the product. It may be thought, perhaps, that this increase of production may possibly take place without any corresponding increase of demand; and, therefore, that the price current of the product may fall below the cost of its production, even on its reduced scale. But this is a groundless apprehension; for the fall of price tends so strongly to expand the sphere of consumption, that, in all the instances I have been able to meet with, the increase of demand has invariably outrun the increasing powers of an improved production, operating upon the same productive means; so that every enlargement of the power of productive agency has created a demand for more of that agency, in the preparation of the product cheapened by the improve

ment.

Of this a striking example has been afforded by the invention of the art of printing. By this expeditious method of multiplying the copies of a literary work, each copy costs but a twentieth part of what was before paid for manuscript; an equal intensity of total demand would, therefore, take off only twenty times the number of copies; but probably it is within the mark to say, that a hundred times as many are now consumed. So that, where there was formerly one copy only of the value

I find in the Recherches of Dupré de Saint Maur, that in 1342, an ox was sold for from 10 to 11 livres tournois. This sum then contained 7 oz. of fine silver, which was worth about 28 oz. of the present day; and 28 oz. of our present money are coined into 171 fr. 30 c., which is lower than the price of an ordinary ox. A lean ox bought in Poitou for 300 fr., and afterwards fatted in Lower Normandy, will sell at Paris for from 450 to 500 fr. Butcher's meat has, therefore, more than doubled in price since the 14th century; and probably most other articles of food likewise; and, if the labouring classes had not at the same time been greatly benefited by the progress of industry, and put in possession of additional sourcess of revenue, they would be worse fed than in the time of Philip of Valois.

This may be easily explained. The growing revenues of the industrious classes have enabled them to multiply, and consequently to swell the demand for all objects of food. But their supply can not keep pace with the increasing demand, because, although the same surface of soil may be rendered more productive, it can not be so to an indefinite degree and the supply of food by the channel of external commerce, is more expensive than by that of internal agriculture, on account of the bulky nature of most of the articles of aliment.