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The Theory of Political Economy; Jevons, William Stanley
30 paragraphs found.
Preface to the First Edition
PF.2

There are many portions of Economical doctrine which appear to me as scientific in form as they are consonant with facts. I would especially mention the Theories of Population and Rent, the latter a theory of a distinctly mathematical character, which seems to give a clue to the correct mode of treating the whole science. Had Mr. Mill contented himself with asserting the unquestionable truth of the Laws of Supply and Demand, I should have agreed with him. As founded upon facts, those laws cannot be shaken by any theory; but it does not therefore follow, that our conception of Value is perfect and final. Other generally accepted doctrines have always appeared to me purely delusive, especially the so-called Wage Fund Theory. This theory pretends to give a solution of the main problem of the science—to determine the wages of labour; yet, on close examination, its conclusion is found to be a mere truism, namely, that the average rate of wages is found by dividing the whole amount appropriated to the payment of wages by the number of those between whom it is divided. Some other supposed conclusions of the science are of a less harmless character, as, for instance, those regarding the advantage of exchange (see the section on "The Gain by Exchange," p. 141).

Preface to the Second Edition
PS.8

Turning now to the theory itself, the question is not so much whether the theory given in this volume is true, but whether there is really any novelty in it. The exclusive importance attributed in England to the Ricardian School of Economists, has prevented almost all English readers from learning the existence of a series of French, as well as a few English, German, or Italian economists, who had from time to time treated the science in a more or less strictly mathematical manner. In the first edition (pp. 14-18), I gave a brief account of such writings of the kind as I was then acquainted with; it is from the works there mentioned, if from any, that I derived the idea of investigating Economics mathematically. To Lardner's Railway Economy I was probably most indebted, having been well acquainted with that work since the year 1857. Lardner's book has always struck me as containing a very able investigation, the scientific value of which has not been sufficiently estimated; and in chapter xiii. (pp. 286-296, etc.) we find the Laws of Supply and Demand treated mathematically and illustrated graphically.

PS.20

The earlier treatise of Cournot, his admirable Recherches sur les Principes Mathématiques de la Théorie des Richesses (Paris, 1838), resembles Dupuit's memoirs in being, until within the last few years, quite unknown to English economists. In other respects Cournot's method is contrasted to Dupuit's. Cournot did not frame any ultimate theory of the ground and nature of utility and value, but, taking the palpable facts known concerning the relations of price, production and consumption of commodities, he investigated these relations analytically and diagraphically with a power and felicity which leaves little to be desired. This work must occupy a remarkable position in the history of the subject. It is strange that it should have remained for me among Englishmen to discover its value. Some years since (1875) Mr. Todhunter wrote to me as follows: "I have sometimes wondered whether there is anything of importance in a book published many years since. by M. A. A. Cournot, entitled Recherches sur les Principes Mathématiques de la Théorie des Richesses. I never saw it, and when I have mentioned the title, I never found any person who had read the book. Yet Cournot was eminent for mathematics and metaphysics, and so there may be some merit in this book." I procured a copy of the work as far back as 1872, but have only recently studied it with sufficient care to form any definite opinion upon its value. Even now I have by no means mastered all parts of it, my mathematical power being insufficient to enable me to follow Cournot in all parts of his analysis. My impression is that the first chapter of the work is not remarkable; that the second chapter contains an important anticipation of discussions concerning the proper method of treating prices, including an anticipation (p. 21) of my logarithmic method of ascertaining variations in the value of gold; that the third chapter, treating of the conditions of the foreign exchanges, is highly ingenious if not particularly useful; but that by far the most important part of the book commences with the fourth chapter upon the "Loi du débit." The remainder of the book, in fact, contains a wonderful analysis of the laws of supply and demand, and of the relations of prices, production, consumption, expenses and profits. Cournot starts from the assumption that the débit or demand for a commodity is a function of the price, or D = F ( p); and then, after laying down empirically a few conditions of this function, he proceeds to work out with surprising power the consequences which follow from those conditions. Even apart from its economic importance, this investigation, so far as I can venture to judge it, presents a beautiful example of mathematical reasoning, in which knowledge is apparently evolved out of ignorance. In reality the method consists in assuming certain simple conditions of the functions as conformable to experience, and then disclosing by symbolic inference the implicit results of these conditions. But I am quite convinced that the investigation is of high economic importance, and that, when the parts of political economy to which the theory relates come to be adequately treated, as they never have yet been, the treatment must be based upon the analysis of Cournot, or at least must follow his general method. It should be added that his investigation has little relation to the contents of this work, because Cournot does not recede to any theory of utility, but commences with the phenomenal laws of supply and demand.

PS.38

Although, as I have said, the true theory of wages is not new as regards the French School, it is new, or at any rate renewed, as regards our English Schools of Economics. One of the first to treat the subject from the right point of view was Mr. Cliffe Leslie, in an article first published in Fraser's Magazine for July 1868, and subsequently reprinted in a collection of Essays. *17 Some years afterwards Mr. J. L. Shadwell independently worked out the same theory of wages which he has fully expounded in his admirable System of Political Economy.*18 In Hearn's Plutology, however, as pointed out in the text of this book (pp. 271 - 273), we find the same general idea that wages are the share of the produce which the laws of supply and demand enable the labourer to secure. It is probable that like ideas might be traced in other works were this the place to attempt a history of the subject.

PS.39

Secondly, I feel sure that when, casting ourselves free from the Wage-Fund Theory, The Cost of Production doctrine of Value, the Natural Rate of Wages, and other misleading or false Ricardian doctrines, we begin to trace out clearly and simply the results of a correct theory, it will not be difficult to arrive at a true doctrine of wages. This will probably be reached somewhat in the following way:—We must regard labour, land, knowledge, and capital as conjoint conditions of the whole produce, not as causes each of a certain portion of the produce. Thus in an elementary state of society, when each labourer owns all the three or four requisites of production, there would really be no such thing as wages, rent, or interest at all. Distribution does not arise even in idea, and the produce is simply the aggregate effect of the aggregate conditions. It is only when separate owners of the elements of production join their properties, and traffic with each other, that distribution begins, and then it is entirely subject to the principles of value and the laws of supply and demand. Each labourer must be regarded, like each landowner and each capitalist, as bringing into the common stock one part of the component elements, bargaining for the best share of the produce which the conditions of the market allow him to claim successfully. In theory the labourer has a monopoly of labour of each particular kind, as much as the landowner of land, and the capitalist of other requisite articles. Property is only another name for monopoly. But when different persons own property of exactly the same kind, they become subject to the important Law of Indifference, as I have called it (pp. 90-93), namely, that in the same open market, at any one moment, there cannot be two prices for the same kind of article. Thus monopoly is limited by competition, and no owner, whether of labour, land, or capital, can, theoretically speaking, obtain a larger share of produce for it than what other owners of exactly the same kind of property are willing to accept.

Chapter 1
I.2

Repeated reflection and inquiry have led me to the somewhat novel opinion, that value depends entirely upon utility. Prevailing opinions make labour rather than utility the origin of value; and there are even those who distinctly assert that labour is the cause of value. I show, on the contrary, that we have only to trace out carefully the natural laws of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence. This theory is in harmony with facts; and, whenever there is any apparent reason for the belief that labour is the cause of value, we obtain an explanation of the reason. Labour is found often to determine value, but only in an indirect manner, by varying the degree of utility of the commodity through an increase or limitation of the supply.

I.4

It is clear that Economics, if it is to be a science at all, must be a mathematical science. There exists much prejudice against attempts to introduce the methods and language of mathematics into any branch of the moral sciences. Many persons seem to think that the physical sciences form the proper sphere of mathematical method, and that the moral sciences demand some other method,—I know not what. My theory of Economics, however, is purely mathematical in character. Nay, believing that the quantities with which we deal must be subject to continuous variation, I do not hesitate to use the appropriate branch of mathematical science, involving though it does the fearless consideration of infinitely small quantities. The theory consists in applying the differential calculus to the familiar notions of wealth, utility, value, demand, supply, capital, interest, labour, and all the other quantitative notions belonging to the daily operations of industry. As the complete theory of almost every other science involves the use of that calculus, so we cannot have a true theory of Economics without its aid.

I.5

To me it seems that our science must be mathematical, simply because it deals with quantities. Wherever the things treated are capable of being greater or less, there the laws and relations must be mathematical in nature. The ordinary laws of supply and demand treat entirely of quantities of commodity demanded or supplied, and express the manner in which the quantities vary in connection with the price. In consequence of this fact the laws are mathematical. Economists cannot alter their nature by denying them the name; they might as well try to alter red light by calling it blue. Whether the mathematical laws of Economics are stated in words, or in the usual symbols, x,y,z,p,q, etc., is an accident, or a matter of mere convenience. If we had no regard to trouble and prolixity, the most complicated mathematical problems might be stated in ordinary language, and their solution might be traced out by words. In fact, some distinguished mathematicians have shown a liking for getting rid of their symbols, and expressing their arguments and results in language as nearly as possible approximating to that in common use. In his Système du Monde, Laplace attempted to describe the truths of physical astronomy in common language; and Thomson and Tait interweave their great Treatise on Natural Philosophy with an interpretation in ordinary words, supposed to be within the comprehension of general readers. *24

I.24

The science of Economics, however, is in some degree peculiar, owing to the fact, pointed out by J. S. Mill and Cairnes, that its ultimate laws are known to us immediately by intuition, or, at any rate, they are furnished to us ready made by other mental or physical sciences. That every person will choose the greater apparent good; that human wants are more or less quickly satiated; that prolonged labour becomes more and more painful, are a few of the simple inductions on which we can proceed to reason deductively with great confidence. From these axioms we can deduce the laws of supply and demand, the laws of that difficult conception, value, and all the intricate results of commerce, so far as data are available. The final agreement of our inferences with à posteriori observations ratifies our method. But unfortunately this verification is often the least satisfactory part of the process, because, as J. S. Mill has fully explained, the circumstances of a nation are infinitely complicated, and we seldom get two or more instances which are comparable. To fulfil the conditions of inductive inquiry, we ought to be able to observe the effects of a cause coming singly into action, while all other causes remain unaltered. Entirely to prove the good effects of Free Trade in England, for example, we ought to have the nation unaltered in every circumstance except the abolition of burdens and restrictions on trade. *35 But it is obvious that while Free Trade was being introduced into England, many other causes of prosperity were also coming into action—the progress of invention, the construction of railways, the profuse consumption of coal, the extension of the colonies, etc. etc. Although, then, the beneficent results of Free Trade are great and unquestionable, they could hardly be proved to exist à posteriori; they are to be believed because deductive reasoning from premises of almost certain truth leads us confidently to expect such results, and there is nothing in experience which in the least conflicts with our expectations. In spite of occasional revulsions, due to periodical fluctuations depending on physical causes, the immense prosperity of the country since the adoption of Free Trade confirms our anticipations as far as, under complex circumstances, facts are capable of doing so. It will thus be seen that Political Economy tends to be more deductive than many of the physical sciences, in which closely approximate verification is often possible; but, even so far as the science is inductive, it involves the use of deductive reasoning, as already explained.

Chapter 3
III.11

"An examination of the nature and intensity of man's wants shows that this connection between them gives to Political Economy its scientific basis. The first proposition of the theory of consumption is, that the satisfaction of every lower want in the scale creates a desire of a higher character. If the higher desire existed previous to the satisfaction of the primary want, it becomes more intense when the latter is removed. The removal of a primary want commonly awakens the sense of more than one secondary privation: thus a full supply of ordinary food not only excites to delicacy in eating, but awakens attention to clothing. The highest grade in the scale of wants, that of pleasure derived from the beauties of nature and art, is usually confined to men who are exempted from all the lower privations. Thus the demand for, and the consumption of, objects of refined enjoyment has its lever in the facility with which the primary wants are satisfied. This, therefore, is the key to the true theory of value. Without relative values in the objects to the acquirement of which we direct our power, there would be no foundation for Political Economy as a science."

III.45

Now, if such a theory of dimensions is requisite in dealing with the precise ideas of physical magnitudes, it seems to be still more desirable as regards the quantities with which we are concerned in Economics. One of the first and most difficult steps in a science is to conceive clearly the nature of the magnitudes about which we are arguing. Heat was long the subject of discussion and experiment before physicists formed any definite idea how its quantity could be measured and connected with other physical quantities. Yet, until that was done, it could not be considered the subject of an exact science. For one or two centuries economists have been wrangling about wealth, demand and supply, value, production, capital, interest, and the like; but hardly any one could say exactly what were the natures of the quantities in question. Believing that it is in forming these primary ideas that we require to exercise the greatest care, I have thought it well worth the trouble and space to enter fully into a discussion of the dimensions of economic quantities.

Chapter 4
IV.17

The theoretical conception of a perfect market is more or less completely carried out in practice. It is the work of brokers in any extensive market to organise exchange, so that every purchase shall be made with the most thorough acquaintance with the conditions of the trade. Each broker strives to gain the best knowledge of the conditions of supply and demand, and the earliest intimation of any change. He is in communication with as many other traders as possible, in order to have the widest range of information, and the greatest chance of making suitable exchanges. It is only thus that a definite market price can be ascertained at every moment, and varied according to the frequent news capable of affecting buyers and sellers. By the mediation of a body of brokers a complete consensus is established, and the stock of every seller or the demand of every buyer brought into the market. It is of the very essence of trade to have wide and constant information. A market, then, is theoretically perfect only when all traders have perfect knowledge of the conditions of supply and demand, and the consequent ratio of exchange; and in such a market, as we shall now see, there can only be one ratio of exchange of one uniform commodity at any moment.

IV.18

So essential is a knowledge of the real state of supply and demand to the smooth procedure of trade and the real good of the community, that I conceive it would be quite legitimate to compel the publication of any requisite statistics. Secrecy can only conduce to the profit of speculators who gain from great fluctuations of prices. Speculation is advantageous to the public only so far as it tends to equalise prices; and it is, therefore, against the public good to allow speculators to foster artificially the inequalities of prices by which they profit. The welfare of millions, both of consumers and producers, depends upon an accurate knowledge of the stocks of cotton and corn; and it would, therefore, be no unwarrantable interference with the liberty of the subject to require any information as to the stocks in hand. In Billingsgate fish market there was long ago a regulation to the effect that salesmen shall fix up in a conspicuous place every morning a statement of the kind and amount of their stock. *71 The same principle has long been recognised in the Acts of Parliament concerning the collection of statistics of the quantities and prices of corn sold in English market towns. More recently similar legislation has taken place as regards the cotton trade, in the Cotton Statistics Act of 1868. Publicity, whenever it can thus be enforced on markets by public authority, tends almost always to the advantage of everybody except perhaps a few speculators and financiers.

IV.19

I find it necessary to adopt some expression for any number of people whose aggregate influence in a market, either in the way of supply or demand, we have to consider. By a trading body I mean, in the most general manner, any body either of buyers or sellers. The trading body may be a single individual in one case; it may be the whole inhabitants of a continent in another; it may be the individuals of a trade diffused through a country in a third. England and North America will be trading bodies if we are considering the corn we receive from America in exchange for iron and other goods. The continent of Europe is a trading body as purchasing coal from England. The farmers of England are a trading body when they sell corn to the millers, and the millers both when they buy corn from the farmers and sell flour to the bakers.

IV.21

It should be remarked, however, that the economical laws representing the conduct of large aggregates of individuals will never represent exactly the conduct of any one individual. If we could imagine that there were a thousand individuals all exactly alike in regard to their demand for commodities, and their capabilities of supplying them, then the average laws of supply and demand deduced from the conduct of such individuals would agree with the conduct of any one individual. But a community is composed of persons differing widely in their powers, wants, habits, and possessions. In such circumstances the average laws applying to them will come under what I have elsewhere *72 called the "Fictitious Mean," that is to say, they are numerical results which do not pretend to represent the character of any existing thing. But average laws would not on this account be less useful, if we could obtain them; for the movements of trade and industry depend upon averages and aggregates, not upon the whims of individuals.

IV.38

A vague notion has existed in the minds of economical writers, that the conditions of exchange may be expressed in the form of an equation. Thus, J. S. Mill has said: *74 "The idea of a ratio, as between demand and supply, is out of place, and has no concern in the matter: the proper mathematical analogy is that of an equation. Demand and supply, the quantity demanded and the quantity supplied, will be made equal." Mill here speaks of an equation as only a proper mathematical analogy. But if Economics is to be a real science at all, it must not deal merely with analogies; it must reason by real equations, like all the other sciences which have reached at all a systematic character. Mill's equation, indeed, is not explicitly the same as any at which we have arrived above. His equation states that the quantity of a commodity given by A is equal to the quantity received by B. This seems at first sight to be a mere truism, for this equality must necessarily exist if any exchange takes place at all. The theory of value, as expounded by Mill, fails to reach the root of the matter, and show how the amount of demand or supply is caused to vary. And Mill does not perceive that, as there must be two parties and two quantities to every exchange, there must be two equations.

IV.39

Nevertheless, our theory is perfectly consistent with the laws of supply and demand; and if we had the functions of utility determined, it would be possible to throw them into a form clearly expressing the equivalence of supply and demand. We may regard x as the quantity demanded on one side and supplied on the other; similarly, y is the quantity supplied on the one side and demanded on the other. Now, when we hold the two equations to be simultaneously true, we assume that the x and y of one equation equal those of the other. The laws of supply and demand are thus a result of what seems to me the true theory of value or exchange.

IV.51

As stated above, the Theory of Exchange may seem to be of a somewhat abstract and perplexing character; but it is not difficult to find practical illustrations which will show how it is verified in the actual working of a great market. The ordinary laws of supply and demand, when properly stated, are the practical manifestation of the theory. Considerable discussion has taken place concerning these laws, in consequence of Mr. W. T. Thornton's writings upon the subject in the Fortnightly Review, and in his work on the Claims of Labour. Mill, although he had previously declared the Theory of Value to be complete and perfect (see p. 76), was led by Mr. Thornton's arguments to allow that modification was required.

IV.52

For my own part, I think that most of Mr. Thornton's arguments are beside the question. He suggests that there are no regular laws of supply and demand, because he adduces certain cases in which no regular variation can take place. Those cases might be indefinitely multiplied, and yet the laws in question would not be touched. Of course, laws which assume a continuity of variation are inapplicable where continuous variation is impossible. Economists can never be free from difficulties unless they will distinguish between a theory and the application of a theory. Because, in retail trade, in English or Dutch auction, or other particular modes of traffic, we cannot at once observe the operation of the laws of supply and demand, it is not in the least to be supposed that those laws are false. In fact, Mr. Thornton seems to allow that, if prospective demand and supply are taken into account, they become substantially true. But, in the actual working of any market, the influence of future events should never be neglected, neither by a merchant nor an economist.

IV.53

Though Mr. Thornton's objections are mostly beside the question, his remarks have served to show that the action of the laws of supply and demand was inadequately explained by previous economists. What constitutes the demand and the supply was not carefully enough investigated. As Mr. Thornton points out, there may be a number of persons willing to buy; but if their highest offer is ever so little short of the lowest price which the seller is willing to take, their influence is nil. If in an auction there are ten people willing to buy a horse at £20, but not higher, their demand instantly ceases when any one person offers £21. I am inclined not only to accept such a view, but to carry it further. Any change in the price of an article will be determined not with regard to the large numbers who might or might not buy it at other prices, but by the few who will or will not buy it according as a change is made close to the existing price.

IV.54

The theory consists in carrying out this view to the point of asserting that it is only comparatively insignificant quantities of supply and demand which are at any moment operative on the ratio of exchange. This is practically verified by what takes place in any very large market—say that of the Consolidated Three Per Cent Annuities. As the whole amount of the English funds is nearly eight hundred millions sterling, the quantity bought or sold by any ordinary purchaser is inconsiderably small in comparison. Even £1000 worth of stock may be taken as an infinitesimally small increment, because it does not appreciably affect the total existing supply. Now the theory consists in asserting that the market price of the funds is affected from hour to hour not by the enormous amounts which might be bought or sold at extreme prices, but by the comparatively insignificant amounts which are being sold or bought at the existing prices. A change of price is always occasioned by the overbalancing of the inclinations of those who will or will not sell just about the point at which prices stand. When Consols are at 93½, and business is in a tranquil state, it matters not how many buyers there are at 93, or sellers at 94. They are really off the market. Those only are operative who may be made to buy or sell by a rise or fall of an eighth. The question is, whether the price shall remain at 93½, or rise to 93 5/8, or fall to 93 3/8. This is determined by the sale or purchase of comparatively very small amounts. It is the purchasers who find a little stock more profitable to them than the corresponding sum of money who make the price rise by 1/8. When the price of the funds is very steady and the market quiescent, it means that the stocks are distributed among holders in such a way that the exchange of more or less at the prevailing price is a matter of indifference.

IV.55

In practice, no market ever long fulfils the theoretical conditions of equilibrium, because, from the various accidents of life and business, there are sure to be people every day compelled to sell, or having sudden inducements to buy. There is nearly always, again, the influence of prospective supply or demand, depending upon the political intelligence of the moment. Speculation complicates the action of the laws of supply and demand in a high degree, but does not in the least degree arrest their action or alter their nature. We shall never have a Science of Economics unless we learn to discern the operation of law even among the most perplexing complications and apparent interruptions.

IV.89

Much confusion is thrown into the statistical investigation of questions of supply and demand by the circumstance that one commodity can often replace another, and serve the same purposes more or less perfectly. The same, or nearly the same, substance is often obtained from two or three sources. The constituents of wheat, barley, oats, and rye are closely similar, if not identical. Vegetable structures are composed mainly of the same chemical compound in nearly all cases. Animal meat, again, is of nearly the same composition from whatever animal derived. There are endless differences of flavour and quality, but these are often insufficient to prevent one kind from serving in place of another.

IV.115

It is very curious that in this subject, which reaches to the very foundations of Political Economy, we owe more to early than later writers. Before our science could be said to exist at all, writers on Political Arithmetic had got about as far as we have got at present. In a pamphlet of 1737, *89 it is remarked that "People who understand trade will readily agree with me, that the tenth part of a commodity in a market, more than there is a brisk demand for, is apt to lower the market, perhaps, twenty or thirty per cent, and that a deficiency of a tenth part will cause as exorbitant an advance." Sir J. Dalrymple, *90 again, says: "Merchants observe, that if the commodity in market is diminished one-third beneath its mean quantity, it will be nearly doubled in value; and that if it is augmented one-third above its mean quantity, it will sink near one-half in its value; or that, by further diminishing or augmenting the quantity, these disproportions between the quantity and prices vastly increase." These remarks bear little signs of accuracy, indeed, for the writers have spoken of commodities in general as if they all varied in price in a similar degree. It is probable that they were thinking of corn or other kinds of the more necessary food. In the Spectator we find a conjecture, *91 that the production of one-tenth part more of grain than is usually consumed would diminish the value of the grain one-half. I know nothing more strange and discreditable to statists and economists than that in so important a point as the relations of price and supply of the main article of food, we owe our most accurate estimates to writers who lived from one to two centuries ago.

Chapter 5
V.31

Let it be observed that, in uniting the theories of exchange and production, a complicated double adjustment takes place in the quantities of commodity involved. Each party adjusts not only its consumption of articles in accordance with their ratio of exchange, but it also adjusts its production of them. The ratio of exchange governs the production as much as the production governs the ratio of exchange. For instance, since the Corn Laws have been abolished in England, the effect has been, not to destroy the culture of wheat, but to lessen it. The land less suitable to the growth of wheat has been turned to grazing or other purposes more profitable comparatively speaking. Similarly the importation of hops or eggs or any other article of food does not even reduce the quantity raised here, but prevents the necessity for resorting to more expensive modes of increasing the supply. It is not easy to express in words how the ratios of exchange are finally determined. They depend upon a general balance of producing power and of demand as measured by the final degree of utility. Every additional supply tends to lower the degree of utility; but whether that supply will be forthcoming from any country depends upon its comparative powers of producing different commodities.

V.47

In one of the most interesting chapters of his Principles of Political Economy, Book III., chap. xvi., John Stuart Mill has treated of what he calls "Some peculiar Cases of Value." Under this title he refers to those commodities which are not produced by separate processes, but are the concurrent or joint results of the same operations. "It sometimes happens," he says, "that two different commodities have what may be termed a joint cost of production. They are both products of the same operation, or set of operations, and the outlay is incurred for the sake of both together, not part for one and part for the other. The same outlay would have to be incurred for either of the two, if the other were not wanted or used at all. There are not a few instances of commodities thus associated in their production. For example, coke and coal-gas are both produced from the same material, and by the same operation. In a more partial sense, mutton and wool are an example; beef, hides, and tallow; calves and dairy produce; chickens and eggs. Cost of production can have nothing to do with deciding the values of the associated commodities relatively to each other. It only decides their joint value.... A principle is wanting to apportion the expenses of production between the two." He goes on to explain that, since the cost of production principle fails us, we must revert to a law of value anterior to cost of production, and more fundamental, namely, the law of supply and demand.

V.48

On some other occasion I may perhaps more fully point out the fallacy involved in Mill's idea that he is reverting to an anterior law of value, the law of supply and demand, the fact being that in introducing the cost of production principle, he had never quitted the laws of supply and demand at all. The cost of production is only one circumstance which governs supply, and thus indirectly influences values.

V.49

Again, I shall point out that these cases of joint production, far from being "some peculiar cases," form the general rule, to which it is difficult to point out any clear or important exceptions. All the great staple commodities at any rate are produced jointly with minor commodities. In the case of corn, for instance, there are the straw, the chaff, the bran, and the different qualities of flour or meal, which are products of the same operations. In the case of cotton, there are the seed, the oil, the cotton waste, the refuse, in addition to the cotton itself. When beer is brewed the grains regularly return a certain price. Trees felled for timber yield not only the timber, but the loppings, the bark, the outside cuts, the chips, etc. No doubt the secondary products are often nearly valueless, as in the case of cinders, slag from blast furnaces, etc. But even these cases go to show all the more impressively that it is not cost of production which rules values, but the demand and supply of the products.

Chapter 8
VIII.3

There is another inversion of the problem of Economics which is generally made in works upon the subject. Although labour is the starting-point in production, and the interests of the labourer the very subject of the science, yet economists do not progress far before they suddenly turn round and treat labour as a commodity which is bought up by capitalists. Labour becomes itself the object of the laws of supply and demand, instead of those laws acting in the distribution of the products of labour. Economists have invented, too, a very simple theory to determine the rate at which capital can buy up labour. The average rate of wages, they say, is found by dividing the whole amount of capital appropriated to the payment of wages by the number of the labourers paid; and they wish us to believe that this settles the question. But a little consideration shows that this proposition is simply a truism.The average rate of wages must be equal to what is appropriated to the purpose divided by the number who share it. The whole question will consist in determining how much is appropriated for the purpose; for it certainly need not be the whole existing amount of circulating capital. Mill distinctly says, that because industry is limited by capital, we are not to infer that it always reaches that limit; *127 and, as a matter of fact, we often observe that there is abundance of capital to be had at low rates of interest, while there are also large numbers of artisans starving for want of employment. The wage-fund theory is therefore illusory as a real solution of the problem, though I do not deny that it may have a certain limited and truthful application, to be shortly considered.

Appendix I and Appendix II
Bib.89

1870. JENKIN (Fleeming). The Graphic Representation of the Laws of Supply and Demand, and their application to Labour. Recess Studies, edited by Sir Alexander Grant. Edinburgh. 8vo. (Pp. 151-185.)