Political Economy

Nassau W. Senior, from the Warren J. Samuels Portrait Collection
Senior, Nassau W.
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First Pub. Date
London: Richard Griffin and Co.
Pub. Date
3rd edition.



Wealth Defined.—Having stated that the Science which we propose to consider, and to which we apply the term Political Economy, is the Science which treats of the Nature, the Production, and the Distribution of Wealth, our first business is to explain the meaning in which we use the word Wealth.


Under that term we comprehend all those things, and those things only, which are transferable, are limited in supply, and are directly or indirectly productive of pleasure or preventive of pain; or, to use an equivalent expression, which are susceptible of exchange; (using the word exchange to denote hiring as well as absolute purchase;) or, to use a third equivalent expression, which have Value; a word which, in a subsequent portion of this Treatise, we shall explain at some length, merely premising at present that we use it in its popular sense, as denoting the capacity of being given and received in exchange.

Constituents of Wealth.


1. Utility.—Of the three qualities which render anything an article of Wealth, or, in other words, give it value, the most striking is the power, direct or indirect, of producing pleasure, including under that term gratification of every kind, or of preventing pain, including under that term every species of discomfort. Unfortunately, we have no word which precisely expresses this power; utility, which comes nearest to it, being generally used to express the quality of preventing pain or of indirectly producing pleasure, as a means. We shall venture to extend the signification of that word, and consider it as also including all those things which produce pleasure directly. We must admit that this is a considerable innovation in English language. It is, however, sanctioned by Mr. Malthus, (Definitions, p. 234,) and has been ventured by M. Say in French, a language less patient of innovation than our own. Feeling the same difficulty, he has solved it in the same way by using the term utilité as comprehending every quality that renders anything an object of desire. Attractiveness and desirableness have both been suggested to us as substitutes, but on the whole they appear to us more objectionable than utility, objectionable as we must admit that word to be.


Utility, thus explained, is a necessary constituent of value; no man would give anything possessing the slightest utility for a thing possessing none; and even an exchange of two useless things would be, on the part of each party to the exchange, an act without a motive. Utility, however, denotes no intrinsic quality in the things which we call useful; it merely expresses their relations to the pains and pleasures of mankind. And, as the susceptibility of pain and pleasure from particular objects is created and modified by causes innumerable, and constantly varying, we find an endless diversity in the relative utility of different objects to different persons, a diversity which is the motive of all exchanges.


2. Limitation in Supply.—The next constituent of value is limitation in supply. It may appear inaccurate to apply this expression to any class of things, as it, in fact, belongs to all; there being nothing which, strictly speaking, is unlimited in supply. But, for the purposes of Political Economy, everything may be considered as unlimited in supply in its existing state, of which a man may have as much as he pleases for the mere trouble of taking it into his possession. Thus the water of the open sea is, in our use of the term, unlimited in supply; any man who chooses to go for it may have as much of it as he pleases: that portion of it which has been brought to London is limited in supply, and is to be obtained not merely by going to the reservoir and taking possession of it, but by giving for it an equivalent. The copper ores which Sir John Franklin discovered on the shores of the Arctic Seas may be considered, in their existing state, as unlimited in supply; any man may have as much of them as he has strength and patience to extract. The extracted portion would be limited in supply, and therefore susceptible of value. Many things are unlimited in supply for some purposes, and limited for others. The water in a river is in general more than sufficient for all the domestic purposes for which it can be required; nobody pays therefore for permission to take a bucketful: but it is seldom sufficient for all those who may wish to turn their mills with it; they pay, therefore, for that privilege.


It must be further observed that, for economical purposes, the term limitation in supply always involves the consideration of the causes by which the existing supply is limited. The supply of some articles of Wealth is limited by insurmountable obstacles. The number of Raphael's pictures, or of Canova's statues, may be diminished, but cannot possibly be increased. There are others of which the supply may be increased to an indefinite extent. Such things may be considered as comparatively limited in supply, in proportion, not to the existing supply of each, but to the force of the obstacles opposed to their respective increase. It is supposed that there is now about forty-five times as much of silver extracted from the mines, and current in Europe, as there is of gold. Human exertion is the only means by which the supply of either can be increased, and they may both be increased by human exertion to an amount of which we do not know the limit. The obstacle, therefore, by which they are each limited in supply is, the amount of human exertion necessary to their respective increase. About sixteen times more exertion is necessary to produce an ounce of gold than an ounce of silver. The obstacle, therefore, which limits the supply of gold is sixteen times more powerful than that which limits the supply of silver. In our sense of the term, therefore, gold is only sixteen times more limited in supply than silver, though the actual weight of silver in Europe is forty-five times as great as that of gold. To take a more familiar example, the number of coats and waistcoats in England is perhaps about equal. The supply of each may be increased by human exertion to an indefinite extent; but it requires about three times as much exertion to produce a coat as to produce a waistcoat. As the obstacle, therefore, which limits the supply of coats is three times as forcible as that which limits the supply of waistcoats, we consider coats three times more limited in supply than waistcoats, though the existing supply of each may perhaps be equal. Whenever, therefore, we apply the words limited in supply, as a comparative expression, to those commodities of which the quantity can be increased, we refer to the comparative force of the obstacles which limit the respective supplies of the objects compared.


3. Transferableness.—The third and last quality which a thing must possess to constitute it an article of Wealth, or, in other words, to give it value, is Transferableness, by which term (we are sorry to say, an unusual one) we mean to express that all or some portion of its powers of giving pleasure, or preventing pain, are capable of being transferred, either absolutely, or for a period. For this purpose it is obvious that it must be capable of appropriation; since no man can give what he cannot refuse. The sources of pleasure and preventives of pain which are absolutely incapable of appropriation are very few. We almost doubt whether there are any, and we are sure that the instances which are usually given are incorrect. "The earth," observes M. Say, Econ. Pol. Liv. ii. Ch. ix. "is not the only material agent with productive power, but it is the only one, or nearly so, that can be appropriated. The water of rivers and of the sea, which supplies us with fish, gives motion to our mills, and supports our vessels, has productive powers. The wind gives us force, and the sun heat, but happily no man can say, 'The wind and the sun belong to me, and I will be paid for their services.' " Now, in fact, air and sunshine are local. This is so obvious that it would be absurd to prove, by serious induction, that some situations have too much wind, and others too little, or that the sun's rays are more powerful productive agents in England than in Melville Island, or in the Tropics than in England. And as the land is everywhere capable of appropriation, the qualities of climate, which are attributes of that land, must be so too. What gives their principal value to the vineyards of the Côte Rotie, but the warmth of their sun? or to the houses which overlook Hyde Park, but the purity of their air? Rivers and the sea are equally unfortunate illustrations. Many of the rivers of England are not less strictly appropriated, and are far greater sources of wealth, than any equal superficies of land. When M. Say visited Lancashire, he must have found every inch of fall in every stream the subject of lease and purchase. And so far are the services of the sea from being incapable of appropriation, that, during the late war, £60,000 was sometimes paid for a license to make use of it for a single voyage; and the privilege of fishing in particular parts of it has been the subject of wars and treaties.


The things of which the utility is imperfectly transferable may be divided into two great classes. The first comprises all those material objects which are affected by the peculiar mental associations, or adapted to the peculiar wants, of individuals. A mansion may flatter the pride of its owner as having been the residence of his ancestors, or be endeared to him as the scene of his childhood; or he may have built it in a form which pleases no eye, or laid it out in apartments that suit no habits but his own. Still his substantial powers of affording warmth and shelter will obtain him purchasers or tenants, though they may demand a reduction from the price in consequence of those very qualities which, with him, formed its principal merits. The palace of St. James's is full of comfort and convenience, and would supply a man of large fortune with an excellent residence; but the long suite of apartments within apartments, which is admirably adapted to holding a Court, would be a mere incumbrance to any but a royal personage. Any individual might hire Alnwick or Blenheim, and enjoy their mere beauty and magnificence, perhaps, more than their owners who have been long familiarized to them; but he could never feel the peculiar pleasure which they seem fitted to give to a Percy and a Churchill. There are many things, such as clothes and furniture, which sink in utility in the estimation of every one but their purchaser, from the mere fact of having changed hands. A hat or a table which has been just sent home does not appear to the purchaser less useful than when he saw it in the shop; but if he attempt to resell either, he will find that with the rest of the world it has sunk into the degraded rank of second-hand.


The second class of things imperfectly transferable includes the greater part, perhaps all, of our personal qualities. This classification, which places talents and accomplishments among the articles of wealth, may appear at first sight strange and inconvenient; it certainly is different from that of most Economists. We will therefore venture to illustrate it more fully.


Health, strength, and knowledge, and the other natural and acquired powers of body and mind, appear to us to be articles of wealth, precisely analogous to a residence having some qualities that are universally useful, and others peculiarly adapted to the tastes of its owner. They are limited in supply, and are causes of pleasure and preventives of pain far more effectual than the possession of Alnwick or of Blenheim. A portion of the advantages which arise from them are inseparably annexed to their possessor, like the associations of an hereditary property: another portion, and often a very large one, is as transferable as the palpable convenience of the mansion, or beauty of the gardens. What cannot be transferred are the temporary pleasure which generally accompanies the exercise of any accomplishment, and the habitual satisfaction arising from the consciousness of possessing it. What can be transferred are the beneficial results which follow from its having been employed during the period for which its services have been hired. If an Erskine or a Sugden undertakes my cause, he transfers to me, for that occasion, the use of all his natural and acquired ability. My defence is as well conducted as if I had myself the knowledge and the eloquence of an accomplished advocate. What he cannot transfer is the pleasure which he feels in the exercise of his dexterity; but how small is his pleasure compared to mine, if he succeeds for me! A passenger may envy the activity and intrepidity of the crew; they cannot actually implant in him their strength, or their insensibility to danger; but so far as these qualities are means towards an end, so far as they enable him to perform his voyage with quickness and safety, he enjoys the use of them as fully as if they belonged to himself. A hunter probably feels somewhat the same sort of pleasure in the chase which Erskine felt in court; and this pleasure cannot be transferred any more than his muscles or his lungs; but, so far as his strength, speed, and bottom are means towards the end of enabling his rider to keep up with the hounds, they can be purchased or hired as effectually as his bridle or saddle. In the greater part of the world a man is as purchasable as a horse. In such Countries the only difference in value between a slave and a brute consists in the degree in which they respectively possess the saleable qualities that we have been considering. If the question whether personal qualities are articles of wealth had been proposed in classical times, it would have appeared too clear for discussion. In Athens, every one would have replied that they, in fact, constituted the whole value of an Greek empsiuchon organon. The only differences in this respect between a freeman and a slave are, first, that the freeman sells himself, and only for a period, and to a certain extent: the slave may be sold by others, and absolutely; and, secondly, that the personal qualities of the slave are a portion of the wealth of his master; those of the freeman, so far as they can be made the subject of exchange, are a part of his own wealth. They perish indeed by his death, and may be impaired or destroyed by disease, or rendered valueless by any changes in the customs of the Country which shall destroy the demand for his services; but, subject to these contingencies, they are wealth, and wealth of the most valuable kind. The amount of revenue derived from their exercise in England far exceeds the rental of all the lands in Great Britain.


Limitation in Supply the most Important.—Of the three conditions of value, utility, transferableness, and limitation in supply, the last is by far the most important. The chief sources of its influence on value are two of the most powerful principles of human nature, the love of variety, and the love of distinction. The mere necessaries of life are few and simple. Potatoes, water, and salt, simple raiment, a blanket, a hut, an iron pot, and the materials of firing, are sufficient to support mere animal existence in this climate: they do, in fact, support the existence of the greater part of the inhabitants of Ireland; and in warmer countries much less will suffice. But no man is satisfied with so limited a range of enjoyment. His first object is to vary his food; but this desire, though urgent at first, is more easily satisfied than any other, except perhaps that of dress. Our ancestors, long after they had indulged in considerable luxury in other respects, seem to have been contented with a very uniform though grossly abundant diet. And even now, notwithstanding the common declamation on the luxury of the table, we shall find that most persons, including even those whose appetites are not controlled by frugality, confine their principal solid food but to a few articles, and their liquids to still fewer.


The next desire is variety of dress; a taste which has this peculiarity, that, though it is one of the first symptoms that a people is emerging from the brutishness of the lowest savage life, it quickly reaches its highest point, and, in the subsequent progress of refinement, in one sex at least, diminishes until even the highest ranks assume an almost quaker-like simplicity.


Last comes the desire to build, to ornament, and to furnish: tastes which are absolutely insatiable where they exist, and seem to increase with every improvement in civilization. The comforts and conveniences which we now expect in an ordinary lodging, are more than were enjoyed by people of opulence a century ago: and even a century ago a respectable tradesman would have been dissatisfied if his bed-room had been no better furnished than that of Henry VIII., which contained, we are told, only a bed, a cupboard of plate, a joint-stool, a pair of andirons, and a small mirror.*8 And yet Henry was among the richest and the most magnificent sovereigns of his times. Our great grand-children perhaps will despise the accommodations of the present Age, and their poverty may, in turn, be pitied by their successors.


It is obvious, however, that our desires do not aim so much at quantity as at diversity. Not only are there limits to the pleasure which commodities of any given class can afford, but the pleasure diminishes in a rapidly increasing ratio long before those limits are reached. Two articles of the same kind will seldom afford twice the pleasure of one, and still less will ten give five times the pleasure of two. In proportion, therefore, as any article is abundant, the number of those who are provided with it, and do not wish, or wish but little, to increase their provision, is likely to be great; and, so far as they are concerned, the additional supply loses all, or nearly all, its utility. And in proportion to its scarcity the number of those who are in want of it, and the degree in which they want it, are likely to be increased; and its utility, or, in other words, the pleasure which the possession of a given quantity of it will afford, increases proportionally.


But strong as is the desire for variety, it is weak compared with the desire for distinction: a feeling which, if we consider its universality and its constancy, that it affects all men and at all times, that it comes with us from the cradle, and never leaves us till we go into the grave, may be pronounced to be the most powerful of human passions.


The most obvious source of distinction is the possession of superior wealth. It is the one which excites most the admiration of the bulk of mankind, and the only one which they feel capable of attaining. To seem more rich, or, to use a common expression, to keep up a better appearance, than those within their own sphere of comparison, is, with almost all men who are placed beyond the fear of actual want, the ruling principle of conduct. For this object they undergo toil which no pain or pleasure addressed to the senses would lead them to encounter; into which no slave could be lashed or bribed. But this object is obtained by appearances, and, indeed, cannot be attained by anything else. All the gold in the Pactolus, even if the Pactolus were as rich as when Midas had just washed in it, would obviously confer no distinction on the man who was unable to exhibit it. The only mode by which wealth can be exhibited is, by the apparent possession of some object of desire which is limited in supply. Mere limitation of supply, indeed, unless there be some other circumstance constituting the article in question an object of desire, or, in other words, giving it utility, is insufficient. This circumstance must be its having some quality to which some person beside the owner annexes the notion of utility. The original manuscript of every schoolboy's exercise is as limited in supply as anything can be, but there is nothing to make it an object of desire after it has served its purpose in school. It is merely a blotted manuscript, unique certainly, but valueless. But if the original manuscript of the Wealth of Nations could be discovered, it would excite an interest throughout Europe. Curiosity would be eager to trace the first workings of a mind whose influence will be felt as long as civilized society endures. It might, perhaps, be purchased by some ignorant collector only for the purposes of ostentation, but it could not serve even those purposes unless recommended by some circumstance beyond mere singularity.


It is impossible, however, to conceive anything more trifling or more capricious than the circumstances which may make a thing an object of desire, and therefore, in our extended use of that word, give to it utility when its supply is narrowly limited.


The substance which at present is the greatest object of desire, and of which, therefore, a given quantity will exchange for the greatest quantity of all other things, is the diamond. A bracelet belonging to the king of Persia, the stones in which do not weigh two ounces, is said to be worth a million sterling. Now, a million sterling would command the whole labour of about thirty thousand English families for a year. If that labour were employed in producing and reproducing commodities for the purpose of sale, it would probably give for ever a clear annual income equal to the labour of three thousand families, or twelve thousand individuals. It would place at the disposal of its owner all the commodities that could be produced by all the labour of all the inhabitants of a considerable town. And a few pieces of mineral, not weighing two ounces, capable of gratifying no sense but the sight, and which any eye would be tired of looking at for a minute, is invested by our caprice with a value equal to that of the commodities which would give comfortable support to thousands of human beings in an advanced state of civilization. Hardness and brightness must have been the qualities which first attracted notice to the diamond. They enabled it to please the eye and adorn the person, and thus associated with it the union of utility. But a diamond weighing an ounce is not found once in a century; there are not five such known to exist. The possession of an object of desire so limited in supply soon became one of the most unequivocal proofs of wealth. And, as to appear rich is the ruling passion of the bulk of mankind, diamonds will probably continue the objects of eager competition while the obstacles that limit their supply are undiminished. If a Sinbad should discover a valley of diamonds, or we should succeed in manufacturing them from charcoal, they will probably be used only as ornaments for savages, playthings for children, and as affording tools and raw materials for some of the Arts; and we may send cargoes of diamonds to the coast of Guinea to be bartered for equal quantities of ivory or gum.



Value Defined.—Our definition of Wealth, as comprehending all those things, and those things only which have Value, requires us to explain at some length the signification which we attribute to the word Value; especially as the meaning of that word has been the subject of long and eager controversy. We have already stated that we use the word Value in its popular acceptation, as signifying that quality in anything which fits it to be given and received in Exchange; or, in other words, to be lent or sold, hired or purchased.


So defined, Value denotes a relation reciprocally existing between two objects, and the precise relation which it denotes is the quantity of the one which can be obtained in exchange for a given quantity of the other. It is impossible, therefore, to predicate value of any object, without referring, expressly or tacitly, to some other object or objects in which its value is to be estimated; or, in other words, of which a certain quantity can be obtained in exchange for a certain quantity of the object in question.


We have already observed that the substance which at present is most desired, or, in other words, possesses the highest degree of value, is the diamond. By this we meant to express that there is no substance of which a given quantity will exchange for so large a quantity of every other commodity. When we wished to state the value of the king of Persia's bracelet, we stated first the amount of gold, and afterwards of English labour, which it would command in exchange. If we had attempted to give a perfect account of its value, we could have done so only by enumerating separately the quantity of every other article of wealth which could be obtained in exchange for it. Such an enumeration, if it could have been given, would have been a most instructive commercial lesson, for it would have shown not only the value of the diamond in all other commodities, but the reciprocal value of all other commodities in one another. If we had ascertained that a diamond weighing an ounce would exchange for one million five hundred thousand tons of Hepburn coal, or one hundred thousand tons of Essex wheat, or two thousand five hundred tons of English foolscap paper, we might have inferred that the coal, wheat, and paper would mutually exchange in the same proportions in which they were exchangeable for the diamond, and that a given weight of paper would purchase six hundred times as much coal, and forty times as much wheat.


Demand and Supply.—The causes which determine the reciprocal values of commodities, or, in other words, which determine that a given quantity of one shall exchange for a given quantity of another, must be divided into two sets; those which occasion the one to be limited in supply and useful, (using that word to express the power of occasioning pleasure and preventing pain,) and those which occasion those attributes to belong to the other. In ordinary language, the force of the causes which give utility to a commodity is generally indicated by the word Demand; and the weakness of the obstacles which limit the quantity of a commodity by the word Supply.


Thus the common statement that commodities exchange in proportion to the Demand and Supply of each, means that they exchange in proportion to the force or weakness of the causes which give utility to them respectively, and to the weakness or force of the obstacles by which they are respectively limited in supply.


Unfortunately, however, the words Demand and Supply have not been always so used. Demand is sometimes used as synonymous with consumption, as when an increased production is said to generate an increased demand; sometimes it is used to express not only the desire to obtain a commodity, but the power to give the holder of it something which will induce him to part with it. "A Demand," says Mr. Mill, Political Economy, p. 23, 3d edition, "means the will to purchase and the power of purchasing." Mr. Malthus, Definitions in Political Economy, p. 244, states that "Demand for commodities has two distinct meanings: one in general to its extent, or the quantity of commodities purchased; the other in regard to its intensity, or the sacrifice which the demanders are able and willing to make in order to satisfy their wants."


Demand.—Neither of these expressions appears to be consistent with common usage. It must be admitted that the word Demand is used in its ordinary sense when we say that a deficient wheat harvest increases the Demand for oats and barley. But this proposition is not true if we use the word Demand in any other sense than as expressing the increased utility of oats and barley; or, in other words, the increased desire of the community to obtain them. The deficiency of wheat would not give to the consumers of oats and barley any increased power of purchasing them, nor would the quantity purchased or consumed be increased. The mode of consumption would be altered; instead of being applied to the feeding of horses, or to the supply of stimulant liquids, a certain portion of them would be used as human food. And, as the desire to eat is more urgent than the desire to feed horses, or drink beer or spirits, the desire to obtain oats and barley, or, in other words, the pleasure given, or the pain averted, by the possession of a given quantity of them, or, in other words, the utility of a given quantity of them, would increase. A fact which, in ordinary language, would be expressed by saying, that the demand for them was increased.


But though the vagueness with which the word Demand has been used renders it an objectionable term, it is too useful and concise to be given up; but we shall endeavour never to use it in any other signification than as expressing the utility of a commodity; or, what is the same, for we have seen that all utility is relative, the degree in which its possession is desired.


Supply.—We cannot complain of equal vagueness in the use of the word Supply. In ordinary language, as well as in the writings of Political Economists, it is used to signify the quantity of a commodity actually brought to market. The complaint is, not that the word Supply has been used in this sense, but that, when used in this sense, it has been considered as a cause of value, except in a few cases, or for very short periods. We have shown, in the examples of coats and waistcoats, and gold and silver, that the reciprocal value of any two commodities depends, not on the quantity of each brought to market, but on the comparative force of the obstacles which in each case oppose any increase in that quantity. When, therefore, we represent increase or diminution of supply as affecting value, we must be understood to mean not a mere positive increase or diminution, but an increase or diminution occasioned by a diminution or increase of the obstacles by which the supply is limited.


Intrinsic and Extrinsic Causes of the Value of a Commodity.—To revert to our original proposition, the reciprocal Values of any two commodities must be determined by two sets of causes; those which determine the Demand and Supply of the one, and those which determine the Demand and Supply of the other. The causes which give utility to a commodity and limit it in supply may be called the intrinsic causes of its value; those which limit the supply and occasion the utility of the commodities for which it is to be exchanged, may be called the extrinsic causes of its value. Gold and silver are now exchanged for one another in Europe in the proportion of one ounce of gold for about sixteen ounces of silver. This proportion must arise partly from the causes which give utility to gold and limit its supply, and partly from those which create the utility and limit the supply of silver. When talking of the value of gold we may consider the first set of causes as influencing its general value, since they affect its powers of commanding every commodity in exchange. The second set of causes affect gold only so far as it is to be exchanged for silver, which may be called one of its specific values; the aggregate of its specific values forming its general value. If, while the causes which give utility to silver and limit it in supply were unaltered, those which affect gold should vary; if, for instance, fashion should require every well-dressed man to have all his buttons of pure gold, or the disturbances in South America should permanently stop all the gold works of Brazil and Colombia, and thus (as would be the case) intercept five-sixths of our supplies of gold, the reciprocal values of gold and silver would in time be materially varied. Though silver would be unaltered both as to its utility and as to its limitation in supply, a given quantity of it would exchange for a less quantity of gold in the proportion perhaps of twenty to one, instead of sixteen to one. As between one another the rise and fall of gold and silver would precisely correspond, silver would fall and gold would rise one-fourth. But the fall of silver would not be general but specific; though fallen as estimated in gold, it would command precisely the same quantities as before of all other commodities. The rise of gold would be general; a given quantity of it would command one-fourth more not only of silver, but of all other commodities. The holder of a given quantity of silver would be just as rich as before for all purposes except the purchase of gold; the holder of a given quantity of gold would be richer than before for all purposes.


The circumstances by which each different class of commodities is invested with utility and limited in supply are subject to perpetual variation. Sometimes one of the causes alone varies. Sometimes they both vary in the same direction; sometimes in opposite directions. In the last case the opposite variations, wholly or partially, neutralize one another.


The effects of an increased Demand concurrent with increased obstacles to Supply, and of diminished Demand concurrent with increased facility of Supply, are well exemplified by hemp. Its average price before the revolutionary war, exclusive of duty, did not exceed £30 per ton. The increased Demand, occasioned by a maritime war, and the natural obstacles to a proportionate increase of Supply, raised it, in the year 1796, to above £50 a ton; at about which price it continued during the next twelve years. But in 1808, the rupture between England and the Baltic powers, the principal source of our supplies, suddenly raised it to £118 a ton, being nearly four times the average price in peace. At the close of the war, both the extraordinary demand and the extraordinary obstacles to the supply ceased together, and the price fell to about its former average.


We have already stated that the utility of a commodity, in our extended sense of the term utility, or, in other words, the demand for it as an object of purchase or hire, is principally dependent on the obstacles which limit its supply. But there are many cases in which, while the existing obstacles remain unaltered, the demand is affected by the slightest suspicion that their force may at a future period be increased or diminished. This occurs with respect to those commodities of which the supply is not susceptible of accurate regulation, but is afforded either in uncertain quantities and at stated periods, between which it cannot be increased or diminished,—in the case for instance of the annual products of the earth,—or is dependent on our relations with foreign Countries. If a harvest deficient by one-third should occur, that deficiency must last for a whole year, or be supplied from abroad at an extravagant cost. If we should go to war with Russia, the obstacles to the supply of hemp would be increased while the war lasted. In either case the holders of corn or hemp would obtain great profits. In all rich Countries, and particularly in our own, there is a great number of persons who have large masses of wealth capable of being suddenly applied to the purchase of any given objects. The instant such persons suspect that the obstacles to the supply of any article are likely to be increased, they are anxious to become holders of it. They enter the market as new demanders; the price rises, and the mere fact that it has risen is a cause of its rising further. The details of commerce are so numerous, the difficulty of obtaining early and accurate information is so great, and the facts themselves are so constantly changing, that the most cautious merchants are often forced to act upon very doubtful premises; and the imprudent, dazzled by the chance of an enormous gain, which will be their own, and little restrained by the fear of a loss which may principally fall upon their creditors, are often ready to act upon scarcely any premises at all. They see that the price of some article has risen, and they suppose that there must be some good cause for it. They see that if they had purchased a month ago, they would have been gainers now, and conclude that if they purchase now they will be gainers a month hence. So far is this reasoning, if it can be called reasoning, carried, that a rise in the price of any one important commodity is generally found to occasion a rise in the price of many others. "A" (thinks a speculator) "bought hemp before the price had risen, and has resold it at a profit. Cotton has not yet risen, nor do I see clearly why it should rise, any more than I see why hemp should have risen, but it probably will rise like hemp, therefore I will purchase."


Those who are not practically conversant with commercial transactions, and who are probably accustomed to consider our merchants and capitalists as men of sober minds, and cautious conduct, may perhaps think that we exaggerate the influence of imagination over judgment when we suppose that large fortunes are often risked on such reasoning as this. We cannot support our view better than by the authority of Mr. Tooke, a merchant of great talent and knowledge, and, at the period when he wrote, forced for his own safety, to watch narrowly the phenomena which he described. The passages which we subjoin are taken from his account of the circumstances which occasioned the extraordinary rise of prices in the beginning of 1825. "The close of each year*9 is the period at which, by annual custom, the stocks of goods on hand, and the prospects of supply and consumption for the coming season, are stated and reasoned upon by merchants and brokers in circular letters addressed to their correspondents and employers. By these circulars it appeared (at the close of 1824) that, of some important articles, the stock on hand fell short of that at the close of the preceding year. From this the conclusion was more or less plausibly deduced, that the rate of the annual consumption of those articles was outrunning the rate of the annual supply, and that an advance in price ought to take place; and at the same time, there were, as in the case of cotton and silk, confident reports of the failure of crops or other causes which would inevitably diminish the forthcoming supply. Expectation of scarcity was thus combined with actual deficiency in exciting the spirit of speculation. This was directed in the first instance to the articles which, upon fair mercantile grounds, justified and called for some advance in price, inasmuch as the rate of the consumption of them had outrun the average rate of supply. The rise, however, which would have been requisite to increase the supply, or to diminish the consumption, would, in most of the cases in question, have been trifling.


"But when speculation is once on foot, the rise of any one article may not only be in a ratio far greater than the occasion really calls for, but may cause indirectly a rise in other commodities.


"The impulse, therefore, to a rise being given, and every succeeding purchaser having realized, or appearing to have the power of realizing, a profit, a fresh inducement appeared in every step of the advance to bring forward new buyers. These were no longer such only as were conversant with the market: many persons were induced to go out of their own line, and to embark their funds, or stretch their credit, with a view to engage in what was represented to them by the brokers a certain means of realizing a great and immediate gain.


"Cotton exhibited the most extraordinary instance of speculation carried beyond all reasonable bounds. Silk, wool, and some other articles, in which some advance was justified by the relative state of the supply and demand, became the subjects of a speculative anticipation, and advanced much beyond the occasion, as the event proved, though not in so great a degree as cotton.


"Never did the public, that part of it at least which entered into the vortex of the operations in question, exhibit so great a degree of infatuation, so complete an abandonment of all the most ordinary rules of mercantile reasoning since the celebrated bubble year 1720, as it did in the latter part of 1824, and in the first three or four months of 1825.


"The speculative anticipation of an advance was no longer confined to articles which presented a plausible ground for some rise, however small. It extended itself to articles which were not only not deficient in quantity but which were actually in excess. Thus coffee, of which the stock was increased compared with the average of former years, advanced from 70 to 80 per cent. Spices rose in some instances from 100 to 200 per cent. without any reason whatever, and with a total ignorance on the part of the operators of every thing connected with the relation of the supply to the consumption.


"In short, there was hardly an article of merchandise which did not participate in the rise. For it became the business of the speculators or the brokers, who were interested in raising and keeping up prices, to look minutely through the general Price Currents with a view to discover any article which had not advanced, in order to make it the subject of anticipated demand.


"If a person not under the influence of the prevailing delusion ventured to inquire for what reason any particular article had risen, the common answer was, 'Every thing else has risen, and therefore this ought to rise.' "


When we consider that the supply of large classes of commodities is dependent on our amicable or hostile relations with foreign States, and on the commercial and financial legislation both of those States and of our own Country, and that the supply of still larger classes is dependent not only on those contingencies, but on the accidents of the seasons,—and when we consider how the demand is affected not merely by the existing, or the anticipated obstacles to the supply, but often by a spirit of speculation as blind as that of a gambler ignorant of the odds and even of the principles of his game,—it is obvious that the general value of all commodities, the quantity of each which will exchange for a given quantity of every other, can never remain the same for a single day. Every day there will be a variation in the demand or the supply of one or more of the innumerable classes of commodities which are the objects of exchange in a commercial Country. A given quantity of the commodity which has varied will consequently exchange for a greater or a less quantity of all other commodities. All other commodities, therefore, will have varied in value as estimated in the first-mentioned commodity. It is as impossible for one commodity to remain perfectly unaltered in value while any other is altered, as it would be for a lighthouse to keep at the same distance from all the ships in a harbour while any one of them should approach it or recede.


Steadiness in Value, on what it depends.—But it may be asked, what do we mean when we say that a commodity has, for a given period, remained steady in value?


The question must be answered by referring to the different effects produced on the value of a commodity by an alteration in the intrinsic or an alteration in the extrinsic, causes on which value depends. If the causes which give utility to a commodity and limit its supply, and which we have called the intrinsic causes of its value, are altered, the rise or fall in its value will be general. A given quantity of it will exchange for a greater or a less quantity than before of every other commodity which has not also varied at the same time, in the same direction, and in the same degree; a coincidence which rarely occurs. Every other commodity must also rise or fall in value as estimated in the first-mentioned commodity, but not generally.


The fluctuations in value to which a commodity is subject by alterations, in what we have called the extrinsic causes of its value, or, in other words, by alterations in the demand or supply of other commodities, have a tendency, like all other extensive combinations of chances, to neutralize one another. While it retains the same utility, and is limited in supply by the same causes, a given quantity of it, though it may exchange for a greater or a less quantity of different specific commodities, will in general command the same average quantity as before of the general mass of commodities; what it gains or loses in one direction being made up in another. It may be said without impropriety, therefore, to remain steady in value. But the rise or fall in value which a commodity experiences in consequence of an alteration in its utility, or in the obstacles to its supply, is, in fact, entirely uncompensated. It is compensated only with regard to those commodities of which the utility or the supply has also varied at the same time and in the same direction. And as quite as many are likely to experience a similar variation, but in an opposite direction, there is really no compensation. A commodity, therefore, which is strikingly subject to such variations, is properly said to be unsteady in value.


But we may be asked to account for another and not unfrequent statement, that at particular periods all commodities have been observed to rise or fall in value. Literally taken, this statement involves a contradiction in terms, since it is impossible that a given quantity of every commodity should exchange for a greater or a less quantity of every other. When those who make this statement have any meaning, they always tacitly exclude some one commodity, and estimate in that the rise or fall of all others. The excluded commodity is, in general, money or labour.


Estimated in labour, all commodities, money included, have fallen in value in England since the XVIth Century. It is scarcely possible to mention one of which a given quantity will not purchase less labour than it did at the close of Elizabeth's reign: estimated in money, almost all commodities, labour included, have fallen in England since the termination of the late war.


The last remark which we shall now make on value is, that, with a very few exceptions, it is strictly local. A ton of coal at the bottom of the pit near Newcastle is perhaps worth 2s. 6d., at the pit's mouth it is perhaps worth 5s., at ten miles off 7s., at Hull 10s. By the time the collier has reached the Pool, its cargo is seldom worth less than 16s. a ton; and the inhabitant of Grosvenor Square may perhaps think himself fortunate if he can fill his coal cellars at 25s. a ton.*10 A ton of coal, though physically identical, must be considered, for economical purposes, as a different commodity at the bottom of the pit and at its mouth, in Hull and in Grosvenor Square. At every different stage of its progress it is limited in supply by different obstacles, and consequently exchangeable for different things and in different proportions. Supposing that at Newcastle a ton of the best wheat is now worth about twenty tons of the best coal: the same wheat and coal at the west end of London may probably exchange in the proportions of about four tons of coal for one of wheat. At Odessa, they may perhaps exchange about weight for weight.


Whenever, therefore, we speak of the value of a commodity, it is necessary to state the locality both of the commodity in question and of the commodity in which its value is estimated. And in most cases we shall find their respective proximity to the places where they are respectively to be made use of one of the principal constituents of their respective values. The purchaser of the distant commodity has to consider the labour of transporting it to the place of consumption, the time for which that labour must be paid in advance, and the taxation, and the risk of injury or loss to which it may be subject in its transit. Nor is this all. He must also consider the danger that its quality may not correspond with the description or sample which guided him in making the purchase. The whole expense and risk attending the transport of a diamond from Edinburgh to London are but trifling; but its value is so dependent on its form and lustre, and those are qualities as to which it is so difficult to satisfy any purchaser who cannot ascertain them by inspection, that it would be difficult to obtain in London a fair price for a diamond in Edinburgh. Again, though a given quantity of coal from a given mine is generally of an ascertained quality, yet the expense, loss of time, risk, and taxation, which must be incurred in its transport from Newcastle to Grosvenor Square, are such, that a ton of coal, when it has reached Grosvenor Square, may be of nearly five times the value which it bore at Newcastle.

Objections to the Definition of Wealth Considered.


The definition of Wealth, as comprehending all those things, and those things only, which have Value, or, in other words, which may be purchased or hired, does not, we believe, precisely agree with that adopted by any Economist except Archbishop Whately.


The principal differences are these: some writers confine the term Wealth to what have been termed material products; some to those things which have been produced or acquired by human labour; and some object to the ideas of value or exchange being introduced into the definition of Wealth.


The question whether the things which have been called immaterial ought to be considered articles of wealth, we shall consider when we treat of production.


Some of the writers who, expressly or impliedly, restrict the term Wealth to the things, the production or appropriation of which has cost human labour, as for instance Mr. Mill, Mr. M'Culloch, Colonel Torrens, Mr. Malthus, and M. Flores-Estrada, appear to suppose that a definition so restricted will comprise every thing that can properly be termed wealth; others, among whom is Mr. Ricardo, admit that there are some things falling within that term which have not been acquired by human exertion, but think them so few or unimportant that it is better to omit them than to disorder the symmetry of the Science by extending it to any thing that is not the result of labour.


The former doctrine is clearly stated in the following passages from Mr. Malthus, Colonel Torrens, and Mr. M'Culloch.


"Wealth. The material things necessary, useful, or agreeable to man, which have required some portion of human exertion to appropriate or produce."*11


"Wealth, considered as the object of economical Science, consists of those material articles which are useful or desirable to man, and which it requires some portion of voluntary exertion to procure or to preserve. Thus two things are essential to wealth: the possession of utility, and the requiring some portion of voluntary exertion or labour. That which has no utility, which serves neither to supply our wants nor to gratify our desires, is as the dust beneath our feet, or as the sand upon the shore, and obviously forms no portion of our wealth; while, on the other hand, things which possess the highest utility, and which are even necessary to our existence, come not under the denomination of wealth, unless to the possession of utility be superadded the circumstance of having been procured by some voluntary exertion. Though the air which we breathe and the sunbeams by which we are warmed are in the highest degree useful and necessary, it would be a departure from the precision of language to denominate them articles of wealth. But the bread which appeases the cravings of hunger, and the clothing which protects us from the rigour of the season, though not more indispensably requisite than the former, are with propriety classed under the term wealth; because to the possession of utility they add the circumstance of having been produced by labour."*12


"Labour is the only source of wealth. Nature spontaneously furnishes the matter of which all commodities are made; but until labour has been expended in appropriating matter, or in adapting it to our use, it is wholly destitute of value, and is not, nor ever has been, considered as forming wealth. Place us on the banks of a river, or in an orchard, and we shall inevitably perish of thirst or hunger, if we do not, by an effort of industry, raise the water to our lips, or pluck the fruit from its parent tree.


"An object which it does not require any portion of labour to appropriate or to adapt to our own use, may be of the very highest utility, but, as it is the free gift of nature, it is utterly impossible it can possess the smallest value."*13


Mr. M'Culloch appears to use the word labour as including all voluntary action. And without doubt, if we use the word labour in so extended a sense, it is true that labour is almost necessarily incidental to the enjoyment of wealth. If it be an act of industry to gather an apple, it is equally an act of industry to raise it from one's plate; and every guest at a festival earns his food by the labour which he exerts in appropriating his own portion. Such attempts as these to bend facts and language into accordance with hasty generalization, have thrown on Political Economy a degree of ridicule which is one of the principal obstacles to its progress.


Mr. Malthus, Colonel Torrens, and the other Economists who consider labour, using that word in its popular sense, as a necessary constituent of wealth, appear to have been led to that opinion by observing, first, that some quality besides mere utility is necessary to value; secondly, that all those things which are useful, and are acquired by labour, are valuable; and thirdly, that almost every thing which is valuable has required some labour for its acquisition. But the fact that that circumstance is not essential to value will be demonstrated if we can suppose a case in which value could exist without it. If, while carelessly lounging along the sea-shore, I were to pick up a pearl, would it have no value? Mr. M'Culloch would answer that the value of the pearl was the result of my appropriative industry in stooping to pick it up. Suppose then that I met with it while eating an oyster? Supposing that aerolithes consisted of gold, would they have no value? Or, suppose that meteoric iron were the only form in which that metal were produced, would not the iron supplied from heaven be far more valuable than any existing metal? It is true that, wherever there is utility, the addition of labour as necessary to production constitutes value, because, the supply of labour being limited, it follows that the object, to the supply of which it is necessary, is by that very necessity limited in supply. But any other cause limiting supply is just as efficient a cause of value in an article as the necessity of labour to its production. And, in fact, if all the commodities used by man were supplied by nature without any intervention whatever of human labour, but were supplied in precisely the same quantities as they now are, there is no reason to suppose either that they would cease to be valuable, or would exchange in any other than their present proportions.


The reply to Mr. Ricardo is, first, that the articles of wealth which do not owe the principal part of their value to the labour which has been bestowed on their respective actual production, form, in fact, the bulk of wealth, instead of a small and unimportant portion of it; and secondly, that, as limitation of supply is essential to the value of labour itself, to assume labour, and exclude limitation of supply, as the condition on which value depends, is not only to substitute a partial for a general cause, but pointedly to exclude the very cause which gives force to the cause assigned.


We have lastly to consider the objections which have been raised to the definition of wealth as a general name for the things which have value. Those who use the word value as synonymous with cost, or as comprehending whatever is useful, of course object to its introduction into the definition of wealth;and so should we do if we used the word value in either of those senses. But other writers, using the word value in its popular sense, have objected that, according to the definition which we have adopted, the same thing will be wealth to one person and not to another. This consequence is evident; and it is evident that even to the same person the same quality may be wealth under some circumstances, and not so under others. The knowledge of English law is profitable in England, that of French law in France: if an English lawyer, with no other property but his knowledge, were to settle in France, or a French lawyer in England, he would find himself instantly reduced from affluence to poverty. The power of telling long stories is a source of profit in Asia, but valueless in Europe. According to our nomenclature, therefore, it would be wealth in Persia, and cease to be so in England. If an actress should embrace a religious sect of which the tenets should be incompatible with the stage, her vocal and dramatic talents would no longer be exchangeable, she would no longer be able to let them out by the evening. We would say, therefore, that they had ceased to be a part of her wealth. But we are at a loss to conceive how the power of making this distinction is an objection to the language in question. It seems to be its principal convenience.


Again, Colonel Torrens supposes a solitary family, or a nation in which each person should consume only his own productions, or one in which there should be a community of goods, and urges, as a reductio ad absurdum, that in these cases, though there might be an abundance of commodities, as there would be no exchanges, there would, in our sense of the term, be no wealth. The answer is, that, for the purposes of Political Economy, there would be no wealth; for, in fact, in such a state of things, supposing it possible, the Science of Political Economy would have no application. In such a state of society, Agriculture, Mechanics, or any other of the Arts which are subservient to the production of the commodities which are, with us, the subjects of exchange, might be studied, but the Science of Political Economy would not exist. We may add, that if the common usage which identifies wealth with the things which have value is a convenient one in all the forms which human nature really exhibits, it is no objection to it that it would not be convenient in a state of society of which we have no experience.

Notes for this chapter

Henry, History of Great Britain, Book vi. Ch. vii.
Considerations on the State of the Currency, p. 43.
These prices are merely assumed for the purpose of illustration.
Malthus, Definitions, p. 234.
Torrens, Production of Wealth, Ch. i.
Principles of Political Economy, 66-72.

Chapter 3, Statement of the Four Elementary Propositions of the Science of Political Economy

End of Notes

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