Cyclopædia of Political Science, Political Economy, and the Political History of the United States
WEALTH. In the most ordinary acceptation of the term, the word wealth indicates, and always indicated, especially when it was applied almost exclusively to the precious metals, things having an exchangeable value; but the greater part of economists have applied it to all useful things, even to those which are entirely devoid of such value; but it is always inconvenient in scientific nomenclature to designate by the same word, things which differ by essential characteristics, for such designation invariably causes confusion and misunderstandings. It might easily be shown that a great part of the discussions to which some of the principles of political economy have given rise, was due only to the two-fold meaning given to the words wealth and value, which made them designate both gratuitous utility, that is to say, a utility acquired without cost or labor, and powerless to obtain anything by way of exchange, and the utility obtained by means of labor, and possessed of an exchangeable value. It will, therefore, be of interest to inquire whether the nomenclature of politico-economical science would not be rendered clearer and more precise if it were once well understood that the words wealth and value designated only utilities of this last kind, and this is what we shall attempt to demonstrate. But we must first point out the difficulties which result from the two-fold scientific meaning given to these two words, or the lack of precision in the meaning given to each in the definitions of them by the principal economists. The intimate correlation of these two words, and of the ideas which they awaken, will not allow us to treat of wealth without at the same time treating of value; we will, however, as far as possible confine our observations on the latter word to what is necessary in order to elucidate the question of nomenclature which we are considering: the other questions relating to the subject are considered in the article on VALUE.—"Every man is rich or poor," says Adam Smith, "according to the degree in which he can afford to enjoy the necessaries, conveniences and amusements of human life. But after the division of labor has once thoroughly taken place, it is but a very small part of these with which a man's own labor can supply him. The far greater part of them he must derive from the labor of other people; and he must be rich or poor according to the quantity of that labor which he can command or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or command." ("Wealth of Nations," book i., chap. 5.)
—From this we see that Adam Smith at first seems to consider everything useful as wealth, but afterward restricts the qualification to things which have an exchangeable value. "The word value." he says elsewhere, "it is to be observed, has two different meanings; it sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use, and the other value in exchange. The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use, but a very great quantity of other goods may frequently be had in exchange for it." ("Wealth of Nations," book i., chap. 4.) Here we have the word value used to express both gratuitous utility and utility which brings a price.—"Everybody knows," says J. B. Say, "that things have sometimes a value in use very different from their value in exchange; that common water, for example, has scarcely any value, although very necessary, while a diamond has a very great value in exchange, although of very little service; but it is evident that the value of water is a part of our natural wealth, which does not belong to the domain of political economy, and that the value of the diamond forms a part of our social wealth, which is the only wealth within the province of the science. The word exchangeable is always indispensable, and included in the values with which political economy is concerned; it is unnecessary to repeat it continually, for it is always understood." (Cours Complet, t. i., p. 74.) And again he says, "The value which constitutes wealth is not the arbitrary value which a person attaches to a thing he possesses, and which is purely relative to his particular wants; it is the value given by industry and appreciated by the public." (Ibid., p. 306.) Thus J. B. Say understood by value and wealth only what possesses an exchangeable value, and it was probably only by the example of Smith that he was induced to give to gratuitous utility the name of value in use (valeur d'utilité), or natural wealth.
—Ricardo fully admits the distinction established by Smith between value in use and value in exchange ("The Principles of Political Economy in Taxation," ch. i.); however, in a letter to J. B. Say he maintains that we ought to give the name of wealth only to the things which have an exchangeable value (Œuvres diverses de, J. B. Say. p. 410). In turn J. B. Say writes him: "I can not admit what you and Adam Smith are pleased to call value in use: what is value in use, if it is not utility pure and simple? The word utility is therefore sufficient." (Ibid., p. 409.) This remark is well grounded, and that of Ricardo is not less so.
—M'Culloch recognizes that the double meaning given to the two words value and wealth has not always been clearly perceived, and that at often becomes a cause of confusion and errors hence, from the very beginning of his book, he makes it a rule to use the word value to signify only exchangeable value, and the word wealth only to specify products susceptible of appropriation, and which are obtained only by the use of human labor, and which consequently are not gratuitously acquired, but are possessed of an exchangeable value.—"When exchanges are introduced," says Storch, "the useful things or the values which we possess may serve us in two different ways: first, directly, when we employ them in our own use, and then indirectly, when we exchange them for other values. Thus, therefore, the utility of things is either direct or indirect, and so with their value. Notwithstanding the difference of expression, this distinction is the same as that established by Smith, for Storch includes gratuitous utility in direct value.—"What is value? what is wealth?" asks Rossi. "If common sense answers these questions easily, the books answer them in so many different ways that the critics have reason to assert they have not been answered at all. Once more, value is the expression of the relation which exists between the wants of man and things. Wealth is a generic term which embraces all the objects in which this relation is verified. Every object that can satisfy a human want possesses a value. The object itself is wealth. Thus value and wealth, without being synonymous, are two expressions necessarily correlative. Value is the relation; wealth is the aggregate of all the objects in which this relation is realized. This is what common sense tells us, and science has no right to depart from common sense."
—It is quite evident that Rossi confounds here, as in other parts of his course of political economy, the words value, utility, etc. It is to be regretted, that, after having pretended that the books did not at all answer the questions which he propounded, he himself answers them much more imperfectly than those who preceded him. But the confusion which prevented him from forming an exact idea of value is due to the fact that he admitted, with Smith, a value in use, which is nothing else than utility, and a value in exchange, which is the sole value.
—Frederick Bastiat distinguished perfectly utility from value: utility is what may be called the expression of the relation which exists between the wants of man and things. Value, indeed, supposes utility, but admits of still other characteristics. Bastiat distinguishes gratuitous utility, that is, the utility we enjoy without labor or previous effort, such as the light of the sun, from onerous utility, which is acquired only after a service done. To procure this latter utility we must first overcome a difficulty which stands between the want and its satisfaction; we obtain it by means of the effort or service which by rendering utility onerous prevents it from being transmitted for nothing, and gives rise to value. Exchangeable value is the only value he recognizes; and he clearly demonstrates that the idea which this word expresses must be the result of exchange, and was introduced into the world when two men for the first time agreed to exchange their services or the results of their services. (Harmonies Économiques, p. 170, etc.)
—But Bastiat held that the word wealth should be applied to gratuitous utility only. He distinguishes two kinds of wealth: effective wealth, which comprises all utilities, whether obtained gratuitously or with the assistance of human effort; and relative wealth, which consists exclusively of onerous utilities or utilities which have a price. The more gratuitous utilities increase by the progress of industry, the more effective wealth do nations or the whole human race possess. But the relative wealth of an individual, a family, or a limited agglomeration of individuals, depends upon the amount of values which it possesses, provided the share of the mass of existing wealth, which they can obtain by way of exchange, is proportioned to the sum of these values.
—If we had to distinguish in political economy two kinds of wealth, we would rather admit the distinction made by J. B. Say, between natural wealth and social wealth, than that proposed by Bastiat, as the former seems to us much more exact; but how can Bastiat, who has so ably proved that exchangeable value is the only value, admit wealth without value? An examination of his motives seems worthy of attention, and we hope it will afford us an opportunity of elucidating one of the difficult points of political economy.
—The "science of political economy," he says, "concerns itself with the general welfare of men, with the proportion which exists between their efforts and their satisfactions, a proportion which modifies to advantage the progressive participation of gratuitous utility in the work of production. The science can not, therefore, exclude this element from the idea of wealth. We may conceive two nations, one of which has more satisfactions than the other; but it has fewer values because nature has favored it, and because it meets with fewer obstacles: which is the richer of the two? Nay more, let us take the same people at two different epochs: the obstacles which it has to overcome are the same, but to-day it surmounts them with such facility (it effects, for instance, the transportation of its merchandise, carries on its labor and manufactures with so little effort) that values are, in consequence, considerably reduced. It may therefore adopt either of these two courses, remain content with the same satisfactions as formerly, and turn its progress into leisure. Can its wealth in this case be said to be retrograde, because that wealth possesses less value? Or it may devote its unemployed efforts to increase its enjoyments. In this latter case can we conclude that because the sum of the values of that people has remained stationary, its wealth has remained stationary also? This is a momentous question for political economy. Should it measure wealth by the satisfactions realized or by the values created?" (Harmonies Économiques, p. 234.)
—This is really a very specious argument, and one which, if we are not mistaken, will appear unanswerable to many economists; and yet we believe we can show that all this argumentation is based upon an incomplete notion of value, and forgetfulness of some of its essential characteristics. The question is an important one. Is it true, as Bastiat asserts, that a people who by its progress in industry is enabled to procure the same satisfactions as formerly with less labor, thereby reduce the sum of these values? Or is it true that the latter remain stationary, if this same people, continuing to work as much as formerly, obtain more products? Let us see.
—How is the value of a product, of a service, or of an aggregate of products and services, measured? By the quantity of all other objects having a price which they enable one to obtain in exchange for them. This is an axiom of political economy which has never been contested.
—Let us now suppose that a people has, without greater effort or more human labor than formerly, succeeded in doubling the quantity of the products of all kinds which minister to its wants: we are told that then the value of these products, although their quantity has been doubled, has not been increased; but what is there to base such an assertion on? How is the value of the products measured before and after the doubling? If we measure it as we should do, by the quantity of all objects having a price which each class of products enables us to obtain in exchange, we shall inevitably find that in doubling the quantity of all the products we have likewise doubled their total value, since each class of products can be exchanged against a double quantity of all the others. But it is said that this double quantity will have no greater value than the single quantity had before. How is this possible? We ask again, what is there to base such an assertion on? Since the value of an object can not be better measured than by the quantity of all other objects having a price which can be obtained in exchange for it, is it not plain that a class of products, which, because it has been doubled at the same time that all others have been doubled, enables us to obtain, in exchange, the double of the latter, has doubled in value as well as in quantity? What misleads the mind, and prevents the clear apprehension of this truth, is that value is confounded with price, and it is very true, that if the quantity of money did not increase during this doubling of the other products, the price of the latter might have sunk one-half or nearly one-half; but what clearly proves that it is not their value which is sunk, is that if we suppose the quantity of money to have doubled in the same time as the quantity of all the other products, we shall see that the price of these latter, taken as a whole, must have doubled likewise.
—What next hinders the conception and acceptation of the truth we have just stated, is, that many economists continue to suppose, with Adam Smith, that the value of products is measured by the quantity of human labor employed in their creation—an incorrect notion, which has led to many errors, and which prevents those who adhere to it from recognizing the fact that value may be increased without increasing the amount of labor.
—But the greatest obstacle to a proper appreciation of the question we are considering is, in the first place, that it is too easily forgotten that value is a quality essentially relative, which can not vary in one object without varying at the same time, and in an inverse sense in all others; so that if sugar or wheat falls in value, all other products necessarily rise relatively to wheat or sugar, and that if iron or meat rise in value all other products fall in value relatively to meat or iron; and in the second place, that in considering the value of products the value of the unit is confounded with that of the class, and that when the fall in the value of the unit is observed, that fall is attributed to the entire class, and it is not remarked that the decline is compensated for, and often more than compensated for, by the increase in the quantity, as will appear from the following. It is noticed, for instance, that the use of the knitting machine enables us to produce a pair of stockings with half the labor or cost of production that was needed to produce the same pair of stockings when knit by hand; it is said that the value of the stockings has fallen one-half, and this is true so far as the unit is concerned; but is it equally true that the total value of the production of stockings has been reduced by half, since the introduction of the knitting machine? By no means, and it is very probable, on the contrary, that it has more than doubled; the same is true of the production of books compared with that of manuscripts; of the manufacture of thread by machinery, compared with its production by the wheel or spindle: of transportation furnished by the locomotive, compared with that afforded by the peddler. In these different classes of production, the unit has considerably fallen in value, but the entire class represents a value incomparably greater than that which it possessed before the fall. The value of the unit of products has been more or less reduced in Europe since the beginning of the fifteenth century in many other branches of production, but there is probably not a single one which in the aggregate does not furnish a sum of values much greater than it was before that reduction. The value of products taken en masse is therefore far from being lessened by the effect of industrial progress, what men detract from the value of the unit, they far more than restore by the increase of the quantity. This evidently escaped Bastiat in the passage which we have quoted. He believed that a like quantity of labor could never produce anything but a like sum of values, and that the only result of industrial progress was to increase gratuitous utility: it is, however, very certain that industrial progress increases at the same time utility, which has a price; for nobody, surely, would hesitate to acknowledge that the most industrious peoples are also the richest in exchangeable values Bastiat was imbued with the idea that values would go on constantly decreasing from the effect of industrial progress: this may be admitted in the case of various classes of products so far as the unit is concerned; but, so far as the class or the mass of products is concerned, the effect of this progress up to the present time has been to increase its value considerably, and there is nothing which authorizes us to think that it will be otherwise in the future.
—This is not, therefore, so momentous a question as Bastiat imagined it to be; it may be boldly affirmed that wealth consists of objects possessed of exchangeable value, and that it is proportioned to the sum of those values, measured as it should be.
—Although we realize how tiresome such discussions are to the mind, the desire to render them henceforth entirely superfluous by elucidating as clearly as possible the questions with which they are concerned, induces us to beg the reader's attention a few moments longer.
—J. B. Say regarded, as one of the greatest difficulties of political economy, the solution of the question: As the value of things possessed is what constitutes wealth, why is it, that, the lower prices are in a country, the richer that country is? The question, it seems to us, is not here put in its true terms; for it would be difficult to show that the countries in which products have the lowest prices are always the richest. In certain large countries, as, for example, in Poland, or in certain provinces of Russia, in America, and Hindostan, the principal products (cereals, meat, wood, wool, leather, etc.) are lower in price than anywhere else; and yet these countries can not by any means be reckoned among the richest. It seems evident to us that the problem which the illustrious French economist meant to propound is this: "Wealth being made up of the value of things possessed, how can a nation grow wealthy in proportion as it succeeds in lowering the value of its products by reducing the cost of their production?" J. B. Say answers, that the productive stock of such a nation has then more value, since the services which it furnishes are exchanged for a greater quantity of objects of every kind having a price; but this solution is incomplete, for it does not explain why the wealth produced (and no longer the power of producing) is greater in the country in which the progress of industry has reduced the cost of production, and the value of the different species of products, most.
—To give a complete solution to this question, we must recall, first, that value is an essentially relative quality, and then all that we have said above. It results from this that the lowering of value brought about by industrial progress, in the unit of a class of products, does not diminish the value of the entire class, because it is at the very least compensated for by the increase in the quantity produced, while it increases proportionately the value of all other products relatively to that in which it has become manifest, because it allows these to be exchanged for a larger quantity of the products whose value has fallen.
—We repeat, therefore: on the one hand, there is no reduction in the value of the class of products in which the fall has occurred, the increase in the quantity at least compensating therefor; on the other hand, this fall gives a superadded value to all other classes of products. Is not the final result, therefore, an increase in the sum of values? Thus a fall in the value in the unit of one class of products, may be perfectly reconciled with the increase of sum total of values or wealth.
—This shows why we were able to prove, as we did above, that the doubling of the quantity of all the products obtained without an increase of cost or effort, would necessarily double the sum of their total value, since each class of products would then obtain in exchange a double quantity of all the others.
—What precedes seems to us to have provided sufficiently for the solution of the question of nomenclature which we proposed to ourselves. The quality which renders things capable of satisfying our wants, is called utility. There are utilities like the air we breathe, or the light of the stars, which apply themselves to our wants, without requiring the least preparation or previous effort on our part; moreover, they are not susceptible of private or exclusive appropriation, being equally at the disposal of all. We agree with Bastiat, in classing all the utilities of this sort under the denomination of gratuitous utility. Others can not be applied to our wants except after some service performed by us; they become the property of those who have furnished that service, and they are endowed with a quality which enables their possessor to obtain other utilities of the same class, but of varied species, when he wishes to exchange them. This is the quality which is expressed by the word value. This class of utilities may be comprised under the general term of utility having a price.
—Value exists only by labor and exchange; the value of any particular object is measured, not by the quantity of labor employed in producing it, but by the quantity of all the other objects having a price which can be obtained in exchange for it.
—It is only the utility which has a price that constitutes wealth. The only politico-economical difference between the words wealth and value is, that the latter designates a quality, as Rossi has remarked, while the word wealth indicates the object in which that quality resides.
—There is no value but exchangeable value: what many economists have called value in use is only utility. For an object to possess an exchangeable value, it is not indispensable, as Rossi supposes, that it be in circulation, that is to say, offered in exchange; it suffices that it be recognized to have some value if it be offered for sale; thus public monuments, or the clothes we wear, although they are not offered in exchange, still possess an exchangeable value.
—There is no wealth but that which consists in objects possessing utility having a price. What J. B. Say calls natural wealth is only gratuitous utility.
—When industrial progress enables us without more labor or effort to obtain greater quantities of objects that possess utility having a price, no fall in the sum of values takes place in consequence; for the reduction in value of the unit of the product in which that progress is realized, is immediately compensated for by the additional value acquired, relatively to this object, by all the other products for which it may be exchanged. On the contrary, the result is that the sum of values is increased proportionately to the surplus obtained in the quantity of products; this we think we have fully demonstrated.
—Wealth, therefore, is really proportionate to the sum total of values, and this sum is itself proportionate to the quantity of products of all kinds, and, consequently, to the amount of gratifications we are able to procure.
—The progress of industry, the increase of our power over natural agents, have not, therefore, as Bastiat supposes, the effect of reducing the sum of the utility which has a price. On the contrary, that progress increases it in proportion as it enables us to increase the objects which possess that utility. And this is the reason why the nations whose industry has made most progress are also the wealthiest, in the only legitimate sense of the word, the wealthiest in the utility which has a price in exchangeable wealth.
—Every reduction in the cost of production, and in the value of the unit of any class of products, is none the less a benefit of that industrial progress; but it is a benefit only because it increases the units of that class, and because it gives an additional value to all the other products.
—It seems to us that our propositions relating to the fixing of the meaning of the words value and wealth are sufficiently demonstrated.
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