The Common Sense of Political Economy

Hitherto our examination of the administration of resources has been conducted purely from the personal or individual point of view. That is to say, though the person commanding and administering the resources has been regarded as a member of a family, a circle of friends, or a community, and has been actuated by the whole range of motives and impulses that can sway human conduct, we have examined only the principles on which he chooses, and not the instruments by which he gives effect to his choice, nor the forces which regulate the terms on which alternatives are offered to him. And specifically we have assumed the existence and efficiency of money as an instrument and of the market as an institution. Both of these are obviously social or communal in their nature; that is to say, though they owe their existence or their meaning to human choice or action, yet they seem to be beyond the control of any particular individual. To these we must now turn, making the momentous transition from personal to communal economics.
*17

To begin with money. It is obvious that when I give money and get a watch, a piano, or a hundredweight of potatoes for it, the transaction is in form an act of exchange, and though we have hitherto treated it from one side only, it is in reality a mutual transaction that may be looked at from either of two sides. Now, since this most familiar kind of exchange is by no means the simplest, we will approach the subject by examining simpler though less familiar cases. If you look at the publication
Exchange and Mart any week, you will find such cases as this. A man has a microscope of defined quality, and would prefer to have a typewriter, also of defined quality. It may be that he attaches no value at all to the thing he has, but the essential point is that he attaches more value to the thing he desires, and thinks it probable that there may somewhere be a man who desires a microscope which he has not, more than a typewriter which he has. And if that is really so, and if these two people can find each other out, an exchange may be effected to the advantage of both of them, each giving the thing he values less and getting the one he values more.

The conditions, then, for a mutually satisfactory exchange of two concrete articles are that two persons, who have access to each other, should each of them possess one of the articles and prefer the other. An advantageous exchange can take place if a microscope stands higher than a typewriter on Robinson’s scale, and a typewriter higher than a microscope on Jones’s, whereas Jones has the microscope and Robinson has the typewriter. Such simple cases, however, occupy only a very small place in
Exchange and Mart; and indeed it is obvious that if Jones and Robinson both preferred the microscope to the typewriter they might nevertheless be able to effect an advantageous exchange. Robinson may have a typewriter and may wish to get a microscope, but, considering the quality of the typewriter he has and of the microscope he wants, he may think it very unlikely that he will be able to find any one who possesses such a microscope and actually prefers such a typewriter to it. Nevertheless, he may hope to find one who would consider the services of the typewriter more nearly equivalent to those of a microscope than he does himself, and he may therefore announce his desire to obtain a microscope and to give a typewriter “in part payment” for it. Jones may see the announcement and may think it worth following up, and ultimately Robinson may throw in “a pair of large military hair-brushes, real ebony,” and complete a bargain to the satisfaction of both parties. The microscope and the typewriter enter into this act of exchange, although the microscope stands above the typewriter on the scale of preferences of Jones and Robinson alike, only the hair-brushes more than bridge the difference for Jones, and less than bridge it for Robinson.

Were one or both of the articles capable of small subdivision, the intervention of a third article as a make-weight need not be contemplated. We find, for instance, in a number of
Exchange and Mart that a gentleman wants “children’s new boots,” and offers in exchange for them “fine old cigars.” Jones, then, who has fine old cigars, and wants children’s new boots, cannot, so far as our evidence goes, be said to prefer boots to cigars in the abstract, but he prefers a pair of boots of given size and quality to a certain number (more or less closely defined in his own mind, but not revealed to the public) of his “fine old cigars,” and he thinks it likely that some one else will prefer that number of the cigars to such a pair of children’s boots. That is to say, Jones imagines that there may be some Robinson on whose scale of preferences old cigars stand higher with respect to new boots than they do on his own. The conditions of exchange are present, then, if Jones possesses a supply of any commodity
x, and Robinson of any commodity
y, provided that (relatively to
x)
y is higher at the margin on Jones’s scale than on Robinson’s. And here we need say nothing about units; for though it would be nonsense to say that
y stands higher on Jones’s scale than
x does, unless we state the unit (or unless
x and
y are single concrete objects), yet it is sense to say that any arbitrarily selected small quantity of
y stands higher, at the present margins, relatively to any arbitrarily selected small quantity of
x, on the scale of Jones than it does on the scale of Robinson; and we need not state what the small quantities are. I cannot tell you whether butter or jam stands higher on my scale unless you tell me whether I am to have an ounce or a pound of butter as an alternative to a pot of jam; but I may be able to tell you that I estimate butter (whether an ounce or a pound) as worth more jam than my neighbour does. And note here, once for all, that if
y is higher in relation to
x on my scale than on yours, it follows that it is lower on your scale than on mine, and also that
x is higher in relation to
y on your scale than on mine, and lower on mine than on yours. So that any one of these four statements carries the other three with it.

We may now advance to the general statement, that if the marginal significance of anything (old cigars) of which I have a supply stands lower on my scale than it does on yours with reference to something else (children’s boots) of which you have a supply, I shall be able to offer you terms on which an exchange can be made to our mutual satisfaction; provided, of course, that the articles are in their nature exchangeable. And as our previous investigations have made us familiar with the thought that if a man possesses a large stock of any commodity, a unit of it will take a lower place on his relative scale at the margin than if he has a smaller stock, it follows that as I increase my stock of children’s new boots and diminish my stock of cigars the marginal value of boots relatively to cigars declines to me; whereas you are reducing your stock of boots and increasing your stock of cigars, and the marginal value of cigars relatively to boots is declining to you. To each of us, therefore, the significance of that which he began by estimating relatively higher has declined, and the significance of that which he began by valuing relatively lower has risen; and thus the relative marginal values approach more nearly to equality. As long, however, as any difference continues to exist the conditions for a mutually advantageous exchange will still be present; unless, indeed, I have parted with all my cigars, or you with all your boots. In that case I may still think less of cigars relatively to boots than you do, but if I have no cigars, or if you have no boots, we cannot make an exchange. A relatively low estimate on my part of something I have not got does not induce business. If I value oats less highly in comparison with barley than you do, but have not any oats to give you for your barley, my relative underestimate of oats does not result in any exchange. A man once boasted that he had been offered the whole site of Chicago for an old pair of boots, and when asked why he did not close with the offer, replied, “I didn’t have the boots.” The conditions, therefore, for mutually advantageous direct exchange are that two men, who have access to each other, should differ in their estimates of the marginal significances of some two commodities,
and that each should possess a supply of that commodity which he relatively underestimates.

We must note very carefully that we have not yet discovered any principle which will regulate the precise terms on which such exchanges as we have spoken of will be effected. When investigating the principles on which a man administers his pecuniary resources we assumed the existence of market prices or rates of exchange; but in an actual investigation of the phenomena of exchange themselves we may assume no such thing. It is our goal, not our starting-point. Note, then, that the limits within which a direct exchange between two men will be mutually profitable may be wide or narrow, according as the difference of relative estimate is great or small. We have not considered what will fix the terms, within those limits, on which a bargain will actually be struck. We have only shewn that there are possibilities of bargains more or less satisfactory to both parties; and it may be as well to state at once that with reference to two individuals, taken by themselves, the problem is indeterminate. Its solution will depend on the personal qualities of the two bargainers, and the accidental features or circumstances of the special case. Indeed, if the idea of a “rate of exchange” arises at all (in the case, say, of the men with the cigars and the children’s boots), it will probably be only a reflex from other and more familiar transactions. The natural thing will not be for the two bargainers to try to arrive at a “rate” of exchange between boots and cigars, and then consider how many each would like to exchange at that rate; but rather for the cigar man, for instance, to say how many cigars he will give for a batch of boots that would suit him, and for the other man to try to make him give more cigars for the same batch, or take a pair of boots less for the same number of cigars. They will haggle over amounts, not rates.

Rates, as we shall see, are a phenomenon of highly organised markets; and even where money is employed, and there is a regular market, it may be organised on such primitive principles that rates do not emerge with any distinctness. So far as a foreigner can observe, this is the case in the celebrated Bergen fish-market. A housewife asks the price for a certain batch of fish which she selects, and when she is told what it is, offers something less. The fisherman will give her all but one of the fish for the price she names, or all of them for a rather higher price. She will pay the original price if he will substitute another smaller fish for the one he has withdrawn, or the higher price if he will give her a better fish instead of one of the original set, and so on. Perhaps there is not one of all the proposed bargains that both parties would not rather accept than do no business at all; but each hopes to better a good bargain.

It is indeed the ultimate goal of this part of our inquiry to arrive at a definite conception of the forces that determine market prices or rates of exchange, but we are far from having reached it yet. We have, however, already formulated the conditions under which mutually advantageous exchange is possible.

Henceforth our thoughts will generally be directed to those items on a man’s relative scale which are capable of being exchanged, and since this concentration of attention has an insidious and deadly tendency to induce a tacit assumption that there is nothing else or that nothing else much matters, it is important to fix it firmly in our minds that there are many things on our scales of preference that are not exchangeable at all. One man might be willing to sacrifice a title if he could get rid of a constitutional tendency to neuralgic headaches, and another man might be willing to contract such a tendency if it would secure him the title; but though there is a diversity in the tastes of these two men, and each possesses what he relatively undervalues, no exchange can take place. One man might be willing to hand over his knowledge of Chinese to another man in exchange for that other’s knowledge of mathematics, and the other might welcome the arrangement; but the exchange cannot be made. In the latter of these supposed cases, though hardly in the former, there may have been a time when the one scholar devoted to the study of Chinese, and the other to the study of mathematics, time, money, and will-power which might have put him in possession of the knowledge he would now prefer. To each individual the alternative was open once, but the fact that each has made what he now regards as a mistake, in a different direction from that made by the other, does not enable them to rectify or cancel their errors by exchange. On the other hand, if two men who have grown produce for their own personal use find that their scales of marginal preference differ, potatoes standing relatively higher on the scale of one and cereals on that of the other, they can make an adjustment, to their mutual advantage, by exchange. In some cases it is conceivable that each of them might, had he foreseen the whole circumstances, have so conducted his own individual operations as to secure the same ultimate balance directly and without exchange. In that case the two men, like the students of Chinese and mathematics, made an initial mistake, but, unlike them, they are able by exchange partially or wholly to retrieve their error.

But it is not necessary to suppose that there has been any error at all. Exchange need not come in
post factum as a corrective. It may have been contemplated from the first, as an essential link in a series of options by the exercise of which each of the two men does better for himself by producing partly with a view to his own and partly with a view to the other’s wants than he could have done had he directly contemplated his own wants alone. The men may have different talents or different opportunities, and on the principle of division of labour two men between them can often do more of each of two kinds of work if one works all day at one and the other all day at the other than they could if each worked half a day at one and half a day at the other. It may be, therefore, that two men deliberately produce things on such a scale that the marginal significances to each man are out of proportion to the resources which he has devoted to their marginal production; but by exchanging with each other each secures a better result from his own point of view than he could have realised had he done the best possible for himself with his own resources. And this is, of course, what actually happens in any system of industry which we can regard as successfully organised from the social point of view. It is therefore of importance to note the general conditions under which such an organisation becomes possible. My faculties and requirements may be such that, as between Chinese and mathematics, I could make more rapid relative progress in mathematics, whereas another man with whom I am in communication would make more rapid relative progress in Chinese. But it may be that I should value progress in Chinese relatively more for my purposes, and he progress in mathematics for his; yet it would be no use my studying mathematics and he Chinese, for though we should in that way have more between us of all that each of us wants, yet each of us would have what the other man wanted and we should not be able to exchange. Obviously, less of the two accomplishments in possession of the men that want them will be preferable to more in the possession of the men that do not. We should have done better, therefore, by each gaining the smaller knowledge of what he wants himself than by each gaining the greater knowledge of what the other wants. Here the alternatives between which both he and I have to choose are offered to each of us severally, and each must regulate his choice as best he may by the terms on which they are presented to him individually. No system into which exchange enters can increase our command of what each of us wants.

If, on the other hand, Jones has premises particularly suited for keeping old potatoes in prime condition, and has the kind of tastes and instincts which enable him, with certainty and without anxiety or worry, to see that the most favourable conditions for their preservation are uniformly secured, and if, moreover, while having no particular qualifications as a gardener, he has a pronounced taste for new potatoes; and if his neighbour Robinson has not his particular gifts, and has no premises which have the special advantages of his, but has all the instincts of the successful gardener, and at the same time has the good sense to prefer sound old potatoes to the earliest new ones which he himself can produce, or at any rate has no such marked preference for the latter as Jones has, it is obvious that the two men can come to some arrangement from which they will mutually derive advantage. Jones can preserve old potatoes for Robinson, and Robinson can grow new ones for Jones. Here, then, are capacities and opportunities which can be exchanged; and you and I are no longer compelled, each of us, to bring the results of his own efforts into the best harmony he can achieve with his own tastes; for by exercising the faculties which I have and you have not, I can secure the direction of your faculties which I have not to my purposes which they suit; and in this indirect manner I can distribute my transformed resources amongst the objects of my desire so as to achieve a better result than if I had applied them all directly. Each of us accomplishes his own purposes more fully by the indirect process of devoting a portion of his energies to the accomplishment of the other’s purposes, on condition that he reciprocates, than we could have done by each pursuing his own ends directly. And here of course, as everywhere, the principle of declining marginal urgency is at work. As the things that I get indirectly, by furthering some one else’s purposes, increase in volume and diminish in marginal significance, and as more and more of my energies are turned to these indirect but expeditious methods of accomplishing my desires, the supply of those things which no one can do for me contracts, and their marginal urgency rises, till I have found the balance.

In a great and complex industrial society direct reciprocity of services will not be the rule. I, Robinson, may (as before) want to have my old potatoes preserved and may not have the conveniences and capacities which give me exceptional qualifications for the task; whereas you, Jones, may have what I want; but I may have no relatively superior opportunities for rendering any corresponding service to you. I may, however, know Brown, who is good at growing the new potatoes you like, but has no special taste for them; and he may want nets mending or making, to put over his fruit-trees. I may, through physical constitution, acquired skill, or any other circumstance, be relatively better qualified, or in a better position, for making or mending nets than for either growing new potatoes or preserving old ones, and so I may do netting for Brown and get new potatoes, not because I want them myself, but because I know you want them, and I can barter them with you for the old potatoes you have preserved. Here I make nets which (relatively to the trouble of making them) I do not want, and I give them to Brown for new potatoes that I do not (relatively) want either, because I know that you who want new potatoes will give old potatoes for them, to which old potatoes I do attach a value that compensates me for the work I put into the nets. Or if you know about Brown and his tastes, you may give me old potatoes for my nets, not because you want nets, but because you want new potatoes and know that Brown, who has them, will give them to you in exchange for nets. Thus each is making what some one else wants in order to get what he wants himself. Further, if it is a fruit-growing and market-gardening country, you, without knowing any specific Brown who has new potatoes and wants nets, and without indeed there being any such person at all, may be willing to give me old potatoes for nets because you are pretty certain of finding a Smith somewhere who has new potatoes and will give them to you on suitable terms in exchange for nets, not because he wants nets either, but because he, in his turn, will by-and-by want cherries, which he does not grow, but expects to be able to get in exchange for nets from Williams. We need not carry the illustration any further to see that any article which is well known to be valued by a large and easily accessible class of persons may be taken habitually in exchange for valued commodities, although those who take it do not want it for their own use, and it does not, on its own merits, occupy such a place on their relative scale as would justify the exchange. All that is necessary is that there should be a confident expectation of finding some one on whose relative scale it does take such a place. The derivative value that such an article will possess in the mind of a man who has no direct use for it will depend on the direct value which it is conjectured to have in the mind of some accessible though not definitely identified individual or individuals. If there is some article of very generally recognised value which actually takes its place, as directly significant, on the scales of a great number of people, it may come to be generally accepted, without any special calculation or consideration, by people who are not thinking of any use they may have for it themselves, but are aware that it occupies a sufficiently high relative place on the scales of others to recoup them for what they give in exchange for it. As soon as this custom begins to be well established it will automatically extend and confirm itself, and the commodity in question will become a “currency” or “medium of exchange,” the special characteristic of a medium of exchange being that it is accepted by a man who does not want it, or does not want it as much as what he gives for it, in order that he may exchange it for something he wants more. If I have some potatoes and should prefer some cherries, and give my potatoes for some nets, which I do not want as much, because I know that some one else has the cherries and will prefer nets to them, then the nets are a “medium” by the intervention of which I can, at two removes, exchange my potatoes for the cherries, though I cannot find any one who has the cherries and will give them to me for the potatoes. Postage stamps often serve as a medium of exchange, because a large and easily accessible class of persons are constantly wanting the services that the stamps will command. Tram tickets, when issued in books, might and to a limited extent do serve as a medium of exchange in the same manner. Cook’s coupons might easily pass as a medium of exchange amongst travellers on the Continent; and if the railway companies issued their dividends in the shape of claims for such and such a mileage of travelling on their lines the certificates would be readily accepted in exchange by people who had no intention of travelling themselves, if they could make sure of finding people who did want to travel and would give them valuables in exchange for the claims. It is a matter of common knowledge that cattle still perform this function of a medium of exchange in South Africa, and books tell us that furs were long used as currency by the traders on Hudson Bay, and tobacco by the planters in Virginia.

Concurrently with these developments, or perhaps in advance of them, the custom will grow up of estimating the marginal significance of things in terms of the generally accepted article even when the article does not pass from hand to hand in exchanges. There is more evidence in the Homeric poems of the valuation of female slaves, of tripods, or of gold or brass armour, in terms of so many head of cattle, than there is of any direct transfer of cattle in payment for other goods. The convenience of such a standardising of values is obvious. If everything is scheduled in terms of one selected commodity it is indefinitely easier than it would otherwise be to realise the terms on which alternatives are open to us; and if any man defines his marginal estimate of anything he possesses in terms of this standard commodity any other member of the community will at once know whether or not it stands higher on his own scale than on the other’s, and therefore whether or not the conditions for a mutually advantageous exchange exist.

In England the functions of a standardising commodity and of a medium of exchange are both alike performed by gold. Gold is applied to a vast number of purposes in the arts and sciences, and were it more abundant it would replace other metals in many more. Consequently a great number of easily accessible persons actually give a relatively high place to gold on their scales of preference, in virtue of its direct significance to them. It is established by custom (and, so far as that is possible, by law) as the universally accepted commodity; and at the same time it is used as the common measure in terms of which our estimates of all exchangeable things may be stated. So when we say that the marketer finds new potatoes at 2d. a pound and old potatoes at ½d. we are saying that she finds a pound of new potatoes offered in exchange for about 1.0273 grains of standard gold, and a pound of old potatoes in exchange for about .2568 of a grain. Now she may probably possess gold which has a direct value to her. She may have a gold stopping in one of her teeth. She may wear a gold wedding-ring or a gold brooch. She may have pictures with gilt frames, or books with gilt edges, or bindings with gold lettering, and she may want more of some or many of these things. There is therefore a basis in her mind for a comparison between the marginal significance of gold and potatoes. It is no doubt highly improbable that she could herself turn a supply of gold to any of her purposes; and whenever she realises an alternative between gold and something else, for instance between a gold brooch and an umbrella, the gold is always taken in conjunction with the services of the jeweller, the dentist, or some other artist. No separate account is, generally speaking, made out and presented by these artists for the gold, and the purchaser certainly does not know to a third decimal of a grain how much gold there is in her tooth or her brooch, or what is its marginal value to her. But neither does she make a separate estimate or receive a separate account for the steel or cane in the umbrella. When she considers what a pound of new potatoes is worth, and determines that it is worth more than 1½d., but less than 2d.—
i.e. more than .7705 grain of standard gold, but less than 1.0273—it is not the direct significance of the gold on her own scale that she is contemplating. And the same is true of the stall-keeper who declares that he will part with his potatoes for 1.0273 grains of gold per pound, but not for .7705. But just as, in our previous examination, the fact that there are a great number of fruit-growers on whose relative scales nets occupy a place, on their own merits, is enough to give them a secondary place on the relative scales of others, so the fact that in a great industrial community there are a number of people who accurately estimate and highly appreciate the direct services that gold can render is sufficient to define the secondary place of gold on the relative scales of others. The ordinary member of the community in forming minutely accurate estimates of the relative significance of gold and new potatoes is consciously guided not by any direct significance that gold has for him, nor for any one with whom he is dealing, but by his knowledge of its secondary place on the scale of others relatively to potatoes, neck-ties, first editions of Shelley, and all the rest. Nevertheless, our housewife is herself one of the persons whose wants determine the primary significance of gold. The bookbinder, the picture-framer, the jeweller, the dentist, and all others who use gold in making or doing things she desires, know to a nicety what substitutes can be used, and how much she and her likes will prefer so much gold in the work to so much of anything else. Thus, while the public are balancing articles with gold in them against other commodities, the experts are observing exactly how far the presence or absence of small quantities of gold in these articles affects their preferences. They know, if the consumer does not, how many potatoes they can get in return for a fraction of a grain of gold, applied to the direct satisfying of human wants; and why they know it is because they know, though the consumer does not, exactly how much gold they must apply (in gilding letters, for instance) in order to make a certain thing preferable in the consumer’s mind to a stone of potatoes instead of only to six pounds. And from time to time they advertise the same article at a different price according to whether it is “gold mounted,” has “gilt edges,” and so forth, or not. Hereby they challenge the attention of the consumer directly to the marginal significance of gold to him in various of its applications; and in these cases the purchaser, in deciding whether to give the extra sixpence for the gilt, the extra 5s. for the mounting, or the extra £1:1s. for the gold in the “upper plate,” is actually balancing small increments of the direct service of gold against definite amounts of other commodities. Gold, then, is merely one of the things that enter directly into a large number of individual scales of preference, which has been adopted as the common measure of all things that enter into the circle of exchange. In an ordinary way no one who buys or sells is thinking of the direct value of “gold” either to himself or others. He is thinking only of its secondary or derived value on the scales of others who, like himself, have formed no estimate of its direct significance. But, nevertheless, this secondary value of gold is closely determined and defined by its primary value, and is absolutely dependent on it. It has a definite secondary value to all and in all connections merely because it has a definite primary value to many and in some connections.

The actual function of gold in England is obviously what we have defined and illustrated as the function of a medium of exchange. It enables us, at two removes, to exchange the thing we have for the thing we want, when we cannot effect that exchange directly at one remove. I can pour my possessions or my services into the circle of exchange at one point and can draw out the services and commodities that I desire at another, though the people that I serve and supply can neither do the things I want done nor give me the things I want to possess, and though the people from whom I draw the things and the services I want have no need of anything that I possess or can do. I receive money from the one set and I pay money to the other set, making money the “medium” by the aid of which I change what I have for what I want, though no one that has what I want wants what I have keenly enough to offer me a satisfactory exchange. Thus, by teaching Greek to men who can neither make shoes nor drive an engine, I can get myself shod and carried by men who have no wish to be taught Greek. It might be a valuable exercise for any one who is “earning his living” to attempt to go through a few hours or even a few minutes of his daily life and consider all the exchangeable things which he requires as they pass, and the net-work of co-operation, extending all over the globe, by which the clothes he puts on, the food he eats, the book containing the poems or expounding the science that he is studying, or the pen, ink, and paper with which he writes a letter, a poem, or an appeal, have been placed at his service, by persons for the direct furtherance of whose purposes in life he has not exercised any one of his faculties or powers.
*18 Such an attempt would help us to realise the vast system of organised co-operation between persons who have no knowledge of each other’s existence, no concern in each other’s affairs, and no direct power of furthering each other’s purposes, by which the most ordinary processes of life are carried on. By the organisation of industrial society we can secure the co-operation of countless individuals of whom we know nothing, in directing the resources of the world towards objects in which they have no interest. And the nexus that thus unites and organises us is the business nexus—that is to say, a system of exchanges, conducted for the most part in terms of a medium that enables us to transform what we have into what we want at two removes.
*19

We are now in a position to expand the implications of certain conclusions that we have already reached. We have seen
*20 that (except for friction) there is no equilibrium between any two members of an exchanging community, in respect of any two articles that they possess, unless these two articles occupy the same relative positions on the scales of the two men. And since this is true of any two articles and of any two men, it follows that it must be true of all the exchangeable articles and services and between all the members of the community in question. By an exchanging “community,” in this connection, we mean a number of persons who are in such communication with each other as to know of every diversity of relative estimates that arises amongst them; so that any two of them have direct or indirect access to each other. And we now understand something of the nature of money and the manner in which it facilitates this mutual access. The money value I attach to anything is an expression of its position on my scale relatively to all other things in the circle of exchange, for all are registered in the same terms. It means that I equate it with any article, service, portion, or group and combination of such, that I can command for that sum of money, that I value it more than anything I could get for a smaller sum, and less than anything that I should be willing to give a larger sum for. The relative place of any marginal unit on my scale of preferences, then, corresponds to the money value that I set upon it, and if I possess anything which I value at 1s. and which some one else, within the circle of exchange open to me, values at 1s. 6d., the conditions of exchange are present. If he has a thing which he estimates at 1s. and that I estimate at 1s. 6d., the conditions of exchange equally exist; but if we both value the article at 1s. or both value it at 1s. 6d., there is equilibrium. And if I value it at 1s. and you value it at 6d. and neither of us has it, whereas a third man, who has it, values it at 1s. 6d., the conditions are still those of equilibrium, not of exchange; for the man that values it more highly than we do already has it and will not give it us for the sums we are willing to pay. Throughout these propositions the statement that a man estimates a thing at 1s. or 1s. 6d. must be understood to mean that he is prepared actually to give that sum for it, and therefore that he possesses the sum; for if the estimate refers to merely imaginary circumstances, then of course no inferences as to the actual state of things can be deduced from it. When we say, “I value that at £100,” we may only mean, “I think it would be worth £100 to some one else,” or “I would give £100 for it if I had £100 to give,” or (as is more likely) “I have £100 and I will not give it for this thing, but if I had £100 more I think that is what I should spend it on,” or “if I had another £1000 I think I should spend £100 of it on this.” In such cases, if we are speaking deliberately, our statements may have some significance and may throw light on some parts of our relative scale, but they will not affect actual exchanges and do not disturb or establish equilibria. Thus, when we supposed just now that I value a thing at 1s. and you value it at 6d., I must be supposed to have a shilling and you a sixpence which we would give for the thing; but the man who has it would not take less than 1s. 6d. for it.

Let us try to realise exactly the point we have reached. Some men eat tripe, but not beef, and others eat beef, but not tripe. Both these sets may occasionally eat bacon. It follows from the whole course of our inquiries that, in a state of equilibrium, tripe and bacon take the same relative places at the margin on the scales of all who consume them; for if they did not, then the conditions of exchange would exist and there would not be equilibrium. Their market or equilibrating prices represent the position they occupy relatively to each other on all the scales, and that position is identical for all of them. And, again, if any one does not consume them at all, it is because no portion of them is worth the market price to him. That is to say, they stand higher at the margin on the scales of all who buy them and give the market price for them than on the scales of any who do not buy them because they are not, even at the origin, worth the market price to them. In like manner bacon and beef have their uniform place relatively to each other on the scales of all those who consume them; and these places also are represented by their market prices. Thus the market prices reveal the relative marginal significances of tripe and bacon to all who consume them, and of bacon and beef to all who consume them; and so, even if there is no class of consumers who eat both tripe and beef, the places of tripe and beef on the communal scale relatively to each other are fixed, because each of them is fixed relatively to the place of bacon. In all cases, then, the market or equilibrating price of a thing represents a relative place on individual scales which is identical for all consumers.

In an exchanging community, therefore, there is a perpetual tendency to establish an equilibrium. And just so far as such an equilibrium is established, the relative marginal estimates formed by all the individuals, of all the exchangeable commodities of which they severally possess a store, are identical; and the estimate of any exchangeable commodity formed by any one who does not possess any of it is relatively lower than that formed by any one who does possess it.

This proposition is a mere truism. Yet, when its scope is realised, it is so startling, and it is of such commanding importance, that I will repeat it and elaborate it yet again. We have learned that, in spite of the indefinite variety of men’s tastes and wants, and general command of the means of satisfying them, there exists (ideally, and in the state of equilibrium) in any community a collective and universal scale of relative marginal significances with respect to all articles that enter freely into the circle of exchange, and that this scale is identical, so far as it is relevant, for every individual of the community.

Note the qualifications. The collective or communal scale of relative marginal significances of which we are speaking has respect to “all articles that enter freely into the circle of exchange,” and for each individual the identity between his scale and the communal one extends only “so far as the latter is relevant.” We will take the latter point first. By the qualification “so far as it is relevant” I mean that any man who could examine the general or communal scale in a state of equilibrium would find that it contained many entries of things which he would not care to have at all, or of which he has no store because he does not care as much for them (relatively to other things) as any of those who have them do; but all the things of which he has a supply he will find in the same relative positions on the communal scale that they occupy on his own. In our former example, for instance, the man who would not have tripe at any price will find bacon and beef occupying the same relative places on the general scale and on his particular scale, and the man who never thinks of buying beef at the current prices will find tripe and bacon occupying the same relative places on the public scale and on his own.

Of course, this ideal state of equilibrium never exists; but a sense of mutual advantage is perpetually bringing about approximations to it, by prompting both of any two men whose scales of marginal significance do not coincide, directly or indirectly to effect exchanges or readjustments until they do. The machinery by which these exchanges and readjustments are conducted, and by which equilibrium is approached, will engage our closer attention in later chapters, but it is essential at the outset that we should clearly understand the nature of the equilibrium itself.

If we return to the phenomenon of market prices we shall see that though we have not yet fully examined or explained them, their mere existence is enough to illustrate and enforce the thesis we are now examining; for whenever any article has a price in the open market every one will buy it at that price until further increments would not be worth it to them—that is to say, until it exactly balances with the marginal significance of any other thing that could be got for the same price. Thus the market tends to keep the relative marginal significance of all exchangeable or marketable things and services at the same level for all the purchases, rich and poor, whether their purchases are large or small. In this sense, therefore, it is possible to speak of the relative marginal significance of any commodity, not to an individual, but to a community. When a state of equilibrium has been reached—that is to say, when the conditions for exchange and readjustment no longer exist—there is a uniform scale of marginal significances obtaining throughout the community; and where there is no such uniform scale, the very fact of that condition existing tends to produce exchanges and readjustments which will result in a uniform scale.

But now we must turn to the other qualification. We have seen that on every man’s relative scale articles that do not “enter freely into the circle of exchange” are registered. With respect to these there is no uniform communal scale at all. Food and writing materials must theoretically occupy the same relative places on the scales of any two individuals who habitually supply themselves with both and who have access to each other; for if not, they might advantageously exchange with each other. But it does not follow that either of these things will occupy the same place relatively to the desire to escape the weariness of an extra half-hour’s work at a certain margin, or the desire to be relieved from a certain intensity of hunger. To secure the same amount of food or of writing materials, one man may be willing to work when his nerves and muscles cry aloud for repose, and another man may not be willing to walk across the street or to turn a shovelful of earth. And to increase his stock of writing-paper by a certain amount, one man may be willing to stop eating when his appetite is still fierce, while the other does not and would not endure any conscious privation for it at all. Because, in dealing with weariness and hunger, we are dealing with things that cannot be shifted from man to man, for which there is no direct market of exchange, and which therefore cannot adjust themselves on individual scales to any common standard. The significance of tripe relatively to bacon is identical on the scales of all who consume both. But the significance of tripe relatively to health, happiness, and domestic affection may vary indefinitely on the scales of two members of the same community; for the man to whom it means more happiness than it does to another cannot give the other so much happiness in exchange for it—he can only give him so much bacon. When William Cobbett was a private soldier, he had once “made shift to have a halfpenny in reserve” out of his pay, with which he meant to buy a red herring in the morning. “But,” he tells us, “when I pulled off my clothes at night, so hungry then as to be hardly able to endure life, I found that I had lost my halfpenny! I buried my head under the miserable sheet and rug, and cried like a child!” He was not a soft man, and yet missing an expected red herring was a matter for tears to him. At that very time he was elaborately educating himself, buying books, pens, ink, and paper out of the farthings or halfpence he saved from his pay—halfpence, therefore, which were in competition with red herrings and the like. It follows, then, from the observations we have just made on markets, that red herrings, books, pens, etc., occupied the same place relatively to each other on Cobbett’s scale as they did on those of other members of the community who purchased and possessed them, and the loss of a red herring or half a quire of paper would be, relatively to other things in the circle of exchange, no more serious to him than it would be to you or me. But vitally? With reference to things that are
not in the circle of exchange?

There is no theoretical means of constituting a comparison between the sensations and experiences of two different minds. But such theoretic differences will hardly restrain us from saying that the halfpence spent by Cobbett mattered more to him than the halfpence spent, we will not say by a millionaire, but by any man who does not encounter amongst his habitual experiences unsatisfied desires for food, so keen that the thwarted anticipation of an indulgence which a halfpenny would secure wrings tears from him. And yet the fact that one man would give 1s. for a thing, and another man would go without it sooner than give ½d. for it, shews that the one man prefers it to any other alternative which the 1s. he spends on it would open to him, and the other man does not prefer it even to the alternatives that ½d. would open to him. Measured by any ideal standard of the gratification conveyed by consumption, the suffering inflicted by privation or disappointment, the willingness to endure pain or to make effort, one may have the strongest reason to suspect that the man who will nearly but not quite give ½d. for a thing wants it more than the man who will give 1s. or even a guinea for it does, only he wants all the other things which ½d. can get still more than he wants this, whereas the other man wants another shilling’s worth of anything else still less than he wants this. Nevertheless, the place which this thing occupies on the communal scale of relative marginal significances is higher in the case of the man who will give 1s. for it than in the case of the man who will not give, or will only give, ½d. for it, and that in the ratio of twenty-four to one.

We may call the whole scale of the individual, on which are entered all things that he estimates and considers in making his selections and determinations, the vital scale or the psychological scale; and the collective scale on which only those things which enter into the circle of exchange are registered, the objective scale. All the items, then, that are entered upon the objective communal scale occupy identical positions
relatively to each other, but not relatively to the other items, on the vital scale of every member of the community who possesses supplies of them. We shall speak of this as identity of “objective relative significance,” thereby expressly excluding any presumption that there is also identity of “relative vital significance.”

It is important to apply these considerations to the case of changing prices in a market. We have not yet examined the causes which effect these changes, but that need not prevent us from analysing the nature of their results. The considerations entered upon in the second chapter shew us that if the stock of an article should be increased and its price lowered, some of those who already bought would now buy more, and some who had not bought at all before would now begin to buy; and of these latter, some might buy a considerable quantity, and some perhaps only the smallest unit which would be commercially recognised. In this last case the marginal unit would also be the “original” or initial unit of supply; but in the case of all the new purchasers the initial demand would coincide, in its marginal significance, or place on the scale of preferences, with a unit more or less remote from the origin on the scales of those who were already possessors at the higher price; and all the marginal increments (whether initial also or not) will, as we have seen, coincide as to their objective relative significance. But what can we assert as to the vital urgency of the marginal want now gratified by the buyer of the larger quantity, compared with that of the initial or early satisfactions of the man whom the lowered price has brought into the market? Evidently we are not justified in saying that because, relatively speaking, they are all equally intense objectively they all perform equally significant vital services. Strictly speaking, no such statement could, under any circumstances, be an accurate one; for as there is no means of comparing the wants of two different minds with each other, so there could be no exact meaning in declaring that the degree of pain which one man suffers from hunger is precisely the same as that experienced by another. Nevertheless, we habitually form estimates as to the relative urgency of wants experienced by different men, and the relative intensity of the enjoyment and suffering which they experience. Philosophically we may admit that it is impossible to prove that one man suffers as much from being burnt alive as another man does from a gnat bite; but we can say that, measured by every conceivable test as to the alternatives they would accept or reject, this must be so, and we are practically troubled by no philosophic doubts on the subject. If, instead of dealing with a single individual, we are dealing with a large number, we should not strain even a philosophic doubt to the point of questioning whether collectively greater suffering would be involved by putting 100 men on the rack or by submitting 100 men to a gnat bite each. There might in one odd case be extraordinary sensitiveness, and in another extraordinary anæsthesia, but they would not be typical. Even if there were reason to suppose that the selections were not purely casual, but that a higher range of sensitiveness prevailed in one class than in the other, we should never be able to allow a metaphysical scruple or a general and vague supposition to counteract an indefinite difference in the nature of the pain inflicted.

Speaking, then, in the language of common sense, we may say that in the above instance we are justified in assuming that some at least of the men who do not begin to buy until the price is low are not in less but in greater want of the article than those who begin to buy at a higher price. The man who is willing to give an enormously high price for anything is presumably already fairly well supplied with the ordinary supports and comforts of life, or at any rate with what he himself regards as such; and we have seen that whether a man is willing to pay a given price for a given increment of anything will depend on the importance of the relinquished alternatives which that price represents. Therefore, if one man will pay high for a thing and another will not, it may no doubt be because the first man wants the thing more and is willing to make greater sacrifices for it; but it may equally well be that he wants other things, which he could get as an alternative, less, and therefore is making a smaller sacrifice. And the reason why he wants increments of other things less may be not because of any speciality of taste or requirement, but because he is already so amply supplied with them that a little more of them is hardly worth having. Their marginal increments have a low significance.

It is necessary to insist on this point for a very special reason. If the supply of any commodity is increased from
x to
y, and the price has fallen from
u to
v, some of the units of the extra supply will fall, as we have seen, to those who formerly had some and now have more, and others will fall to those who had none before and now have some. It is a strange and disturbing fact that when people expressly direct their attention to the matter, they think and speak exclusively of the latter set, but when they are applying general considerations to their conception of life, they make assertions which are justifiable only with respect to the former; that is to say, the assertions which they make, and which determine the general attitude of their minds towards social questions, are in this instance only true with respect to that portion of the subject about which they never think. It is this way:—Almost any one you speak to about what happens in consequence of an increased supply will tell you that the price falls because you “have to reach new customers,” or that “people who went without the article before now get their share of it.” You will find that the increased supplies taken by the old customers are almost always lost sight of. And yet when the same people are speaking of the conditions of life at large, and of the forces which direct productive effort to the supply of one commodity rather than another, they invariably speak of the increments which fetch a lower price as “less urgently needed” than those which previously fetched a higher price. Now, we have no right whatever to make this assertion, except with respect to that portion of the increased supply which goes to enlarge the share of such as were already purchasers at the higher price. The man who cannot or does not get a thing until the price comes down to 1s. may very well want it more, in any sense in which the phrase can be intelligibly used, than the man who could and did buy it at £1. To say, therefore, that the purchases induced by a falling price supply “decreasingly urgent needs” is true only of that portion of the purchases which is never in our minds when we are expressly thinking of the wants which the increased supply actually meets. It is little wonder that confusion of thought arises under such conditions, and I need make no apology to the reader for the insistence with which I have dwelt on the composite character of the collective scale, on the necessity of distinguishing between the increase in the amounts taken by the old purchasers and the shares now secured by the new ones, and between the objective coincidence of the relative scales of the individuals of a community and the unmeasured divergence of their subjective or vital significance. These fundamental distinctions must never drop into the background of our minds, and in the next chapter we shall have occasion to return explicitly to them.

We have been careful to note that this communal or general scale contains only those things which enter into the circle of exchange, whereas each individual scale contains all valued things, powers, and experiences, whether capable or not of being thrown into and drawn out of the circle of exchange. And this naturally leads us to inquire more closely what things do enter into the circle of exchange. Much attention has been devoted to this question by political economists, and we have already investigated cases of things that do and cases of things that do not enter into this circle; but here, as elsewhere, it is difficult to draw a sharp line. The most obviously exchangeable things are physical objects which are physically transferable: potatoes, diamonds, planks of wood, books, or spades. But there are also things, not themselves thus transferable, the legal right to exclusive command of which may be transferred. Land (carrying with it, on certain conditions, the right to exclude sunshine from a neighbouring house, or under other conditions the right to prevent the erection of a neighbouring house which shall exclude sunshine from it, and so forth) enters into the circle of exchange. Further than this, the temporary use or enjoyment of many things, such as the right to a seat in a railway carriage, or at a concert or theatre, are in the circle of exchange; and these latter uses or enjoyments involve command of a share in the services rendered by the engine-driver or the performers. The command of services, then, may likewise enter into the circle of exchange; and so may fractional shares in the property of a great railway company or a joint-stock brewery, or the right to claim from the country, as represented by its government, the sum of £2:10s. per annum. Any thing, service, or right may be acquired in exchange if it is capable of being transferred from one person to another, or rendered or assigned indifferently to any one of several individuals or groups. And in like manner, if an onerous obligation of any kind can be transferred from one person to another—that is to say, if Jones can make himself responsible, say, for the services which Robinson would otherwise have had to render—immunity from this obligation may become a subject of exchange. When we speak of a thing being in the circle of exchange, therefore, we mean that in the community concerned there are always accessible persons able to render the service, or to undertake the obligation, or transfer the right or command, or give possession of the thing, and willing to do so on terms that are precisely or approximately known, or can at any rate be ascertained.

Into this circle of exchange enter a vast number of the things which I desire, and the command of which I believe will affect my well-being; and the sign and symbol of all these is money. If a direct exchange either of commodities or of services can be arranged, the transaction is of the same general nature as if the medium of gold were employed, only it is completed in one move instead of two; and if gold is not employed as a medium, it may still be employed mentally as a common measure of comparison to facilitate the arrangement of the terms of exchange. To speak of money, then, is a convenient and short way of speaking of all the things that enter into the circle of exchange; and the difficulty in answering the question “What are they?” rises from the fact that these things, of which money gives us command, are, strictly speaking, never the ultimate objects of deliberate desire at all, and yet, on the other hand, are always essential to securing such ultimate objects. “Money,” in this wider sense of the things in the circle of exchange which money commands, will secure nothing that we deliberately desire, and yet nothing that we deliberately desire can be secured without it. That is to say, there is no ultimate object of desire which itself enters into the circle of exchange and can be directly drawn thence, and there is no such ultimate object that can be secured and enjoyed without the support of things that do enter into the circle of exchange. Mere impulse may direct us this way or that without reflection, but as soon as we deliberately desire possession of any external object, it is because of the experiences or the mental states and habits which it is expected to produce or to avert. Even articles of food are desired because of the anticipated sensations which their consumption will produce or the impulse they will gratify, or because of the social pleasures with which their consumption will be associated, or because of the vigour which they will sustain, or because of the suffering which they will avert; and we cannot be sure that when the time comes they will be cooked in such a way, or that we shall ourselves be in such a condition, or that our company will be such, that the anticipated pleasure will accrue. And, indeed, it may be that, instead of vigour or pleasure, torpor or pain will be the result. Or if, to our great dismay, we find it impossible to get as much food as we desire, we may be surprised to find that the evil consequences apprehended do not arise, but, on the contrary, that we are in an unusual state of efficiency and vigour. And, indeed, our habitual expressions of disappointment on the one hand, or surprised delight and self-gratulation on the other, in the possession of anything, from a necktie to a house and garden, are a sufficient proof that we habitually draw out of the circle of exchange, not the things which
will produce, but the things that we (often erroneously) expect to produce what we want. Perhaps we recognise this fact more easily, though it is not more surely true, in cases where there is no material thing to shew as a set-off against our disappointed expectation. A journey or a concert is quite obviously undertaken or desired, not merely for the sake of going there or being there, but for the sake of experiences, opportunities, or advantages which we expect to be incidental thereto. And we may very well get what we paid for without getting what we wanted. There is therefore no single thing which we desire that can directly and certainly be got for money, because no single thing that we ultimately desire is in the circle of exchange or can be directly drawn from it.

But neither can anything we desire be got without money, or what money represents,
i.e. without the command of exchangeable things. All the things that we so often say “cannot be had for money” we might with equal truth say cannot be had or enjoyed without it. Friendship cannot be had for money, but how often do the things that money commands enable us to form and develop our friendships! Domestic peace and happiness cannot be had for money, but Dickens’s Dr. Marigold was of opinion that many a couple live peaceably and happily together in a house, who would make straight for the divorce court if they lived in a van. “Wiolence in a cart is
so wiolent, and aggrawation in a cart is
so aggrawating.” And have we never heard of devotedly attached men and maids losing the flower of their youth because they “could not afford to marry”? In their opinion, at any rate, all those elements of domestic happiness that “cannot be had for money” were present, and only those that money could command were absent, and yet the absence of these alone prevented the full realisation of the happiness which their presence alone could not have secured. But even “waiting” requires money, if not so much as marrying does. In fact, a man can be neither a saint, nor a lover, nor a poet, unless he has comparatively recently had something to eat. The things that money commands are strictly necessary to the realisation on earth of any programme whatsoever. The range of things, then, that money can command in no case secures any of those experiences or states of consciousness which make up the whole body of ultimately desired things, and yet none of the things that we ultimately desire can be had except on the basis of the things that money can command. Hence nothing that we really want can infallibly be secured by things that can be exchanged, but neither can it under any circumstances be enjoyed without them.

It will probably be found, in the last analysis, that nothing can enter into the circle of exchange except such things as can be done for us or provided for us by people who do not care for us and for whom we do not care, as individuals. It does not by any means follow (as we shall see more fully in the next chapter) that, as a fact, they are provided or done for us by such people; but there can be nothing in their nature to prevent the possibility of its being so. And such things can never be the ultimate objects of desire; they can at best be no more than the means expected to produce or to render possible the ultimately desired experiences. Our ultimate realisation must be in ourselves and with those who care for us and for whom we care. Exchangeable things can only be more or less uncertain means towards the realisation of ends that are not in the circle of exchange.

This being so, it is obvious that in effecting an exchange we may, at the time, be thinking of nothing else than the things exchanged, but reflection, and “motive” in the deliberate sense, must always point beyond them. If the connection is very close between the command of the thing and the satisfaction of the wants to which it ministers, we are apt to overlook the difference, because we feel that in getting food, for instance, we have secured what is usually the determining factor, on which the satisfaction or thwarting of our wants depends; and so the other conditions fall into the background of our consciousness, and only appear when we ask for them. On the other hand, the money factor retreats, and as a rule does not force itself upon us, when we are thinking of the pleasures of friendship or of love, because the rarest and most specific factors which we think of as determining the situation that we desire or enjoy are not exchangeable; and the exchangeable adjuncts are not of a specific but of a general and undetermined efficacy. They could lend themselves equally well to the support of other results or combinations. Naturally, therefore, they do not occur to our imagination when we think of the conditions requisite to what we seek. But in either case the neglected factors inexorably assert themselves. Moralists have indeed done well to accustom us to the contemplation of the man with enormous command of exchangeable things seeking in vain for peace of mind or devoted affection, and the man whose command of exchangeable things is extremely small, rejoicing in these higher and non-exchangeable blessings. Nevertheless, it remains true that some command of exchangeable things is necessary for the enjoyment of the most immaterial blessings of character or experience, and this fact we perfectly well recognise in our practical conduct, however imperfectly we analyse it; for we always treat the securing of our daily bread “in the very largest sense of the term” as imperatively urgent—upon some one, if not necessarily upon ourselves.

But the principle of declining marginal significance applies here too, and works in with the distinction between that which is necessary for the accomplishment of our desires and that which is itself intrinsically to be desired. These exchangeable things, which are necessary, are necessary in a diminishing degree as our stock of them increases. We must have some of the commodities and services that enter into the circle of exchange in order to live at all. Hence the extreme urgency of securing a certain supply. But we are very prone to treat this urgency as though it were inherent in the nature of the things themselves, and to regard the acquisition of money, or command of things in the circle of exchange, as characterised by a kind of intrinsic urgency. When we have gained a certain supply of these things their decreasing marginal significance makes the deflection of energy from the cultivation or enjoyment of more direct sources of satisfaction, in order yet further to increase them, extremely bad husbandry. Indeed, just as it is easy to have so many houses that we have no home, so in general there is a point at which the command of exchangeable things may cease to support and may begin to oppress, or feed upon, our store of ultimately desired experiences. And long before this point is reached the relatively feeble value, at an advancing margin, of further increments of exchangeable things, may make them worth much less than the fruition we sacrifice to get them. It is therefore well to note that the same line of investigation which has shewn us the extreme urgency of a certain supply of exchangeable things has also shewn us the futility of an indefinite increase of them. Aristotle said, long ago, that it is only the man who has no defined ends who desires the strictly indefinite accumulation of means. A tool, he says, must always be of limited dimensions.

Our examination of money and of the mechanism of exchange has opened to us a vast field for consideration, for it has directed our attention to the fact that over the whole range of exchangeable things we can usually act more potently by the indirect method of pursuing or furthering the immediate purposes of others than by the direct method of pursuing our own; and it has further led us to contemplate the relation in which exchangeable things stand to the ultimate purposes of life. The remainder of this book will be devoted chiefly to the development of the former set of considerations, and we shall examine the machinery by which we get at our own purposes through a network of exchanges in which we are all doing the things that others want done, in order that we may get others to do what we ourselves want done. But insistence on the importance of this machinery would be entirely misleading if we did not think of it in connection with the wider problem that has now been indicated of the relation of the command of exchangeable things in general to the accomplishment of the real and ultimate purposes of life.