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of commodity. The result is that exchange constantly produces a gain of utility. Some people have objected that there can be no good in exchange, because that which is given equals in value that which is received. Others have said that, if one party gains, it must evidently be by robbing the other party. According to this view, trade would consist in trying to beggar your neighbour. That which is given does really equal in value that which is received, but it does not equal it in utility, and to increase utility is the purpose of all production and all commerce. We do not pay for things in proportion to their usefulness, or else air and water would be the most costly of all things. A good-sized loaf may be bought for fourpence or sixpence, although bread is the staff of life. Before attempting to understand this apparent paradox, we must settle exactly what we mean by value.

71. What is Value? In exchanging some goods for other goods, there arises the question, How much of one kind shall be given for so much of the other? Some things are said to be valuable, as in the case of a gold watch or a diamond ring, because in exchange for them we can get a great quantity of other articles. Ashes are of little or no value, because we cannot get anything in exchange for them. Now this word value is a very difficult one, and is employed to mean different things. We may say that quinine is valuable for curing fevers, that iron is valuable for improving the blood, or that water is valuable for putting out fires. Here we do not mean valuable in exchange, for quinine would cure fevers just as well if it cost a penny an ounce instead of some ten shillings. Water, if we can get it at the right time, puts out a fire whether it costs much or little or nothing. It is clear, then, that by valuable we often mean valuable in use.

The words value and valuable are in fact ambiguous. (See Logic Primer, pp. 22-26, on The Correct Use of Words.) There is value in use and value in exchange, and many things

which would be commonly said to have little value in exchange have much value in use. But of these meanings,"value in use" is nothing but the utility of a thing to us, that is, the utility of all such portions of it as we can actually employ. Thus, the value in use of water means the utility of the water that we drink, or wash in, or cook with, or water the roads with, and this utility is very great. But of course it cannot mean the utility of water which is not useful to us, but on the contrary hurtful, as in the case of floods, damp houses, wet mines, and so forth.

We may now see how true was the remark of Genovesi, the Italian economist, that "Exchange consists in giving the superfluous for the necessary,” or, as I should prefer to say, the comparatively superfluous for the comparatively necessary. He who has more than enough of one article has already enjoyed all the good which that article can do to him, but he probably needs supplies of other articles. The exchange, like an act of mercy, blesses both him who gives and him who receives, because what each receives in exchange is much wanted and has high utility. In England, for instance, we possess a great deal of coal, and France produces plenty of good wine. We could have little or no wine in England unless we got it from France or some foreign country, and France also is much in want of coal. It is obvious that there is a great gain of utility if we give some of our comparatively superfluous coal in exchange for some of the abundant wine of France.

It has been objected to commerce that it is sterile and produces no new goods. There exist neither more nor less coal and wine after they are exchanged than before. But in political economy we treat of utility and wealth; the question is whether things are usefully consumed or not. Now that which is not wealth if it were consumed by one person, becomes wealth when handed over to another person for consumption. Though exchange cannot create the

material of wealth, it creates wealth because it gives utility to the material.

72. Value means Proportion in Exchange. When we speak of the value of a thing in exchange, we mean how much of some other thing we can get for it. This of course will depend upon the nature of that other thing. Obviously, I can get for a shilling much more potatoes than bread, and bread than beef, and beef than essence of beef. Therefore, when we speak of the value of a thing, we ought always to say what it is to be valued by. The word value only means that so much of one thing is given for so much of the other, and it is the proportion of these quantities (Latin proportio, from pro, in comparison with, and portio, share), which measures the values of the thing. A ton of pig-iron can usually be got for a quarter of corn; here the proportion is one to one. To get a ton of copper, we should probably have to give thirty quarters of corn; here the proportion is that of one to thirty. There cannot be such a thing as value in exchange, unless there be proportion —so much of one commodity for so much of another.

Usually, indeed, we measure the values of things by their prices. The price is the quantity of money which we give for a thing; in this case the proportion is between the quantity of money and the quantity of goods we get for it, as when we give sixty shillings for ten yards of carpet. We shall learn later on that money is a kind of commodity, which has utility and value like other commodities. But there is great convenience in always thinking and speaking of values in money, because we can then readily compare the value of one torteng with that of any other. If a pound of potatoes costs one penny, a pound of bread threepence, and a pound of beef ninepence, we can see at once that a pound of beef is of the same value as three pounds of bread and nine pounds of potatoes, and we can judge how much of each to use.

73: Laws of Supply and Demand. In the next place, we must try to understand how the values of things are governed, and made to change from time to time. The principal laws which govern values are called the laws of supply and demand, and they are very important indeed. Supply means the quantity of any goods which people are willing to give in exchange at a certain value, and demand means similarly the quantity of goods which people are willing to take in exchange; but, before a person can judge how much he wishes to buy of a particular kind of goods, he must know its price, that is, its proportion in exchange for money. If bread, instead of being threepence per pound, becomes fourpence, a poor person would perhaps decide to take less bread, and to buy more potatoes. If beef, instead of being ninepence, should rise to a shilling, or fourteenpence a pound, some people would refuse to buy it altogether, and others would buy less than before. The supply of things varies similarly, if the price of meat rises high, farmers who own cattle bring them to market, in order to get a good profit by selling them; if the price falls low, they keep their cattle to sell at another time.

The Laws of Supply and Demand may be thus stated vise of price tends to produce a greater supply and a less demand; a fall of price tends to produce a less supply and a greater demand. Con versely, an increase of supply or a decrease of demand tends to lower price, and a decrease of supply or an increase of demand to raise price.

These laws are so important that I will state them over again, in the foot of a table :

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If the pur

We can now understand how the price of any

kind of goods is decided. The price must be such that the quantity demanded at any time is equal to the quantity supplied. If those who want goods at a certain price, cannot get them, they will have to offer a higher price, so that they may induce other people to sell. The higher the price the greater the supply, as we have seen; moreover, if some people in a market are offering a higher price, it soon becomes known to other dealers. When a farmer's wife carries a basket of butter to sell at the Butter Cross in the neighbouring market town, she soon learns whether the supply is greater or less than usual. chasers are few and slow in buying, she begins to fear that she may have to carry her butter back unsold, and go without the crockery and calico and other things which she intended to buy with the money. Then she begins to ask a penny or twopence a pound less, and the other sellers of butter are obliged to lower their prices also, since no one would buy butter from one woman at is. 6d., if he could get it as good from the next person at is. 4d. But, if few people bring butter to market, or if there are many purchasers with money in their pockets, the scene is quite changed. Those who have brought butter, find that they will have no difficulty in selling all they have; it is the purchasers who now become anxious to buy before all is gone, and their eagerness soon shows the sellers that they may ask higher prices. It is by this higgling of the market, by sellers asking the highest price they think they can get, and buyers trying to buy at the lowest price which they think will be taken—that the market price of any commodity is settled.

The market price will be such that the demand at that price will equal the supply at that price. The quantity of butter or any other commodity that is sold must equal what is bought, because it is not sold until it is bought; but the price will settle itself accordingly.

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