Principles of Political Economy

by Arthur Latham Perry

Value is the relation of mutual purchase established between two services by their exchange.

We offer this definition of "Value" to our readers in much confidence, that they will find it exact and adequate and altogether trustworthy. No one of them, however, is precluded from attempts to improve it in breadth and brevity and beauty; and all are invited to pick logical flaws in it, whether of ambiguity or superfluity or deficiency. Many minds and many hands in many lands have left their impress on parts of this definition, for example, Aristotle in Greece and Bastiat in France and Macleod in Great Britain; the present writer thinks, that he has bettered the definition of Bastiat, namely, "Value is the relation of two services exchanged," by precisely defining the relation as one of mutual purchase; and he is sure, that he has improved the definition of Macleod, namely, "The value of any economic quantity is any other economic quantity for which it can be exchanged," by making his definition at once more abstract and more general and more definite, and also by escaping the slight implication in the word, "quantity," that only material things are exchanged in economics.

The immense importance of securing first a clear and correct Definition of "Value," which is the foundation-word and the circumference-word of Political Economy, and then of using that term and all other scientific terms in the Science in their defined senses only, will certainly be appreciated by those who have wandered in the wide wilderness of the discussions on the undefinable word, "Wealth," and especially by those who have reflected most upon the vast and illimitable significance of economic Exchanges on the welfare of mankind. Associate Justice Miller of the Supreme Court of the United States, not an Economist in the technical sense, referred in 1888, in words that are worth remembering, to "the philosophical maxim of modern times, that of all the agencies of civilization and progress of the human race commerce is the most efficient." In August of that year John Sherman of Ohio, a man far enough from being a technical Economist, said in the Senate of the United States, that "it is almost a crime against civilization" to maintain commercial barriers between Canada and the United States.

There were tokens a plenty in the year of Grace just referred to, that the Science of Value in all the lands of the civilized world, and particularly in the United States, was drawing to itself a new and more popular esteem. It was seen more clearly and felt more deeply than ever before, that this science has a weighty word for every man and woman and child in the world; that there are certain Rights in every one inherent and inalienable to buy and sell for his own advantage; that most if not all of the Governments, under the lead of comparatively few selfish and powerful men, were infringing upon these Rights, and robbing under the forms of Law the masses of their citizens to immense amounts for the special benefit of these very men; that the only sure defences of the people against these abuses of all kinds were in the maintenance and diffusion of the scientific and consequently disinterested principles and maxims of a sound Political Economy; that such a science was only friendly to the broadest rights, to universal gains, to illimitable increase in human comforts and powers, to international fellowship, to peace on earth and good-will among men; that, accordingly, a science of such scope and tendencies must be encouraged and cultivated and improved; that what had been crude in it, and narrow, and merely national, must be sloughed off; that the English and insular and special speculations of a century ago, which regarded "Wealth" as consisting of material things only, excepting however considerable portions of Adam Smith's immortal book, were antiquated and unusable; that the Science had really moved into a broader and still a well-circumscribed field, new and more permanent foundations were being laid, and fresh contributions from all countries should be welcomed; and that the time had fully come, when the accepted truths of this Science, like those of the other developed sciences, should be practically and steadily applied to the betterment of mankind. Under these broadening and inspiriting and uplifting conditions Political Economy, as never before, thanked God and took courage.

3. Having now a satisfactory definition of Value, and knowing accordingly just what Valuables are in clear distinction from all other things in the world, we must examine with some care two or three of the most general facts and laws and limits of Value, before we pass in the next following chapters to study in detail each of the three kinds of Valuables, namely, material Commodities, personal Services, commercial Credits.

(a) Since Value in general is the relation of mutual purchase between two Services, and consequently the specific value of either can only be expressed by the other,—one Valuable being always measured by the Valuable exchanged against it,—it follows as a matter of course that such a thing as a general Rise or Fall of Valuables is an impossibility. The rise of one valuable involves of necessity a fall in the other, as the fall of one implies the rise of the other. If the articles exchanged be bushels of wheat and dollars of silver, and if a bushel buys a dollar to-day, then wheat is worth a dollar a bushel; but if wheat rises next week, so that a dollar will not buy a full bushel, that is precisely the same thing as saying, that the dollar has fallen in its purchasing-power as compared with the wheat. Such specific changes in the purchasing-power of one Valuable over another are incessant throughout the commercial world, and a merchant's sagacity consists in anticipating these so far as possible and in availing himself of them alertly and prudently; but each one of us must needs see clearly and hold firmly in mind, that each fall in the purchasing-power of a Valuable means a corresponding rise of power in the other Valuable,—if the first buys more of the second than before, then the second must buy less than before of the first; and, consequently, a general rise of Valuables is a contradiction in terms, and so of course is a general fall of Valuables.

This brings us to Price. Price is Value reckoned in money; and this is the only difference in the meaning of the two terms. When one valuable is sold against another, even when one of the two is money, each is the Value of the other: Value is the general and universal term in Economics. When any other valuable is sold against money, the amount of money it buys is called its Price: Price is a specific and restricted term in Economics. Since we shall study Money thoroughly in a later chapter, and there explain the origin and extent of its functions throughout, it is only in order to remark here, that it is for convenience' sake, that is, to make easy the comparison of valuables one with another, that Value in commerce is commonly reduced to Price. Money becomes a sort of measure, by means of which to compare all other valuables with each other. In order to ascertain the Price of a Valuable, it only needs to be sold once against money; but in order to ascertain the Value of a Valuable, it would need to be sold once against all other valuables whatsoever. This last is clearly impracticable; and so Value for practical purposes is reduced to Price. The General is made Particular for convenience. Hence we have "Prices current," but never Values current.

Now it will be plain to all, how there may easily be and often is a general rise or fall of Prices while a rise or fall of Values is impossible. Price is a relative word as much as Value is, but it does not relate to so many things. Price is specific, and Value universal. Both equally involve buying and selling, but one sale of a single valuable against money leads to Price, while ten thousand sales of the same valuable against other than money would not conduct to complete Value. That would require a sale of this valuable against all other valuables in the world, and a complete statement of the comparative results.

General, or at least universal, changes of Prices in rise or fall in any given country are due to general and great changes in the Money current there. Subordinate changes in other valuables, money being supposed to remain uniform, will of course vary their Prices; but it is impossible that such changes should affect equally or even generally all the various and numberless valuables of a whole country; while some are coming easier, others are coming harder, while some are more desired than formerly others are less desired, and this will bring in of course altered prices, some higher and some lower; but a general rise of all prices, or a general fall in the same, can only come about by great changes of some kind in the circulating medium, that is, the money, of the country. For example, in the United States, between 1862 and 1878 inclusive, a government paper promise, called greenbacks, was the current money of the country; owing to its excessive issue, and to some doubt in the minds of the people whether the paper would ever be redeemed in gold, it soon became depreciated as compared with gold, the premium on which over the paper money varied at different times from 1 to 185 per centum; as all other valuables were then sold against greenback money, which had declined, their prices naturally rose in some sort of proportion as the medium fell; general values remained much as before, but general prices were much enhanced; and when, after the resumption of specie payments in January, 1879, gold became again the standard medium, general prices declined in full accordance with the same universal principle reversed.

(b) Prices, as we have now seen, are only a subordinate form of Values: the universal law that regulates all the variations of them both, within certain fixed limits to be examined shortly, is called the Law of Supply and Demand. This is perhaps the most comprehensive and beautiful law in Political Economy. We shall look at it now only in outline: the filling in will be the pastime and profit of all that is to come.