[170] For Smith oppression meant the tyranny either of producers or consumers. When profits are above the normal rate “it is a proof that something is either bought cheaper or sold dearer than it ought to be, and that some particular class of citizens is more or less oppressed either by paying more or by getting less than what is suitable to that equality which ought to take place, and which naturally does take place among all the different classes of them.” (Ibid., Book IV, chap. 7, part iii; vol. ii, p. 128.)
The correspondence between selling price and the cost of production seemed to Smith to be of the very essence of justice. Complete correspondence would realise the ideal of the just price.
[171] Wealth of Nations, Book I, chap. 4; Cannan, vol. i, p. 30. The passage is well known. “The word ‘value,’ it is to be observed, has two different meanings, and 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,’ 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.”
[172] The statement has been qualified because in the passage referred to Smith seems to define utility in the vulgar sense (i.e. utility as contrasted with mere agreeableness). This want of exactness was corrected by Ricardo, and is the subject of a searching criticism by Mill. The following passage from his Lectures on Justice may serve to throw some light upon the definition: “There is no demand for a thing of little use; it is not a rational object of desire.” Smith could not conceive the possibility of a demand or even a desire for a commodity which was useless from a rational point of view. But this is evidently a great mistake.
[173] The radical separation of the two ideas was perhaps more a matter of expression than of reasoning, for in his Lectures on Justice, p. 176, value in use, coupled with the purchasing power possessed by those who desired the commodity, was regarded as one of the elements which determined the demand for it and fixed its market price. The whole discussion of the theory of value by Smith is very unsatisfactory.
[174] We ought perhaps to have said that he had to choose between three possible definitions, for in the Lectures on Justice we find a third definition of “natural price” (p. 176).
[175] Wealth of Nations, Book I, chap. 7; Cannan, vol. i, p. 58.
[176] Ibid., Book I, chap. 5; vol. i, p. 33.
[177] Pareto in his recent article L’Économie et la Sociologie au point de vue scientifique (Rivista di Scienza, 1907, No. 2) expresses himself as follows: “Underneath the actual prices quoted on the exchanges, prices varying according to the exigencies of time and place and dependent upon an infinite number of circumstances, is there nothing which has any constancy or is in any degree less variable? This is the problem that political economy must solve.”
[178] Wealth of Nations, Book I, chap. 5; Cannan, vol. i, p. 32. In this passage Smith seems to imply that the value of an object is determined, not by the amount of labour which it cost to produce it, but by the amount of labour which can be bought in exchange for it. Fundamentally the two ideas are one, for objects of equal value only can be exchanged, so that the amount of labour anyone can buy with any given object is equal to the amount of labour which that object cost to produce. “Goods,” says Smith, “contain the value of a certain quantity of labour, which we exchange for what is supposed at the time to contain the value of an equal quantity.”