This choice is always a relative one. It is a choice to give a price for this, rather than for that;—a resolution to have the thing, if getting it does not involve the loss of a better thing. Price depends, therefore, not only on the cost of the commodity itself, but on its relation to the cost of every other attainable thing.
Farther. The power of choice is also a relative one. It depends not merely on our own estimate of the thing, but on everybody else's estimate; therefore on the number and force of the will of the concurrent buyers, and on the existing quantity of the thing in proportion to that number and force.
Hence the price of anything depends on four variables.
(1.) Its cost.
(2.) Its attainable quantity at that cost.
(3.) The number and power of the persons who want it.
(4.) The estimate they have formed of its desirableness.
Its value only affects its price so far as it is contemplated in this estimate; perhaps, therefore, not at all.
63. Now, in order to show the manner in which price is expressed in terms of a currency, we must assume these four quantities to be known, and the "estimate of desirableness," commonly called the Demand, to be certain. We will take the number of persons at the lowest. Let A and B be two labourers who "demand," that is to say, have resolved to labour for, two articles, a and b. Their demand for these articles (if the reader likes better, he may say their need) is to be conceived as absolute, their existence depending on the getting these two things. Suppose, for instance, that they are bread and fuel, in a cold country, and let a represent the least quantity of bread, and b the least quantity of fuel, which will support a man's life for a day. Let a be producible by an hour's labour, but b only by two hours' labour.
Then the cost of a is one hour, and of b two (cost, by our definition, being expressible in terms of time). If, therefore, each man worked both for his corn and fuel, each would have to work three hours a day. But they divide the labour for its greater ease.[30] Then if A works three hours, he produces 3 a, which is one a more than both the men want. And if B works three hours, he produces only 1-1/2 b, or half of b less than both want. But if A work three hours and B six, A has 3 a, and B has 3 b, a maintenance in the right proportion for both for a day and half; so that each might take half a day's rest. But as B has worked double time, the whole of this day's rest belongs in equity to him. Therefore the just exchange should be, A giving two a for one b, has one a and one b;—maintenance for a day. B giving one b for two a, has two a and two b; maintenance for two days.