Book III. Exchange.
Chapter I. Of Value.
§ 1. Definitions of Value in Use, Exchange Value, and Price.
It is evident that, of the two great departments of Political Economy, the production of wealth and its distribution, the consideration of Value has to do with the latter alone; and with that only so far as competition, and not usage or custom, is the distributing agency.
The use of a thing, in political economy, means its capacity to satisfy a desire, or serve a purpose. Diamonds have this capacity in a high degree, and, unless they had it, would not bear any price. Value in use, or, as Mr. De Quincey calls it, teleologic value, is the extreme limit of value in exchange. The exchange value of a thing may fall short, to any amount, of its value in use; but that it can ever exceed the value in use implies a contradiction; it supposes that persons will give, to possess a thing, more than the utmost value which they themselves put upon it, as a means of gratifying their inclinations.
The word Value, when used without adjunct, always means, in political economy, value in exchange.
Exchange value requires to be distinguished from Price. Writers have employed Price to express the value of a thing in relation to money—the quantity of money for which it will exchange. By the price of a thing, therefore, we shall [pg 250] henceforth understand its value in money; by the value, or exchange value of a thing, its general power of purchasing; the command which its possession gives over purchasable commodities in general. What is meant by command over commodities in general? The same thing exchanges for a greater quantity of some commodities, and for a very small quantity of others. A coat may exchange for less bread this year than last, if the harvest has been bad, but for more glass or iron, if a tax has been taken off those commodities, or an improvement made in their manufacture. Has the value of the coat, under these circumstances, fallen or risen? It is impossible to say: all that can be said is, that it has fallen in relation to one thing, and risen in respect to another. Suppose, for example, that an invention has been made in machinery, by which broadcloth could be woven at half the former cost. The effect of this would be to lower the value of a coat, and, if lowered by this cause, it would be lowered not in relation to bread only or to glass only, but to all purchasable things, except such as happened to be affected at the very time by a similar depressing cause. Those [changes] which originate in the commodities with which we compare it affect its value in relation to those commodities; but those which originate in itself affect its value in relation to all commodities.
There is such a thing as a general rise of prices. All commodities may rise in their money price. But there can not be a general rise of values. It is a contradiction in terms. A can only rise in value by exchanging for a greater quantity of B and C; in which case these must exchange for a smaller quantity of A. All things can not rise relatively to one another. If one half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half; and, reciprocally, the fall implies a rise. Things which are exchanged for one another can no more all fall, or all rise, than a dozen runners can each outrun all the rest, or a hundred trees all overtop one another. A general rise or a general fall of prices is merely tantamount to an alteration [pg 251] in the value of money, and is a matter of complete indifference, save in so far as it affects existing contracts for receiving and paying fixed pecuniary amounts.