ERRATA.

Page 74, line 14, for "premises" read "premisses."

Page 106, line 9, for "to bankers" read "by bankers."

Page 108, line 15 (from bottom of page) for "regulation 8," read “regula· tion 5."

Page 203 (Pamphlet, Vol. 1) for "Cernushi" read “Cernuschi."

Page 304, Question and Answer IV., see also pages 365-6.

Page 427, lines 18-19, for "principal countries," read “principal commercial countries."

Page 549, omit line 3, "Sir John Lubbock, Bart., M.P., President, in the Chair."

JOURNAL OF THE INSTITUTE OF BANKERS. JANUARY, 1881.

J. HERBERT TRITTON, Esq., in the Chair.

THE LAW OF VALUE.

BY JOHN DUN, Esq.

[Read before the Bankers' Institute, Wednesday, 17th November, 1880.]

In a conversation which I recently had with an eminent northern professor of physics, he denied, or at least doubted, the title of political economy to rank as a science, because, as he said, scarcely two of its professed and recognised authorities are agreed as to its fundamental principles. It is, unfortunately, too true that there is considerable diversity of opinion as to many of the fundamental principles of political economy, and that various of its so-called laws stand sorely in need of revision; but seeing that, according to the accepted definition, the term science means "a branch of human knowledge which has been more or less generalised, systematised and verified," it is impossible to deny that political economy comes fairly and fully within the scope of that definition, and must be admitted to rank as a science. It is a science, too, which has long since passed its infancy, and which, in its practical application to the art of government, has been productive of great moral and material benefits to the human race. But it is, at the same time, a science which is still far from being perfect, and it seems to me that one of its most striking imperfections lies in its unnecessary

complexity, and that this complexity has arisen, in a great measure, from the praiseworthy but misdirected efforts of its exponents to establish so-called laws, which, in their opinion, cause and regulate its phenomena. In their systematising zeal they have, in too many cases, generalised from imperfect data, or adopted à priori theories without subjecting them to sufficient proof, and have thus been misled into enunciating laws which are at variance with the facts of the science. I trust I shall not be considered to underrate the very valuable writings of Ricardo and John Stuart Mill-the two great masters of the science as it is at present generally taught and received -if I venture to say that they abound in the ingenious and subtle elaboration of theories into laws, which, on being brought face to face with the facts, are found to be discredited and disproved.

The legitimate influence of sound economical principles upon the actions of men, and especially upon the labouring classes, is obstructed by the abstruseness which has been, as I think, needlessly engrafted upon the subject by these elaborate refinements of the school-men. Political economy, as expounded in the accepted textbooks of to-day, stands greatly in need of simplification; and it is in that direction that I should like to see strenuously applied the efforts of all who, whether as students or as teachers, love and cultivate the science.

An apt illustration and complete vindication of the position which in these initiatory remarks I have ventured to take up, will, as it seems to me, be found in the sequel of this paper.

Whosoever will become a student of political economy, before all things it is necessary that he hold a true view of the law of value; which law, except he do thoroughly grasp and understand, without doubt he shall be led astray into many and grievous errors. What this law of value is forms the theme which we are now to endeavour to investigate; and it is a theme of no small difficulty, for though value is the fundamental conception, and the law of value the fundamental law of political economy, yet there has been and still is much diversity of opinion amongst political economists, not only as to the law, but also as to the very nature of value. It is related of Sydney Smith that not many months after joining the celebrated Political Economy Club he announced his intention to retire, and on being asked why, he replied that his principal motive for joining the club had been to discover what value is, but that all he had discovered was that the rest of the members knew as little about the matter as he did.

Our subject, then, is admittedly abstruse, and I may as well at once disclaim the skill to treat it in a popular or attractive manner, and can only hope that if you will deign to follow the discussion ough the somewhat uninteresting paths by which it needs must us, we shall be able to emerge together at last from the gloom

of doubt into the clear bright atmosphere of truth, in which perception, no longer beguiled and mystified, leads straight to accurate conceptions and assured conviction.

THE NATURE OF VALUE.

The word "value" has, in ordinary language, various significations. In Worcester's Dictionary these are stated as follows :— "1. The quality of a thing which renders it useful, or the property or capability which a thing has of producing some good; worth; utility. 2. Price equal to the worth of the thing bought; estimated, or rated, worth or price; cost; rate; equivalent. 3. Estimation; excellence; importance."

Now many of the errors into which writers on this subject have aforetime fallen have had their origin in using the term value first in one signification and then in another; and it is necessary to define accurately the precise meaning of the term as used in economic science, and to guard in the course of the discussion against its use in any other sense. Value, as we must endeavour to understand it, is not importance, excellence, utility, nor always necessarily price. The popular saying that "the value of a thing is what it will fetch in the market," or in other words, what it will exchange for, gives a sufficiently accurate idea of the force of the word as used in economic science.

Value in economics means exchange value. Adam Smith recognized clearly the distinction between value in use and value in exchange; but in the course of his arguments he sometimes permitted the idea of value in use to intrude itself into a discussion which should have been confined to value in exchange, with the unavoidable consequence of vitiating his conclusions.

The very idea of economic value suggests an operation of exchange or barter. Therefore, matters or things which can be in the economical sense the subjects of value must be matters or things which can be transferred or exchanged.

Such matters or things have been aptly termed economic quantities. In a country where slavery prevails a man may be an economic quantity. In a country where slavery does not exist, a man is not an economic quantity, though after death his body being saleable to the anatomist may become an economic quantity. A living man's arm may be of great value, in the sense of importance, to himself; but as he cannot exchange it for anything else, it cannot be considered an economic quantity-it is not the subject of exchange value. The services of a human being may, however, be exchanged for money or food or clothing, or some other equivalent, and are therefore an economic quantity. Granted, then, that everything which has value in the economic sense must be capable

of being exchanged-is the converse of this proposition true? Can it be said that everything which is capable of being exchanged has value?

Certainly not. Water can be exchanged, yet though water has frequently exchange value, as the householders in most towns must be quite aware when the collector calls for the water rate; yet, in lakes, rivers, and the sea, water can usually be had for the taking, and is not thus in these circumstances ordinarily the subject of value.

If a thing without alteration of its nature is in some circumstances of value, and in others not, it is clear that value is not an inherent quality.

We say the diamond is hard, and we know hardness is an inherent quality of the diamond; we also say diamonds are valuable, but value is not an inherent quality of the diamond. If diamonds were as common as sand on the sea-shore, they would cease to have value, but they would not lose their inherent quality of hardness. A gold sovereign is of some value in this country and over a great part of the world, but if we land on a savage island where the natives know nothing of gold, the purchasing power of a hatful of sovereigns may be found in the altered circumstances to be practically nil-you might get more for a hatful of glass beads.

Value, therefore, is a quality essentially external to the article of which it is predicated-a quality not inherent but attributed. It is, moreover, a quality which is purely relative. When we buy a hat for a sovereign we find that at the time and place of exchange the money value of a hat is £1, and also that the hat value of £1 is one new hat. If we exchange a hat for a pair of shoes we learn, then and there, the hat value of the shoes and the shoe value of the hat. Suppose we exchange a day's work for 3s. we ascertain the money value of a day's labour and the labour value of 3s.; or, to put the case more generally, suppose 3a is exchanged for b, then is the value of a, in terms of b, and 3a is the value of b in terms

b

3

of a.

We cannot think of value without thinking of the two or more things exchanged for one another; for the expression of value is simply an expression of the exchange relation between the things. Value is determined solely by actual exchange. We may estimate probable value at any time by the experience of previous exchanges and by other circumstances; but value as an economic phenomenon is indeterminate until it results from an actual exchange. Values in most civilized countries are generally expressed in money, and the word price means simply money value.

As value is simply the expression of an exchangeable relation between two quantities, the term intrinsic value is erroneous and para