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• General Preface
• Introduction
• Table of Section-headings of Chapter 1, On Value In Editions 2 and 3
• Table of Concordance
• Preface
• Advertisement to the Third Edition
• Chapter I: On Value
• Chapter II: On Rent
• Chapter III: On the Rent of Mines
• Chapter IV: On Natural and Market Price
• Chapter V: On Wages
• Chapter VI: On Profits1
• Chapter VII: On Foreign Trade
• Chapter VIII: On Taxes
• Chapter IX: Taxes On Raw Produce
• Chapter X: Taxes On Rent1
• Chapter XI: Tithes
• Chapter XII: Land-tax
• Chapter XIII: Taxes On Gold
• Chapter XIV: Taxes On Houses
• Chapter XV: Taxes On Profits
• Chapter XVI: Taxes On Wages
• Chapter XVII: Taxes On Other Commodities Than Raw Produce
• Chapter XVIII: Poor Rates
• Chapter XIX: On Sudden Changes In the Channels of Trade
• Chapter XX: Value and Riches, Their Distinctive Properties
• Chapter XXI: Effects of Accumulation On Profits and Interest
• Chapter XXII: Bounties On Exportation, and Prohibitions of Importation
• Chapter XXIII: On Bounties On Production1
• Chapter XXIV: Doctrine of Adam Smith Concerning the Rent of Land
• Chapter XXV: On Colonial Trade
• Chapter XXVI: On Gross and Net Revenue
• Chapter XXVII: On Currency and Banks
• Chapter XXVIII: On the Comparative Value of Gold, Corn, and Labour, In Rich And1 Poor Countries
• Chapter XXIX: Taxes Paid By the Producer
• Chapter XXX: On the Influence of Demand and Supply On Prices
• Chapter XXXI: On Machinery1
• Chapter XXXII: Mr. Malthus’s Opinions On Rent
• [note to the Index

chapter xx

Value and Riches, their Distinctive Properties

“A man is rich or poor,” says Adam Smith, “according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life.”1

Value, then, essentially differs from riches, for value depends not on abundance, but on the difficulty or facility of production. The labour of a million of men in manufactures, will always produce the same value, but will not always produce the same riches. By the invention of machinery, by improvements in skill, by a better division of labour, or by the discovery of new markets, where more advantageous exchanges may be made, a million of men may produce double, or treble the amount of riches, of “necessaries, conveniences, and amusements,” in one state of society, that they could produce in another, but they will not on that account add any thing to value; for every thing rises or falls in value, in proportion to the facility or difficulty of producing it, or, in other words, in proportion to the quantity of labour employed on its production. Suppose with a given capital, the labour of a certain number of men produced 1000 pair of stockings, and that by inventions in machinery, the same number of men can produce 2000 pair, or that they can continue to produce 1000 pair, and can produce besides 500 hats; then the value of the 2000 pair of stockings, or of the 1000 pair of stockings, and 500 hats, will be neither more nor less than that of the 1000 pair of stockings before the introduction of machinery; for they will be the produce of the same quantity of labour. But the value of the general mass of commodities will nevertheless be diminished; for, although the value of the increased quantity produced, in consequence of the improvement, will be the same exactly as the value would have been of the less quantity that would have been produced, had no improvement taken place, an effect is also produced on the portion of goods still unconsumed, which were manufactured previously to the improvement; the value of those goods will be reduced, inasmuch as they must fall to the level, quantity for quantity, of the goods produced under all the advantages of the improvement: and the society will, notwithstanding the increased quantity of commodities1 , notwithstanding its augmented riches, and its augmented means of enjoyment, have a less amount of value. By constantly increasing the facility of production, we constantly diminish the value of some of the commodities before produced, though by the same means we not only add to the national riches, but also to the power of future production. Many of the errors in political economy have arisen from errors on this subject, from considering an increase of riches, and an increase of value, as meaning the same thing, and from unfounded notions as to what constituted a standard measure of value. One man considers money as a standard of value, and a nation grows richer or poorer, according to him, in proportion as its commodities of all kinds can exchange for more or less money. Others represent money as a very convenient medium for the purpose of barter, but not as a proper measure by which to estimate the value of other things; the real measure of value according to them, is corn,* and a country is rich or poor, according as its commodities will exchange for more or less corn.* There are others again, who consider a country rich or poor, according to the quantity of labour that it can purchase.1 But why should gold, or corn, or labour, be the standard measure of value, more than coals or iron?—more than cloth, soap, candles, and the other necessaries of the labourer?—why, in short, should any commodity, or all commodities together, be the standard, when such a standard is itself subject to fluctuations in value? Corn, as well as gold, may from difficulty or facility of production, vary 10, 20, or 30 per cent., relatively to other things; why should we always say, that it is those other things which have varied, and not the corn? That commodity is alone invariable, which at all times requires the same sacrifice of toil and labour to produce it. Of such a commodity we have no knowledge, but we may hypothetically argue and speak about it, as if we had; and may improve our knowledge of the science, by shewing distinctly the absolute inapplicability of all the standards which have been hitherto adopted.2 But supposing either of these to be a correct standard of value, still it would not be a standard of riches, for riches do not depend on value. A man is rich or poor, according to the abundance of necessaries and luxuries which he can command; and whether the exchangeable value of these for money, for corn, or for labour, be high or low, they will equally contribute to the enjoyment of their possessor. It is through confounding the ideas of value and wealth, or riches that it has been asserted, that by diminishing the quantity of commodities, that is to say of the necessaries, conveniences, and enjoyments of human life, riches may be increased. If value were the measure of riches, this could not be denied, because by scarcity the value of commodities is raised; but if Adam Smith be correct, if riches consist in necessaries and enjoyments, then they cannot be increased by a diminution of quantity.

It is true, that the man in possession of a scarce commodity is richer, if by means of it he can command more of the necessaries and enjoyments of human life; but as the general stock out of which each man’s riches are drawn, is diminished in quantity, by all that any individual takes from it, other men’s shares must necessarily be reduced in proportion as this favoured individual is able to appropriate a greater quantity to himself.

Let water become scarce, says Lord Lauderdale,1 and be exclusively possessed by an individual, and you will increase his riches, because water will then have value; and if wealth be the aggregate of individual riches, you will by the same means also increase wealth. You undoubtedly will increase the riches of this individual, but inasmuch as the farmer must sell a part of his corn, the shoemaker a part of his shoes, and all men give up a portion of their possessions for the sole purpose of supplying themselves with water, which they before had for nothing, they are poorer by the whole quantity of commodities which they are obliged to devote to this purpose, and the proprietor of water is benefited precisely by the amount of their loss. The same quantity of water, and the same quantity of commodities, are enjoyed by the whole society, but they are differently distributed. This is, however, supposing rather a monopoly of water than a scarcity of it. If it should be scarce, then the riches of the country and of individuals would be actually diminished, inasmuch as it would be deprived of a portion of one of its enjoyments. The farmer would not only have less corn to exchange for the other commodities which might be necessary or desirable to him, but he, and every other individual, would be abridged in the enjoyment of one of the most essential of their comforts. Not only would there be a different distribution of riches, but an actual loss of wealth.

It may be said, then, of two countries possessing precisely the same quantity of all the necessaries and comforts of life, that they are equally rich, but the value of their respective riches would depend on the comparative facility or difficulty with which they were produced. For if an improved piece of machinery should enable us to make two pair of stockings, instead of one, without additional labour, double the quantity would be given in exchange for a yard of cloth. If a similar improvement be made in the manufacture of cloth, stockings and cloth will exchange in the same proportions as before, but they will both have fallen in value; for in exchanging them for hats, for gold, or other commodities in general, twice the former quantity must be given. Extend the improvement to the production of gold, and every other commodity; and they will all regain their former proportions. There will be double the quantity of commodities annually produced in the country, and therefore the wealth of the country will be doubled, but this wealth will not have increased in value.

Although Adam Smith has given the correct description of riches, which I have more than once noticed, he afterwards explains them differently, and says, “that a man must be rich or poor according to the quantity of labour which he can afford to purchase.”1 Now, this description differs essentially from the other, and is certainly incorrect; for, suppose the mines were to become more productive, so that gold and silver fell in value, from the greater facility of their production; or that velvets were to be manufactured with so much less labour than before, that they fell to half their former value; the riches of all those who purchased those commodities would be increased; one man might increase the quantity of his plate, another might buy double the quantity of velvet; but with the possession of this additional plate and velvet, they could employ no more labour than before; because, as the exchangeable value of velvet and of plate would be lowered, they must part with proportionally more of these species of riches to purchase a day’s labour. Riches, then, cannot be estimated by the quantity of labour which they can purchase.

From what has been said, it will be seen that the wealth of a country may be increased in two ways: it may be increased by employing a greater portion of revenue in the maintenance of productive labour,—which will not only add to the quantity, but to the value of the mass of commodities; or it may be increased, without employing any additional quantity of labour, by making the same quantity more productive,—which will add to the abundance, but not to the value of commodities.

In the first case, a country would not only become rich, but the value of its riches would increase. It would become rich by parsimony; by diminishing its expenditure on objects of luxury and enjoyment; and employing those savings in reproduction.

In the second case, there will not necessarily be either any diminished expenditure on luxuries and enjoyments, or any increased quantity of productive labour employed, but with the same labour more would be produced; wealth would increase, but not value. Of these two modes of increasing wealth, the last must be preferred, since it produces the same effect without the privation and diminution of enjoyments, which can never fail to accompany the first mode. Capital is that part of the wealth of a country which is employed with a view to future production, and may be increased in the same manner as wealth. An additional capital will be equally efficacious in the production of future wealth, whether it be obtained from improvements in skill and machinery, or from using more revenue reproductively; for wealth always depends on the quantity of commodities produced, without any regard to the facility with which the instruments employed in production may have been procured. A certain quantity of clothes and provisions will maintain and employ the same number of men, and will therefore procure the same quantity of work to be done, whether they be produced by the labour of 100 or 2001 men; but they will be of twice the value if 200 have been employed on their production.2

M. Say, notwithstanding the corrections he has made in the fourth and last edition of his work, “Traité d’Economie Politique,” appears to me to have been singularly unfortunate in his definition of riches and value. He considers these two terms as synonymous, and that a man is rich in proportion as he increases the value of his possessions, and is enabled to command an abundance of commodities. “The value of incomes is then increased,” he observes, “if they can procure, it does not signify by what means, a greater quantity of products.” According to M. Say, if the difficulty of producing cloth were to double, and consequently cloth was to exchange for double the quantity of the commodities for which it exchanged before, it would be doubled in value, to which I give my fullest assent; but if there were any peculiar facility in producing the commodities, and no increased difficulty in producing cloth, and cloth should in consequence exchange as before for double the quantity of commodities, M. Say would still say that cloth had doubled in value, whereas according to my view of the subject, he should say, that cloth retained its former value, and those particular commodities had fallen to half their former value. Must not M. Say be inconsistent with himself when he says, that by facility of production, two sacks of corn may be produced by the same means that one was produced before, and that each sack will therefore fall to half its former value, and yet maintain that the clothier who exchanges his cloth for two sacks of corn, will obtain double the value he before obtained, when he could only get one sack in exchange for his cloth. If two sacks be of the value that one was of before, he evidently obtains the same value and no more,—he gets, indeed, double the quantity of riches—double the quantity of utility—double the quantity of what Adam Smith calls value in use, but not double the quantity of value, and therefore M. Say cannot be right in considering value, riches, and utility to be synonymous. Indeed, there are many parts of M. Say’s work to which I can confidently refer in support of the doctrine which I maintain, respecting the essential difference between value and riches, although it must be confessed that there are also various other passages in which a contrary doctrine is maintained. These passages I cannot reconcile, and I point them out by putting them in opposition to each other, that M. Say may, if he should do me the honour to notice these observations in any future edition of his work, give such explanations of his views as may remove the difficulty, which many others, as well as myself, feel in our endeavours to expound them.

• 1. In the exchange of two products, we only in fact exchange the productive services which have served to create them. p. 504.
• 2. There is no real dearness but that which arises from the cost of production. A thing really dear, is that which costs, much in producing. 497.1
• 3. The value of all the productive services that must be consumed to create a product, constitute the cost of production of that product. 505.
• 4. It is utility which determines the demand for a commodity, but it is the cost of its production which limits the extent of its demand. When its utility does not elevate its value to the level of the cost of production, the thing is not worth what it cost; it is a proof that the productive services might be employed to create a commodity of a superior value. The possessors of productive funds, that is to say, those who have the disposal of labour, of capital or land, are perpetually occupied in comparing the cost of production with the value of the things produced, or which comes to the same thing, in comparing the value of different commodities with each other; because the cost of production is nothing else but the value of productive services, consumed in forming a production; and the value of a productive service is nothing else than the value of the commodity, which is the result. The value of a commodity, the value of a productive service, the value of the cost of production are all, then, similar values when every thing is left to its natural course.1
• 5. The value of incomes is then increased, if they can procure (it does not signify by what means,) a greater quantity of products.2
• 6. Price is the measure of the value of things, and their value is the measure of their utility. 2 Vol.3 p. 4.
• 7. Exchanges made freely, shew at the time, in the place, and in the state of society in which we are, the value which men attach to the things exchanged. 466.
• 8. To produce, is to create value, by giving or increasing the utility of a thing, and thereby establishing a demand for it, which is the first cause of its value. Vol. 2. 487.
• 9. Utility being created, constitutes a product. The exchangeable value which results, is only the measure of this utility, the measure of the production which has taken place. 490.
• 10. The utility which people of a particular country find in a product, can no otherwise be appreciated than by the price which they give for it. 502.
• 11. This price, is the measure of the utility, which it has in the judgment of men; of the satisfaction which they derive from consuming it, because they would not prefer consuming this utility, if for the price which it cost they could acquire a utility which would give them more satisfaction. 506.
• 12. The quantity of all other commodities which a person can immediately obtain in exchange for the commodity of which he wishes to dispose, is at all times a value not to be disputed. Vol. 2. 4.2

If there is no real dearness but that which arises from cost of production, (see 2.) how can a commodity be said to rise in value, (see 5.) if its cost of production be not increased? and merely because it will exchange for more of a cheap commodity—for more of a commodity the cost of production of which has diminished? When I give 2000 times more cloth for a pound of gold than I give for a pound of iron, does it prove that I attach 2000 times more utility to gold than I do to iron? certainly not; it proves only as admitted by M. Say, (see 4.) that the cost of production of gold is 2000 times greater than the cost of production of iron. If the cost of production of the two metals were the same, I should give the same price for them; but if utility were the measure of value, it is probable I should give more for the iron. It is the competition of the producers “who are perpetually employed in comparing the cost of production with the value of the thing produced,” (see 4.) which regulates the value of different commodities. If, then, I give one shilling for a loaf, and 21 shillings for a guinea, it is no proof that this in my estimation is the comparative measure of their utility.

In No. 4, M. Say maintains with scarcely any variation, the doctrine which I hold concerning value. In his productive services, he includes the services rendered by land, capital, and labour; in mine I include only capital and labour, and wholly exclude land. Our difference proceeds from the different view which we take of rent: I always consider it as the result of a partial monopoly, never really regulating price, but rather as the effect of it. If all rent were relinquished by landlords, I am of opinion, that the commodities produced on the land would be no cheaper, because there is always a portion of the same commodities produced on land, for which no rent is or can be paid, as the surplus produce is only sufficient to pay the profits of stock.

To conclude, although no one is more disposed than I am to estimate highly the advantage which results to all classes of consumers, from the real abundance and cheapness of commodities, I cannot agree with M. Say, in estimating the value of a commodity, by the abundance of other commodities for which it will exchange; I am of the opinion of a very distinguished writer, M. Destutt de Tracy, who says, that “To measure any one thing is to compare it with a determinate quantity of that same thing which we take for a standard of comparison, for unity. To measure, then to ascertain a length, a weight, a value, is to find how many times they contain metres, grammes, francs, in a word, unities of the same description.”1 A franc is not a measure of value for any thing, but for a quantity of the same metal of which francs are made, unless francs, and the thing to be measured, can be referred to some other measure which is common to both. This, I think, they can be, for they are both the result of labour; and, therefore, labour is a common measure, by which their real as well as their relative value may be estimated. This also, I am happy to say, appears to be M. Destutt de Tracy’s opinion.* He says, “as it is certain that our physical and moral faculties are alone our original riches, the employment of those faculties, labour of some kind, is our only original treasure, and that it is always from this employment, that all those things are created which we call riches, those which are the most necessary, as well as those which are the most purely agreeable. It is certain too, that all those things only represent the labour which has created them, and if they have a value, or even two distinct values, they can only derive them from that of the labour from which they emanate.”1

M. Say, in speaking of the excellences and imperfections of the great work of Adam Smith, imputes to him, as an error, that “he attributes to the labour of man alone, the power of producing value. A more correct analysis shews us that value is owing to the action of labour, or rather the industry of man, combined with the action of those agents which nature supplies, and with that of capital. His ignorance of this principle prevented him from establishing the true theory of the influence of machinery in the production of riches.”2

In contradiction to the opinion of Adam Smith, M. Say, in the fourth chapter, speaks of the value which is given to commodities by natural agents, such as the sun, the air, the pressure of the atmosphere, &c., which are sometimes substituted for the labour of man, and sometimes concur with him in producing.† But these natural agents, though they add greatly to value in use, never add exchangeable value, of which M. Say is speaking, to a commodity: as soon as by the aid of machinery, or by the knowledge of natural philosophy, you oblige natural agents to do the work which was before done by man, the exchangeable value of such work falls accordingly. If ten men turned a corn mill, and it be discovered that by the assistance of wind, or of water, the labour of these ten men may be spared, the flour which is the produce partly1 of the work performed by the mill, would immediately fall in value, in proportion to the quantity of labour saved; and the society would be richer by the commodities which the labour of the ten men could produce, the funds destined for their maintenance being in no degree impaired. M. Say constantly overlooks the essential difference that there is between value in use, and value in exchange.2

M. Say accuses Dr. Smith of having overlooked the value which is given to commodities by natural agents, and by machinery, because he considered that the value of all things was derived from the labour of man; but it does not appear to me, that this charge is made out; for Adam Smith no where undervalues the services which these natural agents and machinery perform for us, but he very justly distinguishes the nature of the value which they add to commodities—they are serviceable to us, by increasing the abundance of productions, by making men richer, by adding to value in use; but as they perform their work gratuitously, as nothing is paid for the use of air, of heat, and of water, the assistance which they afford us, adds nothing to value in exchange.1

[1 ]Bk. i, ch. v; vol. i, p.32.

[1 ]Ed. 1 ‘of its commodities’.

[* ]Adam Smith says, “that the difference between the real and the nominal price of commodities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice.”2 I agree with him; but the real price of labour and commodities, is no more to be ascertained by their price in goods, Adam Smith’s real measure, than by their price in gold and silver, his nominal measure. The labourer is only paid a really high price for his labour, when his wages will purchase the produce of a great deal of labour.

[* ]In vol. i. p. 108, M. Say infers, that silver is now of the same value, as in the reign of Louis XIV. “because the same quantity of silver will buy the same quantity of corn.”

[1 ]In eds. 1–2 the note on Say is attached here instead of two lines above.

[2 ]These observations on an invariable standard of value should have been altered in ed. 3 to agree with the changes introduced in Chapter I; see above, p. 17, n. 3 and cp. p. 43 ff.

[1 ]An Inquiry into the Nature and Origin of Public Wealth, and into the Means and Causes of its Increase, Edinburgh, 1804, p. 44.

[1 ]Bk. i, ch. v; vol. i, p.32.

[1 ]Ed. 1 ‘or of 200’.

[2 ]Eds. 1–2 in place of the five paragraphs that follow in the text (ending p. 285) read:

‘M. Say appears to me to have been singularly unfortunate in his definition of riches and value in the first chapter of his excellent work: the following is the substance of his reasoning: riches, he observes, consist only of things which have a value in themselves: riches are great, when the sum of the values of which they are composed is great. They are small when the sum of their values is small. Two things having an equal value, are riches of equal amount. They are of equal value, when by general consent they are freely exchanged for each other. Now, if mankind attach value to a thing, it is on account of the uses to which it is applicable. This faculty, which certain things have, of satisfying the various wants of mankind, I call utility. To create objects that have a value of any kind is to create riches, since the utility of things is the first foundation of their value, and it is the value of things which constitutes riches. But we do not create objects: all we can do is to reproduce matter under another form—we can give it utility. Production then is a creation, not of matter but of utility, and it is measured by the value arising from the utility of the object produced. The utility of any object, according to general estimation, is pointed out by the quantity of other commodities for which it will exchange. This valuation, arising from the general estimate formed by society, constitutes what Adam Smith calls value in exchange; what Turgot calls appreciable value; and what we may more briefly designate by the term value.

‘Thus far M. Say, but in his account of value and riches he has confounded two things which ought always to be kept separate, and which are called by Adam Smith, value in use and value in exchange. If by an improved machine I can, with the same quantity of labour, make two pair of stockings instead of one, I in no way impair the utility of one pair of stockings, though I diminish their value. If then I had precisely the same quantity of coats, shoes, stockings, and all other things, as before, I should have precisely the same quantity of useful objects, and should therefore be equally rich, if utility were the measure of riches; but I should have a less amount of value, for my stockings would be of only half their former value. Utility then is not the measure of exchangeable value.

‘If we ask M. Say in what riches consist, he tells us in the possession of objects having value. If we then ask him what he means by value, he tells us that things are valuable in proportion as they possess utility. If again we ask him to explain to us by what means we are to judge of the utility of objects, he answers, by their value. Thus then the measure of value is utility, and the measure of utility is value.’

These references are to Say’s Traité d’Économie politique, 2nd ed., 1814; those in the text of ed. 3 are to Say’s 4th. ed., 1819.

[1 ]Should be p. 457.

[1 ]pp. 507–8.

[2 ]p. 497, note.

[3 ]Should be vol. i.

[2 ]These quotations are from Say’s 4th ed., 1819; they are all, except 6 and 12, to be found in the ‘Épitome des principes de l’économie politique’ which concludes vol. ii.

[1 ]Élémens d’idéologie, Première partie. Idéologie proprement dite, ‘par A. L. C. Destutt-Tracy, Sénateur’, 2nd ed., Paris, Courcier, 1804, p. 187.

[* ]Elemens d’Ideologie, Vol. iv. p. 99.2 —In this work M. de Tracy has given a useful and an able treatise on the general principles of Political Economy, and I am sorry to be obliged to add, that he supports, by his authority, the definitions which M. Say has given of the words “value,” “riches,” and “utility.”3

[1 ]Here end the five paragraphs inserted in ed. 3 (cp. above, p. 279, n. 2).

[2 ]Traité d’Économie politique, 2nd ed., 1814, vol. i, pp. li-lii.

[† ]“The first man who knew how to soften metals by fire, is not the creator of the value which that process adds to the melted metal. That value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge.”

“From this error Smith has drawn this false result, that the value of all productions represents the recent or former labour of man, or, in other words, that riches are nothing else but accumulated labour; from which, by a second consequence, equally false, labour is the sole measure of riches, or of the value of productions.”* The inferences with which M. Say concludes are his own, and not Dr. Smith’s; they are correct if no distinction be made between value and riches, and in this passage M. Say makes none3 : but though Adam Smith, who defined riches to consist in the abundance of necessaries, conveniences4 and enjoyments of human life, would have allowed that machines and natural agents might very greatly add to the riches of a country, he would not have allowed that they add any thing to the value of those riches.5

[1 ]Eds. 1–2 do not contain ‘partly’.

[2 ]Ed. 1 does not contain this sentence.

[1 ]Eds. 1–2 have here an additional passage:

‘In the first chapter of the second book, M. Say himself gives a similar statement of value, for he says that “utility is the foundation of value, that commodities are only desirable, because they are in some way useful, but that their value depends not on their utility, not on the degree in which they are desired, but on the quantity of labour necessary to procure them.” “The utility of a commodity thus understood, makes it an object of man’s desire, makes him wish for it, and establishes a demand for it. When to obtain a thing, it is sufficient to desire it, it may be considered as an article of natural wealth, given to man in an unlimited quantity, and which he enjoys, without purchasing it by any sacrifice; such are the air, water, the light of the sun. If he obtained in this manner all the objects of his wants and desires, he would be infinitely rich: he would be in want of nothing. But unfortunately this is not the case; the greater part of the things which are convenient and agreeable to him, as well as those which are indispensably necessary in the social state, for which man seems to be specifically formed, are not given to him gratuitously; they could only exist by the exertion of certain labour, the employment of a certain capital, and, in many cases, by the use of land. These are obstacles in the way of gratuitous enjoyment; obstacles from which result a real expense of production; because we are obliged to pay for the assistance of these agents of production.” “It is only when this utility has thus been communicated to a thing (viz. by industry, capital, and land,) that it is a production, and that it has a value. It is its utility which is the foundation of the demand for it, but the sacrifices, and the charges necessary to obtain it, or in other words, its price, limits the extent of this demand.” [Traité d’Économie politique, 2nd ed., 1814, vol. ii, pp. 3, 4. The first passage is a free summary, not a quotation.]

‘The confusion which arises from confounding the terms “value” and “riches” will best be seen in the following passages. (M. Say, Catechisme d’Economie Politique, p. 99.) His pupil observes: “You have said, besides, that the riches of a society were composed of the sum total of the values which it possessed; it appears to me to follow, that the fall of one production, of stockings for example, by diminishing the sum total of the value belonging to the society, diminishes the mass of its riches;” to which the following answer is given: “the sum of the society’s riches will not fall on that account. Two pair of stockings are produced instead of one; and two pair at three francs, are equally valuable with one pair at six francs. The income of the society remains the same, because the manufacturer has gained as much on two pair at three francs, as he gained on one pair at six francs.” Thus far M. Say, though incorrect, is at least consistent. If value be the measure of riches, the society is equally rich, because the value of all its commodities is the same as before. But now for his inference. “But when the income remains the same, and productions fall in price, the society is really enriched. If the same fall took place in all commodities at the same time, which is not absolutely impossible, the society by procuring at half their former price, all the objects of its consumption, without having lost any portion of its income, would really be twice as rich as before, and could purchase twice the quantity of goods.”

‘In the first passage we are told, that if every thing fell to half its value, from abundance, the society would be equally rich, because there would be double the quantity of commodities at half their former value, or in other words there would be the same value. But in the last passage we are informed, that by doubling the quantity of commodities, although the value of each commodity should be diminished one half, and therefore the value of all the commodities together be precisely the same as before, yet the society would be twice as rich as before. In the first case riches are estimated by the amount of value: in the second, they are estimated by the abundance of commodities contributing to human enjoyments. M. Say further says, “that a man is infinitely rich without valuables, if he can for nothing obtain all the objects he desires[”]; yet in another place we are told, “that riches consist, not in the product itself, for it is not riches if it have not value, but in its value.” Vol. ii, p. 2.’

On the changes introduced in this chapter in ed. 3, see letter to McCulloch of 4 Dec. 1820, below, VIII, 315.

[* ]Adam Smith says, “that the difference between the real and the nominal price of commodities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice.”2 I agree with him; but the real price of labour and commodities, is no more to be ascertained by their price in goods, Adam Smith’s real measure, than by their price in gold and silver, his nominal measure. The labourer is only paid a really high price for his labour, when his wages will purchase the produce of a great deal of labour.

[* ]Elemens d’Ideologie, Vol. iv. p. 99.2 —In this work M. de Tracy has given a useful and an able treatise on the general principles of Political Economy, and I am sorry to be obliged to add, that he supports, by his authority, the definitions which M. Say has given of the words “value,” “riches,” and “utility.”3

[† ]“The first man who knew how to soften metals by fire, is not the creator of the value which that process adds to the melted metal. That value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge.”

“From this error Smith has drawn this false result, that the value of all productions represents the recent or former labour of man, or, in other words, that riches are nothing else but accumulated labour; from which, by a second consequence, equally false, labour is the sole measure of riches, or of the value of productions.”* The inferences with which M. Say concludes are his own, and not Dr. Smith’s; they are correct if no distinction be made between value and riches, and in this passage M. Say makes none3 : but though Adam Smith, who defined riches to consist in the abundance of necessaries, conveniences4 and enjoyments of human life, would have allowed that machines and natural agents might very greatly add to the riches of a country, he would not have allowed that they add any thing to the value of those riches.5

[2]Bk. i, ch. v; vol. i, p. 35. Adam Smith says ‘the distinction’, not ‘the difference’.

[2]Éleémens d’idéologie, IVe et Ve parties. Traité de la volonté et de ses effets, ‘par le Cte Destutt de Tracy, Pair de France’, Paris, Courcier, 1815, pp. 99–100.

[3]Eds. 1–2 do not contain this note.

[*]Chap. iv. p. 31.

[3]Eds. 1–2 do not contain ‘, and in this passage M. Say makes none’.

[4]Misprinted ‘convenience’ in eds. 2–3.

[5]Eds. 1–2 ‘to value in exchange.’