The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Advertisement.
• Letters, &c.
• Letter I.
• Letter II.
• Letter III.
• Letter IV.
• Letter V.
• Advertisement.
• Catechism of Political Economy; Or, Familiar Conversations On the Manner In Which Wealth Is Produced, Distributed, and Consumed.
• Chapter the First.: On the Composition of Wealth and the Use of Money.
• Chapter II.: On the Utility and Value of Products.
• Chapter III.: On Production.
• Chapter IV.: On the Operations Common to All the Species of Industry.
• Chapter V.: On Capital and Land.
• Chapter VI.: On the Formation of Capital.
• Chapter VII.: On the Manner In Which the Value of Products Is Established, and of the Charges of Production.
• Chapter VIII.: On the Profits of Industry, Capital, and Land; That Is, Income.
• Chapter IX.: On Wages, Interest, and Rent.
• Chapter X.: On Incomes Founded On Immaterial Products.
• Chapter XI.: On Consumption In General.
• Chapter XII.: On Private Consumption.
• Chapter XIII.: On Public Consumption.
• Chapter XIV.: On Public Property and Taxes.
• Chapter XV.: On Public Loans.
• Chapter XVI.: On Property, and the Nature of Riches.
• Chapter XVII.: On the Real and Nominal Price.
• Chapter XVIII.: On Money.
• Chapter XIX.: On Signs Representing Money.
• Chapter XX.: On Markets.
• Chapter XXI.: On Regulations Or Restraints of Industry.
• Chapter XXII.: On Importations, Duties, and Prohibitions.
• Chapter XXIII.: On Exportation.
• Chapter XXIV.: On Population.
• Chapter XXV.: On Colonies.
• Erratum.

CHAPTER VII.

On the Manner in which the Value of Products is established, and of the Charges of Production.

We have seen how utility is given to things: we have seen that utility gives them value; how is that value fixed, the amount of which constitutes riches?

The utility which the things have acquired, causes them to be sought after, to be wanted; a price is offered for them; and when this price is sufficient to defray the expenses which their production would cost, they will be produced.

Of what are the expenses of production composed?

Of whatever must be paid to obtain the co-operation of the agents of production.

What are the agents of production?

They are the means indispensably necessary for the creation of a product: viz. human industry; the capital or value which serves for that purpose; the land and other natural agents which contribute to it.

To whom do you give the name of producers?

To all those who possess any of the agents of production. A man who exercises an industry, and the possessor of capital or of land are producers.

Why do you call the possessors of capital or of land, producers, even when they do not labour themselves?

Because the capital and the land, concurring in the formation of products, those who furnish these means of production contribute to it effectually themselves.

What do you say of him who employs his own capital or cultivates his own land?

That he contributes doubly: first, by his industry; afterwards as a capitalist or landholder: but although these functions are often filled by one person, it is convenient to separate them when they are to be studied, in order to distinguish properly what belongs to each species of productive service.

What is meant by the term productive service?

It is the service rendered by each of the agents of production: the service rendered by industry; the service rendered by capital, and the service rendered by natural agents.

I see what is the cause of the demand and of the payment for productive services: what is it that limits this demand?

The property of the consumers, or of those who desire to use the product. There would be no bounds to the demand for any useful thing if it was not to be paid for. There is no other effective demand than that which is accompanied by the offer of a price: and it is this price which in paying for the product pays at the same time for the services which were necessary to its production.

What happens when the price of the product is not sufficient to pay the charges of production?

Then the producers will not exchange their productive services for the price of the product; and the production does not take place.

What happens when the price of the product is more than enough to pay the charges of production?

The producers of this kind of product become more numerous, and their competition will cause the price of the product to fall.

Can one let out or lend productive services?

Yes, when a man lets out his industry, the price which is paid for it is called wages. When he lets out his capital it is called interest. When he lets out his land, the tenant is called a farmer, and the price is called rent.

What do you understand by letting out industry?

It is to give for hire time, talent, and labour; to co-operate in the creation of a product of industry.

Who is it that hires the labour of the one, the capital or the land of the others?

It is an undertaker of industry who unites all these means of production, and who finds in the value of the products which result from them, the re-establishment of the entire capital he employs, and the value of the wages, the interest and the rent which he pays, as well as the profits belonging to himself.

What happens when the value of the products he has created is not sufficient to pay for all that?

He loses, if he has any thing to lose: or if he has nothing, those lose who have given him their confidence.