The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

Note on Page 32.

Many questions respecting value are sometimes rendered difficult of comprehension, by a complexity necessarily produced by the manner in which the business of life is conducted. This complexity does not affect the truth of any of the conclusions, although as it sometimes detracts from the accuracy of the manner in which elementary principles are simply stated, it may be urged as an objection to the conclusions which are drawn from them. Thus in estimating the cost of production, it may be said that the same land, labour, and capital, are often employed at the same time in the production of several different commodities. These are sold separately, and how then is the cost of production of each to be ascertained. The difficulty of solving this question will disappear, if we attend to the manner in which the cost of production influences the prices of commodities. The demand and supply regulate the price, and the cost of production influences it, by confining the supply to such a quantity as can be sold at a price sufficient to repay the cost of production. But still it is the relation of the supply and demand that immediately regulates the price both of the whole and of each part. But the relative value of the parts may vary with the circumstances that occasion a variation in the demand for the several parts. And in such cases, in general, any circumstance that increases the demand for one part, without increasing the cost of production, will diminish the price of the other parts. For as the cost of production has not increased, the principle of competition will prevent the price of all the parts from being more than the cost of production. And as the demand for one part has increased, its price, and its supply will also increase; but this being necessarily attended with an increased supply of the other parts, for which there has been no increased demand, will diminish the price of those parts.

Thus the freight of goods outwards and homewards ought to pay the expense of the voyage in and out, with the wear and tear of the ship, usual profits, &c. If, then, any circumstance connected with the state of trade, usually creates a greater demand for freight homewards, it will have a proportional effect in diminishing the freight of a cargo outwards. The encouragement therefore given by the present rates of customs to the importation of timber from Canada, has a considerable effect in reducing the freight of all goods sent to America, and of encouraging emigration, by reducing the fares to passengers.

The business of farming is, in this respect, still more complicated. This complexity arises from the necessity of a rotation of crops, and from the manner in which some of the products of agriculture are partially rivals to others, by answering the same purposes. As an illustration, let us consider what would be the effects of the general introduction of turnip husbandry into a country where it was previously unknown. The first effect would be to diminish the cost of production of sheep—the animal fed on that root—and of wheat, as the crop next in rotation, unless so far as those effects might be counteracted by any increase of population. But the effects would not stop here. The produce of the sheep consists of mutton and wool, of which the former would experience only a slight decline of price, as the effect of its lessened cost of production would partially be obviated by driving its rival beef from the market, and thus obtaining an increased demand. The fall therefore in wool, the peculiar product of the sheep, would be more considerable. But as beef sustains a slight fall of price, while the cost of production of black cattle remains undiminished, their peculiar products, viz. hides, cheese, and butter, must experience a corresponding rise, although no alteration has been made in the cost or mode of producing them. A similar train of reasoning would lead us to conclude that if any new use was discovered for hides, which had the effect of producing a great increase in their price, these consequences would follow—a fall in the price of beef and of mutton, and a rise in the price of wool and of wheat. These would be instances of a change taking place in the relative values of commodities, without any alteration in their cost of production: unless by a metaphysical abstraction, not very consistent with our notion of what the cost of production is, we suppose the cost of production of an entire complex commodity, to be appropriated in different proportions to its several parts.