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3: Of Price Variations - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship [1776]

Edition used:

Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


3

Of Price Variations

We have just seen that price is based on value. Now as value varies, so price must therefore vary. There are many causes of this variation.

First of all it is clear that abundance and scarcity make price vary, like value, and they make it vary by reason of the greater or lesser need.

Secondly, it is also possible for the price of things to vary, even in the case where the tribe has the same abundance and the same needs.

Let us suppose that after the harvest I have all the surplus grain in my barns, and that, on the other hand, the surplus wine is divided among the cellars of twelve people, all of whom need my grain.

With this assumption, these twelve people come to me to exchange wine for corn; and because last year I gave a septier for a cask, they each offer me a cask for a septier. But in the previous year I was only dealing with one person, and I was forced to give more corn: now that I can deal with a dozen people, and I do not need all the wine they wish to off-load, I announce that I will only give corn to those who will give me a larger quantity of wine. By that action I make them vie with each other to make me more favourable offers. As a result, my grain will be at a higher price for them, and their wine will be less costly for me.

If one made the assumption that the surplus corn was distributed among the barns of a dozen people, and that, on the other hand, all the surplus wine was shut up in the cellars of one person, then the price would no longer be the same as with the first assumption: because the price of corn would fall, and that of wine would rise.

When several people need to exchange a foodstuff, this competition lowers its price; and the absence of competition raises the price of the food-stuff they wish to dispose of. Now as competition is greater, or less, or non-existent, now on the one hand, now on the other, so it comes that prices rise and fall in turn.

From this variation, it follows that there is no absolute price. Indeed, every time we talk of high and low price, it is that we are comparing two things whose exchange is in question: for example, wine will be at a high price in comparison with corn, if we give little of it for a large quantity of corn, and corn will be at a low price. In the opposite case, the price of corn will be high, and that of wine will be low.