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15: That Silver, Used as a Measure of Value, Has Brought Misunderstanding About the Value of Things - 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.


15

That Silver, Used as a Measure of Value, Has Brought Misunderstanding About the Value of Things

We have noticed that when trade comes about through the exchange of goods in surplus, everyone gives something which had no value for him, because he has no use for it, for something which does have a value for him, because he can use it, and that, consequently, everyone gives less for more. Now that is how it would have been natural to work out value in every case, if one had always traded through barter and without minted coin.

But once money had been accepted as the common measure of value, it was just as natural to reckon that one was giving equal value for equal value in exchanges, all the goods one exchanged were each considered equal in value to an identical quantity of money.

It was seen that through the medium of money one could determine, with some precision, a respective value between two quantities of a different nature, for example between a quantity of corn and a measure of wine. From then on, in these respective values, only the quantity of money which was the measure of them was noticed: every other consideration was removed; and because this quantity was the same, it was reckoned that in exchanges one gave equal value for equal value.

However, when I give you a quantity of corn, valued at ten ounces of silver, to get from you a quantity of wine at the same price, it is not certain that this exchange is equally advantageous for you and for me, although these two quantities seem to be the equivalent of each other.

In fact, if the corn which I have given you is absolutely essential to me, and if the wine you have given me is surplus to your needs, the advantage will be on your side and the disadvantage on mine.

Therefore, it is not enough to compare quantity in money with quantity in money, to work out who gains, you or I. There is another consideration which must come into the calculation; that is to know whether we are both exchanging a surplus for a necessary good. In such a case, the advantage is the same for both parties, and we each give less for more; in every other case it cannot be equal, and one of us gives more for less.

We have noticed that, in exchanges, goods are reciprocally the price of each other. We shall note here that if money is the measure of the value of the goods one buys, the value of the goods one buys is reciprocally the measure of the value of money. For example, to suppose that with six ounces of silver one can buy a muid of corn, is that not to suppose that a muid of corn is the measure of the value of six ounces of silver?

So when money has been taken as the common measure of all value, it is solely, as we have seen, because of all tradable goods it is the most suitable for this purpose; and that does not infer that it cannot itself have, as a measure, the value of the goods against which it is exchanged. On the contrary, it is clear that the value of what one buys is always the measure of the value of the money one gives.

But once people have taken money as a common measure, they soon come to see it as an absolute measure: that is to say, as a measure that is a measure by itself, independently of any connection, or as a good which, by its nature, measures all others, and is not measured by any of them. This misapprehension could not fail to spread much confusion. It has also made us see an equal value in the goods we exchange, and we have made a principle of commerce out of this equal value.

However, if what I am offering you was equal for you in value, or, which comes to the same, in utility, to what you are offering me; and if what you are offering me was equal for me to what I am offering you, we should each of us stay with what we have; and we should not make any exchange. When we make an exchange, then you and I judge that we each receive more than we give, or that we give less for more.

Let us remember the time when Europeans began trading in America, where, for things to which we attach little value, they received other goods to which we attach the greatest value.

Following our line of argument, you will agree that they gave less for more when they gave a knife, a sword, or a mirror for an ingot of silver or gold. But we cannot deny that the American also gave less for more when he gave, for example, an ingot of gold for a knife: because he was giving something to which people attached little value in his country because it was useless, in exchange for something to which they attached value, because it was useful.

So people said that the Americans did not know the price of gold and silver. They spoke as though these metals must have an absolute value. People did not think that they only possess value in relation to man’s uses, and that in consequence they have no value for a tribe that has no use for them.

Inequality of value following the customs and opinions of peoples: that is what has created trade and what supports it; because it is what produces the situation that in exchanges each person has the advantage of giving less for more.

However, because we are not inclined to believe that money can be over-plentiful, however much of it one has, we will find it difficult to understand that, when we give money for something we buy, we have the advantage of giving less for more, especially if the good is what we call expensive. So let us see how money can be considered as a necessary good, or as a surplus good.

All your property is in land, and you have produce of all kinds, more than you can consume. It is clear that, in giving up the produce which is surplus to your consumption, you are giving up something which is useless to you; and however little utility you find in what you receive in exchange, you will have given less for more.

I only have rents, and all my income is in money. Now I cannot live off this money, as you can with your produce. On its own it is thus useless to me, and it would always be so if I could not exchange it with you or with someone else. When I hand it over, I therefore abandon something which is useless to me for something I need, and I give less for more. But we find ourselves in very different situations; because in the product of your lands, it is only the produce surplus to your consumption that is useless to you; while in the product of my rents, if I do not manage to exchange it, all is useless to me, since there is nothing for my consumption.

So money, which is useless on its own, because with money alone one could not subsist, only becomes useful because, having been chosen as a common measure of all value, it is accepted as the price of the goods one buys.

Now, the amount of money which I need to supply me with everything necessary for my subsistence is for me the equivalent of the foodstuffs you are obliged to set aside for your subsistence. If I give up that money for things that are useless for my consumption, I should make an unfavourable exchange; I should be giving an essential good for a useless good, I should be giving more for less.

But the money I have left, when I have set aside all that I need for my subsistence, is a surplus for me; just as the produce which you do not need to consume is a surplus for you.

Now, the more confident I am of being able to subsist in accordance with the needs I have created for myself, the less this money surplus is of value for me. So I shall not scrutinise it too closely; and even when I give some of it for frivolities I should like to enjoy, I shall believe I am giving less for more.

It will be the same for you when, after you have made ample provision of products of every kind, nothing can be lacking for your subsistence. Then what you have left is a surplus which you will give happily for a frivolity which seems worthless.

It will follow from this that the value of essential goods will always be estimated more accurately than the value of superfluous goods; and that these values will never be in proportion to each other. The price of essential goods will be very low compared with the price of superfluous goods, because everyone is concerned to estimate them as exactly as possible. In contrast, the price of superfluous goods will be very high compared with the price of necessary goods, because the very people who buy them are not concerned to estimate them with precision. But in the end, at whatever price one buys them, or however dear they appear, the person who purchases them with surplus money is always considered to give less for more.