Front Page Titles (by Subject) 20: Of the True Price of Things - Commerce and Government Considered in their Mutual Relationship
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20: Of the True Price of Things - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship 
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).
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Of the True Price of Things
We have just seen how the price of gold and of silver settles itself at the same point in all the markets of several nations when these metals can pass continuously without obstacle from one to another. By reasoning according to the same principles, it will be easy for us to judge the true price of each thing.
I assume that, in a large country like France, the provinces are forbidden all trade with each other, and yet that there are some where the harvest is never adequate, others where, in ordinary years, it only furnishes what is needed for consumption, and others where there is almost always a surplus. This is what must happen.
Let us first consider a province where the harvests are never adequate. If we assume that internal trade enjoys complete freedom there, all its markets will communicate with each other; and, in consequence, foodstuffs will be sold in each separately, as though they all came to be sold in a common market. Because from one nearby place to another, it can be known in each what they sell for in all, it will not be possible to sell foodstuffs in one at a much higher price than in the others. In a similar way gold has the same price, near enough, in all the markets of Europe.
In this province the harvests are never adequate, that is what we have assumed; and, since we assume also that it has forbidden itself all external trade, it follows that the other provinces cannot make up what it lacks.
That being so, corn will be at an even higher price as there will be less of it, while more will be required; and because it is an imperative that the inhabitants reduce themselves to the number that the province can feed, it will infallibly lose population.
In a province where there is almost always surplus, supposing perfectly free internal commerce, corn will sell in all the markets at near enough the same price, because, as in the first province, it will sell as if it were being sold in a single common market.
We have assumed that this province too is forbidden all external trade. Therefore it cannot export. Its corn therefore will be at all the lower a price, because it has more, and it needs less.
This surplus being at the expense of the cultivator who cannot sell a larger quantity of corn, and who nevertheless sells it at a lower price, he will cease to plough and sow a part of his fields.
He will even be compelled to do that, because with the feeble profit he makes on the corn he sells, he will be all the less able to enter into the great expenses of cultivation, as the day-labourer who, through the low price of bread, earns in one day his subsistence for two, will not want to work every day or will demand higher wages.
It is therefore bound to happen that crops in this province will diminish to place them in proportion with the population; just as in the other the population has fallen to place it in proportion with the crops.
Finally, let us consider a province where the crops in normal years produce exactly what is needed for consumption; and let us assume for it, as with the two others, completely free internal trade and no external trade.
Since in normal years this province only harvests exactly what it needs, there will be dearth in some years and surplus in others. The price of corn will therefore vary from year to year; but in normal years it will be lower than in the province where we have assumed that the harvest is never sufficient, and it will be higher than in the province where we have assumed that the harvest is almost always in surplus.
In this province, the land under the plough and the population will be able to keep themselves at the same levels, or near enough. The province will simply be exposed to great variations in prices, as we assume that no one will bring it cereals when it lacks them, and that it will not export them when it has too much.
In these three provinces we have three different price levels: in the first, a high price; in the third, a low price; and in the second, a moderate price.
Therefore it is not possible that any of these prices can be at the same time the true price of corn for all the provinces, that is to say, the price that they should all give for it.
Each province values corn according to the relationship it perceives, or believes it sees, between the quantity and the demand. If it judges that the quantity is insufficient, the price is high; if it judges that it is sufficient, the price is low.
I call proportional the prices which establish themselves on such relationships. By this we see that whatever the prices are, they are always proportional, since they are always founded on the view which people have of the quantity relative to the need. But the price which is current in one of our provinces, although proportional within it, would be disproportional in the others, and could not suit them.
The price of cereals is only so different in the three provinces because we have forbidden all trade between them. The price will thus no longer differ if we allow them the freedom to export reciprocally to each other.
Indeed, if they trade freely, the same will happen in the markets which are held in all three as happened in the markets which were held in each individually. They will communicate with each other, and the corn will sell in all at the same price as if it was being sold in a single common market. Then this price, the same for all three, and at the same time proportional for each, will be that which it is equally right for all three to give to the corn; and, consequently, it will be the true price for all three.
This price is the one which will be most beneficial to the province whose soil, by its nature, has a surplus product; because it will sell the grain it does not consume, and it will no longer be in the position of abandoning some of its cultivated land to bring its crops into balance with its consumption.
This price is just as beneficial to the province whose soil is naturally not very fertile; because it will buy the grain it lacks, and will no longer be in the situation of losing people to bring its population into balance with its harvests.
Finally, this price will be no less advantageous to the province whose soil only supplies, in normal years, just what is needed for its consumption. It will no longer be open to seeing its grain rise or fall excessively, suddenly and as if by shocks; because in surplus it will be able to sell at the price of the common market, and in dearth it will be able to buy at the same price. In a word, this price of corn, this true price, will make the surplus of one province flow constantly into another, and will spread abundance in all.
I say, that it will spread abundance in all. It is the case that a poor harvest will not be able to cause dearth even in the least fertile province, because this province receives the cereals which are surplus elsewhere since, through the freedom that trade enjoys, they will always be ready to enter it.
When I say that it buys at the same price as the others, it is that I consider the purchases in the common market, where the price is the same for all three; and I exclude the transport costs which it will have to pay on top. I do not say, like some writers, that transport costs are not part of the price of corn; because one would certainly not pay these costs if one did not judge that the corn was worth the incurring of them. But I set them aside, because to judge the true price, which must be the same for all the provinces, one must only consider the purchases and sales in the common market. I may add that this market is always held in the province where the corn is in surplus, or in the one which is placed to act as a depot for all. It is to that market that people come from all over to buy.
My line of argument on these three provinces could be extended to a larger number, to all those of France for example: and then one would see that free trade between them would establish a price, at one and the same time, the same for all and proportional in each, which in consequence would be the true price for France or the most beneficial for all her provinces.
One has no idea what is the true price of corn in Europe and one cannot know it. There is a price, in each nation, which is the true price for it; but it is so only for it. Each has its own price, and of all these prices none could be at one and the same time proportional in all the others; and consequently, none could be the true price for all equally.
If, in a time when the English and the French do not trade together at all, harvests are in surplus in England but are inadequate in France, two prices will prevail, both based on quantity in relation to need; and both different, since the quantity relative to the need is not the same in France and in England. Neither of these prices will therefore be at one and the same time proportional for both nations; neither will be equally beneficial for both; neither will be the true price for both.
But if the English and the French should trade with each other in complete and utter freedom, the corn that is surplus in England would pour into France; and because then the quantities in relation to need would be the same in each monarchy, a price would evolve which would be the same for both countries, and this would be the true price for both, as it would be equally beneficial to them.
One can see from that how important it is for all the nations of Europe to lift the obstacles which for the most part they place on export and import.
It is not possible for harvests to be equally bad in every country in the same year: no more is it possible that they should all be equally good in every country in the same year. Now uninhibited trade, which would make the surplus circulate, would produce the same effect as if the harvests were good everywhere, that is to say as if they were sufficient for consumption everywhere. Corn, with transport costs deducted, would have the same price in the whole of Europe: this price would be permanent and the most advantageous for all nations.
But when they forbid import and export, or when they place on them both duties which have the effect of a prohibition; when in allowing export they forbid import, or in allowing import they forbid export; finally, when in the guise of behaving differently in different circumstances, they forbid what they have allowed, they allow what they have forbidden, turn by turn, suddenly, without principles, without rules, because they have none, and can have none: then it is impossible for corn to have a price which is the same and the true price throughout Europe; it is impossible for it to bear any relation to the permanent price. And so one sees it rise to an excessive price in one nation, while it falls to a paltry price in another.
It is not that the true price can be exactly the same year in, year out; doubtless it must vary, but it would always maintain itself between two limits, which are little apart from each other: that is what must be explained.
We have remarked that crops could not be equally good or equally bad in the whole of Europe. But one can appreciate that there will sometimes be years when they are generally more plentiful, and that sometimes too there will be other years when they will generally be less so. The true price of corn will therefore sometimes rise and sometimes fall.
It will fall in the greatest general abundance in proportion as the amount of corn is greater than consumption; and in a lesser general abundance it will rise to the extent that the amount of grain approaches what is consumed.
I say that it will rise in a lesser general abundance and I do not say in a dearth, because it would be really extraordinary for there to be bad years throughout the whole of Europe. There can only be better years than others; and it is those better years that will cause the price of corn to fall.
In ordinary years, if all its provinces traded freely with each other, Europe should harvest as much grain as she consumes, because land under the plough should adjust to consumption. The price of corn should thus be permanently based on a like quantity relative to demand, and in consequence it would always be the same.
Now let us assume that corn was at twenty-four livres the septier: in great and widespread abundance it could fall to twenty-two, to twenty, or, if you like, to eighteen. But certainly general abundance will never be great enough to let it fall to a rockbottom price.
Likewise, in a lesser general abundance the price may rise to twenty-six, twenty-eight or thirty. But the scarcity will never be great enough all round to raise it to an excessive price. I even find it hard to believe that it could vary from eighteen to thirty since these limits seem to me very far apart.
In contrast, when the nations of Europe forbid each other trade by clear prohibitions or equivalent duties, one can imagine that the price of corn can vary, turn and turn about, now with one, now with another, to the point where it will be impossible to set a limit to the highest and the lowest price. The same people will see corn fall suddenly to ten livres or rise to fifty. Let us stop there on the fatal consequences of these variations.
When corn is at ten livres, the farmer sells more than when it is at fifty, because people consume more. But it is only at ten livres because there is far more of it than he can sell and this surplus is valueless for him. Yet he finds no compensation in the corn he does sell, since he sells it at a rockbottom price. So he has worked the land and he has drawn no profit. It may even be that he will not recoup the expenses of cultivation.
It is therefore not in his interests to sow as much land as he would have done.
Even if he wanted to, he could not. He is not in a position to make the outlay.
“He is not in a position,” I say, “to make the outlay”: firstly, because he has not gained enough on the sale of his corn; secondly, because the day-labourers who, as we have already noted, gain in one day enough to live on for two, work half as much. They will thus be scarcer and, being scarcer, they will cost more. Thus the expenses rise for the farmer as his profit falls.
So he has sown less, and consequently the crop will be smaller; and it will be reduced to very little if the year is a bad one.
The surplus of the previous harvest will make it up, you will say. My response is that if the cultivator had been able to sell it abroad, he would have drawn a greater profit from the sale of his cereals, because he would have sold them at a better price and in larger quantity. He would have been in a position to sow more land. He would have found it in his interest, and the harvest would have been more plentiful.
He could not store his surplus corn without expense and loss; and it is without expense and without loss that he would have kept the money he would have received from it. He would therefore be richer with that money than he is with the surplus corn left on his hands. The surest and least costly way to keep the corn is to keep it in money; since to keep the money is to keep the corn, as with money one can always buy it. Why force the farmer to build barns, to leave the plough to inspect his grain, and to pay farm hands to turn it over? If he is not rich enough to make these expenditures, his corn will germinate, it will be eaten by insects, and the surplus on which he had counted will no longer be found.
We also note that dearth always comes after abundance, and that when cereals have been at a rock-bottom price, they suddenly move to an excessive price. Now that price, burdensome to the people, does not recompense the cultivator for whom a bad crop leaves all the less corn to sell, as he only sowed a part of his land.
We have noted that when corn is at a rockbottom price, the day-labourers price themselves too high; we shall note here that when it is at an excessive price, they price themselves too low.
In the first case, as it takes little to earn the wherewithal to buy bread, several labourers spend days without working. On the other hand, in the second case, they all vie with each other for work, they want it every day, and they offer themselves on the cheap. Further, many offer themselves in vain. The cultivators, feeling the losses they have incurred, are not rich enough to employ all those who come forward.
In these times of variation, wages are thus necessarily too high or too low; and that is true for all: because the craftsman, like the day-labourer, sells his labour on the cheap when bread is dear; and when bread is cheap, he offers his work to the highest bidder.
During this disorder everyone’s fortunes are disturbed to a greater or lesser extent. Most people cut back on their needs. Rich men at least cut back on their extras. Many workers lack work, manufactures collapse, and one sees misery spread in the countryside and in the towns, which trade could have made to flourish.
If trade enjoyed complete and entire freedom, always and everywhere, the true price of grain would necessarily establish itself, and it would be permanent: then disorder would cease. Wages, which would proportion themselves to the permanent price of corn, would set all types of work at their true price. The cultivator would better judge the outlays he has to make, and he would be all the less afraid to involve himself in them, as he would be guaranteed to recover his expenses and his profit from his crops. I can say as much of the entrepreneurs in every kind of business. They will all employ a greater number of workers, because they will all have the means and all will be assured of the profit due to their work. So no more idle hands. People will be at work equally in the towns and the countryside: they will not be reduced to cutting back on essentials: they will on the contrary be able to acquire new pleasures for themselves, and commerce will be as flourishing as it can be.
You will perhaps ask by what one can recognise the true price. You will recognise it in that its fluctuation will be between two closely set points, and it is in this sense that I call it permanent. If it only varied, for instance, between twenty and twenty-four, it would be low at twenty, high at twenty-four, and middling at twenty-two. Every other price would be a false price, which would take the name of dearness when it rose above twenty-four; and which would take that of cheapness when it fell below twenty. This false price would be bound to cause disorders, because in cheapness the producer would be damaged, and the consumer would be damaged in dearness. Now the true price must be equally beneficial to everyone.