The Online Library of Liberty

A project of Liberty Fund, Inc.

• Advertisement By the Editor.
• Plan of Lectures On Political Economy, For Winter 1800-1801.
• Outlines of Moral Philosophy. Part Third. [political Science.]
• Part III. *: of Man Considered As the Member of a Political Body. †
• Chapter I.: Of the History of Political Society.
• Chapter II.: Of the General Principles of Legislation and Government.
• Lectures On Political Economy.
• Errata.
• Introduction. of the Objects and Province of Political Economy. *
• [chapter I.]: [of the Title and Comprehension of the Science, In Its Most Extensive Meaning.]
• Chapter II. *: [of the Contents and Distribution of Political Economy Proper,—or of Part First.]
• [ Population. ]
• [ National Wealth. ]
• [ the Poor:—their Maintenance. ]
• [ Education.—prevention, Reformation, Correction of Crime. ]
• [chapter III.]: [preliminary Distinction of Positive Laws Into Two Classes; and the Relation of These to Political Economy Proper,—or to Part First.]
• Part First.—: of Political Economy Proper.
• [book First.]: [of Population.]
• [chapter I.]: Of Population Considered As an Article of the Natural History of Man.
• [chapter II.]: [of Population Considered As an Article of Political Economy.]
• [sect. I.—: Of Population As Affected By the Political Institutions Which Regulate the Sexual Connexion.]
• [sect. II.—: Of Population As Affected By the State of Manners Relative to the Connexion Between the Sexes.]
• [sect. III.—: Dependence of Population On the Means of Subsistence Enjoyed By the People.]
• [ Appendix. —: of the Means Which Have Been Employed to Ascertain the State of Population In Particular Instances. ]
• [book Second.]: [of National Wealth.]
• [chapter I. * ]: [of Productive and Unproductive Labour.]
• [sect. I.—: On the Circumstances Which Render Labour More Effective.]
• Chapter II.: [of Money, the Circulating Medium.]
• [sect. I.—: Of the Origin and Use of Money.]
• [sect. II.—: Of Real and Nominal Prices.]
• [sect. III.—: On the Effects of Plenty Or Scarcity of the Precious Metals Upon Prices.]
• Sect. IV.—: Of Money As the Standard of Value.
• [sect. V.—: Of Interest.]
• Appendices to Books First and Second.
• Appendix I.—: To B. I. Ch. II. § 3.
• Quotation On Population From Pinto.
• Appendix II.—: To B. II. Ch. II.
• Notes On the [ Parliamentary ] Bullion Report. ( Sent By Mr. Stewart to Lord Lauderdale, In February, March, and April, 1811.)

[SECT. II.—

OF REAL AND NOMINAL PRICES.]

The remarks which I now proceed to offer, relate to a distinction intimately connected with the subject which has just been under our consideration; I mean that between the real and nominal prices of commodities. In the practical conclusion which Mr. Smith ultimately adopts on the question to which this distinction applies, I do not differ from him very widely; though I think that it has been stated by him in too general and unqualified terms. But as I deem the metaphysical process by which he arrives at this conclusion is by no means satisfactory, and as I have been often puzzled with it myself, I shall offer no apology for making a few observations on it, premising only, that I consider the question to which I am first to direct your attention, as chiefly an object of speculative curiosity.

“Every man is rich or poor,” says Mr. Smith, “according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase.”* —It appears to me that the latter clause of this sentence is by no means a just inference from the former; and the only conclusion to which it properly leads, is that every man is rich or poor according to the means which he possesses of purchasing those necessaries, conveniences, or amusements, which are supplied by the labour of others. That the riches of an individual do not depend on the quantity of labour which he can command, is obvious from what Mr. Smith himself has so ingeniously shown with regard to the effects of the division of labour in increasing its productive powers. [See p. 312, seq.]—In a country, therefore, where a separation of arts and professions has taken place, the national riches depend much less on the quantity of labour, than on the skill of the labourer, a proper division of work, and the advantages which are derived from the use of machinery. Consequently no estimate can be formed of the comparative riches of individuals from merely knowing the quantities of labour which they are able to command.

“The value of any commodity, therefore,” continues Mr. Smith, “to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”† —I have sometimes thought that part of the obscurity in which Mr. Smith has involved this subject, arises from the vague use which he makes of the phrase “measure of value.” I need not remark, that this expression is borrowed from the mathematical sciences, in which important advantages are sometimes gained by employing one species of quantity to measure another. Thus angles are measured by the arc of a circle; and velocities and forces are measured by a reference to extended magnitudes. This seems to be the idea which Mr. Smith has annexed to the word throughout the greater part of the chapter in question. But in this sense, the speculation cannot possibly admit of any useful application; as he confesses that it is difficult, or rather impossible, to ascertain the proportion between different quantities of labour. For he proceeds:—

“Though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labour. The time spent in two different sorts of work, will not always alone determine this proportion. There may be more labour in an hour’s hard work, than in two hours’ easy business; or in an hour’s application to a trade which it cost ten years’ labour to learn, than in a month’s industry at an ordinary and obvious employment. But it is not easy to find any accurate measure either of hardship or ingenuity. In exchanging, indeed, the different productions of different sorts of labour for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.”

“Every commodity,” he adds, however, “is more frequently exchanged for, and thereby compared with other commodities, than with labour. It is more natural, therefore, to estimate its exchangeable value by the quantity of some other commodity, than by that of the labour which it can purchase. The greater part of people, too, understand better what is meant by a quantity of a particular commodity, than by a quantity of labour. The one is a plain palpable object, the other an abstract notion, which though it can be made sufficiently intelligible, is not altogether so natural and obvious.

“When barter ceases, and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. . . . It is more natural and obvious, therefore, to estimate the value of commodities by the quantity of money, the commodity for which they are immediately exchanged, than by that of the commodity for which they are exchanged only by the intervention of another commodity. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity either of labour or of any other commodity which can be had in exchange for it.”*

From this quotation, it appears manifestly that there is no analogy between Mr. Smith’s conclusion touching the mensuration of value by labour, and the measures employed by mathematicians. These last substitute quantities easily compared for quantities that are compared with greater difficulty; whereas the measure of value proposed by Mr. Smith is acknowledged to be founded on a mere abstract notion. The truth is, however, that what Mr. Smith was really in quest of in this chapter, was not a measure of value, but a universal standard for the measurement of value; or, in other words, a unit fixed in the unalterable principles of human nature, by a comparison with which, the comparative values of money at different times might be estimated. It is obvious that it gives us no idea of the wealth of an individual to say, that in the time of Henry VII. his income amounted to £5000, unless we also knew how far a pound sterling would go in these days.

On what principle, then, shall the value of money at different times be estimated, or how shall the real prices of commodities and labour be computed? This I conceive to be the simple statement of the question, which Mr. Smith undertakes to resolve; and in this, as in many others, a precise idea of its nature will be found to contribute much to the success of our inquiries.

That labour is the real measure of the exchangeable value of all commodities, Mr. Smith attempts to show in the second paragraph of his fifth chapter, by a different process of reasoning, but, in my opinion, one not more satisfactory.

“The real price of everything,” he observes, “what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it, or change it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods, is purchased by labour, as much as what we acquire by the toil of our own body. That money or those goods, indeed, save us this toil. They contain the value of a certain quantity of labour, which we exchange for what is supposed, at the time, to contain the value of an equal quantity. Labour was the first price; the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour that all the wealth of the world was originally purchased; and its value to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.”*

The fallacy of the argument contained in this passage, consists in the application to all the various stages of society, of a description which applies only in fact to that rude period which preceded the accumulation of stock, and, what may be regarded as nearly coeval in point of time, the establishment of positive institutions regulating the acquisition and protecting the enjoyment of property. I have endeavoured to shew, in my other course of lectures, that prior to the establishment of law, the only foundation of an exclusive and permanent property is labour; and hence it seems to follow, as a necessary consequence, that in this rude state of things, the only circumstance which could regulate the exchangeable value of commodities, was the quantity of labour which the preparation of them required; some allowance being probably made for superior hardship incurred, or skill exerted. This incontrovertible principle, accordingly, Mr. Smith turns in various strong lights; after which, he makes an abrupt conclusion, with which it is not easy to trace its connexion, that the value of a commodity to those who possess it, and want to exchange it, is precisely equal to the quantity of labour which it can enable them to command. It is difficult to reconcile this passage, considered at least in its application to the more advanced periods of society, with the analysis which Mr. Smith has given in a different chapter, of the component parts of the price of commodities:—“As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials, and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in this adventure. The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced.”*

With these principles in his view, it is not a little curious that Mr. Smith should have satisfied his mind with the reasoning just quoted from another part of his work.

Another metaphysical argument afterwards offered by Mr. Smith in proof of the same proposition, is, that “as a measure of quantity, such as the natural foot, &c., which is continually varying in its own extent, never can be an accurate measure; so a commodity, like silver or gold, which is continually varying in its own value, can never be an accurate measure of value. But equal quantities of labour must at all times be of equal value to the labourer;”* and so on.—The step of this reasoning to which I would more particularly direct your attention, is that in which it is said, that equal quantities of labour must at all times be of equal value to the labourer. What idea are we here to annex to the term value? In the previous chapter, we are told that this word has two different meanings; sometimes expressing the utility of a commodity, and sometimes the power of purchasing other goods. The first of these is called value in use, the other value in exchange. The distinction is illustrated by the examples of water and a diamond. The same distinction, illustrated by the very same examples, occurs in Mr. Harris’s work On Coins, and in the treatise by Mr. Law, entitled, Money and Trade Considered. I have some doubts, however, with respect to its accuracy; for what is value in use, but a circuitous expression for utility; and what possible advantage can arise from substituting the former phrase for the latter? On the other hand, is not the idea of value in exchange sufficiently conveyed by the word value; which in speculations of this sort is seldom or never employed as synonymous with intrinsic utility, and which in itself seems to involve the very nature of the comparison? Both of these, and similar phrases, have been employed in the present discussion. The principal advantage of the common mode of speaking over that employed by Mr. Smith, is, that the latter, after distinguishing the two kinds of value, often makes use of the word without any limiting epithet; and thereby not only puzzles his readers, but imposes on himself. Thus, when it is said that a commodity like silver, which is continually varying in its own value, can never be an accurate measure, the word value plainly means exchangeable value. But this word as plainly alters its meaning in the next sentence, when it is remarked, that equal quantities of labour are of equal value to the labourer. Here the word value cannot mean exchangeable value, as it is expressly supposed that the exchangeable value varies. We must, therefore, conclude, according to Mr. Smith’s definition, that it was value in use which he meant; though I need hardly observe, it is rather an awkward mode of expressing the simple proposition, that equal quantities of labour always cost the same exertion to the labourer, to say, that equal quantities of labour will always be of equal value to the labourer. It is in this last sense however alone, that the proposition can be interpreted. There is no difference, therefore, between labour and silver and gold, which entitles the former to be established as a standard of value, in preference to the latter. And where Mr. Smith adds, that in those cases where the same quantities of labour purchase different quantities of goods, it is the value of the latter which varies, not of the former, the assertion amounts merely to this, that the exchangeable value of labour varies, while the labourer continues to make the same sacrifices of his ease and happiness. But might not this proposition be converted in many cases to the necessaries of life, &c., the exchangeable value of which varies, while their value in use remains the same?

Mr. Smith’s doctrine on this subject has been plainly suggested by that state of society which preceded the accumulation of stock, when the labour of one man being universally exchanged against that of another, the exchangeable value of commodities was thus rated according to the quantities of labour which they could command. How wide a difference there is between this state of things, and the circumstances of a community like ours, where the labourer has to exchange his labour, not only against the labour of his fellow-citizen, but against value arising from the profits of stock and the rents of land, and where commodities involving all the three constituents of price are continually exchanged against one another. The sacrifices which the labourer makes, must, indeed, remain always the same, and he will naturally be led to bestow the epithets of cheapness or dearness, according to the extent of his own exertions. But how does this afford a standard or fixed value for comparing different values in different ages and nations? Is it not evident, that those who subsist by labour form only one of the classes of society; that the price of labour enters as an element into that of most of the commodities which are purchased by the other classes; and that the same circumstances which are favourable to the one class, are equally so to the other? Why, therefore, should the standard of value be taken from the labour of one class in preference to the limited revenue of the other?

A very important distinction, however, follows in the next paragraph, though it has been introduced with a sort of apology for the deviation from strict philosophical accuracy, for which I must own I see no reason. “In this popular sense, therefore, labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniences of life which are given for it, its nominal price in the quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not to the nominal price of his labour.”* It is somewhat surprising that Mr. Smith should not have seen, after stating those very just and accurate views, that they apply not only to labour, but to commodities of every description. Mr. Smith says, that the nominal value of a commodity is the quantity of money, its real value the quantity of the conveniences and necessaries of life which it will purchase. Is not this a more precise, as well as a more obvious and intelligible mode of speaking, than to measure the price of commodities by their price in labour; a thing which Mr. Smith himself tells us is a mere abstract notion, and which must have its own real price measured ultimately by this very standard?

My last lecture was chiefly occupied with an examination of Mr. Smith’s doctrine, concerning the real and nominal price of commodities,—a doctrine which, as I have already hinted, seems to me to be rather of a metaphysical than of a political nature. Indeed, Mr. Smith himself acknowledges that it does not admit of any practical application of which we can avail ourselves in comparing together the prices of commodities at different periods. It is not the wages of labour, it must always be remembered, either nominal or real, by which this ingenious writer proposes to measure the price of commodities; for he tells us himself, in the same chapter, that the subsistence of the labourer, or the real price of his labour, is very different in different circumstances, “more liberal in a society advancing to opulence, than in one standing still,” &c. It is the quantity of labour employed by the labourer, which he holds out again and again, not as affording an approximation to the truth, but as a universal standard by which we may, with the greatest accuracy, estimate the comparative values of different commodities, as well from century to century, as from year to year. He acknowledges, at the same time, that it is a test to which we cannot appeal in fact.*

From this passage, if I do not misunderstand it, it appears to have been admitted by Mr. Smith, that his theory does not afford a rule, of which we can avail ourselves for the purpose of actually calculating the comparative value of prices at different times and places. He seems, at the same time, to have considered the theory as mathematically accurate in itself, but as unsusceptible of a practical application. If the remarks which I made yesterday be just, the theory, even considered abstractly, proceeds on an erroneous principle. In some of the practical rules which Mr. Smith afterwards suggests, I agree with him very nearly, under proper limitations. But I am unable to conceive their connexion with the premises from which he deduces them. I shall, therefore, endeavour to establish the justness of my own opinions on this point; in doing which, I may perhaps be able to point out some of the circumstances which have misled the speculations of this very profound writer.

In general, it will be remembered, that the precise object of the present inquiry is, to find some standard by which we may compare the exchangeable value of commodities at different times and places, or something by which the varying price of the precious metals, when considered as media of exchange, may be estimated. In the observations which I am to make on this subject, I shall retain Mr. Smith’s language, in order to point out more clearly in what respects I differ from his opinions; taking care, however, when I make use of the word value, to add the terms intrinsic or exchangeable, according to the sense in which I wish to be understood. The same distinction, as I have already hinted, may perhaps be expressed by the terms utility and value; but, on the present occasion, I flatter myself that by adopting Mr. Smith’s phraseology, I shall be able, with greater conciseness, to show in what the defects of his reasoning consist.

The following general principles, which I shall state with all brevity, are intended to facilitate some of our subsequent reasonings. They may, perhaps, also be found to throw additional light on some points which I have already noticed.

I. It was before observed, in quoting Mr. Smith’s distinction between Value in use, and Value in exchange, that a commodity may possess the one species of value in the greatest possible degree, while it possesses little or none of the other. As a necessary limitation, however, of this remark, it may be proper to add, that although value in use does not imply any value in exchange, yet value in exchange necessarily implies some degree at least of value in use. The truth of this is manifest; for value in exchange depending, as I shall afterwards have occasion to show, on the proportion between the demand and the supply, some intrinsic recommendation, either real or apprehended, must be supposed to account for the demand which the object occasions. This recommendation may, indeed, be of the most trifling nature; arising, perhaps, merely from beauty, fashion, or curiosity. But whether trifling or important, some degree of it must either belong to the object, or be generally ascribed to it, before it can become the subject of competition to purchasers.

II. The degrees of utility are infinite in number, extending from those slight and evanescent recommendations which operate on the fancy or caprice of the opulent, to what is necessary for the support of life. Articles of the last kind possess the highest degree of utility, and are, I think, the only ones to whose value in use it is possible to annex any definite meaning.

III. However slight the intrinsic utility of a commodity may be, a certain degree of scarcity, combined with a certain degree of demand, may bestow on it any conceivable value in exchange; that is, the caprice of the opulent may incline them to purchase it, by parting with any given quantity of the superfluous articles of use or necessity which they may possess. In this case, the greatness of its exchangeable value means nothing more than the power which it conveys to the possessor of purchasing a comparatively great quantity of other commodities; the exchangeable value of these things in the market being to each other inversely as their quantities.

IV. As the terms, price and exchangeable value, necessarily imply the relation of one thing to another, the common impressions of high and low price, or great and small exchangeable value, convey no definite ideas whatever, excepting to those who have in view some standard of comparison. A difficulty, therefore, occurs here precisely similar to that which has so long puzzled mathematicians on the subject of a universal standard of longitudinal extension. But fortunately, the speculations of political economists do not require the same mathematical accuracy in their solution, which is so desirable in the other case. Whatever room for regret the astronomical or natural philosopher may find in the looseness of the language employed in different ages and nations with respect to longitudinal measures, very little inconvenience is experienced by those whose speculations come home immediately to the business of common life. For all purposes of this kind, common language, which has adopted the dimensions of the human body as a standard, is sufficiently definite and precise; for though the Roman foot, the Paris foot, &c., deviate considerably from a mathematical equality, yet as we have reason to believe, that in different ages the average stature of man has varied only within very narrow limits, this measure of extension is, in most instances, sufficient for the purposes of the historian, politician, and philologist. In like manner, in Political Economy, the great object of research is, to obtain some standard of price or exchangeable value, not exhibiting to all mankind a mathematical sameness or stability, for that is impossible in the nature of things, but bearing such a relation to the fixed circumstances of the human race as may reduce the vagueness of ordinary language within such limits as to enable one age or nation, to avail itself of the political experience of another. Thus when we look at a drawing, it is impossible to form an estimate of the magnitude of the object which the painter meant to represent. But if a human figure is introduced into the landscape, though the size of men is subject to some variation, it affords us at least such a standard of comparison, as reduces the difference between the painter’s conception and ours to a comparative trifle. The application of this illustration to the present subject is sufficiently obvious.

V. It seems farther evident, in the fifth place, that in order to obtain such a standard as we are now in quest of, it is necessary to fix on some commodity for which the demand shall at all times bear, as nearly as possible, the same proportion. Were the case otherwise, the exchangeable value of this commodity must be subject to occasional variations; insomuch, that, on the one hand, by a conceivable increase of the demand, the supply continuing the same, the exchangeable value of the commodity might rise to a monopoly price; or, on the other hand, by a conceivable increase of the supply, without a change on the demand, its exchangeable value might be extinguished altogether. This last supposition has been actually realized in the case of water.

VI. In the sixth place, the uniformity of the demand for a commodity, can arise only from its being a necessary of life; as, in every other case, fashion and accidental circumstances may be supposed more or less to operate.

VII. In the seventh place, a regular adaptation of the supply to the demand, can exist only in things which depend on human industry, proportioning its exertions to the known extent of the market.

Agreeably to these principles, corn, or whatever constitutes the ordinary food of the people, seems more likely to furnish a standard of valuation than anything else. First, The demand is less subject to variation, the commodity itself forming to the great mass of the people a necessary of life; and the consumption of individuals among the labouring classes of mankind, subsisting on the same species of food being found, in different ages and nations, to approach wonderfully near to the same standard. Secondly, The quantity of corn raised may be expected to adapt itself within narrow limits to the effectual demand. The value in use, therefore, of this commodity, may be considered as remaining always the same.

We have thus arrived at the very same conclusion which Mr. Locke has deduced from a different view of the same subject; and as the general scope of his reasoning seems to be just in itself, and to afford some additional illustrations of the subject which I have been considering, I shall quote the substance of his argument as stated by himself in his Considerations on Lowering the Rate of Interest.

[§ 15.]—“That supposing wheat a standing measure, that is, that there is constantly the same quantity of it, in proportion to its vent, we shall find money to run the same variety of changes in its value, as all other commodities do. Now that wheat in England does not come nearest to a standing measure, is evident by comparing wheat with other commodities, money, and the yearly income of land, in Henry VII.’s time and now; for supposing that in the first of Henry VII., N let 100 acres of land to A for sixpence per annum per acre, rack-rent, and to B another 100 acres of land, of the same soil and yearly worth with the former, for a bushel of wheat per acre, rack-rent, (a bushel of wheat about that time being probably sold for about sixpence,) it was then an equal rent. If, therefore, these leases were for years yet to come, it is certain that he that paid but sixpence per acre, would pay now fifty shillings per annum; and he that paid a bushel of wheat per acre, would now pay about twenty-five pounds per annum, which would be near about the yearly value of the land, were it to be let now. The reason whereof is this: that there being ten times as much silver now in the world (the discovery of the West Indies having made the plenty) as there was then, it is nine-tenths less worth now, than it was at that time; that is, it will exchange for nine-tenths less of any commodity now, which bears the same proportion to its vent, as it did two hundred years since, which of all other commodities wheat is likeliest to do. For in England, and this part of the world, wheat being the constant and most general food, not altering with the fashion, not growing by chance, but as the farmers sow more or less of it, which they endeavour to proportion, as near as can be guessed, to the consumption, abstracting the overplus of the precedent year in their provision for the next, and vice versa, it must needs fall out that it keeps the nearest proportion to its consumption (which is more studied and designed in this than other commodities) of any thing, if you take it for seven or twenty years together; though, perhaps, the plenty or scarcity of one year, caused by the accidents of the season, may very much vary it from the immediately precedent, or following. Wheat, therefore, in this part of the world, (and that grain which is the constant general food of any other country,) is the fittest measure to judge of the altered value of things, in any long tract of time; and therefore, wheat here, rice in Turkey, &c., is the fittest thing to reserve a rent in, which is designed to be constantly the same for all future ages. But money is the best measure of the altered value of things in a few years, because its vent is the same, and its quantity alters slowly. But wheat, or any other grain, cannot serve instead of money, because of its bulkiness, and too quick change of its quantity. For had I a bond to pay me one hundred bushels of wheat next year, it might be a fourth part loss, or gain to me; too great an inequality and uncertainty to be ventured in trade, besides the different goodness of several parcels of wheat in the same year.”

It appears from these very judicious observations of Mr. Locke, as well as from what I had occasion to state formerly, that the accuracy of wheat, considered as a standard of valuation, proceeds on the supposition, that the quantity constantly bears the same proportion to the demand. But though this may be expected to be the case on the average of a number of years, the proportion must necessarily vary much, as Mr. Locke has suggested, from year to year, in consequence of the accidents of the seasons.

Hence, I apprehend, arises the true principle of the rule for measuring prices by the wages of labour, as these do not vary from year to year with the money price of corn, but in general are regulated by its average price. It is not, therefore, in consequence of any metaphysical theory concerning labour considered abstractly, that I would appeal to the wages of labour as a measure of value; I merely consider them, when accurately ascertained, and when due allowances are made for collateral circumstances, as an evidence of the average price of corn and the necessaries of life, at any particular period. Mr. Smith’s reasoning, you will observe, reverses this order, and deduces the rule founded on the money price of corn from a metaphysical speculation concerning the fixed and unalterable value of labour.

The oldest writer by whom I have found the wages of labour suggested as a criterion for ascertaining the real price of commodities, [in 1765,] is Mr. Rice Vaughan, who, after a variety of preliminary observations extremely deserving of attention, expresses himself thus:—

“But there is only one thing from whence we may certainly track out the prices, and which carries with it a constant resultance of the prices of all other things which are necessary for a man’s life; and that is the price of labourers’ or servants’ wages, especially those of the meaner sort. And as there is to be found no other certain and constant cause of the raising of the prices of all things, but two, viz., the one, the raising of the values of monies; the other, the great abundance of gold and silver coming into these parts, in this latter age, out of the Indies; although the hire of labourers did continually rise, yet it did rise so much and no more, as the value was raised. But after the discovery of the Indies, you shall find the price of the labourers’ wages raised in proportion, far exceeding the raising of monies; and therefore, for my part, I am certainly persuaded, that as long as the values of monies are raised, and the Indies do yield that abundance of gold and silver which they do, that both the hire of labourers, and generally the price of all things, especially of those things necessary for life, will rise; however, for a year, two or three, through uncertain accidents, sundry particulars may stand at a stay, or abate, but that the hire of labourers and servants carrieth with it a resultance of the prices of all things generally necessary for a man’s life; besides, that reason doth convince that there must be a convenient proportion between their wages and their food and raiment, the wisdom of the statute doth confirm it, which doth always direct the rate of labourers and servants to be made with a regard of prices of victuals, apparel, and other things necessary to their use.”*

The same criterion of price or value is repeatedly referred to by Mr. Harris in his Essay on Coins, [1757.] But he does not appear to me to have been so successful as Mr. Rice Vaughan, in fixing on the real grounds on which the opinion rests. The following are the principal passages in his book relative to this subject:—

“The values of land and labour do, as it were of themselves, mutually settle or adjust one another; and as all things or commodities are the products of those two, so their several values are naturally adjusted by them. But as in most productions labour hath the greatest share; the value of labour is to be reckoned the chief standard that regulates the values of all commodities, and more especially as the value of land is, as it were, already allowed for in the value of labour itself.”†

“It may be reasonably allowed, that a labouring man ought to earn, at least, twice as much as will maintain himself in ordinary food and clothing, that he may be enabled to breed up children, pay rent for a small dwelling, find himself in necessary utensils, &c.; so much, at least, the labourer must be allowed, that the community may be perpetuated. And as the world goes, there is no likelihood that the lowest kind of labourers will be allowed more than a bare subsistence; if they will not be content with that, there will be others ready to step into their places; and less, as above observed, cannot be given them. And hence the quantity of land that goes to maintain a labourer becomes his hire; and this hire again becomes the value of the land, the expenses of manuring and tilling it being also included.”*

In another passage he observes,—“Though we reckon by money, yet labour and skill are the main standards by which the values of all or most things are ultimately ascertained, and there will require a greater or less bulk of money, to purchase the very same thing, according as there is a greater or less quantity of money in circulation; that is, according as the material of money is cheaper or dearer, or in greater or lesser plenty.”†

In these extracts, notwithstanding the general indistinctness which runs through the passages now quoted, there are some hints not undeserving of attention: for although the author has not touched on what appears to me to be the fundamental principle, yet he has suggested some collateral advantages which we derive from the wages of labour considered as a test of the exchangeable value of gold and silver at different periods.

Of these, the two following seem to be the most important:—First, As the wages of common or unskilled labour may be presumed to be nearly the minimum at which an individual with a family can be subsisted, the knowledge of this minimum affords the lowest points of the scale on which the comparative riches of individuals are to be graduated. In proportion as their daily income rises above this point, they are removed from the lowest class of independent citizens, and rank higher or lower, among the superior orders of the community. In the second place, a tolerable estimate may be formed of the power and influence of an individual, from the number of labourers to whom he can furnish employment; and as far as the value of labour regulates the price of commodities, a knowledge of its current price will enable us to form an estimate of the effective power of money, at any particular time, in commanding a supply of the conveniences and accommodations of life.

From the foregoing reasonings, it sufficiently appears that if the current price of labour could be accurately ascertained in different times and places, it would furnish to the political economist important lights for comparing the actual circumstances of mankind in different states of society. It is, however, but very rarely that this accuracy can be obtained. The price of corn, on the other hand, though it has been but in few cases regularly recorded, is yet in general better known, and has been more frequently taken notice of by historians and political writers. To these, accordingly, we are forced to appeal in inquiries of this nature. In doing so, however, it is necessary always to remember, that the standard of comparison must be taken, not from the accidental prices of particular years, but from the average prices of a considerable period.

It appears farther from what has been stated, that neither the current wages of labour, nor the average price of corn, important as they are in the light of political data, can furnish anything like a mathematical standard for judging of the effective power of money, or the exchangeable value of commodities in different countries. A great variety of other circumstances must be taken into account, in order to form a reasonable estimate. After all, we can only hope to obtain such an imperfect help to our conceptions, as the average height of the human figure affords, when it is the only scale introduced into a landscape.

To what degree the wages of labour are liable to be affected by accidental circumstances, particularly by the advancing, stationary, or declining state of the society, has been shown very fully and ably by Mr. Smith himself, in the eighth chapter of his first book. Beside, however, the considerations there suggested, many others must be combined, in order to obtain the necessary corrections of the conclusions to which we are led by the standard of value now recommended. But the statement of these will be less tedious, when introduced in the course of the practical applications of this doctrine which will afterwards occur.

There is one consideration, however, so obvious and important, that I think it proper to mention it in this place; I mean the necessity of paying due attention to the general habits of the people in the article of food, before we build any reasonings on the prices of what are now considered as necessaries of life. This remark I take the earliest opportunity of stating, because it leads to the correction of a very fertile source of error in political speculations; and in no instance, perhaps, is it more likely to mislead us, than in the conclusions which we form with respect to the condition of the labouring classes, and the value of money, at different periods, from the comparative prices of wheat alone, forgetting that this was not the common food of the people till very lately, and that even at present it is only one of their various articles of subsistence.

From the household book of Sir Edward Coke, it appears that in the year 1596, rye-bread and oatmeal formed a very considerable proportion of the diet of servants, even in the greatest families.—In 1626, barley-bread is stated in the grant of a monopoly by King Charles to be the usual food of the lower classes.—Of the relative proportion of wheat consumed in England and Wales about the era of the Revolution, some idea may be formed from an estimate of the produce of the arable land by Gregory King, whose schemes, according to Dr. Davenant, are all so accurate as not to be controverted.—In the supplement to the Corn Tracts, there is an estimate of the proportional consumption of the different kinds of grain about thirty years ago, which deserves attention on account of the esteem in which the author of that work [Ch. Smith] has always and most deservedly been held by the best judges, for the extent and accuracy of his information. After remarking that bread made of wheat has become much more generally the food of the common people since the year 1689, than before, he adds, that “it is still very far from being the food of the people in general,” &c., estimating the bread consumers in 1764 at not more than one-half of the population.—Mr. Benjamin Bell, in a volume of Essays published some years ago, and which contain some important views concerning the agricultural interests of this country, which he has illustrated by a large collection of facts, ascertained with uncommon care, states the proportion of the whole inhabitants of Great Britain, who are fed on oats and barley, at a fourth of the whole population, giving it at the same time, as his opinion, that the estimate probably falls short of the truth. Indeed, I apprehend there can be little doubt that it does so very considerably.

I have entered into these details, in order to show with how great latitude it is necessary to receive all those estimates of the efficiency, or exchangeable value of money, at different times and places, which are founded on a comparison of the prices of wheat. A similar remark may be made with respect to those inferences which have been so often drawn from the same data, in proof of the misery of the lower orders, occasioned by the astonishing fluctuations of the prices of necessaries during the earlier periods of our history. That these inferences are just, when confined within certain limits, I do not mean to deny. But it is certainly pushing them too far, when we assume the wide ranges in the price of this article at particular times, as a scale for measuring the abundance or scarcity of necessaries at these periods. Thus, for example, when Stowe informs us, that in the year 1317, the harvest in England was all got in before the 1st September, and that wheat from £4 a quarter fell to 6s. 8d., this is a fact sufficient of itself to demonstrate by how small a proportion of the people wheat was then regarded as an indispensable necessary. The variation in the price of oats, as stated on the same authority, is no less astonishing, being from £3, 4s., to 5s. 4d. But it is very observable, that no mention is made of the price of barley, which appears then to have formed the ordinary food of by far the greater proportion of the people; an omission which affords a presumption, that its fluctuations were confined within much narrower limits. In the year 1270, the price of wheat fell to 6s. 8d. per quarter, while the rate of wages was 1d. a-day in harvest, and ½d. out of harvest. In such circumstances, it is quite superfluous to remark, that the average price of wheat had no relation whatever to the price of labour.

I shall take this opportunity of remarking, though the observation has not any immediate connexion with the present argument, that in accounting for the different prices of butchers’ meat at different periods, some allowance ought to be made for the changes in the national habits with respect to food, which arose naturally from the Protestant Reformation. It is observed by Dr. Campbell, in his Political Survey of Great Britain, that before the Reformation the people may be supposed to have lived one-third of the year on fish. I presume he meant to say, that during one-third of the year fish served as a substitute for flesh: and I am inclined to think that this estimate is rather below than above the truth, as a paper, preserved among the Harleian Manuscripts, affords a proof, that even in the time of Queen Elizabeth, the number of fish-days appointed for the royal household was one hundred and forty-five. Dr. Campbell elsewhere remarks, that in consequence of the regard paid to Lent, the rising stock was preserved; and that it was with a view to this circumstance that so many proclamations were issued for keeping Lent long after the reformed religion was established. It appears, too, that while this demand continued, the sea was ransacked for many articles which would now be rejected by the meanest persons, but which were then presented at the best tables. Thus, in the Appendix to the tenth volume of Dr. Henry’s History of Great Britain, a bill of fare is given, which contains porpoises and seals, as “part of the goodly provisions collected for the installation of an Archbishop of York.” (1466.)

The observations already made on the difference in the relative importance of wheat as an article of request in national diet at different periods, will explain sufficiently the circumstances which give to the wages of common labour, wherever they are accurately ascertained, an advantage over the average price of wheat as a standard for estimating the exchangeable value of money. “They carry with them,” to use the words of Rice Vaughan, “a constant resultance of the prices of all other things necessary for a man’s life.” The political regulations, however, it must be confessed, which in almost every country prevent the wages of labour from finding their proper level, together with the varying effects of villanage, from the first decline of that institution till its final abolition, render even facts of this description less accurate tests of the exchangeable value of money, than we should be apt to conclude from a theoretical view of the subject. But notwithstanding this objection, these undoubtedly form the most important data to which we can appeal in comparing together the effective powers of money in different periods of society.

Were it possible to ascertain with accuracy the rates of wages in different times, and to combine them with the prices, not only of the necessaries, but of the conveniences and luxuries of life, it would throw more light on that most interesting branch of history, the condition and manners of the people, than is to be collected from all the narratives which record the political and military transactions of our ancestors. It is much to be regretted that our earlier writers were so little aware of this truth, and that among modern authors a false idea of historical dignity should prevent a due attention to the scattered details which may still be gleaned from a careful and industrious examination of our ancient monuments. To the universality, indeed, of this remark, Mr. Hume’s history forms a striking exception; and it is to the sanction of his name that we are probably indebted, in a great measure, for those researches which have rendered the work of Dr. Henry so valuable an accession to the stock of British literature.

[* ] [Wealth of Nations, Book I. chap. v.; Vol. I. pp. 43, 44, tenth edition.]

[† ] [Ibid.]

[* ] [Ibid. pp. 45, 46.]

[* ] [Ibid. p. 44.]

[* ] [Ibid. Book I. chap. vi.; Vol. I. p. 72, tenth edition.]

[* ] [Ibid. chap. v.; Vol. I. p. 48, tenth edition.]

[* ] [Ibid. Book I. chap. v.; Vol. I. p. 49, tenth edition.]

[* ] [See the quotation given above, p. 351.]

[* ] [A Treatise of Money, &c., chap. xi. p. 105, seq.]

[† ] [Part I. chap. i. § 7.]

[* ] [Ibid. § 8.]

[† ] [Ibid. chap. ii. 22.]