The Online Library of Liberty

A project of Liberty Fund, Inc.

• A History of Banking In Great Britain;
• Chapter I.: Banking In England.
• Section I.: A Record of Beginnings.
• Section II.: Foundation of the Bank of England.
• Section III.: An Era of National Development.
• Section IV.: State of the Irish Currency.
• Section V.: Failure of Currency Reform—inflation and Reaction.
• Section VI.: The Committee On Banking of 1840.
• Section VII.: On the Bank Acts of 1844 and 1845.
• Section VIII.: Commercial Crises.
• Section IX.: Monetary Panics.
• Section X.: General Conclusion.
• Chapter II.: Banking In Scotland.
• Chapter III.: The Theory and Mechanism of Banking.
• Chapter IV.: Definitions of Economic Terms.
• Chapter V.: The Theory of Value.
• Section I.
• Section II.
• Section III.
• Chapter VI.: The Theory of Credit.
• Section I.
• Section II.
• Banking In Russia.
• Chapter I.: The Early Stages of Money and Credit.
• Section I.: Prefatory.
• Section II.: Introduction of Paper Money.
• Section III.: Financial Reconstruction Under Alexander II. And the Founding of the State Bank.
• Chapter II.: Methods and Operations of the State Bank.
• Chapter III.: Banking Vicissitudes From 1862 to 1875.
• Chapter IV.: The Eastern War Period.
• Chapter V.: Private Banks.
• Chapter VI.: The Bourse.
• Chapter VII.: The Precious Metals.
• Chapter VIII.: Foreign Exchanges.
• Chapter IX.: The Debt and Finances of Russia.
• History of Savings-banks In the United States.
• I.
• II.
• III.
• IV.
• V.

SECTION I.

I.—

VALUE DEFINED.

VALUE, in its original sense, is a desire or affection of the mind toward some object: it means esteem or estimation. To bring value into economics, a person must not only have an estimate of some object or property of his own, but he must have a desire or value for something which is in someone else’s possession, and be willing to give some of his own property in exchange for it. One person, however, cannot acquire an object which another person possesses without giving him in exchange for it some object which that other person desires, demands, and values; hence, economic value necessarily requires the concurrence of two minds.

If a person brought a cargo of tobacco to a nation of non-smokers, it would have no value among them, because no one among them would desire or demand it. If a person brought a cargo of wine to a nation of teetotallers, it would have no value, because no one among them would desire or demand it, and therefore no one would buy it. However much a person may wish to sell his product, he cannot do so unless someone else will buy it, and in that case it would have no economic value. Hence, for an exchange to take place, there must be the reciprocal desire or demand of two persons, each for the product of the other. When, however, two persons each desire or demand to obtain the product of the other, and when they have agreed as to the quantity of their own product which they will give in exchange to acquire the product of the other, each product may be said to be the measure of the desire of its owner to acquire the product of the other. The two products, therefore, measure the desire, demand, or value of their respective owners to obtain the product of the other; and when two persons have agreed upon the quantities of their products to be exchanged, the two products are said to be equal value; each product is the value or the demand for the other. And this is the only kind of value with which economics is concerned.

The Greek word for value is ὰξία, which is derived from ἄγω, one of whose meanings is to weigh, or be of the weight of. Thus Demosthenes, speaking of some golden goblets, says:* “ἄγουϭα ἐκάϭτη μνᾶν.”—“Each one weighing a mina.” And he says of the sword of Mardonius:† “ὂς ἠγε τριακοϭίους δαρεικούς.”—“Which weighed three hundred darics.” So Homer says:‡ “κὰδ δὲ λέβητ’ ἄπυρον, βοὸς ἄξιον, ἀνθεμόεντα θῆκ’ ἐς ἀγῶνα φέρων.”—“And he offered, too, as a prize, a new caldron, ornamented with flowers, worth an ox.” Hence ἀξία meant equality, weight for weight, as when two quantities placed in a balance are of equal weight.

So in Latin æstimatio means exactly the same as ἀξία; it means the quantity of money (æs) given for anything. Thus Cicero§ speaks of: “æstimatio frumenti.”—“The value of the corn to be furnished.” So Cæsar∥ speaks of: “æstimatio rerum et possessionum.”—“The value of their goods and chattels.” So Catullus says, 12, 11: “Quod me non movet æstimatione.”—“Which does not affect me on account of its value.” So Le Trosne says¶ that value is a new quality which products acquire when men live in society. “Products acquire, then, in the social state, which arises from the community of men among each other, a new quality. This new quality is value, which makes products become wealth. Value consists in the ratio of exchange, which takes place between such and such a product, between such a quantity of one product and such a quantity of another product. Price is the expression of value; it is not separate in exchange; each thing is reciprocally the price of the merchandise; in a sale the price is the money.”

Hence it is clear that value is a ratio or an equation; like distance and an equation, it necessarily requires two objects. The value of anything is always something external to itself. Hence a single object cannot have economic value. A single object cannot be equal or distant. If an object is said to be equal or distant, we must ask—Equal to what? or, Distant from what? So if any quantity is said to have value, we must ask—Value in what? And as it is absurd to speak of absolute or intrinsic distance, or absolute or intrinsic equality, so it is equally absurd to speak of absolute or intrinsic value. It is impossible to predicate that any quantity has value, without at the same time implying that it can be exchanged for something else; and of course everything it can be exchanged for is its value in that commodity. Hence any economic quantity has as many values as quantities it can be exchanged for; and if there is nothing for which it can be exchanged, it has no value.

II.—

EXAMPLES OF VALUE.

Any economic quantity may have value in terms of any other. Suppose that A as above is ten guineas; then B may be any one of the other three species of economic quantities. It may be a watch, or so much corn, or wine, or clothes, or any other material chattel. Or it may be so much labor, instruction, or amusement, or service. Or it may be a right of action, or a debt, or the funds, or a copyright, or any other abstract right. Each of these species of property is of the value of ten guineas, and it follows that each of them is equal in value to the other; because, things which are equal to the same thing are equal to each other. The value of the money in the pockets of the public is the products, services and rights it can purchase. The value of the goods in the warehouses of merchants and traders is the money in the pockets of the public.

The value of an incorporeal right is the thing promised which may be demanded. The value of a £5 note is five sovereigns; the value of a postage stamp is the carriage of a letter; the value of a railway ticket is the journey; the value of an order to see the play is seeing the play; the value of a promise to cut a man’s hair is the cutting of the hair; the value of an order for milk, bread, wine, soup, coals, etc., is the milk, bread, wine, etc. If I want a loaf of bread which costs a shilling, what difference does it make to me whether I have a shilling or the promise of the baker to give me a loaf? It is clear that in this case the shilling and the promise are of exactly the same value to me. Suppose that the price of cutting a man’s hair is a shilling; what difference does it make to me whether I have a shilling or the promise of the hairdresser to cut my hair? In this case it is clear that the shilling and the promise are exactly equal value to me. In short, in the case of every product and service, the money to purchase it with, and a promise to render the product, or service, are of exactly equal value in each separate case.

Now, what is money by the unanimous consent of economists? It is nothing but a general right, or title, to demand a product or service from any person who is in the habit of rendering them at any time; and as there is always some person who can render them, if another cannot, money has general and permanent value; while each of these promises has only particular and precarious value. Each of these separate rights, then, is of exactly the same nature as money; but it is of an inferior degree. But they are, each of them, economic quantities, or wealth, for the very same reason that money is. Is it not clear that if a person had his pockets full of promises by solvent persons to render him all the products and services he might require, he would be exactly as wealthy as if he had so much money? And he can always sell, or exchange, any of these orders for orders for a different thing. Hence we see the perfect justice of the doctrine of all jurists that rights are wealth.

III.—

ON NEGATIVE VALUES.

Value, then, being the desire, or affection of the mind, toward some object, may be of two forms; either the desire to acquire some object, or the desire to get rid of it. As these desires are inverse and opposite, they may be denoted by opposite signs; if the desire to obtain something be termed positive value, the desire to get rid of something may be termed negative value. Thus if we consider a piece of land just in the fit state to be cultivated, to be in the state o, it may be covered with primeval forest, with marshes and fens, with jungle, and huge bowlders, or any other obstructions to cultivation. It may require a considerable sum of money to clear away all these obstructions and bring it into a fit state for cultivation, which we have denoted by o; the sum necessary to clear away all these obstructions, and bring it into the state o, may be termed its negative value. So if the state of a person in health be denoted by o, he may fall into illness and require the services of a physician; or he may meet with an accident and require the services of a surgeon to bring him into a state of health. As the fees paid to the physician or surgeon are paid for removing obstructions to health, they may be termed negative values.

If we consider persons in the enjoyment of perfect security as to their persons and property as o, and if people were perfectly honest and never attacked their neighbors’ persons and property, there would be no use for the police; hence all sums spent on the police, which are spent merely for the purpose of warding off attacks on person and property, may be termed a negative value.

Now, it is evident that all the sums spent on negative values, or on removing obstructions, are just so much subtracted from positive values, or the acquirement of wealth, or enjoyments. We thus see what a gigantic obstruction to progress and wealth these European armaments are; and what an immense advantage in progress of wealth it is to America to be free from them; and to devote all the money and people employed in Europe on negative values to the increase of positive values. It was the observation that there are two kinds of value, positive value and negative value, to which we first drew attention, which led Stanley Jevons, as he acknowledged, to designate economics by the somewhat fantastic title, as the calculus of pleasure and pain.

IV.—

THERE MAY BE A GENERAL RISE OR FALL OF PRICES; BUT NOT OF VALUES.

Price is the value of any economic quantity in money or credit. Now, if money or credit be very greatly increased or decreased in quantity, the prices of all other economic quantities may rise or fall, but they will still preserve their relations among each other. If a loaf of bread and a pound of meat each cost a shilling; and if in consequence of a great increase in the quantity of money or credit they each rise to two shillings; or if in consequence of a great decrease in the quantity of money or credit they each fall to sixpence, the loaf of bread is still of the value of a pound of meat. Hence there may be a general rise or a general fall of prices. But there can be no such thing as a general rise or a general fall in values. Everything can no more rise or fall in value with respect to everything else, than, as Mill says, a dozen runners can each outrun the rest, or a hundred trees can each overtop each other. To suppose that all things could rise relatively to each other would be to realize Pat’s idea of society where everyone is as good as his neighbor, and a great deal better, too. The opposite case of everything falling in value with respect to everything else would be analogous to everyone thinking himself inferior to everyone else; which, according to human nature and St. Paul, would be an impossible case.

V.—

NOTHING CAN HAVE FIXED VALUE UNLESS EVERYTHING HAS FIXED VALUE.

As value is the ratio in which any two quantities will exchange, it is clear that the value of A with respect to B varies directly as B; that is, that it increases or decreases according to the greater or less quantity of B that A can purchase. And the value of B in terms of A varies directly as A; that is, it increases or decreases according as B can purchase more or less of A. It is also clear that if from any cause whatever the value, or ratio, between A and B has changed, the value of both of them has changed. It is manifestly as absurd to say that the value of A has changed with respect to B, but the value of B has remained the same, as it would be to say that a railway station has remained at the same distance from a train, while the train has increased its distance from the station. Moreover, it is as absurd to say that a quantity has changed its own value, or kept its own value fixed, without stating the quantities with respect to which its value has changed or remained fixed, as it would be to say that an object has changed or preserved its distance, or its ratio, fixed, without saying its distance from what or its ratio to what. Hence it is clear that nothing can have fixed or invariable value unless everything else has fixed and invariable value as well. Because, though a quantity may retain its value unchanged with respect to a certain number of quantities, yet if its value has changed with respect to other quantities, its value has changed. From this it will be seen that it is utterly futile to seek for a currency, or circulating medium, of fixed or invariable value.

[* ] Against Androtion, 617, 21.

[† ] Against Timocrates, 741, 7.

[‡ ] Iliad, XXIII., 885.

[§ ] Ver. 2, 53.

[∥ ]Bell. Civil., 3, 1.

[¶ ]De l’Intèrêt Sociale, ch. i., sec. 4.