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Equivalence of Commodities. - William Stanley Jevons, The Theory of Political Economy 
The Theory of Political Economy (London: Macmillan, 1888) 3rd ed.
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Equivalence of Commodities.
Much confusion is thrown into the statistical investigation of questions of supply and demand by the circumstance that one commodity can often replace another, and serve the same purposes more or less perfectly. The same, or nearly the same, substance is often obtained from two or three sources. The constituents of wheat, barley, oats, and rye are closely similar, if not identical. Vegetable structures are composed mainly of the same chemical compound in nearly all cases. Animal meat, again, is of nearly the same composition from whatever animal derived. There are endless differences of flavour and quality, but these are often insufficient to prevent one kind from serving in place of another.
Whenever different commodities are thus applicable to the same purposes, their conditions of demand and exchange are not independent. Their mutual ratio of exchange cannot vary much, for it will be closely defined by the ratio of their utilities. Beef and mutton, for instance, differ so slightly, that people eat them almost indifferently. But the whole-sale price of mutton, on an average, exceeds that of beef in the ratio of 9 to 8, and we must therefore conclude that people generally esteem mutton more than beef in this proportion, otherwise they would not buy the dearer meat. It follows that the final degrees of utility of these meats are in this ratio, or that if fx be the degree of utility of mutton, and yy that of beef, we have
8. fx = 9. yy.
This equation would doubtless not hold true in extreme circumstances; if mutton became comparatively scarce, there would probably be some persons willing to pay a higher price, merely because it would then be considered a delicacy. But this is certain, that, so long as the equation of utilities holds true, the ratio of exchange between mutton and beef will not diverge from that of 8 to 9. If the supply of beef falls off to a small extent, people will not pay a higher price for it, but will eat more mutton; and if the supply of mutton falls off, they will eat more beef. The conditions of supply will have no effect upon the ratio of exchange; we must, in fact, treat beef and mutton as one commodity of two different strengths, just as gold at eighteen and gold at twenty carats are hardly considered as two but rather as one commodity, of which twenty parts of one are equivalent to eighteen of the other.
It is upon this principle that we must explain, in harmony with Cairnes' views, the extraordinary permanence of the ratio of exchange of gold and silver, which from the commencement of the eighteenth century up to recent years never diverged much from 15 to 1. That this fixedness of ratio did not depend entirely upon the amount or cost of production is proved by the very slight effect of the Australian and Californian gold discoveries, which never raised the gold price of silver more than about 4 2/3 per cent, and failed to have a permanent effect of more than 1½ per cent. This permanence of relative values may have been partially due to the fact, that gold and silver can be employed for exactly the same purposes, but that the superior brilliancy of gold occasions it to be preferred, unless it be about 15 or 15½ times as costly as silver. Much more probably, however, the explanation of the fact is to be found in the fixed ratio of 15½ to 1, according to which these metals are exchanged in the currency of France and some other continental countries. The French Currency Law of the Year XI. established an artificial equation—
Utility of gold = 15½ × Utility of silver;
and it is probably not without some reason that Wolowski and other recent French economists attributed to this law of replacement an important effect in preventing disturbance in the relations of gold and silver.
Since the first edition of this work was published, the views of Wolowski have received striking verification in the unprecedented fall in the value of silver which has occurred in the last three or four years. The ratio of equivalent weights of silver and gold, which had never before risen much above 16 to 1, commenced to rise in 1874, and was at one time (July 1876) as high as 22·5 to 1 in the London market. Though it has since fallen, the ratio continues to be subject to frequent considerable oscillations. The great production of silver in Nevada may contribute somewhat to this extraordinary result, but the principal cause must be the suspension of the French Law of the Double Standard, and the demonetisation of silver in Germany, Scandinavia, and elsewhere. As I have treated the subject of the value of silver and the Double Standard elsewhere,1 I need not pursue it here.
[]Serious Fall in the Value of Gold, 1863, p. 33 (reprinted in Investigations in Currency and Finance, 1885). Money and the Mechanism of Exchange (International Scientific Series), chap. xii. This chapter has been translated by M. H. Gravez, and reprinted in the Bibliothèque Utile, vol. xliv. (Germer Baillière), Paris, 1878. See also Papers on the Silver Question read before the American Social Science Association at Saratoga, September 5, 1877, Boston, 1877, and Bankers' Magazine, December 1877 (reprinted in Investigations in Currency and Finance, 1884).