When gold or silver in bullion is exchanged with other commodities, such commerce passes under the common name of barter or permutation: when current coin is exchanged, such commerce is termed buying and selling; and the money exchanged is termed the price of the goods.
As commerce cannot be carried on to any extent without a standard for comparing goods of different kinds, and as every commercial country is possessed of such a standard, it seems difficult to say by what means the standard has been established. It is plainly not founded on nature; for the different kinds of goods have naturally no common measure by<132> which they can be valued: two quarters of wheat can be compared with twenty; but what rule have we for comparing wheat with broad cloth, or either of them with gold, or gold with silver or copper? Several ingenious writers have endeavoured to account for the comparative value of commodities, by reducing them all to the labour employed in raising food; which labour is said to be a standard for measuring the value of all other labour, and consequently of all things produced by labour. “If, for example, a bushel of wheat and an ounce of silver be produced by the same quantity of labour, will they not be equal in value?” This standard is imperfect in many respects. I observe, first, that to give it a plausible appearance, there is a necessity to maintain, contrary to fact, that all materials on which labour is employed are of equal value. It requires as much labour to make a brass candlestick as one of silver, tho’ far from being of the same value. A bushel of wheat may sometimes equal in value an ounce of silver; but an ounce of gold does not always require more labour than a bushel of wheat; and yet they<133> differ widely in value. The value of labour, it is true, enters into the value of every thing produced by it; but is far from making the whole value. If an ounce of silver were of no greater value than the labour of procuring it, that ounce would go for payment of the labour, and nothing be left to the proprietor of the mine: such a doctrine will not relish with the King of Spain; and as little with the Kings of Golconda and Portugal, proprietors of diamond-mines. Secondly, The standard under review supposes every sort of labour to be of equal value, which however will not be maintained. An useful art in great request may not be generally known: the few who are skilful will justly demand more for their labour than the common rate. An expert husbandman bestows no more labour in raising a hundred bushels of wheat, than his ignorant neighbour in raising fifty: if labour be the only standard, the two crops ought to afford the same price. Was not Raphael entitled to a higher price for one of his fine pictures, than a dunce is for a tavern-sign, supposing the labour to have been equal? Lastly, As this standard is applicable to things<134> only that require labour, what rule is to be followed with respect to natural fruits and other things that require no labour?
Where a pound of one commodity gives the same price with a pound of another, these commodities are said to be of equal value; and therefore, whatever rule can be given for the price of commodities, that rule determines also their comparative values. Montesquieu(a) attempts to account for the price as follows. He begins with supposing, that there is but one commodity in commerce, divisible like gold and silver into parts, the parts like those of gold and silver uniform and equally perfect. Upon that supposition, the price, says he, of the whole commodity collected into a mass, will be the whole current gold and silver; and the price of any particular quantity of the former, will be the corresponding quantity of the latter, the tenth or twentieth part of the one corresponding to the tenth or twentieth part of the other. He goes on to apply the same computation to all the variety of goods in commerce; and<135> concludes in general, that as the whole mass of goods in commerce corresponds to the whole mass of gold and silver in commerce as its price, so the price of the tenth or twentieth part of the former will be the tenth or twentieth part of the latter. According to this computation, all different goods must give the same price, or, which is the same, be of equal value, provided their weight or measure be the same. Our author certainly did not intend such an absurdity; and yet I can draw no other inference from his reasoning. In the very next chapter he admits the negroes on the coast of Afric to be an exception from the general rule, who, says he, value commodities according to the use they have for them. But, do not all nations value commodities in the same manner?2
Rejecting, then, the foregoing attempts to account for the comparative value of commodities, I take a hint from what was last said to maintain, that it is the demand chiefly which fixes the value of every commodity. Quantity beyond the demand renders even necessaries of no value; of which water is an instance. It may be<136> held accordingly as a general rule, That the value of goods in commerce depends on a demand beyond what their quantity can satisfy; and rises in proportion to the excess of the demand above the quantity. Even water becomes valuable in countries where the demand exceeds the quantity: in arid regions, springs of water are highly valued; and, in old times, were frequently the occasion of broils and bloodshed. Comparing next different commodities with respect to value, that commodity of which the excess of the demand above the quantity is the greater, will be of the greater value. Were utility or intrinsic value only to be considered, a pound of iron would be worth ten pounds of gold; but as the excess of the demand for gold above its quantity is much greater than that of iron, the latter is of less value in the market. A pound of opium, or of Jesuits bark, is, for its salutary effects, more valuable than gold; and yet, for the reason given, a pound of gold will purchase many pounds of these drugs. Thus, in general, the excess of the demand above the quantity is the standard that chiefly fixes the mercantile value of<137> commodities.* Interest is the price or premium given for the loan of money; and the rate of interest, like the price of other commodities, is regulated by the demand. Many borrowers and few lenders produce high interest: many lenders and few borrowers produce low interest.†3
The causes that make a demand seem not so easily ascertained. One thing is evident, that the demand for necessaries in any country, must depend on the number of its inhabitants. This rule holds not so strictly in articles of convenience; because some people are more greedy of conveniencies than others. As to articles of taste and luxury, the demand appears so<138> arbitrary as not to be reducible to any rule. A taste for beauty is general, but so different in different persons, as to make the demand extremely variable: the faint representation of any plant in an agate, is valued by some for its rarity; but the demand is far from being universal. Savages are despised for being fond of glass beads; but were such toys equally rare among us, they would be coveted by many: a copper coin of the Emperor Otho is of no intrinsic value, and yet, for its rarity, would draw a great price.
The value of gold and silver in commerce, like that of other commodities, was at first, we may believe, both arbitrary and fluctuating; and, like other commodities, they found in time their value in the market. With respect to value, however, there is a great difference between money and other commodities. Goods that are expensive in keeping, such as cattle, or that are impaired by time, such as corn, will always be first offered in exchange for what is wanted; and when such goods are offered to sale, the vender must be contented with the current price: in making the bargain, the<139> purchaser has the advantage; for he suffers not by reserving his money to a better market. And thus commodities are brought down by money, to the lowest value that can afford any profit. At the same time, gold and silver sooner find their value than other commodities. The value of the latter depends both on the quantity and on the demand; the value of the former depends on the quantity only, the demand being unbounded: and even with respect to quantity, these precious metals are less variable than other commodities.
Gold and silver, being thus sooner fixed in their value than other commodities, become a standard for valuing every other commodity, and consequently for comparative values. A bushel of wheat, for example, being valued at five shillings, a yard of broad cloth at fifteen, their comparative values are as one to three.
A standard of values is essential to commerce; and therefore where gold and silver are unknown, other standards are established in practice. The only standard among the savages of North America is the skin of a beaver. Ten of these are<140> given for a gun, two for a pound of gunpowder, one for four pounds of lead, one for six knives, one for a hatchet, six for a coat of woollen cloth, five for a petticoat, and one for a pound of tobacco. Some nations in Africa employ shells, termed couries, for a standard.