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.
As my chief view in this sketch is, to examine how far industry and commerce are affected by the quantity of circulating coin, I premise the following plain propositions. Supposing, first, the quantity of money in circulation, and the quantity of goods in the market, to continue the same, the price will rise and fall with the demand. For when more goods are demanded than the market affords, those who offer the highest price will be preferred: as, on the other hand, when the goods brought to market exceed the demand, the venders have no resource but to entice purchasers by a low price. The price of fish, flesh, butter, and cheese, is much higher than formerly; for these being now the daily food even of the lowest people, the demand for them is greatly increased.<141>
Supposing a fluctuation in the quantity of goods only, the price falls as the quantity increases, and rises as the quantity decreases. The farmer whose quantity of corn is doubled by a favourable season, must sell at half the usual price; because the purchaser, who sees a superfluity, will pay no more for it. The contrary happens upon a scanty crop: those who want corn must starve, or give the market-price, however high. The manufactures of wool, flax, and metals, are much cheaper than formerly; for though the demand has increased, yet by skill and industry the quantities produced have increased in a greater proportion. More pot-herbs are consumed than formerly: and yet by skilful culture the quantity is so much greater in proportion, as to have lowered the price to less than one half of what it was eighty years ago.
It is easy to combine the quantity and demand, supposing a fluctuation in both. Where the quantity exceeds the usual demand, more people will be tempted to purchase by the low price; and where the demand rises considerably above the quantity, the price will rise in proportion. <142> In Mathematical language, these propositions may be thus expressed, that the price is directly as the demand, and inversely as the quantity.
A variation in the quantity of circulating coin is the most intricate circumstance; because it never happens without making a variation in the demand for goods, and frequently in the quantity. I take the liberty, however, to suppose that there is no variation but in the quantity of circulating coin; for though that cannot happen in reality, yet the result of the supposition will throw light upon what really happens: the subject is involved, and I wish to make it plain. I put a simple case, that the half of our current coin is at once swept away by some extraordinary accident. This at first will embarrass our internal commerce, as the vender will insist for the usual price, which now cannot be afforded. But the error of such demand will soon be discovered; and the price of commodities, after some fluctuation, will settle at the one half of what it was formerly. At the same time, there is here no downfal in the value of commodities, which cannot happen while<143> the quantity and demand continue unvaried. The purchasing for a sixpence what formerly cost a shilling, makes no alteration in the value of the thing purchased; because a sixpence is equal in
