or pounds of one commodity would exchange for so many yards or pounds of another. Value, or rather price, would then not be determined by demand and supply, as all articles would have their true value stamped upon them, and would exchange themselves, as it were, automatically. Value is that quality or attribute with which the mind invests an object capable, or supposed to be capable, of satisfying a desire. It is, in fact, desirableness.

So far we have treated of value in use, which I conceive to be true value. Value in exchange, or exchange value, on the other hand, is not value at all, but Price. The exchange value of a thing is what that thing will fetch in the market, that is, its price, which is something altogether from its value. Value is an absolute, not a relative term; price, on the other hand, is a relative and not an absolute term. The value of a thing is what that thing is worth to me; the price of a thing, on the other hand, is what some one else will give me for it. Exchange value we shall therefore consider in the following chapter when we treat of price.

CHAPTER VIII.

ON PRICE.

Difference

value and

WHEN We come to exchange, or to actual transactions in the market, it is no longer with value but with price that we have to deal. The essential between difference between value and price consists in price. this, that while the former is a single estimate, the latter is a double estimate, the estimate of a buyer or buyers on the one side, and of a seller or sellers on the other. The price of a thing is what it will fetch in the market;1 and while there is only one price at a given time and place, there are always several values. A price can only be arrived at when two or more values coincide, or

1 Here we have another illustration of the scientific misappropriation of terms in common use. Value, according to Mill (and his followers have one and all endorsed his definition), means "exchange value," that is to say Price (Principles, book iii. ch. v. 1), whereas Price he defines as "value in money," or monetary consideration (book iii. ch. i. 2). Now Value (from valere, to be sound, to be worth or worthy) properly means worth, estimate, or utility; and Price (from prendre, to take or seize) has the same meaning that he gives to Value, namely, exchange value, “that which is taken in purchase or payment." (Richardson.)

when the estimate put upon an article by a seller agrees with the estimate put upon it by a buyer. Not only do individuals differ in their values, but they have different methods of arriving at them. One man may estimate an article according to the use he can make of it, that is, its true value; another man may estimate an article according to its scarcity, that is, monopoly value; a third may estimate it according to its cost of production, which is variously called its necessary, natural, or nominal value. The market, however, is the true test of all these values.

The market price is arrived at by a comparison of individual values. I value a commodity which I desire to sell, and I also value the commodity which I desire to get in exchange for it. The

How price is determined.

person who desires to buy my commodity or sell another commodity to me likewise puts his value on both. If my value is the same as his, the equation of our values. will be the price. But if our values do not agree, if he demands more than I am willing to give, or I demand more than he is willing to give me in exchange for what I have, and if neither of us will give way, there will be no exchange, and therefore no price.

Price may also be said to be determined by Correlative Demand. Each party to an exchange demands so much of one commodity for so much of another. If the demands are equal, the equation of the two demands will be the price or rate at which the exchange will be effected; if unequal, no price can be quoted, unless the demands of

the one rise or fall to the demands of the other, when a price will be fixed at that point.

Economists usually speak of demand as something quite different from supply. Demand they re- Demand gard as a qualificative, supply as a quantitative and supply in element; the former as having reference to relation to price. desire, the latter to quantity supplied. To speak of the ratio between demand and supply, in the sense in which these terms are understood, is absurd, for, as Mill asks, What ratio can there be between two things not of the same denomination, as a quantity and desire ? "A ratio between a demand and a supply," he says, "is only intelligible if by demand we mean the quantity demanded, and if the ratio intended is between the quantity demanded and the quantity supplied."1 This is undoubtedly true; there cannot be a desire on the one side and a supply or quantity on the other, and it is perfectly evident there cannot be quantity on both sides apart from desire.

Mill's

of the

To get rid of this difficulty, Mill accordingly reduces both elements to the same denomination, and explains Demand to mean "the quantity de- definition manded," and Supply, "the quantity offered for terms sale."2 As the expression " offered for sale " and implies demand on the side of the seller, both

1 Principles, vol. i. book iii. ch. ii. 4.

Demand

Supply.

2 To the same effect Prof. Jenkins defines supply as "quantity holders are willing to sell," and demand as "quantity buyers are willing to purchase." See Essay on Demand and Supply in Recess Studies, pp. 151-2.

elements may now be said to be denominationally the same, but, instead of there being one element on each side, there are now two: a desire and a quantity, and a quantity and a desire. But this does not help to elucidate matters much. Is the ratio to be between the desire on the one side and the quantity on the other; or does quantity go against quantity, and desire against desire? Mill saw that he was involving himself in a difficulty here, for he goes on to say, "But the quantity demanded is not a fixed quantity, even at the same time and place; it varies according to the value: if the thing is cheap, there is usually a demand for more of it than when it is dear. The demand, therefore, partly depends on the value. But it was before laid down that the. value depends on the demand. From this contradiction how shall we extricate ourselves? How solve the paradox of two things each depending upon the other?"1 There is no solution possible. If the quantity "varies according to the value," clearly the value cannot be determined by the quantity. It is a contradiction in terms. But there is really no necessity for rendering the subject more complex by introducing the element of quantity at all, for the mental process indicated by the term Demand is quite sufficient to explain all the phenomena. It is demand on both sides. The buyer demands, and the seller demands likewise; and the demand is the same in both cases, for the object con

1 Principles, vol. i. book iii. ch. ii. 3.