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I have already described the state of the market for commodities which accompanies what is termed a commercial crisis. At such times there is really an excess of all commodities above the money demand; in other words, there is an under-supply of money. From the sudden annihilation of a great mass of credit, every one dislikes to part with ready money, and many are anxious to procure it at any sacrifice. Almost everybody therefore is a seller, and there are scarcely any buyers; so that there may really be, though only while the crisis lasts, an extreme depression of general prices, from what may be indiscriminately called a glut of commodities or a dearth of money. But it is a great error to suppose, with Sismondi, that a commercial crisis is the effect of a general excess of production. It is simply the consequence of an excess of speculative purchases. It is not a gradual advent of low prices, but a sudden recoil from prices extravagantly high; its immediate cause is a contraction of credit, and the remedy is, not a diminution of supply, but the restoration of confidence. It is also evident that this temporary derangement of markets is an evil only because it is temporary. The fall being solely of money prices, if prices did not rise again, no dealer would lose, since the smaller price would be worth as much to him as the larger price was before. In no manner does this phenomenon answer to the description which these celebrated economists have given of the evil of over-production. That permanent decline in the circumstances of producers, for want of markets, which those writers contemplate, is a conception to which the nature of a commercial crisis gives no support.

The other phenomenon from which the notion of a general excess of wealth and superfluity of accumulation seems to derive countenance, is one of a more permanent nature, namely, the fall of profits and interest which naturally takes place with the progress of population and production. The

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cause of this decline of profit is the increased cost of maintaining labor, which results from an increase of population and of the demand for food, outstripping the advance of agricultural improvement. This important feature in the economical progress of nations will receive full consideration and discussion in the succeeding Book.* It is obviously a totally different thing from a want of market for commodities, though often confounded with it in the complaints of the producing and trading classes. The true interpretation of the modern or present state of industrial economy is, that there is hardly any amount of business which may not be done, if people will be content to do it on small profits; and this, all active and intelligent persons in business perfectly well know; but even those who comply with the necessities of their time, grumble at what they comply with, and wish that there were less capital, or as they express it, less competition, in order that there might be greater profits. Low profits, however, are a different thing from deficiency of demand; and the production and accumulation which merely reduce profits, cannot be called excess of supply or of production. What the phenomenon really is, and its effects and necessary limits, will be seen when we treat of that express subject.

I know not of any economical facts, except the two I have specified, which can have given occasion to the opinion that a general over-production of commodities ever presented itself in actual experience. I am convinced that there is no fact in commercial affairs, which, in order to its explanation, stands in need of that chimerical supposition.

The point is fundamental; any difference of opinion on it involves radically different conceptions of Political Economy, especially in its practical aspect. On the one view, we have only to consider how a sufficient production may

Infra, book iv. ch. iv.

be combined with the best possible distribution, but on the other there is a third thing to be considered-how a market can be created for produce, or how production can be limited to the capabilities of the market. Beside, a theory so essentially self-contradictory cannot intrude itself without carrying confusion into the very heart of the subject, and making it impossible even to conceive with any distinctness many of the more complicated economical workings of society. This error has been, I conceive, fatal to the systems, as systems, of the three distinguished economists to whom I before referred, Malthus, Chalmers, and Sismondi; all of whom have admirably conceived and explained several of the elementary theorems of political economy, but this fatal misconception has spread itself like a veil between them and the more difficult portions of the subject, not suffering one ray of light to penetrate. Still more is the same confused idea constantly crossing and bewildering the speculations of minds inferior to theirs. It is but justice to two eminent names, to call attention to the fact, that the merit of having placed this most important point in its true light, belongs principally, on the continent, to the judicious J. B. Say, and in this country to Mr. Mill; who, (beside the conclusive exposition which he gave of the subject in his Elements of Political Economy,) had set forth the correct doctrine with great force and clearness in an early pamphlet, called forth by a temporary controversy, and entitled, "Commerce Defended;" the first of his writings which attained any celebrity, and which he prized more as having been his first introduction to the friendship of David Ricardo, the most valued and most intimate friendship of his life.

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CHAPTER XV.

OF A MEASURE OF VALUE.

1. THERE has been much discussion among political economists respecting a Measure of Value. An importance has been attached to the subject, greater than it deserved, and what has been written respecting it has contributed not a little to the reproach of logomachy, which is brought, with much exaggeration, but not altogether without ground, against the speculations of political economists. It is necessary however to touch upon the subject, if only to show how little there is to be said on it.

A Measure of Value, in the ordinary sense of the word measure, would mean, something, by comparison with which we may ascertain what is the value of any other thing. When we consider farther, that value itself is relative, and that two things are necessary to constitute it, independently of the third thing which is to measure it; we may define a Measure of Value to be something, by comparing with which any two other things, we may infer their value in relation to one another.

In this sense, any commodity will serve as a measure of value at a given time and place; since we can always infer the proportion in which things exchange for one another, when we know the proportion in which each exchanges for any third thing. To serve as a convenient measure of value is one of the functions of the commodity selected as a medium of exchange. It is in that commodity that the values of all other things are habitually estimated. We say that one thing is worth £2, another £3; and it is then known without express statement, that one is worth two thirds of the other, or that the things exchange for one

another in the proportion of 2 to 3. Money is a complete measure of their value.

But the desideratum sought by political economists is not a measure of the value of things at the same time and place, but a measure of the value of the same thing at different times and places; something by comparison with which it may be known whether any given thing is of greater or less value now than a century ago, or in this country than in America or China. And for this also, money, or any other commodity, will serve quite as well as at the same time and place, provided we can obtain the same data; provided we are able to compare with the measure not one commodity only, but the two or more which are necessary to the idea of value. If wheat is now 50s. the quarter, and a fat sheep the same, and if in the time of Henry the Second wheat was 20s., and a sheep 10s., we know that a quarter of wheat was then worth two sheep, and is now only worth one, and that the value therefore of a sheep, estimated in wheat, is twice as great as it was then; quite independently of the value of money at the two periods, either in relation to those two articles, (in respect to both of which we suppose it to have fallen,) or to other commodities, in respect to which we need not make any supposition.

What seems to be desired, however, by writers on the subject, is some means of ascertaining the value of a commodity by merely comparing it with the measure, without referring it specially to any other given commodity. They would wish to be able, from the mere fact that wheat is now 50s. the quarter, and was formerly 20s., to decide whether wheat has varied in its value, and in what degree, without selecting a second commodity, such as a sheep, to compare it with; because they are not desirous of knowing how much wheat has varied in value relatively to sheep, but how much it has varied relatively to things in general.

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