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Wednesday, November 14, 2012

The Price and Intrinsic Value of a Thing, in General, is the Measurement of the Land and Labor, which enter into its Production

Intrinsic value can be measured by the quantity of land and laborers, taking into account the quality of land and labor. Some goods are produced almost entirely with land, others solely from labor. In the garden example, intrinsic value is both the direct expenses of the garden and the foregone value of land. Intrinsic value of a choice never changes, but market prices vary according to demand. Cantillon’s construction of “intrinsic value” should therefore be understood as the concept of opportunity cost, not the essential nature of a thing.

ONE ACRE12 OF LAND produces more wheat, or feeds more sheep, than another. The work of one man is more expensive than that of another, as I have already explained, according to superior skill and circumstances of the time. If two acres of land are of equal quality, one will feed as many sheep and produce as much wool as the other, assuming the labor to be the same. In addition, the wool produced by one acre will be the same, and will sell at the same price, as that produced by the other.
If the wool of the one acre is made into a suit of coarse cloth, and the wool of the other into a suit of fine cloth, the latter will require more work and more expensive workmanship, and it will sometimes be ten times more expensive, though both contain the same quantity and quality of wool. The quantity of the production of the land, and the quantity as well as the quality of the labor, will necessarily enter into the price.
A pound of flax processed into fine Brussels’ lace requires the labor of 14 persons for a year, or of one person for 14 years, as may be seen in the Supplement from a calculation of the different processes. We also see that the price obtained for the lace is sufficient to pay for the maintenance of one person for 14 years, as well as the profits of all the entrepreneurs and merchants concerned.
The refined steel spring, which regulates an English watch, is generally sold at a price that makes the proportion of material to labor, or of steel to spring, one to one million.13 In this case, labor makes up nearly all the value of the spring. See the calculation in the Supplement.
On the other hand, the price of hay in a field, on the spot,14 or of trees we wish to cut down, is regulated by the material production of the land, according to its quality.
The price for taking a jug of water from the Seine River is nothing, because there is an immense supply, which does not dry up. However, in the streets of Paris, people give a sol15 for it, which is the price, or measure, for the labor of the water carrier.
By these examples and inductions, I believe it will be understood that the price, or intrinsic value of a thing, is the measurement of the quantity of land and of labor entering into its production, having regard to the fertility or productivity of the land, and to the quality of the labor.
But it often happens that many things, which actually have a certain intrinsic value, are not sold in the market according to that value; that will depend on the desires and moods of men, and on their consumption.
If a gentleman digs ditches and raises terraces in his garden,16 their intrinsic value will be proportional to the land and labor; but the price, in reality, will not always follow this proportion. If he offers to sell the garden, it is possible that no one will give him half the expense he has incurred. It is also possible that if several persons desire it, he may be given double the intrinsic value; that is twice the value of the land and the expense he has incurred.
If the farmers in a state sow more wheat than usual (i.e., much more than they should for the year’s consumption), the real and intrinsic value of the wheat will correspond to the land and labor, which enter into its production. However, as there is too great an abundance of it, and there are more sellers than buyers, the market price of the wheat will necessarily fall below the price or intrinsic value. If, on the contrary, the farmers sow less wheat than is needed for consumption, there will be more buyers than sellers, and the market price of wheat will rise above its intrinsic value.
There is never variation in the intrinsic value of things, but the impossibility of proportioning the production of goods and products in a state, to their consumption, causes a daily variation, and a perpetual ebb and flow in market prices. However, in well-ordered societies,17 the market prices of commodities and merchandise, whose consumption is relatively constant and uniform, do not vary much from the intrinsic value. In addition, in years when production is not too meager or too abundant, the city officials are even able to fix the market prices of many things, like bread and meat, without anyone having cause to complain.
Land provides the matter, and labor the form, of all commodities and merchandise, and as those who work must subsist on the production of the land, it seems that some par value or ratio between labor and the production of the land might be found. This will form the subject of the next chapter.

Essay on Economic Theory, An

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