The Theory of Political Economy

The science of Political Economy rests upon a few notions of an apparently simple character. Utility, wealth, value, commodity, labour, land, capital, are the elements of the subject; and whoever has a thorough comprehension of their nature must possess or be soon able to acquire a knowledge of the whole science. As almost every economic writer has remarked, it is in treating the simple elements that we require the most care and precision, since the least error of conception must vitiate all our deductions. Accordingly, I have devoted the following pages to an investigation of the conditions and relations of the above-named notions.

Repeated reflection and inquiry have led me to the somewhat novel opinion, that value depends entirely upon utility. Prevailing opinions make labour rather than utility the origin of value; and there are even those who distinctly assert that labour is the cause of value. I show, on the contrary, that we have only to trace out carefully the natural laws of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence. This theory is in harmony with facts; and, whenever there is any apparent reason for the belief that labour is the cause of value, we obtain an explanation of the reason. Labour is found often to determine value, but only in an indirect manner, by varying the degree of utility of the commodity through an increase or limitation of the supply.

These views are not put forward in a hasty or ill-considered manner. All the chief points of the theory were sketched out ten years ago; but they were then published only in the form of a brief paper communicated to the Statistical or Economic Section of the British Association at the Cambridge Meeting, which took place in the year 1862. A still briefer abstract of that paper was inserted in the Report of the Meeting, and the paper itself was not printed until June 1866. Since writing that paper, I have, over and over again, questioned the truth of my own notions, but without ever finding any reason to doubt their substantial correctness.