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It is now, however, necessary to take notice of certain cases, to which, from their peculiar nature, this law of exchange value is inapplicable.
It sometimes happens that two different commodities have what may be termed a joint cost of production. They are both products of the same operation, or set of operations, and the outlay is incurred for the sake of both together, not part for one and part for the other. The same outlay would have to be incurred for either of the two, if the other were not wanted or used at all. There are not a few instances of commodities thus associated in their production. For example, coke and coal-gas are both produced from the same material, and by the same operation. In a more partial sense, mutton and wool are an example; beef, hides, and tallow; calves and dairy produce; chickens and eggs. Cost of production can have nothing to do with deciding the value of the associated commodities relatively to each other. It only decides their joint value. The gas and the coke together have to repay the expenses of their production, with the ordinary profit. To do this, a given quantity of gas, together with the coke which is the residuum of its manufacture, must exchange for other things in the ratio of their joint cost of production. But how much of the remuneration of the producer shall be derived from the coke, and how much from the gas, remains to be decided. Cost of production does not determine their prices, but the sum of their prices. A principle is wanting to apportion the expenses of production between the two.
Since cost of production here fails us, we must revert to a law of value anterior to cost of production, and more fundamental, the law of demand and supply. That law is, that the demand for a commodity varies with its value, and that the value adjusts itself so that the demand shall be equal to the supply. This supplies the principle of reparation which we are in quest of.
Suppose that a certain quantity of gas is produced and sold at a certain price, and that the residuum of coke is offered at a price which, together with that of the gas, repays the expenses with the ordinary rate of profit. Suppose, too, that at the price put upon the gas and coke respectively, the whole of the gas finds an easy market, without either surplus or deficiency, but that purchasers cannot be found for all the coke corresponding to it. The coke will be offered at a lower price in order to force a market. But this lower price, together with the price of the gas, will not be remunerating; the manufacture, as a whole, will not pay its expenses with the ordinary profit, and will not, on these terms, continue to be carried on. The gas, therefore, must be sold at a higher price, to make up for the deficiency on the coke. The demand consequently contracting, the production will be somewhat reduced; and prices will become stationary when by the joint effect of the rise of gas and the fall of coke, so much less of the first is sold, and so much more of the second, that there is now a market for all the coke which results from the existing extent of the gas manufacture.
Or suppose the reverse case; that more coke is wanted at the present prices, than can be supplied by the operations required by the existing demand for gas. Coke, being now in deficiency, will rise in price. The whole operation will yield more than the usual rate of profit, and additional capital will be attracted to the manufacture. The unsatisfied demand for coke will be supplied; but this cannot be done without increasing the supply of gas too; and as the existing demand was fully supplied already, an increased quantity can only find a market by lowering the price. The result will be that the two together will yield the return required by their joint cost of production, but that more of this return than before will be furnished by the coke, and less by the gas. Equilibrium will be attained when the
demand for each article fits so well with the demand for the other, that the quantity required of each is exactly as much as is generated in producing the quantity required of the other. If there is any surplus or deficiency on either side; if there is a demand for coke, and not a demand for all the gas produced along with it, or vice versa; the values and prices of the two things will so re-adjust themselves that both shall find a market.
When, therefore, two or more commodities have a joint cost of production, their natural values relatively to each other are those which will create a demand for each, in the ratio of the quantities in which they are sent forth by the productive process. This theorem is not in itself of any great importance; but the illustration it affords of the law of demand, and of the mode in which, when cost of pro-, duction fails to be applicable, that other principle steps in to supply the vacancy, is worthy of particular attention, as we shall find in the next chapter but one that something very similar takes place in cases of much greater moment.
$ 2. Another case of value which merits attention, is that of the different kinds of agricultural produce. This is rather a more complex question than the last, and requires that attention should be paid to a greater number of influencing circumstances.
The case would present nothing peculiar, if different agricultural products were either grown indiscriminately and with equal advantage on the same soils, or wholly on different soils. The difficulty arises from two things; first, that most soils are fitter for one kind of produce than another, without being absolutely unfit for any; and secondly, the rotation of crops.
For simplicity, we will confine our supposition to two kinds of agricultural produce, for instance, wheat and oats. If all soils were equally adapted for wheat and for oats,
both would be grown indiscriminately on all soils, and their relative cost of production, being the same everywhere, would govern their relative value. If the same labor which grows three quarters of wheat on any given soil, would always grow on that soil five quarters of oats, the three and the five quarters would be of the same value. If, again, wheat and oats could not be grown on the same soil at all, the value of each would be determined by its peculiar cost of production on the least favorable of the soils adapted for it, which the existing demand required a recourse to. The fact, however, is that both wheat and oats can be grown on almost any soil which is capable of producing either; but some soils, such as the stiff clays, are better adapted for wheat, while others (the light sandy soils) are more suitable for oats. There may be some soils which will yield, to the same quantity of labor, only four quarters of oats to three of wheat; others perhaps less than three of wheat, to five quarters of oats. Among these diversities, what determines the relative value of the two things?
It is evident that each grain will be cultivated in preference, on the soils which are better adapted for it than for the other; and if the demand is supplied from these alone, the values of the two grains will have no reference to one another. But when the demand for both is such as to require that each should be grown not only on the soils peculiarly fitted for it, but on the medium soils which, without being specifically adapted to either, are about equally suited for both, the cost of production on those medium soils will determine the relative value of the two grains; while the rent of the soils specifically adapted to each, will be regulated by their productive power, considered with reference to that one alone to which they are peculiarly applicable. Thus far the question presents no difficulty to any one to whom the general principles of value are familiar.
It may happen, however, that the demand for one of the two, as for example wheat, may so outstrip the demand for the other, as not only to occupy the soils specially suited for wheat, but to engross entirely those equally suitable to both, and even encroach upon those which are better adapted to oats. To create an inducement for this unequal apportionment of the cultivation, wheat must be relatively dearer, and oats cheaper, than according to the cost of their production on the medium land. Their relative value must be in proportion to the cost on that quality of land, whatever it may be, on which the comparative demand for the two grains requires that both of them should be grown. If, from the state of the demand, the two cultivations meet on land more favorable to one than to the other, that one will be cheaper and the other dearer, in relation to each other and to things in general, than if the proportional demand were as we at first supposed.
Here, then, we obtain a fresh illustration, in a somewhat different manner, of the operation of demand, not as an occasional disturber of value, but as a permanent regulator of it, conjoined with, or supplementary to cost of production.
The case of rotation of crops does not require separate analysis, being a case of joint cost of production like that of gas and coke. If it were the practice to grow white and green crops on all land, in alternate years, the one being necessary as much for the sake of the other as for its own sake; the farmer would derive his remuneration for two years' expenses from one white and one green crop, and the prices of the two would so adjust themselves as to create a demand which would carry off an equal number of white and of green crops.
There would be little difficulty in finding other anomalous cases of value, which it might be a useful exercise to resolve; but it is neither desirable nor possible, in a work