Graslin and the foundation of the theory of natural prices
Another view of value and prices is presented by Graslin in his Essai analytique sur la richesse et sur l’impot (1767) and Dissertation sur la Question proposeepar la Societe economique de St.
Petersbourg (1768),[92] some points being clarified in the course of his controversy with Nicolas Baudeau (Graslin 1767-68).[93] Graslin’s approach is not easy to understand because of the very peculiar theoretical vocabulary he invented and was the only one to use: this certainly impeded the reception of his work.Supply and demand, free goods, complementary and substitutable goods
At first sight, it seems that Graslin’s developments on the subject are close to Turgot’s. Following the sensationist approach, he insisted on the role of needs, demand and supply in the determination of prices.
A first kind of value is what he calls “relative value”: this is the relative price of a commodity in terms of another good. The “fundamental principle”, Graslin writes, is that “need is the only cause of the value of things, which is their quality as wealth” (1767, 115; see also 1767-68, 25). Relative values depend on the interaction of supply and demand. They result “from the comparison of the different degrees of need in themselves, and of the more or less important difficulty in meeting them on account of the scarcity or abundance of the thing which is the object of each need” (1767, 13).
Graslin, however, introduces a second concept: “absolute value”, because of the existence of “objects of needs” such as air, water and light, which are not produced, not scarce and consequently do not have any market or relative value. They are free goods: “these things... are always in excess quantity with respect to the extent of the general need: the value of any individual portion is so modest that it is almost nothing” (1767, 36n).
The quality of being a free good also depends on the circumstances: “in a boat on the open sea, or in deserts”, water will have a relative value because it is then scarce (1767, 37). Nevertheless, free goods are also, by extension, elements of wealth (1767, 136) because they are useful: they have an “absolute value”, the “well-being” generated by the satisfaction of the need. The quality of having an absolute value is, however, not limited to non-produced objects: it is in fact a property of any element of wealth - this is what Graslin also calls “direct value” (1767, 37n).Beyond the definition of free goods, another theoretical innovation is worth noting: the concepts of complementary and substitutable goods (1767, 42ff).
We must distinguish things which are of different species, the collection of which makes one single object of need... (such as the stone, the lime, the wood and the slate, etc., which go into the building of a house; such are also... the raw material and the industry of the labourer); from the things which, although of different nature, are only related to one part of the need, since they have one and the same use in fulfilling the need: such as the slate, the tile, the thatch, etc.
(1767, 42)
Things “which are different but relate to the same portion of a need”, that is to say, which can satisfy the same need, are what are today called substitutable goods: “the value of the one necessarily influences that of the other, just as a part - great or small - that we subtract from the whole influences the size of the remaining part” (1767, 44). In the case of complementary goods, that is to say, things “which are the objects of different parts of the same need”, their quantities vary in the same way and “the value of the one cannot have any influence on the value of the other” (1767, 44).
The foundation of the natural prices approach
Besides these innovations, some other striking theoretical developments are to be found in Graslin’s writings, especially in the Dissertation which forms an essential complement to the understanding of the Essai and was unfortunately neglected by commentators.
In it, we realise that the interaction of supply and demand refers in fact to market prices, and what we call natural prices today are determined in a different way.Starting from a “state of nature” in which men are isolated from each other, form no kind of society and have to produce the objects of their needs, allocating their labour in consequence, Graslin develops a model which depicts three different stages of society proper: the “perfect order of society”, the “state of relationships” and the “inverted order of society”. Society emerges as soon as there is a division of labour, and the evolution from the first simple state, the “perfect state”, to the most developed, the “inverted order”, is irreversible.
The “full and perfect order of society” (Graslin 1768, 118) is seen as the extension of the state of nature after the division of labour and results from a conscious collaboration between men. It is a kind of planned society in which “a general and unanimous convention” fixes the amount of the different goods that the members have to produce to satisfy the needs of all. In this context, Graslin defines what he calls a “class” of workers - production being directed to the satisfaction of final needs, each of them generates a class, which is nothing other than what we call today a vertically integrated sector: “one necessarily must gather in the same class men - either cultivators or labourers [craftsmen] - who are directly or indirectly involved in the production of the object of each need” (1768, 136). If the activity of a man directly or indirectly contributes to the production of several final consumption goods, this activity is divided in proportion and each fraction is attributed accordingly to the different classes defined by these goods (1768, 140-41).
This state of society is difficult to maintain as the population grows and needs and commodities multiply. It evolves into the second stage, the “state of relationships between men” or “commercial universe”, that is, a market economy in which the social connection between men is indirect through exchanges in markets.
Like the “perfect order”, this commercial society is, however, not a capitalist society but rather a society of independent producers, what Marx later called “simple commodity production”. In spite of some ambiguities, and contrary to Turgot’s developments (below), there is no space in Graslin’s schemes for a capital/wage labour relationship.[94] But neither is the “commercial universe” an a priori harmonious society, because now the interests of the members are different and driven by a maximising attitude: “the interest of each in particular being that of receiving more and giving less, the interest of any one is certainly not the same as the interest of any other” (1768, 142).The nation... is the collection of many different and even opposed interests because he who is an owner has to give something to the other who needs it. The wealth of the former lying in a greater scarcity of this thing, and that of the latter in its greater abundance, the wealth of a State can only be in the equilibrium of these two sums of wealth, in other words in the conciliation of these two opposed interests. In order to have greater wealth in the State, the thing must be in a quantity exactly proportionate to the extent of the need.
(1767, 64)
The third stage of society is more complex: the “inverted order” is still a marketbased society, but it is characterised by the emergence of a leisure class of rentiers who do not work but nevertheless have a right to a share of the society’s production - hence the appellation “inverted” because the natural right of property based on labour is no longer respected. Therefore, contrary to the other kinds of society, it is not “just”.
Now the main question is: what is the price mechanism that makes the last two systems efficient and ensures the emergence of an equilibrium? For the sake of simplicity, only the second stage of society - “the state of relationships” or “commercial universe” - is examined here.
Graslin’s reasoning is first made at the macro level, and the natural exchange ratios are determined on this basis.
Suppose that, in the natural order, each isolated cultivator devoted ¾ of his labour time to cultivation and ¼ to the production of “ploughing implements”.[95] After the division of labour between cultivators and craftsmen, the entire population is divided[96] between the two activities: ¾ of them remain in agriculture and devote their time to cultivation and ¼ work in the craft industry; the two goods, corn and “ploughing implements”, are produced in the same total quantities as before - needs are the same - but the working time of each producer is now reduced owing to the beneficial effects of the division of labour.Exchanges between corn and implements are now necessary. In the planned society, that is, the “full and perfect order”, the question is irrelevant. But in the “commercial universe”? How is the exchange ratio fixed? Craftsmen do not have any use for the tools they make: their whole production is destined for the cultivators. The latter, on the other hand, only give up ¼ of the production of corn in exchange, keeping ¾ of the corn produced. The equilibrium exchange ratio between activities is thus the following: the total production of ploughing implements = one-quarter of the production of corn. This ratio is an equilibrium price: all the needs are satisfied; there is no excess supply, neither of the final consumption good nor of tools. This ratio is also just: it allows everyone to obtain the same quantity of corn as before, when each citizen was also a landowner and produced his own circulating capital (1768, 119).
Equilibrium exchange ratios between commodities are thus determined by the global quantities of labour expended in their production: the same quantity of direct and indirect labour is needed for the production of the ploughing implements and the quantity of corn given in exchange. The ploughing implements are manufactured by ¼ of the total labour force (the level of employment in the craft industry), with no means of production other than labour.
The corn is produced by ¾ of the total labour force (the level of employment in agriculture) using the ploughing implements themselves produced by ¼ of the labour force. In terms of incorporated labour, the total quantity of corn is therefore worth four times the total quantity of ploughing implements - which gives the natural price noted earlier.What is valid for the exchange between global equilibrium quantities is also valid for the single elements: “the [proportional] parts of each [different] thing must exchange against each other in this same proportion” (1768, 127) - an assertion which means that, once the natural ratios of exchange between total quantities are known, as well as these quantities, the natural (equilibrium) prices of the individual commodities are also determined.
The analysis is then developed in more complex situations, for example, when the division of labour increases either by subdividing each process into further activities (1768, 134) or by multiplying the needs and thus dealing with classes proper (1768, 135ff) - the vertically integrated sectors. The calculation of natural prices leads to the same result as before: equilibrium relative prices are determined by the direct and indirect quantities of labour.[97]
If one wished to fix exactly the proportion in which these exchanges of labour, and of the fruits of labour, must take place between all classes it would be necessary to know the proportion of all the men who form a class to the total amount of men.... The share of the fruits of the labour of all others that each class must receive will be in proportion to the number of men that it includes with respect to all men taken together; and it would provide for each of the other classes a share of the fruits of its own labour in proportion to the portion that each class makes up of the mass of all men.
(1768, 139)
But what happens when the effective supply of a good differs from that which is necessary to fulfil needs? The effective individual value of the good, its market price determined by supply and demand, will differ from its natural price, while the value of the total amount produced remains the same. The market price will fluctuate but, for given needs and techniques, price and quantity are supposed to eventually return to their natural values. Why? Graslin describes a process of gravitation ante litteram, operating through the mobility of the only factor of production, labour. The principle underlying this process is once more the selfishness of the agents, who always move “towards the activity which procures the greatest right to the work of others, either because of the intensity of the need or because of the scarcity of the object” (1767, 98). Suppose that, for whatever reason, the production of various goods is disrupted. The market prices of the commodities in excess supply fall, while the reverse happens for those in excess demand. People engaged in producing the former see the purchasing power of their commodity diminished in terms of other commodities; while the opposite occurs for those producing the latter. Some labourers therefore move from the first activities into the second, production changes and the excesses in supply and demand are reduced, thus prompting new and inverse movements in market prices. An equilibrium is eventually reached - a new natural equilibrium or the previous one, depending on whether anything has changed in needs and/or techniques.
The order that I present here is not fictitious..... This enduring liberty for
each individual to move from one class into another whenever he anticipates therein a better situation; and the disadvantage that always results for a class of its too great increase; would tend perpetually to place these two classes in equilibrium.
(1768, 121-2)
Needless to say, very similar developments are to be found in Smith, Ricardo or Marx with the development of natural price theory - and in Turgot in another context. The main difference is that these authors deal with a capitalist society and that the process of gravitation mainly involves the migration of capital.
As for the physical approach implemented by Graslin in his examples, which gave rise to the concept of “class” (a vertically integrated sector or “subsystem” in Sraffian words, an approach particularly developed by Luigi L. Pasinetti), they possibly inspired Isnard in his Traite des richesses (where Graslin is mentioned), where an approach in physical terms is also presented - but in the nowadays more familiar perspective of branches of production (with examples recalling some classical and Sraffian schemes).
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