Prices and utility: from Say to Dupuit
Say (1814 [2006]: 83) asserted that “the price is the measure of the value of things”. From this two conclusions were derived: (1) since in exchange we always swap things of equal value, he argued, against Condillac, that “exchanges do not produce wealth, no matter the price one obtains” (Say 1828 [2010]: 314); (2) in order to estimate the usefulness of a public work, a road, for example, one should evaluate the cost reductions that the users of the road enjoy.
Dupuit (1844 [2009]: 208) pointed out that the usefulness a buyer attributes to a product he buys cannot be lower than the price he pays for it, but that it can be higher: the buyer thus gets a “kind of profit”. The construction of a public work results in the lowering of the cost of transport and circulation of new products. Say, suggesting that consideration be given to these products as well as to those which circulated during the time when the work did not yet exist, significantly overestimates the utility of the work. If some products were not in circulation before the construction of the work, it is because they could not bear the high costs. The same reasoning applies to trade. In general, the utility of the acquired good exceeds the utility of the good given in exchange: the seller and the buyer both benefit from exchange and the total wealth is increased. The criticism Ricardo levelled at Say for neglecting the essential difference between value in use and exchangeable value - and worse, for assessing one in terms of the other - is well justified.
Say (1819 [2006]: 110) argued that “natural resources... that are likely to be owned... do not give their cooperation without remuneration”. To justify the existence of such income, he put forward a utilitarian argument: land is productive only if it is privately owned and, in this sense, rent is an indispensable expense which, like wages and profits, must be included in the price of commodities. Proudhon (1840 [1873]: 73-4) had little difficulty in showing that even if Say’s explanation were satisfactory it “would remain to know who has the right to charge for land use, for this wealth which is not produced by man. Whom do we owe the rent of land to? The creator of the land, no doubt. Who created the land? God. Therefore owner, stand back”. The Liberals had to respond to him. Bastiat did, relying not on utilitarianism, as Say did, but on natural law.