Rossi: the value and the cost of production
Say’s contribution to the theory of value was often referred to and discussed by his successors. It differs in some respects from the analyses of Smith and Ricardo. In the lectures he gave at the College de France from 1836 to 1838, Pellegrino Rossi came back to these differences and proposed a synthesis.
Say had argued that utility is the foundation of value. You may wonder to what extent this assertion is consistent with the way in which Smith and Ricardo analysed exchangeable value, with utility only playing a passive role: goods that are not useful in any way would not have an exchangeable value however rare they are and no matter the amount of work it would cost to obtain them. Rossi argued, however, that use value is a relationship - between human needs and goods - which plays a fundamental role in political economy. Smith wrote that an object - he uses the example of a diamond - could have an exchangeable value that is out of proportion of its use value. According to Rossi, this cannot be so (1836-38 [1865], vol. 1: 68) because the exchangeable value of the diamond, like that of any good, is in proportion to the service that it is supposed to provide to the person who possesses it, that is, in proportion to its use value. If, taking up the Smithian terminology, he contrasted use value andexchangeable value, Rossi gives the opposition a new meaning. Use value is the value of a good that directly satisfies our needs. But the value of a good may be indirect: we have no use for it, but through trade, it allows us to procure other goods that meet our needs. The utility of such a good is its exchange value. Exchangeable value thus appears as a form derived from use value.
To account for the causes that determine exchangeable value, two principles have been mentioned: the cost of production and supply and demand. Rossi asserts that they should not be opposed but rather considered as complementary to one another.
However, he ranks them in a strange way. “The law of supply and demand... contains the true, complete and subjective explanation of all variations of the exchangeable value” (1836-38 [1865], vol. 1: 89; original emphasis). However, Rossi stresses, it is necessary to clarify what is meant here by supply and demand. It is therefore necessary to find a more adapted phrasing: “the regulating factor of the exchangeable value of goods is the amount of labour required to produce them; and, more generally, the determining factor of the value of goods lies in their... costs of production” (ibid.: 89-90). Rossi is convinced that this idea does not contradict the principle of supply and demand, but expresses it accurately. As a basis for his argument, he simply relies on the idea that market prices gravitate around production prices. It is only when the market price coincides with the natural price that the oscillations in production stop. At equilibrium, at the natural price, supply and demand are equal, and it is this assertion that allows two principles, which were sometimes considered rivals, to be taken as equivalent.