This is part of “The Best of the Online Library of Liberty” which is a collection of some of the most important material in the OLL. This extract consists of two chapters from Condillac’s book Commerce and Government (1776) in which he promotes a radically new and different subjective theory of value which has some striking similarities to that put forward by the Austrian economists during the Marginal Revolution of the 1870s.
Introduction by David Hart
This extract is composed of two parts (which we have edited for length). The first is his opening chapter on “The Basis of the Value of Things”. The second is his chapter 6 “How Trade Increases the Mass of Wealth”. What is important about these chapters is that Condillac promotes a radically new and different subjective theory of value which has some striking similarities to that put forward by the Austrian economists during the Marginal Revolution of the 1870s. Instead of seeing “value” as an objective measure of “wealth” which embodied some concrete amount of something like “labour” or “utility” Condillac saw it in a very personal and hence “subjective” sense of a person’s “opinion” or “judgement” about whether the object being valued was more or less useful or important to fulfilling that person’s needs and wants. Hence these opinions or judgements varied from place to place and from time to time.
Étienne Bonnot, Abbé de Condillac (1714-1780) was a French priest, philosopher, and economist and a member of the French Academy. He was an advocate of the ideas of John Locke and a friend of the encyclopedist Denis Diderot. His work on Commerce and Government (1776) appeared in the same year as Adam Smith’s Wealth of Nations. Although he is regarded as a Physiocrat he developed several new ideas about subjective value theory and the mutual gains from exchange which were ahead of his time and provoked many in the classical political economy tradition to criticise him. Among these were Frédéric Bastiat and Jena-Baptiste Say.
The second part on the wealth generating aspect of trade was also provocative to the classical economists as they believed that wealth was created by agriculture (exclusively according to the Physiocrats) or industrial production. Trade and commerce was merely the transfer of already created wealth from one place to another and did not add to the “stock” of wealth of a nation. Condillac argued that since the two parties to an exchange valued the money and goods in question differently, the seller of a good preferring to have the customer’s money than the good, and vice versa, then they both befitted from engaging in trade, and hence new wealth was created in the process.