IQBAL IN ECONOMICS: Problem of Valuation
Translated from Urdu Ill-mul-Iqtisad
By: Abbas Ali
Some writers say that the exchange of wealth is not part of economics. But this opinion arises from not making any distinction between business and exchange. In addition to it, logical explanation demands that this subject be considered a separate part of economics so that various economic issues do not get mixed up. The aim of this part is to discuss the rate of exchange, or those conditions according to which commodities that possess a fixed value are exchanged mutually. Obviously, when commodities are exchanged, a particular quantity of one commodity is exchanged against a particular quantity of some other commodity. But the question arises: why is this quantity determined? Why does it not increase or decrease? The purpose of this part of economics is to answer the same question.
Exchange arises due to the division of labor. If every individual were engaged in producing the commodities of his own necessity, the need for exchange would not have arisen. However, when they started to produce different commodities, or, in other words, different individuals and nations got engaged in producing different types of wealth, the system of exchange came into existence automatically. In short, it can be said that exchange is a form of unity that comes into existence due to the difference in production activities. When one person grows rice, the second person grows corn or potatoes, and the third person manufactures cloth, it is obvious that necessity will compel all of them to exchange. Here is the question of what quantity of rice will be exchanged for 10 meters of cloth or for two mounds of potato. As the principle of division of labor expands, so will the domain of exchange. However, in such a situation, individuals would face difficulties in exchanging their commodities for necessities or at least some portion of their time would be wasted in the process of exchange. Therefore, the job of exchange would come under the control of a particular class of people. In the terminology of economics, this class of people is called exchangers. These are the people who drive the engine of business and create the contact of unity among the citizens of faraway countries, and along with the exchange of goods, the exchange of ideas also takes place.
Therefore, our purpose in this section is to know that during the exchange, under what principles are quantities of commodities determined? What is the reason that against a specific quantity of Hindustani rice is given a specific quantity of Chinese tea or a specific number of Japanese umbrellas? Why shouldn’t this quantity or number be less or more? In short, under which conditions do commodities acquire the power of exchange? And what are its causes and reasons?
The definition of value has been given in the first part of this book. Value is the name of the power of exchange or the name of that value or power that is acquired by the possessor of a commodity through the ownership of that commodity. And by exchanging that commodity, the person can acquire the production of other people’s labor without any force, corrosion, or personal bias. But the question is: why does a commodity provide its owner with value or power that another commodity does not provide? Why, with the productive labor of other people and the possession of the commodity, does this value remain intact for weeks, months, or even years? And with the possession of other commodities, one does not entirely obtain this value. Or, if at all one gets the value, why is it for a small period?
This is one of the most important questions in economics. Therefore, it is the responsibility of a student to, after pondering over all its aspects, remember it by heart.
Obviously, for exchange, two things are necessary. When we say that a commodity can be exchanged, we mean that its exchange can be made against some other commodity. And when we say that the value of a commodity in exchange is something, we directly or indirectly point towards the value of some other commodity against which the aforementioned commodity can be exchanged. Ordinarily, the second commodity happens to be cash. Which has been declared the standard of value for commodities by the civilized nations of the world. Therefore, the value of a commodity refers to the price or the quantity of money in cash that is given for the commodity. At this point, we need to understand value and price clearly. Therefore, we will try to explain it clearly. For example, if a person has four mounds of rice, he can get 27 mounds of coal. In this case, it can be understood that the value of four mounds of rice is equal to the value of 27 mounds of coal. From this example, we come to know that in the meaning of value, competition between the commodities is included, and value is an additional term that is used. The value of a commodity can be higher or lower in two ways: either due to the fluctuation in its own value or due to the change in the value of another commodity. From this, we learn that the value of all commodities cannot increase or decrease simultaneously. Because an increase in the value of one commodity is concomitant with a decrease in the value of another commodity. To say that the value of commodities will increase or decrease simultaneously is like saying that, out of six runners, everyone will run faster than the other five runners. Therefore, the price of a commodity is a particular form of its value. When the value of a commodity is estimated by comparing it with those precious materials that are used as standards of value in civilized nations, it is said that its value has been discovered. Although the value of all commodities cannot increase and decrease at the same time, an increase and decrease are still possible.
From the above discussion, we came to know that the issue of value determination is to discover those causes upon which the value of commodities depends in accordance with a specified standard. According to these explanations, no commodity can have value until it possesses two qualities. First, utility, and the second, time of possession. Utility refers to the presence of a quality that is required for the satisfaction of some human want or need. This is a sort of examination; unless a commodity passes this examination, it will not be listed in the category of commodities possessing value. But, to attain a particular level or place in this list, it depends upon the time of possession of that commodity. Therefore, if a commodity possesses the quality to satisfy a human want, its value will increase. Due to the increase or decrease in utility, there is a variation in the demand for commodities. Because the more a commodity possesses utility, the greater its demand, and vice versa. The consumer will offer more compensation for those commodities for which they are in dire need. However, for the commodities that they do not need in the first place, they will not pay for those commodities, or if somehow, they get ready to pay, they will pay very little for those commodities. Some economists have termed the nature of this human tendency marginal utility. There is no doubt that the mentioned term is extremely useful because, by using it, we can explain the process and benefits of exchange. To explain its meaning clearly, let us provide an example. Suppose 1kg of flour is necessary for the subsistence of a man; it is obvious that this 1kg of flour will have more utility for the man. But the second and third kg of flour will not provide him with the same amount of utility that he will get from the first kg of flour. Because that first kilogram was necessary for the existence of that man. In this example, the quantity is the same (1 kg), but the utility derived from every kg differs according to the consumer of the flour. This is the reason that the man will not be ready to buy the third kg of flour at the price at which he bought the first kg of flour. Therefore, the marginal utility of a commodity refers to the utility of the last or ending part of that commodity that is bought by a consumer against the least price that is acceptable to the seller of that commodity. In the above-mentioned example, the price of the third kg of flour, or the last or ending part of flour, will be determined by the utility of that kg of flour. Because in the above-mentioned example, the consumer does not need the third kg of flour, at first, he will not buy it, and if he does, he will insist on paying the lowest price.
Ultimately, the transaction will be settled at the lowest price that is acceptable to the seller. According to this explanation, from the consumer’s side, the ordinary price of a commodity is determined by its marginal utility. According to some economists, the utility of a commodity is the real principle of its value. However, it should be remembered that the value of every commodity does not depend on its utility. There is no doubt in the fact that if a commodity possesses value, there will necessarily be utility in that commodity, but the converse is not true. It is not necessary that every useful commodity have a particular value. Air, water, etc. are useful commodities, but they have no value because nature, on its own and with human efforts, provides air and water in abundance. In addition to that, a commodity can have utility for some people but not for others. According to the same theory, some commodities possess utility in some particular places but not in others. Furthermore, some commodities, there is no usefulness at all, but they possess great value, such as diamonds, jewelry, etc. Therefore, the utility cannot be termed the source of value; for this, we will have to discover some other principle.
Ilm-ul-Iqtisad
Part-3 Chapter-1
Baab Awal “Masl-e-Qadir”
The author can be reached at [email protected].
