Further in the same paragraph, Smith notes that "The merit of their 
[precious metals'] beauty is greatly enhanced by their scarcity.  With 
the greater part of rich people, the chief /enjoyment/ of riches 
consists in the parade of riches, which in their eye is never so 
complete as when they appear to possess those decisive marks of opulence 
which nobody can possess but themselves.  In /their eyes/ the merit of 
an object which is in any degree either /useful/ or beautiful, is 
greatly enhanced by its scarcity ..." (/WN/, Chicago, 1976, 1:192; my 
italics).  I can see Smith's understanding of subjective utility in the 
demand for precious metals.

David Ricardo follows in Smith's tradition when he argues that "If a 
commodity were in no way /useful/ -- in other words, if it could in no 
way contribute to our /gratification/ -- it would be destitute of 
exchangeable value, however scarce it might be, or whatever quantity of 
labour might be necessary to produce it" (/Works/, 1: 11; my italics).  
Thus, Ricardo concludes that "Possessing utility, commodities derive 
their exchange value from two sources: from their scarcity, and from the 
quantity of labour required to obtain them" (1:12).  Utility or 
value-in-use is a part of Ricardo's explanation of market price 
determination as well.

I think Terry Peach does the classics a disservice with his denial that 
they had use for utility or value-in-use in their explanation of market 
prices.

James Ahiakpor

Terry Peach wrote:
>
> "It would have been quite useful had Terry Peach explained his 
> understanding of what Smith meant by "utility" in the statement, 'The 
> demand for those metals arises partly from their utility, and partly 
> from their beauty'."
>
> - Well, Smith’s own explanation (in the same paragraph) is that 
> considerations other than “beauty” include liability to “rust and 
> impurity” and the quality of cleanliness (which “would render a gold 
> boiler still better than a silver one”). In other words, “utility” 
> (a.k.a. value-in-use) refers (as I put it) to concrete useful 
> functions, not to subjective satisfaction.
>
>
> As for Smith’s canonisation as “the author of the self-interest 
> axiom”, Smith was by no means the first to acknowledge the 
> significance of “self-interested” behaviour, or to trace its 
> consequences: the Chinese beat him to it by several thousand years 
> (for example).
>
>
> Finally, on the original point of this thread, it is patently true 
> that the so-called “classical” economists focused on the determination 
> of, and process of “gravitation” towards, (changes in) the 
> “natural”/”normal” prices of reproducible commodities (considered by 
> Ricardo to be the mass of commodities exchanged regularly on the 
> market). This is not to say that they were blind to various empirical 
> circumstances that influenced the (market) prices of commodities 
> either temporarily or permanently fixed in supply, although they 
> (particularly Smith and Ricardo) did not build an elaborate, formal 
> model to explain or “determine” such prices. However, one might at 
> least wonder if a subjective, utility-based theory of demand/value , 
> as advocated in this thread by Bruce Caldwell, can do anything other 
> than provide a formal (and empirically empty) solution to 
> price-determination, either of financial assets or, come to that, of 
> anything else one might care to mention.
>
>
> Terry Peach
>
> ------------------------------------------------------------------------
>
-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

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