Exchange, Chapter I.: The Theory of Value.

111. Exchange as a Department of Political Economy.—We have seen that there is a tendency among recent writers to abolish the familiar departments of political economy, severally known as production, exchange, distribution and consumption, as interfering unduly with the simplicity and perhaps with the dignity of the science they have chosen to cultivate. Even of those who have retained certain of these titles, there is a general consent at least to abandon exchange, as a department of political economy.

I am disposed to think that this general abandonment of exchange, as a distinct title in political economy, is due to a confusion of exchange with trade or commerce, viewed as productive agencies. It is seen that the most of what is done in trade or commerce pertains to the production of wealth. The labor employed in packing or baling goods, in transporting them to market, in opening and exposing them for sale, is engaged in the production of wealth, equally with that employed in raising the raw materials from the ground, or fashioning them into merchantable shapes. Values are created as truly in the one case as in the other. Even the labor of the clerks and salesmen is productive labor as much as that of the artisan or the agriculturist. The horses and wagons, the locomotives and cars, the shops and warehouses, of trade and commerce are strictly productive agencies.

What is it, then, that need be considered under the title, exchange? What is left, after production has been fully treated? Why should this department of political economy be retained?

Under the title, exchange, in a systematic treatise on political economy, I would consider the Ratios of Exchange, the terms on which goods, commodities, articles possessing value, items in the sum of wealth, exchange for one another. We are here called to answer the question: Why does so much of this commodity exchange for so much of that? Why not for more? Why not for less?

Such a question, it appears to me, can best be treated apart from the exposition of the physical conditions under which wealth is produced (as, for instance, the efficiency of the division of labor, or the diminishing productiveness of land); apart from the discussion of the forces by which the product of industry is distributed in wages, interest, profits, rent; apart, also, from the question, what effects upon the future production of wealth will be wrought by giving one direction, or another, to the consumption of the existing body of wealth.

112. Exchange Arises out of the Division of Labor.—The occasion for exchange arises out of the division of labor. Were all persons engaged in the same productive avocations, there would be no inducement to exchange. To barter fish for fish, or bread for bread, would be simply a waste of time and energy. It is because men first divide in production that they afterward unite in exchange. It would be easy to conceive a community in which each producer should be engaged in precisely the same work as every other, each raising from the ground or making by the labor of his hands all that he were to eat, drink or wear. In such a situation, all that has been said of the causes of the varying efficiency of individual laborers would hold good; all that has been said concerning “diminishing returns in agriculture,” all that has been said of the origin and office of capital, would still hold good. But there would be no actual exchange, because there would be no division of labor.

Let, however, the production of the individuals of a community be varied by ever so little, the occasion for exchange will arise. If one agriculturist raise wheat, another rye, another potatoes; and if others raise, some cattle, some sheep, some swine, the products will soon begin to be exchanged. Then the question will arise, how much wheat shall be given for a bushel of rye or potatoes; how many sheep or swine for an ox?

Let the principle of the division of labor be carried further, until a score or a hundred of mechanical arts and trades and half a dozen learned professions come to be recognized, and the occasions for exchange will rapidly extend to a large part of the entire production of the community. The farmer may still consume a half of his own corn and beef and potatoes, but the smith will scarcely consume the product of his own labor for three days in the year; the boot-maker will be content with one out of fifty pairs of boots he makes in the same time; the physician will probably take none of his own medicines.

113. An Exchanging Class.—And it will result, either that these persons, having occasion to exchange their products for those of others, will have to give up an appreciable portion of their time to making those exchanges in person, or else, the work of making exchanges will become the subject matter of a new profession or avocation.

If the smith can in one day make as many horseshoes as the farmer could in ten; and if the farmer can in one day do as much in raising wheat as the smith could in two or three, it is evident that the peddler or shopkeeper who enables the farmer to keep steadily at work raising wheat and yet have shoes for his horses, and the smith to keep making shoes and nothing else, and yet have bread to live upon, is a productive agent as truly as smith or farmer.

Just as the division of labor between the individuals of a community gives rise to exchange, so the extension of the same principle to the communities of any country, or still further, to all the countries of the world, creates new occasions for exchange and rapidly multiplies the objects to be exchanged. In all these successive cases the agencies by which exchanges are effected: the labor of the men engaged in trade or transportation; the horses and wagons, the steam-cars and ships; the services of the clerks who write orders for goods and keep account of sales and payments, of the bankers who advance the requisite capital or remit the proceeds of commercial ventures, even of the shipping reporters and financial editors who supply the information upon which merchants and bankers alike must act, all these agencies are as truly productive of wealth as the labor of mechanics or miners or agriculturists, and are to be treated under the title, production.

We have, under the title exchange, only to investigate the principles which determine that so many dozens of wood screws made in Providence or so many pounds of horseshoe nails made in Troy, shall purchase so much of the wheat of Illinois, the tobacco of Kentucky, the sugar or molasses of Cuba, the tea of China.

114. Value.—Whence comes this power-in-exchange? What are its conditions, and what its limitations?

We have defined value as the power which an article confers upon its possessor, irrespective of legal authority or personal sentiments, of commanding, in exchange for itself, the labor, or the products of the labor, of others.

But let us go further, and inquire how it is that one article confers on its possessor such a power, while another does not; why it is that, of two articles of value, one confers the power of commanding the labor of others for weeks or years, while another is parted with for the service of a day or an hour.

115. Value and Price.—But, first, let us introduce a term, the use of which is not absolutely necessary at this point, but which will, nevertheless, save much circumlocution, and perhaps avoid a liability to misunderstanding—that term is Price. Value is, briefly speaking, purchasing power, or power in exchange. Price is purchasing power expressed in terms of some one article; power-in-exchange-for-that-article, be the same wheat, or beef, or wool, or gold, or silver. In common speech the word price brings up the idea of money-value, the purchasing power of an article expressed in terms of money. Yet it is equally correct to say that the price of a horse is seventy-five bushels of wheat, as to say that it is one hundred dollars. Inasmuch as we have not yet introduced the money function into our discussion, the word price, throughout the present chapter, will be understood in its more general sense, as the purchasing power of a commodity expressed in terms of some other article.

116. Distinction between Value and Utility.—In setting out upon our search for the law of value, a distinction of great importance requires to be made. Value must be severely distinguished from utility. Many economists of merit have stumbled at this point. Even of those who have observed the distinction between the two conceptions, some have resorted to unfortunate terms for their characterization, and have written of value in use and value in exchange. Now, value in use is utility, and nothing else, and in political economy should be called by that name and no other. Value is power-in-exchange, and, therefore, the term value-in-exchange is seen to be a bad one, at once clumsy and misleading.

Nor must it be thought that value and utility have any such necessary and constant relation to each other that one may safely be used for the other. On the contrary, an article may have the highest conceivable utility, yet no value.

The utility of atmospheric air is inexpressible. Atmospheric air has usually no value, because it is supplied naturally, in such abundance that any one can have as much of it as he has occasion to use without giving for it either his labor or the products of his labor. Even atmospheric air may, however, acquire value and be sold at a regular, definite price, so much per cubic foot, as when delivered through pipes to a diver beneath the surface of the ocean.

The utility of water is also beyond expression, yet ordinarily water has no value. In cities, however, water is delivered to householders at fixed rates, supposed to represent the cost of the service by which the fluid is stored, conducted and delivered. Water, though ordinarily to be had gratuitously, may thus acquire value. On the other hand, something may even be paid for merely getting rid of it. A party may enter into a contract for pumping it out of a mine, or a swamp, or a cellar, at so much a gallon. A much higher price is often paid for removing the fluid from the place where it is not wanted, than is commonly paid for bringing it to the place where it is wanted.

But while utility and value must not, in economic reasoning, be used interchangeably, as they so often are in ordinary speech, utility is everywhere one of the elements of value. It is always present, where value is present. It can not be assumed that a man will give his labor or the products of his labor for that for which he has no use.

117. Useful does not mean Beneficial. — It needs to be observed that the utility of which the economist speaks is not always the utility recognized by the moral philosopher or the physiologist. By that term the economist signifies only that an article answers a felt human want; that men have a use for it.

The appetite from which that sense of want arises may be vicious, the object itself may be prejudicial, even pernicious. Intoxicating liquors are, in their main uses, injurious to body and to mind; but so long as men want them, they have utility, in the economic sense. So long as men want them and can only get them by giving something for them, they have also value. Nay, the prussic acid which a desponding wretch buys of the druggist has its value as truly as the medicine which a father buys to save his child's life, and has its utility, in the economic sense, as well.

118. Is Value a Momentary Phenomenon?—We say, value is power-in-exchange. Some writers, using this definition, have proceeded to argue that value is a momentary phenomenon, beginning and closing with the act of exchange, and that an article has value only when it is exchanged; only while it is exchanging.

Is not this to confound our knowledge of a thing with the thing itself? A man owning an article can not know precisely what it is worth until he comes to exchange it. But it may all the time be beyond the possibility of doubt that the article has purchasing power; it would bring something in an exchange.

One owns a house in New York. He can not know at any given time, without resort to an actual exchange, what its value is, since value is power-in-exchange, and to an exchange, as to a quarrel, there must be two parties. The owner's personal estimate does not fix the value, which may prove much below that estimate. But while the owner may not know what is its power-in-exchange, there may be no room for doubt that it has such power. If it would not sell for %30,000, his estimate, it would bring %10,000 in any conceivable state of the market; but if it only brought %5,000, or %5, it would have value.

A farmer in Illinois has 1,000 bushels of wheat, and sells 500 bushels at %1.50. He knows that the remaining 500 bushels have value; but, just what that value is, he can not know. That the wheat would go off at some price, is beyond question; but it might take a considerable reduction, say to %1.45 or %1.40 to carry it off; or, on the other hand, a change in the market might put the price up to %1.55.

There are, indeed, circumstances where a man may not be able to know that an article in his possession has value unless he actually finds a purchaser for it. These are cases where the value of an article is, at the best, low; or where the uses of an article are few, and the demand for it spasmodic and intermittent. But to say that value is a momentary phenomenon, only emerging in the presence of a purchaser, and remaining only during the consummation of a bargain, seems much like saying that a body has weight only while some one is lifting it.

119. What is the Relation of Labor to Value?—We have said that value is the power which an article confers upon its possessor, irrespective of legal authority or personal sentiments, to command in exchange for itself the labor, or the products of the labor, of others.

Does that power arise solely and necessarily from the fact that labor has been bestowed upon the production of that article? No. It is true that men do not commonly give labor for that which has not cost labor; and that, on the whole, and in the long run, the respective values of a number of articles will, at least in the same community, be nearly according to the amounts of labor that have been expended upon them, severally. But it is not because an article has cost labor that it possesses value. That is because it can not now be obtained without labor. In any given instance it is not necessary that a thing, to have value, should itself have cost labor in any degree; while it is not at all uncommon to find an article having a value equal to that of another article which cost twice as much labor as itself.

120. Prof. Senior's Statement.—Prof. Senior remarks: “Any other cause limiting supply, is just as efficient a cause of value in an article, as the necessity of labor to its production. And, in fact, if all the commodities used by man were supplied by nature without any intervention whatever of human labor, but were supplied in precisely the same quantities as they now are, there is no reason to suppose that they would either cease to be valuable, or would exchange in any other than their present proportions.”

Prof. Senior elsewhere inquires: “Suppose meteoric iron were the only form in which that metal were produced, would not the iron supplied from heaven be far more valuable than any existing metal?”

121. Here is an autograph of John Milton. The lines may have been written to a friend, or from a mere freak of fancy, or to occupy an idle moment. Labor, in the economic sense, there was none. Yet the autograph may be worth %20; that is, may command for its possessor the labor of a skilled workman for ten days, of ten working hours each. Here is a high degree of value (that is, command of the labor of others) where yet no labor has been. The explanation is found in the fact that Milton is dead, and his remaining autographs are few, while many people want them, and want them very much.

This is an instance of what may be called “monopoly-value,” or as some prefer to call it, scarcity-value. The value here is altogether irrespective of the amount of labor expended upon the production of the article, simply because the article can not be reproduced, or the stock of it replaced by labor.

122. Cost of Production, or of Reproduction.—Again, take the case of an article which, by reason of the discovery of new fields of the raw material, or of some mechanical invention, can now be produced with the expenditure of half as much labor as formerly. Will the value of the stock of such goods on hand be influenced by the original cost of producing them? Not at all. They will exchange for other products on the same terms as the goods brought into the market under the new conditions.

In the same way, if the amount of labor required for the production of this kind of goods should suddenly increase, from the diminution of the supply of materials, or other cause, the stock on hand would acquire a higher value, corresponding to the cost of bringing in new goods of the same quality.

Hence, in respect to all goods which can be produced, or the supply of which can be replaced, within the time during which those who want them are willing to wait for them, we say that value is determined not so much by the cost of production as by the cost of reproduction. They are exchanged for the products of others, not necessarily in proportion to the amount of labor they actually required, but, rather, according to the amount of labor which would now replace the stock.

123. Time an Element.—I said, “within the time during which those who want them are willing to wait for them.” The fact that goods can not be reproduced, or the stock of them renewed, without a certain delay, may, for a time, confer a monopoly-value on the existing stock. Thus, if the supply of food in a city had nearly failed, the fact that an abundance were certain to arrive in two weeks would have little or no effect on the value of the scanty store remaining. Men can not wait two weeks for food. They must have it at once. In their urgent necessity, they will exchange their labor, or the products of their labor, for continually smaller quantities of meat and bread, up to the very moment that the ships which bear the new supplies drop anchor in the harbor.

124. It is not Always the Cost of Reproduction.—But while, as between the cost of production and the cost of reproduction, it is the latter, and not the former, which determines the power an article shall have in exchange; it is not true that value is always determined by cost of reproduction. It may be, in regard to any given commodity, at any given time, that the cost of reproducing it would be greater, even far greater, than the price at which it sells. How can this be? I answer that this might occur through a diminution in the occasions for the use of that article.

Two generations ago, every decent family possessed a spinning-wheel, and spinning-wheels then bore a price fairly proportioned, we may suppose, to the cost of their production with the tools and materials then available. A little later, when it ceased to be customary to wear homespun, spinning-wheels may be said to have had no value at all. They were banished to attics, or turned into playthings for children, and quickly smashed to pieces. To-day, a fashion has come in, by which the spinning-wheel becomes the companion of the dado, æsthetic furniture, and Queen Anne windows; and a well-preserved and authentic specimen is worth more than the sum at which a good reproduction could be made and sold.

125. Demand and Supply.—If neither cost of production nor cost of reproduction determines the power which an article shall have in exchange, is there any principle of universal application on which value rests? I reply, yes: Value depends always and wholly on the relation between demand and supply.

These terms require to be defined. It will not answer to trust to the ideas which the words of themselves call up in the mind of the reader. Demand and supply alike have reference (1) to a certain article, and (2) to a certain price. In the economic sense, demand means the quantity of a given article which would be taken at a given price. Supply means the quantity of that article which could be had at that price.

Neither of these two elements of demand and supply must be omitted. From the neglect of one of them by many economists great confusion has arisen. Nearly all writers have seen that demand must have reference to a certain article, be it wheat, or potatoes, or iron, or wool, or something else in particular; that there is no such a thing as a demand indiscriminately for meat, potatoes, iron, wool, and all other articles in the market. In the same way it is seen that the word supply has no significance unless some one article is in view. It has not, however, been so clearly apprehended and strongly held in mind, that demand and supply both have reference to a certain price.

126. Desire is not Demand.—It has been said that demand means the quantity of any stated article which would be taken at a stated price. Demand can possibly come only from those who could give the price. So we see that desire is not demand. As Mr. Thornton says, there is no demand, economically speaking, in the hungry eyes of a penniless boy, looking at tarts through a pastry-cook's window. Without pennies, an unlimited longing and capacity for their consumption would not enable that boy to contribute aught to the demand for tarts.

127. Reduction of Supply.—Let us illustrate the application of the terms demand and supply in economics.

We will take the case of an island far out at sea, inhabited by a population mainly engaged in fishing and agriculture, having, on one side, a beach which is strewn with vast deposits of seaweed, which has been found to be a very good dressing, or manure, for the cultivated fields of the island. A hundred of the islanders are accustomed to get out the seaweed, in intervals of fishing or of cultivating their own little properties, selling it to the farmers inland.

We may suppose that this manure is found to increase the yield of the lands to which it is applied to such an extent that there are a thousand farmers who will each give ten bushels of wheat, this year, for five loads of seaweed. There is, then, a demand for five thousand loads at the price of two bushels of wheat per load. Now the supply—that is, the amount offered, or ready to be offered, at this price—may be greater or less than five thousand loads. It may be that the catch of fish along the shore is so abundant this season that all those who are accustomed to get out the seaweed find they can obtain more by fishing. There may, then, be no supply whatever, at this price. And it may happen that there will be no demand for seaweed at any higher price. The farmers may be agreed in believing that, what with the labor of applying the manure, and what with the necessity for paying for it months before the harvest, seaweed is not worth to any man more than two bushels of wheat. In this case, none of this article will be gathered, and the supply will be nil.

2d. It may happen that, in spite of the superior attractions of fishing, this season, a certain number of those who habitually gather the seaweed may continue to do so, some because of the force of habit; some because they know that the persons whom they have been accustomed to supply will look to them for it; some because their boats and nets are out of repair; some because of sickness in their families, indisposing them to go far from home. So that it may result that a thousand loads will be gathered. This may all be sold at two bushels of wheat per load.

Those who buy may be those who have usually bought of the persons who now have to sell, and this may be the sole or the determining reason why the seaweed is sold to them, and not to others; or they may be those whose farms lie nearest to the shore, and hence are first reached by the carts laden with the manure; or they may be those who “spoke first” for seaweed, early in the season. Any one of a number of reasons may control the selection of the persons who shall receive the thousand loads, out of the larger number who formerly purchased five thousand loads. And this, it will be observed, occurs without raising the price of seaweed, although the amount gathered has been greatly reduced.

3d. Again, it may happen that among the former purchasers of the seaweed will be found a considerable number of farmers, wanting in the aggregate 2500 loads, who esteem that article as worth more to them, per load, than two bushels of wheat; and, finding that it can not be had for the usual price, these may begin to offer, first, a quarter and, then, a half bushel more, in order to secure each the amount required by his own land.

Who, out of the former class of purchasers, shall be so disposed, may be determined by any one, or more, of several causes. It may be wont, it may be fancy, it may be obstinacy, or, it may be that their lands are of a nature peculiarly to need such dressing, and to respond with more than ordinary liberality to this expenditure in their behalf. This demand for seaweed may be found strong and persistent enough to fix the price at two and a half bushels of wheat, per load; and at this price enough of the fishermen may be induced to give up their fishing ventures to procure the required amount of 2500 loads.

128. Increased Supply.—We have given three cases where a reduction in the supply of seaweed brings up the question whether the demand shall prove sufficient to raise the price. Let us take successively a few cases of an increase of the supply at the previously prevailing price. An unusually heavy storm bringing the seaweed in large masses far up on the shore, or the invention of some new tool for getting it out, may enable each man engaged in this business to bring to market, with the same labor, a much greater amount; or a bad season for fishing may cause a larger number of persons to seek to get a livelihood in this way. Ten thousand loads are now produced, or are ready to be produced, at two bushels of wheat per load. This, then, is the supply; and it is to be observed that this is the supply equally whether the ten thousand loads are actually dug or not, if only those who are engaged in this business are ready to bring to market that amount at that price. In this situation one of several things may happen.

1st. The increase of supply may coincide with an increase of demand, due to the breaking up of new lands for tillage, or to the failure of some other species of soil-dressing previously used by many farmers, or to a wider popular knowledge of the advantage of using the seaweed. This increase of demand may be just such as to take off the entire ten thousand loads, at the customary price.

2d. That result is, however, unlikely. Even if an increase of demand should coincide with such a large and sudden increase of supply, it would be strange if the coincidence were so complete as to leave the price just where it was. If we take the more reasonable supposition that there is either no increase of demand, or an increase less than the increase of supply, shall we have, under the conditions existing, a new price resulting? In strict theory this is not necessary. It is conceivable that, while the producers of this article stood ready to deliver ten thousand loads at two bushels of wheat a load, their interests, feelings, and habits, with respect to labor and subsistence, might be so balanced, that, rather than take less than the customary price, they would allow the production to fall to five thousand loads.

3d. But this, again, is not probable. Although, as we shall see later (par. 145), there is great power in custom to fix prices, so much so that articles often keep the same price for years, in spite of considerable alterations in the conditions of production, it is not to be expected that so great a change as we have supposed to occur, would fail to establish a new price. The producers of seaweed being prepared to furnish ten thousand loads, and the purchasers being accustomed to take only five thousand, it is probable that the desire of individual producers to keep themselves fully employed at the business would induce Competition among the sellers of this article.

129. What is Competition?—This is the most important word in the theory of value. I have now used it for the first time, though it might have been introduced with equal appropriateness, a moment ago, in describing the change of price from two to two and a half bushels per load.

Competition signifies the operation of individual self-interest, among the buyers and the sellers of any article in any market. It implies that each man is acting for himself solely, by himself solely, in exchange, to get the most he can from others, and to give the least he must himself.

1. The idea of competition is opposed to combination. Wherever, and in whatever degree, buyers or sellers act in concert, whether by insisting upon a certain price, or by regulating the amount to be bought or sold, there competition is, in so far, defeated. In competition every man is supposed to be active and alert to slip in ahead of every other man and sell his own product first, and sell it at a higher price if possible. Men in this state act as freely and as independently as the minute particles of some fine dry powder absolutely destitute of cohesion. If any two particles in the economic mass stick together, so that one must move when, and as, and because, the other does, competition is in so far defeated.

(2) Competition is also opposed to custom. If in any degree one buys or sells at a certain price, if he buys or sells in a certain place, if he buys or sells of or to a certain person, because he has done so in the past, he obeys the rule of custom. In competition men are assumed in every transaction to seek and find their best market, that is, the place to buy or to sell, in which, at the time, and under the circumstances existing, they can get most for what they have to sell and will give least for what they wish to buy.

(3) Competition is opposed to sentiment. Whenever any economic agent does or forbears any thing under the influence of any sentiment other than the desire of giving the least and gaining the most he can in exchange, be that sentiment patriotism, or gratitude, or charity, or vanity, leading him to do any otherwise than as self interest would prompt, in that case, also, the rule of competition is departed from. Another rule is for the time substituted.

130. The Action of Competition.—Such is competition in the economic sense. Now let us return to our island. We have said that, with the producers of seaweed ready to get out and deliver ten thousand loads, while formerly but five thousand were used, it was not likely that a demand for the additional amount would arise to carry off the entire amount, at the customary price of two bushels of wheat a load; and that, consequently, competition would probably set in among the sellers of this article. Since there are not buyers enough to take off the whole supply, each producer will try to sell all his own stock, no matter who else does not; and since there is reason to apprehend that the price will sink below two bushels, he will try to sell as near that figure as possible, and, hence, he will sell as soon as he can find a purchaser.

Through this force the price will begin to decline. It may be by slow degrees; it may fall tumultuously. At two bushels of wheat, a load, demand and supply are unequal—ten thousand loads are offered: only five thousand are ready to be taken. At one bushel and three pecks, the supply will perhaps sink to nine thousand loads, since some of the more adventurous among the producers, the more daring and skillful fishermen among them, or those having the best gardens and fields around their cottages, may decide that they can do better for themselves. Meanwhile, we may suppose the demand to rise to six thousand loads, so numerous are the farmers who think that, at that price, it will pay them to use the dressing freely on their lands. At a bushel and a half, demand and supply still more nearly approach each other. At the new price, the quantity offered—the supply—rapidly falls off. Meanwhile the demand has increased, since, at a bushel and a half for a load of manure, the net produce of the fields, that is, the amount of wheat remaining in the hands of the farmer after paying for the manure, may be appreciably enhanced. Supply and demand may now stand, respectively, at eight and at seven thousand loads.

Supply and demand remaining still sundered, it is necessary that there should be a further movement of price to bring them together. Whether that step shall be a short one, or a long one; whether supply and demand shall be equalized at a price much, or but little, below a bushel and a half, depends on two things, first, the utility to the farmers of the soil-dressing, when in excess of seven thousand loads, which we may call its Final Utility; and, secondly, the ability of the producers to do something profitable besides digging and hauling seaweed.

131. Final Utility.—This term has been used, in the fore-going illustration, with reference to the entire supply of seaweed in excess of seven thousand loads, be that excess one hundred, or nine hundred loads. Strictly speaking, however, the term should have reference only to the last appreciable quantity which the purchaser is ready to take and which a producer is ready to supply.

The following is Prof. Jevons' illustration of the difference between the total utility of any commodity, and the utility belonging to a particular portion of it.

“A pound of bread, per day, supplied to a person, saves him from starvation, and has the highest conceivable utility. A second pound, per day, has, also, no slight utility; it keeps him in a state of comparative plenty, though it be not altogether indispensable. A third pound would begin to be superfluous. It is clear, then, that utility is not proportional to commodity. The very same articles vary in utility, according as we already possess more or less of them.”

This descending scale of utility may be applied to successive quantities of seaweed, for the dressing of wheat lands. A farmer having a certain breadth of arable lands might profitably give two and a half bushels per load for the first ten loads, with which to dress certain of his fields. If no one stood ready to supply more of the seaweed, at a lower price, two and a half bushels would be determined as the price of the article. Were he to buy five other loads, he might have to apply them to other fields, the return from which would not justify the payment of more than two and a quarter bushels, a load. Now, it might be that a producer stood ready to deliver the additional quantity at that, but at no lower, price: if so, two and a quarter bushels would measure the final utility of the manure, and this will be its price.

Were the farmer to buy three more loads, he might have to apply them to still other fields, from which the enhanced return would justify the payment of two bushels a load, but no more. As, however, it takes two to make a bargain, his readiness to buy at this price would not make this the price of seaweed. It is only when a producer is found ready to deliver the commodity at the price, that a new price is determined. It might even happen that the farmer would be willing to take two more loads, if he could get them for a bushel and a half, a load, and that a producer would appear, willing to deliver the article at that price.

Now, according to the course of our illustration, the farmer has bought twenty loads; but the utility of the several parts of that aggregate amount has varied widely; the utility of the first part was very great; the utility of the last part comparatively small.

132. But One Price for a Commodity.—We have thus far assumed, for the purpose of illustrating the declining utility of successive portions of a commodity, that the farmer purchased the ten, the five, the three, and the two loads of seaweed at different times, and at prices corresponding to the gain in the wheat crop resulting to him from the application of the manure.

But suppose that the farmer had purchased the twenty loads at the same time, it is evident he would have paid one price for the whole. What would have been that price? Would it have been the highest price paid for any portion? Clearly not, since we have seen he could only afford to put the dressing upon certain of his fields, on condition of getting it at a much lower price. Would it have been at a price, the mean between the highest and the lowest? Just as little; for we have seen that producers stood ready to sell at one and a half bushels per load, which would not have been the case had the demand been sufficient to take off the supply at a higher rate.

If, in an open market, under full competition, any portion of a given commodity is to be sold at a certain price, then will all the portions of that commodity, sold at the same time, be sold at that price, whatever the degree of utility which may accompany each such portion. If I buy a quantity of food for my own consumption, I do not pay for that part which would suffice to keep me alive, a price such as I would pay, were it necessary, to be saved from starving; for another part of the food, a price corresponding to the discomfort and dissatisfaction I should feel in being insufficiently nourished; and, for a third part a price corresponding to the pleasure of ample and generous sustenance. I pay one price for the whole, the same for every equal part. That price measures the final utility of the food to me: that is, the utility of the portion at which I cease to buy, the portion beyond which I would as soon keep the price in my pocket as have more of the food.

Prof. Jevons states the case thus: “When a commodity is perfectly uniform or homogeneous in quality, all portions may be indifferently used in place of equal portions; hence, in the same market, and at the same moment, all portions must be exchanged at the same ratio. There can be no reason why a person should treat exactly similar things differently, and the slightest excess in what is demanded for one over the other, will cause him to take the latter instead of the former. In nicely balanced exchanges it is a very minute scruple which will turn the scale and govern the choice. A minute difference of quality in a commodity may thus give rise to preference, and cause the ratio of exchange to differ. But when no difference exists at all, or when no difference is shown to exist, there can be no ground for preference, whatever.”

133. What Constitutes an Economic Difference?—In the foregoing paragraph, Prof. Jevons speaks of commodities between which no difference exists. Of course there are no two articles in the universe precisely identical. What Prof. Jevons means is that there may exist no difference, as viewed by the would-be purchaser, with reference to some use to which the two commodities may be put, which use two commodities, apparently varying in many respects, may indifferently serve.

And it is to be noted that the existence or non-existence of an economic difference, will depend on the quality of the individual exchanger, on the purpose he has in view, on the scale of his transactions, and on other causes. Thus, a large dealer in poultry may buy five hundred pairs of chickens, in gross, only satisfying himself by a rapid examination that none fall below a certain standard as to size and condition. His customers, however, will inspect the individual fowls, with the greatest carefulness, and will perhaps be determined in their choice by considerations the most minute, and, possibly, whimsical. In the same way a wholesale lumber merchant may buy, in gross, a large amount of stock at a uniform price, and a half dozen of his customers may the next day go through his yards, each taking out, by preference, a certain portion as peculiarly adapted to some job of work he has on hand.

The fact that several commodities have a generic name in common does not constitute them the same articles for the purposes of exchange. Thus, corn is not sold in the Chicago market as corn, but as corn No. 1, or corn No. 2. Spring and Winter wheat never bring the same price; they are not one kind of commodity, but two, and a reason for a preference between them always exists.

The proposition we are considering further requires to be modified with regard to the obstacles to exchange, the ignorance or indifference of exchangers, etc. The consideration of these causes, as qualifying the principle that there can be but one price for any commodity, in the same market, at the same time, will be more conveniently postponed to the title (par. 149) The Friction of Retail Trade.

134. What is a Market?—Many definitions have been given to the word, market. As I apprehend it, the term, in political economy, should have reference, first, to a species of commodity; secondly, to a group of exchangers.

In this view, there is no market which is a market indistinguishably for all or for several commodities, as for tea, iron, cotton and wheat; but there is a market for each commodity, by turns, as a market for tea, in which tea is bought and sold; a market for iron, in which iron is bought and sold. Thus, there are as many markets as there are separate commodities.

Secondly, a market embraces all those who contribute to the supply of or the demand for a given commodity in any place. Hence, all those who are ready to buy of or sell to each other belong to the same market, no matter where they live.

I say, who are ready to buy of or sell to each other. It does not follow from this that all who in the same place are buying and selling the same article belong to the same market. Thus, suppose there are in New York five importers of tea, fifteen wholesale dealers in that article, a hundred retailers, and a half million consumers. All these do not belong to the same market. The importers of tea and the wholesale dealers constitute one tea market, the wholesale dealers and the retailers constitute another tea market; the retailers and the domestic purchasers constitute still another tea market. There are as many markets as there are groups of exchangers. In the case supposed, there are three tea markets; each has its own group of buyers and sellers; and in each of the three, at any time, tea is sold at a price different from that at which it is sold in any of the others. Thus, the price for precisely the same sort of tea, in the market made up of importers and wholesale dealers, may be %1.00; in the market made up of wholesale dealers and retailers, %1.10, and in the market made up of retailers and domestic purchasers, %1.25.

Hence we see that, without such a definition of the word market, it would not do to say that there can at any time in any market be but one price for a given commodity. There is never a day, in any great mart, when tea, iron, wool, wheat, or what not, is not selling at several different prices, it may be in the same street.

135. But while within a great mart there may, thus, be many markets, any one of these markets may extend far beyond the limits of that mart. To pursue the illustration already offered, the five New York importers of tea may sell not to the fifteen wholesale dealers of that city only, but to twenty other wholesale dealers in Brooklyn, Jersey City, Newark and other places within a radius of twenty or of fifty miles. A market is thus constituted of the five importers and these thirty-five wholesale dealers. Every one of the latter belongs as distinctly to that market as that one who lives nearest the City Hall, for he contributes as truly to the demand for tea in that market. Again, this body of wholesale dealers, thus re-enforced, may sell not to a hundred but to a thousand retailers scattered throughout all that region. This group of exchangers makes up the market, and not the fifteen wholesale dealers and the one hundred retailers of the city of New York only. These one thousand retailers, again, sell, not to half a million, but to a million and a half of consumers of tea.

All persons whose demand for, or whose supply of, a commodity goes to make up the aggregate demand for or supply of that commodity, in any given place, and hence to affect the price of that commodity in that place, belong to the same market.

136. But it may be said: this would make the whole world belong to the same market, and would, hence, take all significance out of the word. By no means. In the market which is made up of the five importers of tea, all perhaps having warehouses on one wharf in New York, and the thirty-five wholesale dealers of the surrounding region whom they supply, the price of tea will not, probably, be appreciably different from that which is paid in the market made up of the four Boston importers of tea and the twenty-five wholesale dealers who buy of them. If, for instance, the New York price were to be lower than the Boston price, the New York importers would begin to offer their stock in Boston, to get the advantage of the higher price there prevailing, and would hence contribute to the supply of tea there, and hence would come, so far forth, and for the time, to belong to that market.

But, in the market constituted of the wholesale dealers and the retailers of tea in and around New York, the price of tea may be one or two cents lower than in the corresponding market around Boston, without any of the New York wholesale dealers sending their stocks to New England, or any of the New England retailers coming to New York to take advantage of the lower price.

In the market constituted of the retailers and the domestic purchasers of tea, far wider differences may exist. The price of the same quality of tea might be, and might long remain, five or ten cents higher in the grocery stores of Newark than in those of Worcester or Nashua, without a single New England grocer going to Newark to retail his tea, or a single Newark householder going to Worcester or Nashua to lay in his year's supply.

I repeat my proposition: all those persons who contribute to the general demand for any commodity, as felt in any place, or to the supply of that commodity there available for purchase, and who, hence, serve, as buyers or as sellers, to affect the price of that commodity in that place belong to the same market.

137. Normal Price.—If there were a good market for any given commodity, i. e., if competition were perfect; (1) if there were no large stock of that commodity, but it could be produced freely and equably throughout the year, as wanted; (2) if the demand for it were uniform and strong, about the same quantity being required for use in every equal period of time; (3) if no large “plant,” or machinery, or great amount of capital in other forms, were required for its production; (4) if the producers of that commodity had an easy resort, or economic escape, to occupations in which other commodities were produced, and if, in turn, producers in other occupations could readily and successfully take up the production of the commodity in question, then the price of that commodity would, at any time, be close to the cost of production. By cost of production we are to understand, not the average cost of the whole supply, but the cost of that part which is produced at the greatest disadvantage.

That price would express the Final Utility of the commodity in question, that is, the utility of the portion which, at the price, it was just worth the consumer's while to purchase. That price would also express the sum of the efforts and abstinences of those producers who brought forth this commodity under the least favorable conditions, of all who contributed to the supply. Inasmuch as this price is to be paid alike by all purchasers of this commodity, it follows that those who have produced it under more favorable conditions will obtain a remuneration which will represent more than the sum of their individual efforts and abstinences.

A price which corresponds closely to the cost of production may be called Normal Price.

138. Market Price.—Inasmuch as the conditions recited in the foregoing paragraph are never fully realized, there is for every commodity, in every market, a Market Price which differs more or less widely from the normal price.

This market price always measures the Final Utility of the commodity, that is, the utility of it to the last purchaser to whom it is just worth while to buy of it, at that price. Otherwise, that person would either not buy, which, by leaving a portion of the supply untaken, would determine a new and lower price, at which he or some one else would buy; or, he or some one else would buy more of it, which, by adding to the demand, would determine a new and higher price.

But while market price must always measure the utility of the commodity to the last purchaser, that is, the person to whom it is just worth while to buy at that price, market price does not always measure the efforts and abstinences of the last producer, that is, the person producing under the greatest disadvantage: to whom, therefore, it is only just worth while to produce at that price. It is in this latter respect that market price differs from normal price.

139. Relation of Market Price to Normal Price.—The causes which make market price differ from normal price are various. The illustration of them might be extended indefinitely. They may be grouped as follows:

I. The existence of a stock. For the purpose of exhibiting in its simplest form the operation of supply and demand, I took an article of which, it was assumed, no considerable stock existed at any time. The seaweed was supposed to lie in vast deposits on the shore, and to be got out (produced) as required. This is a condition which tends to keep market price close to normal price. In the case of most commodities, however, a considerable stock always exists: a fact which profoundly influences market price.

The existence of a stock is determined by various causes. In order that there may be grain to form the food of the long winter and early spring, seed must have been sown and the growing crop cultivated months previous. In order that there shall be a supply of wool in the market, sheep must have been bred years before. Many commodities make no such requirement. In order that there may be grain, the processes of production must have been begun months back; but, given grain, it is only necessary, in order to have bread, that the miller should have a day's notice, and the baker time to heat his oven. Hence, with an immense stock of grain, amounting to thousands of millions of bushels, there may be but a small stock of flour, of which only a minute fraction will, at any time, be in the form of bread.

140. Distinction between Stock and the Supply.—The stock of any article in existence, at any time, must not be confounded with the supply of that article, considered as a commodity in the market.

By the word supply, we express the quantity of a commodity offered at any given price. At one price the supply may be but a small fraction of the stock. At successively higher prices, larger and larger portions of the stock would be offered, that is, would come to constitute the supply—until a certain price would take off the entire stock.

Indeed, the supply may even become greater than the stock, under a highly speculative organization of trade. Thus, in the grain or cotton market, or in the market for railway shares or government bonds, brokers daily offer to sell and contract to deliver vast amounts of the several commodities in which they deal, of which, perhaps, they possess little or none at all.

Sometimes it happens that those who are offering such commodities are entrapped by a combination of purchasers into contracts to deliver, on a certain day, more than the entire quantity within reach, or even in existence. In such a case, the supply is still the amount offered at the price. This it is, and not the stock, which, taken in connection with the demand for the commodity, determines the price.

141. The necessity in some cases, the usage in others, of meeting the demand from a stock, and not out of daily production, causes market price to diverge from normal price, through excess or deficiency of production.

In order that there may be wheat, three millions of persons, more or fewer, in the United States, plant the grain many months previous to the anticipated consumption of the wheat by the miller and the baker. These persons break up the land and sow the seed without mutual understanding as to the extent of their operations. Each is governed by a notion, more or less vague, as to the probable demand for wheat. It is not at all a matter of certainty that the mistakes in calculation of one farmer will offset those of another. On the contrary, there is a strong tendency in the errors of producers to accumulate all on one or on the other side of the line of equable production.

If the price of wheat, owing to a deficient supply, has been high, almost all producers will be found, the next year, largely planting wheat. This is likely to produce a surplus which will perhaps bring down the price below the average, whereupon farmers, with almost as much unanimity as in the former case, will, the next year, diminish their operations in this direction. Those who are sagacious enough to look about them and say: Others are planting wheat freely, therefore, I will plant something besides wheat, are exceptional. In productive industry it is the rule that men go in droves; act under common impulses, with the result of causing excess and deficiency to alternate with great rapidity and often great violence. And this holds good, not alone of persons in the lower departments of production. It is almost equally true of merchants and manufacturers and bankers. The select few who have the coolness and the sense to buy when others are most eager to sell, and to sell when others are most eager to buy, reap rich harvests of gain.

142. Substitution of one Commodity for Another in Use.—The influence upon price of an excess or deficiency in the stock of a commodity may be greatly diminished through the tendency to substitute one article for another in use. Thus, the cereals are, to a great extent, substituted for each other in use; one kind of meat for another, and even bread for meat, or meat for bread, in the case of a marked deficiency of one or the other. If the crop of wheat be short, maize, barley, rye, buckwheat and oats are increasingly made use of as food; with a short crop of all the grains, resort is had to the cheaper kinds of animal food. The result of such substitution is to raise the price of the substituted article, and to prevent the price of the article for which it is substituted from rising as high as it otherwise would. The two commodities are thus, for the time, and in a degree, joined together in price. A mutual dependency is established between them.

143. Liability to Deterioration.—The influence upon market price of an excess in the stock of any commodity is greatly controlled by its liability, or non-liability, to deterioration. In the case of some commodities, the variations in price due to this liability are such as to make it appear that price has cut itself wholly clear from cost of production, or cost of reproduction. A commodity exceptionally subject to this condition may lose ten, thirty, fifty, or seventy per cent. of its price in a few days, or even in a few hours. Thus, in fish markets, the price of a fish might have been a shilling when the market opened at 5 o'clock in the morning, eight-pence at 10 o'clock, sixpence by noon, while at three or four o'clock in the afternoon one could have it on his own terms. In the same way, strawberries are often sold on Saturday night at one-half or one-third the price of the morning.

The necessity of storage, in the case of a postponed sale, has often the same influence on the price of a commodity as liability to deterioration. The dealer, not having facilities for storing his stock, may be disposed to let it go at a very low price.

144. II.—Organization of Industry and Existence of Plant.—A second cause which makes market price differ from normal price is found in the organization of industry and the existence of machinery and “plant.” It was to get rid of this cause that, in our extended illustration of the influence of supply and demand upon price, we took a simple “extractive” industry, the gathering of seaweed along the shore, which could not be supposed to involve the use of numerous or expensive instruments, or the exercise of much skill, and that we assumed the persons so engaged to be in a position readily to turn themselves to tillage or the fisheries, in case of a falling off in the demand for seaweed.

145. III.—Customary Price.—Another cause which makes market differ from normal price, is the force of custom. We owe the existence of a customary price, in some things, to the power of public opinion, which determines that there shall be a stated, well-known price for certain services and certain commodities; and, in other things, to habit or the mental inertia of purchasers. Thus, in the former case, public opinion would not tolerate varying and uncertain prices of admission to places of public amusement, varying and uncertain tolls over bridges or fares on public conveyances, varying and uncertain fees for the performance of necessary services, such as those connected with physical comfort, the preservation of life, or the burial of the dead. It is seen and felt that to leave the buyer to haggle and bargain at the door of a theater over the price of admission; on the brink of a river as to the sum to be paid for a cast across the stream; in the sick room, about the fee for a prescription or the medicine that is to save life or relieve pain, would be indecent, intolerable.

Hence, public opinion prevails to establish a price on all such occasions, which is alike irrespective of the actual service rendered in the individual instance, and of the cost of rendering that service. The rule of final utility is here suspended or altogether abolished. The traveler might be willing to give a large sum, rather than pass the night in a storm, without shelter, on the bank of a river, but he gets a cast across for the customary price. The father would give all his fortune, were it needed, for the prescription to save his child's life, or the medicine which the prescription calls for; but, instead, under the rule of customary price, he pays the physician two dollars, or a guinea, as the case may be, and, at the apothecary's, pays for the medicine by the ounce, in silver, though he would pay for it, drop for drop, in his own blood, could it not be had otherwise.

Where public opinion can not be trusted to establish a customary price, in cases like the above, the law generally enters and fixes the rates at which commodities and services shall be sold. Of course, the prices paid must be sufficient to make it worth while to keep up the service, whether of the apothecary, the physician, the ferryman, or the actor or opera singer; but the price to be paid is made independent of the wealth or poverty, the knowledge or ignorance, the little or the great need, of the individuals purchasing.

146. Influence of Habit on Price.—Far beyond the range of customary price, in the limited class of cases above referred to, is the effect of habit and mental inertia, in restraining, or wholly repressing, the movements of price. In the former class of cases, the seller consciously submits to a restraint upon his freedom of action imposed from without, viz., by public opinion or law. In the far wider field now in contemplation, buyers and sellers are left free, so far as outside influence is concerned, but are constrained, in a higher or lower degree, by the laws of their mental constitution. No human being ever escapes from the force of habit. It is always easier to do what we have done before than to do what we have never done; to do what we have done twice than what we have done but once; to do what we have done often than what we have done seldom.

The degrees in which men are thus bound by habit differ widely. A capability of taking the initiative in action, mental courage and activity, freedom from fear and superstition, a readiness to meet new conditions and perhaps even a pleasure in encountering risks and odds, are among the fruits of culture; they constitute an inheritance in families; they even become a characteristic of nations and races.

The effects of habit upon prices are important. Habit always in some degree, often in a great degree, resists the economic tendency to a new price. The effect is seen at its maximum in wages, the price of labor. A day's wages often remain the same through years. So strong is this tendency that wages sometimes remain unaffected by the presence of a number of unemployed laborers. Instead of wages falling until all the laborers are brought into service at the reduced rates, employers continue to pay the old rates to a smaller number of workmen.

Over the price of goods habit exerts an influence not less real, though not equally powerful. It often suffices to keep price stable against an economic reason for movement, and even when movement takes place, it begins later and ceases earlier, by reason of this constant resistance.

147. The Moral and Intellectual Elements of Demand and Supply.—Our definitions of demand and supply, as respectively the quantity of any given article which purchasers stand ready to take at a certain price, and the quantity which producers or holders stand ready to deliver at the same price, clearly recognize a moral and an intellectual element alike in demand and in supply. “Stand ready” to take or to deliver. Any thing which affects that readiness, is, then, an element of demand or of supply. Supply is not a stock (Par. 140), a definite quantity, which must be sold, whether or no. It may be that out of a large stock, holders stand ready to deliver but a small quantity at the price offered.

The reason for withholding the stock may be found in the physical conditions attending the reproduction of the article, e. g., a scarcity of the material out of which it is made, or the reason may be found in an intellectual apprehension, just or mistaken, of the state of the market, or the probabilities of the immediate future; or, waving this consideration, the reason for a larger or a smaller quantity being offered or taken at a certain price may be moral, that is, may be found in the greater or less tenacity of purpose, or the greater or less courage to undertake risks and sustain arduous and doubtful enterprises.

In all variations between normal and market price, moral and intellectual elements are important factors. It often happens that the producers or holders of an article, anticipating a rise of price, on some account which may prove to be wholly fictitious, will keep back the entire stock, only to sell it, a little later, at a price far below that which they could have obtained for it while the false apprehension lasted.

More or less, false apprehensions enter to affect the demand for and the supply of every article in every condition of the market; but the influence of this cause may be in one period ten times or a hundred times as great as in other periods. The contrast between a placid noonday and a “hurricane eclipse of the sun,” is hardly more marked than the contrast between a peaceful, sluggish market and one excited by mysterious rumors, emanating no one knows where, or wrought to frenzy by false reports manufactured by the parties to some great jobbing interest.

148. Retail Contrasted with Wholesale Trade.—The foregoing holds good even of the wholesale markets, where the parties who buy and sell commodities are picked and skilled men, long familiar with the conditions of the articles in which they deal, with large opportunities, whether by price-currents, newspaper, post or telegraph, or by special and secret inquiry, for ascertaining all the facts bearing on the question, at what price they should buy or sell.

In retail trade, the moral and intellectual elements of demand and supply play a much more important part. On one side is the merchant, who by frequent resort to the wholesale dealer is kept advised of the conditions of the market. On the other side is the “customer,” a creature of custom, as the term implies; often ignorant in the widest sense of the word, unintelligent and untrained; always and necessarily ignorant in the special sense of being unacquainted with the conditions which should determine price, not knowing what a commodity ought to cost, and, in the case of many classes of commodities, unable to judge of the quality of the goods offered, perhaps at the mercy of the dealer in the matter of the measure or weight.

The merchant, again, is the possessor of capital, and can wait to dispose of his goods at the best time. The customer, on the other hand, is generally in urgent need of commodities for immediate use, and frequently poor, so that he must buy in small quantities; perhaps even, in debt, so that he feels under a strong constraint to trade only with his creditor, who thus holds him at a double disadvantage, for how can he quarrel, as to quality, measure, or price, with the man whom he is not able to pay for goods already had and consumed?

149. The Friction of Retail Trade.—From the ignorance and inertness of the “customer” arises what may be called the Friction of Retail Trade. “Retail price,” says Mr. Mill, “the price paid by the actual consumer, seems to feel slowly and imperfectly the effect of competition, and where competition does exist, it often, instead of lowering prices, merely divides the gain among a greater number of dealers. It is only in the great centers of business that retail transactions have been chiefly or even much determined by competition. Elsewhere it rather acts, when it acts at all, as an occasional disturbing influence. The habitual regulator is custom, modified from time to time, by notions existing in the minds of purchasers and sellers, of some kind of equity or justice.”

And referring to this manifest inability of the customer in retail trade to look out for himself, in a struggle with the expert dealer, Prof. Cairnes says: “Between persons so qualified the game of exchange, if the rules be rigorously enforced, is not a fair one; and it has consequently been recognized universally in England, and very extensively among the better class of retail dealers in Continental countries, as a principle of commercial morality, that the dealer should not demand from his customer a higher price for his commodity than the lowest he is prepared to take. Retail buying and selling is thus made to rest upon a moral rather than an economical basis, and, there can be no doubt, for the advantage of all concerned.”

150. Economic Forces Never Cease to Operate.—I am disposed to think that these eminent economists overrate the disability under which the customer suffers in retail trade; and, secondly, that the inference they draw from the undoubted fact of the general prevalence of a customary price, viz., that this shows that competition is not the regulator of such trade, is not fully justified. To take an analogous case, let one look around him, in any highly organized community, and he will see very little display of force in compelling proper things to be done, or in repressing acts injurious to society. He will see on every side men doing just and decent and even courteous and kindly things, respecting the rights of others and making use inoffensively of their own powers and privileges, just as if all this were natural and pleasant to them, as, indeed it has, to a great degree, become. These actions appear to be spontaneous and instinctive; and one thus looking around on the orderly and civil procedure of daily life, whether in social intercourse or in business, might think that force was not, in any proper sense, the regulator of that community; he might conclude that good will towards others, self-respect and public spirit were universal. Yet if that power which in every civilized state is always at hand, however veiled or disguised, to protect person and property, to repress lawlessness and to punish crime, were once withdrawn, society would speedily be transformed, and the occurrence of every form of rapine and violence would instruct the observer that, behind the fairest show of order, right dealing and courtesy, stands the armed force of the community.

So, while within certain limits, competition seems to disappear wholly from retail trade, and custom and respect for the rights of the purchaser enter to banish “higgling” from the market and to impose the one-price system, and thus retail buying and selling, as Prof. Cairnes says, comes to rest upon a moral basis, yet the economic forces always lie beneath, as the bed-rock below which the effects of moral forces can not go. Let the cost of an article rise above the customary price, and merchants will make an advance upon that price, in spite of custom. Let merchants demand an utterly exorbitant price, and competition will spring up, even among the least intelligent and least enterprising buyers.