Chapter 8 natural price and market price

In every society and its neighbourhood, there is a general or average rate of the wages of labor employed in every employment, and of the profits of stock employed in every employment.This common rate, as I shall hereafter show, is naturally governed partly by the general state of society, that is, by wealth, poverty, regression, or stagnation, and partly by the particular character of the various uses.Likewise, in every society and its neighbourhood, there is an ordinary or average rate of rent.This common rate, as I shall hereafter show, is also governed in part by the general conditions of the society in which the land is situated, and in its neighbourhood, and in part by the natural fertility and artificial improvement of the land.

These ordinary or average rates may be called the natural rates of wages, profits, or land, prevailing in that country at that time.A commodity is said to be sold at its natural price if its price is exactly equal, no more, no less, to the rents, wages, and profits at natural rates employed in its production, manufacture, and delivery to market. of. The price at which the commodity is thus sold corresponds exactly to its value, or exactly to what it actually cost to the person who sold it.Although what is commonly called the original cost of a commodity does not include the profit on the resale of the commodity, the reseller will obviously suffer a loss if he sells it at a price at which the general rate of profit in that country cannot be obtained.For, if he had invested his capital elsewhere, he would have made that profit.Moreover, his profit is his revenue, the legitimate resource of his means of subsistence.In making the commodity and sending it to the market, he advances the wages or means of subsistence of the labourer, as well as his own means of subsistence.His own means of subsistence are roughly equal to the profit at which he can expect to sell his commodities.If, therefore, the sale of a commodity does not give him a profit, it is the same as saying that he does not recover its actual cost from the sale of the commodity.

The price which affords this profit is not necessarily the lowest price at which the general tradesman can sell his goods, but it is the lowest he is willing to sell for a considerable period of time, at least where there is absolute freedom, that is, that each person can change his occupation at will. This is the case. The actual price at which a commodity is usually sold is called its market price.The market-price of a commodity is sometimes higher, sometimes lower, and sometimes exactly the same as its natural price. The market price of every commodity is governed by the quantity actually offered for sale, and by the desire of those who are willing to pay its natural price (or the full value of rent, wages of labour, and profits which must be paid before it can be sold). Requirements, the ratio of the two.Those who are willing to pay the natural price of the commodity may be called effective demanders, and their demand may be called effective demand.For this demand may make possible the sale of the commodity.Such needs are different from absolute needs.A pauper may in some sense have a need for a six-horse coach, which is not an effective demand, since the coach is never brought to market for the purpose of satisfying his need.

If the quantity supplied and sold in the market for any one commodity is insufficient to satisfy the effective demand for that commodity, those who are willing to pay the full value of the rent, wages of labour, and profits which must be paid before the commodity can be sold cannot obtain the quantity they require. supply.Some of them, rather than being deprived of the commodity, would rather pay a higher price.Competition then takes place among the demanders.And the market price rises more or less above the natural price.The extent to which prices rise will be determined by the degree of scarcity of goods, and by the intensity of competition arising from the degree of wealth and waste of competitors.But the degree of competition which a degree of scarcity can give rise to among competitors equally rich and equally luxurious, depends upon the importance of the commodity to the aspirant.The necessaries of life, therefore, are always very expensive when a city is blocked or there is a famine.

Conversely, if the quantity of such commodity sold on the market exceeds its effective demand, it cannot be sold in its entirety to those who are willing to pay the full value of the rent, wages of labor, and profits which must be paid before it can be sold, of which A portion must be sold to someone with a lower bid.The lowering of this part of the price will inevitably lower the price of the whole.Thus its market price falls more or less below its natural price.The magnitude of the decline depends on how the excess increases the competition of sellers, or how eager sellers are to sell their goods.Although the excess is the same, the over-importation of perishable goods causes greater competition among sellers than the over-importation of durable goods.For example, a plethora of citrus fruits will give rise to greater competition among sellers than a plethora of old-fashioned ironware.

If the quantity of this commodity on the market is just enough to supply its effective demand, the market price will be exactly the same, or nearly the same, as the natural price.This whole quantity of commodities, therefore, can be sold at the natural price, and not at a higher price.Competition among the various merchants compels them all to accept this price, but does not induce them to accept a lower price. The listing of each commodity will naturally adapt itself to the effective demand.For it is in the interest of all who supply the market with commodities, employing land, labor, or capital, that the quantity of commodities not exceed the effective demand; it is in the interest of all others that the quantity of commodities not be less than the effective demand.

If the quantity of a commodity in the market should ever exceed its effective demand, some component of its price must fall below its natural rate.If the fall is rent, the interest of the landlord will at once prompt them to withdraw a part of the land; if the fall is wages or profit, the interest of the laborer or employer will also prompt them to withdraw a part of their labor or capital from the original use.The quantity of commodities in the market, then, will soon be just sufficient to supply its effective demand, all the constituent parts of prices will soon rise to their natural levels, and the whole price will again agree with the natural price.

Conversely, if the quantity of a commodity on the market is insufficient to supply its effective demand, some component of its price must rise above its natural rate.If the rise were rents, the interest of all other landowners would naturally prompt them to prepare more land for the production of this commodity; if the rise were wages or profits, the interest of all other laborers or merchants Use more labor or capital to manufacture this commodity and send it to market.The quantity of commodities in the market, then, soon amply supplies its effective demand, all the constituent parts of the price soon fall to their natural levels, and the whole price again agrees with the natural price.

The natural price is thus only the central price, to which all commodity prices are constantly attracted.Incidents of all kinds, it is true, sometimes raise the prices of commodities above this central price, and sometimes depress them below it.But, in spite of every obstacle which prevents them from being fixed at this fixed centre, they are always directed towards this centre. The whole quantity of labor which is annually employed in bringing a commodity to market, will naturally adapt itself in this manner to the effective demand.The object, of course, is to always supply the market with an adequate quantity of commodities, so that the supply is sufficient to meet the demand, and not exceed it.

But while in some businesses the quantity of commodities produced by the same amount of labor may vary greatly from year to year, in others they are often equal, or nearly equal.For example, the same number of agricultural laborers produces different quantities of corn, wine, oil, khaki flowers, etc. from year to year; but the same number of weavers produces linen and woolens. Equal, or nearly equal.In the case of the former industry, the quantity of production which suits the effective demand is only the average amount of production in that industry.Because the actual production volume is often much larger or smaller than the average production volume, the quantity of commodities on the market sometimes greatly exceeds their effective demand, and sometimes it is extremely insufficient to supply their effective demand.Even if the effective demand should always remain the same, the market-prices of commodities will still vary from time to time, and will sometimes be much higher and sometimes much lower than their natural rates.But in the case of the latter industry, as the quantity of the same quantity of labor produced is always the same, or about the same, the quantity of production is more exactly adapted to its effective demand.As long as the effective demand remains the same, the market prices of commodities remain the same, and are exactly the same, or nearly the same, as the natural prices.It is well known from experience that the price of linen and cloth does not fluctuate so often, nor so frequently, as that of corn.For the price of the former changes only with changes in demand; the price of the latter changes not only with changes in demand, but also with greater and more frequent changes in the quantity of commodities brought into the market to supply demand.

Occasional and momentary fluctuations in the market price of commodities have a major effect on the wages and profits part of the price, but not much on the rent part of it.Rent, fixed in money, is in no way affected by it, either in ratio or in value.No doubt the rent of ground, calculated as a definite proportion or quantity of the native produce, can be affected only by the value of the annual rent, and cannot be affected by it in the comparison of the annual rent.In agreeing on the terms of the tenancy, both the landlord and the farmer try, to the best of their knowledge, to adapt the rate of rent to the average price of the produce, and not to its temporary price. These accidental and temporary changes depend on whether there is too much or not enough commodity or labor accumulated in the market at that time, in other words, depending on whether there is too much or not enough work done or to be done in the market at that time, and have a great impact on the value and ratio of wages or profits. Influence.On occasions of national mourning, the stock of black cloth is often felt insufficient, so that the market price is high, and the profit of the merchant who holds a large amount of this commodity is increased.However, it is only the merchant's profit that is increased, while the wages of the weaver are left unaffected.Because at this time, what is lacking in the market is commodities, not labor. In other words, it is the completed work, not the work to be done.However, although the national mourning cannot affect the wages of the weavers, it will raise the wages of the seamstresses.For, in this case, it is labour, which is felt wanting, for which the effective demand is greater than the present supply, that is, for the work to be done.National mourning lowered the price of festooned silk and cotton cloth, thereby reducing the profits of merchants who held large quantities of festooned silk and cotton cloth, and the wages of laborers who refined these commodities.Because at this time, the demand for these commodities and the laborers who produce them will inevitably stop for half a year or even a year.There is, therefore, a greater supply of such commodities and of such labour. Although the market prices of various commodities may be said to have a constant tendency towards their natural prices, there are many commodities whose market prices, sometimes as a result of special accidents, sometimes of natural causes, and sometimes of special policies, It can greatly exceed its natural price for a considerable period of time. When the market price of a commodity rises much above its natural price, as a result of an increase in the effective demand, the suppliers of the manufactured commodity generally take care to conceal the change.Had it been known, its lucrative profits would have induced many new competitors to invest in it.As a result, the effective demand is completely supplied, and the market price of the commodity soon falls to, or even falls below, its natural price.If the suppliers are far from the market, they are sometimes able to keep the secret for years, during which time they enjoy very large profits to themselves.It must be admitted, however, that such secrets are seldom kept long, and that the extraordinary profits are enjoyed only as long as the secret is kept secret. The secrets of manufactures can be kept longer than the secrets of commerce.If a dyer discovers a method of making dyes at half the cost of the usual method, and he can handle them properly, he can enjoy the benefits of this discovery exclusively for life, and even pass it on to his children and grandchildren.This extra gain arises from the high price of his individual labour, and so may properly be called the high wages of his personal labour; but as he receives this gain repeatedly for every part of his capital, and the sum of his gain remains in a certain proportion to the sum of his capital, Therefore, it is usually not said to be a high wage of labor, but to say that it is an extra profit of capital. This increase in the market-price is evidently due to peculiar accidents, but its effect sometimes persists for many years. Some of the produce of nature require a peculiar soil and a peculiar position, so that, even if all the land suitable for their production in a great country were employed, would not be sufficient to supply the effective demand.The whole marketed quantity of this produce is therefore likely to be sold to those who are willing to pay a special price, that is, a price which exceeds, at the natural rate, the rent of the land on which they are produced, and the expenses of their production and distribution. The price of the wages of labor and the profit of capital.This commodity can be sold at such high prices for centuries.The ground-rent part of its price is thus generally higher than that calculated at the natural rate.The rent of the land producing such a precious produce, such as that of a precious vineyard in France, having a good soil and location, does not always remain in constant proportion to that of other land adjacent to it, equally fertile and equally well cultivated.On the contrary, the wages of labour, and the profits of stock, part of their price, tends to maintain a natural proportion to those in other neighboring places. This increase in the market price is evidently due to natural origin.This cause will prevent effective demand from obtaining a sufficient supply, and its operation will therefore continue forever. Giving a monopoly to an individual or a commercial firm has the same effect as keeping a secret in commerce or manufactures.A monopoly keeps the market constantly short of inventories so that effective demand can never be fully supplied.They can thus sell their commodities at a market price which greatly exceeds their natural price, and their remuneration, whether wages or profits, greatly exceeds their natural rate. The monopoly price is, at any time, the highest possible price.The natural price, or the price of free competition, is, on the other hand, the lowest possible price in long periods of time, though not in every period.The monopoly price is, at any given time, the highest price that can be squeezed from buyers, or the highest price that buyers are willing to pay, while the natural price or price of free competition is the lowest price generally accepted by sellers. That is the lowest price he can continue to operate. The exclusive privileges of associations, the statutes of apprenticeship, and the statutes which limit the number of persons who compete in particular trades, are not so much in degree as monopoly, but are in the same direction as monopoly.They are an extended monopoly, which tend to keep for a long time above the natural price the market-price of all the commodities of certain industries, and to raise the wages of the labor employed in their production, and the profits of the stock a little above their natural rates. This increase in the market price is obviously due to the provisions of various laws and regulations.This increase in the market price will continue so long as these regulations remain in force. Although the market price of any commodity can be higher than its natural price for a long time, it cannot be lower than its natural price for a long time.If any one component part of the price falls below the natural rate, the loss is immediately felt by those whose interests are affected, and a part of the land or labor or capital is immediately withdrawn from use, so that the quantity of commodities brought to market is precisely enough supply effective demand.The market price, therefore, will soon rise to the level of the natural price.At least that is the case where there is complete freedom. The statutes of apprenticeship, and other regulations, which, when manufactures prosper, raise the wages of the labourer above their natural rate, will, when they decline, sink them below their natural rate.For these statutes, in the one case, prevent others from entering their trade, and in the other, prevent them from changing to many other trades.These laws, however, act so long in raising the wages of the labourers, as they do so long in lowering them.In the case of the former, the operation of these laws lasted for many centuries; in the case of the latter, they could not continue when some of the laborers who had been trained in the trade during the prosperity of the industry died away.After their death, the number of laborers who learn the trade will suit the effective demand.As for Jidu and ancient Egypt, each person has the obligation to inherit his father's business according to the canon, and if he changes his occupation, he will be punished with the most terrible crime of blasphemy. Or the profit of capital falls below the natural rate for several generations. That is all I think I have to say about the temporary or permanent difference between the market-price of commodities and their natural price. The natural price itself varies with changes in the natural rates of its constituent parts, wages, profit, and rent.But in any society, this natural rate varies with the wealth, the decline, or the stagnation of the society.In the next four chapters I will do my best to explain the reasons for these changes in as much detail as possible. In the first place, I shall endeavor to show what circumstances naturally determine the rates of wages, and how these circumstances are affected by the wealth, decline, or stagnation of progress in society. Secondly, I shall endeavor to show what circumstances naturally determine the rate of profit, and how these circumstances are affected by the above-mentioned changes in the social conditions. Thirdly, I will endeavor to show what circumstances govern the proportions which follow.Although money wages and money profits vary greatly according to the different uses of labor and capital, there seems to be a certain proportion between the money wages for various labor uses and the money profits for various capital uses.As will be explained in a later chapter, this proportion depends partly on the nature of the various uses and partly on the different laws and policies of the society in which it is located.But this proportion, though governed in many respects by law and policy, seems to remain constant, or nearly constant, in all these different conditions, independent of the conditions of the society in which it is rich or poor, or of declining or stagnant progress. Fourthly, I shall endeavor to show what circumstances govern the rent of land, and either raise or lower the real price of all the produce of land.Chapter VIII Of Labor