 |
The risk, which the producer runs until the commodity produced is actually consumed must also be borne in mind.(637) There are things which are a real risk in small enterprises that by the intervention of an insurance company, or where the enterprises are large and insure themselves, become a more or less variable portion of the cost of production. The price of the product, in the latter instance, rises, by this means, very regularly. In the former case, the rise depends partly on the feeling of the people whether their pleasure in gain is greater than their grief over a corresponding loss.(638)
Those enterprises which necessarily produce different products at the same time deserve special consideration.(639) Here we may speak of "united costs of production," and all that is needed is that the aggregate of these costs should be covered by the aggregate price of both products. This complicates to a certain extent the calculations which the seller must make to determine his minimum demand for each product. To ascertain this, he must subtract from the united costs of production the amount of value which he expects with certainty for the other product.(640)
Section CVII.
Equilibrium Of Prices.
Goods whose cost of reproduction,(641) that is, the highest necessary cost of reproduction is the same, have uniformly the same value in exchange. Every deviation from this level immediately sets forces in motion which endeavor to restore the level, just as the water of the sea seeks its level, notwithstanding the mountains and abysses which the winds bring forth from its bosom.(642)(643)
Section CVIII.
Effect Of A Rise Of Price Much Above Cost.
If the market price rises high above the cost of production, producers make a profit greater than the average profit made in the country. This induces them, by the appropriation of new land and the employment of new labor and capital, to increase their business. Other parties also engage in this profitable department of trade. This competition not only makes the means of production dearer, but must eventually, by increasing the demand, reduce the price of the product to the ordinary level of profit, that is to an equilibrium with other commodities.(644) Hence, in the beginning, every diminution of the cost of production(645) turns to the advantage of the producer; but afterwards and permanently to that of the consumers: an economic law exceedingly beneficent in its operations, and not unlike the action of positive legislation in the matter of patents. There is no greater stimulus to the making of improvements than the certainty of reward to the person who first introduces one. The moment, however, that the improvement is imitated by all producers, the advantage gained by it becomes the common good of the whole nation.(646) These are, as J. B. Say says, conquests made over the gratuitous productive force of nature. As a consequence, the value in use of a people's resources increases; generally, also, their value in exchange, in so far as the production of the now cheaper goods increases in a degree greater than their cost of production has diminished.(647)
As to the alternative so frequently discussed, whether it is preferable to make a large percentage of profit on the sale of a small quantity of goods, or a small percentage on a large quantity, we find that, in the lower stages of civilization, the former is preferred, and the latter in the higher.(648) And, indeed, the latter is not only more humane, but, in the long run, it is more profitable to the person who adopts it as his rule in business. In the case of commodities, he now runs but little risk from a change of fashion, because the fashions of the masses change much less rapidly than those of the upper circles of society. In the case of indispensable goods, on the other hand, he may now calculate with more certainty on the increase of population, and, therefore, on a future market for his wares. Competition, which in former times, devoted all its efforts to bringing about the exclusion, by law, of all rivals, is now engaged, principally, in devising means of surpassing them by superiority of workmanship, and in thus increasing the power of the real sources of a nation's wealth.
Section CIX.
Effect Of A Decline Of Price Below Cost.
If the market price sinks below the cost of production, the producer naturally suffers a loss, and diminishes his stock as soon as possible. That whole establishments engaged in industry should forsake a branch of it which is suffering from depression and enter a flourishing one, must ever remain a rare exception.(649) But the discouraged manufacturer may delay renewing his stock on hand,(650) replacing his machinery by new machinery; he may dismiss some of his workmen and diminish the number of days during which the others shall work. Moreover, most industries are operated by means of borrowed capital, capital which must therefore, be returned to the lender. Under certain circumstances, however, the industry may be continued for some time, even at a real loss,(651) so long as the loss of interest etc., which would follow the entire suspension of the work, exceeds the loss produced by the lowering of price, but hardly any longer. If the supply of the commodity the price of which has fallen has been diminished, the subsequent result depends on the causes which, in the first place, brought about the fall in price. If the diminution in price was caused solely by a too great supply, when this superabundant supply is gotten rid of, the price will rise again.(652) If it were produced by a decrease in the value in use of the commodity, the diminution of the supply can restore the former state of things only in so far as at least a part of the purchasers ascribe to the commodity the same value in use as before.(653) Lastly, if the lowering of the price came from a decrease in the number of buyers, or from a decrease in their ability to purchase, the former price will be restored when production has been adapted to a correspondingly smaller circle of consumers.(654) This last is true especially when the price, without having suffered any absolute change, has become relatively too low, on account of an increase in the cost of production.(655)
Chapter CX.
Different Cost Of Production Of The Same Goods.
Most goods are produced at the same time, but under different circumstances, at a very different cost. In order to estimate the influence of this fact upon price, we must distinguish between those commodities the cheapest manner of the production of which may be extended at pleasure, and those in the production of which it is necessary, in order to satisfy the aggregate want of them, to call in the dearest mode of production to aid the cheapest.
In the former instance, the price of commodities is naturally regulated by the least cost of production. The person who is unable to sustain this competition permanently, would do a great deal better to abandon the industry altogether; for it is not in his power to raise the price by diminishing the supply; more powerful rivals would then only need to correspondingly increase theirs.(656)
If the same law were applicable, in the latter case, producers placed in a less favorable situation would be compelled to immediately abandon the market. The market, in consequence, would no longer be able to provide for the aggregate need; and the price of the commodity would continue to rise until the producers who had been driven from the market returned to it again. Hence, here, price in the long run is determined by the cost of the production of the commodity, produced under the least advantageous conditions, while such production is necessary in order to satisfy the aggregate need. The person engaged in production under more advantageous conditions receives in the same price of the goods, which are cheaper to him, an excess of profit; one which is greater in proportion as his situation, vis-a-vis of production, is superior to that of his less favored competitors.(657)(658)
Section CXI.
Different Cost Of Production Of The Same Goods. (Continued.)
Hence the price of a commodity and the ratio between its supply and demand mutually condition each other. On the height of the price depends, in great part, how many purchasers shall resolve to make an effectual demand; but, at the same time, to what amount of cost of production, sellers shall extend their supply.(659) We can speak of an equilibrium between supply and demand only when the former corresponds with the wish of those who are ready to make good the full cost of production. (Malthus.) It has been asked, indeed, whether it were more natural and better that demand should precede supply or supply demand.(660) But the inquiry is an illogical one, when expressed in so general a manner, since supply and demand are only two sides of the same transaction. But, we may say that in the case of indispensable goods, the want of them (demand) is always felt sooner than the excess of them (supply), and that in the case of goods which may be dispensed with, including, originally, money, the reverse is true. Besides, a person engaging in the production of any kind of goods, can, as a rule, only seldom directly investigate the relation between supply and demand. Generally, he can do no more than compare the market price of the commodity with the cost at which he can produce it. Many mistakes are inevitable here; but the making of them is the necessary sacrifice which must be endured to purchase the more than counterbalancing advantages of free competition.(661)
Section CXII.
Exceptions.
The rule that goods which have the same cost of production have also equal value in exchange, is applicable only to the extent that it is possible to transfer the factors of production at will from one branch of production to another. Where this really free competition does not exist, the price depends entirely on the quantity of the supply, compared with the solvability or capacity to pay of the purchaser; and hence, it may sometimes rise far above the cost of production (monopoly-price), and sometimes sink far below it (forced price, or under-price).(662) Such hindrances to competition depend, in part, upon natural causes. Thus, in the case of the works of art of a deceased artist, which cannot be increased in number;(663) or in that of living celebrities who cannot extend their mental activity in the same degree that their reputation has grown. So, also, in the case of precious stones, which are sometimes found free, and therefore cost nothing, but which, at the same time, have a high price.(664) Many valuable agricultural products are, together with their production, limited to a definite and sometimes very small district.(665) It is to be regarded as a modification of such natural monopolies when substitutes for a kind of goods which diminish, at least in part, the demand for them, are found, at a cheaper price; for instance, ordinary table-wines in the stead of fine wines. The rule applies much more strictly to those goods which, on account of their greater quantity, can replace inferior ones,(666) than it does to those where this is not possible.
The principal cause of forced or under-prices (Schleuderpreise) is the facility with which the product deteriorates, and must, therefore, find a quick sale, especially when its storage or transportation is attended by further difficulties.(667) But, very durable commodities are also subject to under-prices, and especially those which last longest, because the supply of them can be diminished only very slowly. Thus, for instance, houses, in a declining city. Distress-prices are found most usually in the case of such commodities as are produced without any intention to produce them, as for instance, rags and excrementitious substances. The more the mere forces of nature preponderate in production, the less can the supply be increased or decreased at pleasure, the more frequently, as a consequence, do we find monopoly-prices and under-prices. (Compare 131 ff.) Thus the production of wheat is invariably connected with the order of the seasons. Between seed-time and harvest, there are a number of months which neither capital nor skill can shorten to any extent. The cultivation of land, to be very much greater and more lasting, supposes so many conditions precedent, increase of live stock, buildings etc., that it can be attained only after a series of years. Hence it happens that wheat, much more than manufactured products, is subject to oppressively high prices and oppressively low ones, during a long period of time. No matter what the influence of the forces operating in the opposite direction may be, the price of wheat depends most largely on the result of the last crop.(668)
Section CXIII.
Exceptions. (Continued.)
Other impediments in the way of freedom of competition have their origin in social conditions. The rule governing prices applies only where the vendor and purchaser are equally ready to exchange. But in every case in which the producer carries on his business, not for the sake of free gain, but simply to obtain a means of livelihood, it may be subject to many important exceptions.(669) The richer a seller is, the longer can he wait for a favorable opportunity to sell. Thus, for instance, wheat is somewhat lower in price at times when payments are universally made than at other seasons of the year, because a great many country people are then compelled to sell. Where the country population are universally needy, it sinks after a harvest to an unusually low figure, and in spring rises again very high.
Sometimes price is affected by the agreements of the purchaser or seller, but most readily by those of middlemen between consumer and producer.(670) Customs peculiar to whole classes may exert the same influence, and such customs are especially powerful in the lower stages of business and industrial development. They, even at the present time, take the place, frequently, of freedom of competition in retail business, in the book business, and in the determination of lawyers' and doctors' fees, as well as in the distribution of a nation's income among the three great branches of its general economy,(671) deciding, instead of competition, how much shall go to each. Wherever there are guilds, communities, castes etc. with legal privileges; wherever there are difficulties placed in the way of exportation and importation; wherever preemption rights or monopolies,(672) in the strict sense of the word, exist, the leveling ebb and flow of the elements of production may be still more seriously interfered with. Legislation(673) of this sort injures the non-privileged portion of the population more than it helps the privileged portion. (See 97.)(674)
The word usury, so arbitrarily used in every-day language, should be admitted in science only to designate a famine-price, fraudulently and intentionally caused or intensified.
Section CXIV.
Prices Fixed By Government.
No power can, of course, fix the price of a commodity in the long run, which cannot at the same time fix the relation of supply and demand. Hence, set prices fixed by governmental authority can be made to play a part in practice only in so far as they do not establish a price in opposition to the real state of things, only to the extent that they give undoubted expression to it in a manner in harmony with natural conditions. With this restriction, set or fixed prices may, in the absence of real competition, which can always best determine prices, be useful to both parties; otherwise one party would at one time, and the other at another, profit by an unjust advantage; but it would not be long before both would suffer from the perturbation caused thereby in all commercial transactions. How pleasant it is for a traveler in Switzerland, or even in Italy, to find set prices established there.(675) Especially where competition is prevented by state privileges, the establishment of set prices by the state for the protection of the public may be necessary.(676) It is more difficult to fix a set price for a commodity in proportion to its complexity and to its variableness in quality; and where there are different grades of quality of the same commodity, and the transition from one grade to another is almost imperceptible, such price is easily evaded.(677) In the case of every enterprise carried on by many in common, where no competition is possible, it is necessary to supply the defect by means similar to the establishment of fixed prices; as in the case of government, by fees for governmental services, and the cooeperation of a chamber of deputies in the imposition of taxes and the determination of official salaries etc.(678)
Section CXV.
Influence Of Growing Civilization On Prices.
On the whole, prices become more and more regular as national-economic civilization advances. Progress in civilization tends to bring the parties engaged in the struggle for prices that is buyers and sellers, nearer to one another, in so far as it uniformly decreases the cost of production, and increases the purchaser's ability to pay.(679) (See 101.) The more universal division of labor makes commercial intercourse more necessary to every one, at the same time that it makes it more of a habit to him; and hence exchange ceases more and more to be a matter of caprice or chance. The better means of transportation and communication render it easier, in every way, for supply and demand to meet. With the advance of general enlightenment and education, an acquaintance with commodities also becomes more general, and every purchaser is on a better way to be able to estimate the cost of production which the seller has to bear. Hence, fraudulent prices and prices founded in error become less frequent; and all this is helped forward by the greater accuracy of weights and measures. The increase of population makes competition more active in all branches of trade, while at the same time, with the greater freedom of circulation, a number of causes which previously operated to produce very high prices in one place and very low ones in another are removed.(680) But especially, the growth of a distinct class of merchants leads to a uniformity in price. This class are incited by their own interest to purchase at low prices and sell at high prices. Thus, their competition in the former case raises prices, and lowers them in the latter.(681) In all lower stages of civilization, the custom of making offers and beating down in price plays a great part, while where culture is higher, the system of fixed prices (but not by government) gains ground continually. Here Turgot's principle is applicable, viz.: that the current price of an article is tacitly understood when one asks a merchant the price of his wares.(682)
This proposition is true in the case of individuals, as well as of classes and of whole nations.(683) It is plain, that under a system of fixed prices we can more certainly discover what the equitable price is, than in the heat of higgling which besides consumes a great deal of precious time. Lastly, one of the principal requisites of a well developed scale of prices is national honor, and this, doubtless, increases in the higher stages of civilization, not only because of the greater moral culture which then prevails, but also and especially because that which constitutes a people's real and best interests is better understood.(684) Among declining nations, many of these developments take a retrogressive road. The very great distinction between rich and poor, between educated and uneducated, again produces great fluctuations in price. A proletarian people who have sunk so low as to live on potatoes will suffer much more from variations in price and of the means of subsistence than a people who live on wheat; for the reason that it is so difficult to export or to preserve(685) potatoes. Nor can it be doubted, that the greatest possible constancy of prices is the most beneficial condition that the general economy of a people can be in. Where prices change while the cost of production remains the same, one person can only gain what the other has lost. But such unmerited gains and undeserved losses have an invariable tendency to destroy the deepest roots of a people's economic activity; and intentional speculation based upon such change usually assumes an immoral character. (Stock-jobbing.)(686) Even if Macleod be right, that an increase or decrease in prices is to be regarded as a warning of excess, the former of excess of consumption, the latter of production, no one will doubt that it is the interest of every organism to confine pain within the smallest possible limits, even if its consequences are so beneficial to the preservation of the whole body.
Chapter III.
Money In General.
Section CXVI.
Instrument Of Exchange. Measure Of Value. Barter.
Wherever the division of labor is very highly developed, the continuance of barter, or the direct exchange of one object of consumption for another, presents difficulties well nigh insurmountable. How difficult it would be always to find the person who could supply us with precisely what we wanted, and at the same time have need of what we had a surplus of.(687) But how much less frequently would it happen that one's want and another's surplus would correspond exactly the one to the other in quantity; that, for instance, the manufacturer of nails, desirous of exchanging his nails for a cow, should meet a cattle-dealer who should want exactly as many nails as a cow is worth! Here there is one chief difficulty in the way, viz.: that there are so many commodities which cannot be divided without causing a diminution or even a destruction of their value; and that others cannot be stored away in any quantity without becoming a very heavy burthen to their owner. How useful it would therefore be, if there was one commodity which should be acceptable to every person, at all times, especially if in addition to this, it possessed the qualities of durability, capacity for transportation and for being stored up and preserved. Any person who possessed a proper supply of this one commodity would then be certain of being able to obtain all other exchangeable commodities through its instrumentality; and every seller would be satisfied to exchange what he had to dispose of against this "universal commodity." If two values are equal to a third, they are equal to each other. It is, therefore, a simple matter to use this most current of all commodities, with which all others are most frequently compared, as a measure of the relative values of all other exchangeable commodities. There is need of such a measure, and it is analogous to the want experienced by the mathematician who has a column of fractions to sum up, and who does it by first reducing them all to a common denominator. (Storch.)(688) A person entrusted with the duty of assessing the values of two hundred different articles would be obliged, if he had no such measure to use, to burthen his memory with at least 19,900(689) different ratios. With it, he need carry only 199 in his head.
Such a commodity, universally in favor, and which, on that account, is employed as an intermediary in the effecting of exchanges of the most varied nature, in the measuring of all exchange-values and as a value-carrier (Werthtraeger) in time(690)(691) and space, we call money. (Merce universale: Berri; produit prefere: Ganilh; marchandise intermediare; Bastiat.)(692)
The more enlightened portions of every business community gradually come to require payment in the commodity which has for the time being the greatest circulating capacity. If to this be added the sanction of the government, and if the government itself recognizes this same "universal commodity" as the means of payment of all debts, or as "legal tender" (puissance liberatoire), where no other is expressly agreed upon, the "universal commodity" in question then becomes money in the fullest sense of the idea conveyed by the word.(693)
Section CXVII.
Effect Of The Introduction Of Money.
By the introduction of money, most exchanges are divided into two halves: purchase and sale.(694) We may also say with Schloezer, that by its means, exchange, for the first time, becomes a sale, and obscure value in exchange, clear and definite price. (Permatio vicina emtioni). Were there no money, the party to an exchange, occupying the most advantageous economic position, would possess a much greater superiority over the other than he does now. Many a bread-buyer, especially, would be half starved before he could agree with the seller on the quantity of bread to be received in exchange for the commodity he had to dispose of. The producer of the means of subsistence would here possess an extreme advantage, since the urgent necessity of the exchange for the one party, and the power of the other to postpone it, would make the determination of the price an entirely arbitrary matter.(695) Hence, the development of money as the instrument of trade, keeps pace with the development of individual liberty. Payment of wages in money makes the workman more responsible for his husbandry etc., but at the same time, freer, than payment in produce. Now, also, a higher division of labor becomes possible; for the easier it is to obtain everything else for money, the easier it is for each person to devote himself exclusively to one branch of business.(696) Without money, too, only ready commodities could be exchanged one against another. Only when money has become the instrument of trade, is it possible to separate the net from the gross returns, and, therefore, to manage income properly. (Schaeffle). Now, also, it becomes for the first time really remunerative to produce more than one needs for his own use, and to save. Without money, the owner of any one kind of capital, who could not employ it himself, would be obliged, if he desired to loan it, to find not only a person who was in need of capital, but one who needed the very kind of capital he had. For instance, the person who had one horse too many, would be obliged to look for another who was in need of one etc. And how difficult a task it would be to determine the amount of interest, if it had to be paid in produce or kind, and even to make a return in produce or kind of capital which had been presumably used. (Storch). Moveable property or resources can attain importance only after the introduction of good money, since, previous to such introduction, it was by reason of its great variety,(697) and of its perishable nature, immensely inferior to landed property. Hence it is, that money, in a nation's economy, is what the blood is in the life of the animal. It is, so to speak, the common reservoir in which all food is first dissolved, and by which, at a later stage, the elements of nutrition and preservation are distributed to the several organs.(698) There is, indeed, no machine which has saved as much labor as money. (Lauderdale). It is true that the shadows which wealth is wont to cast, extravagance, avarice and inequality of every kind, may readily grow longer and darker in consequence of the introduction of money.(699) But may not the knife which, in the hands of the surgeon, does so much for life, become an instrument of danger in the hands of a child? The invention of money has been rightly compared to the invention of writing with letters.(700) We may, however, call the introduction of money as the universal medium of exchange (money-economy),(701) in which goods intended for use are exchanged against money(702)—instead of barter (barter economy), which is a system of public economy (Schaeffle), in an, as yet, very little developed form, man being there less sociable with his fellow men—one of the greatest and most beneficent advances ever made by the race.(703)
Section CXVIII.
The Different Kinds Of Money.
Very different kinds of commodities have, according to circumstances, been used as money; but uniformly only such as possess a universally recognized economic value.(704) On the whole, people in a low stage of civilization are wont to employ, mainly, only ordinary commodities, such as are calculated to satisfy a vulgar and urgent want, as an instrument of exchange. As they advance in civilization, they, at each step, choose a more and more costly object, for this purpose,(705) and one which ministers to the more elevated wants.
A. Races of hunters, at least in non-tropical countries, usually use skins as money; that is the almost exclusive product of their labor, one which can be preserved for a long period of time, which constitutes their principal article of clothing and their principal export in the more highly developed regions.(706)
B. Nomadic races and the lower agricultural races,(707) pass, by a natural gradation, to the use of cattle as money; which supposes rich pasturages at the disposal of all. If it were otherwise, there would be a great many to whom payments of this kind had been made, who would not know what to do with the cattle given them, on account of the charges for their maintenance.(708)
Section CXIX.
The Metals As Money.
C. That metals were used for the purpose of money much later than the commodities above mentioned, and the precious metals in turn later than the non-precious metals, cannot by any means be shown to be universally true. Rather is gold in some countries to be obtained by the exercise of so little skill, and both gold and silver satisfy a want(709) so live and general, and one so early felt, that they are to be met with as an instrument of exchange in very early times.(710) In the case of isolated races, much depends on the nature of the metals with which the geologic constitution of the country has furnished them.(711) In general, however, the above law is found to prevail here. The higher the development of a people becomes, the more frequent is the occurrence of large payments; and to effect these, the more costly a metal is, the better, of course, it is adapted to effect such payments. Besides, only rich nations are able to possess the costly metals in a quantity absolutely great.(712) Among the Jews, gold as money, dates only from the time of David.(713) King Pheidon, of Argos, it is said, introduced silver money into Greece, about the middle of the eighth century before Christ. Gold came into use at a much later period.(714) The Romans struck silver money, for the first time, in 209 before Christ, and, in 207, the first gold coins.(715) Among modern nations, Venice (1285) and Florence seem to have been the first to have coined gold in any quantity.(716) Henry III. of England (ob. 1272), was the first to coin gold, but with so little success, that for a long time after, Edward III. (ob. 1377) was regarded as the first English monarch who had coined gold.(717) How little a barbarous people are in a condition to make use of very costly material as money, is proved by the account which Tacitus gives of the ancient Germans, who preferred silver to gold in trade.(718) England presents us with an instance of the other extreme. Since 1816, silver, in that country, has been used only as a species of change, and the circulation of gold governs in almost all commercial transactions.(719)
D. The local usage of some countries has raised many other commodities to the dignity of instruments of exchange, especially where the population are poor and the metals which might be used as money have not existed in sufficient quantities or in the requisite proportion. But people have always limited themselves in the material of their money to such commodities as are universally acceptable, as uniform as may be, and current as articles of export or import.(720)
Section CXX.
Money—The Precious Metals.
That the precious metals are uniformly preferred in highly cultivated nations(721) as the instrument of exchange, depends on the greatness and uniformity of their value in exchange, but especially on their durability and pliancy as to form.
This value in exchange is great, because their beauty, which consists in their luster and their sonorous ring,(722) gives them great value in use; and because, at the same time, their rarity in nature makes the supply of them relatively small,(723) and not susceptible of increase at pleasure.(724) As they contain so large a value in so small a volume, they are adapted to transportation from one place to another, with but little difficulty—a matter of the greatest importance in an instrument of exchange.(725) Hence, it is much easier to keep the demand for them and the supply of them at a level all over the world, than it is the demand and supply of most other commodities. And this all the more as there are not different kinds of gold and silver, but only different qualities of their fineness.(726) It also contributes to the uniformity of their value in exchange, that they minister mainly only to wants of luxury. The most indispensable commodities are subject to the greatest variations in price (see 103), whereas, in the case of the precious metals, the diversity of uses to which they may be turned contributes greatly to render their value, as instruments of exchange, more equable. If the supply of them be small, gold and silver vessels are less in demand; a part of the old ones are melted down, and vice versa.
In durability, the precious metals surpass almost all other commodities. They are not at all affected by air or water, and they can be corroded only by very few fluids. Fire may, indeed, change their form, but scarcely in any degree the value of the material of gold, and that of silver very little, and then only when it is subjected to a very powerful blast or draught of air.(727)(728) Hence, while by laying them by, they suffer virtually nothing at all (a most valuable article is an article to deposit savings in), their wear and tear from use may be very much decreased by an admixture with other metals in the proper proportion.(729) This durability contributes largely to keep the price of the precious metals more uniform. By the time that the wheat crop is rightly harvested, the great bulk of the previously stored wheat is, as a rule, consumed; and, therefore, the supply of wheat depends almost entirely on the yield of the last crop. On the other hand, it is probable that there is many a piece of money, the raw material of which was dug from Thracian gold mines in the time of King Philip or from the silver mines of Spain during the reign of Hannibal, in circulation to-day. Compared with the immeasurable stores of gold and silver which have gone on accumulating for thousands of years, the new yield of them, in any one year, is lost like a drop in a bucket. Hence, only when the yield of the mines has continued for a very long time, or when it is exceedingly great or remarkably small, can the price of their products change to any great extent.(730) Even during the revolution in prices, between 1492 and 1560, the yearly decline in their prices was only one-half of one per cent. per annum.
Their great pliability of form has, too, very important advantages for our purpose: first, that they can be divided very accurately into very small parts, and that the volume of every part corresponds exactly to the value of the part;(731) and secondly, that they take an impression at very little cost, an impression which is an authoritative and trustworthy expression of their weight and quality, thus saving the commercial public the perilous trouble of weighing and testing them every time they are used.(732)(733)(734) This duty the state, as a rule, assumes. (Coinage.) When its authority, however, is not recognized, as is generally the case in international trade, gold and silver bars are even now used, and have, therefore, to be weighed and tested.(735)(736)
Section CXXI.
Value In Use And Value In Exchange Of Money.
The original value in use of the precious metals, to satisfy certain wants of luxury in the most aesthetic and the most substantial manner, continues still; but with the advance of civilization, the employment of gold and silver for this purpose has fallen farther and farther behind the more recent employment of these metals as the best material for money. And since now the services rendered by money may be divided into two classes: storing up or preservation, and the transmission (division, concentration) of values,(737) the former always plays a greater part in the earlier states of the development of trade by money; and the latter plays the larger part in the later stages of the same development. We may best compare money to the other machines or instruments of commerce.(738)
The person who, in times when there is a dearth of goods, and especially of capital, complains of a want of money, commits the same error as if he ascribed a scarcity or absence of grain, when it exists, to a too small number of wagons to carry it, or to the narrowness of country highways. The inference may, indeed, be sometimes well-founded, but certainly only by way of exception; and yet it is generally the first which politico-economical quacks think of in practice.(739) Like all tools or instruments, money constitutes a part of an individual's or a nation's, or of the world's capital. Considered from the point of view of private business or economy, money is circulating capital, but from the point of view of the world's economy, it is fixed capital.(740)
Section CXXII.
Value In Exchange Of Money.
The value in exchange of money is said to be high when all other commodities estimated in money are cheap; and low in the opposite case. We have here to do with the application of the most general of all laws of price; therefore, with the demand and supply of money. The demand for it depends on the wants and the means of payment of its purchasers. Therefore, if a country has little trade, it will, on this account, need only few instruments of trade, that is, of little money to effect exchanges. If it be poor in other goods, it will get little money in exchange. In the former respect, there is a beneficent principle of equalization or compensation which decreases the price-variations of money, no matter of what kind, in the necessity, when the number of business transactions remains the same and money becomes cheaper, to use more of it, and less when it becomes dearer.(741) The supply of money is, in the long run, dependent chiefly on the cost of production. But since the cost of production in different mines is very different, the value in exchange of the precious metals is determined by the cost of producing them from the poorest mines which must be worked in order to supply the aggregate want of them. (See 110.)(742) The more unfavorable the conditions of their production are, the greater is the quantity of commodities which must be given for a pound of gold, silver etc.; that producers may not be deterred from the prosecution of their work. The extremes of the value in exchange of money are dependent on the use for which it is intended. That value cannot rise higher than to the point at which single pieces of money become inconvenient on account of their smallness, nor sink lower than the point at which a similar inconvenience is produced by their too great size. In both instances, it would become necessary to have recourse to other instruments of exchange.
Section CXXIII.
The Quantity Of Money A Nation Needs.
How great the amount of money needed in the entire economy of any state is, cannot be always rightly determined, either by the amount of the national resources, or by the number of the population.(743) It is a very easy thing to refute the opinion, that the aggregate amount of cash money in a country constitutes an equivalent of the aggregate amount of all other commodities to be found there at any time, in such a way that the two pans of this great scales (Locke) hang always in a state of equilibrium, and that an increase of the amount of money, the amount of all other commodities remaining the same, must be productive of an exactly corresponding decrease in the value of each piece of money.(744) Think only of the great many commodities which are obtained and consumed without any exchange whatever! Rather does the amount of money necessary to keep the value in exchange of the money employed in a people's public economy unaltered,(745) depend on the cooperation of the following conditions:
A. The number and extent of such commercial transactions as are effected by means of money;(746) a relation which, evidently, increases (see 56, ff.) with every advance in the division of labor. Hence the transition from serfdom and socage service to free labor, from domestic-servant labor to day-labor and piece-work, from feudal military service to that of paid and standing armies, from land-privileges and allowances in produce, such as fire-bote etc., to the payment of officials in money, from dues in produce to taxes in money, and regular lease-hold interests, from requisitions to loans of money; in a word, from the barter-economy (Naturalwirthschaft) of the middle ages to the trade by means of money in the higher stages of civilization, that is, from the "feudal" to the "commercial" system must, of itself, increase the money-need (Geldbedarf) of a people.
B. The rapidity of the circulation of money; because, in most commercial transactions, one dollar which circulates ten times a year really performs the same service as ten dollars which go from hand to hand once in a year; just as the economic use of a ship employed in the transportation of commodities does not depend on its commodiousness alone but on its rapidity also.(747) The economic use of money does not depend on its amount simply. Says Sismondi: "The amount of the medium of circulation in a state must be equal to the sum of the payments made in it in a given time, divided by the sum of the times the former has, on an average, changed owners within that time."(748) Under given economic circumstances, the rapidity of the medium of circulation is, taken all in all, not by any means an arbitrary matter. It will happen very seldom that one man will purchase or consume a commodity in order that another may not want money.(749) Were the greater number of money-earners (and in nations with a healthy economic life this number is always made up of men noted for the good management of their own affairs) inclined to pay out the money which they had taken in, rapidly, a very active production would prevail everywhere; and this, in turn, supposes general commercial freedom and great legal security. The less these conditions are developed, the more difficult it becomes, not only to lay out the money received to-day productively to-morrow, but the more imperatively does a proper foresight demand, that a reserve-fund should be maintained for times of necessity. (See 43.)(750) Even in the same age and among the same people, money moves most slowly under the influences of troublesome and critical epochs; for the dangers of war and sedition, of impending burdensome taxation, commercial gluts and numerous cases of bankruptcy uniformly operate to make the possessors of money hold anxiously to their present supply.(751)
In less civilized countries, the same condition of things leads the people even to bury their money-treasures. In large cities, the circulation of money is generally more rapid than in the country districts; in a thickly populated than in a thinly populated country; and in trade than in agriculture.(752) Every improvement in the means of intercommunication tends to facilitate it. The rich man possesses, as a rule, less money, relatively speaking, than the poorer man. Hence, a more equable division of a nation's resources among the people would increase the amount of money needed.(753) While the concentration, as to time, of circulation into few great terms of payment is calculated of itself to cause a large sum of money to remain idle in the interval,(754) its concentration in space in large commercial cities must dispense with the necessity of a great number of instruments of exchange. In England, it is customary for every man in comfortable circumstances, as soon as he receives any money, to deposit with a banker, and to make all his payments by means of checks upon the latter. Cash money is now employed by Londoners only in payment of wages, and in trade between retail dealers and consumers. The banker is there the common cashier of a great number of private individuals, and is in a condition to make their payments for them with a much smaller amount of money, especially when they are to be made by one of his depositors to another.(755) This "union of money-chests" (Kassenvereinigung) has been effected also on a larger scale; inasmuch as bankers, in greater or smaller numbers, are wont to have one bank as a center; and the country banks, in turn, to be in constant relation with the great moneyed institutions of London, subject to a species of general superintendence by the Bank of England. These great monetary institutions have, so to speak, a common rendezvous at the Clearing-House, where the greater part of their payments are made by a mere off-setting of debits and credits;(756) and this bank is, as it were, the cashier-in-chief of the nation, and in possession of almost the entire cash stores of the English people.(757)
C. The quantity and rapidity of circulation of the representatives of money. These, in so far as they are worthy of the name here given them, depend on the credit of those who issue them; that is, on the certainty that they shall, at the time fixed, be redeemed in money. To this category belong the paper money of the state which bears no interest, and the treasury-notes of the state which do bear interest, bank notes, bills of exchange, promissory notes, book-credits of private persons, sometimes even certificates of the storage of goods in public stores. It is estimated, that, at the present time, nine-tenths of all the payments made in Great Britain are effected without the aid of money, or even of bank-notes.(758) The capacity of a person to make purchases does not depend simply on the amount of money he possesses, but on his credit likewise. The person who buys on credit, contributes as much to raise the price of commodities as the person who buys for cash; with this exception, however, that when the former eventually fails to redeem his promise to pay, the price raised by him quickly falls again.(759) And, indeed, all the various forms of credit, mentioned above, agree essentially in this, however they may differ from one another in costliness and rapidity of circulation.
Section CXXIV.
The Quantity Of Money A Nation Needs. (Continued.)
Of the three conditions above mentioned, it is evident that the first operates on the amount of money needed, in a direction opposite to that of the other two. The usual course of development is this: among an advancing people, the number of money transactions increases at first; later, when education has become general, and the people have grown habituated to the giving and receiving of credit, the circulation of money is accelerated, and an increase of the substitutes for money effected. Hence, it is perfectly natural that the money-need of a people whose public economy is only half developed, should, in proportion to the number of inhabitants, be greater, not only than that of a people whose economy is wholly undeveloped, but also, than that of a people whose public economy has been carried to the highest point of perfection.(760)(761)
Section CXXV.
Uniformity Of The Value In Exchange Of The Precious Metals.
The peculiar properties of the precious metals described above ( 120), explains satisfactorily enough, why, at the same time, but in different countries, they have more nearly the same value in exchange than any other commodity whatever. Like a fluid in tubes which communicate with one another, the precious metals seek the one same level of value the whole world over.(762) Only, it must not be supposed that every absolute or relative increase of the amount of money in a country must produce immediately a corresponding diminution of the value of money; and in addition to this cause an exportation of money.(763) If the number of trade-transactions increases in the same proportion as the amount of money, the value of money remains entirely unaffected.(764) The same thing occurs when the increased influx of money, instead of overflowing the channels of circulation, only swells the volume in the ready-money reservoirs. By means of these stores of ready money, very large payments may be made by one nation to another, without changing the circulation, or, therefore, the value of money, in the slightest degree, on either side.(765) If, indeed, such payments should continue for a long time to flow in the same direction, they would certainly influence the circulation, and then produce a current in the opposite direction.
However, it may happen, that the value of money in different countries may be permanently different, when there are lasting difficulties in the way of the leveling influence of the incoming or outgoing current of money. Thus, the precious metals maintain a high value in those countries especially which can obtain them only by giving commodities difficult of transportation for them. If, for instance, an Englishman, anxious to take advantage of the high value of money in Poland, should cause Polish articles, such as wheat, wood, wool etc., to be imported into England, they would reach their destination very much increased in price, because of the great cost of transportation. Whether Poland or England would have to bear this cost depends on the relations of supply and demand. Certain it is, however, that the migration of money is hereby rendered exceedingly difficult, forbidden even within the limits of certain value-differences, especially where the means of communication are universally bad. And so, the smaller the number of countries which minister to the want of commodities of precious-metal districts, the more must other nations obtain the money they need only at second and third hand; by means of which, naturally, money itself is made dearer each time. Now, it is, as a rule, nations in a low stage of civilization, that engage in the exportation of raw material, and they are the worst adapted to engaging directly in the carrying on of trade. When, therefore, they do not possess gold or silver mines themselves, money-value is, as a rule, highest with them; especially as the absence of legal security and protection, which generally obtains there, makes the value in use of the precious metals one of great urgency to them.(766)(767)
Direct legislative or governmental provisions may operate in the same direction; as, for instance, the Japanese embargo laws which, not long since, limited all foreign trade to two foreign nations.(768) I intend to treat of the influence of taxation on the value of money, in a future work to be written by me, on the Political Economy of the State.
Section CXXVI.
Uniformity Of The Value In Exchange Of The Precious Metals. (Continued.)
Most nations can satisfy their want of the precious metals, only through the medium of foreign trade. Hence they very naturally look upon the cost of production of the articles of export by the exchange of which they obtain the precious metals either directly or indirectly, as the cost of production of these metals themselves. But, the rule that all commodities of equal cost of production have equal value in exchange is applicable only within the limits of the same economic territory ( 107), for it is frequently physically impossible, and still more frequently rendered difficult, by laws, customs and states of mind to transfer factors of production from one country to another simply on account of the more advantageous market they would there find. Thus, for instance, when England exchanges its cotton and woolen goods, and steel instruments for Mexican silver, the cost of production of the two equivalents may be very different, and the one party in this trade may permanently make a larger profit than the other.(769) According to 101, that party will be most favored in whom the desire of holding to his own commodities is farthest from being out-weighed by his desire to obtain the other. But, at bottom, silver is no very indispensable article. Especially in highly civilized commercial communities, it is easiest to obtain substitutes for it, while the principal articles of English export are, for the most part, objects with which to satisfy wants rather urgent in their nature, very general, and of rapid growth; and which, besides, are not, to any extent, difficult of transportation. It is not a matter of surprise, therefore, that English commodities, in silver countries, are generally sold above the mean price between the English cost of production and the Mexican, for instance, or the cost of procuring them elsewhere; and that silver, on the other hand, is sold in England, under the same. But this lowers the price of the precious metals of the latter country in general. Hence a change in the channels of international trade, which in most countries is the only source of gold and silver, may make the price of the precious metals dearer in one place and cheaper in another, even when the conditions of the production of mines remain entirely unaltered.(770) In an isolated country, any amount of gold and silver whatever would, finally, as soon as the people had grown accustomed to it, suffice for all the wants of circulation. But, in commerce with the rest of the world, the greater quantity and greater cheapness of the precious metals, that is of those commodities which are most current and are possessed of the greatest amount of economic energy, must, without fail, be of the greatest advantage to a country; and this irrespective of the fact that they are under certain circumstances the symptom of an especially highly developed public economy. If we suppose two nations, A and B, equal in every other point, but that A has twice as much money as B, and that prices are twice as high there as in B; yet, with the same effort or sacrifice, A could levy twice as many taxes as B. In case of a war between them, A might pay in ready money for the necessities of an army which had invaded B, with one-fourth the sacrifice which B would have to make to support its army in A, if we reverse the case, and suppose that B had invaded A.(771)
Chapter IV.
History Of Prices.
Section CXXVII.
Measure Of Prices,—Constant Measure.
If we had a measure of prices with the same universality of application and the same unchangeableness as the measure of length, which is determined by astronomical calculation, we should be able, not only to clearly understand all the data relating to value, that is to say, a not unimportant portion of historical science, but we should, moreover, have a practical means to condition and fix even perpetual annuities, in such a way, that they would always afford the same economic and purchasing power to the person receiving them. No wonder, therefore, that political economists since Petty's time have zealously labored to find a constant measure of prices.(772) If by this we understand a species of goods such that it should always maintain equal exchange-power, as compared with all other commodities, the idea of a "constant" measure of prices is unthinkable. We would have to suppose here, that not a single kind of goods varied in its price; since, otherwise, at least as compared with those that varied in price, the measure of prices would itself be variable.(773) But we may, indeed, search for a kind of goods such that its inherent elements and the elements peculiar to it, so far as it is itself concerned, and which go to determine price, should exert the same uniform influence at all times. If there be such a kind of goods, and its value in exchange as compared with other kinds of goods were to vary, we should be certain, at least, that the cause of the change was not in it, but in them; that it had not grown dearer or cheaper, but that they had grown cheaper or dearer. Such a kind of goods would have these two characteristics: A. A given amount of it would, under all circumstances, have the same value in use for the same number of persons. B. It would require, under all circumstances, the same cost to produce it, and therefore the supply might always keep pace exactly with the number of those who demanded it.(774) In this way the supply and demand of this kind of goods, abstraction made of the quantity of counter-values, would preserve forever the same invariable relation.
Section CXXVIII.
Value In Exchange Estimated In Labor.
Adam Smith is of opinion that different kinds of goods, no matter how far removed from one another they may be in time or space, have equal value in exchange, when an equal quantum of human labor may be purchased by their means. He adopts, because of the great differences in work, the average work of the common manual laborer. One work-day, and the sacrifice of "rest, freedom and happiness" therewith connected, are, under all circumstances, attended with the same inconvenience (value). If at one time this day's labor will exchange for more, and at another for less, of any kind of goods, it is only because the price of the latter has fallen or risen.(775)
But we may ask whether the same sacrifice of liberty is as great a hardship to a Russian as to a Bedouin; or whether the sacrifice of an equal amount of rest is as hard for the New Englander as it is for a Turk, or as difficult to endure on a hot day in July as in the cold of winter. Besides, we have here to do primarily only with value in exchange; and that value in the case of day-laborers' work is subject to very great fluctuations.
The elements on which the demand and supply of labor depend are not, in themselves, invariable, nor do their variations usually compensate for one another. In progressive nations, the value in use of day-laborers' work increases as well as the capacity of their employers to pay them; but, at the same time, as a rule, and at least relatively speaking, the supply of labor diminishes on account of the increase in the cost of production of workmen. Precisely the reverse of this happens in nations in their decline, and in over-populated nations. The workman is subjected to the necessity of accepting distress-prices for his work, and especially of accepting them for a long space of time.(776) How often it happens that, if only transitorily, when wages are declining, work improves, and vice versa.(777)
Ricardo's school employs, as the measure of the price of various kinds of goods, the quantity of work by which the goods themselves are produced.(778) It is evident that the same amount of common labor produces very different results, according as it is well or badly conducted. Hence Ricardo must have used the word labor in the sense of labor ideally adapted to its end. But in this way it would be impossible to reduce all the different kinds of labor to a common denominator.(779) Nor could the peculiar effects of capitalization, or the influence of the natural or artificial limitations of competition be estimated in terms of such a measure. (See 47, 107, 189.)(780)
Section CXXIX.
The Precious Metals The Best Measure Of Prices.
It is no more possible to find a constant measure of prices than it is to square the circle. (J. B. Say.) If the two magnitudes to be compared are separated from each other in space but not in time, the precious metals constitute not only the best measure of their prices, but also a very good one. But the precious metals are subject to very sensible and accidental variations in price in long periods of time. If, therefore, we would compare sums of money belonging to different times with one another, we must first construct a price-current list of all the more important articles of commerce for the time in question, and in the quantities they are needed in every day life. We would next have to calculate the average of these mean prices, and thus to determine the relative value of the amounts to be estimated.(781) The person who should limit his comparison to a few species of commodities, says von Mangoldt, would lose in exactness what he gained in comprehensibility.
In every such list, the wages of a day would occupy a very important place. The desire of exerting an influence over the lives and actions of other men, and the desire of relatively greater social distinction as compared with the social distinction of others, is very general; and there is scarcely any better evidence that it has been attained than the possession of the power of controlling a large number of days' work. The man who can keep one thousand day laborers is certainly, in a politico-economical sense, an important personage. Besides, the height of day-wages has the most direct influence on the price of many other commodities.(782)
No less important is the price of wheat, or rather of the principal article of food of the people, for the time being, with which the price of inland raw material—in so far as it can be produced from the same soil alternately with wheat—and, in the long run, also the wages of labor, are so essentially connected.(783) The same indispensable necessity of wheat which causes its price to fluctuate so largely from year to year, and from month to month, promotes the uniformity of its average price,(784) when many years are taken into the account.(785)(786) (Malthus.) If, by reason of great progress made in the art of agriculture, the cost of the production of wheat should fall to one-half of what it was, a large increase of population would certainly not be delayed long. And so, on the other hand, there would be a decrease of population if, by the destruction of artificial means of irrigation, or other steps in the direction of a retrogressive civilization, the cost of the production of wheat were to be permanently increased.
But even the average price of wheat, during a long series of years, is not entirely invariable. The increasing consumption compels the nation, as a whole, to provide for its requirement of wheat from less fertile sources, which increases its price generally. It is true that the progress of the science of agriculture and of the corn-trade counteract this tendency, retard the advance of the price of wheat, and may, for a time, produce an opposite tendency. It is true, also, that the people are induced by their most general and vital interests to take advantage of this possibility. But spite of the frequency of exceptions to it, the rule remains.(787) If, therefore, we wished to so fix a perpetual annuity that it should always be worth as much money as a certain quantity of wheat had cost, on an average, during the three preceding decades, the thing-value of this annuity would, on the whole, rise with an advance in civilization.(788) To obtain something that would remain the same, it would be necessary to combine wheat with at least one chief commodity, the intrinsic basis of the price of which had a development independent of the price of grain; but the whole to be made payable in money. The precious metals are, in many respects, so diametrically opposed in properties to wheat, in their dispensableness, transportable character and durability, for instance, that these two classes of commodities are best adapted to act as counter-balances to each other.(789)
Section CXXX.
History Of The Prices Of The Chief Wants Of Life.
The higher civilization advances, the dearer all those commodities in the production of which the factor nature with value in exchange predominates are apt to become; and the cheaper, on the other hand, all those in which labor and capital play the principal productive part.(790) This is accounted for, not only by the almost unlimited capacity of labor and capital to be increased, while the natural forces which have value in exchange are susceptible of increase to so small an extent; but also, and especially, because new additions of labor and capital are wont to cause relatively smaller results in the production of raw material, and relatively larger ones in industry and commerce. ( 33, ff).(791)
Hence, from the relations the prices of the different classes of commodities bear to one another, we may draw important conclusions as to the degree of civilization which a country has attained. The above law also affords an explanation of the fact, that a young nation, which has made no great strides in the way of development, and in which, of course, the production of raw material preponderates, draw their commercial and manufactured necessaries, by way of preference, from precisely the most highly civilized foreign nations. The latter are in a condition, and accustomed, to give the largest quantity and the best quality of manufactured articles for a required quantity of raw material; and, of course, vice versa. Hence, in this intercourse of nations, the most urgent want, and the completest and easiest possibility of satisfying it, meet.(792) Only very highly civilized mother-countries can hold fast to colonial possessions in our day.
Section CXXXI.
History Of The Prices Of The Chief Wants Of Life. (Continued.)
A. In the case of a great many raw materials, we repeatedly find the following to be the course of development. In the lower stages of civilization, they grow of themselves, and in such quantities that a small amount of labor, and that only the labor of occupation, more than suffices to satisfy the small demand for them. Here, naturally enough, the price of raw materials is very low. After this, it rises with every advance made in civilization, for two reasons: first, because the demand becomes greater and greater; and then, because the naturally free sources of production, called into requisition by other wants, now flow less and less abundantly.(793) This rise in price continues until the point is reached at which it becomes customary, instead of the mere occupation of the free gifts of nature, to bring forth the commodities in question by the more laborious process of production proper. From this time forward, the usual seeking of prices for a level requires that our commodity should, like all others which suppose an equal sacrifice of the means of production, claim an equal value in exchange. If from any peculiar causes, the production of this commodity is not at all possible, or if it is capable of no great extension, its price, which would under the circumstances, be limited only by the purchasing power of the buyer, might attain the utmost extreme reached in prices under the spur of vanity or of the mere love of the commodity itself. The latter is true especially in the case of venison;(794) the former, in the case of the tame cattle,(795) fresh-water fish,(796) and wood.(797)(798)
Section CXXXII.
History Of The Prices Of The Chief Wants Of Life. (Continued.)
B. The rise in prices is observed earliest in that class of goods in question which by reason of their small volume and their comparatively great value, and by reason of the greater capacity to be kept in a state of preservation for a longer time, are best adapted to seeking a more favorable market. This applies particularly to the skins, fleece, hair, feathers, teeth, horns, etc., of animals, in which, in the breeding of stock, etc. people in a low stage of civilization are much more apt to speculate than in their meat. Here it is considered, and rightly so, to be much more profitable to raise many animals which are badly cared for, than a few, that are well cared for; for the care bestowed on animals has, as a rule, much more influence on the body itself than on their covering.(799) In fisheries, caviar, sturgeon-bladders, oil and whalebone;(800) and in forest-culture, pitch, tar, potash and, to some extent, building material etc., play the same part.(801)
Conversely, the price of those portions which are most difficult of transportation, by reason of their volume or of the difficulty of preserving them, rises latest. To this category belongs milk, the production of which in a fresh state can be made an object of economic speculation, only where civilization is at its very highest, and especially in the vicinity of large cities.(802) It is indeed possible by its transformation into butter or cheese to preserve milk and make it capable of transportation. But to carry on such a business for the purposes of trade, a care and a cleanliness are needed which are national characteristics only of a highly civilized people ( 229), and the preparation of a superior quality of cheese, which is always a very long process, is conditioned by the employment of capital long in advance of a return, and which no poor nation is in a condition to make.(803) Cows are primarily milk-producing animals.(804) Hence their price, as a rule, rises later than that of oxen, but, in the higher stages of civilization, it rises much more surprisingly. Something analogous is true of those products which result from what remains after the production of other goods or commodities. As long as this alone supplies the demand, the cost of production of the former commodity is almost nothing, and hence its price is very low. For this reason hogs are relatively cheap in two very different periods of a people's national economy, in a very low stage of civilization where forests are plentiful and they are fattened on acorns and the nuts of the beech, and also when they may be considered as a collateral product of some great industry, such as distilleries and dairy-farming; and when raised by a numerous, especially a rural population of small means and laborers, in order to turn to advantage, in the former instance, the remains of production, and in the latter of consumption.(805) Where neither of these two reasons obtains, the price of hogs is wont to increase largely with an advance in civilization.(806)(807)(808) (See Roscher, Nationaloekonomik des Ackerbaues, 177 ff.)
Section CXXXIII.
History Of The Prices Of The Chief Wants Of Life. (Continued.)
C. Those raw materials which, from the very first, have been obtained by the means of production properly so called, maintain a much greater uniformity in price. In the lower stages of civilization, they are never found permanently in excess; and as the economy of a people advances, the growing dearth of natural forces may be more or less counterbalanced by the greater cheapness of capital and labor. This is true, especially of wheat. (See 129, and Roscher, Nationaloekonomik des Ackerbaues, p. 43.)(809)
D. In the case also of those raw materials which are objects of occupation, and never of real production, as, for instance, minerals, a progressive public economy, by altering the different elements of price in an opposite direction, may leave their price on the whole unchanged. Here, indeed, the discovery of new and especially of rich natural stores may exert an incalculable influence; but such "accidents" underlie the laws of human development only to the extent that those ages which are intellectually most active are those also which are most industrious and fortunate in the discovery of their natural resources.(810)
Section CXXXIV.
History Of The Prices Of The Chief Wants Of Life. (Continued.)
E. The products of industry become cheaper and cheaper as economic culture advances; whereas, for instance, in England, towards the end of the middle ages, a single shirt was considered of importance enough to be made not unfrequently an object of testamentary bequest.(811) And, indeed, the price of industrial products sinks lower the more important the part played in their production by capital and the division of labor is as compared with the part played by the raw material.(812) On this account, in recent times, fine cloths have grown, relatively speaking, much cheaper than coarse ones.(813) Lead, which during the middle ages in England was much cheaper than iron, because of the difficulty of mining the latter, has become much dearer in our days.(814) Conversely, where raw material plays the most important part in manufactures, the price of the manufactured article may increase with an advance in civilization. Hence, articles made of wood are procured at the cheapest rates in mountainous countries, where the division of labor is not carried very far, but where the raw material is cheap.(815)
F. But the price of commodities decreases, especially in the higher stages of civilization, to the extent that it is dependent on commerce.(816) Here capital and human labor almost exclusively are effective, and the modern improvements of communication, legal security and competition are especially striking.(817)
G. Since personal services are, as a rule, performed and received only by individuals, the principle in accordance with which labor in general becomes cheaper in the higher stages of civilization, does not apply to them to any great extent.(818) Yet we may claim that advancing civilization has pretty universally a twofold influence on the price paid for personal services. In the first place, freedom of competition, with the more accurate and equitable determination of price which it produces (in contradistinction to servitude, privilege and custom) always tends to obtain the upper hand; and further, by the growing combination of labor and of use ( 56, ff. 207), a better and better and more clearly defined gradation between ordinary services and those of a higher order is effected. When the latter cannot be increased at pleasure, the price paid for them may, as the wealth of consumers increases, become, from motives of vanity or of custom (Gebrauchsgruenden), almost unlimited. The dancing maid, to whom Herod (Mark, 6, 23) promised even the half of his kingdom, is both in a politico-economical and in a moral sense a warning example to over-refined nations.(819)
Section CXXXV.
History Of The Values Of The Precious Metals.—In Antiquity And In The Middle Ages.
It is impossible to write a real history of the values of the precious metals in ancient and medieval times: the sources of information are too few. But it does seem possible to suggest some fragments and something of the development of that history,(820) at least in outline.
Thus, for instance, the supply of the precious metals furnished by the mines, in the earlier times of ancient history, was kept from entering the market by the system which then prevailed everywhere, of hoarding treasure by the state, by the temples etc., and later by great reserves of treasure kept by individuals.(821) The revolutions in prices in ancient times were produced as frequently by the sudden opening of such reservoirs, as by the discovery of richer sources. Thus, for instance, such events as the dissipation of Pericles' treasures, the subsidies of the Persian kings, the spoliation of many temples in consequence of declining religiousness, the distribution of Persian treasures by Alexander the Great,(822) had a vast influence on the undeniable rise in the price of Greek commodities in the century succeeding the Peleponnesian war.(823) Later, it is said that in Rome, the price of pieces of land was doubled by the influx of Egyptian war-booty.(824) It is a remarkable proof of the undeveloped condition of trade in the earlier periods of ancient history, that the perturbations in prices were, apparently, at least, so entirely local. Phoenicia, Palestine etc., must have experienced, in the age of Solomon, a formal deluge of the precious metals, while Greece, for instance, was then, and for centuries after, extremely poor in them.(825) It is not, on the whole, to be doubted, that the value in exchange of the precious metals was on a continual decline until the most flourishing time of the Roman emperors.(826) During the middle ages, it seems to have stood much higher again; because the great loss of treasure caused by the migration of nations etc., the almost complete cessation of production at the mines, and the slowness of the circulation of money, played a much more important part than the decrease of trade.(827)(828)
Section CXXXVI.
Effect On The Discovery Of American Mines Etc. On The Value Of The Precious Metals.
The discovery of America influenced the market of the precious metals less by the peculiar wealth of the mines in that part of the world than by their almost incredible number.(829) The sources of wealth that the conquistadores first lighted upon were, however, much over-estimated.(830) The production of the American mines first assumed great importance after the discovery of Potosi, in 1545, which was soon followed by the working of the American mines at Guanaxuato. (1558.) Coincident with this was the extraordinary "chance" of Medina's invention, in 1557; by means of which, it became possible to separate silver from foreign elements by the cool process of amalgamation, instead of melting it as had hitherto been done; an invention all the more important in America, for the reason that in that country, where there is so much rich ore, there is scarcely any fuel, in the neighborhood(831) of where it is found. During the first hundred years the mines of Peru occupied the most prominent place; whereas they were afterwards completely overshadowed by the Mexican.(832) According to Humboldt,(833) the annual export of gold and silver from America to Europe, between 1492 and 1500, amounted to 250,000 piasters; between 1500 and 1545, to 3,000,000;(834) from that time to 1600, to 11,000,000; in the seventeenth century, to about 16,000,000; during the first half the eighteenth century to 22,500,000; during the second half, to 35,300,000.
The production of gold in Brazil began to be important after the commencement of the eighteenth century,(835) and the working of the Mexican silver mines of Valencia, Biscaina etc. from the middle of the same century. In the beginning of the nineteenth century, Mexico produced, annually, 537,512 kilogrammes of silver, and 1,609 kilogrammes of gold; Peru, 140,078 and 782 of silver and gold respectively; Buenos Ayres, 110,764 and 506; Chili, 6,827 and 2,807; New Granada, 4,714 kilogrammes of gold; Brazil, 3,700 kilogrammes of gold; the whole of America together, 795,581 kilogrammes of silver and 14,018 kilogrammes of gold, worth about 60,750,000 thalers.(836) During the uprisings between 1810 and 1825, which separated Spanish America from the mother country, the production of the mines diminished as surprisingly as it had increased in the previous generation by reason of the greater liberality of Spanish colonial policy.(837) Since that time, a certain increase has, indeed, been noticed, which, however, had not immediately before the discovery of the gold mines of California by any means attained the height reached in 1808, but only an annual production of 701,570 kilogrammes of silver, and of 15,215 kilogrammes of gold, with an aggregate value of more than 56,000,000 thalers.(838)
In Europe, also, the obtaining of the precious metals during the fifteenth and sixteenth centuries took a great stride, especially in Germany;(839) but, on the other hand, the Spanish gold and silver mines were closed in 1535 by a law. In the seventeenth century, there was another lull, followed, at the end of the eighteenth, by a second period of activity which has not yet closed. The great development of the production of gold in the Ural mines since 1819, and in the Altai mines since 1829,(840) the revival of the production of silver in the old Spanish mines since 1835,(841) and Pattinson's discovery, by means of which the poorest lead ores containing silver may be refined, are here of great importance.(842) Shortly before 1848, it was estimated that all the mines of the old world produced annually about 274,000 kilogrammes of silver, and 56,000 kilogrammes of gold, with an aggregate value of over 69,000,000 thalers.(843)(844)
Section CXXXVII.
Revolution In Prices At The Beginning Of Modern History.
The mere discovery of new and richer mines need not, of itself, lower the price of the precious metals. Their price depends on their cost of production; and it may be very much increased, even under the most favorable natural conditions, by the unskillfulness of labor, the dearness of the means of subsistence, of machinery and of auxiliary substances, by insecurity to property or to the person; by war, oppressive taxes(845) etc. The new mines can produce a decline in the price of the precious metals only to the extent that, for the same amount of capital and labor expended, they, spite of all such deductions, produce a greater result.(846)
I opine that the price of metallic money, since the discovery of America, has diminished until the present time in the ratio of from three to four to one.(847) The prices of wheat in France, from 1800 to 1850, were about seven times as great as in the second half of the fifteenth century; and in England about six times as great. But, it is not to be overlooked here, how wheat may have grown dearer in itself (an sich) and how gold declined considerably less than silver. True, this decline of the precious metals was not an entirely steady one. We meet at the beginning of the modern era with a real revolution in prices. The prices of rye, in lower Saxony, from 1525 to 1550, were twice as high as from 1475 to 1500. According to Garnier, the French prices of wheat, from 1450 to 1500, were, on an average, 408 francs of the present time per setier; from 1501 to 1520, 5 francs; from 1522 to 1540, 11.26 francs; from 1541 to 1560, 11.69 francs; from 1561 to 1580, 21.33 francs; from 1581 to 1600, 32.51 francs; during the first half of the seventeenth century, 22.77 francs; in the second half, 26.83 francs; from 1701 to 1750, 19.64 francs. Similarly in England, where wheat cost, from 1560 to 1600, 2.64 times as much as from 1450 to 1500.(848)
Now, the increased production of the mines cannot be the only cause of this great perturbation in prices. It commenced, in most countries, at a time when the supplies from America were still too small to account for such an effect. One of the chief causes of the phenomenon was, that precisely at this period, there was in so many nations a transition from a sluggish circulation of money, made still more sluggish by the custom which everywhere prevailed of hoarding treasure, to a rapid circulation, which was made still more rapid by the use of all kinds of substitutes for money. ( 123).(849) In the earliest ripe fruit of European civilization (Italy), this transition had long been accomplished; and, on that account, the value in exchange of the precious metals was there, for a long time previous, comparatively low.(850)
From the second third of the seventeenth century, the value of the medium of circulation seems, on the whole, to have remained stationary.(851) Tooke seeks to demonstrate the steady decline of the value of money until late in the eighteenth century, from the fact that the wages of labor increased during that time; but I should rather connect the latter phenomenon with the simultaneous elevation of the classes engaged in manual labor. And so Adam Smith infers a rise in the price of money after the beginning of the eighteenth century, from the prices of wheat;(852) but it would be better to consider the cause of this to be the unusually long series of good crops.(853) An equally unusually long series of bad harvests, during the second half of the century, accounts satisfactorily for the simultaneous rise of the medium prices of corn. The great war which lasted from 1793 to 1815, too, according to a very prevalent opinion, must have caused the value of money to decline; a fact which is generally accredited to the increase of paper money in so many states.
Every great war may very easily have for effect to slacken the speed of the circulation of money, to promote the hoarding and even the burial of treasure for a rainy day, and to paralyze credit and its power to supply the place of money. Hence, it seems preferable to seek for the cause of the variations in price, during the great war, in the commodities themselves whose price was affected; since their production must have been enormously disturbed. It rendered the brawniest men and the most powerful horses unproductive, and even employed them as agents of destruction. It interrupted trade in a thousand ways, or drove it into unnatural channels, and turned the intellectual interests of nations into every direction save that of economic industry. To this must be added the absence of security everywhere.(854)
The cessation of these restrictions upon production, in consequence of the restoration of peace throughout the world and the great progress afterwards made in almost all branches of industry, explain why, from 1818 to 1848, the precious metals have apparently stood higher than during the period immediately preceding.(855)(856)
Section CXXXVIII.
Revolution In Prices.—Influence Of The Non-Monetary Use Of Gold And Silver.
To understand why so great an increase in the production of the precious metals produced so small a decline of their value in exchange, we must turn our attention to the other and further uses of gold and silver. The amount devoted to these uses can never be very accurately determined, since governmental stamping of every new gold or silver article would afford no evidence as to the number of such articles manufactured out of old articles etc.(857) Certain it is, however, that the aggregate amount of gold and silver thus employed, increases with the increase of luxury and wealth among modern nations, and that a quantity of the precious metals thus used, especially when used for purposes of gilding for instance, is irrestorably lost.(858) In addition to this, there is the wear and tear of coin in circulation, which is naturally greater in the case of large pieces than of small, and, therefore, in the case of silver than of gold. There is, further, the damage caused by the loss of coin in conflagrations and shipwrecks, and that occasioned by buried and forgotten treasure.(859)
But, lastly, the principal cause consists in the powerful increase of the demand for money, which, during the last two centuries, the great impulse given to the rapidity of circulation, and the great increase in the substitutes for money, have scarcely been able to outweigh. Besides the great growth of population and of wealth, at least in Europe and the new world, I need call attention only to the immense advance made in the division of labor, and to the transition from trade by barter to trade through the instrumentality of money. The entire war and merchant marine of England, about 1602, had, according to Anderson, a capacity of only 45,000 tons,—that is, not one-fifth of what the small city of Bremen has now; a capacity which at the close of the year 1873 amounted to 237,206 tons—while in 1872 its merchant marine alone had a capacity of 7,213,000 tons. The aggregate foreign trade of England, France, Russia and the United States, in 1750, amounted to about 260,000,000 thalers; in 1864, it was over 5,400,000,000, and between 1871 and 1872, in one year, over 9,000,000,000 thalers. Nor should it be forgotten that Europe's trade with the East, since the beginning of the sixteenth century, increased immensely. This, at present, produces uniformly a very "unfavorable balance" for Europe, which can be made up for only by very large shipments of silver to foreign parts.(860) If China and India were suddenly to draw on us for other commodities instead of gold and silver, the result would be a great revolution in prices in Europe.
Section CXXXIX.
History Of Prices.—Californian And Australian Discoveries.
Tengoborski is of opinion, that the flow of gold from Siberia alone would have been absorbed by the ever-increasing want of civilized nations of money; but that the coincident discoveries in California and Australia, in September 1847, and February 1851, must sooner or later produce a revolution in prices. And, indeed, the fecundity of these countries is unparalleled. North America, which in 1846 produced only 3,600 pounds of gold, according to Soetbeer, produced in the years from 1849 to 1863, respectively, 118,000, 148,000, 178,000, 195,000, 180,000, 165,000, 165,000, 165,000, 160,000, 145,000, 125,000, 120,000, 115,000 and 110,000. Austria produced in the years from 1851 to 1863 respectively, 27,000, 196,000, 250,000, 160,000, 170,000, 195,000, 180,000, 175,000, 160,000, 150,000, 160,000, 160,000, 170,000, pounds of gold.
From 1864 to 1867, the aggregate production of gold in the world was, according to the last mentioned authority, a yearly average of 188.4 millions of thalers, and of silver, 94.8 millions. In Europe, Russia not included, the production was, in 1863, 3,960 pounds of gold and 405,000 pounds of silver; in the Russian Empire, 46,500 pounds of gold and 40,000 of silver; in Mexico 12,000 pounds of gold and 1,250,000 pounds of silver; in South and Central America, 12,500 pounds of gold and 520,000 pounds of silver; in Africa, India and Lesser Asia, 30,000 pounds of gold and 40,000 pounds of silver—a total of 384,000 pounds of gold, and 2,905,000 pounds of silver. F.X. Neumann(861)(862) estimates that the whole world produced, in the years 1868-1870, annually, 192.8 million thalers of gold, and 94 million thalers of silver; and in 1873, of both metals, 291 million thalers.
The question, whether in this second half of the nineteenth century, we are to have a revolution in prices similar to that which took place in the sixteenth century can be answered only hypothetically. The gold diggings now most productive will, probably, as we may judge from analogous cases in the past, be soon exhausted.(863) But it is entirely possible that, for a long series of years, other diggings will be found equally rich. It is almost certain that the restless activity of the English and of North Americans will not cease until they have exhausted the favors of nature.(864) Every improvement in agriculture, in the means of communication, and in the public security of the gold lands, makes the cost of production smaller. There are doubtless in other countries a great many placers which need only to be touched with the finger of European civilization to produce gold in abundance.(865) It would, indeed, be necessary that this same civilization should make these same countries better markets for the precious metals by increasing their demand.
So far as silver is concerned, there can be no question that America possesses mines unlimited in extent, and, as yet, almost untouched. "The time will come," says Duport,(866) "a century sooner or later, when the production of silver will have no other limits than those put to it by the continual decline in the price of silver." There seems, also, to be no lack of quicksilver, especially in California; and the cost of its production hitherto may be lessened very much by the labor of better workmen, machines and means of transportation.(867) All this supposes great progress of the mining countries in civilization in general; and yet, thus far, Mexico's republican independence etc., as compared with the later years of the Spanish colonial system there, is a great retrogression. The conquest of Spanish America by the United States would give a vast impetus to economic improvement; and here, again, the increase of production would be attended by an increased demand.
But especially must the demand for the precious metals, which naturally increases with the wealth, commerce and luxury of nations, constitute a decisive element in answering our question. Nothing, for instance, were a reduction in prices impending, would promote it so much as a series of devastating wars or revolutions in Europe. Moreover, it should not be forgotten, that the money market is now almost commensurable with the world, and will soon embrace it within its limits; and that market embraces not only the precious metals but the numberless representatives of money and media of credit. The basin, therefore, to which the gold and silver streams of the world are tributary is immeasurably greater than it was in the sixteenth century; its level cannot be changed as readily, and an equal addition made every year to its previous contents can increase it only by a small amount.(868) Nor could a considerable decline of the value of the precious metals be readily produced without making the circulation of money slower, and the employment of means of credit relatively less frequent, in consequence of which, the further decline would, to a certain extent, be arrested.(869) In the case of other commodities a decline of prices leads only probably to an absolutely greater demand; in the case of money, it leads to a demand necessarily greater. That the money market in our days can stand pretty rude shocks is evident from the fact, among others, that the price of gold is so high as compared with that of silver.(870)(871)
Section CXL.
Revolution In Prices.—Its Influence On The National Resources.
The ulterior consequences of such a revolution in prices would contribute to the real wealth of a people only in the sense that they would place such a people in a way, with less sacrifice, to employ the precious metals on a large scale in ministering to the luxuries of life. This small advantage itself would be counterbalanced by the depreciation of the metallic stock, and especially by the necessity of henceforth devoting a larger quantity of gold and silver to the purposes of circulation.(872) But such a revolution would produce a sudden reverse in the distribution of a nation's wealth among its constituent members. All those who, by virtue of contracts antecedently made, have payments to effect, are benefited to the extent of the difference between the old and the actual price, while those who are to receive such payments lose to the same extent.(873) Therefore, those engaged in industrial enterprises improve their condition, because they immediately increase(874) the prices of their own productions; and, for a time at least, continue the use of capital borrowed from others, of land leased or rented etc. at the old prices.(875)
Besides, at the beginning, and before a corresponding depreciation of its value has taken place, an increase of money produces as a rule a low rate of interest ( 185), and an itch to buy on the part of the public. All this may serve as a powerful stimulant to production on a large scale.(876) Those most certain to suffer loss are officials(877) with a fixed salary, and so-called annuitants, creditors of the nation and of individuals. Even bankers, too, have no means to fix the value of their wares which they see disappearing, so to speak under their eyes.(878) Of land owners, those who are in debt gain, that is especially the poorer, and the more speculative among them.(879) On the other hand, owners of large estates who have alienated their tithe-rights, or right to vassal-service etc. for capital, or for fixed sums to be paid at regular intervals, that is, in a great many places the great mass of the nobility, undergo a not insignificant social fall.
The condition of those who earned a living by manual labor no doubt deteriorated in the sixteenth century, as may be inferred from the extraordinary activity of public charity in that period.
Between 1500 and 1550, silver purchased, in Orleans, from 4.1 to 4.5 times as much common labor as it does now, while silver, as compared with the average price of twenty-seven commodities, has grown cheaper in the ratio of only from 2.6 to 2.7:1. (Mantellier.) It was impossible for this class to raise the price of their wares as rapidly as that of the medium of circulation declined, because they could not wait, nor hold back their commodity even for a moment. ( 164.)(880) This would, indeed, be very different in our day. Wages, because of the facilities, both physical and moral, which have everywhere been placed in the way of emigration, were necessarily one of these articles which rose soonest in price, as compared with money.(881) Lastly, the state itself profits by the diminished thing-value, that is, real value of its public debt;(882) but it loses, at the same time, on all taxes, duties etc., which are not estimated at a certain percentage of the value of the articles taxed.(883) As a rule, therefore, it would need to impose new taxes. Now, the parliamentary right to impose taxes, however extensive it may juridically be, is, ordinarily, of great importance in practice only when there is question of increasing the existing burthen. Hence, this right, wherever it exists, is brought into the utmost activity by a revolution in prices.(884)(885)
However, the new additions of gold and silver to the already existing supply may not immediately produce a corresponding depreciation of the value of the precious metals. If the first receivers of the additional supply of money exchange it rapidly for other goods, it will probably bring them the former value in exchange of the metal. Not until it has passed into a third or fourth person's hands is the depreciation apt to be perceptible. It is, therefore, in this case, a great advantage to be the first hand. The world-threatening power of Spain, in the seventeenth century, was very essentially promoted by the American gold and silver mines;(886) nor is it a matter of less significance to-day, that the great mineral wealth of the world belongs to Siberia, California and Australia; that is, especially to Russia and to countries colonized by Great Britain. Further, as to the classes into which a nation is divided, it was only the crown, the Church and a comparatively small number of officials, soldiers and officers who controlled Spanish America;(887) and who can tell how the absolute monarchy of Spain was strengthened by this fact? In the seventeenth century, on the other hand, it is principally manufacturers and merchants, and more especially yet, workmen, who reap the immediate advantages of new discoveries of gold. |
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