BOOK V. CH, VI. But, where the rela tive proportions of joint products can be modified, we can often determine the supply or nothing were being done in the establishment; and we shall be much occupied hereafter with the troubles that arise from this source. There are however very few cases of joint products the cost of production of both of which together is exactly the same as that of one of them alone. So long as any product of a business has a market value, it is almost sure to have devoted to it some special care and expense, which would be diminished, or dispensed with if the demand for that product were to fall very much. Thus, for instance, if straw were valueless, farmers would exert themselves more than they do to make the ear bear as large a proportion as possible to the stalk. Again, the importation of foreign wool has caused English sheep to be selected almost exclusively for their tendency to develop early heavy weights of good meat. It is only when one of two things produced by the same process is valueless, unsaleable, and yet does not involve any expense for its removal, that there is no inducement to attempt to modify their relative proportions. And it is only in these exceptional cases that there is, as a rule, any great difficulty in ascertaining the separate supply price of each of the joint products. For when it is possible price of any of them by to modify the proportions of these products, it can always be an easy direct method. Composite ascertained what part of the whole expense of the process of production would be saved, by so modifying these proportions as slightly to diminish the amount of one of the joint products, without affecting the amounts of the others. That part of the expense is the expense of production of the marginal element of that product; it is the supply price of which we are in search1. § 5. We may pass to the problem of COMPOSITE SUPPLY which is analogous to that of composite demand. It is closely connected with the Law of Substitution which has been Rival com- noticed already. We may consider that two things are rivals when they are capable of satisfying the same demand. If the causes which determine their production are nearly the same, they may for many purposes be treated as one com modities 1 See Mathematical Note XIX. DERIVED AND COMPOSITE SUPPLY PRICE. modity. For instance, beef and mutton may be treated as varieties of one commodity for many purposes; but they must be treated as separate for others, as for instance for those in which the question of the supply of wool enters. Rival things are however often not finished commodities, but factors of production. For instance, there are many rival fibres which are used in making ordinary printing paper1. 439 BOOK V. CH, VI generally together, if them obeys Continued rivalry is as a rule possible only when none of cannot the rivals has its supply governed by the Law of Increasing remain in Return. The equilibrium is stable only when none of them the field is able to drive the others out; and this is the case when all any of of them conform to the Law of Diminishing Return; because the Law of Increasing then if one did obtain a temporary advantage and its use in- Return. creased, its supply price would rise, and then the others would begin to undersell it. But if one of them conformed to the Law of Increasing Return, the rivalry would soon cease; for whenever it happened to gain a temporary advantage over its rivals its increased use would lower its supply price and therefore increase its sale-its supply price would then be further lowered, and so on: thus its advantage over its rivals would be continually increased until it had driven them out of the field. It is true that there are apparent exceptions to this rule; and things which conform 1 Comp. Jevons, l.c. pp. 145, 6. N Fig. 23. 91 12 The want which all the rivals tend to satisfy is met by a composite supply, the total supply at any price being the sum of the partial supplies at that price. Thus, for instance, N being any point on Oy draw Ng1920 parallel to Or such that Nq1, 9192 and 92 are respectively the amounts of the first, second and third of those rivals which can be supplied at the price ON. Then NQ is the total composite supply at that price, and the locus of is the total supply curve of the means of satisfying the want in question. Of course the units of the several things which are rivals must be so taken that each of them satisfies the same amount of the want. In the case represented in the figure small quantities of the first rival can be put on the market at a price too low to call forth any supply of the other two, and small quantities of the second at a price too low to call forth any of the third. (See Mathematical Note xx.) CH. VÌ BOOK V. to the Law of Increasing Return do sometimes seem to remain for a long time in the field as rivals: such is the case perhaps with different kinds of sewing machines and of electric lights. But in these cases the things do not really satisfy the same wants, they appeal to slightly different needs or tastes; there is still some difference of opinion as to their relative merits; or else perhaps some of them are patented or in some other way have become the monopoly of particular firms. In such cases custom and the force of advertising may keep many rivals in the field for a long time; particularly if the producers of those things which are really the best in proportion to their expenses of production are not able effectively to advertise and push their wares by travellers and other agencies. In real life the connections between § 6. In real life there are very few things the value of which can be determined without taking some account of all the four chief problems which have been discussed in this chapter. We often find connections between the prices of values of commodities which at first seem far apart. the causes determining the different things Thus when charcoal was generally used in making iron, often reach the price of leather depended in some measure on that of far and are very com- iron; and the tanners petitioned for the exclusion of foreign plex. Illustrations. iron in order that the demand on the part of English iron smelters for oak charcoal might cause the production of English oak to be kept up, and thus prevent oak bark from becoming dear'. Again, the development of railways and other means of communication for the benefit of one trade, as for instance wheat growing in some parts of America and silver mining in others, greatly lowers some of the chief expenses of production of nearly every other product of 1 Toynbee (Industrial Revolution, p. 80). This instance may serve to remind us of the way in which an excessive demand for a thing may cause its sources of supply to be destroyed, and thus render scarce any joint products that it may have: for the demand for wood on the part of the ironmakers led to a relentless destruction of many forests in England. Again, an excessive demand for lamb was assigned as a cause of the prevailing scarcity of sheep a few years ago, while some argued on the contrary that the better the price to be got for spring lamb sold to the rich, the more profitable would be the production of sheep, and the cheaper would mutton be for the people. The fact is that an increase of demand may have opposite effects according as it does or does not act so suddenly as to prevent producers from adapting their action to it. COMPLEX CASES. 441 CH. VI. those districts. Again, the prices of soda, and bleaching BOOK V. materials and other products of industries, the chief raw material of which is salt, move up and down relatively to one another with almost every improvement in the various processes which are used in those industries; and every change in those prices affects the prices of many other goods; for the various products of the salt industries are more or less important factors in many branches of manu facture1. 1 See Mathematical Note xxi. CHAPTER VII. BOOK V. PRIME AND TOTAL COST IN RELATION TO JOINT PRODUCTS. COST OF MARKETING. OF REPRODUCTION. INSURANCE AGAINST RISK. COST § 1. WE may now return to the consideration of Prime CH. VII. and Supplementary Costs, with special reference to the proper distribution of the latter between the Joint products of a business. Supple mentary Costs of Joint products. arising when one branch of a business It often happens that a thing made in one branch of a Difficulty business is used as a raw material in another, and then the question of the relative profitableness of the two branches can be accurately determined only by an elaborate system of supplies a book-keeping by double entry; though in practice it is more common to rely on rough estimates made by an almost instinctive guess. Some of the best illustrations of this difficulty are found in agriculture, especially when the same farm combines permanent pasture and arable land worked on long rotation'. raw mate rial to another. Difficulties as to the ducts of the same business, Another difficult case is that of the shipowner who has to joint pro- apportion the expenses of his ship between heavy goods and goods that are bulky but not heavy. He tries, as far as may be, to get a mixed cargo of both kinds; and an important element in the struggle for existence of rival ports is the disadvantage under which those ports lie which are able to offer a cargo only of bulky or only of heavy goods: while a port whose chief exports are weighty but not bulky, attracts to its neighbourhood industries which make for 1 There is scope for applications of mathematical or semi-mathematical analyses such as are indicated in the last chapter, to some of the chief practical difficulties of book-keeping by double entry in different trades. |