80. The Function of the Middleman11

BY HARTLEY WITHERS

Anything that has been grown or made usually has to go a long way and pass through many hands before it comes into the possession of the man who finally eats it or wears it or otherwise consumes it. And every pair of hands through which it passes takes toll of it, that is to say, adds something to the price that the final consumer pays, or takes something off the profit that goes to the shareholders in the producing company, or off the wages that can be paid to the workers who made it.

Most of these intermediaries are necessary. It is easy to talk of doing away with the middleman, but when he is done away with he usually comes to life again in another form or under another name. The most clearly necessary intermediary is the transporter. There is also at least one merchant, a broker or two, and the shopkeeper who finally makes the retail sale to the consumer. Furthermore there is another chain of people who are just as essential as the transporters—namely the bankers, financiers, and bill-brokers, who find the credit and provide the currency to finance the movement of the stuff from place to place, and see to the consequent transfers of cash or credit.

Now we begin to see the reason for the difference, so startling at first sight, between, for example, the coal that is sold at the pitmouth for 10S. to 12s. a ton, and costs us in London anything up to 30s. It occurs at once to all amateur economists that it would be an enormous saving if we could do away with all these middlemen and divide their gains between the producer, his workers, and the consumer. Why should not the consumer buy his coal at the pit-mouth? So he could if he were there to arrange for its carriage, and, further, if he were prepared to buy a good round mouth-filling amount, not homeopathic doses of a ton or two at a time. Also he would only buy on the alluringly cheap terms one sees quoted in the papers if he contracted to take large quantities at regularly recurring intervals, so that the colliery company could be sure of disposing of its output. Further, he would have to pay for the carriage of the coal, and by the time he had done so he would find that there was a very big hole in the saving he thought he was going to effect by dealing direct with the producer.

Now, as the ordinary consumer could not possibly buy on the scale required unless he had a large amount of capital to sink in

"Adapted from Poverty and Waste, 115-118. Published by E. P. Dutton & Co. (1914.)

coal and a large area of space in which to store it, and as he would also have to run the risk of its deterioration before he could use it, he would at once have brought home to him three services which are performed for him by middlemen, and would have to be performed by him or somebody, as soon as he did away with the. middleman. These services are: (1) wholesale purchase and retail selling--the fact that the merchant is prepared to take away the coal in big blocks and store it and sell it piecemeal to suit our convenience; (2) the provision of capital to bridge the gap in time between purchase and sale; (3) the taking of the risks of deterioration in quality if the coal is not sold fast enough, and of a spell of warm weather which may knock a shilling or two off the price before it is sold.

These services would have to be paid for even if we reorganized society on a socialistic basis.

81. Middlemen in the Produce Trade

BY EDWIN G. NOURSE

It is quite the fashion to impute to "middlemen" sole responsibility for the increases in prices which have recently occurred, and which together constitute what is usually referred to as "the high cost of living." In the words of the Massachusetts Commission on the Cost of Living, "A long line of commission men, produce merchants, jobbers, hucksters, retailers, and what-nots, simply passing goods from hand to hand like a bucket brigade at a fire, is not only inefficient and wasteful, but very costly. In these days a hydrant and a line of hose are wanted."

This is undoubtedly a vivid statement of the case, but like most figures of speech, leaves something to be desired in the way of accurate analysis. It is certainly not more than a half-truth to speak of middlemen as "simply passing goods from hand to hand." The middleman performs four distinct functions, whose value to both producers and consumers should not be overlooked.

In the first place, the middleman provides a market. He organizes the demand for all the various sorts of produce and brings it into effective touch with the producer, who is commonly in no position to find it for himself. The latter's farm or orchard is located with reference to advantages for production, and therefore far away from the markets in which he must sell his product. His abilities are too specialized in the direction of agricultural proficiency to give him the necessary commercial expertness. The time of harvesting the crop is generally the busiest season of the year, leaving the grower little time to devote to the intricate details of marketing his

product. Finally, there are comparatively few producers who have a sufficient volume of goods to enable them to ship in carload units, and yet they must move in such quantities, if they are to get to market at all.

A kindred function is that of "equalization." Supplies, on the one hand, are more or less unreliable, fluctuating in quantity and quality according to the caprice of weather, pests, floods, and human nature; and demand, on the other hand, is no less arbitrary, spasmodic, and wayward. But if some central agency gathers these supplies together, classifies them into lots of appropriate size, and directs them into channels where demand is at the moment most keen, all parties are benefited. A large part of consumers' wants cannot be put in the form of definite orders some time ahead and only a small portion of supplies can be definitely promised in advance. Accordingly a clearing-house is needed, where current supplies can be offset against the day's demand.

This consideration looks over into the second division, namely, the middleman's service to the consumer. To only a small extent is the modern consumer able to connect himself directly with sources of supply. He possesses neither the facilities nor the knowledge. His elaborate market-basket is filled from all over the world, from places he wots not of, and yet is replenished daily from stocks which have been brought within his daily reach. Commercial agencies of supply are scouring the world for better goods and constantly seeking better means of bringing them to the place of use and keeping them in the best condition until the time of use.

Alongside of these commercial activities of the produce dealer is a third class of service which may be called "technical"--the actual handling of the goods, storage, repacking and regrading, culling, sorting, and fitting to meet needs or whims of the buying public. It is the oft-repeated comment of the dealers that most people buy, not according to reason, but according to their prejudices; not to get nourishment, or flavor, or real excellence, but to please the eye. The extra labor and material thus necessarily piles up extra costs.

Storage is partly a technical service, but it is charged for on a time basis and so comes also under the head of financing services. This fourth class of the middleman's services is of great importance and yet is entirely overlooked by those who regard him as engaged in merely passing goods from hand to hand. When the householder buys his apples or potatoes only as he needs them, and pays for them only at the end of the month, after they have been consumed, he should not forget that someone has financed that portion of his living expenses. But the dealer goes farther back and finances the

transportation and perhaps the growing of the crop. This service doubly benefits the producer, because without it producers would be crippled, supplies curtailed, and prices advanced. This is not to say that producers may not in time arrange to finance their own operations, but so long as the middleman is called upon to do it, he is undoubtedly performing a service, which should not be overlooked when we are balancing his account with the public.

E. SPECULATION

82. The Gamble of Life1

BY JOHN W. GATES

Life is a gamble. Everything is a gamble. When the farmer plants his corn he is gambling. He bets that the weather conditions will enable him to raise a good crop. Sometimes he loses, sometimes he wins. Every man who goes into business gambles. Of course the element of judgment enters in, but the element of chance cannot be ruled out. Whenever a man starts on a railroad journey, it's a. gamble whether he ever reaches his destination. All life is a gamble,

you see.

83. The Twilight Zone1

BY HARRY J. HOWLAND

The Stock Exchange provides facilities which are used for three kinds of transactions-investment, speculation, and gambling. If the transactions on the floor belonged wholly to the first class, the Exchange would be unqualifiedly good. If they belonged wholly to the last class, it would be unqualifiedly bad. It is the middle term of this trio which falls on debatable ground. Investment needs no defense; no defense will save gambling from condemnation. But speculation is in a very different case from either. Speculation is a dog with a bad name. It is possible to gibbet it along with gambling and loose living.

But is the verdict just? Is speculation an unsocial practice? Is the speculator, like the gambler, an enemy of society, a drone in the hive, contributing nothing to the general welfare? It is a convincing answer to this question that we seek.

15

Quoted in Current Literature, LXI, 266 (1910?).

16Adapted from "Speculation and Gambling," in The Independent, LXXVI, 15-17. Copyright (1913).

The three processes which go on upon the floor of the Stock Exchange-investment, speculation, and gambling-are often inextricably mixed. It is often practically impossible to assign any particular operation without question to one of these three classes.

Investment, for instance, is sometimes semi-speculative in character. Here is a man who has saved a thousand dollars and wishes to lay it aside against a future need. There are many ways in which he may invest it on the Stock Exchange. He may buy government bonds with it. But in this case there is no chance that his principal will be increased to any degree when he comes to sell his bonds. This is pure investment.

Or he may purchase a stock which, while it pays a good rate of dividend with regularity, is subject to fluctuations in price. Here he has a paying investment with the possibility of an increase in principal when he sells out. The stock may turn out, not only a good investment, but a good speculation.

Or he may buy a stock which at present is paying no dividend at all, but which is selling at an extraordinarily low price. The value of the stock is all potential. The element of investment is totally absent from such a purchase. So investment and speculation are inextricably mixed in all kinds of operations on the Stock Exchange. In some, investment predominates; in some, speculation. In many the mixture is of nearly equal parts.

Again, the line between speculation and gambling on the Stock Exchange is hazy and indistinct. There the twilight zone is broad and clouded. This is not because any of the operations on the Exchange are in form or in essence gambling operations, as betting on a horse race or playing poker. The truth is that Stock Exchange speculation is not gambling, but it leads to many of the same evils to which gambling leads. This statement opens up highly debatable ground. Probably the most common view is that stock speculation might more properly be called stock gambling, that speculating on the price fluctuations of stocks is no different from gambling on the fall of cards or the gyrations of the roulette ball. But there are two essential differences, while at the same time there is one essential likeness.

Speculation differs from gambling in process. In a gambling transaction if one party wins, the other party must lose. In speculative transactions it is no more necessary for one party to lose if the other party wins than it is in speculative purchase of land or potatoes or eggs. The transactions of the Stock Exchange are sales and purchases, bona fide, actual, complete. In each transaction each party to it gives what he wants less for what he wants more. The