the use of capital to those who labor. In all these cases it will be found that there is an essentially equitable division, between the several concurring agents in production, of the entire earnings derived from their joint concurrence in proportion to their share in producing. In this sense every service, that is paid for, becomes a commodity to him who buys it. The price at which he buys it is the mean between two competitions, viz., the competition between all the producers of the commodity desiring to sell, and all desirers of the commodity seeking to buy. The competition between the sellers fixes the lowest price at which he may have to buy. The competition between the buyers fixes the highest price at which he can possibly sell. Where these meet is price. Price is the sum at which those holding commodities can better afford to forego the commodity, and take the money that is offered, and at which those who hold the money can better forego the money and take the commodity. The former compares the other uses he can make of both commodity and money, and believes he can make a profit by taking the money. The latter makes the same comparison, and believes the commodity is worth more to him. If all men were absolutely wise, all exchanges would be absolutely profitable. As it is, the best thing that is true of prices is that they are the highest expression at once of human liberty and social order. In no act of life does choice so largely enter, and yet in none are we so peremptorily compelled to choose. On this chain, of freely chosen acts of will, is hung the commerce of the world.

44. Errors Concerning Causes of Prices.-A common error concerning prices is that they are fixed by looking backward at cost of production; that each successive participant or purchaser has only to add his ordinary profit to what he buys to get it; and hence the prices of exchanged goods are enhanced according to the number of the middle men through whose hands they pass. In fact, however, prices are always determined by looking forward at the possibilities of sale, not backward at the cost of production. From the consumer back to the producer, each dealer sees only the "inch before his nose "to the price he can get. He buys with reference to that price. In this way the sense of value is educated backward along the line, and the quantity unsold rises or falls, not according to its cost of production, but according to what the last purchaser paid. Profits can not be obtained by adding to price, but must be carved out of price in advance by economic bargains concerning wages, rent,

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interest, cost of raw materials, and other elements of production. The effort thus to carve out profits in advance from these several sources, as well as to obtain them through cheaper processes and wider markets, has caused many employers to feel, with Ricardo, that, in practice, profits are the leavings of wages, though in theory profits are the cause of wages. The former is the superficial and practical, the latter the ultimate and philosophic view.

To get a nearer view of the mode in which price is adjusted, suppose a man is fishing from the shore with a hook and line, without either boat or net; and, thus equipped, he can catch 20 lbs. of fish a day. If he is fishing for amusement and not for profit, he does not covet boat or net. But if he desires to sell his fish, and boat or net is offered to him, he asks by how much will the boat increase his catch. He finds that thereby he can take 200 lbs. with the boat; with the net 1,000 lbs. Now if there is only a present and near market for the 20 lbs. which he can catch with his hook and line, neither boat nor net has any value to him whatever, because of the absence of demand, which is the ultimate and first cause of all value. If there is a market for 200 lbs. and no more, then boat and net are of equal value to him. But if there is a present demand for 1,000 lbs., then the net is worth five times as much to him as the boat, and the boat ten times as much as the hook and line. Should he pay all his increased catch, however, both boat and net would still be of no value to him. How much will he pay? If there are plenty of other boats and nets, and he alone wants them, he represents the sole demand against an ample supply. This would make his rent of the boat or net nearly gratuitous. Each owner would offer his net or boat at the highest rate he thought would be low enough to prevent his going elsewhere. If there were no other net or boats, and many other seekers, the boat would be offered to him only at a rate higher than any other seeker would pay for it. If the next seeker would pay 800 lbs. of fish, out of the 1,000 caught, then he must pay somewhere between 800 lbs. and the whole. If the motive, and the necessity, to both parties, to enter into the trade, were equal, the price would be 900 lbs. Thus in each stage of the bargaining there is an equal division, not of the entire catch, but of the difference between the share of the catch which each can obtain by dealing with the other, and the lesser share he can get by dealing with the next best outside person. The competitive price, therefore, is the final mean arrived at by splitting the difference between the highest sum any known

purchaser will pay and the lowest sum for which any known seller will sell, the seller having in view the relative advantage to him of the price rather than the commodity, and the buyer having in view the relative advantage to him of the commodity rather than the price. In this sense the term price covers the consideration for which every exchange is made, whether of money for goods, money for service, for use of land, or for use of money.

In attempting to arrive at the influence of causes of any kind upon prices, no source of fallacious reasoning leads to so many prominent errors as the mistaking of a partial, secondary or utterly impotent factor, for the one decisive and controlling factor. Thus, in many English discussions of the influence of protection upon prices, we find free use made of the inequalities in the prices, of grain in Great Britain in the period from 1810 to 1825, accompanied by the assumption that these great inequalities are obviously due to the British duties on the importation of foreign grain, and without stopping to inquire whether as great and like fluctuations did not occur at precisely the same periods in France, Germany, the United States, and all other countries from which England could have obtained her supply.*

It will be seen by the chart of average prices,tduring the several years, that the average of 1817 was 96s., and that the average price in 1813 had been 109s., while in 1812 the average price had been 126s., and in 1801 it had been 120s., and the fluctuations in these prices in France and in the United States in the same years were identical with those in England.

In these discussions no mention is made of the war between the allied powers and France, under Napoleon, the latter aided in

*Thus Mongredien in his "History of the Free Trade Movement in England," p. 5, says: "This Corn Law, which was enacted in 1822, under Lord Liverpool's adminis-. tration, was bad enough, since it gave the landlords a monopoly of the wheat trade up to 70 shillings per quarter, and afforded no effectual relief till the price reached 85 shillings. It was, however, rather less stringent than that which preceded it, for that totally prohibited the importation of foreign wheat until the current price in England had reached 80 shillings per quarter. That price for wheat meant something like 1s. 4d per quartern loaf.

"This earlier Corn Law had been passed in 1815, and no wonder that at the time of its being enacted popular indignation was excited to its utmost. Riotous assemblages had to be dispersed by armed force, and the House of Commons itself had to be protected by the soldiery, when the third reading of the bill was voted by a large majority. This harsh measure, which took from the nation to give to a class, soon produced its inevitable results. Two or three deficient harvests successively occurred; and the price of wheat rose to 103s. per quarter in December, 1816, to 1048. in January, and to 112s. Sel. in June, 1817. + For chart see p. 124.

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1812-15 by the United States, of the vast quantities of debts and issues of credit money incident to these wars, or of the many circumstances which were potential in sending prices of breadstuffs as high in the United States, France, and Germany as they were in England. The accompanying chart of fluctuations in price in England, America and France shows that they were as great in the latter as in the former and occurred at the same periods.

A like tendency is manifest, among writers on free trade and protection, when dwelling on the period from 1860 to 1870 in the United States, to attribute solely to protective duties, a range of prices which were more largely due to the deprivation of the cotton supply, the increased demand for woolen clothing, the increase of railway building, the expansion in the volume of the currency and the debt, and the variations in price inseparable from such causes, than to the immediate operation of tariff duties on imports.

45. Tooke on Prices.—The wars between France and the allied powers (1795 to 1815), and the twenty years following, were marked by such remarkable variations in prices, as to cause a wide and voluminous discussion of the causes of prices in pamphlets and books. The results of this discussion are embodied in Tooke's "History of Prices," which, more than any other English economic work, is marked by the inductive method, and proceeds from observation to theory.

The alleged causes of fluctuation in price, to which Tooke's investigations were chiefly directed, were (1) the wars, (2) good and bad farming seasons, as affected chiefly by the weather, and (3) the currency, as affected by increased or diminished volume of coin or paper.

Tooke concludes, after comparing prices during a long series of successive intervals of war and peace, that mere war, unaccompanied by any changes in the volume of money, does not tend to raise prices, except in the line of military supplies and naval stores, for which in peace there is hardly any demand. He concludes that as war does not increase the consumption of food or clothing, since the soldiers consume no more of either in the field than they would at home, it can only enhance prices by lessening the supply, by withdrawing the workers who produce them, and expending their force in fighting, fortifications, and other unproductive labor. He says:* "As to the supposed extra de

"Tooke on Prices," Part ii., p. 46.

mand arising out of the war, the effective demand must be limited by the means of payment, and the stimulus or excitement arising out of a state of war cannot supply any extra means of payment except by previous course of production." We do not concur in this statement, but hold that, instead of effective demand being limited by means of payment, the means of payment will be multiplied, and especially will be made to circulate more rapidly, to adapt them to the effective demand. When Secretary Chase, in 1861, tried to get a loan of $50,000,000 from the New York bankers, and they declined to lend it, and so the government was without means of payment, this, so long as it lasted, limited the effective demand for guns and uniforms. But when he told them he would issue government notes, until, instead of borrowing money from them, they would have to run their banks on his money, this shows how the effective demand for means of payment calls them into existence as it does all other commodities. All modern wars cause a large manufacture of "means of payment," and hence supply the cause of rising prices. But, in a war in which no increase in the quantity of money of any sort occurs, the diminished production might be the chief cause tending to enhance prices. Yet it would be difficult to imagine a war in which there would be no greater rapidity in the movements of money than in peace; and, of course, if a given volume of money circulated so rapidly as to be the means of making more payments than before, this increase in rapidity of circulation would have the same effect on prices as an increase in its volume or quantity.

*

Tooke repudiates, so explicitly, the notion that cost of production regulates price; that it is remarkable that economists should have disregarded his position. He says, "that the cost of production can not be considered in the case of corn, and indeed of most other kinds of raw produce, as a cause determining actual or immediate market prices; that the cost of production in nearly all cases relating to the grain produce of this country, and still more as regards the produce of other countries, is an unknown or unascertained quantity; and the only mode in which it can be considered operative on prices is when, as a result of a course of years, market prices are found to be unremunerative to those growers, at home and abroad, who, in point of soil, climate, and situation, are least favorably situated; under such

History of Prices," vol. v., p. 227.