Market rate

“ Just so in the reverse way, when Demand is slackened, Supply continuing as before, the market-rate is sure to decline; but declining rates tend strongly in turn to increase the demand by bringing the article within the range of a larger number of purchasers ”

“ In the only remaining and by far most comprehensive class of cases, in which the Supply of Commodities and Services and Credits can be readily and indefinitely increased to meet enhanced Demand, and easily withdrawn from market and stored when Demand declines, each rise and fall of market-rate tends to be speedily checked through the mere action of Supply ”

“ Whether a bank lent one million, ten millions, or a hundred millions, they would not permanently alter the market rate of interest; they would alter only the value of the money which they thus issued. ”

“ As the price of any commodity rises above the ordinary or average rate, the profits of at least some part of the stock that is employed in bringing it to market, rise above their proper level, and as it falls they sink below it. All commodities are more or less liable to variations of price, but some are much more so than others. In all commodities which are produced by human industry, the quantity of industry annually employed is necessarily regulated by the annual demand, in such a manner that the average annual produce may, as nearly as possible, be equal to the average annual consumption. ”

“ Let us suppose, that pianos are selling in some rural community at $300 each, that there are twenty persons in the place who want a piano immediately, that there are but fifteen pianos on hand, and that the number cannot be increased for half a year. The market-rate will certainly rise above $300. How much above? To that point, at which only fifteen of the twenty will be willing to purchase at the new rate. The equation of Supply and Demand will be reached by a rising rate which cuts off five competitors. ”

“ The market price of any particular commodity, though it may continue long above, can seldom continue long below, its natural price. Whatever part of it was paid below the natural rate, the persons whose interest it affected would immediately feel the loss, and would immediately withdraw either so much land, or so much labor, or so much stock, from being employed about it, that the quantity brought to market would soon be no more than sufficient to supply the effectual demand. ”

“ In the first case, the natural price of wages, which always depends on the price of food, clothing, and other necessaries, will95 rise; in the second, it will remain stationary, or fall; but in both cases the market rate of wages will rise, for in proportion to the increase of capital will be the increase in the demand for labour; in proportion to the work to be done will be the demand for those who are to do it. ”

“ The general rise in the rate of wages would, therefore, after a temporary disturbance of market prices, only result in a general fall in the rate of profit, without any permanent change in the prices of commodities. ”

“ And whenever capital was required, the rate of interest would be such as to be inviting. In other words, the rates of interest would rise, correspondingly with our needs, and the entire commercial world would be our possible market for the commercial paper representing the economic title to the five or six billions of finished goods that are always passing from the producer to the consumers in this country, and to the consumers abroad. ”

“ Other things being the same, an increase of the money in circulation raises prices, a diminution lowers them. If more money is thrown into circulation than the quantity which can circulate at a value conformable to its cost of production, the value of money, so long as the excess lasts, will remain below the standard of cost of production, and general prices will be sustained above the natural rate. ”

“ Rise of prices generates rise of prices, and continues to do so as long as the interest rate lags behind its normal figure.
§ 3 IV.11 The expansion of deposit currency indicated in this cumulative movement abnormally increases the ratio of M' to M. This is evident if the rise of prices begins in a change in some element or elements in the equation other than the quantity of money; for if M remains constant and M' increases, the ratio M' to M must increase also. If M increases in any ratio, M' will increase in a greater ratio. ”

“ To produce this effect, it is by no means requisite that the prices of all commodities should rise or fall simultaneously. A rise or a fall in the prices of a number of leading articles, is sufficient in the one case to increase, in the other to diminish, the sum of the prices of all commodities, and, therefore, to put more or less money in circulation. Whether the change in the price correspond to an actual change of value in the commodities, or whether it be the result of mere fluctuations in market prices, the effect on the quantity of the medium of circulation remains the same. ”

“ With every fluctuation in the quantity and value of money, the prices of commodities naturally vary. They vary also, as we have already shewn, from the alteration in the proportion of supply to demand, although there should not be either greater facility or difficulty of production. When the market prices of goods fall from an abundant supply, from a diminished demand, or from a rise in the value of money, a manufacturer naturally accumulates an unusual quantity of finished goods, being unwilling to sell them at very depressed prices. ”

“ If the supply, or present stock in hand, be entirely in the possession of one person, he will naturally endeavour to put such a price upon it as shall produce by its sale the greatest quantity of money; but he will be guided in this estimate of the price at which he will sell, both by the knowledge that increased price will cause a diminished consumption, and by the desire to realize his profit before a new supply shall reach the market from some other quarter. ”

“ The more of a particular commodity he has the lower his subjective valuation of a unit of that commodity; the more money he owns the lower his estimation of a dollar and the higher his subjective prices; and vice versa. Through a process of competition, selection, and adaptation, some of these subjective prices develop into market prices, that is, prices at which both buyer and seller benefit, and at which therefore an exchange takes place. To paraphrase an old adage, the proof of the market price is in the exchange. ”

“ The profits of stock in different employments, having been shewn to bear a proportion to each other, and to have a tendency to vary all in the same degree and in the same direction, it remains for us to consider what is the cause of the permanent variations in the rate of profit, and the consequent permanent alterations in the rate of interest. ”

“ Each "supply curve" or "demand curve" rests upon the unconscious assumption of a price level already existing. Although the curves relate to a commodity, they relate to it only as compared with money. A price is a ratio of exchange between the commodity and money. The money side of each exchange must never be forgotten nor the fact that money already stands in the mind of the purchaser for a general purchasing power. ”

“ In other words, there has been a greater increase in money than appears from the United States figures by the amount which has overflowed into foreign lands. The United States is only a small part of the world's market, and its price level is largely determined by the world's price level. ”

“ Control of the quantity of money is essential if its value is to be kept stable. Money's real value can be measured only in terms of what it will buy. Therefore, its value varies inversely with the general level of prices. Assuming a constant rate of use, if the volume of money grows more rapidly than the rate at which the output of real goods and services increases, prices will rise. ”

“ Should a rise of prices happen to coincide with a contracted currency, and a fall of prices with an expanded one, it may be asserted in spite of those facts that in consequence of a contraction or expansion of the volume of commodities in the market, which can not be proven statistically, the quantity of money in circulation has, although not absolutely, yet relatively increased or declined. ”

“ If trade unions seek to raise prices of labor while trusts raise prices of commodities, the general level of everything may rise or fall; but it can rise only by a general decrease in the quantities of commodities, labor, etc., sold, or by an increase of currency, or by an increase in velocities of circulation. If there is neither an increase nor decrease in volume of business, and if the quantity and velocity of circulation of money and its substitutes remain unchanged, the price level cannot change. ”

“ As a consequence, if the general level changes, the supply and demand curves for the particular commodity considered will change accordingly. If the purchasing power of the dollar is reduced to half its former amount, these curves will be doubled in height; for each person will give or take double the former money for a given quantity of the commodity. If, through special causes affecting a special commodity, the supply and demand curves of that commodity and their intersection are raised or lowered, then the supply and demand curves of some other goods must change in the reverse direction. ”

“ In the case of all commodities which cannot be bought or sold at a common market place (or exchange) , price fluctuations are usually wide and frequent, because no large group ever has common knowledge of supply, demand and other factors that govern prices—purchases and sales are made direct between individuals, and knowledge of the amount asked or paid is restricted to a limited few. ”

“ For the present it is sufficient to say that exchange is a productive process, that exchange creates values, in as true a sense as manufacturing does, and that money facilitates exchange in as true a sense as coal facilitates manufacturing. There is, at any given time, a demand-curve for this money service, manifesting itself in the money market, a demand for the short time use of money as a tool of exchange, and the "prices" which come out of the interaction of demand and supply in the money market are the short time "money rates" including the "call rates." ”

“ VI.8 But, although international and interlocal trade will never bring about exact uniformity of price levels, it will, to the extent that it exists, produce an adjustment of these levels toward uniformity by regulating in the manner already described the distribution of money. If one commodity enters into international trade, it alone will suffice, though slowly, to act as a regulator of money distribution; for in return for that commodity, money may flow and, as the price level rises or falls, the quantity of that commodity sold may be correspondingly adjusted. ”

“ It is true that some part of the fall is no more than a recoil from the abnormally high prices of the years 1871-73. It is true, also, that some commodities have shown a tendency to rise, and that in one very important respect—in money incomes and the money rate of wages—there has been a striking exception to the general movement. ”

“ Money in the summer months is apt to be low and exchange high, affording a good basis on which to sell exchange. Then, if the expected crops materialize, large amounts of exchange drawn against exports will come into the market, forcing down rates and giving [Pg 341] the operator who has previously sold his long bills an excellent chance to cover them profitably as they come due. ”

“ Rates being so adjusted upon a commodity as to enable it to move with profit to the shipper, whatever the conditions of the market, reducing the rates as the market declines, only increasing them as the market improves, a particular increase is reasonable if it be shown that the percentage of increase has been greater in the price of the commodity than in the rates on it. ”

“ What would be the consequence of this difference in the rates of profit for capitals employed in the different branches of industry? Why, the consequence that generally obtains whenever, from whatever reason, the average rate of profit comes to differ in the different spheres of production. ”

“ Thus it seems to be felt, if not understood, that the rate of the dollar does not affect the rate of the supply of commodities—that when commodities are abundant they will be proportionately cheap, however high prices may be, and when they are scarce they will be proportionately dear, however low prices may be. ”

“ From this it appears that demand and supply govern the fluctuations of values and prices in all cases, and the permanent values and prices of all things of which the supply is determined by any agency other than that of free competition: but that, under the régime of competition, things are, on the average, exchanged for each other at such values, and sold at such prices, as afford equal expectation of advantage to all classes of producers; which can only be when things [pg 373] exchange for one another in the ratio of their cost of production. ”

“ The variation in the value of money, however great, makes no difference in the rate of profits; for suppose the goods of the manufacturer to rise from 1000l. to 2000l., or 100 per cent., if his capital, on which the variations of money have as much effect as on the value of produce, if his machinery, buildings, and stock in trade rise more than 100 per cent., his47 rate of profits has fallen, and he has a proportionably less quantity of the produce of the labour of the country at his command. ”