Minimum price

“ If, indeed, the supply could not be increased, no diminution in the cost of production would lower the value; but there is by no means any necessity that it should. The mere possibility often suffices; the dealers are aware of what would happen, and their mutual competition makes them anticipate the result by lowering the price. ”

“ It is the cost of production which must ultimately regulate the price of commodities, and not, as has been often said, the proportion between the supply and demand: the proportion between supply and demand may, indeed, for a time affect the market value of a commodity, until it is supplied in greater or less abundance, according as the demand may have increased or diminished ”

“ In most cases these regulations established maximum prices, sometimes by agreement with the manufacturers concerned. But it is obvious that such measures could not be satisfactory in the long run. Once a scarcity of goods is felt, fixed prices are of no use; and confusion necessarily results when there is no rise in price, as in a free market, to bring about the balance between the supply and demand. ”

“ If the demand for dollars increases faster than the number of dollars—as it did after 1800—the price of each dollar will rise and prices generally will fall. The relative value of the dollar may be changed by natural causes or by legislation. An increased supply—the demand remaining the same—or a decreased demand—the supply remaining the same—will reduce the exchangeable value of each dollar. Natural causes may act on both supply and demand; as, for instance, by increasing the product from the mines or by increasing the amount consumed in the arts. ”

“ The reasons for dispersion are principally three: (1) Many prices are restrained by previous contract, by legal prohibition, or by force of custom. (2) Some prices are intimately related to the money metal. (3) Each individual price is subject to special variation under the influence of its particular supply and demand. There exists, however, a compensation in price movements in the sense that the failure of one set of prices to respond to any influence on the price level will necessitate a correspondingly greater change in other prices. ”

“ At any rate then demand and supply are not the sole regulators of price. I should be glad to understand what Lord King and you mean by supply and demand. However abundant the demand it can never permanently raise the price of a commodity above the expense of its production, including in that expense the profits of the producers. It seems natural therefore to seek for the cause of the variation of permanent price in the expenses of production. [Pg 149] Diminish these and the commodity must finally fall, increase them and it must as certainly rise. ”

“ The increase of money does not only operate on the price of provisions by the diminution of its own value, but by enabling more people to purchase, and consequently to consume them; which must unavoidably likewise increase their scarcity, and that must still add more to their price. Twenty rich families will consume ten times as much meat, bread, butter, soap, and candles, as twenty poor families consisting of the same number; and the prices of all these must certainly rise in proportion to the demand. ”

“ It must be contrary to the general interest that the price of any commodity should be artificially raised. To raise prices is, on the one hand, injurious to producers by checking consumption, and thus diminishing the demand for the article produced, and for the labour which produces it ”

“ It is, therefore, a great error to suppose that an existing or new duty necessarily becomes a component element to its exact amount of price. If the proportions of demand and supply are varied by the duty, either in augmenting the supply, or diminishing the demand, or vice versa, price is affected to the extent of that variation. ”

“ The cost which requires 25s. is incurred for the sake of fifty quarters alone: the first hundred might have continued forever to be produced at the original cost, and with the benefit, on that quantity, of the whole rise of price caused by the increased demand: no one, therefore, will incur the additional expense for the sake of the additional fifty, unless they alone will pay for the whole of it. ”

“ The argument—heard less frequently now than formerly—has been advanced, drawn inductively from statistics, that protection does not raise prices; because, after duties are put on, a larger quantity is produced, the advantages of large production are reaped, and then the price of the manufactured commodity falls lower here than it was before the duty was imposed. ”

“ It is manifest, however, that that which produces the increase of consumption is a decrease not in duty, but in price. It is of no practical importance to the consumer how this price is made up, and it is only in its tendency to lower the price, or, what is the same thing, to improve the quality, or increase the facility of purchase, that the diminution in duty concerns him. ”

“ It is not always possible to raise the price of a commodity in exact proportion to every additional imposition laid upon it. The merchant, especially in a country of small commercial capital, is often under a necessity of keeping prices down in order to a more expeditious sale. ”

“ Of the three possible varieties in the influence of cheapness on demand, which is the more probable—that the demand would be increased more than the cheapness, as much as the cheapness, or less than the cheapness? This depends on the nature of the particular commodity, and on the tastes of purchasers. When the commodity is one in general request, and the fall of its price brings it within reach of a much larger class of incomes than before, the demand is often increased in a greater ratio than the fall of price, and a larger sum of money is on the whole expended in the article. ”

“ In articles which are universally produced by the unaided labour of the hand, a limitation on the gross consumption cannot, as a general rule, effect any very material alteration in the individual price, where fair competition shall have already reduced and adjusted it by a remunerative standard. ”

“ In order to apply this principle, with any advantage, to the solution of the question which now occupies us, the principle itself, and the idea attached to the term demand, must be conceived with a precision, which the loose manner in which the words are used generally prevents.
It is well known that the quantity of any commodity which can be disposed of, varies with the price. The higher the price, the fewer will be the purchasers, and the smaller the quantity sold. The lower the price, the greater will in general be the number of purchasers, and the greater the quantity disposed of. ”

“ If the producer of any article is obtaining more than the usual rate of profit, he at once provokes competition, and thus even the dread of this possible competition may keep down prices. This is often expressed by saying that the potential supply affects prices almost as much as the actual supply. It thus becomes obvious that, as regards freely produced commodities the production of which may be extended indefinitely at the same or at a decreasing cost, the value tends to conform to the minimum cost of production, and that any other value is consequently unstable. ”

“ Since then the value of our money is decreased by its quantity, our consumption increased by universal luxury, and the supplies, which we used to receive from poorer countries, now also grown rich, greatly diminished, the present exorbitant price of all the necessaries of life can be no wonder. ”

“ When the cost of A ́ ́ ́ causes it to stand just outside of the purchase limit of a large class of persons, a moderate reduction in the cost of it will make it a more desirable subject of purchase than the articles which have stood just within that limit, and it will be bought instead of one or more of these things. The securing of new customers for a finished product by means of a fall in the price of it is largely brought about by such substitutions. ”

“ We are not now so much concerned with the practical conclusions which they deduce respecting the real incidence of taxation, as with the fact that the distinction involves a point of fundamental importance in the theory of rent. Rent, broadly defined as a payment for differential advantages, is measured upwards from a minimum level where, it is assumed, no rent is paid. The producers on the 'margin' of production clear their expenses, but have no surplus in hand to transfer to the landlords. ”

“ Aufl., 192 ff. According to Senior, Outlines, 15, the price-relation of two commodities to each other depends not on the quantities of them which come to market, but on the relative power of the difficulties which stand in the way of an increase in these quantities. If the same producers can pursue the cheaper mode of production which does not suffice to supply the market, as well as the dearer, we have, generally, a price which is the mean between the two costs of production. The same is true in the case of “smuggled” goods which ought to have paid duty. (Hermann, loc. cit., 83, seq.) ”

“ There is not a line to be found in these cases under the Act to show the slightest recognition of the definitely established truth, that high prices always have been, and always will be, the forerunner of low prices; that freemen in a free market, with its inducements to gain the higher rewards, strive, invent and compete, so that every temporary rise in price insures not merely a return to the old price, but to a lower one, and finally to the fair and equitable exchange of all commodities, measured by the labor relatively involved. ”

“ Thirdly, and this difficulty is of a more serious nature, the prices of some or many of the articles which occupy an important place in all calculations of the cost of living of the wage earners may change in a different measure, or even in a different direction, from the prices of the other commodities produced within the country. Food prices in particular are apt to respond to different influences than those governing the general price level. ”

“ It has been said, that the price of a manufacture is to be known by the expence of living of the workman, the sum it costs him to bring his work to perfection, and his reasonable profit. We are now to examine what it is, which in all countries must determine the standard prices of these articles of the first necessity; since the value of them does necessarily influence that of all others. ”

“ Again, it does not matter whether the gold miner receives a high mint price and has to pay dearly for his machinery, labor, supplies, and other costs of operation, or receives a low mint price and can buy his machinery, labor, and supplies more cheaply.
Still again, it does not matter whether the miner makes large money profits while the cost of living is high or small money profits while the cost of living is lower. ”

“ Fluctuating scales of prices determined by fluctuating conditions of competition, supply and demand, and power of coercion, will give place to "the fair price" fixed by concerted community action and revised from time to time in order to preserve a right balance with the general scale of cost of raw materials and cost of living. ”

“ But it permits price differentials 'which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities' in which the commodities are sold or delivered. ”

“ The price is a consideration wholly for the vendor, and the value a consideration wholly for the purchaser. Hence it follows that both value and cost enter into a bargain, even when legitimately made. But value goes solely to determine the demand, and is solely cognizable by the purchaser or consumer—by him who receives; while cost (or burden) goes to determine the price, and is solely cognizable by the seller or producer—by him who renders. ”

“ There are, as we all know, various forces at work to produce the resultant price level. We may here start from a proposition on which we can all agree. An increase in the quantity of the monetary standard in the world—such as gold—would tend, other things being equal, to lower its value and thus raise prices. ”

“ The economic laws, the relations between utility, and price and cost, with which it has been occupied, are an entirely different matter; and these are essential to the efficiency of any system of society. For if the marginal utility of a commodity is equal to its marginal cost, and if this marginal cost is composed of payments to the various agents of production at least as great as they could have obtained if they had been used otherwise, this amounts to saying that the agents of production are so utilized as to yield the maximum utility ”

“ Thus it is, that as all competition among furnishers must cease upon the reduction of profits to the minimum, so all demand from merchants (who in this case represent the consumers) must cease, so soon as prices rise above what they can afford to give, consistent with their minimum of profit upon the sale of what they buy. ”

“ When an advance in the price of provisions already expresses that the demand is too great for the supply, in order to put the labourer in the same condition as before, we raise the price of labour, that is, we increase the demand, and are then much surprised, that the price of provisions continues rising. ”

“ Each time a pile has risen, the average level of all has fallen.
VIII.75 The proposition that a general increase in demand, resulting in an increase in trade, tends to decrease and and not to increase the general level of prices, may be regarded as a sort of pons asinorum to test one's knowledge of the fundamental distinction between those influences affecting the general price level and those affecting the rise and fall of a particular price with respect to that level. ”