Chapter 8 Chapter VII Natural and Market Prices of Commodities

All wages of labor, and profits of stock, have a common or average level.This phenomenon is very common in any society and its adjacent areas.As I shall say later, this general level is governed by the general conditions of society (such as wealth and poverty, progress), and by particular things which have various uses.In the same way there is a common or average level of rent, which is also governed by two factors, the general state of society in and around the country, and the fertility of the land, both natural and artificially improved. In these places this common or average level may be called the natural level prevailing at the time, such as the natural level of wages, profit, or ground-rent.A commodity is sold at its natural price if its selling price is exactly equal to all the costs of producing it, making it, and bringing it to market (including all rents, wages, and profits paid at the natural level).

When a commodity is sold at its natural price, its price is equal to its value.That is, the natural price is exactly equal to the actual cost of the person who sold it.Under normal circumstances, the original cost of the product does not include the profit of reselling.However, if the re-seller sells the commodity at the original cost, he will not get the local general profit and will naturally suffer a loss.Instead of this, he might as well invest this capital in other ways to obtain a profit.Moreover, his income from profits is the just source of his means of subsistence.Because the capital he advances in the process of manufacturing and transporting commodities includes not only the wages (or means of subsistence) of the laborers, but also his own means of subsistence.On the whole, his means of subsistence are equal to the profits he makes on the sale of his commodities.If the seller of commodities does not make a profit out of them, he does not get back what he actually spent, and naturally suffers a loss.Therefore, ordinary merchants will set a price at which they can make a profit when they sell their goods.Although this price may not be the lowest, it is acceptable to him for a long time.This situation, at least, will appear in a free place where everyone can change occupations at will.

Normally, the market price of an item is the actual price at which it is sold.It is now and then high and sometimes equal to the natural price.The natural price of commodities, consisting of rent, wages of labour, and profit, must be paid by anyone who wishes to buy commodities.What governs the market price of a commodity is the ratio of the actual sales volume of the commodity to the demanded quantity.If a person is willing to buy a certain commodity at the natural price, then he is an effective demander of this commodity, and his demand is the effective demand.For example, a large carriage drawn by six horses is definitely not brought to market to satisfy the needs of a poor man.Because for the poor, this demand is not an effective demand.Of course, effective demand is different from absolute demand, and it does not necessarily promote the realization of commodity sales.

If there is not enough supply and sales of a good to meet the effective demand in the market, buyers cannot get the quantity they need.Even if they were willing to pay the rent, the wages of labour, and the profits expended on this commodity, their wants would not be satisfied.Some people would rather pay a higher price for this commodity.At this time, competition arises.The market price of this commodity naturally rises above its natural price.There are two factors which determine the degree to which market prices rise, the first is the degree of scarcity of goods, and the second is the degree of wealth and luxury of competitors.The greater the intensity of competition, the greater the room for price increases.If the competitors are equally wealthy and luxurious, it depends on how important the commodity itself is to the buyer.Therefore, the necessities of life are always very expensive in a blocked city or other places where starvation occurs.

On the contrary, if the supply and sales of this commodity exceed the market demand, the excess commodity will be sold at a low price.Even if the part not exceeding was sold at the obligatory rent, wages of labour, and profit, the general price would fall with that part lower.The market price of the commodity would then be lower than its natural price.It is the size of the excess that determines the extent to which the market price falls.If the excess is too large, the seller will be eager to sell the goods, thus intensifying the intensity of the seller's competition.When the excess is the same, perishable goods have more intense competition than durable goods.Citrus, for example, gives rise to a greater degree of competition among sellers than old-fashioned iron.

If the supply and sales of this commodity just meet the effective demand of the market, its market price is basically the same as the natural price.These commodities are then also sold at their natural prices.This price is also the lowest price that all competing merchants must accept. In order to adapt a commodity to effective demand, merchants will consider the quantity of the commodity on the market.Because, when the quantity of goods on the market is less than or equal to the effective demand, it is beneficial to all commodity suppliers who use land, labor or capital; people. If the quantity of a commodity brought to market exceeds the effective demand, its market price must be lower than its natural price.In this way, stakeholders will be prompted to withdraw some of their investment.If part of the rent fell, the landlords would immediately withdraw part of the land; if part of the wages fell, the laborer would withdraw part of his labor; and if part of the profit fell, the employer would withdraw part of his capital.In a short time, then, the supply and sale of commodities again correspond to the effective demand, and the market price rises to its natural level, and is again in harmony with the natural price.

Conversely, if the marketed quantity of a commodity is less than the effective demand, then its market price will be higher than its natural price.In this case, stakeholders will be encouraged to increase their investment.If the land rent rises, it will prompt other landlords to prepare more land to produce more of this commodity; if the wage rises, it will prompt other laborers to join the ranks of producing this commodity ; and if the profit part rises, it will induce other employers to invest their capital also, in order to manufacture more of this commodity, and send it to the market.In a short time, then, the supply and sale of commodities sufficiently satisfy the effective demand, that the market-price falls again to its natural level, and corresponds to it.

In this way, the market prices of all commodities fluctuate up and down around the central price of the natural price.Sometimes, various accidents inevitably occur, which affect the market price of commodities, sometimes raising it above the central price, and sometimes suppressing it below the central price.However, no matter what obstacles occur, the market price of commodities will always fluctuate towards this central price. In order to supply the market with the proper quantity of commodities just to satisfy the effective demand, the whole annual quantity of labor naturally adapts itself to the effective demand in this manner.

But even with the same amount of labor, the output of different commodities varies from year to year.For some businesses, year-to-year output may vary considerably; for others, year-to-year output tends to be equal.For example, in agricultural production, even if the number of agricultural laborers remains the same, the amount of commodities such as grains, wine, cooking oil, and hops they produce this year is different from previous years.But it is different in the textile industry, if the number of weavers remains the same, they will produce almost the same amount of linen and woolen cloth every year.

As far as agricultural production is concerned, even if the quantity of commodities it produces meets the effective demand of the market, it is only equal to the average production quantity of this industry.In actual production, the output of this commodity is often not equal to the average production volume, and may even be much larger or smaller than the average production volume.Consequently, the quantity of a commodity brought to market is sometimes much greater than its effective demand, and sometimes much less.Even if the effective demand in the market remains unchanged, it cannot avoid the fluctuation of the commodity market price around the natural price.

For the textile industry, however, the production of the same amount of labor is always the same or approximately the same, so it will be relatively accurately adapted to the effective demand of the market.So, while the effective demand for this commodity remains constant, its market price also remains constant, substantially the same as its natural price.It is known by experience that the price of linen and woolen cloth is more constant, and does not fluctuate so often, or if it varies, so much as in that of corn.For the change in the price of linen and woolen cloth is only the demand; and the change in the price of corn is not only the demand but also the quantity of the commodity.A change in the quantity of commodities is a greater and more frequent change. If the market price of commodities changes accidentally, it will only affect the wages and profits part of it, and generally will not affect the rent part.Because ground rent has been determined as currency, and will not change in rate or value with changes in market prices.Even if the rent were calculated in proportion or quantity to the original produce, the part affected would be only the value of the annual rent, and the rate of the annual rent would remain the same.Landlords and agricultural managers, when negotiating the terms of tenancy, try to match the rent with the average price of the produce, without taking into account the temporary price of the produce. The factors which determine the occasional or temporary fluctuations in the market price of commodities are the quantity of commodities or labor accumulated in the market at that time, or in other words, the degree to which the quantity of commodities or labor in the market at that time affects wages or profits.Taking black cloth as an example, if there is a national funeral, the stock of black cloth is often not enough to supply the demand, so that the market price is expensive, which makes the merchants who hold a large amount of black cloth greatly profitable.However, only merchants profited from buying and selling black cloth, and the wages of weavers did not increase.Because, at this time, what is in short supply in the market is the completed commodity, not the pending labor. During national mourning, although the wages of weavers will not be affected, the wages of seamers will be raised.Because, in the process of sewing black cloth into filial piety clothes, a large number of seamstresses are required to wait for labor, making the existing supply insufficient to meet the effective demand.Because of national mourning, the demand for silk and cotton cloth will stop for half a year or even a year.There would thus be a glut of silk and cotton cloth, which would lower their price, thereby lowering the profits of the merchants who held large quantities of silk and cotton cloth, and the wages of the laborers who refined them. For various commodities, although their market prices always have a tendency to fluctuate around the natural price, there are indeed many commodities whose market prices greatly exceed their natural prices for a long time.The reasons are varied, such as special accidents, natural factors, and special policy regulations.Details are given below. When the effective demand for a commodity increases, and thus raises its market-price much above its natural price, the majority of suppliers take care to conceal this change, lest it should be known.Because, if people know that there are huge profits in it, they will definitely invest in it.In this way, the quantity of the commodity on the market will again satisfy the effective demand, and the market price of this commodity will fall back to the natural price again, or even fall below the natural price.As for how long this secrecy can be kept, it depends on how far the supplier is from the market.This secrecy can sometimes be kept for years if the supplier is far from the market.Therefore, those who know this secret can enjoy this extraordinary profit exclusively in the past few years.However, such secrecy generally cannot be kept for long. Manufactures last longer than commerce in terms of keeping secrets.For example, a dyer discovers a method of making dyes by which he can save half the cost.If he can properly keep this secret, he and even his descendants will have the exclusive benefit of this discovery.Although this benefit is an additional benefit, it is his "high price" labor income, or the high wages of his personal labor.However, it seems that it is not accurate to say that, it is better to say that it is the extra profit of all his capital.Since he can reap this interest repeatedly, the sum of his interests remains a definite proportion to the sum of capital. This increase in the market price is only caused by some special accidental events.However, its effect is not small, and sometimes it lasts for many years. Some natural products are special, requiring special soil and geographical location, and it may be that all the land in the country suitable for producing these products cannot be used to produce quantities that meet the effective needs of the market.For this kind of product, even if it is all on the market, it can only be supplied to those who are willing to pay a special price.That is to say, these people not only have to pay the land rent calculated according to the natural rate, labor wages used in production and distribution, and capital profits, but also the part of the price that is higher than the natural price. The high prices of such commodities can be maintained continuously for centuries.The rent part of its price is thus higher than the rent calculated at the natural rate.If a land yields a valuable produce (such as the soil and well-placed French vines) in comparison with neighboring lands of the same fertile and well-cultivated variety, their rent does not remain proportional, but their labor Wages and profits of stock, however, tend to maintain a natural proportion. This way of increasing the market price is caused by natural causes, and its effect will last forever, so its effective demand cannot be fully supplied. If a commodity is monopolized by an individual or a commercial firm, the effect will be the same as that of keeping a trade or manufacture secret.Because, once this commodity is monopolized, the monopolist will control the market inventory below the effective demand, so that the demand for this commodity will never be satisfied.In this way, they can sell their goods at a market price which greatly exceeds the natural price, and thereby obtain high wages or high profits as rewards for monopoly. In every period since the emergence of commercial monopoly, the highest prices of commodities have almost always been obtained by monopoly.On the contrary, the lowest prices which commodities may have during certain or long periods of time are obtained by natural prices or by free competitive prices.In each period, the monopoly price is the highest price a monopoly can extract from buyers (or the highest price buyers are willing to pay), while the natural price or free competition price is the lowest price that sellers can accept.If the commodity sells for less than this minimum price, the seller cannot continue the business. In addition to monopolies, there are also organizations or regulations that are less effective than monopolies, but of the same nature as monopolies, such as exclusive trade associations, apprenticeship regulations, and various regulations that limit the number of people competing in particular occupations.These organizations or regulations, which actually control certain industries, are an extended monopoly, and often enable the monopolist to sell all the commodities of these industries at a market price above the natural price, and also raise slightly. wages and capital profits. This way of increasing market prices is caused by various laws and regulations. It will exist because of the effectiveness of these laws and regulations, and will die with the demise of these laws and regulations. It can be seen from this that the market price of any commodity can be higher than its natural price for a long time.On the contrary, it is not.If the market price of a commodity is lower than its natural price, no matter which part of land, labor or capital is reduced, the loss will be immediately fed back to the stakeholders, prompting them to immediately withdraw their part invest.As a result, the quantity brought to market again corresponds to the effective demand, and the market price soon rises to its natural price.This is the case, at least where there is complete freedom. As regards the statutes of apprenticeship, and other regulations of every kind, which raise the wages of the labourer, when the manufactures prosper, and, of course, depress the wages of the labourer, when they are in decline, below their natural rate.For, when manufactures prosper, they prevent competitors from entering their trade; and when manufactures are weak, they prevent them from diverting to other employments. However, the effect of these laws in raising the wages of labor may last for centuries; in lowering them, it may only last as long as the trained laborers die.When those trained workers die, the number of people engaged in this occupation will again match the effective demand of the market.Of course, this situation may not be suitable for countries like ancient India and ancient Egypt.For, in these countries, every man is obliged to inherit his father's inheritance according to canon; and if any one changes his occupation, he is guilty of the most terrible blasphemy.Thus, no matter in any occupation, it is very easy for successive generations to have the phenomenon that the wages of labor or the profits of capital are below the natural rate. So far we have dealt with the difference between the market price of commodities and the natural price. Although the factors that determine the natural price of commodities are wages, profits and land rent, in any society, this natural price will also change with the wealth and progress of the society.As to the reasons for the changes, I will endeavor to describe them in detail in the next four chapters. First, the conditions under which the rate of wages are naturally determined, and how this condition is affected by the wealth and progress of the society. Second, the conditions under which the rate of profit is naturally determined, and how this condition is affected by the wealth and progress of society. Third, what determines the ratio I will talk about below. The difference in the use of labor and capital determines the difference between money wages and money profits.But however different the employments of labor and stock may be, there seems to be a definite relation between money-wages and money-profit.The factors determining this proportional relationship are, on the one hand, the nature of the employment of labor and capital, and on the other, the different laws and policies of society.A detailed explanation of this point will be made in a later chapter.Although this ratio is subject to laws and policies in many ways, it does not seem to change with the wealth and progress of society. Fourthly, What are the factors which govern the rent of land, and which vary the real price of all the produce of land.