Chapter 30 Chapter One Introduction.On the market

Section 1 Biological and Mechanistic Concepts of the Balance of Opposite Forces.scope of this article. An enterprise grows and grows, and may stagnate and decline in the future.At its turning point, there is a balance or equilibrium between the life force and the decay force.The latter chapters of Book IV deal chiefly with the equilibrium of those forces which increase or decrease populations, or the methods of manufacture or commerce.As our research progresses, it becomes more and more necessary for us to think that the economic forces are similar to those forces which make the young man grow up to the prime of life, after which he gradually becomes rigid and inactive, until at last gives way to other angry Vigorous people.But in order to prepare for this advanced study, we need first to observe the simpler balance of forces maintained with a pebble tied by a spring string, or with many small balls attached to each other in a basin. The mechanical balance is roughly the same.

We must now study the relations of demand and supply in general; and in particular those relations which relate to the regulation of prices by which supply and demand are kept in "equilibrium."The term equilibrium is a general term and can now be used without special explanation.But this term involves many difficulties which can only be solved step by step.In fact, a good deal of this article is devoted to discussing these difficulties. Illustrations will sometimes be drawn from one class of economic problems and sometimes from another, but the main course of reasoning is independent of those assumptions peculiar to any particular class.

As such, it is neither narrative nor actively addresses practical issues.It reveals the main rationale for our knowledge of the factors governing value, and thus prepares the structure for the next part.Its purpose is not so much the acquisition of knowledge as the ability to acquire and codify knowledge of the two sets of opposing forces which compel man to economic toil and sacrifice and bring him to an end. First we must give a brief account of the market: as it is necessary to make the concepts in this and the next part more precise.But the organization of the market is intimately connected, both in cause and effect, with money, credit, and foreign trade.

A full study of it must therefore be left for the next volume.There the market will be studied in conjunction with the changes in industry and commerce, with the alliances of producers and merchants and employers and employees. The second section defines the market. When speaking of the interrelationship of supply and demand, the market they refer to must of course be the same market.As Cournot says, "What economists call a market does not mean any particular place where goods are traded, but the whole of any area in which buyers and sellers interact with each other so freedom, so that the prices of like commodities tend rapidly to equalize".Or as Jevons puts it:

"Originally, a market was a public place in the city where grain and other goods were sold, but the meaning of the word was extended to refer to any group of people who were closely connected in commerce and traded in large quantities. The number of important industries in a large city was determined by the There may be as many markets as there may be, and these markets may or may not have a fixed location. The center of the market is the exchange, bazaar, or saleroom, where merchants agree to meet and trade. London's stock market, wheat market, The coal market, the sugar market, and many other markets have their fixed places; the cotton market, the waste cotton market, and others in Manchester. But this distinction of places is unnecessary, since the traders are scattered all over the country. town or suburb, but they can still form a market if they are brought into close contact with each other by means of fairs, appointments, published price lists, mailings, and other means.

Thus, the more complete a market is, the stronger will be the tendency of all parts of the market to pay the same price for the same commodity at the same time.Of course, if the market is large, the cost of shipping the goods to the different buyers must also be added; and each buyer must pay a special shipping charge in addition to the market price. The third section is the limitation of the market in space.General conditions affecting the size of the market for something; suitable for grading and sampling; suitable for transportation. When applying economic reasoning to practice, it is often difficult to determine to what extent changes in supply and demand in one place are affected by changes in supply and demand in other places.It is evident that the general tendency of the telegraph, printing press, and steam transport was to extend the sphere and increase the power of these influences.The whole Western world, in a certain sense, can be regarded as a market for various stocks, securities and precious metals, and in a small way, a market for wool, cotton, and even wheat; Shipping costs, which include duties and taxes paid when the goods pass through customs.For on all these occasions the shipping charges including tariffs are not enough to prevent buyers all over the western world from bidding against each other for the same supplies.

There are many special reasons which can expand or shrink the market for a particular commodity.But nearly all of those commodities that have a large market are generally in demand and easily recognizable.Cotton, wheat, and iron, for example, all satisfy urgent, almost universal wants.They are easily identifiable, so they can be bought and sold by people who are far apart from each other and from the commodity.If necessary, truly typical samples can be taken from these commodities: They may even be "graded" by a specialist, as is the grading of corn in the United States; thus the buyer can be assured that what he buys will be of a certain standard, although he has never seen a sample of what he is buying, And if he has seen a sample, he may not be able to judge.

Those commodities which have a large market must also be commodities which can withstand long distances: they must have considerable durability, and at the same time their value must be much greater than their bulk.A commodity so heavy and bulky, that it is bound to increase its price when sold at a great distance from its place of manufacture, has as a rule only a narrow market.For example, the market for ordinary bricks is practically limited to areas near kilns, and they can hardly be transported by land to areas that do not have their own kilns. But certain specialty bricks have their own market in most parts of the UK.

Section IV well-organized market. Let's examine further the market for those things that satisfy general needs in specific ways, that are easily identifiable and portable.These are, as we have mentioned, securities and precious metals. Any stock or bond of a corporation, or any bond of a government, is of exactly the same value as any other stock or bond of the same yield.It makes no difference to the buyer which one he buys.Some securities, chiefly those of smaller coal companies, steamship companies, and other companies, required local knowledge and were difficult to sell except on exchanges in nearby towns.But the whole of England is a market for the stocks and bonds of one of its major railway companies.A broker would normally sell Midlands even if he didn't have them; because he knew they were always coming in, and was sure he could buy them.

But the strongest case is that of those securities, which are called "international" securities because they are needed everywhere in the world.These are: the bonds of some major countries and the bonds of large corporations such as the Suez Canal Company and the New York Central Railroad.For such bonds, the telegraph kept prices on exchanges all over the world at nearly the same level.If the price of one of the bonds rises in New York, Paris, London, or Berlin, news of the rise alone will tend to raise prices in other markets; The bond of that particular class will most likely be telegraphed at once in the high-priced market, and the brokers in the first market will telegraph the other markets.Selling on the one hand and buying on the other reinforces the tendency of prices to be everywhere the same; and unless some markets are in an extraordinary state, this tendency becomes at once irresistible.

On the Exchange, too, the merchant is generally able to secure a price nearly equal to the purchase price; he is often willing to pay less than 1/2% or 1/4% of what he can sell at the same instant. , or 1/8%, sometimes even 1/16% to buy first-class stocks.If there are two equally insured securities, one of which is a large issue and the other a small issue of the same government, so that the first issue is constantly flowing into the market while the latter is rare , then, for this reason alone, the difference between the selling price and the buying price charged by the merchants is greater in the latter case than in the former.Herein lies the great law: the larger the market for a commodity, the less generally its price varies, and the lower the rate of turnover at which the merchant deals in it. Thus, the stock exchange was, and still is, the paradigm of the market through which products of all kinds are readily identifiable, portable, and universally desirable.But the commodities which possess these properties to the greatest extent are gold and silver.It is for this reason that they were once chosen to be used as money, to represent the value of other things. The world market for gold and silver is so perfectly organized that it affords many wonderful illustrations of the operation of the laws we have been discussing. Section 5 Even a small market is often indirectly influenced by distant ones. At the opposite extreme from the markets in international securities and precious metals, there are, first of all, those custom-made items that suit certain people, such as well-fitting clothes; Things are not easy to transport over long distances.It is difficult to say that there is a wholesale market in the former, and the conditions on which their prices are determined are the conditions of retail buying and retail sales, and the research on these conditions can be neglected. The second category of commodities does have wholesale markets, but they are limited to a narrow range.We can find our typical example in the sale of more common vegetables in the township.The nearby vegetable merchants may be preparing to sell vegetables to the residents of the town under the condition that there is little external interference from both parties.The seller and the buyer, who can buy elsewhere, may exercise some restraint on excessive prices: but usually this restraint does not work, and it may happen that on such occasions the merchants are able to unite and thereby fix a certain An artificial monopoly price; that is to say, a price that has little direct relationship to production costs but is determined primarily by considerations of market affordability. On the other hand, it is probable that some vegetable merchants are almost as far away from the second town, and that sometimes they send their vegetables to this town and sometimes to that; the second town to buy; the slightest difference in price will make them willing to go to the better market, thus making the transactions in the two towns somewhat interdependent.It is also probable that the second town is so closely connected with London or some other central market that its prices are therefore determined by those of the central market; changes in order to be consistent with them.As the news spreads from one to another, until the news spreads far away, even a remote market is easily affected by changes that the market has not noticed, and these changes come from far away and gradually spread to various markets. Thus, at one extreme are world markets, in which direct competition from all parts of the world operates; Feel the competition coming indirectly.The vast majority of markets lie somewhere in the middle of these two extremes, and economists and entrepreneurs must study them. The sixth section is the time limitation of the market. Furthermore, markets vary not only by region but also by the length of time it takes for the forces of supply and demand to equalize each other.This temporal factor currently requires more adequate attention than the spatial factor.For both the nature of the equilibrium itself and the factors that determine it depend on the length of time the market occupies.We shall know that, if the period is short, the supply is limited to existing stocks; If the period is long, supply will be more or less affected by the cost of production of the commodity, and if the period is long, this cost will be more or less affected by the cost of production of the labor and material means required to produce the commodity Impact.These three categories are of course intertwined.We first discuss the first category; and in the next chapter examine those temporary equilibria of supply and demand, in which supply really refers only to stocks available for sale on the market, and therefore cannot be directly affected by the cost of production.