Principles of Economics by Carl Menger
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CHAPTER
VII: THE THEORY OF THE COMMODITY
1. The
Concept of the Commodity in Its Popular and Scientific Meanings
IN AN ISOLATED
HOUSEHOLD economy the productive activity of each economizing unit is
directed solely to the production of goods necessary for its own
consumption. The very nature of such an economy precludes the
production of goods for the purpose of exchange. But the various tasks
that must be performed to meet the requirements of the household could
be assigned by the head of the family to the various members of the
family and to any servants he has, with due regard to their special
faculties and skills. Hence the characteristic feature of the isolated
household economy is not the absence of any division of labor but its
self-sufficiency, production being concerned exclusively with goods
destined for the consumption of the household itself, and not at all
with goods destined to be exchanged for other goods.
It is, of course, quite evident that the division of labor remains very
narrowly limited in the confines of an isolated household economy. The
requirements of a family for any single good are usually much too small
to permit an individual to occupy himself fully with its production,
much less with a single manual operation. The available food supplies,
moreover, are in most cases much too small to feed any considerable
number of laborers. Societies in the lower stages of development,
therefore, furnish us with examples of a complex division of labor only
in the household economies of a few nobles, while the other economizing
individuals continue to have little division of labor and narrowly
limited wants.
A people can be considered to have taken its first step in economic
development when persons who have acquired a certain skill offer their
services to society and work up the raw materials of other persons for
compensation. The Thetes of Ancient Greece appear to have been artisans
of this kind, and even today, in many regions of eastern Europe, there
are still no other artisans. Yarn spun in the home of the consumer is
worked into cloth by the weaver; grain grown by the consumer is milled
into flour by the miller; and even the carpenter and the smith are
supplied with the raw materials for products ordered from them by their
larger customers.
A further step in the path of economic development to higher levels of
well-being can be regarded as having been taken when the artisans
themselves begin to procure the raw materials for their products, even
though they still produce these products for the consumers only on
order. This state of affairs can still, with few exceptions, be
observed in small towns, and to some extent even in larger places in
some trades. The artisan does not yet manufacture products for later,
and hence uncertain, sale. But he is already, to the extent of his
labor power, in a position to meet the needs of his customers by making
it unnecessary for them to expend efforts on purchasing or producing
raw materials in a frequently highly uneconomic manner.
This method of providing society with goods already signifies a
considerable forward step in economy and comfort for consumers as well
as producers. But for both groups it is a step that involves several
serious disadvantages. The consumer must still wait some time for his
product, and is never quite certain of its properties in advance. The
producer is sometimes wholly unengaged and at other times overburdened
with orders, with the result that he is sometimes forced to be idle
while at other times he cannot meet the demand. These drawbacks have
led to the production of goods for uncertain future sale, the producer
keeping them in stock in order to be able to meet requirements at once
as they arise. It is this method of supplying society that leads, with
continuing economic development, to factories (mass production) on the
one side and to the purchase of ready-made (standardized) commodities
by consumers on the other side. Hence it offers the highest degree of
economy to the producer because of the possibility of full exploitation
of the division of labor and the employment of machines, and the
highest degree of safety (inspection before purchase) and comfort to
the consumer.
Products that the producers or middlemen hold in readiness for sale are
called commodities. In ordinary usage the term is limited in
its application to movable tangible goods (with the exception of money).
Since the fact that a person keeps a
portion of his wealth ready for exchange is not always obvious to other
persons, it is understandable that the commodity concept was narrowed
down still more in ordinary life. In popular language, the term
“commodities” came quite generally to refer only to goods that are so
plainly destined for sale by their owner that his intention is obvious
even to other persons. An owner can express his intention in very
different ways. Most commonly he expresses it by displaying his
commodities at places where purchasers are accustomed to assemble—such
as markets, fairs, organized exchanges, or other special places that
either are well known as sites at which commodities are concentrated or
give evidence of being points of concentration by their external
appearance or by prominently visible characteristic markings (e.g.,
shops, stores, warehouses, etc.). In popular usage, therefore, the
commodity concept is narrowed down to a designation for those economic
goods that are in such external circumstances that the intention of
their owner to sell them can be easily discerned by anyone.
The higher the level of civilization attained by a people and the more
specialized the production of each economizing individual becomes, the
wider become the foundations for economic exchanges and the larger
become the absolute and relative amounts of those goods that at any
time have commodity character, until finally the economic gains that
can be derived from the exploitation of the above relationship become
sufficiently large to call forth a special class of economizing
individuals who take care of the intellectual and mechanical parts of
exchange operations for society and who are reimbursed for this with a
part of the gains from trade. When this has occurred, economic goods no
longer, for the most part, pass directly from producers to consumers
but often follow very complex paths through the hands of more or less
numerous middlemen. By occupation these persons are accustomed to treat
certain economic goods as commodities and to keep special places open
to the public for the purpose of selling them. Popular usage has now
limited the term “commodity” to goods that are in the hands of these
traders and in the hands of producers who produce them with the obvious
intention of selling them. This usage doubtless arose because the
intention of the owners of selling these goods (merchandise, marchandises,
Kaufmannsgüter, mercanzie, etc.) is especially easy for anyone
to discern.
But in scientific discourse a need was felt for a term designating all
economic goods held ready for sale without regard to their tangibility,
mobility, or character as products of labor, and without regard to the
persons offering them for sale. A large number of economists,
especially German economists, therefore defined commodities as (economic)
goods of any kind that are intended for sale.
The commodity concept in the popular sense is nevertheless of
importance not only because law-givers and a large number of economists employ the
term in the popular sense, but also because some of those who are aware
of the wider, scientific, sense of the term sometimes employ this or
that element of the narrower, popular, meaning in their definitions.
From the definition just given of a commodity in the scientific sense
of the term, it appears that commodity-character is nothing inherent in
a good, no property of it, but merely a specific relationship of a good
to the person who has command of it. With the disappearance of this
relationship the commodity-character of the good comes to an end. A
good ceases to be a commodity, therefore, if the economizing individual
possessing it gives up his intention of disposing of it, or if it comes
into the hands of persons who do not intend to exchange it further but
to consume it. The hat that a hatter, and the silk cloth that a silk
merchant, exhibit for sale in their shops are examples of commodities,
but they immediately cease to be commodities if the hatter decides to
use the hat himself and the silk merchant decides to give the silk
cloth as a present to his wife. Packages of sugar and oranges are
commodities in the hands of a grocer, but they lose their
commodity-character as soon as they have passed into the hands of
consumers. Coined metal also immediately ceases to be a “commodity” if
its possessor intends to use it, not for exchange, but for some
consumption purpose—if he hands his Thalers to a silversmith for the
purpose of making silver plate, for instance.
Commodity-character is therefore not only no property of goods but
usually only a transitory relationship between goods and
economizing individuals. Certain goods are intended by their owners to
be exchanged for the goods of other economizing individuals. During
their passage, sometimes through several hands, from the possession of
the first into the possession of the last owner, we call them “commodities,”
but as soon as they have reached their economic destination (that is,
as soon as they are in the hands of the ultimate consumer) they
obviously cease to be commodities and become “consumption goods”
in the narrow sense in which this term is opposed to the concept of “commodity.”
But where this does not happen, as is the case very frequently, for
example, with gold, silver, etc., especially in the form of coins, they
naturally continue to be “commodities” as long as they continue in the
relationship responsible for their commodity-character.
Two things are evident from this: (1) the frequently-stated proposition
that money is a “commodity” contributes nothing at all toward
explaining the unique position of money among commodities; (2)
the view of those who deny the commodity character of money because
“money as such, especially in the form of coin, does not serve any
consumption purpose” is untenable simply because the same argument can
be advanced against the commodity-character of all other goods—even if
we were to ignore the fact that there is a misconception of the
important function of money in the assumption that it is not consumed.
For no “commodities” as such serve a consumption purpose, and
least of all in the forms in which they are traded (i.e., in the form
of ingots and bales, and in cases, packages, etc.). To be consumed a
good must cease to be a “commodity” and relinquish the form in which it
has been traded (i.e., it must be melted down, divided, unpacked,
etc.). The coin and the ingot are the most common forms in which the
precious metals are traded, and the fact that these forms must be
abandoned before the precious metals can be brought into consumption is
therefore nothing that justifies doubting their commodity-character.
2. The
Marketability of Commodities
A. The outer
limits of the marketability of commodities
The problem of explaining the causes of the different and changing
proportions in which quantities of goods are exchanged for each other
has always been given special attention by scholars in the field of
economics. There have been as many attempts to solve this problem as
there have been independent economic treatises. In fact some writers
have actually turned their treatises into theories of prices. But the
fact that different goods cannot be exchanged for each other with equal
facility was given only scant attention until now. Yet the obvious
differences in the marketability of commodities is a phenomenon of such
far-reaching practical importance, the success of the economic activity
of producers and merchants depending to a very great extent on a
correct understanding of the influences here operative, that science
cannot, in the long run, avoid an exact investigation of its nature and
causes. Indeed, it is also clear that a complete and satisfactory
solution to the still controversial problem of the origin of money, the
most liquid of all goods, can emerge only from an investigation of this
topic.
As far as I have been able to observe, the marketability of commodities
is limited in four directions:
(1) Their marketability is limited with respect to the persons to
whom they can be sold. The owner of a commodity does not have the
power to sell it to any person of his choice. On the contrary, there is
always only a definite number of economizing individuals to whom it can be
sold. He has no chance of selling his commodity to persons (a) who have
no requirements for it, (b) who are prevented, by legal or physical
circumstances, from purchasing it, or (c) who have no knowledge of the exchange
opportunity offered them, or finally (d) to anyone to whom a given
quantity of the commodity in question is not the equivalent of a larger
quantity of the good that is tendered in exchange for it than is the
case with the initial owner of the commodity.
If we observe the numbers of persons to whom the marketability of
different commodities is restricted, we are confronted with a picture
of vast differences. Compare only the number of persons to whom bread
and meat can be sold with the number to whom astronomical instruments
can be sold. Or compare the number of persons who purchase wine and
tobacco with the number who purchase works in Sanskrit. Similar
differences can be observed, in perhaps a still more striking manner,
in the marketability of goods of different subcategories but of the
same general type or kind. Dealers in optical goods have glasses for
all degrees of long- and short-sightedness ready for sale. Hat and
glove merchants, shoemakers, and furriers, have hats, gloves, shoes,
and furs of different sizes and qualities. But how great is the
difference between the number of persons to whom the marketability of
the most powerful glasses is limited and the number to whom glasses of
medium strength can be sold! How great is the difference between the
number of persons to whom the marketability of gloves or hats of medium
sizes extends and the number of persons purchasing gloves and hats of
very large sizes!
(2) The marketability of commodities is limited with respect to the
area within which they can be sold. For a commodity to be sold in
any one place, it is necessary, in addition to the previous requirement
that there must be a number of persons to whom it can be sold, that (a)
there be no physical or legal barrier to its transportation to that
place or to its being offered there for sale, and that (b) the costs
and expenses of transportation shall not exhaust the gain that can be
derived from the expected exchange opportunity (p. 189).
The differences between different commodities are not less great with
respect to the geographical extent of the areas in which they
can be sold than the differences we have just observed with respect to
the numbers of persons to whom they can be sold. There are commodities
which, as a result of spatially limited requirements for them, can be
sold only in a single town or village, others that can be sold only in
a few provinces, some only in a certain country, others in all
civilized countries, and still others that can be sold in all the
inhabited parts of the world. The peculiar hats worn by the rural
population in some of the valleys of the Tyrol can be sold only in a
particular valley; the hats of Swabian or Hungarian peasants cannot
easily be sold elsewhere than in Swabia or Hungary; but the markets of
the entire civilized world stand open to hats of the newest French
fashion. For the same reason, the marketability of heavy furs is
restricted to northern regions, and the marketability of heavy woollens
to regions in the northern and temperate zones, while light cotton
goods can be sold almost anywhere in the entire world.
A no less important difference in the size of the sales area is founded
on the economic sacrifices involved in transporting commodities to
distant markets. Where there are no railroads, the sales area of common
building stone taken from a quarry not situated on a waterway, and the
sales areas of ordinary sand, clay, and manure, do not often extend
farther than two or three miles. Even where railroads do exist, it is
only in the rarest instances that the sales areas of these commodities
exceed 15 or 20 miles. The sales areas of coal, peat, and firewood are,
under the same conditions, more extended but still narrowly restricted.
The sales areas of pig iron and wheat are considerably wider; those of
steel and wheat flour are still wider; and the sales area of precious
metals, precious stones, and pearls, comprises practically all parts of
the globe where requirements for these goods exist and where the means
of payment for them are at hand.
The economic sacrifices involved in transportation must be recovered
from the difference between the price at the point of origin and the
price at the destination. For commodities of low value this difference
can evidently never be significant. Firewood can be purchased at
infinitesimally low prices in the virgin forests of Brazil and even in
some regions of eastern Europe. In many cases it can be obtained
entirely free of charge. But the price of a hundredweight of firewood
is nowhere high enough that the difference between it and the price at
the place of origin, even if the latter were equal to zero, would
suffice to cover the costs of a long overland haul. In the case of
commodities of high value (watches, for example), on the other hand,
the difference between the price of a hundredweight of the commodity at
the place of production and at the most distant markets (at Geneva, and
at New York or Rio de Janeiro, for instance) may easily, in spite of
the already considerable price in the market of origin, be sufficiently
high to compensate for the expense of transporting the commodity to the
distant regions of sale. Hence the more valuable a commodity
the greater, other things being equal, is its sales area.
(3) Commodities are limited quantitatively in their marketability.
The marketability of a commodity is restricted quantitatively to the
requirements for it that have still to be met—even further, it is
restricted to those quantities with respect to which the foundations
for economic exchange operations are present. However large the
requirements of a single individual for a commodity, purchases of
quantities exceeding this amount cannot be expected during a given time
period. Even within the limits of his requirements, an individual will
be prepared to take in exchange only those quantities of the commodity
with respect to which the foundations for economic exchange operations
are present for him. The demand for a commodity in general is composed
of the demands of the various economizing individuals desiring it. The
total quantity of a commodity that can be sold to the members of a
society is, therefore, in any given economic situation, strictly
limited, and sales beyond this limit are inconceivable.
The quantitative limits of marketability are remarkably different for
different goods. There are commodities that can never be sold, at given
points in time, except in narrowly limited quantities because of
narrowly limited requirements for them. There are others for which
requirements are larger, and for which, in consequence, the
quantitative limits of marketability extend considerably further. And
there are still others that can be sold in almost any practically
conceivable amounts.
The publisher of a work on the language of the Tupi Indians could count
on a sale of perhaps 300 copies at a moderate price for the work. But
even at the lowest price, he could not count on a sale of more than 600
copies. A scholarly work in which only a narrow group of specialists is
interested, and which is intended for the needs of several generations
of scholars, often attains its sales only with the increasing fame of
its author, and can be sold only over a long period of time. But a work
about a science that is attracting general interest may, in spite of
its scholarly character, attain sales of several thousand copies.
Popular scientific publications may attain sales of 20,000 to 30,000
copies or more. Important works of fiction may, under favorable
circumstances, sell in editions of several hundred thousand copies.
Consider the differences in the quantitative limits of the
marketability of a work on Peruvian archeology and the poems of
Friedrich Schiller, or of a work on Sanskrit and the plays of
Shakespeare! But the differences in the quantitative limits of the
marketability of commodities are still greater if we consider bread and
meat on the one hand, and quinine or castoreum on the other, or cotton
and woollen goods on the one hand, and astronomical instruments and
anatomical specimens on the other. Finally, compare the quantitative
limits of the marketability of hats and gloves of medium and of extra
large sizes.
(4) Finally, commodities are also limited in their marketability
with respect to the time periods in which they can be sold. There
are goods for which requirements exist only in winter; others for which
they exist only in summer; and still others for which a demand exists
only during some other more or less fleeting period. Programs for
coming festivals or fine art exhibits, and even, in a certain sense,
newspapers and articles of fashion, are goods of this sort. In fact,
all perishable goods are, by their very nature, restricted in their
marketability to a narrow time period.
To this must be added the fact that keeping commodities “in stock”
usually involves not inconsiderable economic sacrifices on the part of
the owner. The effect of storage fees, costs of safe-keeping, and loss
of interest, on the limits of the marketability of commodities in time
is similar to the effect of freight charges and other transportation
costs on the spatial limits of their marketability. A cattle trader in
our civilization who has a herd of cattle ready for slaughter and sale
must necessarily exercise care to sell them within certain time limits
because they will otherwise not be in prime condition, because of loss
of interest, and in general because of the other economic sacrifices
unavoidably associated with the possession of these animals as
“commodities.” A wool merchant or an iron merchant also has commodities
whose marketability is restricted to certain time periods partly for
physical and partly for economic reasons (storage costs, loss of
interest).
Very great differences can be observed in the time periods during which
different commodities must be sold. The time limits within which, for
example, oysters, fresh meat, many prepared foods and beverages, cut
flowers, programs for coming festivals, political tracts, and so forth,
must be sold are, on the whole, restricted to a few days and often to
but a few hours. The period within which most fresh fruit, game, potted
plants, many articles of fashion, etc., must be sold is limited to a
few weeks, and a few months in the case of other similar commodities,
while the period within which still other commodities can be sold,
provided they can be preserved long enough and requirements for them
continue, extends to years, decades, and even centuries.
The economic sacrifices involved in the preservation and storage of
commodities vary considerably. From this fact arises a further, very
important, factor responsible for differences in the time limits of the
marketability of commodities. A person with building stones or firewood
for sale has commodities that can be stored in an open field. He will
not ordinarily be forced to make his sales as quickly, therefore, as a
furniture dealer, and the latter is again under less compulsion to sell
quickly than a horse trader. The owner of gold, silver, precious
stones, or other commodities that can be stored almost without cost (if
we omit consideration of the loss of interest), has goods whose
marketability extends much further in time than that of all the
abovementioned commodities.
B. The
different degrees of marketability of commodities.
In the previous section, we saw that the marketability of commodities
is restricted sometimes to greater and sometimes to smaller numbers of
persons, and within sometimes narrower and sometimes wider spatial,
temporal, and quantitative limits. In all this, however, I have
described only the outside limits within which, in any given economic
situation, commodities can be sold. The causes determining the greater
or less facility with which commodities can be sold within these limits
of marketability remain still to be examined.
It is necessary, for this purpose, to begin with a few words about the
nature of commodities and the intentions of their possessors. A
commodity is an economic good intended for sale. But it is not
intended for sale unconditionally. The owner of a commodity
intends to sell it, but by no means at any price. A jeweller with a
stock of watches could sell off his entire stock, in almost any
situation imaginable, if he were willing to sell his watches at one
Thaler each. A leather merchant could clear out his stock too if he
were prepared to sell his leather at similar ruinous prices. Both
merchants may nevertheless be justified if they complain of sluggish
sales, since although their commodities are intended for sale, as has
been stated, they are intended for sale, not at any price, but at
prices that correspond to the general economic situation.
The prices that become effective are always the product of existing
competitive conditions (p. 218), and correspond more closely to the general
economic situation the more complete the competition on both sides. If
there are any circumstances that restrain a number of those who have
requirements for a commodity from competing for it, its price will fall
below the level corresponding to the general economic situation. If
there are any restraints upon competition on the supply side, the price
of the commodity will rise above this level.
If the competition for one commodity is poorly organized and there is
danger therefore that the owners will be unable to sell their holdings
of the commodity at economic prices, at a time when this danger does
not exist at all, or not in the same degree, for the owners of other
commodities, it is clear that this circumstance will be responsible for
a very important difference between the marketability of that commodity
and all others. The other commodities can be brought to their final
destinations easily and safely, but the commodity whose market is
poorly organized can be brought to its final destination only with
economic sacrifices, and in some cases not at all.
Market places, fairs, exchanges, public auctions that are held
periodically (as is the case in large sea-ports, for example), and
other public institutions of a similar nature, are for the purpose of
bringing all persons interested in the pricing of a commodity together
at a particular place either permanently or periodically to ensure the
establishment of an economic price. Commodities for which an organized
market exists can be sold without difficulty by their owners at prices
corresponding to the general economic situation. But commodities for
which there are poorly organized markets change hands at inconsistent
prices, and sometimes cannot be disposed of at all. The institution of
an organized market for an article makes it possible for the producers,
or other economizing individuals trading in it, to sell their
commodities at any time at economic prices. Thus the opening of a wool
or grain market in a city increases considerably the marketability of
wool or grain in neighboring regions where these articles are produced.
Similarly, the admission of a security to trade on a stock exchange
(so-called “listing”) contributes to the establishment of economic
prices in the selling of that security and also, in an outstanding
fashion, to increasing its marketability since the listing of the
security assures the owners of sales at economic prices.
If every consumer knows where to find the owners of a commodity, this
fact alone increases to a high degree the probability that the
commodity will, at any time, be sold at an economic price. This is best
achieved in wholesale trade because of the practice, quite commonly
observed, of the dealers in a commodity locating their warehouses as
near to each other as possible in order to evoke, by their
concentration, a similar concentration of customers. The absence of
such concentration in retail trade constitutes the major cause of less
economic prices being established in this branch of commerce, even
though the deficiency arises naturally from the desire of consumers for
convenience and economy of time in making their purchases.
But the selling of a commodity at economic prices is not the only
result of the existence of points of concentration of trading and price
formation. The prices established in these centers of trade are
continuously made public, thus making it possible for interested
persons whose establishments are outside the trading centers also to do
business at any time at prices corresponding to the economic situation.
Large sellers or buyers of a commodity will very seldom, of course,
adopt this method of doing business since their transactions have a
determining influence on price formation. But small businessmen whose
scales of operation are too insignificant to have any appreciable
effect on prices are placed by these public announcements in a position
to execute their transactions in an economic fashion even outside the
trade center, and thus to participate in the advantages of a market
they do not even visit. In the countryside surrounding London it may
happen that a tenant farmer will do business with a miller on the basis
of a quotation in The Times for the price of grain on Mark
Lane. In Vienna small sales of kerosene are often concluded on the
basis of the price quotation in the Neue Freie Presse or some
other reliable newspaper. Thus points of concentration of trade in a
commodity have the quite general result of placing the owners in a
position to sell their holdings at economic prices to any economizing
individual wishing to obtain them.
The first cause of differences in the marketability of commodities we
have thus seen to be the fact that the number of persons to whom they
can be sold is sometimes larger and sometimes smaller, and that the
points of concentration of the persons interested in their pricing are
sometimes better and sometimes less well organized.
Secondly, there are commodities that can be sold almost anywhere within
the spatial limits of their marketability. Domestic animals, grains,
metals, and similar goods in common use, have markets almost everywhere
that trade exists. Every small town and even the smallest village
becomes a market for these goods at certain times. There are other
commodities (furs, tea, indigo) for which only a few widely separated
markets exist. These markets
are not independent of each other in the formation of prices. If a
market is of decisive importance, reports of transactions made there
are transmitted to all other major markets. A special class of
economizing individuals, speculators, takes care that the differences
in price between the various markets do not significantly exceed the
costs of transportation.
The second cause of differences in the marketability of commodities is
thus the fact that the geographical areas within which their sale is
confined are sometimes wider and sometimes narrower, and that while
there are many trading points within this area at which some
commodities can be sold at economic prices, there are only a few such
points in the case of other commodities. Owners of commodities of the
first category can sell them at will in many places over a wide trading
area at economic prices, while owners of commodities of the second
category can sell them only in a few places over a narrow trading area.
Thirdly, there are commodities for which a lively and well organized
speculation exists that absorbs every portion of the available quantity
of the commodities coming to market at any time, even though in excess
of current requirements. There are other commodity markets in which
speculation is not carried on, or at least not to the same extent, and
in which, if they become oversupplied with commodities, either prices
fall rapidly, or the commodities brought to market must be taken away
unsold. Goods of the first kind can generally be sold in any quantity
actually available at a given time with little sacrifice in price,
while the owner of a commodity for which no speculation exists can sell
quantities exceeding current requirements only with very severe losses
or not at all.
I gave an example of this last class of commodities earlier when I
cited the marketability of books written for specific groups of
scholars. More important in this regard are commodities that have no
independent use and are wanted only as parts of other commodities.
Whatever the price of watch springs or the price of pressure gauges for
steam engines may be, requirements for them are determined almost
exactly by the number of watches or steam engines to be produced, and a
considerably larger quantity of the former goods could not be sold at
any price. On the other hand, gold and silver, and several other
commodities whose narrowly limited available quantities stand opposite
almost unlimited requirements, can be sold in any quantity whatsoever.
There is no doubt that a quantity of gold a thousand times as large as
that presently available, and a quantity of silver a hundred times as
large, would still find buyers if brought to market. Such increases in
the available quantities of these metals would cause them to fall
severely in price, and they would then doubtless be used by persons of
little wealth for utensils and ordinary plate, and even by poorer
people for adornment. But even if they were brought to market in such
enormously increased quantities, it would not be in vain. They could
still be sold. A similar increase, however, of the best scholarly work,
of the most excellent optical instruments, or even of such important
commodities as bread and meat, would make them literally unsaleable.
From these considerations, it follows that a possessor of gold and
silver can very readily sell any portion of the quantity of these goods
available at any time, in the worst case with a small loss in price.
But the sudden accumulation of most commodities usually leads to a much
greater fall in price, and there is always the possibility that they
cannot be sold at all under such conditions.
The third cause of differences in the marketability of commodities,
then, is the fact that the quantitative limits of the amounts of them
that can be sold are sometimes wider and sometimes narrower, and that
within these limits the quantities of some commodities brought to
market can easily be sold at economic prices, while this is not true of
other commodities, or at least not in the same degree.
Finally, there are commodities for which almost continuous markets
exist. Securities and a number of raw materials, in places where there
are commodity exchanges, can be marketed every day. There are other
commodities that are traded on two or three days of the week. There are
usually weekly markets for grains and other legumes, quarterly fairs
for the products of industry, and two or more so-called annual fairs a
year for horses and other domestic animals, etc.
The fourth cause of differences in the marketability of commodities is
thus the fact that the time limits within which commodities can be sold
are sometimes wider and sometimes narrower, and that within these
limits some commodities can be sold at economic prices at any time,
while others can be sold only at more or less distant points in time.
If we now turn briefly to the actual phenomena of economic life and
observe the extraordinary differences in the marketability of the
various commodities, it will not be difficult for us to reduce these
differences to one or more of the causes explained above.
A person who owns a quantity of grain has in his possession a commodity
he can dispose of at almost any moment he desires wherever there are
grain exchanges. Where there are only weekly markets he can still sell
it every week at prices that are in accord with the economic situation.
He thus has a commodity which, to use a very significant mercantile
term, is almost “liquid cash.” The causes of this lie in the large
number of persons who have requirements for grain, in the wide spatial,
temporal, and quantitative limits of its marketability, in the usually
efficient organization of grain markets, and in the lively speculation
in this commodity.
A person who has a stock of furs will find himself in many ways in a
somewhat more unfavorable situation. The quantitative limits of the
marketability of this article are much narrower and the markets less
well organized than those for grain. In addition, fur markets are
frequently very distant from each other in space and time, and
speculation in this article is much less lively than in grain. A person
with wheat will be able to unload his holdings under almost any
circumstances if he is willing to sell at a fraction of a penny below
the current market quotation. This will not always be true of furs, and
it may happen much more easily that the owner can sell his holdings
only at relatively large losses or perhaps sometimes not at all, and
that he may therefore be compelled to wait a considerable time before
selling. We would obtain even greater contrasts if we were to compare
the marketability of grain with the marketability of such articles as
telescopes, meerschaum ornaments, and potted plants in general—or with
the less marketable varieties of these commodities!
C. The
facility with which commodities circulate.
In the preceding sections, I have explained the general and specific
causes of differences in the marketability of commodities. In other
words, I have shown the causes of the greater or less facility with
which an owner of commodities can expect to sell them at economic
prices. At this point one might be inclined to consider the problem of
the greater or less facility with which commodities can circulate
through several hands as also solved, since the circulation of a
commodity through several hands simply consists of a number of single
transactions, and to think that a commodity that can be passed without
difficulty from the hands of its owner to some other economizing
individual should find its way just as easily from the hands of the
second owner into those of a third, and so on. But experience shows
that this is not true of all commodities. In what follows, it will be
our task to investigate the special causes responsible for the fact
that some commodities can be observed to circulate easily from hand to
hand while others, even some that have a high degree of marketability,
do not.
Some commodities have almost the same marketability in the hands of
every economizing individual. Gold nuggets extracted from the sands of
the Aranyos River by a dirty Transylvanian gypsy are just as saleable
in his hands as in the hands of the owner of a gold mine, provided the
gypsy knows where to find the right market for his commodity. Gold
nuggets can pass through any number of hands without any decrease
whatsoever in marketability. But articles of clothing, bedding,
prepared foods, etc., would be suspect and almost unsaleable, or at any
rate of greatly depreciated value, in the hands of the gypsy, even if
they had not been used by him, and even if he had, from the beginning,
acquired them only with the intention of passing them on in exchange.
However saleable commodities of this kind may be in the hands of their
producers or certain merchants, they lose their marketability
altogether, or at any rate in part, if even a suspicion arises that
they have already been used or only been in unclean hands. They are
therefore not suited in economic exchange to circulation from hand to
hand.
Other commodities require special knowledge, skills, permits, or
governmental licenses, privileges, etc., for their sale, and are not at
all, or only with difficulty, saleable in the hands of an individual
who cannot acquire these requisites. In any case they lose value in his
hands. Commodities destined for trade with India or South America,
pharmaceutical preparations, patented articles, etc., may be extremely
saleable in the hands of certain persons, but lose a large part of
their marketability in the hands of other persons. Hence they are as
little suited as the commodities of the previous paragraph to free
circulation from hand to hand.
Moreover, commodities that must be specially fitted to the needs of the
consumer to be useable at all are not saleable in an equal degree in
the hands of every owner Shoes, hats, and similar articles, of all
sizes, are always fairly saleable in the hands of a shoe merchant or a
hatter in whose shops or stores large numbers of customers assemble,
especially since these businessmen generally have facilities for
fitting the commodities to the special needs of their customers. In the
hands of another person, these commodities can be sold only with
difficulty and almost always only at a heavy loss. These commodities
too are not suited to free circulation from hand to hand.
Commodities whose prices are not well known or subject to considerable
fluctuations also do not pass easily from hand to hand. A purchaser of
such commodities faces the danger of “overpaying” for them, or of
suffering a loss before he has passed them on due to a fall in price. A
“lot” of grain on a grain exchange, or a parcel of popular securities
on a stock exchange, can easily change hands ten times in a few hours,
but farms and factories, whose value can be determined only after a
careful investigation of all the relevant circumstances, are entirely
unsuited to rapid circulation. Even people who are not members of a
stock exchange will readily accept securities whose prices are not
subject to any considerable fluctuation in place of cash payment But
commodities that are subject to violent price fluctuations can
circulate easily only “below the market,” since all persons who are not
willing to speculate will want to protect themselves against loss. Thus
commodities whose prices are uncertain or fluctuate severely are also
not well suited to free circulation from hand to hand.
Finally, it is clear that the several factors limiting the
marketability of commodities will have a multiple weight wherever
commodities are transferred from hand to hand, from place to place, and
from one time period to another. Commodities whose marketability is
restricted to a small number of persons, whose area of sale is limited,
which can be preserved only for a short time, whose preservation
involves considerable economic sacrifices, which can be brought to
market only in strictly limited quantities at any one time, or whose
prices are subject to fluctuations, etc., may all retain some degree of
marketability within certain (even though very narrow) limits, but they
are not capable of circulating freely.
Thus we find that for a commodity to be capable of circulating freely
it must be saleable in the widest sense of the term to every
economizing individual through whose hands it may pass, and to each of
these persons it must be saleable, not in one respect alone, but in all
four of the senses discussed above.
Wilhelm Roscher, Ansichten der
Volkswirthschaft aus dem geschichtlichen Standpunkte, Leipzig,
1861, p. 117; Bruno Hildebrand, “Naturalwirthschaft, Geldwirthschaft
und Creditwirthschaft,” Jahrbücher für National-Oekonomie
und Statistik, II (1864), 17; H.v. Scheel, “Der
Begriff des Geldes in seiner historisch-ökonomischen
Entwickelung,” ibid., VI (1866), 15; Gustav
Schmoller, Zur Geschichte der deutschen Kleingewerbe
im 19. Jahrhundert,Halle, 1870, pp. 165, 180, 511ff.
The remainder of this paragraph and the next
paragraph appear here as a single footnote in the original.—TR.
See the first paragraph of Appendix H (p.
308) for the material originally appearing here as a footnote.—TR.
See the last seven paragraphs of Appendix H
(p. 309) for the material originally appended here as a footnote.—TR.
The next paragraph appears here as a
footnote in the original.—TR.
“Absatzfähigkeit”—TR.
“Kreis”—TR.
Here must be mentioned, above all, the
restrictions placed on the marketability of commodities by sumptuary
laws and police regulations. In the middle ages, for example, the sale
of velvet was limited to members of the nobility and the clergy, and
still today the sale of arms is limited in many countries to persons
who have obtained an official permit to bear them.
Commodities that are
little known (“articles that have not yet been introduced”) have very
small clienteles simply because they are not known. Producers are
therefore accustomed to make their commodities “known,” often at great
economic sacrifice, in order to increase the numbers of persons to whom
they are saleable. This accounts for the economic importance of public
announcements, advertisements, publicity, etc.
The marketability of commodities is
generally considerably increased by the growing needs and increasing
wealth of a people. The marketability of a few commodities, however, is
diminished by these factors. There are a number of commodities that can
easily be sold in a poor country, but become practically unsaleable as
soon as the country attains economic maturity (see pp. 234–5).
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