Thus far, of the effect of the progress of society on the permanent or average values and prices of commodities. It remains to be considered in what manner the same progress affects their fluctuations. Concerning the answer to this question there can be no doubt. It tends in a very high degree to diminish them.
In poor and backward societies, as in the East, and in Europe during the middle ages, extraordinary differences in the price of the same commodity might exist in places not very distant from each other, because the want of roads and canals, the imperfection of marine navigation, and the insecurity of communications generally, prevented things from being transported from the places where they were cheap to those where they were dear. The things most liable to fluctuations in value, those directly influenced by the seasons, and especially food, were seldom carried to any great distances. In most years, accordingly, there was, in some part or other of any large country, a real dearth; while a deficiency at all considerable, extending to the whole world, is [now] a thing almost unknown. In modern times, therefore, there is only dearth, where there formerly would have been famine, and sufficiency everywhere when anciently there would have been scarcity in some places and superfluity in others.
The same change has taken place with respect to all other articles of commerce. The safety and cheapness of communications, which enable a deficiency in one place to be supplied from the surplus of another, at a moderate or even a [pg 486] small advance on the ordinary price, render the fluctuations of prices much less extreme than formerly. This effect is much promoted by the existence of large capitals, belonging to what are called speculative merchants, whose business it is to buy goods in order to resell them at a profit. These dealers naturally buying things when they are cheapest, and storing them up to be brought again into the market when the price has become unusually high, the tendency of their operations is to equalize price, or at least to moderate its inequalities. The prices of things are neither so much depressed at one time, nor so much raised at another, as they would be if speculative dealers did not exist.
Mr. Mill uses the term “speculative” in a different sense from that which is customary in this country. Merchants who buy outright and store up grain are not speculators in the sense in which the word is used with us; but those gamblers who purchase, “for future delivery,” grain which they never see, and which they sell in the same way, are here known as speculators.
It appears, then, that the fluctuations of values and prices arising from variations of supply, or from alterations in real (as distinguished from speculative) demand, may be expected to become more moderate as society advances. With regard to those which arise from miscalculation, and especially from the alternations of undue expansion and excessive contraction of credit, which occupy so conspicuous a place among commercial phenomena, the same thing can not be affirmed with equal confidence. Such vicissitudes, beginning with irrational speculation and ending with a commercial crisis, have not hitherto become either less frequent or less violent with the growth of capital and extension of industry. Rather they may be said to have become more so, in consequence, as is often said, of increased competition, but, as I prefer to say, of a lower rate of profits and interest, which makes capitalists dissatisfied with the ordinary course of safe mercantile gains. The connection of this low rate of profit with the advance of population and accumulation is one of the points to be illustrated in the ensuing chapters.
Mr. Cairnes also adds some investigations as to the fluctuations of value: “Hitherto I have examined the derivative laws of value in so far only as they are exemplified in the movements of normal prices. It will be interesting now to consider whether it is possible to discover in the movements of market prices any corresponding phenomena.
“Taking manufactures first, it is evident at once that, as regards conditions of protection, the circumstances of the case are such as to secure, in general, (1.) great rapidity and great certainty in bringing commodities to market. A deal table may be made in a few hours, a piece of cloth in a few weeks, and a moderate-sized house in a month or little more. Tables, cloth, and houses may be produced with certainty in any quantity required. It results from this that it is scarcely possible that, under ordinary circumstances, the selling price of a product of manufacture should for any long time much exceed its normal price. (2.) The nature of manufactures is, in general, such as to fit them admirably for distant transport. Any considerable elevation of price, therefore, is pretty certain to attract supplies from remote sources. (3.) Further, considered in their relation to human needs, I think it may be said of manufactured goods, that either the need for them is not very urgent, or, where it happens to be so, substitutes ... may easily be found. From all these circumstances it results that an advance in the price ... either attracts supplies, or deters purchasers, ... preventing any great departure from the usual terms of the market.
“Turning now to the products of agricultural, pastoral, or, more generally, ‘extractive’ industry, we find the circumstances under which this class of goods is brought to market in all respects extremely different from those which we have just examined, and such as to permit a much wider margin of deviation for the market from the normal price. Here the period of production is longer, the result of the process much more uncertain, the commodity at once more perishable and less portable, and human requirements in relation to it are mostly of a more urgent kind: (1.) The shortest period within which additions can be made to the supply of food and raw material of the vegetable kind is in general a year, and, if the commodity be of animal origin, the minimum is considerably larger. (2.) Again, the farmer may decide upon the breadth of ground to be devoted to a particular crop, or upon the number of cattle he will maintain; but the actual returns will vary according to the season, and may prove far in excess or far in defect of his calculations. These circumstances all present obstacles to the adjustment of supply and demand, and consequently tend to produce frequent and extensive deviations of the market [pg 488] from the normal price. Nor are the other conditions of the case such as to neutralize the influence of such disturbing agencies. (3.) The nature, indeed, of some of the principal agricultural products fits them sufficiently well for distant transport, and so far tends to correct fluctuations of price. But, on the other hand, (4.) the relation of these products to human wants is such as greatly to enhance that tendency to violent fluctuation incident to the conditions of their production. More especially is this the case with the commodity, whatever it may be, which forms the staple food of a people. For observe the peculiar nature of human requirements with reference to such a commodity. They are of this kind, that, given the number of a population, the quantity of the staple food required is nearly a fixed quantity, and this almost irrespective of price. Except among the poorest, increased cheapness will not stimulate a larger consumption; while, on the other hand, all, at any cost within the range of their means, will obtain their usual supply. The consequence is that, when even a moderate deficiency or excess occurs in the supply of the staple food of a people, in the one case (a), the competition of consumers for their usual quantum of food rapidly forces up the price far out of proportion to the diminution in the supply; in the other (b), no one being inclined to increase his usual consumption, the competition of sellers, in their eagerness to find a market for the superfluous portion of the supply, is equally powerful to depress it.”