But if one knocks out the keystone of the arch in the form of a proposition that natural value conforms to the cost of production, then the whole edifice collapses and must be set up again, upon another plan and on another foundation, stone by stone.
IV.—Work and Wages
WAGES and prices, then, if the argument recited in the preceding chapter of this series holds good, do not under free competition tend towards social justice. It is not true that every man gets what he produces. It is not true that enormous salaries represent enormous productive services and that humble wages correspond to a humble contribution to the welfare of society. Prices, wages, salaries, interest, rent and profits do not, if left to themselves, follow the simple law of natural justice. To think so is an idle dream, the dream of the quietist who may slumber too long and be roused to a rude awakening or perish, perhaps, in his sleep. His dream is not so dangerous as the contrasted dream of the socialist, now threatening to walk abroad in his sleep, but both in their degree are dreams and nothing more.
The real truth is that prices and wages and all the various payments from hand to hand in industrial society, are the outcome of a complex of competing forces that are not based upon justice but upon "economic strength." To elucidate this it is necessary to plunge into the jungle of pure economic theory. The way is arduous. There are no flowers upon the path. And out of this thicket, alas, no two people ever emerge hand in hand in concord. Yet it is a path that must be traversed. Let us take, then, as a beginning the very simplest case of the making of a price. It is the one which is sometimes called in books on economics the case of an unique monopoly. Suppose that I offer for sale the manuscript of the Pickwick Papers, or Shakespere's skull, or, for the matter of that, the skull of John Smith, what is the sum that I shall receive for it? It is the utmost that any one is willing to give for it. That is all one can say about it. There is no question here of cost or what I paid for the article or of anything else except the amount of the willingness to pay on the part of the highest bidder. It would be possible, indeed, for a bidder to take the article from me by force. But this we presume to be prevented by the law, and for this reason we referred above not to the physical strength, but to the "economic strength" of the parties to a bargain. By this is meant the relation that arises out of the condition of the supply and the demand, the willingness or eagerness, or the sheer necessity, of the buyers and the sellers. People may offer much because the thing to be acquired is an absolute necessity without which they perish; a drowning man would sell all that he had for a life belt. Or they may offer much through the sheer abundance of their other possessions. A millionaire might offer more for a life belt as a souvenir than a drowning man could pay for it to save his life.
Yet out of any particular conjunction between desires on the one hand and goods or services on the other arises a particular equation of demand and supply, represented by a particular price. All of this, of course, is A. B. C., and I am not aware that anybody doubts it.
Now let us make the example a little more elaborate. Suppose that one single person owned all the food supply of a community isolated from the outside world. The price which he could exact would be the full measure of all the possessions of his neighbors up to the point at least where they would commit suicide rather than pay. True, in such a case as this, "economic strength" would probably be broken down by the intrusion of physical violence. But in so far as it held good the price of food would be based upon it.
Prices such as are indicated here were dismissed by the earlier economist as mere economic curiosities. John Stuart Mill has something to say about the price of a "music box in the wilds of Lake Superior," which, as he perceived, would not be connected with the expense of producing it, but might be vastly more or perhaps decidedly less. But Mill might have said the same thing about the price of a music box, provided it was properly patented, anywhere at all. For the music box and Shakespere's skull and the corner in wheat are all merely different kinds of examples of the things called a monopoly sale.
Now let us change the example a little further. Suppose that the monopolist has for sale not simply a fixed and definite quantity of a certain article, but something which he can produce in larger quantities as desired. At what price will he now sell? If he offers the article at a very high price only a few people will take it: if he lowers the price there will be more and more purchasers. His interest seems divided. He will want to put the price as high as possible so that the profit on each single article (over what it costs him to produce it) will be as great as possible. But he will also want to make as many sales as he possibly can, which will induce him to set the price low enough to bring in new buyers. But, of course, if he puts the price so low that it only covers the cost of making the goods his profit is all gone and the mere multiplicity of sales is no good to him. He must try therefore to find a point of maximum profit where, having in view both the number of sales and the profit over cost on each sale the net profit is at its greatest. This gives us the fundamental law of monopoly price. It is to be noted that under modern conditions of production the cost of manufacture per article decreases to a great extent in proportion as a larger and larger number is produced and thus the widening of the sale lowers the proportionate cost. In any particular case, therefore, it may turn out that the price that suits the monopolist's own interest is quite a low price, one such as to allow for an enormous quantity of sales and a very low cost of manufacture. This, we say, may be the case. But it is not so of necessity. In and of itself the monopoly price corresponds to the monopolist's profit and not to cheapness of sale. The price may be set far above the cost.
And now notice the peculiar relation that is set up between the monopolist's production and the satisfaction of human wants. In proportion as the quantity produced is increased the lower must the price be set in order to sell the whole output. If the monopolist insisted on turning out more and more of his goods, the price that people would give would fall until it barely covered the cost, then till it was less than cost, then to a mere fraction of the cost and finally to nothing at all. In other words, if one produces a large enough quantity of anything it becomes worthless. It loses all its value just as soon as there is enough of it to satisfy, and over-satisfy the wants of humanity. Thus if the world produces three and a half billion bushels of wheat it can be sold, let us say, at two dollars a bushel; but if it produced twice as much it might well be found that it would only sell for fifty cents a bushel. The value of the bigger supply as a total would actually be less than that of the smaller. And if the supply were big enough it would be worth, in the economic sense, just nothing at all. This peculiarity is spoken of in economic theory as the paradox of value. It is referred to in the older books either as an economic curiosity or as a mere illustration in extreme terms of the relation of supply to price. Thus in many books the story is related of how the East India Companies used at times deliberately to destroy a large quantity of tea in order that by selling a lesser amount they might reap a larger profit than by selling a greater.
