Principles of Political Economy, Vol. 1

by Wilhelm Roscher

Prices In General.

The price of a commodity is its value in exchange expressed in the quantum of some other definite commodity, against which it is exchanged or to be exchanged. Hence, it is possible for any commodity to have as many different prices as there are other kinds of commodities with which it may be compared.[597] But whenever price is spoken of, we think only of a comparison of the commodity whose value is to be estimated, with the commodity which, at that time and place, is most current and has the greatest capacity for circulation. (Money.)[598] When two commodities have changed their price-relation to each other, it is not possible, from the simple fact of such change of relation, to determine on which side the change has taken place. If we find that a commodity A stands to all other commodities, C, D, E etc., in the same relation as to price as [pg 304] before, while commodity B, compared with the same, has changed its place in the scale of prices, we may infer that B, and not A, has left its former position.[599]

The words costly and dear, as contradistinguished from common and cheap, both indicate a high price. We, however, call a commodity costly whose price, compared with that of other similar commodities, is high. On the other hand, we call a commodity dear when we compare it with itself, and with its own average price in other places and at other times.[600]

In individual cases, the price of a commodity is determined most usually, and at the same time most superficially, by custom; people ask and pay for a commodity what others have asked and paid for it. If we go deeper and inquire what originated this customary price and may continually change it, we come to the struggle of interests between buyers and sellers. And if science would analyze the ultimate elements of the incentives to this struggle and the forces engaged in it, it is necessary that it should keep in view the entire economy of the nation, and even all national life.

Section CI.

Effect Of The Struggle Of Opposing Interests On Price.

No where in the public economy of a people are the workings of self-interest so apparent as in the determination of prices. When the price of a commodity is once fixed by the conflict of opposing interests,[601] the self-seeking of every individual dictates that he should thereby gain as much as possible [pg 305] of the goods of others, and lose as little as possible of his own. In this struggle, the victory is generally to the stronger, and the price is higher or lower, according to the superiority of the buyer or seller.[602] But who, in such case, is the stronger? Political or physical superiority can turn the balance one way or another only in very barbarous times, and especially in times when legal security is small.[603] As a rule, it is the party in whom the desire of holding on to his own commodities is strongest, and who is least moved by the want of the wares of others. As in every conflict, confidence in self, sometimes even unbounded confidence in self, is an important element of success. A party to a contract of sale or barter, who considers his immediate position decidedly stronger than that of the other party, will scarcely depart from his demands. Hence it is, that in exchange, one party so frequently holds back until the other has expressed his terms.[604] How different is the [pg 306] price of the same pieces of land which a new railroad enterprise is compelled to pay and the prices it would get for them, from the adjoining owners, in case of the dissolution of the company.

But the struggle to raise prices or to lower them, which is always going on, undergoes modifications of every description among all really commercial nations, partly through the influence of the public conscience, which brands as inhuman and blameworthy the spoilation of the opposing party by acts which the laws do not reach. And this consideration by the public conscience is all the more severe in proportion as real competition in the article sold is wanting.[605] But the chief modification in this struggle is produced by the fact, that where civilization has advanced farthest, every commodity is offered for sale by a great many and wanted by a great many.[606] As soon as several seek the same object, there naturally results a rivalry among them, which induces each to attain the desired end, even by the making of greater sacrifices than others. [pg 307] The greater the supply of a commodity is, as compared with the demand for it, the lower is its price; the greater the demand as compared with the supply, the higher it is. And, indeed, there is question here, not only of the mass of things supplied or demanded, but also of the intensity of the supply and demand.[607]

If the exchange-force of both contractants be equal, or, in other words, if both, with equal knowledge, are interested in the completion of the exchange, there results from this attitude of the parties toward each other, what is called an equitable, or average price, in which both meet with their deserts. Here each is a gainer, since each has parted with the commodity which was less necessary to him, and received in exchange the commodity which was more necessary to him. Looked at, however, from the stand-point, not simply of a nation's but of the world's economy, the value given and the value received are equal.[608][609]