Profits   Its Connection with Rising and Falling Prices
Made in Atlantis
Contents
We live in a Money and Profit Economy
Prices Determine Who Gets the Goods


It is the buyer, then, who determines the price. Of course the price is unsatisfactory. No price can be low enough to suit all buyers individually, as long as collectively they want more goods than the markets afford. This brings us to the most fundamental fact in our whole discussion: Whenever anything is sufficiently scarce and sufficiently desired to command a price, more than one man wants it. Competition ensues. This competition must continue as long as consumers have freedom of choice; and as long as this competition continues, there must be some means of determining who gets the goods.

All the problems of economics arise because human beings have their own notions about what they want, and because there can never be enough of what they want to go around. Were it not for this inescapable combination of circumstances, human society as we know it could not exist. If there were a given number of units of goods and precisely the same number of buyers, each of whom would be satisfied with one unit, economics would have no difficulties and price would have no meaning. But the moment there are one hundred units of goods and one hundred and one human beings who want them, our economic troubles begin. And they are numerous, because few of the good things of life are as free as the air. Scarcity is the rule, and antagonism of human interests is the inevitable result.

This antagonism is too deep to be overcome by any economic or political program whatever. Socialists and communists do not overcome it; they merely overlook it. They can indulge themselves in this oversight, however, only as long as they confine themselves to theory. As soon as they try an experiment, this antagonism of interests thrusts itself rudely into the middle of the scheme and gums up the whole works. The prevailing profit economy, on the other hand, does not blink the facts. Under it, consumers compete in price markets for limited supplies and prices determine who gets the goods.

Buyers Compete with One Another for the Same Goods

We habitually think of competition as the rivalry of sellers. As a matter of fact, the rivalry of sellers is wholly conditioned by the competition of buyers. It is in the very process of competing with one another for available supplies that buyers make prices what they are. All markets are much like an auction sale: the successful bidder makes the price and takes away the goods.

This is illustrated daily in the Automatic Bargain Basement of a department store in Boston, in which customers are invited to make their own prices. They are assured that if they refuse to pay the price at which goods are offered, that price, after twelve selling days, will be reduced twenty-five per cent. If they hold out six days more, the price will be reduced fifty per cent; in another six days, seventy-five per cent; and six days later the goods will be given away. When this policy was adopted, many people predicted failure. Of course, they said, customers will wait a few days, in order to benefit by the automatic mark-downs. But these people were mistaken. They overlooked the fact that in the automatic basement, as in every other part of that store, and in every part of every other store, buyers compete with each other for the same goods. The individual buyer waits for a mark-down on the particular coat which has taken her fancy only at the risk of having somebody else get the coat. As a rule, the buyer does not wait; about eighty-five per cent of the Automatic Basement stocks are sold at the first asking price.

Because of the failure of the buyer to understand the function of price and his part in the sale of goods and the determination of profits, he is constantly trying to place on somebody else the responsibility for the cost of living. That is to say -- though he would not say it in this way -- he would like to prevent others from buying what he wants to buy. He insists on the personal right to walk into the butcher shop and select his cut of beef, but he protests against the high price. He does not perceive that he, in competition with all other buyers of beef, has made the price of those selected cuts three times as high as the price of certain poorer cuts. Who is to get the better cuts? What price is to be paid? Here are two ways of asking the same question. Under the prevailing system of price bidding, the consumers themselves decide. Rarely is any other plan feasible.

Usually Distribution Must Be on the Basis of Price

In some fields, it is true, price bidding has been eliminated. If a man wants a telephone, he takes what is given him at the established price. No matter how exasperated he may be, he cannot get better service than his neighbor by bidding up the price for that class of service. If he rides on a New York subway, he pays five cents, takes any seat he can get or hangs to a strap, and goes where the train goes. If he burns gas, he burns what comes through the main; exactly what his neighbor burns and at the same price. He has no choice. But there are reasons why competition in such public services cannot be allowed, reasons that do not apply to the services of dressmakers and mechanics. Unrestricted competition among utilities that must use the public highways would be too annoying, even if it were not too wasteful, to be tolerated.

For other reasons, bidding is not allowed for HarvardYale football tickets. They are arbitrarily allotted to the favored list at a fixed price; and those who receive them are not allowed to re-sell them at any price, on penalty of being black-listed and denied tickets in the future. The object of the black-list is to prevent speculation. If Harvard-Yale tickets were sold as most things are sold, all but about seventy thousand bidders would be eliminated; and the last to drop out would determine the prices. What the prices would be, nobody knows. Since bidding is not allowed to decide who gets the tickets, allotment has to be made on some other basis.

But automobiles, mah-jong sets, pig-iron, chamois skins, oil paintings, corn, and a hundred thousand other things for which buyers compete cannot be distributed to final consumers at fixed prices by the Harvard-Yale ticket plan. The Government could not prescribe prices for everything, maintain favored lists of buyers, declare all goods 'non-transferable,' and enforce the rule by means of a black-list for millions of people. In an attempt to carry out such a plan, even though the Government withdrew half our productive workers and drafted them as clerks and policemen, there would still be speculation in commodities and consequent large profits for somebody. There is no speculation in New York subway seats solely because there is no way of buying and re-selling them. First come, first served, is the rule; the traveler either gets a seat for five cents or does not get a seat at all. But it would be impossible to prevent the re-sale of most commodities. Buyers would still compete for them, and those who bought them at the official fixed prices would sell them at higher prices -- as much higher as the buyers would pay.

Even if the Government could regulate the first sale price of a given commodity, it could not regulate the re-sale price. Consequently, although the Government might prevent the original seller from making large profits, the profits would go to later sellers. If, for example, a low-cost producer of coal were obliged to sell at a price that would reduce his profits to the level of those of highcost producers, consumers would not gain thereby. Those who bought the coal at the fixed price and sold it at the market price would be the gainers. And even if the Government, at great expense, could prevent the re-sale of coal, it could not exercise the same control over thousands of other commodities. This is evident from the futile attempts to prevent speculation in theater tickets; though in this case, since each ticket is easily identified, the difficulties are not so great as they would be in the case of coal, cotton, and many other commodities. Consequently, as a rule, distribution has to be on the basis of price bidding.

Prices Are Right When They Move Goods

Buyers compete with one another for the same goods. That is the gist of the matter. Price is the product of that competition. It is not a function of price to make profit for anybody: profit and loss are by-products. One of the functions of price is to move goods. Sometimes it moves them at a loss to the seller; sometimes, at a profit. When prices do not move goods, business suffers a depression; and it does not get over it until prices again fulfill their function. Then prices are right -- economically right. There is a right humidity for making cloth, a right temperature for baking bread, a right current for a given motor. In each case, the rightness can be proved by measurement, but not by personal opinion.

Similarly, the extent to which prices function is a question of fact: they either do or they do not move goods. It is no use finding fault with them because they fail to do what they are not intended to do. For the purposes of pleasureriding, there is something wrong with a steam roller; but there is nothing morally wrong. Prices are necessarily wrong for bringing relief to the destitute; but not morally wrong. Prices are economic, not charitable, institutions. The only crime prices can commit is to fail to move goods into consumption.



More Readings


Profits  Its Connection with Rising and Falling Prices
This is an unofficial website with educational purpose. If proper notation of owned material is not given please notify us so we can make adjustments.
No copyright infringment is intended.  HTML Sitemap
Mail Us