the expense of debtors. For if the money that is owing to them is repaid, this money gives them a great purchasing power; and if they have lent it at a fixed rate of interest, each payment is worth more to them than it would be if prices were high. But for the same reasons that it enriches creditors and those who receive fixed incomes, it impoverishes those men of business who have borrowed capital; and it impoverishes those who have to make, as most business men have, considerable fixed money payments for rents, salaries, and other matters. When prices are ascending, the improvement is thought to be greater than it really is; because general opinion with regard to the prosperity of the country is much influenced by the authority of manufacturers and merchants. These judge by their own experience, and in time of ascending prices their fortunes are rapidly increased; in a time of descending prices their fortunes are stationary or dwindle. But statistics prove that the real income of the country is not very much less in the present time of low prices, than it was in the period of high prices that went before it. The total amount of the necessaries, comforts and luxuries which are enjoyed by Englishmen is but little less in 1879 than it was in 1872.]

CHAPTER II.

MARKET FLUCTUATIONS.

§ 1. WE have discussed causes that alter permanently or temporarily the purchasing power of money: we may now again assume that the purchasing power of money remains unchanged, unless the contrary is stated; and may again measure value or general purchasing power in terms of money, and speak of a change in general purchasing power as a change in price.

We have next to consider how the market value of a commodity oscillates up and down on either side of the Normal value, while that Normal value itself may be rising or falling slowly.

Producers and dealers endeavour to anticipate every fluctuation of market value; if they expect the price to be high, they increase their supply so as to profit by it; if they expect it to be low, they check their supply so as to avoid losing by it. Thus their action, when they are competing freely with one another, is the same as it would be if their object were to restrain the oscillations of the market value on either side of the Normal value. When they succeed, supply is said to be closely adjusted to demand; but the market price is likely to deviate far from the Normal price when they err in their calculations, or when they combine with one another artificially to limit supply.

§ 2. The chief source of error on the side of supply is the uncertainty of nature's return to man's effort. A good instance of this is found in the fish market, where the fluctuations are great because the haul of the fishing boats is uncertain, and fish will not keep long. At Billingsgate each dealer posts up a list of the fish that he has for sale; and knowing what the other dealers have, tries to put such a price on his fish that he may just get them sold before the end of the day. If he fixes it too high, he has fish left useless on his hands in the evening; if he fixes it too low, he gains less than he might.

Again, the price of corn fluctuates much from year to year.

For as a rule very little corn remains over from one harvest to the next; so that each year's consumption is almost limited to the supply of the previous harvest. If the harvest is scanty there is a dearth of food, and hunger forces people to give a very high price for it. Here we may notice that fluctuations in supply cause great variations in the price of necessaries of life, but only small variations in the price of those things for which substitutes can be readily found, or which can be easily dispensed with altogether. If fish is dear, people are content to buy little of it, so that even if the supply is very short, its price is not forced up very high. But however dear corn is, every one buys it or has it given to him; so that a small falling off in the supply of corn will cause a great rise in its price1.

In uncivilized countries the transport of grain for any considerable distance is practically impossible except along rivers, and on the sea coast. Even in Europe in the Middle Ages, "each locality depended as a general rule on its own produce and that of its immediate neighbourhood. In most years accordingly there was, in some part or other of any large country, a real dearth. Almost every season must be unpropitious to some among the many soils and climates to be found in an extensive tract of country; but as the same season is also in general more than ordinarily favourable to others, it is only occasionally that the aggregate produce of the whole country is deficient, and even then in a less degree than that of many separate portions; while a deficiency at all considerable extending to the whole world is 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... 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 equalise 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."

1 In the middle of last century, it was calculated that "a deficit of

In recent times the action of merchants and dealers in equalising prices has been much aided by the steamship, the railroad, and the telegraph. Not long ago news from distant markets was many months in coming, now it comes in a few minutes. Merchants can even telegraph instructions to ports at which their ships are to call; so that a scarcity in a market many thousands of miles away can be met in a few days by the arrival of English ships'.

$3. The market price of many things is settled from day to day by the action of dealers rather than by that of producers. Many kinds of raw produce can only be produced at certain times of the year; and the immediate effect of a rise in the price of such things is not to increase the production of them, but simply to induce dealers to bring forward larger quantities for sale, and perhaps to import fresh supplies from distant places. If we go into any corn, or wool, or cotton market, we shall see dealers selling readily on one day, and holding back on another. The amount which each of them offers for sale at any price is governed by his calculations of the present and future conditions of the markets with which he is connected. There are some offers which no dealer would accept; some which no one would refuse. There is some price which will be accepted by those who can least afford to wait, and by those whose expectations of the future condition of the market are least sanguine; but not by others. The higher the price that is bid, the larger will be the sales.

For instance, the conditions of a certain corn market may be such that a price of 50s. would induce dealers in it to sell 500 quarters during the day; while they would be induced to sell 700 quarters by a price of 51s., 1000 quarters by a price of 52s., and so on. Thus in any market, at any time, there is some price at which each particular amount will be offered for sale. And in the same way there is some price at which each particular amount will find purchasers. Perhaps the millers and the speculators in corn who attend the market would between them buy 900 quarters if they could be got for 50s. each, 700 if they could be got for 51s., but only 600 if they could not be got for less than 525. If everyone knew exactly the state of the market, exactly how eager buyers were to buy and sellers to sell, the price would be fixed at once at 51s., and 700 quarters would be sold off during the day at this price: this would be the price which would equate supply and demand. But in fact the price would oscillate up and down during the day, and even at the same moment bargains would be struck at slightly different prices in different parts of the same corn-exchange;

1 Comp. Crump's New departure in Political Economy.

the average price for the day would be about 515., and the total amount sold would not differ far from 700 quarters.

Thus the Normal price of corn varies from one age to another under the slow action of economic changes: meanwhile in each age the average price between successive harvests varies from year to year, owing to the failure of producers to adjust the supply of corn to the demand for it: and the daily price in each market is swayed backwards and forwards on either side of the average price for the year by the calculations and bargainings of dealers.

In the case of corn the demand is pretty well known beforehand; and the rapid fluctuations that occur in its price from week to week and from day to day, are chiefly due to imperfections in the estimates that dealers form of the stocks in existence at any time, and to changes in their forecasts of the coming harvest. There are many other things, such as coal and iron, the prices of which fluctuate from day to day chiefly in consequence of the estimates that dealers form of the present and coming demand for them. But whatever be the nature of the calculation by which the bargainings of dealers are chiefly governed, these bargainings, except when dealers combine to keep prices artificially high, tend to make the market price such as to equate supply and demand in the market. That is they tend to make the price such, that the amount which people are willing to offer for sale in the market at that price is just equal to the amount which can find purchasers at that price in the market.

§ 4. Let us next consider some fluctuations of price that arise from the failure to forecast changes in demand.

A change of fashion often makes the Market price of some kinds of materials very much higher or very much lower than their Normal price. A manufacturer who is quick in reading the signs of the times, and anticipates the coming demand for stuffs of a particular kind, makes large profits. But in this case supply can be adjusted to the demand very rapidly; and therefore the price cannot easily be raised much by an increase in demand unless it is very great and sudden.

But it is otherwise with houses, the supply of which cannot be quickly increased to meet a new demand; their value rises and falls with changes in the prosperity of the place in which they are. When Berlin became an imperial city, there was a great demand for house room: house rents rose extravagantly, and hod-men earned in a day more wages than agricultural labourers earned in a week. On the other hand the value of houses falls very low in places from which population is receding. There is more than one place in America in which a town of 20,000 inhabitants has grown up in a year, but