§ 4.

Joint Supply.

We may now pass to consider the case of things which have a JOINT SUPPLY. It corresponds to that of things which have a joint demand, and it may be discussed almost in the same words, by merely substituting "demand" for "supply," and vice versû. When two or more things are produced by one and the same process; so that the expenses of producing them all together are not greater than the expenses of producing one of them alone would be; then these things are called joint products. Thus gas and coke are joint products; and so are wheat and straw, and again beef and hides. The prices of the gas and the coke that are got from a ton of coal, must together be enough to cover their joint expenses of production. If the demand for gas rises, more coke will be produced, and its price must fall, so that the increased supply may be taken off the market. The rise in the price of gas must be sufficient to cover this fall in the price of coke, and also to cover the increase, if there is any, in the joint expenses of production of gas and coke. Again, since the repeal of the Corn Laws much of the wheat consumed in England has been imported, of course without any straw. This has caused a scarcity and a consequent rise in the price of straw, and the farmer who grows corn looks to the straw for a great part of the value of the crop. The value of straw then is high in countries which import corn, and low in those which export corn. In the same way the price of mutton in the wool-producing districts of Australia was at one time very low. The wool was exported, the meat had to be consumed at home; and as there was no great demand for it, the price of the wool had to defray almost the whole of the joint expenses of production of the wool and the meat. Afterwards the low price of meat gave a stimulus to the trade of preserving meat for exportation, and now its price in Australia is higher1.

1 There are however very few cases of joint products the cost of production of both of which together is exactly the same as that of one of them

§ 5. We may pass to the problem of COMPOSITE SUPPLY which is analogous to that of composite demand. Composite When a thing has several sources of production Supply. its total supply at any price is made up or compounded of the supplies at that price from all the several sources. Beef and mutton may be treated as varieties of one commodity for many purposes; but they must be treated as separate for others, as for instance for those in which the question of the supply of wool enters.'

In real life there are very few things the value of which can be determined without taking some account of all the four chief problems which have been discussed in this chapter. We often find connections between the prices of commodities which at first seem far apart.

Thus when charcoal was generally used in making iron, the price of leather depended in some measure on that of iron; and the tanners petitioned for the exclusion of foreign iron in order that the demand on the part of English iron smelters for oak charcoal might cause the production of English oak to be kept up, and thus prevent oak bark from becoming dear. Again, the development of railways and other means of communication for the benefit of one trade, as for instance wheat growing in some parts of America and silver mining in others, greatly lowers some of the chief expenses of production of nearly every other product of those districts. This brings us to the subject of the next Chapter.

alone. So long as any product of a business has a market value, it is almost sure to have devoted to it some special care and expense, which would be diminished, or dispensed with if the demand for that product were to fall very much. Thus, for instance, if straw were valueless, farmers would exert themselves more than they do to make the ear bear as large a proportion as possible to the stalk. See Principles V. VI. 4.

1 Commodities which are capable of satisfying exactly the same demand in the same way can seldom remain permanently in the market together if any of them obeys the Law of Increasing Return. See Principles V. vi. 5.

CHAPTER VII.

PRIME AND TOTAL COST IN RELATION TO JOINT PRODUCTS. COST OF MARKETING. INSURANCE AGAINST RISK.

Difficulties as to the joint pro

same business.

§ 1. WE may now return to the consideration of Prime and Supplementary Costs, with special reference to the proper distribution of the latter between ducts of the the Joint products of a business. For instance the shipowner has to apportion the expenses of his ship between heavy goods and goods that are bulky but not heavy. He tries, as far as may be, to get a mixed cargo of both kinds; and an important element in the struggle for existence of rival ports is the disadvantage under which those ports lie which are able to offer a cargo only of bulky or only of heavy goods while a port whose chief exports are weighty but not bulky, attracts to its neighbourhood industries which make for export goods that can be shipped from it at low freights.

Difficulties as

From the expenses of transport we pass easily to those of marketing. Some kinds of goods are easily marto the expenses keted; there is a steady demand for them, and of marketing. it is always safe to make them for stock. But for that very reason competition cuts their price "very fine," and does not allow a large margin above the direct cost of making them. Sometimes the tasks of making and selling them can be rendered almost automatic, so as to require very little to be charged on their account under the heads of the expenses of management and marketing. But in practice it is

not uncommon to charge such goods with even less than the small share that would properly fall to them, and to use them as a means of obtaining and maintaining a business connection, that will facilitate the marketing of other classes of goods, the production of which cannot so well be reduced to routine; for as to these there is not so close a competition. Manufacturers, especially in trades connected with furniture and dress, and retailers in almost all trades, frequently find it best to use certain of their goods as a means of advertising others, and to charge the first with less and the second with more than their proportionate share of Supplementary expenses. In the former class they put those goods which are so uniform in character and so largely consumed that nearly all purchasers know their value well, in the second those with regard to which purchasers think more of consulting their fancy than of buying at the lowest possible price.

Economic progress is constantly offering new facilities for marketing goods at a distance: it not only lowers Local facilities cost of carriage, but what is often more import- for marketing. ant, it enables producers and consumers in distant places to get in touch with one another. In spite of this, the advantages of the producer who lives on the spot are very great in many trades; they often enable him to hold his own against competitors at a distance whose methods of production are more economical. He can sell in his own neighbourhood as cheaply as they can, because though the Prime cost is greater for his goods than for theirs, he escapes much of the Supplementary cost which they incur for marketing. But time is on the side of the more economic methods of production; and his distant competitors will gradually get a stronger footing in the place, unless he or some new man adopts their improved methods.

A great part of these expenses of marketing results from the risk that a thing preparing for a certain market will not find the expected sale there. But it still remains to make a

closer study of the relation in which Insurance against the risks of a business stands to the supply price of any particular commodity produced in it.

Insurance

§ 2. The manufacturer and the trader commonly insure against injury by fire and loss at sea; and the against risk. premiums which they pay are among the general expenses, a share of which has to be added to the Prime cost in order to determine the Total cost of their goods. But the greater part of business risks are so inseparably connected with the general management of the business that an insurance company which undertook them would really make itself responsible for the business: and in consequence every firm has to act as its own insurance office with regard to them. The charges to which it is put under this head are part of its general expenses, and a share of them has to be added to the Prime cost of each of its products.

once.

But there is a danger of allowing for these risks more than When a farmer has calculated the expenses of raising any particular crop with reference to an average year, he must not count in addition insurance against the risk that the season may be bad, and the crop a failure: for in taking an average year, he has already set off the chances of exceptionally good and bad seasons against one another. When the earnings of a ferryman have been calculated on the average of a year, allowance has already been made for the risk that he may sometimes have to cross the stream with an empty boat.

When a manufacturer has taken the average of his sales of dress materials over a long time, and based his future action on the results of his past experience, he has already allowed for the risks that the machinery will be depreciated by new inventions that will render it nearly obsolete and that his goods will be depreciated by changes in fashion. If he were to allow separately for insurance against these risks, he would be counting the same thing twice over.