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The Society of To-morrow: A Forecast of Its Political and Economic Organisation; Molinari, Gustave de
14 paragraphs found.

Productive competition is supported by the Law of the Economy of Power, and these two co-operate in furthering the advance of productive capacity. But while acting as a propeller, this same rivalry fulfils a second, and no less useful, function. As the pivot of a balance, it supports the scales that maintain equilibrium between supply and demand, between outlay and return, at the level of the price required to induce the creation of products or services. The motor-force, of our first view, now appears as a "governor," and its supporter in this regard is a new law— the Law of Value.


In every one of these hypothetical markets, prices, or the rate of exchange, will be determined by the comparative urgency of opposing desires. We shall, at the present moment, confine our attention to the third alternative. Then, if there are several sellers, and each carries a more or less full stock, the fear of being undersold by a rival will compel the merchants to successively increase the amounts which they offer at a given price. But the purchasers, having no fear of a failure in supply, will continually reduce the price which they are willing to pay. Prices will fall since there is no approximation of demand to supply. In a seller's market, where the sum of the desire to purchase outruns that of the desire to sell—of supply, a buyer's refusal to increase his bids may result in his failure to complete a purchase, and the tendency of price is upwards.


It is most essential to note that market prices do not solely follow the quantities offered, but develop according to a geometrical progression. A short supply not only reduces market offers, but it also increases the effectiveness of demand; a glut in supply produces the opposite result, since the urgency of the seller increases while demand slackens. In one case the value of the product offered rises to a point which yields more than the required profit, over and above the actual costs of production; in the other, prices fall until profits may vanish and an actual loss set in. *6 It is now easy to understand the regulative action of competition. It is continually tending to "fix" exchange-value—in other words, to maintain prices at a point which is equal to the cost of production plus the amount of profit necessary to induce the producer to create the product, or service, which he seeks to sell. Adam Smith characteristically termed this the natural price. Over-supply and over-production cause a fall in the price-current, and as this fall results from an impulse which develops according to a geometrical progression, it very soon drops below the natural price. As soon as this point is reached production naturally tends to diminish, and the consequent gradual rise in the price-current frequently repasses the natural price and erects a surplus profit. But the movements of capital and labour invariably follow profits. As soon as a particular industry promises to return more than the normal rate of profit, capital and labour flow in; production is forced up by leaps and bounds, and the markets are once more filled to repletion. The socialistic cry for regulation, whether by the State or any other artificial authority, is therefore entirely absurd. Regulation is essential, but the two natural laws of Production and Value have long since joined to secure it. We need only refrain from throwing obstacles in the way of their regulative operation; or, if an artificial obstruction opposes that action, to guarantee their freedom in removing the obstruction, according to their own methods. Their action must be secured, but it is to be secured only by refraining from all interference.

Part I, Chap. 4, Decline of Destructive Competition

The direct losses of war are those of life and capital, and these losses have grown side by side with that increase of power which has followed the growth of population, of wealth, and of credit, particularly among the States of the Old World and in the course of the last century. Nor is loss of life felt less directly than losses of capital, for it is the physical flower of a population which enters the army, and their destruction entails the perpetuation of a less effective type. Direct loss of this kind primarily affects the combatants, the area of indirect damage follows the extension of international interests. Markets are curtailed, the bulk of exchanges is diminished, the demand for capital and labour is arrested. In fact, while expenditure is suddenly increased, a check is put upon the action of those agencies which supply the means, nor are these losses and damages counterbalanced by any corresponding augmentation of the general security.

Part II, Chap. 9, Equilibrium of Production and Consumption

Although direct production also encounters the first part of this problem, it solves it with little difficulty. Man produces because production satisfies many needs—the need of clothing, of food and lodgment, of his moral and intellectual aspirations. These needs compete for satisfaction, and—as in every other kind of competition—the strongest conquer, those which procure the highest degree of pleasure, or obviate the greater pain. Not until these are satisfied does the individual devote his remaining powers and time to the fulfilment of others, chosen in the order of their intensity, the degree and vigour of their several demands. The intelligent and provident, however, refuse to follow blind desire; they calculate, and yield to each such satisfaction as seems fit, regulate consumption, and adapt production to its demands. Such calculations may go astray. Too great obedience to the promptings of the moment, and lack of forethought, may expose a man to future sufferings no less acute than his present joys. It is also easy to miscalculate the amounts of production, or the quantity of products obtainable in exchange for a given expenditure of effort and time. A return which exceeds, or is less than, that expected causes an equivalent error in the relation of the product to the need which it is intended to fill. Overproduction reduces the capacity for satisfaction in proportion to the decreasing intensity of the desire and its final extinction; underproduction increases the intensity of desire in proportion to the insufficiency of the product to satisfy it. This diminution, or increase, in the power of satisfaction, or—stated economically—in the utility of the product, is not simply proportionate to the relation between supply and demand. Its effects are progressive, increased supply reducing demand, and conversely. In the one case it determines a restriction of supply, in the other of demand, until an equilibrium is restored between the supply of the product and the demand of the need.


Every producer, therefore, carries his wares to market where he meets those who desire them, and are prepared to give something in exchange—in the usual case, money. Their desire to purchase constitutes the demand for his wares, and, since his object is to obtain the greatest possible sum of money in return for a given quantity of goods, the seller's object is to restrict supply below the level of demand, never quite to satisfy demand. But since the exchange value of products varies according to the relative proportions of supply and demand, the seller now obtains a sum of money which is more than the actual equivalent of his costs of production—a profit, that is to say, on a constantly ascending scale.


The first result of this action of the competitive principle is that consumers reap the benefit of every improvement in production. Nor is this more than justice, since progress does not result from the efforts of the moment as applied to any one industry, but is developed from generation to generation and throughout the entire field of industry. Next, when indirect production succeeds direct production, competition continues to assert its power as a regulator. The individual producer, working for himself, regulates production according to the measure of his needs; and—if he governs these in place of submitting to their dictation—in proportion to the demand that he considers useful. If he finds that his production exceeds, or is less than, his need, he corrects the discrepancy for the purpose of equalising the sum of his enjoyment, or of the suffering avoided, with the sum of the efforts, or pain, entailed by the act of production. Competition maintains the like useful order in the realm of indirect production, approximating supply and demand to a point of equilibrium which follows the aggregate efforts and suffering entailed by the act of production.

Part II, Chap. 10, Distribution of Products and the Share of Capital in the Proceeds of Production

The share of capital in the proceeds of industry cannot, for this reason, be diminished until progress has achieved a permanent reduction in the necessary rate by diminishing possible privations and possible risks. A general fall in the rate of interest has been apparent during the last fifty years, and has been attributed to increased production of capital, and a progressive increase in the habit of thrift. But if the supply of capital has increased, demand has not failed to do likewise. The true reason for this fall in the rate of remuneration on capital— the rate of interest—is to be found in that progress which has caused a larger proportion of the capital lent or employed on profit-sharing terms, to become readily realisable. This has reduced the inconvenience incurred in parting with its actual possession, and consequently the amount of the requisite compensation. Thanks to the possibility of instantaneously realising personal estate, the privation—very real in less advanced industrial communities—resulting from inability to recover or convert capital in actual employment, has vanished. No doubt the capitalist who has invested money in personal estate runs a certain risk of loss in the case of a forced realisation, but he may also be able to sell at a premium, and this possibility counterbalances the contrary risk. Doubtless, also, capital is by no means all invested in personal estate, but the proportion so placed increases every day, and the result of a state of competition is always to reduce the current rate on services and products to the lowest minimum necessary rate. Between the returns on real and personal estate, there tends to grow up an average return, and every increase in the proportion of money invested in realisable property tends to reduce the rate of this average return. When all capital has become capable of immediate realisation, the considerations determining this average rate will cease to include the idea of compensation for possible inability to realise.


But the cost of production is only an imaginary point round which competition groups the price-current and price-actual of a product or a service. To make the price-current coincide with the costs of production, with, properly speaking, the natural or necessary price, competition must be absolutely free, and capital must be able to move, without fear of either natural or artificial obstacles, to any part of the immense world's market where the demand is greatest and the supply least. Moreover, there must be complete, or the best obtainable, knowledge of the varying needs of this market. Considerable progress has been made in these respects during the last century, and this progress will continue more and more rapidly as production accumulates in the hands of associations with realisable capital. The modern Stock Exchange List informs capitalists of the current values of most realisable securities. Foreign values are still fenced with limitations issuing from the old spirit of monopoly; but such hindrances must disappear, or become less effective, as the investing agencies— the Banks—multiply, and obtain greater liberty and more power. Nor is the time so far distant when the universal money market will be an open book, and obstacles to the circulation of capital be removed by improved communications, and the cessation of protectionist regulations. An equilibrium will then be established between the supply of, and the demand for, capital, at the minimum rate of returns—a rate little above zero.

Part II, Chap. 11, Distribution of Products and the Share of Labour in the Proceeds of Production

Labour has gained this better position by association and by establishing a common fund which enables the individual to wait, to gain time—a device of obvious value, even if it has led to abuses. The offer of labour, on account of the inferior command of time which it possessed, has been less extended than the demand for it. Restated in terms, the supply has exceeded demand by the sum of this variation. The formation of campaign-funds reduces this variation, and, if sufficiently ample, these funds may even remove it altogether. The labourer's command of time and space remains inferior, but since this no longer enables the employer to tamper with the proper rates of remuneration wages depend on the actual relation of supply and demand, of the number of workers seeking employment and the number of men that the employers seek to hire. Over-supply inevitably reduces wages and a deficient supply as inevitably raises them; neither process will take place for any other reason than a real rearrangement of the relative proportions of these two factors.


In these three free markets, subject to no regulative agency but competition, production and consumption, supply and demand, will find their proper equilibrium at the level of that price which constitutes the necessary rate.


We have seen how improved machinery and industrial processes diminish the necessary rate on products and capital, but increase it on labour. Progress, on the other hand, reduces the proportion of labour to capital engaged in any industry, so that, whatever the rise in the necessary rate on labour, there is an economy in the costs of production. One question, however, still demands solution. Granting that it is possible to exactly adjust the supply of capital and production to the demand of consumption, can labour be similarly controlled? This question restated may read thus—"Is it possible to adjust the production of labourers to the demand of the employer?"

Part II, Chap. 12, The Problem of Population

Systematic state-restriction upon population has disappeared from almost all civilised societies. Every man in every class is free to beget children at will, and such checks as exist depend upon the individual. But the classes, lately emancipated or only partially instructed, incapable of restraining their appetites, have multiplied out of all proportion to their means of subsistence. Whether their livelihood be insecure, expanding under the influence of industrial progress, restricted by artificial obstacles, taxation or protection, these communities procreate in blind obedience to the dictates of appetite. Imprudent development of public charities, particularly in England, has still further added to the numbers of the most numerous class. Abnormal enlargement of the ranks of labour results, supply outruns demand, and the worker is at the mercy of the employer. Wages fall and the hours of labour are increased, with the inevitable concomitants of heavy infant mortality and a generally reduced expectation of life among the lowest classes. These results, or, in the characteristic phrase of Malthus, "repressive obstacles," tend to maintain equilibrium between the supply of labour and the means of subsistence. The middle and upper classes have meanwhile pushed restriction to excess, and, prostitution furthering the consequences, they have, in nearly every country, survived only by the continual admission of recruits and the infusion of new blood from lower strata of the population.

Part II, Chap. 13, Consumption

Competition next co-operates with the Law of Value to regulate the production and distribution of the materials of life. By means identical with those of the physical Law of Gravitation, it now establishes an equilibrium between supply and demand at the level of price necessary to induce production, and regulates the distribution of products between the agents of production, capital and labour, on terms which ensure their reconstitution and permanent co-operation in the act of production.