Section CVIII.. Effect of a Rise of Price Much Above Cost.

Effect Of A Rise Of Price Much Above Cost.

If the market price rises high above the cost of production, producers make a profit greater than the average profit made in the country. This induces them, by the appropriation of new land and the employment of new labor and capital, to increase their business. Other parties also engage in this profitable department of trade. This competition not only makes the means of production dearer, but must eventually, by increasing the demand, reduce the price of the product to the ordinary level of profit, that is to an equilibrium with other commodities.(644) Hence, in the beginning, every diminution of the cost of production(645) turns to the advantage of the producer; but afterwards and permanently to that of the consumers: an economic law exceedingly beneficent in its operations, and not unlike the action of positive legislation in the matter of patents. There is no greater stimulus to the making of improvements than the certainty of reward to the person who first introduces one. The moment, however, that the improvement is imitated by all producers, the advantage gained by it becomes the common good of the whole nation.(646) These are, as J. B. Say says, conquests made over the gratuitous productive force of nature. As a consequence, the value in use of a people’s resources increases; generally, also, their value in exchange, in so far as the production of the now cheaper goods increases in a degree greater than their cost of production has diminished.(647)

As to the alternative so frequently discussed, whether it is preferable to make a large percentage of profit on the sale of a small quantity of goods, or a small percentage on a large quantity, we find that, in the lower stages of civilization, the former is preferred, and the latter in the higher.(648) And, indeed, the latter is not only more humane, but, in the long run, it is more profitable to the person who adopts it as his rule in business. In the case of commodities, he now runs but little risk from a change of fashion, because the fashions of the masses change much less rapidly than those of the upper circles of society. In the case of indispensable goods, on the other hand, he may now calculate with more certainty on the increase of population, and, therefore, on a future market for his wares. Competition, which in former times, devoted all its efforts to bringing about the exclusion, by law, of all rivals, is now engaged, principally, in devising means of surpassing them by superiority of workmanship, and in thus increasing the power of the real sources of a nation’s wealth.