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for barter in each group exceeded the amount necessary to supply the members of the other group, the fact that these groups were non-competing would not prevent the rate of exchange from conforming to the ordinary rule of free commercial societies: the goods would exchange according to final costs. The fact that one class of goods was a necessity, the other only a convenience, would not give an advantage to the former. If I am about to purchase a loaf of bread and a hat under terms of free competition, though the intensity of my demand for bread per se is greater than that for a hat per se, where competing bakers possess an ample supply of bread the importance of my obtaining any particular loaf is no greater than the importance of my obtaining any particular hat; or in other words, the existence of a competing surplus supply cancels the influence of intensity of demand in determining price or rate of exchange.

Though a baker's monopoly is in a stronger bargaining position than a hatter's monopoly, under free competition a baker has no advantage over a hatter on account of the greater necessity of bread.

It is relative scarcity that determines the strength of bargain in a society of non-competing groups. If the hatting trade can keep hats more scarce than the baking trade can keep loaves, hats will exchange against loaves at a premium per unit of final cost of production, i.e. the least efficient hatter will make more than the least efficient baker.

If we are to master the theory of exchange between non-competing groups, we must pay chief regard to the factor of scarcity of supply, and regard intensity or elasticity of demand in its bearing on scarcity. Only in proportion as the non-competing character of groups is reflected in scarcity of supply can it cancel or modify the law of exchange according to final costs. For while immobility of capital and labour between the groups, by limiting competition, impairs the full economy of division of labour and lessens the aggregate productivity of wealth in a community, it does not necessarily affect the rate of exchange between goods and services of different sorts. If an equally rigorous industrial caste system were applicable to all trades, there is no reason why final costs of production should not form an accurate standard of rates of exchange. It is because this immobility is not equally applicable to all trades that rates of exchange diverge from this standard. When access is more difficult to one trade than to another, that greater difficulty will be attended by a corresponding limitation of the freedom of supply of commodities, and this relative scarcity will be a source of gain when this class of goods is bartered against other classes where supply is not thus restricted.

This is of course universally recognised in the case of "monopolies," natural or acquired; final expense of production there forms only the lower limit of a price

which is determined by calculating the effect of different fixed quantities of supply upon elasticity of demand, and so ascertaining the degree of scarcity it iş desirable to maintain. Maintaining an artificial scarcity is the only mode of enabling a class of goods to exchange against other classes at a higher rate per unit of final cost of production. Where among the members of a "non-competing" group there is such internal rivalry and such large access to raw material and other factors of production as to maintain free competition, no scarcity arises which enables the rate of exchange for this class of goods to rise above the limit set by equality of final costs.

§6. Thus we perceive that the real question of exchange among members of non-competing groups is one of the value of monopoly or scarcity goods. The only light thrown upon the case by the theory of "non-competing groups" is that it gives a more elastic meaning to monopoly prices, enabling us to see that monopoly or scarcity value is not confined to a few instances of close markets, but attaches in different degrees to all markets, or more strictly, to one of the two parties in all markets. Whereas the Standard Oil Company can at the present time fix a rate of exchange for oil (say) 50 per cent. above that which final cost of production would assign to it as compared with commodities in general, a local baker acting in loose collusion with his fellows can charge a premium of (say) 20 per cent. above cost

for the bread he sells, while a lawyer by a scarcity partly kept up by his trade union, partly by superior opportunities of education, etc., can get a premium of (say) 80 per cent. in selling his legal advice.

It is quite evident that everywhere both current market and normal prices are affected in widely different degrees by various causes which operate through artificial scarcity of supply. The general rate of exchange in a commercial society is a reflex of these different degrees of scarcity acting on a background of equality of final costs.

§7. This enhancement of exchange value over final costs1 is sometimes termed "rent," where it is a normal or fairly permanent factor. It contains the two essential notes of economic rent: first, it is a surplus above costs, or in other words, forms no necessary inducement to any owner of power of production to apply that power; secondly, if it can be directly "taxed" it has no power to shift the tax.

It should be understood that "monopoly" in the strict sense of single-ownership of supply is by no means essential to maintain a class of goods at an exchange value in excess of final cost. There may be free competition of many owners of supply, but if the trade is fenced against the intrusion of outside capital

1 Where the term "costs" is expressed in money I shall signify by "final" or "marginal costs," not the so-called expenses of production of the marginal product, which often contain elements of scarcity price for some factors of production, but the monetary equiva lent of subjective "cost" or "sacrifice" in production.

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and labour, the marginal supply may exchange at a premium against other classes of goods produced in trades which capital and labour can enter more freely.

The plainest instance of this process is where an absolutely limited natural supply of some necessary of life is in the possession of a group of persons who have exclusive ownership.

The owners of a strictly limited amount of surface or subsoil of land get as the exchange value of a unit of this land-use an amount of other goods, which has no assignable relation to any "cost" in the shape of expenditure of capital and labour that may have gone into the development of the land. The marginal land has a value measured entirely by its scarcity, and rises or falls as intensity of demand gives increased or diminished importance to this particular sort of scarcity. But wherever privilege, reputation, secret processes, patents, training and special knowledge of markets secure any group of producers against the easy entrance of outside competition, it is quite evident that they possess a power similar to that of landowners to maintain a rate of prices which measures their immunity and is maintained by a restriction of supply. This restriction may not be due to any agreement among the producers, but may arise merely from inability of outside capital and labour to enter in so as to force down marginal prices to a level of equal costs with other. trades. But, of course, where such conditions of re

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