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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 is 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.

86. 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 centabove 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 costs? 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


stricted competition exist, it is common for the beneficiaries to fortify themselves by agreement in the maintenance of a most profitable degree of scarcity, raising prices by deliberate limitation of output, and organising a more vigorous defence against the intrusion of outside competition.

What capitalist employers do workmen also do, so far as they are able, fencing a skilled labour market against outside labour, in order to enable their services to exchange against other goods and services at a rate which exceeds the marginal costsie sehen

This condition of affairs in a trade or a labour market does not, of course, imply that every business in the trade is making profits above the average, every workman a wage above the average. What it does imply is that a given unit of goods or service is exchanging against other unprotected or less protected goods or services at an advantage. An incompetent employer may fail to make both ends meet, although he shares the advantage of selling goods at a premium; by slackness or other inefficiency he may not make enough of the right kinds of goods at the right times for the right markets. So likewise the fact that some doctors or some plasterers may be only making a starvation income is quite consistent with the statement that medical service or plastering commands a scarcity value in exchange against goods and services in general.

$ 8. When due consideration is given to the actual structure of industry, it is evident that where exchange takes place between the goods and services produced by members of “non-competing groups," the competition within each group is not such as to secure that the marginal portion of supply, which regulates the value and the price, is produced under conditions which equalise the costs for the several commodities which are the objects of exchange. Many goods and services thus exchange against other goods at a premium which measures the degree of exclusion conveyed in their “non-competing” character. Whereas the rigid theory of free competition would force goods to exchange according to the human costs or sacrifices involved in producing the marginal portion of supply, the restricted competition which prevails adds to the expenses which represent these costs, other expenses which are scarcity gains or “rents."

A rigorous application of the doctrine of equal marginal costs, for example, might yield the following rates of exchange :

Butter. Wheat. Coats, Whisky. Porterage. Medical service. Pounds. Bushels.

Gallons. Hours.

Іоо 60

I 20

150 But the actual rate of exchange on a basis of “noncompeting groups” might be as follows:

Butter, Wheat. Coats. Whisky. Porterage. Medical service. Pounds. Bushels.

Gallons. Hours.




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