to be raised by the producers in order to cover the increased costs and to make even moderate profits.

There will always be an interval more or less lengthy between the first moment of the high prices of commodities and the second moment when the costs of production-the prices of raw material, money, and labor - will level up to the prices of the commodities, and during that interval great profits will be made, and the industries will be exceedingly advantageous to the producers.

The effects of competition may be expressed in the form of laws as follows:

1. Competition tends to equalize the prices of all similar products.

Suppose corn sells for 50 cents a bushel, the normal price. If a seller offers corn at 48 cents, all the buyers will at once outbid one another so that the demand will raise the price. If a buyer offers 52 cents for corn, all the sellers will underbid him and one another until the price falls to the normal.

2. Competition tends to reduce the price of all products to a minimum level determined by the cost of production.

By cost of production is meant the amount of capital consumed in order to produce a commodity. The wealth produced must be greater than the wealth consumed; otherwise the business would not pay and no one would engage in it.

This may be illustrated by the following example.

A capitalist puts into the shoe business $85,000. The expenses of the business in one year are distributed as follows:

He turns out 75,000 pairs of shoes in a year. The 75,000 pairs of shoes have cost him $150,000, or one pair of shoes has cost him

$2.00. He must sell his shoes for $2.00 in order to cover his expenses. But he wants a profit on his invested capital. It is to his interest to make the profit as large as possible, and to sell his product at the highest possible price. He may fix the price at $2.10 or $2.25 per pair.

But here competition sets in. There will be many producers of shoes who will be content with small profits and will charge but little above the cost of production, and they will determine the market value of the product. Each producer will strive to increase his own trade, and he will do so principally by offering his product at a lower price than his fellow-producers. Naturally he will not sell at or below the cost of production, since he desires a profit. The result will be that the general cost of the pair of shoes will be a minimum consistent with a low rate of profit.

This matter is clear enough when there is question of different products. Each separate product will have its price determined by the cost of production. But it constantly occurs that there come to one and the same market different portions of the same commodity, each of which has had a different cost of production.

Thus, in the New York market, there will be coal from Pennsylvania and from West Virginia, corn from New York State and from Ohio, lumber from the east and from the west. It must be evident, merely because of the freightage, that the cost of production of the different portions of these commodities will be greater in some cases than in others. And yet there is

but one price for the whole class of articles, whatever may have been the cost of production of each individual portion.

One bushel cost in pro

How is the market price determined? Here is corn piled in this elevator. ducing and in placing on the market 69 cents; another bushel cost 64 cents; a third cost 59 cents. Will the market price be regulated by the maximum cost, 69 cents, or by the minimum cost, 59 cents, or will it be the average, 64 cents?

A distinction must be made. The commodities of which there is question may be such that they cannot be multiplied at will, or they may be such that they can be multiplied at will.

Thus cotton, live stock, the cereals, corn, wheat, oats, cannot be multiplied at will; the quantity that can be raised on a given area of land is limited. But shoes, nails, spades, hammers, and other such things can be multiplied at will.

Now with regard to the former class of commodities, viz. those which cannot be multiplied at will, the normal market price will be regulated by the maximum cost of production. And the reason is this:

If the producers of this class of commodities foresaw that they could not get a price sufficient to cover their expenses, they would not produce the commodities, and there would be a deficit in the supply, with a resultant rise in the price.

Nor would it be to the interest of those producers who can produce at less cost to undersell those who produce at greater cost, because they profit all the more by the high prices, and their own production being limited, they could sell no greater quantity if they should undersell their competitors.

A, B, C, D will not produce unless they get $.69. If they fail to produce, there will be but 300,000 bu., where 500,000 are in demand. The

supply decreasing, the price will rise. It will rise sufficiently to make it possible for A, B, C, D to produce, viz. to $.69. E, F, G, H, and J, K, L, M cannot produce any more than 200,000 and 100,000 bu., respectively, since the commodity, wheat, cannot be multiplied at will.

With regard to the second class of commodities, those, namely, which can be multiplied at will, the normal market price will be determined by the minimum cost of production.

From comparison with the other case, the reason is plain. Those who can produce at less cost may undersell those who produce at greater cost, and as the commodities can be multiplied at will, the supply will not decrease and the prices will not rise. The only result will be that those who cannot profitably continue production at the low market price will retire from that kind of business.

TABLE

B. Hammers. A, B, C, D produce at cost of $.69

Here, J, K, L, M can sell their hammers for $.59, and the 500,000 demanders will come to them for hammers rather than to A, B, C, D, or E, F, G, H whose prices are higher. J, K, L, M will increase their actual supply from 100,000 to 500,000, which they can easily do, as hammers may be multiplied at will. A, B, C, D, and E, F, G, H will go out of the hammer business.

Monopoly Price.

Prices may in certain cases be taken out of the field of competition and be controlled by a person or a corporation having the exclusive right or ability to produce the article. We shall then have monopoly prices.

Kinds of Monopoly. - A monopoly may be of different kinds : A Private monopoly is one possessed by an individual or a corporation.

A Public or State monopoly is one controlled by the state. Thus, with us, the mail system is a public or government monopoly. In Germany, the railroads are a government monopoly; and in England, the postal telegraph service is one.

A private monopoly may be Natural or Artificial.

A private natural monopoly exists when a private individual or corporation obtains control of a natural product of the land through ownership of the land, and becomes the sole producer of the article for commerce.

A private artificial monopoly exists when an individual or a corporation obtains the control of an article of trade or of a privilege of transportation. Such an artificial monopoly may be Legal or Capitalistic.

In a Legal monopoly, a legal right, e.g. by copyright or patent, is obtained for the exclusive production of an article of commerce, or for the exclusive performance of some service, such as the operation of railroads and street railways.

In a Capitalistic monopoly, a combination of capital absorbs all the principal dealers in an article and practically controls the market.

Monopolies can, in general, fix their own prices for the article under their control.

In public or government monopolies, the government fixes the price. When the government is not seeking revenue from its monopoly, it fixes a price sufficient to cover the expenses incurred in conducting the business.

Private monopolists are influenced, in fixing prices, by their business interests. Though a monopoly price may be fixed very high, yet there is a limit beyond which it will not go. That limit is reached when consumers refuse to purchase the article. When the price becomes exorbitant, people will cease to desire the article and will seek some substitute that will replace it. Monopolists are seeking profits, and they will not endanger their prospects of profits by making the price so unreasonable as to leave the article unsold on their hands. They know, too, that their profits will be greater when there are many purchasers at a low price than when there are few purchasers at an exorbitant price. Capitalistic monopolists also know that exorbitant prices would invite competition. Self-interest, then, will be the rule determining monopoly prices.