9. INFLUENCES TO WHICH DEMAND AND SUPPLY ARE SUBJECT

Wares are produced for the market and are useful to their producers only as objects of exchange. For this reason supply is equal to the stock of wares; it is something material, or at least an involuntary action carried out by means of wares. Without wares the action which lies in supply cannot be carried out, and with wares it must be carried out. To offer wares for exchange is the only thing which can be usefully done with them. In general therefore, the action which lies in supply is so closely identified with the substance necessary for the action that substance and action are bound into one.

Supply, that is, demand for money, is therefore identical with the stock of wares.

The stock of wares, again, depends upon:

1. The stream of wares flowing into the market, due to the division of labour.
2. The stream of consumers' goods leaving the market after completion of exchange.

If the stream of commodities into and out of the market never varied, supply, that is demand for money, would be constant. But this, we know, is far from the truth. The stream of wares into the market is continually increasing because of the continual increase of population. One hundred workers throw more wares upon the market than ninety. The stream of wares into the market also increases because of the steady expansion of the division of labour. If a farmer organises his farm for cattle-breeding, instead of wasting his energy in producing articles for his own consumption, he must make more frequent journeys to market. Formerly he bought and sold little, now he sells his whole produce; he has therefore increased the supply of wares, that is, the demand for money, by almost the whole amount of his production.

In the country and in small towns many artisans used to follow their trades intermittently; they had subsidiary occupations such as farming or gardening; they made their own tools, clothes, furniture, they taught their children. No artisan can now spare time for such occupations. His trade occupies him completely and pays him better. The whole product of his labour takes the form of wares and comes to market, where it creates demand for money. In this way demand for the medium of exchange has been greatly increased during the last decades.

Still more is the offer of wares, the demand for money, increased by improvements in the means of production. If a weaver with a hand-loom wove 10 ells of cloth he marketed only 10 ells of cloth; his demand for money was only 10 ells of cloth. With modern machinery the same weaver weaves 500 ells. He therefore sends 50 times more wares to market; his demand for money has increased fifty-fold. (*Value theorists, who have succeeded in enveloping economic phenomena in an impenetrable fog, will here object that the improved means of production have reduced the "value" of 500 ells to the value of the former 10 ells, with the result that 500 ells now only cause the same demand as 10 ells formerly. In reply we may ask why improvements in the means of production should halt before money. We should be justified in replying as follows: "The improved processes of production have reduced the 'value' of 500 ells of paper-money to the 'value' of 10 ells. With the fall in the value of wares, the 'value' of money has also fallen, and has thereby remained on the same level as that of the wares.") It is the same with all other arts and crafts. To copy the books produced annually by a single modern printing press, the whole population of the Chinese Empire would have to spend its time from morning till night, year in, year out, in copying. The same is true of colour printing.

Thirty men in Argentina with steam-ploughs and threshing machines produce as much wheat as 3,000 German smallholders with the same effort. These Argentine farmers consequently produce one hundred times the supply of wares and cause one hundred times the demand for the medium of exchange.

The amount of supply should not, however, be measured solely by the amount produced, but also by its quality. A ton of first-class wheat represents a greater demand for money than a ton of wheat of the second quality.

Modern products are constantly advancing in quality. Breeding stock and seeds are being steadily improved; the finish given by machinery is becoming finer and finer; purer and more useful chemicals reach the market. With electric chisels and the splendid models furnished by our exploited proletariat, sculptors produce miracles, and the demand for money increases by the full advance of the art of the present beyond the art of the past.

The stream of products into the market is also increased by the discovery of uses for formerly useless products. The German blast furnaces supply over a million trucks of basic slag for use as a fertiliser. Slag, at one time a troublesome waste product, now creates a demand for many hundred million marks of the medium of exchange. (This does not, however, mean that the circulation need be increased by so many millions). The same is true of potash salts and of many other substances. Less money, less of the medium of exchange would be required in Germany if the usefulness of basic slag and potash salts had not been discovered.

But the demand for money is also influenced by factors independent of production. The division of property makes many things wares which were formerly goods for use. Land, for instance, can now be bought and sold; formerly it was the property of the community and inalienable. Year after year large sums of money are required for the transfer of real estate. The demand for money had increased since the land of the country has been degraded to the level of a ware. Interest upon mortgages and rent require much currency. Less currency would suffice if farmers had not to put by part of the money received for their produce to pay the rent and interest due at Martinmas; less money would be required if the land had remained common property.

The same is true of house-rent. Formerly most men lived in their own huts or houses, and rent was something exceptional. At present the houses in which men dwell are seldom their property, and part of the weekly or monthly wage must be set apart to pay the rent on quarter-day. Many millions are thus locked up for days, weeks or months.

(* Whether rent on land and houses or other regular payments are made every quarter, every month, or every week also affects the demand for money. If a workman puts by the part of his wages destined for rent in the first weeks of the quarter the money lies fallow for three months. If, as in England, he pays his rent weekly, the money at once comes into circulation again, through his landlord. This is one of the reasons why England manages with a much smaller quantity of currency than any other country.)

The provision of water, light, power, etc., by the community, converts a number of important things into wares which were formerly produced for direct consumption. This also increases the demand for money.

Again, nothing can become a ware unless it can be brought to the purchaser. How many things are today lying useless because, for want of railways, roads, canals, they cannot be transported ! Mountains of ore and timber, herds of cattle are brought into the market by a new railway line, a tunnel, a bridge, a voyage of discovery, and the demand for money is increased by the whole amount of these products.

In general, therefore, the supply of wares, the demand for money, is constantly increasing. But sometimes the demand for money decreases, for example through a general reduction of the hours of work. War, failure of the crops, and epidemics can cause important reductions in demand for the medium of exchange, as does the whole present wage-policy of the workers.

These examples suffice to illustrate some of the many factors which determine the flow of wares into the market. But the offer of wares depends also, as we have already stated, upon the stream of wares out of the market. Until a commodity has reached the consumer it is offered for sale and creates demand for money. Every commodity carried away from the market means a reduction in the demand for money.

Thus the supply of wares, the demand for money, depends also upon how quickly wares find purchasers and cease to be wares. A comparison with the means of transport will again serve to make this clear. Suppose a certain quantity of bricks, say a thousand tons, must be brought daily from the brick fields to the city. The road is bad, bridges are wanting, and the bricks have to be unloaded to pass a morass. The carts therefore proceed slowly, their load is small, and many carters must be engaged to cope with the work. Suppose now that the road is improved, the morass filled in, and bridges built. The carters can now take larger loads and can make two journeys instead of one. Only half the carters are required; the thousand tons of bricks now represent only half the former demand for carters. Or a narrow-gauge railway is built, and the thousand tons of bricks represent but a hundredth part, or less, of the former demand for carters. This is how we must think of the demand for the medium of exchange caused by the stock of wares.

To bring the wares from producer to consumer by way of exchange, a series of commercial organisations is necessary. Upon the existence and efficiency of these organisations depends the speed with which wares leave the market.

Suppose a bag of Brazilian coffee had to be exchanged by way of barter for prints from Aix-la-Chapelle. It would have to be exchanged countless times; it would drift about the market endlessly as a ware. Today, with the help of money, a bag of Brazilian coffee often reaches the German consumer after three or four changes of possession.

The technique of commerce has reached a comparatively high degree of perfection (* Only the power of money to exchange wares is steadily decreasing - as we shall prove later.), and each improvement accelerates the conversion of wares into goods for use. We need mention only the improvements in modem banking and in the laws relating to bills and cheques; co-operative societies and department stores; the postal, telegraphic and consular services; advertising and printing; commercial schools for the training of young business men; uniform weights and measures; telephones, typewriters and copying presses.

A modern commercial undertaking can do 10, 20, 100 times the amount of business that was formerly possible; the "salesmanship" (* Salesmanship: Capability of bringing wares from the place of production to the consumer.) of a modern merchant is, from the merely technical standpoint, 100 times greater than that of his grandfather.

The division of labour continuously throws masses of wares into the market, and merchants, with the help of commercial organisation, continuously direct these masses of wares out of the market, into the hands of the consumers.

If merchants had not this commercial organisation at their disposal, the stores, shops and markets to receive the slowly flowing stream of wares would have to be many times larger. A mountain stream broadens as it enters the plain, as the fall decreases; and it would be the same with wares. Without modern commercial organisation the stock of wares would be larger, the demand for money incomparably greater. Even at the present day we often experience the breakdown of some form of commercial organisation, for instance the organisation of credit, and we can then observe how the flow of wares from the market is retarded, how the stock of wares increases until it threatens to flood the market (so-called over-production). Under the pressure of this growing demand for the medium of exchange prices then weaken and there is a crisis.

Suppose that a road is incapable of dealing with the traffic because of its many turnings and bad surface. The road is straightened and its surface adapted to rapid traffic when, in spite of the increased volume of traffic, it will appear half deserted. If, now, the old conditions are suddenly restored, the traffic will perhaps be completely blocked by the congestion of vehicles. It is the same with commercial organisation which straightens and mends the roads for the rapid exchange of wares. If part of the organisation breaks down, the stock of wares immediately becomes greater, that is to say, the demand for the medium of exchange increases.

As credit transactions have in this way a powerful influence upon the demand for money, we must consider them somewhat more closely.

We said that wares represent a demand for the medium of exchange exactly corresponding to their amount and quality. So, if there were any method of exchanging wares without employing money, the demand for money would be reduced by the amount of the wares so exchanged. This is self-evident when examined with the aid of our conception of the demand for money. Here again we may use a railway-line as an illustration. The demand for rolling stock is exactly equal to the amount of goods awaiting transport. But if a canal is built along the railway, the demand for rolling stock decreases by the amount of the goods transported by canal.

Credit transactions substituted for money in the exchange of goods have the same effect as such a canal. If A. in Königsberg sends B. in Aix-la-Chapelle a consignment of butter, and B. pays the bill with a consignment of wine, the transaction is completed without a pfennig of money. If B. had no credit with A. or A. had no credit with B. the butter would have been handed over only for money, and the wine could only have been exchanged in the same way. The demand which the wine and butter would have created for money is here eliminated by credit.

The demand for money is therefore reduced by the exact amount of the wares exchanged by way of credit. If the sum of credit transactions increases, the demand for money decreases; if credit decreases, the demand for money increases proportionately. The influence of the credit transactions upon the demand for money is unchanged if the price of the butter and wine is calculated in money and this money is represented by cheques, bills of exchange, or other credit instruments. Credit is always an evasion of the demand for money. Credit instruments, although drawn in money, render money superfluous for the transactions they negotiate. But they are only credit instruments, they rise and fall with credit. They are substitutes for money only as long as credit is flourishing.

We may again use as illustration the railway from which the traffic was diverted by a canal. If the water in the canal freezes over in winter, or evaporates in the summer drought, the goods which would have been transported by canal return to the railway. If the ice melted, the demand for rolling-stock would again decrease. An unreliable canal, sometimes silted up and sometimes frozen over, would disturb rather than relieve the traffic on the railway. Credit transactions have a similar effect upon the demand for money.

Let us now recapitulate what has been said of the demand for money in this section.

Demand for money is represented by the wares which the division of labour continuously throws upon the market. Demand for money therefore increases, and also decreases, with the quantity of wares produced by the division of labour. Demand for money is not merely proportional to the stock of wares, it is the stock of wares. There is no demand for money except the stock of wares. And when we speak here of wares we include all their material properties. When we use the word "wares" we have casks of beer, hams, ships laden with tobacco, before our eyes. We mean a palpable, not an abstract ham, a ham which we have visualised so clearly that we could swear it was the product of Westphalia. When we speak of demand for money, when we speak of wares, we do not mean crystallised or mummified labour, or a quintessence of labour, or a social substance, or sweat and blood and working hours. We do not think of a ham from which have been abstracted all material properties, the lean, the fat and the bone. Demand for money, demand for a medium of exchange, emanates from the visible, palpable things that we purchase in the market by the pound or yard, to feed and clothe ourselves. And in the demand for money is included not only the quantity, but also the quality of the wares.

Demand for money depends upon the stream of wares produced by the division of labour and the division of property. The size of this stream depends again upon the number, industry, skill and wisdom of the workers, and upon the quality of their instruments of production. An English weaver throws five times as much calico upon the market as an Indian weaver. He creates, therefore, five times the demand for money.

Demand for money depends upon the speed with which commerce brings the wares to the consumer, and this speed increases with every improvement in the technique of commerce. If the salesmanship of a young man trained in a school of commerce is greater than that of an ordinary retailer, the demand for money has decreased with the foundation of the school of commerce. (If the salesmanship of the student is not greater, these schools have no right to existence).

Demand for money is in inverse ratio to the speed with which the products of the division of labour and property lose the quality of a ware.

Demand for money also depends upon the growth or limitation of credit, that is, upon the constantly varying quantity of wares withdrawn from the market, and from the demand for money, by the constant expansion and contraction of credit.

The daily demand for money therefore equals the quantity of wares daily brought to market, less the wares exchanged by way of credit (or barter).

In short: The supply of wares, supply simply, supply as we mean it in the statement, "demand and supply determine prices" - this supply is the demand for money. The demand for money is comprised in the supply of wares and vice-versa. And supply is equal to the stock of wares.