Risk, Uncertainty, and Profit - Free

either superabundant, and consequently free goods, or else are absolutely joined to their owners (not subject to lease or sale) and not subject toincrease or decrease. The last characteristic, if not that of inseparability, is, of course, really implied in the specification of static conditions. Wemust also observe explicitly that personal powers themselves are similarly fixed in amount and character. The social consequences of the transferof productive goods between individuals, and especially of their increase by "investment," will call for extended discussion later, and must beisolated by a preliminary study of a society in which they are absent.11. The second "analytic" assumption is also contained in the preceding "idealizing" group. Under number 8 we declared that division of labor wasto be carried to the point where each individual produced a single commodity. In modern industrial life it is, of course, carried vastly farther. But it isimportant to study separately a society where production is organized through the exchange of finished products only. *22 At a later stage we canthen discuss the special problems of that further stage of organization called secondary division of labor.This isolation is of especial importance in view of the fact that the distribution of products is very much complicated when the agencies ofproduction coöperate in the production of a single commodity, the product of a single agent being then no longer immediately identifiable. Theproblem of isolating the product of a single agency, where a number work jointly, is, of course, the familiar problem of "imputation" or distribution inthe technical sense, which has been the greatest single center of controversy in economic discussion.The above list of assumptions and artificial abstractions is indeed rather a formidable array. The intention has been to make the list no longer thanreally necessary or useful, but in no way to minimize its degree of artificiality, the amount of divergence of the hypothetical conditions from those ofactual economic life about us. For the most part these same assumptions, especially the first eight, and to a considerable extent the ninth, are reallyinvolved at one point or another in a large part of the discussion of economic literature. If they are present, and necessary, and when presentwhether necessary or not, there will be no disparaging the importance of having their abstract and unreal character brought conspicuously to thesurface.Our next task is to form a picture of such a society in action, and to discover the conditions of equilibrium or natural results of the operation of theforces and tendencies at work in it. We are therefore to imagine such a population, set down in such an environment as described, starting out denovo in the business of satisfying their wants. Each person, on taking in the situation in its essential outlines, will enter upon the production of somecommodity, with a view, through exchange with others, of securing the means of satisfying his varied wants. After a brief interval of time haselapsed, each will have accumulated a small stock of his particular good, and we may think of them all as meeting in a central market to exchangetheir wares.The situation now presented is the familiar one in economic discussion, of a group of individuals with given stocks of goods which have to bedisposed of, *23 and we need not dwell upon the process by which fixed rates of exchange among all commodities will be established. *24 Whenthe process is finished the whole mass of commodities will have been reduced to a single homogeneous fund of exchange equivalence or value.Nor do we need to concern ourselves with the mode of expressing and handling this fund; in practice it would be inevitable that some sort ofstandard exchange medium would be set apart; but it is immaterial for present purposes whether there is some one kind of money or as manykinds as there are different commodities.If intercommunication is actually perfect, exchanges can take place at only one price. *25 We may imagine it to be determined all around what theratios are to be through the medium of inquiries. Every individual, knowing the worth of the thing he possesses in terms of everything else, is insubstantially the same position as a person spending a given money income in a market where selling prices are fixed by the seller and placarded.The good in his hands represents exchange power, a "resource," and he will apportion it among the possible uses according to the law of choice,so that each unit of it purchases equivalent utilities, want satisfactions, or "importances."To show just how the price scale itself results from the fact that individuals act according to the law of choice in apportioning their purchasing powerin a situation where the prices are given, is the task of that branch of economics known as the theory of market price. At any given price (ratio ofsacrificing one good for the other) the more purchasing good is expended for any one commodity the less becomes the amount of want satisfactionpurchased with each unit (relatively to the want-satisfying capacity either of the good given up or of any other good for which it might have beenexchanged). From this it follows that the higher the price of any good (relative to others, including the purchase good), the less of it will bepurchased by any individual. *26 It is therefore theoretically possible to construct a schedule, or curve, of the amounts of any good that will be takenby any individual at every price in terms of other goods, and by adding these amounts for all individuals, to construct a similar schedule for thesociety as a whole. But there is a fixed amount of each good available in any given short space of time to be disposed of, and it must all be sold atone price. Therefore, in a perfect market each commodity will command a definite price, which is the highest uniform price at which the entireexisting stock can be disposed of (including taking out of the market by present owners).The diagrammatic representation of the market-price equilibrium is simple and obvious. The utility relations involved in the figures and analysis forthe boy-and-berries situation above *27 are applicable. The exchange situation is shown in the accompanying sketch.Thehorizontal base line is a scale of prices. The "demand" curve D shows the potential purchases at each price, for any individual or for the society asa whole, according to the scale used. The amount for sale is independent of price, a fixed physical quantity, and is represented by a horizontal linecutting the vertical or commodity axis at the proper point. The horizontal value of the intersection point gives the market price under theconditions. *28It is especially to be observed that all the quantities involved in this whole analysis are physical and not psychic. If utility in the individual