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4: Of Markets or Places Where Those Who Need to Make Exchanges Congregate - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship [1776]

Edition used:

Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


4

Of Markets or Places Where Those Who Need to Make Exchanges Congregate

Those who have exchanges to make seek each other out, and they scour the tribe: it is the first idea that occurs to each of them. But they will not be slow to perceive the inconvenience of this practice. Firstly, they will often not meet each other; because the person to whose house they have come will have gone to another’s, or even to that of the man who has come to look for him. They would lose a lot of time in these errands.

Secondly, they could still meet and resolve nothing. After much haggling, they would separate and begin their errands again, each hoping to make a more profitable exchange with another person. By following this practice, it would therefore be very difficult for them to agree on the respective price of foodstuffs.

Sooner or later experience will teach them these disadvantages. Then they will look for a convenient place to meet near enough to the centre of the tribe, each on his side, on appointed days, and to which they will bring the produce they intend to exchange. This gathering and the place where it happens are called a market [marché], because dealings [marchés] are proposed and concluded there.

So in the market one sets out all the foodstuffs intended for exchange; each person can see them, and can compare the amount of one with that of another. Following that, they make each other offers.

If there is a lot of corn and little wine, people will offer a smaller quantity of wine for a larger one of corn; and if there is little corn and a lot of wine, they will offer a smaller amount of corn for a larger amount of wine.

By thus comparing foodstuffs, following the quantity of them to be found in the market, people see near enough in what ratio to make the exchanges, and then they are not far from striking a deal. So as soon as some are agreed on the ratio to follow in their exchanges, others take that ratio as a rule, and the respective prices of the foodstuffs are determined for that day. It will be said, for example, that the price of a cask of wine is a septier of corn, and that the price of a septier of corn is a cask of wine.

I only consider quantity because I want to simplify. You can easily enough understand that quality must make a difference in the price of produce. It just needs to be noticed that as quality is less easily assessed than quantity, the deals are more difficult to make; and that in such a case, opinion will doubtless carry much weight. But a deal will eventually be struck, and whatever the quality of the goods, they will have a fixed price for that day.

If the price of corn has been high compared with that of wine, more of it will be brought to the following market, because people will count on a more favourable exchange, and conversely, they will bring less wine.

In this market, the proportion between corn and wine will therefore not be the same as in the previous one. There will be much corn and little wine; and just as the large quantity will lower the price of the one, the small quantity will raise the price of the other.

So prices will vary from market to market.

Doubtless it would be an advantage for the tribe if produce always had a determined and fixed price: because exchanges could be made without discussion, promptly and without loss. But that is not possible, because there cannot always be the same proportion between the foodstuffs, whether one considers them in the warehouses where the owners store them or in the markets to which they are carried.

If the variations are slight, they will hardly be felt. In that case they will have no disadvantages, or they would produce such small ones that it would be pointless to prevent them. It might even be impossible to anticipate them, and dangerous to try. Besides, we shall see that government deals a blow to agriculture and to commerce each time it tries to fix the price of foodstuffs.

If the variations are large and sudden, great drawbacks arise: because the excessively high price of a foodstuff will place those who need it under the compulsion to make disadvantageous exchanges, or to suffer for not having been able to obtain it.

These large and sudden variations will still arise when a crop has completely failed. One will be able to guard against that by making provision for years of scarcity during years of surplus, and that is what will be done. Experience will enlighten the tribe on this matter.

These variations will also occur in markets when too much of one foodstuff is taken there and too little of another: but this disadvantage will not often recur, if everyone is free to bring what he wishes to the market, and in the quantity he chooses. That is still a matter on which experience will throw light. By observing prices in a sequence of markets, and the causes of their variation, people will learn the type and quantity of foodstuffs they should take there to be able to exchange them profitably, or with the least possible disadvantage. The different foodstuffs exposed at the market will then keep the same proportions between themselves, or near enough, and consequently prices will vary little.

They will vary all the less since, when the settlers have learnt by experience what is consumed of each thing, they will grow it in that proportion; and they will only bring to the market as much or near enough as they expect to be able to exchange. They will act in this respect according to the observations they have made.

One sees therefore that in general prices will regulate themselves according to the respective quantities of the goods on offer for exchange.

You can see too that prices can only regulate themselves in markets, because it is only there that the assembled citizens can, by comparing the interest they have in making exchanges, judge the worth of things in relation to their needs. They can only do it there, because it is only in markets that all the goods to be exchanged are in evidence: it is only in markets that one can judge the relative abundance or scarcity of one against another; the relationship which determines their respective prices.

That is how prices constantly adjust, in the case where everyone has, as I said, freedom to bring to the market what he pleases, and in the quantity he chooses. We shall deal elsewhere with the disadvantages which will arise from a lack of freedom.