Econlib

The Library

Other Sites

 Front Page arrow Titles (by Subject) arrow ESSAY No. XLIV. - The Principles of Free Trade

Return to Title Page for The Principles of Free Trade

Search this Title:

Also in the Library:

Subject Area: Economics
Topic: Free Trade

ESSAY No. XLIV. - Condy Raguet, The Principles of Free Trade [1835]

Edition used:

The Principles of Free Trade illustrated in a series of short and familiar Essays originally published in the Banner of the Constitution, 2nd ed. (Philadelphia, 1840).

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.


ESSAY No. XLIV.

june 9, 1830.

The consumption of commodities diminishes as prices rise. Proved, in reference to the price of ice in Philadelphia, in 1828. Danger of tampering with commerce.

IT is known to every one, that, as commodities rise in price, their consumption is diminished, and that, as they fall in price, their consumption is increased. The ratio, however, of the diminution or the increase, is not the same in regard to all commodities. A rise in the price of the necessaries of life, will not occasion as great a diminution of the ordinary consumption, as a rise in the price of the comforts of life; nor will a rise in the price of these latter articles occasion so great a diminution as a rise in the price of luxuries. So, on the other hand, a fall in the price of the necessaries of life, will not increase the consumption, so much as a fall in the price of the comforts of life will increase the consumption of these latter; nor will a fall in the price of the comforts of life, increase their consumption so much as a fall in the price of luxuries will increase their consumption. Each article, too, of each class, is governed, perhaps, by different proportions, and therefore there is no fixed rule by which a general scale can be formed. But we will illustrate these positions.

A rise in the price of flour from five dollars to ten dollars per barrel, which is one hundred per cent., would not reduce the consumption of bread to one-half the usual quantity, because, being a necessary of life, it could not be dispensed with in that proportion. But a rise in the price of tea and coffee and other such articles, which belong to the class of comforts, to double the usual rates of the market, would diminish their consumption to a quantity less than one-half, and for the reason that the mass of consumers have limited incomes, and have no more than a certain sum to expend in such articles, so that resort would be had by a great portion of the community to substitutes, such as rye and beans, whilst others would use milk, &c. A rise in the price of wines and other luxuries to the extent of one hundred per cent., would reduce their consumption much below one-half, for, being articles which could easily be dispensed with, they would readily be laid aside. That these positions are correct, with some few exceptions, will be manifest, from what is exhibited in the daily transactions of life. Almost every economical family has rules as to the maximum price which it is willing to pay for articles in the market. Where there are one hundred persons, who would give twenty-five cents per pound for butter, there are not half that number who would give fifty cents, even for reduced quantities. Some persons make it a rule never to buy eggs at a higher price than a particular rate per dozen, whilst others, in the season for lamb, asparagus, green peas, strawberries, and fruits, never buy those luxuries at all, until they fall to the prices which they have laid down as their maximums.

This being the case as it regards a rise in prices, it follows, that the very opposite results would flow from a fall in prices. A fall in the price of flour, to one-half, would not double the consumption. One, in the price of tea and coffee, to that extent, would, no doubt, double it; whilst one in the price of wine might carry the increase of consumption much farther.

A curious and striking illustration of the operation of price upon consumption, in regard to an article of luxury, was communicated to us last year. The custom of carrying about the streets of Philadelphia, in the summer season, the article of ice, for the use of families, was introduced about twenty-five years ago. From that period until the year 1827, the consumption gradually increased, insomuch that, in that year, as many as 3000 families received a daily supply, equal, on an average, to about half-a-peck per day, at thirty-seven and a half cents per week. The winter of 1827-8 having been so mild that no ice was formed in that vicinity, a foreign supply was looked to, when it was calculated that ice, imported from New England, could not be delivered to customers for less than four times the old price, that is, one dollar and a half per week for half a peck per day. To ascertain the quantity which would be required by the demand at this increased price, the dealers in the article united in an estimate, by which it was assumed that one-fourth the usual supply would be called for, being the proportion corresponding to the rise in price. The result, however, did not confirm the correctness of this calculation. Instead of seven hundred and fifty consumers, the anticipated number, the number was less than four hundred, and of these, many diminished their quantity, so that it appeared that, for every one thousand bushels sold at the low price, not more than about one hundred were demanded at the high price. Another example occurred in the case of the sale of mineral water. A number of the dealers, on account of the dearness of ice at that time, doubled the price, but the consumption fell off so greatly, that in a very short time they were obliged to fall back to the old rate.

Our object in bringing these merely speculative truths into view, is to lay down the bases of some practical illustrations in relation to the influence of high duties upon the commerce of the United States. The raising of prices by artificial means, such as the imposition of high duties, inevitably diminishes the consumption, and thus disturbs the usual current of imports and exports. New habits and tastes become formed; those at home, as well as those abroad, who were before concerned in the trade, are driven into new pursuits, and the reducing of the duties may not, for many years, if ever, restore the old state of things. How often does it not happen, that the high rate of tolls charged on a turnpike-road, has driven travellers into a new route, which they have continued to adhere to even after a reduction of the tolls on the old road? In the case above referred to, relating to mineral water, a most injurious effect upon the trade was experienced. The lowering of the price to the old rates did not bring back the customers, for some of them dicovered, by the interruption of their usual supply, what they did not before know, that it was possible to do without such a luxury.

One remarkable fact relative to the turning of trade from its accustomed channels we shall here mention. Prior to the last war, it was the custom, almost universally, for the ships which sailed out of Philadelphia, to stop at New Castle, on the Delaware, to get their supplies of live stock, and many of their sea stores, for the voyage. During the war there were bodies of troops stationed in that vicinity, composed of volunteers from Pennsylvania and Delaware, and, in 1814, as late as December, to the number of three or four thousand, and no small portion of these being citizens possessed of means to live on the best the country could afford, such as eggs, fowls, ducks, and other poultry, the breeding stock of the neighbourhood was encroached upon, so that in the spring of 1815, when commerce was resumed, the first vessels which stopped at New Castle for their accustomed stock, could not get supplied. This disappointment was soon made public. No more vessels stopped at New Castle. Poulterers started up in Philadelphia to meet the new demand, and New Castle forever lost the trade. This was the main cause of the dilapidated condition of that town, which is so observable to those who remember the life and bustle which twenty years ago were exhibited there. To tamper with trade is as dangerous an operation as tampering with one’s bodily health, and none but quacks ever attempt it in either case.