He does not hesitate at times to allow their price to fall below cost, if it is clear that their marginal utility has fallen since his stock was purchased ; and, on the other hand, he takes ad vantage of favorable conditions to sell far above the cost to himself ; or, stating this in the reverse manner, he buys freely when there is an opportunity to secure a stock at very much less than the goods can be sold for at retail.
No one understands better than the retail dealer that values, or retail prices, are to be governed by marginal utility —by the relation between the present public desire and the supply offered. He will make a very small profit or none at all on certain classes of goods and a very high profit on others. In each case it is the state of the public mind that is the deciding factor. The natural price is as definitely fixed as the cost, though an individual dealer may for a time offer his goods above or below it. Local variations may occur for special reasons, such as the popularity of particular locations, but there is a general tendency toward an equality of price throughout the market, whatever the com modity and whatever its cost.
Industry is limited by capital. This is the first of Mill's four famous propositions. Indus try cannot be carried on until the materials of industry and the means of support for those who are to engage in it have been provided. We live, not upon the proceeds of our present indus trial activity, but upon that of the past. Tools are made, buildings erected, roadways con structed, and food and clothing produced, all in response to immediate demands for those com modities; but buildings and roads are made of such permanent materials that they can be utilized in future production, tools are made to use again and again, food and clothing are pro vided in sufficient quantity to support and clothe producers in every branch of industry. Indus try cannot be carried on unless there is capital to be devoted to these preliminary steps. The amount of industry is fixed by the quantity of capital available and actually used, not merely by the quantity available ; for though industry is limited by capital, it does not always reach the full limit. Capital may be temporarily unem
ployed, and very often it is not employed in the most remunerative manner.
The chief bearing of this proposition is in the development of another — that a demand for commodities does not constitute a demand for labor. A demand for particular commodi ties may cause industry to be diverted from an old channel to the new. It may displace certain laborers by others. But it does not create a demand for additional labor unless it provides the necessary capital upon which the new labor depends for materials and support. Since indus try is limited by capital, it cannot expand to meet the new demand unless additional capital is fur nished or the amount needed withdrawn from other enterprises.
Fixed and circulating capital must stand in a definite relation to each other. Capital is a col lective term for all those products of industry which are used in further production. Some of them, like seed, materials, and merchants' stocks of goods, are used only once, after which they most be replaced by others if the production is to continue. Others, like tools and buildings, are used many times, or continuously for long periods before they need to be replaced. The first class constitute the circulating capital, the second the fixed capital. The proportion be tween the two classes is governed by a multitude of conditions. The amount to be paid out in wages, for example, varies greatly in different branches of industry, because of the longer or shorter time which must elapse -between the initial steps of production and the final sale which reimburses the capitalist for his invest ment. It sometimes happens that by making extensive permanent improvements it becomes possible to turn out an equal product with much less circulating capital. Less capital is needed for current production because the permanent features of the industry are improved. The increase of fixed capital at the expense of circu lating capital may bring serious disturbance. The gradual increase of both is assured with the progress of society through the introduc tion of serial methods of production. To pre serve a judicious balance between them is essential to prosperity.