D. Some Phases of Market Structure

94. THE MARKET

Few words are used with a greater number of connotations than is the term market. Perhaps the two extremes are represented by these cases: (a) the use of the term to mean a village market-place with its buying and selling operations; (b) a more abstract use of the word carrying the connotation of a great social institution covering a range of activities almost as broad as modern economic life. The layman is likely to think of a market as a specific place, but if his attention is called to certain matters he at once agrees that the place is not necessarily the significant element. He will talk of the coffee market, the money market, the labor market, or the securities market. quite without reference to any given locality. There is a market when the forces of demand and supply are brought together.

In other words, the exchanging functions of our society and the market functions are one and the same. Just as exchange is a very broad term, embracing all the commercial transactions of our society, so also is market. Ours is a market society, organized on a price basis, the prices being established in the market, in the exchanging operations of society. A discussion of the implications of this statement would be more or less meaningless at this stage of our work. It will suffice for present purposes if we can begin to think of the market as a social institution of great significance one which covers the commercial operations of the banker, the employer, the renting landlord, the man going into employment, the bond house, and the investor as truly as it does the acts of a wholesaler or the transactions on an organized exchange.

See also 129. A Classification of Banks and Types of Banking

Operations.

131. The Services of Bond Houses.

133. The Functions of the Stock Exchange.

134. A Favorable View of Wall Street.

229. The Organization of the Labor Market.

95. THE FRAMEWORK OF A MARKET'

The diagram on p. 253 is designed to show the central position occupied by our market mechanism as a mediating force between producers' supplies on the one hand and consumers' demands on the other. Beginning at the top of the diagram, and following it downward, we pass from natural determinants of what can be produced to rational determinants of what shall be produced. The "business of farm production" is very much influenced by the character and activities of the market. What a particular farmer or a given section decides to produce is based very much upon the willingness which marketmen have indicated to handle one or another class of product. Often the dealers give assistance, financial or other, in order to stimulate the production of some certain article. Transportation, while not strictly a marketing agency, yet occupies a highly important intermediate position, determining the possibilities of bringing any given demand within touch of any particular source of supply. We might say that it makes any actual stock an effective supply for such a market zone as it reaches.

If we turn to look at the matter from the side of demand, the important influence of the market mechanism again appears. Beginning at the bottom of the chart, we find demand resting upon conditions of physiological necessity which are fixed in character. But we see, as we look at the other factors in the making of effective demand, that there is a considerable field within which the agencies of the market are able to modify and direct the character and volume of actual market demand. The work of advertising, of making tempting displays of certain goods, or of selecting particular articles in whose interest the buying public is to be vigorously solicited all these activities of the market go far to modify intellectual estimates or social esteem and to determine the distribution of the family income to various classes of expenditures or even the relative portion which shall be spent or which shall be saved.

We need to get away from thinking of the process of price-making in vague general terms and in the passive voice. It is a very concrete process, made up of a large number of personal transactions, and the precise conditions under which each of these personal transactions takes place are created by the activities of our marketing system.

I

Taken by permission from E. G. Nourse, Agricultural Economics, pp. 485-86. (The University of Chicago Press, 1916.)

96. TYPES OF MARKET DISTRIBUTION FOR

ORDINARY GOODS

Απ

The middleman is a by-product of a complex industrial organization. Chart I shows in rough outline the evolution of the middleman from the early period when producer dealt directly with consumer to the appearance of the orthodox type of distribution (late in the eighteenth century and in the first quarter of the nineteenth century) when a complicated series of middlemen existed. It should be noted that this chart represents the typical case of the domestic product rather than that of imported commodities.

In the early days of the factory system, shown in Chart II, we find that the producers have lost their character as merchants and are devoting themselves to the problems of production. The pressure on production has continued, and with the increasing intricacy of industry producers have found it necessary to concentrate their attention on production. The selling agent appears as a link in the chain of distribution to relieve the producer of the task of selling his product. The selling agent undertakes to sell the entire output of the producer, distributes it among wholesalers, who in turn distribute it to retailers, and the retailers to the consuming public.

This may be termed the orthodox type in distribution, a type almost universal in the early decades of the nineteenth century, and still common, as in the textile industry in New England.

Just as the long period of development from a system of barter economy to the early decades of the factory system showed a continuous tendency for increase in the number of middlemen intervening between the producer and the consumer, so recent years have shown a growing tendency to decrease the number of successive steps in distribution. The tendency is apparent in nearly every industry and has been clearly marked in recent years.

Chart II is an attempt to show diagrammatically the development of this tendency to decrease the number of successive middlemen. By the use of salesmen going directly to the wholesaler and by advertising directed to the retailer the producer has displaced the selling agent in many cases. Sometimes the advertising is directed not only to the retailers but also to the wholesalers. To strengthen still Taken by permission from A. W. Shaw, "Some Problems in Market Distribution," Quarterly Journal of Economics, XXVI (1912), 725-30.