Section I. Nature of the Advantage Derived from theInterchange of Commodities, and the Principal Agents Employed in it.
(3.i.1) When two men have more than they need; one, for example, of food; another, ofcloth; while the first desires more of cloth than he possesses, the second more of food; it is a greataccommodation to both, if they can perform an exchange of a part of the food of the one for apart of the cloth of the other; and so in other cases.
(3.i.2) In performing exchanges, there are two sets of persons, the intervention of whom is ofgreat advantage: the first are Carriers, the second Merchants.
(3.i.3) When the division and distribution of labour has been carried to any considerableextent, goods are produced at some, often at a very considerable, distance from the place where they arewanted for consumption. It is necessary that they should be conveyed from the one place to theother. Carriers are of two sorts: Carriers by Land, and Carriers by Water. For the business ofcarriage, both capital and labour are required. In carriage by land, the waggons or carts, thehorses or other cattle, and the maintenance both of them and of the necessary number of men; incarriage by water, the ships, and the maintenance of the men who navigate them, constitute thecapital required.
(3.i.4) To procure articles, as men have occasion to consume them, it would be veryinconvenient to repair, in each instance, to the respective manufacturers and producers, who mayoften live at a very considerable distance from one another. Great trouble is saved to consumers,when they find assembled in one place the whole, or any considerable portion, of the articleswhich they use. This convenience gives rise to the class of merchants, who buy from themanufacturers, and keep ready for use, all those articles for which they expect a profitable sale.
(3.i.5) In small towns, where one or a few merchants can supply the wants of all thepopulation, the shop or store of one merchant contains articles of all, or most of the kinds, in generaldemand. In places where the population is large, instead of a great number of shops, eachdealing in almost all kinds of articles, it is found more convenient to divide the articles intoclasses, and that each shop should confine itself to a particular class: one, for example, to hats,another to hosiery; one to glass, another to iron; and so on.
Section II. What Determines the Quantity in WhichCommodities Exchange for One Another (3.ii.1) When a certain quantity of one commodity is exchanged for a certain quantity ofanother commodity; a certain quantity of cloth, for example, for a certain quantity of corn; there issomething which determines the owner of the cloth to accept for it such and such a quantity ofcorn; and, in like manner, the owner of the corn to accept such and such a quantity of cloth.
(3.ii.2) This is, evidently, the principle of demand and supply, in the first instance. If a greatquantity of corn comes to market to be exchanged for cloth, and only a small quantity of cloth tobe exchanged for corn, a great quantity of corn will be given for a small quantity of cloth. If thequantity of cloth, which thus comes to market, is increased, without any increase in the quantityof corn, the quantity of corn which is exchanged for a given quantity of cloth will beproportionally diminished.
(3.ii.3) This answer, however, does not resolve the whole of the question. The quantity inwhich commodities exchange for one another depends upon the proportion of supply to demand. It isevidently therefore necessary to ascertain upon what that proportion depends. What are the lawsaccording to which supply is furnished to demand, is one of the most important inquiries inPolitical Economy.
(3.ii.4) Demand creates, and the loss of demand annihilates, supply. When an increaseddemand arises for any commodity, an increase of supply, if the supply is capable of increase, follows, asa regular effect. If the demand for any commodity altogether ceases, the commodity is no longerproduced.
(3.ii.5) The connexion here, or causes and effects, is easily explained. If corn is brought tomarket, the cost of bringing it has been so much. If cloth is brought to market, the cost ofbringing it has been so much. For the benefit of simplicity, the number of commodities in themarket is here supposed to be two: it is of no consequence, with regard to the result, whetherthey are understood to be few or many.
(3.ii.6) The cost of bringing the corn to market has been either equal to that of bringing thecloth, or unequal. If it has been equal, there is no motive, to those who bring the cloth or the corn, foraltering the quantity of either. They cannot obtain more of the commodity which they receive inexchange, by transferring their labour to its production. If the cost has been unequal, thereimmediately arises a motive for altering the proportions. Suppose that the cost of bringing, thewhole of the corn has been greater than that of bringing the whole of the cloth; and that thewhole of the one is exchanged against the whole of the other, either at once, or in parts: thepersons who brought the cloth have in that case possessed themselves of a quantity of corn atless cost, than that at which it was brought to market, by those who produced it; those, on theother hand, who brought the corn have possessed themselves of a quantity of cloth, at a greatercost than that at which it can be made and brought to market.
