Supposing one single good is put upon the market, it will obviously -- if all are equally alive to their own advantage --fall to that buyer who has the highest purchasing power, viz.
that one whose money equivalent we put down at ?. He is in a position which enables him to exclude all competing buyers, and he will do so if he understands his own interest. He must, of course, make up his mind to go the length of 99/, as this is the price to which his most dangerous competitor may go, -- that one whose purchasing power stands next to his own. And as he, for his own part, is unable to give more than 100/, the price settles between 99/ and 100/.
Suppose, again, that two goods are put on the market; the one must fall to the first, the other to the second in the series of competing buyers. The price paid by the latter, if rightly determined, must lie between 99/ and, 98/; that is, between his own equivalent and that of the next competitor, -- the buyer whom he must outbid if he would not have his acquisition of the desired good disputed. But that buyer, again, whom we called the first, will not, under these circumstances, pay any higher price.
There is now no necessity for him to offer more than, 99/; it will suffice if he, along with the second buyer, outbid the third buyer's offer of 98/. Whoever buys in an open market, and from competing sellers, pays for the same article the same price as is paid by every one else. However great may be his own purchasing power, he need not use it to its full extent; there will always be a seller willing to let him have the good at that same lowest price which has to be conceded on the market to buyers generally.
If there are three goods, they will fall to the first three purchasers, and the price will be fixed equally for all three goods between 98/ and 97/, -- between the money equivalent of the third and fourth purchasers. Where there are ten goods the one price is fixed, for all buyers, between 91/ and 90/; in order to dispose of all their goods the sellers must keep the price below 91/, and, in order to exclude the other competitors, the buyers must keep it over 90/. For fifty goods the price will stand between 51/ and 50/, corresponding to the equivalent of the 50th and 51st purchasers; for seventy goods it will be between 31/ and 30/, corresponding to the equivalents of the 70th and 71st purchasers. In short, the larger the stock which has to be sold, the lower will fall the price, as this permits of the entrance of more numerous and less capable purchasers, and the market price established is one and the same for the whole market. If we give the name of Marginal Buyer (following an expression of Bohm-Bawerk's) to the weakest buyer, who, all the same, must be allowed to purchase if the whole stock is to be sold, the law of price will run thus: Price must at all times settle between the equivalents of the marginal buyer and that of the buyer who stands next under him; viz. that one among the excluded competitors who has the greatest purchasing power. Where commodities come forward in great quantities and have a large sale, the degrees of difference between the equivalents of various buyers, whom we should more correctly consider as classes of buyers, -- are not great. And for such cases the law of price may, quite correctly, be still more simply stated as follows:
Price is determined by the money equivalent of the current marginal buyer, or marginal class of buyers. It settles at a figure very near it, and indeed a little under it.
The very first glance shows us that the law of price is nearly related to the law of value. The value of a stock consisting of separate items is determined as a marginal value, according to the marginal utility of the single good; the price of a stock which is sold in separate items is also determined as a marginal amount, according to the purchasing power of the marginal buyer of the single good. In both cases what decides, is, on the one side, the amount of the stock, -- addition to which shifts the margin and lessens the determining amount, while diminution enlarges it -- and, on the other side, the want with its varying gradations. In the case of price, however, there is, along with the degree of want, another determining fact which does not exist in the case of value. This fact is the valuation of money from the side of the buyer; that is to say, his wealth and income. Before however proceeding to examine the exceedingly important effects of this fact, we must assure ourselves that the law of price just explained holds also in the case where buyers, instead of desiring to purchase one single good, desire to purchase several or more than one. Only if this is the case can the law have any real interest for us.
