On the Economy of Machinery and Manufactures

On the Influence of Verification on Price

181.  The money price of an article at any given period is usually stated to depend upon the proportion between the supply and the demand.  The average price of the same article during a long period, is said to depend, ultimately, on the power of producing and selling it with the ordinary profits of capital.  But these principles, although true in their general sense, are yet so often modified by the influence of others, that it becomes necessary to examine a little into the disturbing forces.

182.  With respect to the first of these propositions, it may be observed, that the cost of any article to the purchaser includes, besides the ratio of the supply to the demand, another element, which, though often of little importance, is, in many cases, of great consequence.  The cost, to the purchaser, is the price he pays for any article, added to the cost of verifying the fact of its having that degree of goodness for which he contracts.  In some cases the goodness of the article is evident on mere inspection:  and in those cases there is not much difference of price at different shops.  The goodness of loaf sugar, for instance, can be discerned almost at a glance; and the consequence is, that the price is so uniform, and the profit upon it so small, that no grocer is at all anxious to sell it; whilst, on the other hand, tea, of which it is exceedingly difficult to judge, and which can be adulterated by mixture so as to deceive the skill even of a practised eye, has a great variety of different prices, and is that article which every grocer is most anxious to sell to his customers.

The difficulty and expense of verification are, in some instances, so great, as to justify the deviation from well-established principles.  Thus it is a general maxim that Government can purchase any article at a cheaper rate than that at which they can manufacture it themselves.  But it has nevertheless been considered more economical to build extensive flour-mills (such are those at Deptford), and to grind their own corn, than to verify each sack of purchased flour, and to employ persons in devising methods of detecting the new modes of adulteration which might be continually resorted to.

183.  Some years since, a mode of preparing old clover and trefoil seeds by a process called doctoring, became so prevalent as to excite the attention of the House of Commons.  It appeared in evidence before a committee, that the old seed of the white clover was doctored by first wetting it slightly, and then drying it with the fumes of burning sulphur, and that the red clover seed had its colour improved by shaking it in a sack with a small quantity of indigo; but this being detected after a time, the doctors then used a preparation of logwood, fined by a little copperas, and sometimes by verdigris; thus at once improving the appearance of the old seed, and diminishing, if not destroying, its vegetative power already enfeebled by age.  Supposing no injury had resulted to good seed so prepared, it was proved that from the improved appearance, the market price would be enhanced by this process from five to twenty-five shillings a hundred weight.  But the greatest evil arose from the circumstance of these processes rendering old and worthless seed equal in appearance to the best.  One witness had tried some doctored seed, and found that not above one grain in a hundred grew, and that those which did vegetate died away afterwards; whilst about eighty or ninety per cent of good seed usually grows.  The seed so treated was sold to retail dealers in the country, who of course endeavoured to purchase at the cheapest rate, and from them it got into the hands of the farmers; neither of these classes being capable of distinguishing the fraudulent from the genuine seed.  Many cultivators, in consequence, diminished their consumption of the article; and others were obliged to pay a higher price to those who had skill to distinguish the mixed seed, and who had integrity and character to prevent them from dealing in it.

184.  In the Irish flax trade, a similar example of the high price paid for verification occurs.  It is stated in the report of the committee, “That the natural excellent quality of Irish flax, as contrasted with foreign or British, has been admitted.”  Yet from the evidence before that committee it appears that Irish flax sells, in the market, from 1d. to 2d. per pound less than other flax of equal or inferior quality.  Part of this difference of price arises from negligence in its preparation, but a part also from the expense of ascertaining that each parcel is free from useless matter to add to its weight:  this appears from the evidence of Mr J. Corry, who was, during twenty-seven years, Secretary to the Irish Linen-Board:—­

“The owners of the flax, who are almost always people in the lower classes of life, believe that they can best advance their own interests by imposing on the buyers.  Flax being sold by weight, various expedients are used to increase it; and every expedient is injurious, particularly the damping of it; a very common practice, which makes the flax afterwards heat.  The inside of every bundle (and the bundles all vary in bulk) is often full of pebbles, or dirt of various kinds, to increase the weight.  In this state it is purchased, and exported to Great Britain.  The natural quality of Irish flax is admitted to be not inferior to that produced by any foreign country; and yet the flax of every foreign country, imported into Great Britain, obtains a preference amongst the purchasers, because the foreign flax is brought to the British market in a cleaner and more regular state.  The extent and value of the sales of foreign flax in Great Britain can be seen by reference to the public accounts; and I am induced to believe, that Ireland, by an adequate extension of her flax tillage, and having her flax markets brought under good regulations, could, without encroaching in the least degree upon the quantity necessary for her home consumption, supply the whole of the demand of the British market, to the exclusion of the foreigners.”

185.  The lace trade affords other examples; and, in enquiring into the complaints made to the House of Commons by the framework knitters, the committee observe, that, “It is singular that the grievance most complained of one hundred and fifty years ago, should, in the present improved state of the trade, be the same grievance which is now most complained of:  for it appears, by the evidence given before your committee, that all the witnesses attribute the decay of the trade more to the making of fraudulent and bad articles, than to the war, or to any other cause.”  And it is shewn by the evidence, that a kind of lace called “single-press” was manufactured, which, although good to the eye, became nearly spoiled in washing by the slipping of the threads; that not one person in a thousand could distinguish the difference between “single-press” and “double-press” lace; and that, even workmen and manufacturers were obliged to employ a magnifying glass for that purpose; and that, in another similar article, called “warp lace,” such aid was essential.  It was also stated by one witness, that

“The trade had not yet ceased, excepting in those places where the fraud had been discovered; and from those places no orders are now sent for any sort of Nottingham lace, the credit being totally ruined.”

186.  In the stocking trade similar frauds have been practised.  It appeared in evidence, that stockings were made of uniform width from the knee down to the ankle, and being wetted and stretched on frames at the calf, they retained their shape when dry, but that the purchaser could not discover the fraud until, after the first washing, the stockings hung like bags about his ankles.

187.  In the watch trade the practice of deceit, in forging the marks and names of respectable makers, has been carried to a great extent both by natives and foreigners; and the effect upon our export trade has been most injurious, as the following extract from the evidence before a committee of the House of Commons will prove:—­

“Question.  How long have you been in the trade?  Answer.  Nearly thirty years.  Question.  The trade is at present much depressed?  Answer.  Yes, sadly.  Question.  What is your opinion of the cause of that distress?  Answer.  I think it is owing to a number of watches that have been made so exceedingly bad that they will hardly look at them in the foreign markets; all with a handsome outside show, and the works hardly fit for anything.  Question.  Do you mean to say, that all the watches made in this country are of that description?  Answer.  No; only a number which are made up by some of the Jews, and other low manufacturers.  I recollect something of the sort years ago, of a falloff of the East India work, owing to there being a number of handsome-looking watches sent out, for instance, with hands on and figures, as if they shewed seconds, and had not any work regular to shew the seconds:  the hand went round, but it was not regular.  Question.  They had no perfect movements?  Answer.  No, they had not; that was a long time since, and we had not any East India work for a long time afterwards.”

In the home market, inferior but showy watches are made at a cheap rate, which are not warranted by the maker to go above half an hour; about the time occupied by the Jew pedlar in deluding his country customer.

188.  The practice, in retail linen-drapers’ shops, of calling certain articles yard wide when the real width is perhaps, only seven-eighths or three-quarters, arose at first from fraud, which being detected, custom was pleaded in its defence:  but the result is, that the vender is constantly obliged to measure the width of his goods in the customer’s presence.  In all these instances the object of the seller is to get a higher price than his goods would really produce if their quality were known; and the purchaser, if not himself a skilful judge (which rarely happens to be the case), must pay some person, in the shape of an additional money price, who has skill to distinguish, and integrity to furnish, articles of the quality agreed on.  But as the confidence of persons in their own judgement is usually great, large numbers will always flock to the cheap dealer, who thus, attracting many customers from the honest tradesman, obliges him to charge a higher price for his judgement and character than, without such competition, he could afford to do.

189.  There are few things which the public are less able to judge of than the quality of drugs; and when these are compounded into medicines it is scarcely possible, even for medical men, to decide whether pure or adulterated ingredients have been employed.  This circumstance, concurring with the present injudicious mode of paying for medical assistance, has produced a curious effect on the price of medicines.  Apothecaries, instead of being paid for their services and skill, are remunerated by being allowed to place a high charge upon their medicines, which are confessedly of very small pecuniary value.  The effect of such a system is an inducement to prescribe more medicine than is necessary; and in fact, even with the present charges, the apothecary, in ninety-nine cases out of a hundred, cannot be fairly remunerated unless the patient either takes, or pays for, more physic than he really requires.  The apparent extravagance of the charge of eighteen pence for a two-ounce phial(1) of medicine, is obvious to many who do not reflect on the fact that a great part of the charge is, in reality, payment for the exercise of professional skill.  As the same charge is made by the apothecary, whether he attends the patient or merely prepares the prescription of a physician, the chemist and druggist soon offered to furnish the same commodity at a greatly diminished price.  But the eighteen pence charged by the apothecary might have been fairly divided into two parts, three pence for medicine and bottle, and fifteen pence for attendance.  The chemist, therefore, who never attends his customers, if he charges only a shilling for the same medicine, realizes a profit of 200 or 300 per cent upon its value.  This enormous profit has called into existence a multitude of competitors; and in this instance the impossibility of verifying has, in a great measure, counteracted the beneficial effects of competition.  The general adulteration of drugs, even at the extremely high price at which they are retailed as medicine, enables those who are supposed to sell them in an unadulterated state to make large profits, whilst the same evil frequently disappoints the expectation, and defeats the skill, of the most eminent physician.

It is difficult to point out a remedy for this evil without suggesting an almost total change in the system of medical practice.  If the apothecary were to charge for his visits, and to reduce his medicines to one-fourth or one-fifth of their present price, he would still have an interest in procuring the best drugs, for the sake of his own reputation or skill.  Or if the medical attendant, who is paid more highly for his time, were to have several pupils, he might himself supply the medicines without a specific charge, and his pupils would derive improvement from compounding them, as well as from examining the purity of the drugs he would purchase.  The public would gain several advantages by this arrangement.  In the first place, it would be greatly for the interest of the medical practitioner to have the best drugs; it would be in his interest also not to give more physic than needful; and it would enable him, through some of his more advanced pupils, to watch more frequently the changes of any malady.

190.  There are many articles of hardware which it is impossible for the purchaser to verify at the time of purchase, or even afterwards, without defacing them.  Plated harness and coach furniture may be adduced as examples:  these are usually of wrought iron covered with silver, owing their strength to the one and a certain degree of permanent beauty to the other metal.  Both qualities are, occasionally, much impaired by substituting cast-for wrought-iron, and by plating with soft solder (tin and lead) instead of with hard solder (silver and brass).  The loss of strength is the greatest evil in this case; for cast iron, though made for this purpose more tough than usual by careful annealing, is still much weaker than wrought-iron, and serious accidents often arise from harness giving way.  In plating with soft solder, a very thin plate of silver is made to cover the iron, but it is easily detached, particularly by a low degree of heat.  Hard soldering gives a better coat of silver, which is very firmly attached, and is not easily injured unless by a very high degree of heat.  The inferior can be made to look nearly as well as the better article, and the purchaser can scarcely discover the difference without cutting into it.

191.  The principle that price, at any moment, is dependent on the relation of the supply to the demand, is true to the full extent only when the whole supply is in the hands of a very large number of small holders, and the demand is caused by the wants of another set of persons, each of whom requires only a very small quantity.  And the reason appears to be, that it is only in such circumstances that a uniform average can be struck between the feelings, the passions, the prejudices, the opinions, and the knowledge, of both parties.  If the supply, or present stock in hand, be entirely in the possession of one person, he will naturally endeavour to put such a price upon it as shall produce by its sale the greatest quantity of money; but he will be guided in this estimate of the price at which he will sell, both by the knowledge that increased price will cause a diminished consumption, and by the desire to realize his profit before a new supply shall reach the market from some other quarter.  If, however, the same stock is in the hands of several dealers, there will be an immediate competition between them, arising partly from their different views of the duration of the present state of supply, and partly from their own peculiar circumstances with respect to the employment of their capital.

192.  The expense of ascertaining that the price charged is that which is legally due is sometimes considerable.  The inconvenience which this verification produces in the case of parcels sent by coaches is very great.  The time lost in recovering an overcharge generally amounts to so many times the value of the sum recovered, that it is but rarely resorted to.  It seems worthy of consideration whether it would not be a convenience to the public if government were to undertake the general conveyance of parcels somewhat on the same system with that on which the post is now conducted.  The certainty of their delivery, and the absence of all attempt at overcharge, would render the prohibition of rival carriers unnecessary.  Perhaps an experiment might be made on this subject by enlarging the weight allowed to be sent by the two-penny post, and by conveying works in sheets by the general post.

This latter suggestion would be of great importance to literature, and consequently to the circulation of knowledge.  As the post-office regulations stand at present, it constantly happens that persons who have an extensive reputation for science, receive by post, from foreign countries, works, or parts of works, for which they are obliged to pay a most extravagant rate of postage, or else refuse to take in some interesting communication.  In France and Germany, printed sheets of paper are forwarded by post at a very moderate expense, and it is fit that the science and literature of England should be equally favoured.

193.  It is important, if possible, always to connect the name of the workman with the work he has executed:  this secures for him the credit or the blame he may justly deserve; and diminishes, in some cases, the necessity of verification.  The extent to which this is carried in literary works, published in America, is remarkable.  In the translation of the Mecanique Celeste by Mr Bowditch, not merely the name of the printer, but also those of the compositors, are mentioned in the work.

194.  Again, if the commodity itself is of a perishable nature, such, for example, as a cargo of ice imported into the port of London from Norway a few summers since, then time will supply the place of competition; and, whether the article is in the possession of one or of many persons, it will scarcely reach a monopoly price.  The history of cajeput oil during the last few months, offers a curious illustration of the effect of opinion upon price.  In July of last year, 1831, cajeput oil was sold, exclusive of duty, at 7 d. per ounce.  The disease which had ravaged the East was then supposed to be approaching our shores, and its proximity created alarm.  At this period, the oil in question began to be much talked of, as a powerful remedy in that dreadful disorder; and in September it rose to the price of 3s. and 4s. the ounce.  In October there were few or no sales:  but in the early part of November, the speculations in this substance reached their height, and between the 1st and the 15th it realized the following prices:  3s. 9d., 5s., 6s. 6d., 7s. 6d., 8s., 9s., 10s., 10s. 6d., 11s.  After 15 November, the holders of cajeput oil were anxious to sell at much lower rates; and in December a fresh arrival was offered by public sale at 5s., and withdrawn, being sold afterwards, as it was understood, by private contract, at 4s. or 4s. 6d. per oz.  Since that time, 1s. 6d. and 1s. have been realized; and a fresh arrival, which is daily expected (March, 1832) will probably reduce it below the price of July.  Now it is important to notice, that in November, the time of greatest speculation, the quantity in the market was held by few persons, and that it frequently changed hands, each holder being desirous to realize his profit.  The quantity imported since that time has also been considerable.(2)

195.  The effect of the equalization of price by an increased number of dealers, may be observed in the price of the various securities sold at the Stock Exchange.  The number of persons who deal in the 3 per cent stock being large, any one desirous of selling can always dispose of his stock at one-eighth per cent under the market price; but those who wish to dispose of bank stock, or of any other securities of more limited circulation, are obliged to make a sacrifice of eight or ten times this amount upon each hundred pounds value.

196.  The frequent speculations in oil, tallow, and other commodities, which must occur to the memory of most of my readers, were always founded on the principle of purchasing up all the stock on hand, and agreeing for the purchase of the expected arrivals; thus proving the opinion of capitalists to be, that a larger average price may be procured by the stock being held by few persons.

Notes: 

1.  Apothecaries frequently purchase these phials at the old bottle warehouses at ten shillings per gross; so that when their servant has washed them, the cost of the phial is nearly one penny.

2.  I have understood that the price of camphor, at the same time, suffered similar changes.