Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

. (page 2 of 30)
Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 2 of 30)
Font size
QR-code for this ebook

duction, stores them in local entrepots, and sells them on the
principles of the market. ... A man who will pay the price
of the day for corn collected from all parts of India, or for
cotton-cloth from England, will complain (so I am told) if
he is asked an unaccustomed price for a shoe.

If the notion of getting the best price for movable property
has only crept to reception by insensible steps, it is all but
certain that the idea of taking the highest obtainable rent
for land is relatively of very modern origin. The rent of land
corresponds to the price of goods, but doubtless was slower
in conforming to economical law, since the impression of a
brotherhood in the ownership of land still survived when goods
had long since become the subject of individual property.
So strong is the presumption against the existence of compe-
tition-rents in a country peopled by village-communities, that
it would require the very clearest evidence to convince me
that they were anywhere found under native conditions of
society, but the evidence (as I told you) is remarkably un-
convincing. . . .

The right to take the highest obtainable rent for land
is, as a matter of fact and as a matter of morality, a right
derived from a rule of the market. Both the explanation and
the justification of the exercise of the right in England and
Scotland is that in these countries there really is a market
for land. Yet it is notorious that, in England at all events,
land is not universally rack-rented. But where is it that the


theoretical right is not exercised? It is substantially true
that, where the manorial groups substituted for the old village
groups survive, there are no rack-rents. What is sometimes
called the feudal feeling has much in common with the old
feeling of brotherhood which forbade hard bargains, though
like much else it has passed from the collective community
to the modern representative of its autocratic chieftain.
Even in England the archaic rules I have been describing
have not yet quite lost their authority. . . .

It is a very remarkable fact that the earliest English emi-
grants to North America — who, you know, belonged prin-
cipally to the class of yeomanry — organized themselves at
first in village-communities for purposes of cultivation. When
a town was organized, the process was that the "General
Court granted a tract of land to a company of persons. The
land was first held by the company as property in common."
(Palfrey, *' History of New England," vol. II, p. 13.) An
American commentator on this passage adds: ''The company
of proprietors proceeded to divide the land by assigning first
house-lots (in Marlborough from fifteen to twenty acres),
then tracts of meadow land, and in some cases mineral land,
i.e., where bog-iron ore was found. Pasture and woodland
remained in common as the property of the company, but
a law of the General Court in 1660 provided that 'here-
after no cottage or dwelling-house be admitted to the priv-
ilege of commonage for wood, timber, or herbage but such
as are already in being, or shall be erected with the consent
of the town. ' From that time the commoners appear as a kind
of aristocracy, and the commons were gradually divided up."
This is not only a tolerably exact account of the ancient
European and existing village-community, but it is also a
history of its natural development, where the causes which
turn it into a manorial group are absent, and of its ultimate


[The author of the paper bearing this title, in making a statistical
study of a semiannual bargain-sale price-list, finds that about 32 per
cent, of all prices quoted end in the iigure 9; 16 per cent, in the figure
5; 13 per cent, in the figure 3; and 12 per cent, in the figure 8.
Studying the figures in detail he suggests various interesting reasons
for the preference shown in the price-list. We quote from the last
third of tlie paper, by Robert C. Brooks, professor of Political Science
in Swarthmore College; in University Studies, published by the Uni-
versity of Cincinnati, March-April, 1908, pp. 20-28, here abbreviated
and edited with the author's approval.]

Are odd prices cheap prices? Tlie whole purpose of odd
prices, as we have seen, is to suggest by means of carefully
selected figures the idea of price reduction. How far may
this suggestion be depended upon? In attempting to answer
tliis question we should note first that odd prices are only part
of a general plan to the same end. Readers of advertisements
are familiar with the fact that in addition to quoting goods
at 19, 49, 98 cents, and so on, the advertiser frequently seeks
to convey the impression that reductions much greater than
one or two cents have been made. The prospective buyer
may take all such statements cum grano salis, and depend
chiefly on the small but apparently visible reductions indicated
by the odd prices themselves. Nevertheless the bargain hunter
is abroad in the land, and even the most astounding of the
announcements regarding "sacrifices," ''slaughtered prices,"
and so on must find some credence. . . . [Some examples.]

Now there is nothing intrinsically improbable in any of the
above statements taken separately. There are bargains and
bargains as every experienced shopper knows. Many con-
tingencies constantly occur in retail trade which enable or



compel merchants to offer goods at prices below the ordinary
rates. Demand fluctuates widely; in almost every line of
business there are dull seasons and dull days during which
retailers think it wise to offer inducements in order to stimu-
late a sluggish buying public. Every merchant, large and
sm'all, has to dispose from time to time of "stickers" — old
stocks of slow moving goods. Particularly when changes of
fashion occur or improvements are coming in rapidly is this
bound to be the case. Manufacturers and jobbers sometimes
misjudge the market and find themselves with large stocks
on hand near the end of a season, or they may lose their
heads even when there is no danger and let go at a reduc-
tion. In such cases retailers, particularly large retailers, are
in a position to secure the goods on terms which enable them
in their turn to sell at what are really very low rates. The
purchase of bankrupt stocks, or of the stocks of concerns
that are going out of business, also offers opportunities.
Other contingencies are constantly occurring among the hun-
dreds of manufacturers, jobbers, and retailers. Of course in
many such cases the fact that goods are offered at reduced
prices may indicate that they are either damaged, out of
style, or undesirable in color or in some other way. This
leaves open the question as to whether the reduced prices are
really low, qualities being taken into consideration. There
can be no doubt, however, that opportunities are often of-
fered to purchasers to buy at what are really very favorable
rates. For example, what has become a "sticker" to a mer-
chant may satisfy a very fresh and keen desire on the part
of a customer. Reductions made because of a change of
fashion may mean a great deal to purchasers who care little
for style. Even standard goods, as for instance silks a few
years ago, may be turned out in large quantities just before
a sudden falling off in demand. At such times consumers
may justly consider themselves fortunate in having an oppor-
tunity to stock up while prices are low. Then, too, it some-
times happens that a certain line is sold at a reduction to


serve the purpose of the bargain counter, that is, to bring
a crowd which will be tempted to buy other things. The
particular goods that, so to speak, serve as bait may be very
attractive considered separately. Finally it should be said
that successful merchants are neither fools, nor do they take
their customers to be tools. They realize that understatement
is more effective in the long run than overstatement, that it
does not pay to play up small opportunities as great features,
and that it does pay, most emphatically, to mean bargain when
you say bargain. To be sure there are "lambs'' among retail
purchasers just as there are in Wall Street, with this dif-
ference, however, that in retail trade the lambs do not go
* ' broke. ' ' In the very nature of the case they must continue
buying. And unintelligent as many buyers doubtless are,
they do not always return to the places where they have been

In a word, there certainly are bargains — for those who are
able to perceive them — and not infrequently at that. On the
other hand, there is a considerable element of deception in
many offerings under this seductive heading. Even allowing
fully for the various contingencies noted in the foregoing
paragraph it still remains highly improbable that all the
vast array of startling reductions advertised every day can be
hona fide. Sometimes they measure the credulity of cus-
tomers or of certain classes of customers rather than the
operations of a "horizontal discount knife." The writer has
been told of cases where goods have been deliberately cut into
"remnants" or handkerchiefs "mussed" by being drawn
through the hands. Thrown out carelessly on the counter such
"attractions" prove irresistible to a certain class of buyers
who snatch them up without examination as to quality or
price, convinced from the apparent condition of the goods that
they have hit upon famous bargains. Experienced shoppers
can usually tell of at least a few cases that have come to
their notice where certain goods have been boosted fifty
cents or a dollar in price at special sales, the dealer doubt-


less presuming on the ignorance of customers and the blasts
of his advertisement writer to carry off the articles. Success
in comparatively few instances of this sort would make up
many actual small reductions of a cent or two to the odd
price basis. In fairness it must be said, however, that the
best merchants regard such practices as bad morally, or at
least injudicious. Where the thing is done surreptitiously oc-
casional discoveries are certain to occur, and the store is bound
to suffer losses out of all proportion to the gains derived from
the foolish trick. Sometimes, however, the practice is openly
employed, as in the case of bargain sales held on dull days
or in the mornings. In such cases every one is given to under-
stand that prices will be lower at the time and higher later,
and no moral blame at least can be attached to the merchant
for so acting. Nevertheless this knowledge does not soothe the
ruffled temper of the purchaser who is forced to pay twenty-
five cents for something his neighbor may have gotten for
nineteen cents. Realizing this fact merchants generally fol-
low the "one price policy" of holding goods at a given figure
for some time. If reduction then becomes necessary goods
are held at the lower figure until closed out, or further re-
ductions without intervening advances are made until this
end is attained.

There is plenty of available evidence that some "great
reductions" heralded in advertisements are really great exag-
gerations of very small reductions. Instances of this sort
are given by the Dry Goods Economist of March 19, 1904.
. . . Frequently one notices the beginning of better things
or at least of greater caution in the avoidance of direct affirma-
tions that former prices were so and so, and the substitution
therefore of statements to the effect that "values" or "quali-
ties" would justify higher prices than the ones asked. Some-
times reformation takes the dubious path of sweeping an-
nouncements that competitors can not meet the prices fixed
by the advertiser. Investigation of such statements requires
more time than most purchasers can afford to give, but in all


retail markets of any considerable size they are simply not
warranted by facts. Every wide-awake merchant constantly
has opportunities along- certain lines — so much may be ad-
mitted — but no merchant has an absolute monopoly of such
opportunities. The unceasing vigilance with which retail
traders watch each other is scarcely known to the general
public. In every large establishment there is a "'Comparison
Department" specially charged with this function. "Spot-
ters" are constantly being sent out by the head of this de-
partment to observe the doings of competitors and daily re-
ports of their findings are made. If a rival store offers a
great bargain, samples are bought, carefully examined, even
torn to pieces if necessary to ascertain qualities, and a cor-
responding or greater reduction made if thought advisable.
Under the circumstances, the advertisements of merchants who
claim everything all the time are more ludicrous than any-
thing else.

Standards of retail business. While there is doubtless
much to condemn in some of the practices cited in the fore-
going pages it would be highly unjust to charge all retailers
with deliberate and habitual misrepresentation. Many of the
greatest successes, one can say practically all the permanent
successes, of the mercantile world, have been made by firms
which have conscientiously avoided deception. It would be
easy to mention cases of this sort in New York, Chicago,
Philadelphia, and other of our large cities, but they are famil-
iar enough without mention. Even where retail practice is
not so scrupulous, deliberate and habitual misrepresentation
can not always be charged. The truth is that many merchants
of this as well as of a higher type use such terms as qualities,
values, prices, etc., very loosely, and more in accordance with
the customs of the market in which they happen to be doing
business than with the definitions of economics or the canons
of ethics. Not infrequently the community, or a certain class
of buyers in the community, is to blame in large part for the
abuses which spring up in retailing. On this point the writer


finds it impossible to agree entirely with a very clever author-
ity on merchandising who maintains that ''the retailer is the
king of business. It 's not the consumer — arguments to the
contrary notwithstanding. It 's upon the education given the
consumer by the dealer that the formation of taste depends. ' '
Granting that the influence of the retailer is great, it still
remains true that his patrons are, presumably at least, fairly
intelligent grown-up persons who exercise ordinary prudence
in business matters. The retailer is more active, of course,
in designing and applying various plans to attract trade; but
precisely the same motive as his own, namely, self-interest
rightly or wrongly conceived, dictates the action of his cus-
tomers in giving or withholding patronage. The latter may
be careless, ignorant, or under the spell of that delusive cupid-
ity which is always seeking something for nothing, and these
conditions may permit or encourage merchants to employ
tricky devices. Even so, purchasers can hardly be exonerated
from all blame for the resulting demoralized condition of the
retail market. In illustration of the foregoing may be cited
numerous cases of towns and cities where severely com-
petitive "selling campaigns" have been carried so far that
in the end it becomes almost impossible to dispose of anything
except with the aid of such devices as trading stamps or as
bargains on one pretext or another — where the people "have
been so deafened with the siren song of 'bargains,' " as one
trade journal puts it, "that they don't know one when they
see it. ' ' Manifestly such conditions reflect not only the char-
acter of the mercantile element, but also the character of
the public as retail buyers — a conclusion which need not be
blinked because phenomena of this sort are so exceedingly
common. The following advice given to a merchant who
complained of trade conditions demoralized in this manner
is particularly noteworthy because of its frank implication
that retail trade as at present conducted is not simply a price
competition :


. . . The wise merchant, when he sees a wave of price-cutting sweep-
ing over his community, will dodge the competition as far as he is
able. He will do all he can to impress his community that there is
something more than price to be considered. He will not do this by
direct statements to that effect; that goes without saying. But he
will try to get a reputation for his store on something besides price,
always being smart enough to create a reputation for selling as low
as his competitors. He will sell staples extremely low, but on novelties
he '11 make enough profit to offset the loss. And he will get the people
coming to him for these novelties. He '11 talk style and fashion in his
ads, and over the counter; he'll show the new and fashionable things
and he will have them before the other fellows get them in stock.i

Further advice along the same lines is given, but enough
has been quoted to make clear the conditions which compel
merchants either to cut prices extensively or to resort to other
means of meeting a cut price competition.

A retail buying policy. With such complex and often
deceptive conditions existing in retail trade it is a matter of
considerable difficulty to formulate a policy for buyers to
pursue. Certain general rules seem fairly clear, however.
It is an old maxim that nothing is a bargain which is not
needed. Unfortunately purchasers often forget this; with
many people buying is a passion rather than the cold calcula-
tion of the economic man. One qualification of the maxim
quoted above is of some importance, however. There are many
regularly recurring wants which the ordinary purchaser satis-
fies as they reach their maximum intensity, that is, usually,
in the very thick of the season. As a consequence he pays
the highest retail prices for his goods. A careful study of the
cycle of special sales of various sorts (for they run in a fairly
regular cycle through the year) will often enable him to ef-
fect considerable savings, by taking advantage of low prices
during dull seasons. Another general rule for the bargain
seeker is that he should consider the cost in effort as well
as the money-cost of the things he buys. In spite of all the
devices to facilitate the examination of goods and their de-

1 Dry Goods Economist, JMarch 18. lOOfi, p. 15.


livery, shopping remains an arduous occupation. Notoriously
it is often carried too far. Mrs. John Lane tells the story
in a recent number of an English review of a ''woman of
massive intellect" who saved seven pence by going to a dis-
tant suburb for Brussels sprouts. As a consequence she be-
came so exhausted that it took several days and the services
of a fashionable physician to restore her. Perhaps it is be-
cause of the frequent neglect of two such obvious principles
as the foregoing — namely, not to buy what you don't need
and not to go to too much trouble in your buying — that skep-
ticism with regard to the existence of any such things as
bargains in retail trade is so common. Often, indeed, it is
the most indefatigable shopper who is most skeptical on this
point, which, however, merely goes to show that over-sanguine
expectations lead easily to irrational disappointments.

But there are also certain positive rules with regard to
buying which may serve as supplement to the preceding
"don'ts." Where the sum involved is sufficiently large or
where an article is likely to be in constant demand a careful
examination of the stocks of various retailers is usually worth
while, whether or not any bargains are being advertised at
the time. It is always of importance to ascertain and take
into consideration the general reputation for honesty and fair-
ness of the merchant with whom you are dealing. Fortunately
information of this sort is much more easily obtained than that
exhaustive knowledge of goods and values which one would
require in order to be fortified against deception and over-
charge. In this connection the purchaser would do well to
remember the principle known as "the reaction of consump-
tion upon production. ' ' ^ Every purchase of goods under
given conditions is a vote, accompanied by material support,
to continue those conditions. The application of a little con-
science in such matters would discourage tremendously many
of the shady practices now prevailing in retail trade.

With regard to bargains masquerading in the guise of odd

1 See F. A. Fetter's Principles of Economics, ch, 41.


prices a rather greater degree of caution would seem ad-
visable. Odd prices are doubtless clever enough with a rather
meretricious sort of cleverness, but this will hardly com-
mend them to careful buyers. If certain figures are intrin-
sically so attractive one wonders whether the merchants who
put their trust in such figures do not neglect other and more
solid advantages which they might offer their customers.
Reductions of a cent or two on some few articles the regular
prices of which are definitely known may be bona fide, but
with regard to the values of the great majority of things of-
fered for sale under an odd-price scheme the ordinary pur-
chaser is not competent to judge, and consequently is likely
to be deceived. There are many reasons, as we have seen,
why goods frequently have to be reduced in price in retail
trade, but there is no reason at all for believing that an ex-
cessively large number of these reductions should follow in
such a series as 98, 79, 69, 49, and so on. Nor can one attach
much weight to the argument that odd prices attract so much
additional custom that they enable the merchant employing
them to purchase in so much larger quantities and to so much
better advantage that he can afford to make frequent hona fide
reductions of a cent or two. Retail competition is far too
complex; it involves, as we have already had occasion to ob-
serve, so many factors besides price alone that the effect of
the one rather doubtful factor of odd prices, assuming other
conditions equal, would count for comparatively little. And
other conditions would seldom be equal. Moreover, the sort
of custom attracted by odd prices and similar devices is apt
to be much more fickle than that which is built up by con-
servative and less sensational business practices. There is al-
ways one advantage to the purchaser in looking over goods
marked at round price points, namely, that he can consider
alternate utilities of the various articles of about the same
value he may need, undisturbed by differences of a cent or
two in cost. On the other hand, if merchants string their
prices up and down the scale in order to take advantage of


popular figures, purchasers too often succeed in "saving" two
cents on a 98 cent article they do not need at the cost of
the far greater utility of a dollar article they really do need.
In the long run such results are good neither for sellers nor
buyers. To quote proverbs, which notoriously can always be
made to contradict each other: those who "take care of the
pennies" in the hope that "the dollars will take care of them-
selves" should remember also that there is such a thing as a
"penny wise, pound foolish" policy. Retail trade may need
reforming in many particulars, but such reform can only
come pari passu with the reform of retail buyers. Education
for giving future mothers and fathers a knowledge of articles
of common use, their qualities, prices, proper employment,
markets wherein they are sold, and so on, is sadly needed.
Until the public attains this knowledge and this point of view,
odd prices and even more objectionable practices will continue
to flourish.


[The seasonal variation in the production of some farm products and
the corresponding changes in prices have been studied by H. C. Taylor
and published in Bulletin 209 of the University of Wisconsin Agri-
cultural Experiment Station (May, 1911). By the courtesy of Pro-
fessor Taylor we are able to reproduce Avitli the diagrams the fol-
lowing passages. The facts here given illustrate interestingly the
nature and limits of elasticity of demand for these articles, the problem
of time-value in perishable foods, and the influence of cold-storage in
equalizing prices throughout the year.]

Eggs; irregularity of supply. The egg market lends it-

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 2 of 30)