CHAPTER XXII

MERCHANDISING

Personal utility. In a previous chapter it was pointed out that three kinds of utility are produced by human industry,— form utility, place utility, and time utility. It would be possible, if one cared to draw somewhat finer distinctions, to speak of personal utility as a special phase of place utility, or, on the other hand, personal utility could be named as a fourth kind. When an object is transferred from a person who has no use for it to a person who has a use for it, its utility, or power to satisfy desires, is increased by the transfer, just as truly as though it were transferred from a locality where it is not needed to a locality where it is needed.

There is an ancient fallacy to the effect that someone must gain and someone must lose in every trade. This fallacy has been exploded so often that it hardly seems necessary to repeat the process here. Two farmers may trade horses and both gain. A wool-grower who has a surplus of wool and a shoemaker who has a surplus of shoes may exchange products to the advantage of both. A boy who has a surplus of marbles but a deficit of taffy might advantageously exchange some of his surplus marbles for taffy, carrying on the exchange with another boy who had a surplus of taffy but a deficit of marbles. By this process the personal utility of both marbles and taffy would be increased.

Merchandising may be productive of utility. If it is agreed that the power of goods to satisfy wants is increased when they get into the possession of the people who really need them, it ought not to be difficult to see that the individual who facilitates this process is a productive individual; that is,

his work results in increased utility. Even if we leave transportation and the storing of goods out of account for the present and consider merely the transfer of goods from one person to another in the same locality, we shall find that unless there were merchants or mercantile houses the various producers would find difficulty in making the necessary exchanges. The farmer with a surplus of wheat might have some difficulty in finding a shoemaker who wanted wheat and was willing to exchange shoes for wheat. Under a highly developed mercantile system a farmer can always find buyers for his wheat. He can also find a shoe store where he can buy shoes, a clothing store where he can buy clothing, and so on.

These men who specialize in trading are sometimes called middlemen, and it is not difficult to see that they are not only exceedingly useful but in some cases absolutely necessary. It may sometimes happen that too many middlemen intervene between the producer and the consumer, but some middlemen are absolutely necessary unless the producer will undertake to peddle his products around among consumers or unless the consumers will undertake to search for producers who have for sale exactly what they (the consumers) desire to purchase. An immense amount of time and trouble is saved when every producer can sell directly to a middleman and go on about his work of production, while at the same time every consumer can purchase exactly what he wants from some merchant.

The middleman as a timesaver. Generally speaking, it will be observed that in any community where the average person considers his time to be valuable, there are a great many middlemen intervening between producers and consumers and very little direct marketing. In a community, however, where wages and incomes are low and the average person finds his time of very little value, comparatively few middlemen intervene be-. tween producer and consumer, and there is a great deal of direct bartering. The open market place, where producers and consumers meet, flourishes in communities of the latter type but not in communities of the former type.

There is an old adage that time is money. Where time is valuable it is economized; where it is of little value it is not economized. Where the average housekeeper considers her time valuable she does not care to spend much time marketing and dickering with producers who bring their stuff to market. She prefers to market by telephone. This is a great saving of time, but it is generally expensive in terms of money. She is literally paying somebody else to do for her that which she might do for herself if she cared to go to market and deal directly with the producers. Similarly, where the producer considers his time valuable he would prefer to sell his product in bulk to some middleman rather than to spend his time in dickering with consumers and selling his product in small lots. The system of direct marketing saves money, it is true, but it wastes time; the system of indirect marketing saves time but, in a sense, wastes money. The problem in economy which every producer and every consumer must decide for himself is whether his time is worth as much as the money which he might otherwise save.

The peasant women of certain overcrowded countries, who are unable to do farm work and have very little else in the way of remunerative work which they can do, find going to market a means of saving money. They can sell directly to the consumers and cut out middlemen's costs and profits. Since they consider their time as worth practically nothing, every penny which they can save in this way adds so much to the family income. The American farmer, with a somewhat higher standard of living, and the farmer's wife, who considers her time as worth something, if not for earning money by remunerative work, at least for housekeeping or self-cultivation, refuses to spend her time in this way. Therefore it is very difficult in this country to maintain a system of direct marketing. It is the belief, however, of many students of the problem that the Americans have gone too far in the direction of saving time, so far, in fact, as to waste more money than necessary in middlemen's costs and profits.

Marketing sometimes a social function. Another factor enters into the success of public markets, where producer and consumer meet. In those countries where the system still prevails, going to market has become a social function. The market, place is the place where citizens meet and where the women make their social calls and pay their social obligations. This phase of the question has played a very important part in history. The Roman Forum, for example, was simply the market place, in which the farmers from the surrounding country and the people of the city of Rome met, primarily for purposes of exchange and secondarily for purposes of social intercourse and political discussion. The latter functions gradually displaced the former, and the Roman Forum gradually became the center of Roman politics and eventually the center of the world. The Olympic games, which were for many centuries the center of Greek life, developed in connection with a fair which was held for the exchange of products. While the Greek people were busy with their exchanges the young men took part in athletic and intellectual contests; eventually these contests became the chief feature, and the mercantile function almost disappeared from sight.

The social function of going to market has been revived in a number of ways in recent times. Great department stores, in order to attract trade,-especially that of ladies who have time for social diversion,-have introduced the paraphernalia of the drawing room, with pink teas and other accessories. They are deliberately striving to make afternoon shopping a social diversion, thus restoring, in the field of the marketing of frills, some of the features which originally developed in connection with the marketing of the necessaries of life.

Buying large quantities and selling in small parcels. Another very important function performed by the mercantile house is that of receiving products in large quantities from the producer and dividing them into small parcels for the consumer. This breaking up into small parcels is a work of utility; it meets the convenience of both producer and consumer. The convenience

of the producer is met by his ability to sell in bulk; the convenience of the consumer is met by his ability to buy in small parcels. This may, without doing violence to our language, be called a kind of form utility. The goods are bought in one form and sold in another. There is a certain analogy between this process of breaking goods up into small parcels and the process of manufacturing, in which the forms of goods are changed in other ways.

Storing goods. One of the most important functions of the mercantile class, however, is that of storing goods. In fact, it is still customary to speak of certain mercantile houses as stores. The storing of goods produces time utility. They are kept from a point in time when they are not especially needed until a time when they are especially needed. Their utility is thus increased. This function of storing goods is particularly important in the case of goods which are produced by a seasonal industry, such as agriculture. The wheat is harvested during one period of the year, but needs to be consumed during the entire year. Unless someone were ready to store this product, it would have to be used very inefficiently at one period of the year, and there would be a scarcity at another period.

Utility of storing without monopolizing. Contrary to a certain popular belief, the effect of storing vast quantities of farm products in warehouses is beneficial rather than otherwise. No speculator or warehouse owner would have any motive for storing products except that of getting a higher price later. He could not get a higher price later unless the goods were scarcer later. If they are scarcer later it is very much to the interest of society that they be stored rather than consumed at once. During the period of high prices accompanying the World War-say in May, 1917-it was found that a great deal of grain was being stored up. There naturally developed a certain popular dissatisfaction. Being shortsighted, we did not appreciate what was likely to be our situation several months later. The only thing we saw was that prices were distressingly high. We saw this in connection with another fact; namely,