1.9 Methods of Employing Commercial Industry
The physical artifacts required for production, materials and tools, are derived from the commodities of nature, which themselves are had differently in different locations.
Some manufacturing takes place proximate to the needed commodities (a lumber mill is near a forest of timber), other manufacturers are located proximate to the consumer (a jeweler is located in a town, far from the mine).
Where there is a distance between the source of a good and its market, transportation of materials or finished goods is necessary. This transfer gives rise to the commercial industry. A few classes are listed:
- Logistics - Moving items from one place to another
- Import/export - Dealing with the special problems of moving products between countries
- Wholesale - Buying in large quantities and selling to other dealers whose intent is to re-sell
- Retail - Buying in quantity and selling to those who will consume it
- Finance - The management of money and its transfer among parties
- Brokerage - Facilitating exchanges between buyers and sellers
None of these professions involves the fabrication of a product, but all are necessary to the commercial exchanges by which the products involved are conveyed (and ownership transferred) from their points of origin to those who ultimately use them.
This involves not only the costs of transport, but of storing inventory and engaging in activities to negotiate its transfer, along with the risks of loss, the cost of capital frozen in the stock, and the delay between the outlay of funds to obtain inventory and the receipt of revenue from its sale.
Commercial occupations are also specializations of labor necessitated by an advanced economy: the farmer who sells all of his produce to local consumers may tend to these tasks himself. Another whose product is transported great distances to many markets requires significant assistance from commercial specialists.
A detailed consideration of commerce might require several volumes; so the author's interest in this work is to consider the degree to which they influence the manufacturing and consumption of products.
To the consumer, they provide a greater variety of goods that are not available from local producers. The cost of these services is reflected in the price: the further from the source, the greater the price, as a result of the costs of transport. Likewise, the more often goods in bulk are parceled into smaller amounts, the more commercial specialists are involved, and the greater the price.
Innovation and technology are also factors in commercial professions: where men discover more economical or expedient processes, they reduce their costs and are able to accept less payment for their services, lowering the cost of goods to the consumer. (EN: It's a bit of a logical trick, as it is reducing the mark-up that must cover their expenses, but the ultimate result to the consumer is a lower price, for whatever reason.)
From a practical perspective, the same principles apply to domestic and foreign commerce. The same tasks must be performed to move goods from one town to another that is a hundred miles away, regardless of whether the journey crosses international borders. It becomes complicated only due to the bickering among governments, which brings considerable frustration to the suppliers of goods and considerable cost to the consumers.
It is exceedingly unwise for a nation to consider meddling in international trade to be a source of political advantage or a means to dominate its neighbors. Such actions may augment the national treasury, but it is inevitably at the expense of its own producers and consumers, which is in effect to say the costs of government interference are borne by their own subjects, not by foreign governments. No good has ever come of it, and the author is relieved that such "political dogmas are fast growing obsolete."
Far too much attention is paid to the particulars of international trade as a consequence, though the volume of external commerce in most countries is dwarfed by the internal commerce.
Internal commerce is likely more advantageous, largely because the shorter the distance from source to market, the lower the costs of conveyance, the better the price to the consumer, and the better the profit to the producer. Naturally, this is true where government interference with local commerce is minimal - it is possible, though detrimental to the welfare of the people, to apply tolls and taxes to goods within a nation as onerous as those applied to goods that cross its borders.
(EN: What JBS omits, likely because Smith and others explained it in sufficient detail, is that the nature of the good also determines whether commerce is possible or profitable. Goods with a low value per unit of weight may not be transported without driving their cost up. This is less a factor in the present age, but still comes into play and merits consideration.)
A further branch of commerce is the trade of speculation, which involves the purchase and re-sale of products based on the expected fluctuation of their prices. Where prices are expected to be different at different times or different locations, the speculator seeks to amass goods at a low price and sell them at a higher price.
Speculation is viewed with some suspicion, but it is a productive practice that generally smooths the differences in supply and demand and reduces the risk of producers and consumers: the speculator does not compel any supplier to accept less for his product nor any consumer to pay more for it than he is willing.
There is the possibility of a speculator creating an artificial shortage of a good by hoarding it, to create scarcity in the market and drive up prices, but he does so at considerable risk. If the shortage increases prices, manufacturers increase production and supply goods directly to consumers at a lower price than the speculator demands of his hoarded inventory. The fear of speculators damaging the consumer is largely based on what is theoretically possible, but in practice, there are no examples of instances in which this activity actually took place for a significant amount of time.
A passing mention is made of government seizure of merchant vessels for military purposes, as any vessel that transports commercial goods is also capable of transporting the soldiers and materiel of war. The degree to which a nation consumes its merchant fleet is a diminution of its capacity to engage in trade with other nations.