CHAPTER I. INTERNATIONAL COMMERCE AS AN ECONOMIC SCIENCE. I. The Meaning of Commerce. The value of an article of human consumption is determined by two factors: its capacity of satisfying a human need, and the extent of the need which it satisfies. The average extent of the need which a class of articles serves to satisfy determines a general valuation of that class of articles, and hence we have a differentiation in values by classes or kinds of articles. But the valuation of a specific article in a concrete instance is determined by the extent of need for such articles which is no longer covered by articles of the same class on hand and to satisfy which the article is desired. This is the so-called "final degree of utility." The final degree of utility is naturally subject to variations in accordance with the varying needs of individuals, as well as with the varying average needs of the population in different localities and at different seasons. As a consequence of this phenomenon the same articles vary in their value to different people, in different places and at different times. This variation of the value of articles, particularly if measured by the value standard of other articles, is the basis of commerce. Articles of human consumption forming the object of commerce are generally termed goods, merchandise and commodities. Commerce, or trade, in its wider aspect, is an exchange of goods, or of right to goods, for other objects which are more desired. The division of labor as the effect of human progress in production, and the principle of individual property rights render commerce as the sole legitimate means by which an individual can procure goods other than those produced by himself or received as a remuneration for services performed. We arrive thus at two important factors in commerce, the producer, who either by his labor gains from natural sources, or by his skill fashions from natural materials those goods which are useful in satisfying human needs, and the consumer, whose need is satisfied, and who in exchange offers to the producer other goods, or right to other goods, which the producer desires more than his own goods or products. The development of the economic activities of mankind resulted in an extension of these exchange operations until producers and consumers became separated by great distances; added to this came the necessity of providing possibilities for effecting these exchanges at specified times in the future, and since frequently neither producers nor consumers could satisfactorily attend to these transactions, the introduction of an important third economic factor followed as a necessity: this factor is the trader, or merchant. And this brings us to the consideration of commerce in its stricter sense. Commerce, in the stricter sense of the term, is an economic activity consisting of the purchase and of the sale of goods (without undertaking any changes on same) or of existing rights to goods, through which the final exchange of goods between producer and consumer is effected, but which has for its immediate aim the transfer of exchange objects from the possession of those who value them less highly in relation to the exchange medium into the possession of those who value them more highly in relation to the exchange medium, the purpose of this activity being to retain a portion of this value difference, called profit, as remuneration. The change of ownership effected by commerce creates values by adding to the value of goods exchanged. The trader, or merchant, is reimbursed for his activity by the difference between his expenses and his income, which forms a portion of the increased value of the goods. The activity of the trader and merchant benefits both groups of economic factors between which he intervenes: his purchases at the point of production tend to increase the producer's price; his sales offers at the point of sale tend to lower the price paid by the consumer; moreover his activity tends to diminish the fluctuation in the valuation of goods at different times and in different places. The trader or merchant is not a producer; in accordance with the strict definition of commerce, he may not effect material changes in the composition of the gods. He may effect changes in the packing or in the assortment; but if he effects improvements materially altering the character of the goods, he combines the capacity of producer with his capacity of merchant or trader. When we speak of a country's international commerce, however, we depart from this strict and narrow definition of commerce and include not only goods bought and sold between merchants, or traders on the one hand, and traders and consumers on the other hand, but also transactions between producers on the one hand and consumers on the other, and the modern tendency has been towards a combination of the functions of the merchant with the functions of the producer. 2. The Classification of Commerce. Commerce may be divided into three classes, in accordance with the objects bought and sold: goods, merchandise and commodities; money, bullion and financial instruments; and finally real estate and immovable property. The last-named variety of commerce enters but distantly into the domain of international commerce; the commerce in money, bullion and credit instruments, while in some of its aspects most intimately connected with international commerce, is a specific subject, which must be treated under the caption of Banks and Banking. Commerce, as generally understood, deals with goods, merchandise and commodities. Commerce is also divided, in accordance with the character and the volume of transactions, into wholesale and retail commerce. Wholesale commerce may be carried on between two merchants, or between a merchant and a producer, or between two producers, or between a producer and a large consumer; retail commerce is carried on principally between a merchant |