CHAPTER XXV

FREE WHOLESALE TRADE ¹

In the course of the 18th century the wholesaler becomes finally separated from the retailer and comes to constitute a definite branch of the merchant class, whereas the Hansards, for example, were not yet typically wholesalers. Wholesale trade is significant, first, because it evolved new commercial forms. One of these is the auction, which is the means by which the importing wholesaler turns over his goods as quickly as possible and secures the means for making his payment abroad. The typical form of export trade, which takes the place of the fair as an institution, is consignment trading. It consists in the sending of goods to be sold to a third party, the consignee, who must market them according to the directions of the consignor. Thus consignor and consignee do not meet as the earlier traders did, at the fair, but the goods are sent abroad on a speculation. A positive prerequisite for trading on consignment is the establishment of regular exchange quotations on the point of destination, since otherwise the risk in consignment would be unbearably high. A negative requirement is that trading on the basis of samples is not yet established and hence the goods must be seen by the purchaser himself. Consignment trading is ordinarily overseas trade; it prevails where the merchant has no connection with the retailer.

Further development consists in the appearance of a buying commission man alongside the one who sells, the former buying abroad without sight of the goods. The oldest form of such trade was based on samples. It is true that selling at a distance existed before this development, “merchantable goods” being bought and sold which must come up to the traditionally established quality; whether they did so was decided by mercantile courts of arbitration. Sale by sample, however, is a specifically modern form of trading at a distance. It played a fundamental role in commerce in the latter part of the 18th and the 19th centuries, being displaced by standardization and the specification of grades, which makes it possible to do away with the sending of samples. The new practice requires that grades be definitely established. It was on the basis of trading by grades that speculation and exchange dealings in connection with commodities became possible in the 18th century.

The fair is a prior stage of the exchange. The two have this in common, that trading takes place between merchants only; the difference consists in the physical presence of the goods in the case of the fair, and also in the periodical repetition of the fair itself. An intermediate type between the exchange and the fair is the so-called “permanent fair.” In all the great commercial centers there arose in the 16th to the 18th centuries establishments which bore the name of exchange or “bourse.” However, exchange dealings in the strict sense did not yet take place in them since the majority of those who frequented them were not local persons but non-resident merchants who resorted to the “exchange” because of its connection with the fair and because the goods were typically on the spot or represented by samples and were dealt in on this basis and not according to standard grades. Exchange dealing in the modern sense first developed in the field of negotiable paper and money, not in that of goods, the former being standardized by nature. Only in the course of the 19th century were those commodities added which could be graded with sufficient accuracy.

The innovation in developed exchange dealings is the system of rational dealing in futures or speculation for a rise, i. e., selling with a view to buying the goods at a lower figure before the date of delivery. The absence of such trading involved the possibility of such crises as those of the Tulip Craze and the Mississippi Company. It is true that agreements to deliver goods not in possession of the salesman were earlier met with, but they were generally pro hibited because it was feared that they would facilitate the buying up of goods to the disadvantage of consumers. It could nowhere be systematically carried out as in a modern exchange, where speculation for a rise is always present in opposition to speculation for a fall. The first objects subject to futures trading were money, especially paper money and bank notes, state annuities, and colonial paper. Here there could be difference of opinion as to the effect of political occurrences or the yield of enterprise and hence these instruments were an appropriate object for the practice of speculation. In contrast, industrial paper is entirely absent from the earliest price current bulletins. Such speculation underwent an enormous expansion with the building of railroads; these provided the paper which first unchained the speculative urge. Under the head of goods, grains, and a few colonial products available in large volume, and then other goods, were drawn into the circle of exchange speculation during the 19th century.

For the development of a wholesale trade carried out in such fashion, and specifically for speculative trade, the indispensable prerequisite was the presence of an adequate news service and an adequate commercial organization. A public news service, such as forms the basis of exchange dealings today, developed quite late. In the 18th century, not only did the English Parliament keep its proceedings secret, but the exchanges, which regarded themselves as merchants’ clubs, followed the same policy in regard to their news information. They feared that the publication of general prices would lead to ill feeling and might destroy their business. The newspaper as an institution came into the service of commerce at an astonishingly late date.

The newspaper, as an institution, is not a product of capitalism. It brought together in the first place political news and then mainly all sorts of curiosities from the world at large. The advertisement, however, made its way into the newspaper very late. It was never entirely absent but originally it related to family announcements, while the advertisement as a notice by the merchant, directed toward finding a market, first becomes an established phenomenon at the end of the 18th century—in the journal which for a century was the first in the world, the “Times.” Official price bulletins did not become general until the 19th century; originally all the exchanges were closed clubs, as they have remained in America virtually down to the present. Hence in the 18th century, business depended on the organized exchange of letters. Rational trading between regions was impossible without secure transmission of letters. This was accomplished partly by the merchant guilds and in part by butchers, wheelwrights, etc. The final stage in the rationalization of transmission of letters was brought about by the post, which collected letters and in connection therewith made tariff agreements with commercial houses. In Germany, the family of Thurn and Taxis, who held the postal concession, made notable advances in the rationalization of communication by letter. Yet the volume of correspondence is in the beginning surprisingly small. In 1633, a million letters were posted in all England while today a place of 4,000 population will equal the number.

In the field of commercial organization nothing was changed, at least in principle, in the period before the introduction of the railroads. In the 18th century, ocean ships had reached very little greater displacement than those of Venice at the close of the middle ages. It is true that their number was greater, and the size of warships had increased. This provided a stimulus for the multiplication and enlargement of merchant ships also, but the impulse could not be followed out in the epoch of wood construction. Inland shipping had been facilitated by the construction of locks, but it retained its guild organization down into the 19th century and in consequence experienced no startling innovations. Land transport also remained as before. The post produced no change; it merely forwarded letters and small packages, but did not concern itself with large scale production, which was decisive for economic life.

Only the roads underwent an extraordinary improvement, through the construction of turnpikes. In this the French government under Sully took the lead, while England leased the roads to private enterprisers who collected tolls for their use. The building of the turnpikes wrought a revolution in commercial life comparable to no other before the appearance of the railways. There is no comparison between the present density of road traffic and that of this period. In 1793, 70,000 horses went through the little town of Lüneburg while as late as 1846 only 40,000 were used in freight transport in all Germany. The costs of land carriage amounted to ten or twenty times the freight on the railways at a later time, and were three to four times as high as the charges for inland shipping at the same period. A half billion ton-kilometers was the highest figure for transportation for the movement on land in Germany, while in 1913, 67 billions were carried on the railroads.

The railway is the most revolutionary instrumentality known to history, for economic life in general and not merely for commerce, but the railway was dependent on the age of iron; and it also like so many other things, was the plaything of princely and courtier interests.