average ratio of exchange of these goods. In fact, this ratio
It is a pretty mathematical problem-which we will not pursue here-to investigate the law which these variations follow.1 Here we shall content ourselves with establishing the fact that price determination in isolated exchange is an indeterminate problem; i.e. it cannot be solved solely on the assumption that both parties desire the greatest possible profit. This is a point whose great importance-even in practical affairs —we shall subsequently realize. Whenever isolated exchanges occur in practice, the actual determination of price will depend in a high degree on the personal characteristics of the contracting parties, their cunning and coolness, or on mutual goodwill, all of these being things intrinsically too complex and variable to be embodied in the schematic presentation of economic theory to which we must here confine ourselves. Certain related or at least analogous cases (where not two individuals, but two great organizations of buyers and sellers, or employers and employed, are opposed to each other) are evidently of the utmost practical importance ; and it is, therefore, essential that the economist should clearly understand the extent to which his science can afford him any guidance in answering these questions.