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§ 2. The difficulty of attainment which determines value, is not always the same kind of difficulty. It sometimes consists in an absolute limitation of the supply. There are things which it is physically impossible to increase the quantity, beyond certain narrow limits. Such are those wines which can be grown only in peculiar circumstances of soil, climate, and exposure. Such also are ancient sculptures; pictures by the old masters ; rare books or coins, or other articles of antiquarian curiosity. Among such may also be reckoned houses and building-ground, in a town of definite extent, (such as Venice, or any fortified town where fortifications are necessary to security ;) the most desirable sites in any town whatever ; houses and parks peculiarly favored by natural beauty, in places where that advantage is uncommon. Potentially, all land whatever is a commodity of this class, and might be practically so, in countries fully occupied and cultivated.

But there is another category, (embracing the majority of all things that are bought and sold,) in which the obstacle to attainment consists only in the labor and expense requisite to produce the commodity. Without a certain labor and expense it cannot be had; but when any one is willing to incur this, there needs be no limit to the multiplication of the product. If there were laborers enough and machinery enough, cottons, woollens, or linens might be produced by thousands of yards for every single yard now manufactured. There would be a point, no doubt, where further increase would be stopped by the incapacity of the earth to afford more of the material. But there is no need, for any purpose of political economy, to contemplate a time when this ideal limit could become a practical one.

There is a third case, intermediate between the two preceding, and rather more complex, which I shall at present merely indicate, but the importance of which in political economy is extremely great. There are commodities which


can be multiplied to an indefinite extent by labor and expenditure, but not by a fixed amount of labor and expenditure. Only a limited quantity can be produced at a given cost; if more is wanted, it must be produced at a greater cost. To this class, as has been often repeated, agricultural produce belongs, and generally all the rude produce of the earth ; and this peculiarity is a source of very important consequences; one of which is the necessity of a limit to population; and another, the payment of rent.

$ 3. These being the three classes, in one or other of which all things that are bought and sold must take their place, we shall consider them in their order. And first, of things absolutely limited in quantity, such as ancient sculptures or pictures.

Of such things it is commonly said, that their valne depends upon their scarcity ; but the expression is not sufficiently definite to serve our purpose. Others say, with somewhat greater precision, that the value depends on the demand and the supply. But even this statement requires much explanation, to make it a clear exponent of the relation between the value of a thing, and the causes of which that value is an effect.

The supply of a commodity is an intelligible expression; it means the quantity offered for sale ; the quantity that is to be had, at a given time and place, by those who wish to purchase it. But what is meant by the demand ? Not the mere desire for the commodity. A beggar may desire a pine-apple ; but his desire, however great, will have no influence on the price. Writers have therefore given a more limited sense to demand, and have defined it, the wish to possess, combined with the power of purchasing. To distinguish demand in this technical sense, from the demand which is synonymous with desire, they call the former

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effectual demand.* After this explanation, it is usually
supposed that there remains no further difficulty, and that
the value depends upon the ratio between the effectual wale
demand, as thus defined, and the supply.

These phrases, however, fail to satisfy any one who
requires clear ideas, and a perfectly precise expression of
them. Some confusion must always attach to a phrase so
inappropriate as that of a ratio between two things not of
the same denomination. What ratio can there be between
a quantity and a desire, or even a desire combined with a
power? A ratio between demand and supply is only intel-
ligible if by demand we mean the quantity demanded, and
if the ratio intended is that between the quantity demanded
and the quantity supplied. But again, the quantity de-
manded is not a fixed quantity, even at the same time and
place; it varies according to the value; if the thing is
cheap, there is usually a demand for more of it than when
it is dear. The demand, therefore, partly depends on the
value. But it was before laid down, that the value depends
on the demand. From this contradiction how shall we
extricate ourselves? How solve the paradox, of two things,
each depending upon the other?

Although the solution of these difficulties is obvious enough, the difficulties themselves are not fanciful; and I bring them forward thus prominently, because I am certain that they obscurely haunt every inquirer into the subject, who has not openly faced and distinctly realized them. Undoubtedly the true solution must have been frequently given, although I cannot call to mind any one who had given it before myself, except the eminently clear thinker

• Adam Smith, who introduced the expression “effectual demand," employed it to denote the demand of those who are willing and able to give for the commodity what he calls its natural price, that is, the price which will cnable it to be permanently produced and brought to market.-See his chapter on Natural and Market Price, book i. ch. 7.


and skilful expositor, J. B. Say. I should have imagined, however, that it must be familiar to all political economists, if the writings of several did not give evidence of some want of clearness on the point, and if the instance of Mr. De Quincey did not prove that the complete non-recognition and implied denial of it are compatible with great intellectual ingenuity, and close intimacy with the subjectmatter.

$ 4. Meaning, by the word demand, the quantity demanded, and remembering that this is not a fixed quantity, but in general varies according to the value, let us suppose that the demand at some particular time exceeds the supply, that is, there are persons ready to buy, at the market value, a greater quantity than is offered for sale. Competition takes place on the side of the buyers, and the value rises; but how much? In the ratio (some may suppose) of the deficiency; if the demand exceeds the supply by one third, the value rises one third. By no means; for when the value has risen one third, the demand may still exceed the supply; there may, even at that higher value, be a greater quantity wanted than is to be had; and the competition of buyers may still continue. If the article is a necessary of life, which, rather than resign, people are willing to pay for at any price, a deficiency of one third may raise the price to double, triple, or quadruple.* Or on the contrary, the competition may cease before the value has risen in even the proportion of the deficiency. A rise, short of one third, may place the article beyond the means, or beyond the inclinations, of purchasers, to the full amount. At what point, then, will the rise be arrested? At the point, whatever it be, which equalizes the demand and the supply; at the price which cuts off the extra third from the demand, or brings forward additional sellers sufficient to supply it. When, in either of these ways, or by a combination of both, the demand becomes equal and no more than equal to the supply, the rise of value will stop.

* "The price of corn in this country has risen from 100 to 200 per cent and upwards, when the utmost computed deficiency of the crops has 22 been more than between one sixth and one third below an average, and when that deficiency has been relieved by foreign supplies. If there shoud be a deficiency of the crops amounting to one third, without any surplus from a former year, and without any chance of relief by importation, the price might rise five, six or even ten-fold."-Tooke's History of Prices, Tol i. pp. 13–5.

The converse case is equally simple. Instead of a demand beyond the supply, let us suppose a supply exceeding the demand. The competition will now be on the side of the sellers; the extra quantity can only find a market, by calling forth an additional demand equal to itself. This is accomplished by means of cheapness; the value falls, and brings the article within the reach of more numerous consumers, or induces those who were already consumers to make increased purchases. The fall of value required to reëstablish equality, is different in different cases. The kinds of things in which it is commonly greatest, are at the two extremities of the scale ; absolute necessaries, or those peculiar luxuries, the taste for which is confined to a small class. In the case of food, as those who have already enough do not require more on account of its cheapness, but rather expend in other things what they save in food, the increased consumption occasioned by cheapness carries off, as experience shows, a very small part of the extra supply caused by a good harvest ;* and the fall is practically arrested only when the farmers withdraw their corn, and hold it back in hopes of a higher price; or by the operations of speculators who buy corn when it is cheap, and store it up to be brought forth when more urgently wanted. Whether the demand and supply are equalized by an in

* See Tooke, and the Report of the Agricultural Committee in 1821.

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