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over-supply is corrected by a total or partial suspension of further production. As I have already intimated,* these variations in the quantity produced do not presuppose or require that any person should change his employment. Those whose business is thriving, increase their produce by availing themselves more largely of their credit, while those who are not making the ordinary profit, restrict their operations, and (in manufacturing phrase) work short time. In this mode is surely and speedily effected the equalization, not of profits perhaps, but of the expectations of profit, in different occupations.

As a general rule, then, things tend to exchange for one another at such values as will enable each producer to be repaid the cost of production with the ordinary profit; in other words, such as will give to all producers the same rate of profit on their outlay. But in order that the profit may be equal where the outlay, that is, the cost of production, is equal, things must on the average exchange for one another m in the ratio of their cost of production; things, of which mit the cost of production is the same, must be of the same time value. For only thus will an equal outlay yield an equal return. If a farmer with a capital equal to 1,000 quarters of corn, can produce 1,200 quarters, yielding him a profit of 20 per cent. ; whatever else can be produced in the same time by a capital of 1,000 quarters, must be worth, that is, must exchange for, 1,200 quarters, otherwise the producer would gain either more or less than 20 per cent.

Adam Smith and Ricardo have called that value of a quindi thing which is proportional to its cost of production, its Natural Value (or its Natural Price.) They meant by this, the point about which the value oscillates, and to which it' al ways tends to return; the central value, towards which, as Adam Smith expresses it, the market value of a thing is

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constantly gravitating; and any deviation from which is but a temporary irregularity, which, the moment it exists, sets fortes in motion tending to correct it. On an average of years, sufficient to enable the oscillations on one side of the central line to be compensated by those on the other, the market value agrees with the natural value ; but it very seldom coincides exactly with it at any particular time. The sea everywhere tends to a level ; but it never is at an exact level ; its surface is always ruffled by waves, and often agitated by storms. It is enough that no point, at least in the open sea, is permanently higher than another. Each place is alternately elevated and depressed; but the ocean preserves its level.

$ 2. The latent influence by which the values of things are made to conform in the long run to the cost of production, is the variation that would otherwise take place in the supply of the commodity. The supply would be increased if the thing continued to sell above the ratio of its cost of production, and would be diminished if it fell below that ratio. But we must not therefore suppose it to be necessary that the supply should actually be either diminished or increased. Suppose that the cost of production of a thing is cheapened by some mechanical invention, or increased by a tax. The value of the thing would in a little time, if not immediately, fall in the one case and rise in the other ; and it would do so, simply because if it did not, the supply would in the one case be increased until the price fell, in the other diminished until it rose. For this reason, and from the erroneous notion that value depends on the proportion between the demand and the supply, many persons suppose that this proportion must be altered whenever there is any change in the value of the commodity; that the value cannot fall through a diminution of the cost of production, unless the supply is permanently increased; nor rise, unless the supply is permanently diminished. But this is not the fact; there is no need that there should be any actual alteration of supply ; and when there is, the alteration, if permanent, is not the cause but the consequence of the alteration in value. If, indeed, the supply could not be increased, no diminution in the cost of production would lower the value ; but there is by no means any necessity that it should. The mere possibility often suffices; the dealers are aware of what would happen, and their mutual competition makes them anticipate the result by lowering the price. Whether there will be a greater permanent supply of the commodity after its production has been cheapened, depends on quite another question, namely, on whether a greater quantity is wanted, at the reduced value. Most commonly a greater quantity is wanted, but not necessarily.. "A man,” says Mr. De Quincey,* "buys an article of instant applicability to his own purposes the more readily and the more largely as it happens to be cheaper. Silk handkerchiefs having fallen to half price, he will buy, perhaps, in threefold quantity; but he does not buy more steam-engines because the price is lowered. His demand for steam-engines is almost always predetermined by the circumstances of his situation. So far as he considers the cost at all, it is much more the cost of working this engine than the cost upon its purchase. But there are many articles for which the market is absolutely and merely limited by a preëxisting system, to which those articles are attached as subordinate parts or members. How could we force the dials or faces of timepieces by artificial cheapness to sell more plentifully than the inner works or movements of such timepieces? Could the sale of wine-vaults be increased without increasing the sale of wine? Or the tools of shipwrights find an enlarged market whilst ship-building

* Logic of Political Economy, pp. 230, 231.

was stationary? ... Offer to a town of 3,000 inhabitants a stock of hearses, no cheapness will tempt that town into buying more than one. Offer a stock of yachts, the chief cost lies in manning, victualling, repairing ; no diminution upon the mere price to a purchaser will tempt into the market any man whose habits and propensities had not already disposed him to such a purchase. So of professional costume for bishops, lawyers, students at Oxford.” Nobody doubts, however, that the price and value of all these things would be eventually lowered by any diminution of their cost of production; and lowered through the apprehension entertained of new competitors, and an increased supply; though the great hazard to which a new competitor would expose himself, in an article not susceptible of any considerable extension of its market, would enable the established dealers to maintain their original prices much longer than they could do in an article offering more encouragement to competition.

Again, reverse the case, and suppose the cost of production increased, as for example by laying a tax on the commodity. The value would rise ; and that, probably, immediately. Would the supply be diminished? Only if the increase of value diminished the demand. Whether this effect followed, would soon appear, and if it did, the value would recede somewhat, from excess of supply, until the production was reduced, and would then rise again. There are many articles for which it requires a very considerable rise of price, materially to reduce the demand ; in particular, articles of necessity, such as the habitual food of the people; in England, wheaten bread; of which there is probably as much produced, at a high-cost price, as there would be at a price considerably lower. Yet it is especially in such things, that dearness or high price is popularly confounded with scarcity. Food may be dear from scarcity, as after a bad harvest; but the dearness (for example) which is the

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effect of taxation, or of corn laws, has nothing whatever to do with insufficient supply; such causes do not much diminish the quantity of food in a country; it is other things . rather than food that are diminished in quantity by them, since, those who pay more for food not having so much to expend otherwise, the production of other things contracts itself to the limits of a smaller demand.

It is, therefore, strictly correct to say, that the value of things which can be increased in quantity at pleasure, does not depend (except accidentally, and during the time necessary for production to adjust itsell) upon demand and is supply; on the contrary, demand and supply depend upon it. There is a demand for a certain quantity of the com- en van de modity at its natural value, and to that the supply, in the long run, endeavors to conform. When it fails of so con-' tot pas forming, it is either from miscalculation, or from a change in some of the elements of the problem ; either in the natural value, that is, in the cost of production; or in the demand, from an alteration in public taste or in the number or wealth of the consumers. These causes of disturbance are very liable to occur, and when any one of them does occur, the market value of the article ceases to agree with the natural value. The real law of demand and supply, the equation between them, holds good in all cases; if a value different from the natural value be necessary to make the demand equal to the supply, the market value will deviate from the natural value; but only for a time; for the permanent tendency of supply is to conform itself to the demand which is found by experience to exist for the commodity when selling at its natural value. If the supply is either more or less than this, it is so accidentally, and affords either more or less than the ordinary rate of profit; which under free competition cannot long continue to be the case. To recapitulate ; demand and supply govern the value

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VOL. I.

46.

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