But for short periods the appliances of production have to be taken for granted.

The immediate effect of the expectation of a high price is to cause people to bring into active work all their appliances of production, and to work them full time and perhaps over-time. The marginal supply price is then the money cost of production of that part of the produce which forces the undertaker to hire such inefficient labour (perhaps tired by working over-time) at so high a price, and to put himself and others to so much strain and inconvenience that he is on the margin of doubt whether it is worth his while to do it or not. The immediate effect of the expectation of a low price is to throw many appliances for production out of work, and slacken the work of others. If the producers had no fear of spoiling their markets, it would be worth their while to produce for a time for any price that covered the Prime costs of production and rewarded them for their own trouble. But, as it is, they generally hold out for a higher price; each man fears to spoil his chance of getting a better price later on from his own customers; or, if he produces for a large and open market, he is more or less in fear of incurring the resentment of other producers, should he sell needlessly at a price that spoils the common market for all. The marginal production in this case is the production of those whom a little further fall of price would cause, either from a regard to their own interest, or by formal or informal agreement with other producers, to suspend production for fear of further spoiling the market. This then is the interpretation of marginal supply price for short periods; for which it rises with every increase in the amount that has to be produced.

regards short-normal or sub-normal prices, supply means broadly what can be produced with the existing stock of plant, personal and impersonal in the given time. As regards (full) normal prices, supply means what can be produced by plant, which itself can be remuneratively produced and applied within the given time. While lastly there are secular movements of normal price, caused by the gradual growth of knowledge, of population and of capital, and the changing conditions of demand and supply from one century to another.

Appliances for production are of many different kinds : they include land, factories, machines, business organizations (including even such as a house-letting agency, with a good connection but little or no material capital), business ability and manual skill. The owner of any one of those will not generally apply it to produce anything, unless he expects to gain in return at least enough to compensate him for the immediate and special trouble, sacrifice and outlay involved in this particular operation, and which he could escape by declining to undertake it. Any excess which he gets above this prime cost has obviously some prima facie resemblance to that excess value of the produce of land over the direct cost of raising it which is the basis of rent as ordinarily understood; and we are therefore justified in calling it a QUASI-RENT.

Meanwhile the

from those appliances af

rent.

Now in short periods the supply of specialized skill and ability, of suitable machinery and other material capital, and of the appropriate industrial organization has not time to be fully adapted to demand; but the producers have to adjust their supply to the demand as best they can with the appliances already at their disposal. On the one hand there is not time materially to increase those income derived appliances if the supply of them is deficient; and on the other, if the supply is excessive, some of fords a Quasithem must remain imperfectly employed, since there is not time for the supply to be much reduced by gradual decay, and by conversion to other uses. The particular income derived from them during those times, does not for the time affect perceptibly the supply, nor therefore the price, of the commodities produced by them: it is a surplus of total receipts over Prime (money) cost, governed by the more or less accidental relations of demand and supply for that time; but unless it is sufficient to cover in the long run the Supplementary costs of the business, production will gradually fall off. In this way the short period supply price is governed in the back

ground by causes ranging over a long period; and the fear of "spoiling the market" often makes those causes act more promptly than they otherwise would.

In long periods all investments of capital and effort in providing the material plant and the organization of a business, and in acquiring trade knowledge, and specialized ability have time to be adjusted to the incomes, which are expected to be earned by them: and the estimates of those incomes therefore directly govern supply and are the true long period normal supply price of the commodities produced'.

1 In Principles V. VIII., IX. the points raised in the last two paragraphs of the text are developed in a long and very difficult argument; the chief result of which is this:-Ricardo's doctrine as to the relation in which Value stands to Rent proper can be extended to the temporary relation in which value stands to the incomes yielded by appliances for production which man has made; and especially those of them which are durable, and of which the supply cannot be increased rapidly.

The resemblance between Quasi-rents and true rents is real and important, but it is limited by the fact that, while the excess of the gross receipts which a producer gets for any of his commodities over their prime cost (that is, over that extra cost which he incurs in order to produce those particular things, and which he could have escaped if he had not produced them) is a temporary surplus (or Quasi-rent); yet in the long run all these temporary surpluses are needed to cover the supplementary costs of the business. They do not therefore, in the long run, yield a true surplus, corresponding to the permanent surplus which the possession of fertile land is commonly supposed to yield, and in some cases does yield, to its owner.

The question how great a part of his expenses he must enter in these prime costs, and how much he must deduct from his selling price before he calculates his surplus, depends on how far he looks ahead; or in other words, on whether he is making his calculations for a long period or only for a short. If he is looking only a little way ahead, and is not afraid of spoiling his market; if he has got all his apparatus ready and standing idle; then a new order coming in will give him a surplus over its direct cost to him, consisting of the whole price which he receives after deducting the special outlay for raw material, for extra wages, and for wear and tear of plant involved in filling up the order. But suppose him to be looking far ahead, and proposing to extend his factory so as to do an increased business; he does not then reckon any price as affording him a real surplus, unless, after allowing for all risks, it will yield him, in addition to prime costs, sufficient to give normal profits on all his outlay for material, plant, and for building up his business connection, together with charges for depreciation through the lapse of time, and for office and other general expenses which are not reckoned in the prime, or special and direct, costs of filling up any particular order.

The conditions which govern the amount of this surplus and its relations to value depend not so much on the nature of the industry as on the period of time for which the calculation is made. But a short period for one class of industry may be a long one for another, just as the age of youth for a dog is shorter than for an elephant.

Thus when we are taking a broad view of normal value extending over a very long period of time, when we are investigating the causes which determine normal value "in the long run," when we are tracing the "ultimate" effects of economic causes, then the income that is derived from capital in these forms enters into the payments by which the expenses of production of the commodity in question have to be covered, and it directly controls the action of the producers who are on the margin of doubt as to whether to increase the means of production or not. But, on the other hand, when we are considering the causes which determine normal prices for a period which is short relatively to that required for largely increasing the supply of those appliances for production, then their influence on value is chiefly indirect and more or less similar to that exerted by the free gifts of nature. The shorter the period which we are considering, and the slower the process of production of those appliances, the less part will variations in the income derived from them play in checking or increasing the supply of the commodity produced by them, and in raising or lowering its supply price; and the more nearly true will it be that, for the period under discussion, the Net income to be derived from them is to be regarded as a Producer's Surplus or Quasi-rent. And thus in passing from the free gifts of nature through the more permanent improvements in the soil, to less permanent improvements, to farm and factory buildings, to steam-engines, &c., and finally to the less durable and less slowly made implements, we find a continuous series.

This chapter is much abbreviated from Principles V. v.; several minor difficulties, chiefly of an abstract character, being here ignored.

CHAPTER VI.

JOINT AND COMPOSITE DEMAND: JOINT AND COMPOSITE

Derived de

SUPPLY.

§ 1. THE demand for the things used for making other things, and their factors of production, is inmand and joint direct; it is DERIVED from the demand for the demand. things towards the production of which they contribute; or, in other words, the demands for all the various factors of production of a finished commodity are joined together in the JOINT DEMAND for it. Thus the demand for beer is direct, and is a joint demand for hops, malt, brewers' labour, and the other factors of production of beer: and the demand for any one of them is an indirect demand derived from that for beer. Again there is a direct demand for new houses; and from this there arises a joint demand for the labour of all the various building trades, and for bricks, stone, wood, etc., which are factors of production of building work of all kinds, or as we may say for shortness, of new houses. But the demand for any one of these, as for instance the labour of plasterers, is only an indirect, or Derived, demand.

Illustration taken from a labour dispute in the building trade.

Let us take an illustration from a class of events that are of frequent occurrence in the labour market; and suppose that the supply and demand for building being in equilibrium, there is a strike on the part of one group of workers, say the plasterers, or that there is some other disturbance to the supply of plasterers' labour. In order to make a separate