Political Economy for the People

14. It must not, however, be supposed, as sometimes has been done, that a change in the supply or demand of an article produces a proportional change of price. The alteration of the price is always in a less ratio than that of the supply or demand. Thus, let it be assumed that the supply of a commodity has been doubled, the demand being unchanged -- the natural consequence of this addition to the supply is a fall of price; but the consequence as natural and certain of such fall of price is an increased demand for the commodity, which, we have seen, tends to raise the price; so that before the price has fallen to one-half, which would be in proportion to the double supply, the demand and supply are equal, and the price is, of course, stationary. In this way the addition to the supply is met partly by a reduction of price, and partly by an increased demand. Hence, the great increase of gold and silver, consequent on the discovery of America, and which was estimated at ten times their previous amount, did not reduce the value of those metals to one-tenth, but only to one-third or one-fourth -- the additional supply being counterbalanced partly by the fall of price, and partly by the increased demand* for those metals, in consequence of their reduced value.

* M. Say, whose views on political economy are commonly clear as well as just, has fallen into a singular error on this subject. He estimates the increased demand of the precious metals at twenty-five times the amount before the discovery of America. Had this been the case, the value of those metals must have been raised instead of lowered by the product of the American mines. Had the demand been only ten times as great -- equal to the increase of the supply -- the value would have been unchanged. It gives almost as much surprise that so palpable an error should have been unnoticed, both by the English translator and the American editor of Say.

15. In like manner, a diminished supply, by raising the price, lessens the demand, and to that extent prevents a rise of price equivalent to the diminution of the supply.

16. It thus appears that every alteration, either in the demand or the supply of a commodity, produces not only a change of price, but that, by reason of this change of price, an increase or diminution of the one produces, in a less degree, a correspondent increase or diminution of the other.

17. There is, in every community, a precise and certain demand for every commodity, -- comprehending its different kinds, -- according to the desirableness of each article, and the difficulty of obtaining it; which difficulty is chiefly its price. Thus, in the case of hats, we will suppose, by way of illustration, the demand for that article of apparel to be as follows, according to the price:

For hats whose price was five dollars, the demand to be 1000. 
    "          "         four dollars,    "    "        2000. 
    "          "         three dollars,   "    "        6000. 
    "          "         two dollars,     "    "      10,000. 
    "          "         one dollar,      "    "      20,000.