The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

Page 37.

Adam Smith uses the expression “effectual demand” in a somewhat different sense. He understands by it, the demand of those who are willing to pay the natural price of the commodity. Such a demand he calls effectual, “since it may be sufficient to effectuate the bringing of the commodity to market.” The definition I have given in the text will I trust be found a more convenient one, as it is upon effectual demand, so defined, that the prices of commodities depend. The expression “proportion between the demand and supply” is a very indefinite and vague one, and is apt to mislead. To maintain the truth of the proposition, we cannot attach definite and uniform ideas to the terms “proportion,” “demand,” “supply.” To give an instance of the manner in which this proposition may mislead, I shall give an example which shews the fallacy of this doctrine, when accurate deductions are attempted to be drawn from it. I quote from D. G. Lubè, M.A., on the gold currency. “As, then, exchangeable value varies directly as the demand, and inversely as the supply; that is, since the greater the demand, and the smaller the supply, of a given article, the higher will be its value, and vice versa;—any one acquainted with the first principles of arithmetic will know, that it may be expressed by a fraction, whose numerator shall be the relative demand, and denominator the natural supply; for the value of a fraction varies directly as the numerator, and inversely as the denominator. Thus, in general terms, making (d) stand for the demand, and (s) for the supply, the fraction will represent the relative value of each commodity.”—Page 66. Again, “Let us suppose, for instance, that while the demand for food rose, in consequence of the increase of wealth and population, in the ratio of 3 to 5, the supply was at the same time augmented in the proportion of 8 to 9; the value of produce, in the first instance, would be represented by , and in the second, by : any one at all versed in the doctrine of fractions, will know that the first fraction is to the second as 27 to 40. These two numbers then, 27 and 40, will represent the several values of agricultural produce at the periods assumed.”—Page 70.